url
stringlengths 54
59
| text
stringlengths 0
2.08M
| downloaded_timestamp
stringclasses 1
value | created_timestamp
stringlengths 10
10
|
|---|---|---|---|
https://www.courtlistener.com/api/rest/v3/opinions/1587576/ | 709 F. Supp. 329 (1989)
Minerva MENDEZ-BELLIDO, as mother and natural guardian of Cynthia Mendez, an infant over the age of fourteen years, to wit: seventeen years of age, Janie Mendez, an infant under the age of fourteen years, to wit: eleven years of age and Jessica Mendez, an infant under the age of fourteen years, to wit: seven years of age, Plaintiffs,
v.
BOARD OF TRUSTEES OF DIVISION 1181, A.T.U. NEW YORK EMPLOYEES PENSION FUND AND PLAN and Edith Abreu Mendez, Defendants.
No. 87 CV 3000.
United States District Court, E.D. New York.
March 30, 1989.
Martin S. Friedman, Charles Berkman, Brooklyn, N.Y., for plaintiffs.
Joy M. Holtz, Wilfred L. Davis & Stephen Davis, P.C., New York City, for defendants.
MEMORANDUM AND ORDER
McLAUGHLIN, District Judge.
Defendant, Board of Trustees of Division 1181, A.T.U. New York Employees Pension Fund and Plan ("the Pension Fund"), moves pursuant to Fed.R.Civ.P. 56 for summary judgment. Plaintiff, Minerva Mendez-Bellido, on behalf of her children ("the infant plaintiffs"), also moves for summary judgment against defendant Edith Abreu Mendez ("Abreu"). For the reason set forth below, the Pension Fund's motion is denied and plaintiff's motion is *330 granted.[1]
FACTS
On September 17, 1985 Carlos Mendez was murdered. On December 15, 1986, defendant Abreu pleaded guilty to an indictment charging her with first degree manslaughter and was subsequently sentenced to a two-to-six-year term of imprisonment. Abreu was the second wife of the decedent.
At the time of his death, Carlos Mendez was vested in his rights to a pension administered by the Pension Fund with payments to commence on December 1, 1999, the first month following his 55th birthday. The Pension Fund is established pursuant to the Labor Management Relations Act of 1947, 29 U.S.C. § 186(c)(5), and is an employee benefit fund within the meaning of the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001 et seq.
On December 22, 1986, plaintiff, Carlos Mendez's first wife, made a claim on behalf of her children for the death benefits provided for in the pension plan.[2] Plaintiff's claim was rejected on the ground that the Trust Agreement, which was established pursuant to collective bargaining agreements, required that a qualified preretirement joint and survivor's annuity be paid to the decedent's surviving spouse. The Appeal Board of the Pension Fund subsequently affirmed that determination.
Plaintiff commenced this action in Supreme Court, Kings County, seeking to declare defendant Abreu disqualified from receiving benefits from the pension plan and an adjudication that plaintiffs share equally the plan benefits. The Pension Fund removed the action to this Court, and now moves for summary judgment on the ground that ERISA preempts any state law that would operate to divest defendant Abreu's right to the pension plan benefits. Plaintiff moves for summary judgment against defendant Abreu alleging that as a matter of New York law and public policy, Abreu cannot enjoy the benefits derived from the pension.
DISCUSSION
There is no dispute that New York law forbids one who kills another to take through intestacy or under the victim's will. See Riggs v. Palmer, 115 N.Y. 506, 22 N.E. 188 (1889). The prohibition holds true even when the would-be beneficiary is convicted of second degree manslaughter a reckless but non-intentional killing. See Matter of Wells, 76 Misc. 2d 458, 350 N.Y.S.2d 114, 119 (Surr.Ct.Nassau Co. 1973), aff'd without opinion, 45 A.D.2d 993, 359 N.Y.S.2d 872 (2d Dep't 1974).
The pension plan at issue is subject to ERISA's requirement for joint and survivor annuity and preretirement survivor annuity. See 29 U.S.C. § 1055. Section 205(a)(2) of ERISA provides that "[e]ach pension plan ... shall provide that ... in the case of a vested participant who dies before the annuity starting date and who has a surviving spouse, a qualified preretirement survivor annuity shall be provided to the surviving spouse of such participant." Id. § 1055(a)(2). In furtherance of this requirement, the plan provides:
Effective August 23, 1984, if a married participant who has been married to his spouse for at least one year dies and has at least one (1) hour of employment or paid service on or after August 23, 1984 with sufficient years of credited service for a pension:
(1) who has not attained age 55 then, at such time as he should have met the age requirement, his surviving spouse shall be entitled to receive a joint and survivor benefit payable as of the first of the month following the month in which the participant would have attained age 55, based upon the benefit rate in effect at the time of participant's demise. The benefit amount the spouse will receive shall be 50% of the pension the participant *331 would have been entitled to receive upon attainment of age 55 based upon the benefit rate in effect at the time of participant's demise.
Article V, § 5(b)(1).
In order to determine whether defendant Abreu can benefit from the pension plan, the Court must determine whether ERISA preempts New York law prohibiting a killer from profiting from her crime.
Section 514(a) provides that ERISA "shall supersede any and all state laws insofar as they may now or hereinafter relate to any employee benefit plan" covered by the Act. 29 U.S.C. § 1144(a). Although § 514(b)(2), which contains the "saving clause" and the "deemer clause", creates exceptions to the preemption rule, the exceptions are inapplicable to this case. The Court thus focuses on whether the state law "relates to" an employee benefit plan.
The words "relate to" must be interpreted broadly, Shaw v. Delta Airlines Inc., 463 U.S. 85, 98, 103 S. Ct. 2890, 2900, 77 L. Ed. 2d 490 (1983), to effectuate Congress' purpose of "establish[ing] pension plan regulation as exclusively a federal concern." Id. at 98, 103 S.Ct. at 2900. This congressional mandate, however, does not reach all state laws. Indeed, as the Shaw Court points out, "[s]ome states actions may affect employee benefit plans in too tenuous, remote, or peripheral manner to warrant a finding that the law `relates to' the plan." Id. at 100 n. 21, 103 S.Ct. at 2901 n. 21.
There is no hard and fast rule for determining whether a state law "relates to" and is therefore preempted by ERISA, or is "too remote" and can therefore coexist with the federal scheme. The Second Circuit in Aetna Life Insurance Co. v. Borges, 869 F.2d 142 (2d Cir.1989), however, has recently provided some guidance. After reviewing the relevant case law, the Borges Court made the following analysis:
we find that laws that have been ruled preempted are those that provide an alternative cause of action to employees to collect benefits protected by ERISA, refer specifically to ERISA plans and apply solely to them, or interfere with the calculation of benefits owed to an employee. Those that have not been preempted are laws of general application often traditional exercises of state power or regulatory authority whose effect on ERISA is incidental.
Id. at 146.
Using this framework, the Court must conclude that a state law prohibiting a killer from profiting from her crime is not preempted by ERISA. This common law rule is rooted in public policy and has broad application to insurance policies, wills and intestacy. The application of this rule to pension plans governed by ERISA will not affect the determination of an employee's eligibility for benefits, compare Gilbert v. Burlington Industries Inc., 765 F.2d 320, 327 (2d Cir.1985) (state severance law preempted where it would determine whether benefits were to be paid), aff'd, 477 U.S. 901, 106 S. Ct. 3267, 91 L. Ed. 2d 558 (1986), nor will it impact on the method of calculating the amount of benefits due. See Mackey v. Lanier Collections Agency & Service, Inc., ___ U.S. ___, 108 S. Ct. 2182, 2185, 100 L. Ed. 2d 836 (1988) (state garnishment law that distinguishes between ERISA plans and non-ERISA plans preempted); Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 524, 101 S. Ct. 1895, 1906, 68 L. Ed. 2d 402 (1981) (preempting state law because it eliminated a method of calculating benefits otherwise permitted by ERISA); Rebaldo v. Cuomo, 749 F.2d 133, 138-39 (2d Cir.1984) (state law upheld because it did not affect the structure, administration or type of benefits provided by ERISA), cert. denied, 472 U.S. 1008, 105 S. Ct. 2702, 86 L. Ed. 2d 718 (1985).
The Pension Fund nevertheless argues that MacLean v. Ford Motor Co., 831 F.2d 723 (7th Cir.1987) mandates a contrary result. In MacLean, the executor of an employee's estate brought an action to collect the accumulated benefits from the employee's Savings and Stock Investment Plan ("SSIP"), an employee pension plan governed by ERISA. On a motion for summary judgment, the executor argued that the SSIP benefits should be distributed in accordance with the employee's will rather than to the SSIP designated beneficiary. *332 The Seventh Circuit held that ERISA preempted state testamentary law. In so concluding, the MacLean court found that state testamentary law "interfered with the administration of the [SSIP] and violated its terms" since the SSIP provided "a valid method for determining the beneficiary." Id. at 728. The court also discussed the havoc that would result if state testamentary law controlled since each state has different laws regarding testamentary transfers. Id. It is on the latter point that the Court finds MacLean distinguishable. Unlike state testamentary transfer laws, state laws prohibiting murderers from receiving death benefits are relatively uniform.[3] Thus, there is little threat of creating a "patchwork scheme of regulation." Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 107 S. Ct. 2211, 2217, 96 L. Ed. 2d 1 (1987).
Moreover, it appears that federal law is in accord. In Ridgway v. Ridgway, 454 U.S. 46, 102 S. Ct. 49, 70 L. Ed. 2d 39 (1981), the Supreme Court considered the effect of a state constructive trust on the proceeds of an insurance policy issued pursuant to the Servicemen's Group Life Insurance Act, 38 U.S.C. §§ 765 et seq. ("SGLIA"). Although the Court concluded that the SGLIA and the beneficiary designated thereunder prevail over a state constructive trust for the benefit of another, the court expressly reserved the problem presented in "extreme fact situations ... where the beneficiary has obtained the proceeds through fraudulent or illegal means as, for example, where the named beneficiary murders the insured service member." Id. 454 U.S. at 60 n. 9, 102 S.Ct. at 57 n. 9. Lower courts construing the SGLIA and its predecessor statutes, however, have consistently held that, as a matter of federal law, a beneficiary convicted of murdering the insured is precluded from receiving the insurance proceeds. See Prudential *333 Insurance Co. v. Tull, 690 F.2d 848, 849 (4th Cir.1982) ("Federal law recognizes that the beneficiary's claim is barred by the equitable defense: `No person should be permitted to profit from his own wrong.'" (quoting Shoemaker v. Shoemaker, 263 F.2d 931, 932 (6th Cir.1959))), aff'g, 532 F. Supp. 341 (E.D.Va.1981); Shoemaker, supra, 263 F.2d at 932; Burns v. United States, 200 F.2d 106, 106-07 (4th Cir.1952), aff'g, 103 F. Supp. 690 (D.Md. 1952); United States v. Leverett, 197 F.2d 30, 31 (5th Cir.1952); Austin v. United States, 125 F.2d 816, 819 (7th Cir.1942); United States v. Kwasniewski, 91 F. Supp. 847, 852 (D.C.Mich.1950).
Indeed, over a century ago, in an action to recover the proceeds of a life insurance policy, the Supreme Court stated: "[i]t would be a reproach to the jurisprudence of the country, if one could recover insurance money payable on the death of a party whose life he had feloniously taken." New York Mutual Life Insurance Co. v. Armstrong, 117 U.S. 591, 600, 6 S. Ct. 877, 881, 29 L. Ed. 997 (1886).
Merely concluding that Abreu is precluded from receiving the pension plan benefits does not end the inquiry here. The Court must further determine who, if anyone, is entitled to receive the proceeds. Unfortunately, the Court is not adequately briefed on this point. Plaintiff argues that the benefits should be awarded to her children by operation of Article VII of the pension plan.[4] The Pension Fund, having failed to submit reply papers on its motion, has not addressed the applicability of Article VII or the mechanism for distribution under the pension plan in the event the designated spouse pre-deceases the employee. The Court is also is unaware whether Carlos Mendez had any other children, whether he has an estate and who the executor or administrator of that estate is. In sum, the Court is ill-prepared at this juncture to decide whether the pension plan benefits *334 should be distributed to the infant plaintiffs pursuant to Article VII or whether alternate means of distribution exist. Upon an appropriate motion, with well-researched memoranda of law, the Court will reach this issue at a later date.
CONCLUSION
Plaintiff's motion for summary judgment precluding Abreu from receiving the pension plan benefits is hereby granted. The Pension Fund's motion for summary judgment on the ground of ERISA preemption is hereby denied.
SO ORDERED.
NOTES
[1] Defendant Abreu has not appeared in this action and has not submitted papers in opposition to this motion.
[2] Carlos Mendez and plaintiff were divorced in November 1983. The infant plaintiffs are the issue of that marriage. In July 1984, defendant Abreu and Carlos Mendez were married.
[3] See Glass v. Adkins, 436 So. 2d 844 (Ala.1983); In re Griswold, 13 Ariz.App. 218, 475 P.2d 508 (1970); Clark Center, Inc. v. National Life & Accident Ins. Co., 245 Ark. 563, 433 S.W.2d 151 (1968); N.Y. Life Ins. Co. v. Cawthorne, 48 Cal. App. 3d 651, 121 Cal. Rptr. 808 (1975); Strickland v. Wysowatcky, 128 Colo. 221, 250 P.2d 199 (1952) (rule does not apply to manslaughter); Bird v. Plunkett, 139 Conn. 491, 95 A.2d 71 (1953) (rule does not apply to manslaughter); Maneval v. Lutheran Brotherhood, 281 A.2d 502 (De.1971); In re Estate of Fairweather, 444 So. 2d 464 (Fla.1983), appeal denied, 451 So. 2d 848 (1984); Tippens v. Metropolitan Life Ins. Co., 99 F.2d 671 (5th Cir.1938) (applying Georgia law); United States v. Foster, 238 F. Supp. 867 (E.D. Mich.1965) (applying Hawaiian law); In re Estate of Eliasen, 105 Idaho 234, 668 P.2d 110 (1983); In re Estate of Seipel, 29 Ill.App.3d 71, 329 N.E.2d 419 (1975) (rule does not apply to manslaughter); Stacker v. Mack, 126 Ind.App. 95, 130 N.E.2d 484 (1955); McDade v. Mystic Workers of the World, 196 Iowa 857, 195 N.W. 603 (1923); Harper v. Prudential Life Ins. Co., 233 Kan. 358, 662 P.2d 1264 (1983); Bates v. Wilson, 313 Ky. 572, 232 S.W.2d 837 (1950); Smith v. Southern National Life Ins. Co., 134 So. 2d 337 (La.1961); Metropolital Life Ins. Co. v. Wenckus, 244 A.2d 424 (Me.1968); Ford v. Ford, 307 Md. 105, 512 A.2d 389 (1986); Slocum v. Metropolitan Life Ins. Co., 245 Mass. 565, 139 N.E. 816 (1923); Budwit v. Herr, 339 Mich. 265, 63 N.W.2d 841 (1954); Sharpless v. Ground Lodge, 135 Minn. 35, 159 N.W. 1086 (1916); Genna v. Harrington, 254 So. 2d 525 (Miss.1971); Wells v. Harris, 414 S.W.2d 343 (Mo.1967); In re Estate of Matye, 198 Mont. 317, 645 P.2d 955 (1982); Johnston v. Frank, 97 Neb. 190, 149 N.W. 409 (1914); Wilson v. Randolph, 50 Nev. 371, 261 P. 654 (1927) (son permitted to inherit); Kelley v. State, 105 N.H. 240, 196 A.2d 68 (1963) (murderer held to be constructive trustee for estate); Whitney v. Lott, 134 N.J.Eq. 586, 36 A.2d 888 (1944) (murderer held to be constructive trustee of estate); Reagan v. Brown, 59 N.M. 423, 285 P.2d 789 (1955) (son permitted to inherit prior to statutory change); Lofton v. Lofton, 26 N.C.App. 203, 215 S.E.2d 861 (1975); Matter of Estate of Josephson, 297 N.W.2d 444 (N.D.1980); In re Estate of Birt, 18 Ohio Misc.2d 7, 481 N.E.2d 1387 (1983) (juvenile delinquent entitled to inherit though purposely causing father's death); National Aid Assoc. v. May, 201 Okla. 450, 207 P.2d 292 (1949); Hargrove v. Taylor, 236 Or. 451, 389 P.2d 36 (1964) (murder held to be constructive trustee of estate); In re Kravitz, 418 Pa. 319, 211 A.2d 443 (1965); Smith v. Todd, 155 S.C. 323, 152 S.E. 506 (1930); DeZotell v. Mutual Life Ins. Co., 60 S.D. 532, 245 N.W. 58 (1932); Houser v. Haven, 32 Tenn.App. 670, 225 S.W.2d 559 (1949); National Life & Accident Ins. Co. v. Thompson, 153 S.W.2d 322 (Tex.Civ. App.1941); Continental Bank & Trust Co. v. Maag, 285 F.2d 558 (10th Cir.1960) (applying Utah law); In re Estate of Mahoney, 126 Vt. 31, 220 A.2d 475 (1966) (murderer held to be constructive trustee of estate); Blanks v. Jiggets, 192 Va. 337, 64 S.E.2d 809 (1951); New York Life Ins. Co. v. Jones, 86 Wash.2d 44, 541 P.2d 989 (1975); Metropolitan Life Ins. Co. v. Hill, 115 W.Va. 515, 177 S.E. 188 (1934); In re Wilson's Estate, 5 Wis. 2d 178, 92 N.W.2d 282 (1958); Metropolitan Life Ins. Co. v. Banion, 86 F.2d 886 (10th Cir.1936) (applying Wyoming law).
[4] Article VII provides as follows:
Death benefits
If a participant dies at any time before becoming eligible for a pension hereunder, his beneficiary shall be entitled to a refund equal to the amount of his contributions to the Fund plus 2½% interest compounded annually to December 31, 1972. Thereafter from January 1, 1973 through December 31, 1975, no interest shall be credited.
Commencing January 1, 1976, interest shall be compounded annually at the rate of 5%.
If a participant dies who is eligible to receive a pension, after he has begun to receive pension payments and has elected not to provide a Survivor's Annuity or if he is unmarried, his beneficiary shall receive the refund described above reduced by the amount of pension payments to the retired participant prior to his death.
In the event of the death of a participant's spouse who is receiving or would be entitled to receive a Survivor's Annuity, her beneficiary shall also receive the above described refund reduced by the amount of pension payments paid to the retired participant and/or the spouse prior to death.
Prior to making any payments under this Article, the Board shall require proof of death of the participant or retired participant.
Beneficiaries shall be designated on the form provided by the Trustees.
In the event no beneficiary has been designated, payment shall be made as follows:
(i) To the surviving spouse, if any;
(ii) If no surviving spouse, to the deceased's surviving children, if any, equally;
(iii) If no surviving spouse, and no surviving children, to the deceased's surviving parent or parents, if any, equally;
(iv) If no surviving spouse and no surviving children and no surviving parent, to the deceased's surviving brothers and sisters, if any, equally.
In the event there is no designated beneficiary, surviving spouse, surviving children, surviving parent, or surviving brother and/or sisters, then the payment shall be made to the Estate of the deceased. In the event there is no "Estate" and no claim is made by any of the persons specifically listed above within three years of date of death, then no death benefit need be paid. However restoration of the amount forfeited shall be made upon presentation of the valid claim of any person entitled thereto.
Anything to the contrary notwithstanding, the Trustees may, at their option, pay an amount, not to exceed the amount due on the death of the Participant determined as set forth above, to any person appearing to be equitably entitled to the payment of actual expenses incurred in connection with the burial of the participant where the named beneficiary or next of kin as set forth above, whichever is applicable, cannot be located within a reasonable time. The liability of the Trustees shall thereby be discharged to the extent of the amount so paid.
The identity of any person claiming to be a beneficiary or to be otherwise entitled to payment thereunder shall be substantiated to the satisfaction of the Trustees. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1596293/ | 581 F. Supp. 432 (1984)
The UPJOHN COMPANY, Plaintiff,
v.
GENERAL ACCIDENT INSURANCE COMPANY OF AMERICA, et al., Defendants.
Civ. A. No. 82-1019.
United States District Court, District of Columbia.
February 23, 1984.
*433 Edward J. Beder, Jr., Robert N. Sayler, Covington & Burling, Washington, D.C., for plaintiff.
Stephen A. Trimble, Patrick Kavanaugh, Hamilton & Hamilton, Washington, D.C., for defendant General Acc. Ins. Co. of America.
James E. Rocap, II, Miller, Cassidy, Larroca & Lewin, Washington, D.C., for defendant Aetna Cas. & Sur. Co.
Thomas M. Susman, Ropes & Gray, Washington, D.C., George Marshall Moriarty, John T. Montgomery, Ropes & Gray, Boston, Mass., for international defendants.
STATEMENT OF REASONS
BARRINGTON D. PARKER, District Judge.
On September 10, 1982, this Court entered an order transferring this proceeding to the District of Connecticut in "the interest of justice" pursuant to 28 U.S.C. § 1404(a). In entering that order the Court ruled on basis of the memoranda submitted by the parties and did not hold a hearing. The order did not explain fully the reasons for the decision to transfer. Immediately thereafter, plaintiff Upjohn Company filed a petition for a writ of mandamus in our Court of Appeals seeking to vacate the transfer order.
On January 14, 1983, a panel of the Court of Appeals issued an order deferring a ruling of Upjohn's petition pending receipt of a further statement of reasons in support of the transfer order. On January 28, 1984 this Court held a hearing to afford *434 the parties an opportunity to be heard on the motion to transfer as well as to avail itself of the opportunity to be informed by the parties of the progress of a similar and related on-going proceedings in the District Court of Connecticut, Aetna Casualty & Surety Co. v. Abbott Laboratories, et al., Civil H82-243 (D.Conn.). Upjohn is a defendant in the Connecticut proceeding and at the January 28th hearing all parties agreed that the events which have transpired since this Court's September 10, 1982 transfer order should be considered and taken into account. No trial date has yet been set in the Connecticut litigation.
This Court has reviewed the record and considered oral argument and representations of counsel and submits the following statement of reasons and findings in support of the September 10, 1982 order of transfer to the District of Connecticut.
On February 26, 1982, Aetna Casualty & Surety Company ("Aetna") filed an action against Upjohn and eight policy holders (all drug manufacturers) in the District of Connecticut. Aetna sought a declaration of rights and responsibilities under contracts of primary liability insurance issued by Aetna to Upjohn and the other defendants with specific reference to claims arising out of injuries allegedly caused by the synthetic estrogen product Diethylstilbestrol ("DES"). Seven insurance carriers including The London Defendants have been also involved as third party defendants.
Shortly thereafter, on April 13, 1982, Upjohn filed the proceeding in this Court seeking declaratory relief against its primary liability insurers, General Accident Insurance Company of America ("General Accident") Aetna and numerous underwriters operating out of London as excess liability insurers (The London Defendants). Upjohn sought a declaration with respect to the same issues, and many of the same policies, which were before the Connecticut District Court.
The issues of law and fact in the District of Connecticut proceeding and in this proceeding are substantially similar. The central legal issue is the same, namely, what event triggers coverage for DES injury claims under the policies at issue in these cases. Both actions require the court to determine when the "injuries" allegedly caused by DES "occurred" within the meaning of the policy.
When Upjohn filed the proceeding in this Court, Aetna then moved on April 29, 1982, in the District of Connecticut to enjoin Upjohn from continuing to prosecute the District of Columbia action. On June 7, 1982, arguments were heard on Aetna's motion by Judge Jose A. Cabranes. Upjohn argued that the District of Columbia was a preferable forum because it needed "relief with respect to our other primary carrier, General Accident, and we need relief with respect to our significant excess carriers. We have sued all of them in Washington." Transcript of Hearing, p. 42 (attached as Exhibit C to the London Defendants' Reply to the Plaintiff's Opposition to Transfer). Upjohn's counsel expressed concern that the two District Courts could reach inconsistent results. "Indeed, we could get a result up here as to the year 1959 that would bind Aetna and would not bind the excesses right behind Aetna for the very same year." Transcript, p. 43. Finally, counsel stated "we want a decision as soon as possible, and we want a decision that binds all our carriers at once." Transcript p. 45. Judge Cabranes challenged Upjohn to explain why the issues raised in this action could not be joined in the first filed action in Connecticut and expressed his willingness to have the entire coverage dispute determined in Connecticut, commenting that "I haven't heard yet that there is any insurmountable obstacle to bringing all of those parties or issues before the court, if you care to do so." Transcript, p. 46.
On July 16, 1982, the London defendants moved in this proceeding to transfer this action to the District of Connecticut pursuant to 28 U.S.C. § 1404(a). The reason asserted was that transfer would avoid unnecessary duplication of judicial resources and insure a consistent, comprehensive resolution to the Upjohn coverage dispute. They have not argued that the "convenience *435 of the parties and witnesses" would be served significantly by transfer.
On August 19, 1982, Judge Cabranes enjoined Upjohn from pursuing the action in this Court as against Aetna.
In ruling on Aetna's motion, Judge Cabranes rejected Upjohn's arguments that (1) Upjohn's choice of forum is controlling, (2) litigation in the District of Columbia can be completed more efficiently and (3) the District of Columbia is a more convenient forum. Transcript of Opinion, pp. 50-56 (attached as Exhibit B to the London Defendants' Reply to Plaintiff's Opposition to Transfer).
Upjohn ceased the prosecution of its claims against Aetna in this Court following Judge Cabranes' ruling. Thus the District of Connecticut is at present the forum in which a consistent, comprehensive resolution of the Upjohn insurance coverage dispute can be achieved as to both primary and excess policies.
There is no meaningful connection, for purposes of transfer pursuant to Section 1404(a), between the parties to this action and the District of Columbia. None of the parties has its principal place of business here. There is no evidence that the insurance contracts at issue were solicited, purchased, negotiated, sold or delivered here.
The parties do not dispute that this action "might have been brought" in the District of Connecticut. There is no evidence of any difference in this case between Connecticut and the District of Columbia with regard to subject matter jurisdiction, personal jurisdiction or venue.
At the January 27, 1984 hearing counsel for the parties represented that since entry of September 10, 1982 transfer order the Connecticut action has proceeded expeditiously before Judge Cabranes. Docket entries in the Connecticut proceeding support their representations. Judge Cabranes has been involved to a significant degree in the management of the Connecticut action. A series of seven pre-trial orders and a series of orders regarding substantive and procedural issues have been entered.
On July 11, 1983, the Connecticut Court denied motions for partial summary judgment filed by a number of parties, including Upjohn. That Court has approved stipulations dismissing the London defendants and several drug manufacturers from the action. Detailed discovery among the parties is now substantially complete. The discovery has been subject to a protective order which prevents non-parties to the action from obtaining access to the products of discovery. On June 4, 1984, arguments are scheduled on any dispositive motions filed by March 26, 1984. No trial date has been set in the proceeding.
When Aetna's motion to enjoin Upjohn from proceeding in this Court against Aetna was heard in the Connecticut proceedings, Judge Cabranes expressed the view that this entire insurance coverage dispute could be determined in a single action in the District of Connecticut. Should this proceeding be transferred, it appears most likely that it would be consolidated with the ongoing litigation so far as reasonable and necessary for the expeditious handling of the two proceedings. Indeed, the Federal Rules of Civil Procedure, Rule 42(a) provides for a "joint hearing or trial of any or all of the matters in issue."
Consolidation would avoid duplication of effort and expense. It would also facilitate the use in this action of depositions, interrogatories, and document production already completed in the first-filed Connecticut action. "To permit a situation in which two cases involving precisely the same issues are simultaneously pending in different District Courts leads to the wastefulness of timing, energy and money that § 1404(a) was designed to prevent." Continental Grain Co. v. Barge FBL-585, 364 U.S. 19, 26, 80 S. Ct. 1470, 1474, 4 L. Ed. 2d 1540 (1960). "Litigation of related claims in the same tribunal is strongly favored because it facilitates efficient, economical and expeditious pretrial proceedings and discovery and avoids duplicitous litigation and inconsistent results." National Super Spuds, Inc. v. New York Mercantile Exchange, 425 F. Supp. 665, 667 (S.D.N.Y. *436 1977), appeal dismissed for want of jurisdiction, 591 F.2d 174 (2d Cir.1979); accord Wyndham Assoc. v. Bintliff, 398 F.2d 614, 619 (2d Cir.1968) ("a strong public policy favor[s] the litigation of related claims in the same tribunal"), cert. denied, 393 U.S. 977, 89 S. Ct. 444, 21 L. Ed. 2d 438 (1968); Leonhart v. McCormick, 395 F. Supp. 1073, 1078-1079 (W.D.Pa.1975). Courts have a strong interest in avoiding a "piecemeal and perhaps conflicting determination" of a coverage dispute involving multiple insurers of the same insured. American Motorists Insurance Co. v. Philip Corey Corp., 482 F. Supp. 711, 715 (S.D.N.Y.1980); see also, Evergreen Park Nursing and Convalescent Home, Inc. v. American Equitable Assurance Co., 417 F.2d 1113 (7th Cir. 1969). This public interest cannot be overridden by Upjohn's professed willingness to suffer the risk and inconvenience of conflicting judgments.
The fact that the Connecticut action has been pending for some time does not preclude transfer in the "interest of justice." Indeed, it can be strongly argued that the "interest of justice" weighs heavily for transfer in order to secure a single, coherent consistent judgment covering all of Upjohn's liability insurers.
Support for the transfer of this action is found in a recent decision of Judge Gesell who transferred a similar insurance coverage dispute involving asbestos to the District of Massachusetts. Eagle-Picher Industries, Inc. v. American Employers Insurance Company, 557 F. Supp. 225 (D.D.C., 1983). Eagle-Picher, had filed the action in this jurisdiction with respect to certain excess insurance policies. The District of Massachusetts had already entered judgment on similar issues with respect to Eagle-Picher's primary and certain other excess policies. That judgment was affirmed. Eagle-Picher Industries v. Liberty Mutual Insurance Company, 682 F.2d 12 (1st Cir.1982), cert. denied, ___ U.S. ___, 103 S. Ct. 1279, 75 L. Ed. 2d 500 (1983). Judge Gesell transferred the action to the District of Massachusetts in the "interest of justice" for several of the very same reasons which apply here.
The insurance contracts issued by the London defendants contain a so-called "service of suit" clause in which the underwriters agree to submit to suit in "any court of competent jurisdiction within the United States." The London defendants have not raised any technical objection to venue or service of process. The service of suit clause does not foreclose transfer under the `interest of justice' criteria of Section 1404(a) which involves "public interests that must be weighed by the district court; they cannot be automatically outweighed by the existence of a purely private agreement between the parties." Plum Tree, Inc. v. Stockment, 488 F.2d 754, 757-58 (3rd Cir.1973). A consent to jurisdiction clause does not bar transfer where the interest of justice and convenience of witnesses would be served by transfer. AAMCO Automatic Transmissions, Inc. v. Bosemer, 374 F. Supp. 754 (E.D.Pa.1974). A party's agreement does not deprive the court of "the power to change venue if the interests of justice require a transfer." National Equipment Rental, Ltd. v. Sanders, 271 F. Supp. 756, 762 (E.D.N.Y.1967).
It is clearly recognized that the decision whether to consolidate will be decided by the transferee court, depending on the posture of that case at the time this case is received by it, after giving due consideration to whatever additional discovery is needed, the necessary time required, and the trial date when set. But even without consolidation, the considerations listed above remain applicable, due to the familiarity of the Connecticut court with the theories, facts developed, and legal issues. In short, judicial economy would be achieved.
The motion of the defendants to transfer this proceeding to the District of Connecticut is granted for the reasons stated above. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1599794/ | 788 F. Supp. 632 (1991)
I.D., by his parents and by next friend E.D.; and by next friend W.D.; W.D.; E.D.
v.
WESTMORELAND SCHOOL DISTRICT.
Civ. No. 91-155-S.
United States District Court, D. New Hampshire.
August 1, 1991.
*633 Gregory R. Van Buiten, Burlington, Vt., for plaintiffs.
Gerald M. Zelin, Salem, N.H., for defendant.
ORDER
STAHL, District Judge.
This civil action challenges the individual education plan offered plaintiff by the Westmoreland School District. Plaintiff claims that the plan: (1) was not promulgated in compliance with procedures established in the federal Individuals with Disabilities Education Act ("IDEA"), 20 U.S.C. § 1400, et seq. (Count I); and (2) violates protections guaranteed by the federal Rehabilitation Act, 29 U.S.C. § 701, et seq. and its implementing regulations (Count II). Before the Court is a motion to dismiss Count I in which the School District argues that plaintiff failed to timely file his claim.
In Bow School District v. Quentin W., 750 F. Supp. 546 (D.N.H.1990), this court held that a claim under the Education of the Handicapped Act (the former name of the IDEA) must be brought within thirty days of the hearing officer's decision. It is undisputed that the decision challenged here was dated March 11, 1991, and that plaintiff filed this complaint thirty-two days later. Defendant argues that the complaint was therefore filed two days late and must be dismissed. Plaintiff responds that the limitation period should not begin to run on the date the hearing officer's decision was issued, but rather on the date plaintiff received a copy of that decision.
Although not addressed at length in Quentin W., the court in that case made clear that the limitation period begins to run upon issuance of the administrative decision. See id. at 548 ("The Court first addresses the issue of whether the underlying action, instituted ninety-four days after the hearing officer issued her decision, is time-barred.") and id. at 549 (considering an opinion in which the Circuit Court for the District of Columbia concluded that these claims must be brought within thirty days "after the state hearing officer's decision"). The Court is not persuaded to depart from that ruling. While admittedly short, a thirty-day rule is not unfair. As noted in Spiegler v. District of Columbia, 866 F.2d 461, 468 (D.C.Cir.1989), "the parties do not necessarily have to prepare for trial during the 30 days allowed, they must only decide whether to continue their litigation efforts." Upon review of the Quentin W. decision, then, the Court confirms that the thirty-day period begins to run on the day the hearing officer issues a decision.[1]
Quentin W. at 551, recognizes that the thirty-day rule can be tolled under appropriate circumstances. Plaintiff argues that *634 such circumstances are present here, given his mistaken assumption that the period began to run only upon receipt of the hearing officer's decision. The Court does not agree.
Circumstances making equitable tolling particularly persuasive in IDEA cases exist principally when parents attempt to untangle the confusion of relevant statutory and administrative provisions without the assistance of counsel. See Spiegler, supra, 866 F.2d at 468 (and cases cited). In this case, plaintiff has acquired the services of able counsel. Moreover, counsel acknowledges familiarity with the Quentin W. rule. The Court therefore finds no reason to toll the limitation period simply because counsel chose to wait until the last possible day, under his reading of the rule, to file the action.
The court also rejects plaintiff's attempt to gain an additional three days by invoking Rule 6(e) of the Rules of Civil Procedure. Rule 6(e) does allow parties an extra three days in certain circumstances, but only where
a party has the right or is required to do some act or take some proceedings within a prescribed period after the service of a notice or other paper upon the party and the notice or paper is served upon the party by mail.
The language of Rule 6(e) could be read in the way plaintiff suggests. But courts and commentators have declined to do so. For example, Professors Moore and Lucas state:
[E]ven though the operative statute or regulation provides that notice of the decision must be mailed to a party, the filing of the decision or some other prior event may trigger the period within which action must be taken. And, where this is the case, Rule 6(e) has no application.
2 J. Moore, J. Lucas, H. Fink & C. Thompson, Moore's Federal Practice ¶ 6.12 (2nd ed. 1991). And notably, the court in one of the cases upon which plaintiff relies suggests that Rule 6 cannot be applied in the way plaintiff proposes.
While Fed.R.Civ.P. 3 governs when an action is commenced in federal court, the prevailing view is that Fed.R.Civ.P. 6(a), which deals with the computation of time periods, does not control the manner of counting, computing, or suspending the state law limitations periods that are applied to specific federal cases. It is debatable whether Rule 6 is even applicable to the calculation of federal statutes of limitation, although it has sometimes been applied in principle by analogy or after discussion of legislative intent.
Gerasimou v. Ambach, at n. 3 (citations omitted). Thus, Rule 6 does not save plaintiff's claim.
Accordingly, defendant's motion to dismiss count I of the complaint (document no. 8) is granted.
SO ORDERED.
NOTES
[1] To the extent that the opposite conclusion was reached in Gerasimou v. Ambach, 636 F. Supp. 1504 (E.D.N.Y.1986), this Court respectfully disagrees.
Gerasimou relied on the oft-cited rule that, under federal law, "a cause of action accrues when a plaintiff `knows or has reason to know' of the injury or event that is the basis of his claim." Referencing New York law that provides a parallel rule, the Gerasimou court decided that the limitation period begins to run when the aggrieved party receives notice of the administrative determination.
While Gerasimou provides a plausible alternative, it creates a problem of proof. Specifically, it makes the precise date upon which a party receives the administrative decision a dispositive issue in these cases. This Court is not disposed to create such an issue, particularly where the doctrine of equitable tolling may be invoked to relieve the harshness of a strict adherence to the thirty day rule. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1603511/ | 882 F. Supp. 621 (1995)
John Burel WATKINS, Jr.
v.
BLACK & DECKER (U.S.), INC.; American Hardware, Inc.; and Emhart Corporation.
Civ. A. No. G-94-692.
United States District Court, S.D. Texas, Galveston Division.
April 21, 1995.
*622 Russell G. Burwell, Burwell Enos & Baron, Texas City, TX, for plaintiff.
Frank G. Jones, Fulbright & Jaworski, Houston, TX, for defendants.
ORDER DENYING DEFENDANTS' MOTION FOR SUMMARY JUDGMENT
KENT, District Judge.
Pending before the Court is Defendants' Motion for Summary Judgment pursuant to Fed.R.Civ.P. 56(c). For the reasons stated below, Defendants' Motion for Summary Judgment is DENIED.
I. Background
Plaintiff brings this product liability action based on the theories of strict liability and negligence. On December 28, 1992, Plaintiff John Burel Watkins, Jr., was placing a J. Stevens Model 37 bolt-action .410 shotgun behind a dresser in his home. The gun slipped and fell approximately one or two inches, landed on its butt stock, and discharged, which resulted in the shotgun driving *623 shot pellets through Plaintiff's right hand.
The shotgun was manufactured by J. Stevens Arms Company. This company was founded in 1864 and was incorporated in 1886. In 1936, J. Stevens merged into and was made a division of Savage Arms Corporation. On June 7, 1963, Savage Arms Corporation merged with American Hardware Corporation. As a result of this merger, Savage Arms became an unincorporated division of American Hardware Corporation.
On April 9, 1964, American Hardware Corporation merged with Emhart Manufacturing Company. The surviving corporation was named Emhart Corporation. The status of Savage Arms as an unincorporated division was unaffected by the merger.
In 1976 Emhart Corporation underwent internal corporate restructuring. Emhart Corporation changed its name to Emhart Industries, Inc. A new entity, Emhart Corporation, was created to function as a holding company. This new entity, Emhart Corporation, became the parent of Emhart Industries, Inc., holding all of the shares of Emhart Industries, Inc. The status of Savage Arms as an unincorporated division remained unaffected by this restructuring.
In July 1981, an agreement was reached under which a group headed by Robert J. Friedman was to purchase the Savage Arms Division of Emhart Industries, Inc. A Purchase and Sales Agreement dated July 21, 1981, completed the transaction whereby the Savage Arms Division of Emhart Industries, Inc. was sold to Robert J. Friedman. The Savage Arms Division subsequently became Savage Industries, Inc. Under the terms of the sales agreement, Savage Industries, Inc. purchased all of the assets of the Savage Arms Division and assumed responsibility for product liability claims relating to firearms previously manufactured by Emhart Industries, Inc. and its predecessors.
In March 1989, an agreement was reached pursuant to which a Black & Decker entity, B & D, Inc., acquired all of the stock of Emhart Corporation and merged into Emhart Corporation. The surviving corporation, Emhart Corporation, became a wholly owned subsidiary of Black & Decker, Inc. B & D, Inc. allegedly had no assets and was allegedly formed to avoid Black & Decker, Inc.'s assumption of Emhart Corporation's liability.
Plaintiff asserts causes of action against Black & Decker (U.S.), Inc., a wholly owned subsidiary of Black & Decker, Inc.; American Hardware, Inc.; and Emhart Corporation. Plaintiff asserts that the Defendants defectively designed, manufactured and/or marketed the shotgun which caused his injuries. Plaintiff further asserts that the Defendants were negligent in designing, manufacturing, and marketing the shotgun by failing to design, manufacture, and market the firearm so that users would be properly warned of the dangers associated with the firearm. Finally, Plaintiff alleges that at the time the shotgun was marketed, there were reasonably feasible and available designs and safety features, which if employed in the product would have greatly reduced or eliminated the risk of injury suffered by the Plaintiff.
Defendant filed this Motion for Summary Judgment, asserting that since Savage Industries, Inc. agreed to assume the general business debts of the Savage Arms Division and to succeed to the collective bargaining agreements and employee pension plans of the Savage Arms Division, none of the Defendants named in this lawsuit are proper parties. Rather, Defendants assert that the proper Defendant should be Savage Industries, Inc.
In response thereto, Plaintiff asserts that the sale of the Savage Arms Division did not relieve Emhart Industries, Inc. from the liability it incurred through its previous mergers because the sale failed to establish Savage Arms, Inc. as the sole entity liable for the liabilities resulting form the defective shotgun.
II. Standard of Review
Summary judgment is appropriate if no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56. A fact is material if its resolution in favor of one party might affect the outcome of the suit under *624 governing law. Anderson v. Liberty Lobby, 477 U.S. 242, 248, 106 S. Ct. 2505, 2510, 91 L. Ed. 2d 202 (1986). A genuine issue of material fact exists if there is a genuine issue for trial that must be decided by the trier of fact. In other words, summary judgment should not be granted if the evidence indicates that a reasonable fact-finder could find in favor of the non-moving party. Id. See also Matsushita Elec. Indus. Co. v. Zenith Radio, 475 U.S. 574, 587, 106 S. Ct. 1348, 1356, 89 L. Ed. 2d 538 (1986).
In ruling on a Motion for summary Judgment, the court must accept the evidence of the non-moving party and draw all justifiable inferences in his favor. Credibility determinations, weighing of the evidence, and the drawing of reasonable inferences are left to the trier of fact. Anderson v. Liberty Lobby, supra, 477 U.S. at 255, 106 S.Ct. at 2514.
Under Fed.R.Civ.P. 56(c), the moving party bears the initial burden of "informing the district court of the basis for its motion and identifying those portions of [the record] which it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S. Ct. 2548, 2553, 91 L. Ed. 2d 265 (1986). Once this burden is met, the burden shifts to the nonmoving party to establish the existence of a genuine issue for trial. Matsushita, supra, 475 U.S. at 585-87, 106 S.Ct. at 1355-56; Leonard v. Dixie Well Serv. & Supply, Inc., 828 F.2d 291, 294 (5th Cir.1987).
Where the moving party has met its Rule 56(c) burden, the non-movant "must do more than simply show that there is some metaphysical doubt as to the material facts ... [T]he non-moving party must come forward with `specific facts showing that there is a genuine issue for trial.' Where the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no genuine issue for trial." Matsushita, supra, 475 U.S. at 596-97, 106 S.Ct. at 1361 (quoting Fed.R.Civ.P. 56(e)) (emphasis in original).
III. Discussion
Defendants' central argument is that Black & Decker, Inc. and its subsidiaries are not liable for Plaintiff's damages because Emhart Industries, Inc. sold off the entire Savage Arms Division to Robert Friedman prior to the merger of Emhart Industries, Inc. and Black & Decker, Inc. In support of this argument, Defendants cite Mudgett v. Paxson Machine Co., 709 S.W.2d 755 (Tex. App. Corpus Christi 1986, writ ref'd n.r.e.) and Western Resources Life Ins. Co. v. Gerhardt, 553 S.W.2d 783 (Tex.Civ.App. Austin 1977, writ ref'd n.r.e.). These cases stand for the proposition that a successor corporation is liable for the liabilities of the predecessor corporation where the successor expressly assumes such liabilities. Defendants assert that the sales agreement between Emhart Industries, Inc. and Robert Friedman, whereby Robert Friedman purchased the Savage Arms Division, contained such a clause in which Mr. Friedman's new company expressly assumed the liabilities of the Savage Arms Division. Defendants contend that as a result of this clause, Emhart Industries, Inc. and its successor corporation, Black & Decker, Inc., is absolved from all tort liability incurred heretofore by the Savage Arms Division. However, this Court is unpersuaded by Defendants' arguments for the following reasons.
While both Mudgett and Western Resources address the issue of whether a successor corporation may become liable for its predecessor's liabilities, those cases did not hold that the predecessor is completely absolved of any liabilities of its predecessors. Rather, these cases merely suggest ways in which the successor corporation may be held liable in conjunction with its predecessor.
A successor corporation can become liable for the liabilities, including product liabilities, if the successor corporation assumes the liabilities by an express or implied agreement, or by reason of the fact that the sale of the corporate assets amounted to a merger or consolidation, or that the transaction was a fraudulent endeavor by the original corporation to escape liability. Western Resources Life Ins. Co. at 786. It is undisputed that there was no merger between Emhart Industries, Inc. and the purchasing corporation owned by Robert Friedman. The Defendants argue that Emhart Industries, *625 Inc. was relieved of tort liability because the purchaser expressly agreed to assume that liability.
Defendants' position is contrary to the policy upon which successor corporation liability is based. Successor corporation liability is designed to protect the injured Plaintiff, not the corporation. It is designed to furnish the Plaintiff with a remedy where the preceding corporation has merged or ceased to exist as a result of a sale of assets. In the present case, Emhart Industries, Inc. is attempting to avoid tort liability which it incurred through a series of mergers. Although Emhart Industries, Inc. decided to extricate itself from the gun manufacturing business, this business decision should not relieve it from liabilities it had formerly incurred through the normal course of business.
Furthermore, successor corporation liability has developed to insure that liability transfers when the predecessor corporation ceases to exist as a result of a merger. Emhart Industries, Inc. did not cease to exist following the sale of the Savage Arms Division. Rather protection of the injured Plaintiff is best served by holding Emhart Industries, Inc. responsible for the liabilities it previously incurred.
This Court next turns to the issue of whether Black & Decker, Inc. may be held liable for tort liability incurred by its wholly owned subsidiary, Emhart Industries, Inc. Defendants assert that Black & Decker Inc., Black & Decker (U.S.), Inc., and Emhart Corporation did not design, manufacture, sell, or distribute the firearm in question. According to Defendant, Emhart Industries, Inc. is the only Defendant that was ever engaged in the business of designing, manufacturing, selling, or distributing firearms. Defendants argue that because Black & Decker, Inc., Black & Decker (U.S.), Inc., Emhart Corporation and Emhart Industries, Inc. are each separate legal entities, there is no basis for imposing liability upon Black & Decker, Inc., Black & Decker (U.S.), Inc., or Emhart Corporation for any alleged tort arising out of the design, manufacture, sale, or distribution of firearms by Emhart Industries, Inc. or its predecessors.
It is true that under Texas law a successor corporation is generally not liable for its predecessor's obligations when it acquires the predecessor solely by purchasing all or substantially all of the predecessor corporation's assets. Tex.Bus.Corp.Act Ann. art. 5.10(B)(2); Glasscock v. Armstrong Cork Co., et al., 946 F.2d 1085, 1094 (5th Cir.1991). But, clearly Black & Decker, Inc. did more than merely purchase all or substantially all of the assets of Emhart Corporation. The Agreement and Plan of Merger dated March 19, 1989, between Emhart Corporation and the Black & Decker Corporation effectuated a merger between Emhart Corporation and Black & Decker Corporation. Defendant's Motion for Summary Judgment, Exhibit 6. Under Texas law, the surviving corporation of a merger assumes the liabilities of each of the merging corporations. Tex.Bus.Corp.Act Ann. art. 5.06(A)(3); Glasscock v. Armstrong Cork Co., et al., 946 F.2d 1085, 1094 (5th Cir.1991). Although Emhart Corporation held all of the stock of Emhart Industries, Inc., Emhart Industries, Inc. was a wholly owned subsidiary and therefore maintained a separate legal identity from Black & Decker, Inc.
Generally, a parent corporation has a separate legal existence from its subsidiaries, and the parent and subsidiary corporations should be treated separately unless circumstances suggest that the distinction between corporate entities should be disregarded. Matter of Chrome Plate, Inc., 614 F.2d 990, 996 (5th Cir.1980) cert. denied, Chrome Plate, Inc. v. U.S., 449 U.S. 842, 101 S. Ct. 123, 66 L. Ed. 2d 50 (1980); Engel v. Telepromptor Corp., 703 F.2d 127, 134 (5th Cir.1983).
The Fifth Circuit has recognized that there are three broad categories in which a Court may pierce the corporate veil: (1) the corporation is the alter ego of its owners and/or shareholders; (2) the corporation is used for an illegal purpose; and (3) the corporation is used as a sham to perpetrate a fraud. W. Horizontal Drilling v. Jonnet Energy Corp., 11 F.3d 65, 67 (5th Cir.1994).
*626 An alter ego exists where a corporation is operated and organized as a mere tool or business conduit of another corporation. Id. at 68. There are several factors which a Court may consider to determine if a corporation is merely the alter ego of another corporation. The Court may look at the total dealings of the corporation, such as the amount of financial interest, ownership, and control the parent has over the subsidiary. Id. When management or operations are controlled by the parent corporation, such constitutes evidence of an alter ego relationship. Gentry v. Credit Plan Corporation of Houston, 528 S.W.2d 571, 573 (Tex.1975).
The deposition testimony of Mr. Theodore Lutkus, attorney for Black & Decker Inc., Black & Decker (U.S.), Inc., Emhart Corporation, and Emhart Industries, Inc. indicates that Black & Decker, Inc. completely controls Emhart Industries, Inc. Mr. Lutkus is not only the legal counsel for all of the Black & Decker entities involved, but he is also an officer for several of the Black & Decker organizations. Deposition of Theodore Lutkus, at 4, 20-21, 37-40.
Additionally, according to Mr. Lutkus' deposition, all of the Defendants in this case share the same address for their headquarters. Id. at 6-8. This goes beyond all of the Defendants having offices in the same building. Mr. Lutkus testified that he believed that the headquarters building is owned by Black & Decker (U.S.), Inc., but was uncertain as to whether any of the other Defendants paid rent. Id. at 17. Furthermore, although the headquarters for Emhart Industries, Inc. and Emhart Corporation are located in this office building, there are no offices designated specifically for these companies within the building. Id. at 16-18. Additionally, the employees at the headquarters of Emhart Corporation and Emhart Industries, Inc. are all employees of Black & Decker. Id. at 53. The directors and officers of Emhart Industries, Inc. are all paid by Black & Decker. Id. at 41.
The Court notes that there is no ownership interest in Emhart Industries, Inc. that is not owned by Black & Decker, Inc. Id. at 80. Moreover, Emhart Corporation and Black & Decker, Inc. share common officers and directors. Id. at 9. In fact, the top official of Emhart Industries, Inc., Ray Devita, who directs the activities of Emhart Industries, Inc., is an executive Vice-President of the Black & Decker Corporation. Id. at 54-55.
The Court further observes that Black & Decker Inc. controls almost every aspect of Emhart Industries, Inc. Id. at 36. For example, Black & Decker provides all of the insurance and workers' compensation coverage for Emhart Industries, Inc. Id. Black & Decker, Inc. sets the policy that governs the business operations of Emhart Industries, Inc. Id. at 18-20. The Court finds that Black & Decker, Inc., Black & Decker (U.S.), Inc., Emhart Corporation, and Emhart Industries, Inc. have ceased to be separate legal entities and are therefore all subject to each other's liabilities.
The central purpose underlying the imposition of successor corporate liability is to protect the Plaintiff's right to seek redress for any tort liability that may have been engendered by the predecessor corporation which is no longer in existence. The corporation that originally manufactured the gun that injured Plaintiff was J. Stevens, Inc. That corporation, through a series of mergers, was ultimately merged into Emhart Industries, Inc. In an effort to end its involvement in the gun manufacturing business, Emhart Industries, Inc. sold the unincorporated division called the Savage Arms Division. This Court does not wish to speculate as to the motives of Emhart Industries, Inc. to sell the Savage Arms Division.
The Court notes, however, that to permit corporations to escape liability simply by selling off a division within its corporation that is particularly susceptible to liability would utterly frustrate the underlying purpose of successor corporate liability. The temptation to compartmentalize potentially troublesome activities or product lines within a large corporation and to sell them when litigation is pending would be hard to resist. The sole recourse available to plaintiffs following such a "sale" would be to pursue the legal entities with carefully crafted shallow pockets. The sale would serve to shield the vast financial resources of the corporation from liability. *627 Thus, this Court concludes that corporations may not escape tort liability by merely selling off divisions within the corporation.
Under Fed.R.Civ.P. 56(c), the Defendants have satisfied their initial burden of informing the Court of the basis for their motion and identifying those relevant portions of the record which they believe demonstrate the absence of a genuine issue of material fact. After Defendants have met their initial burden, the burden shifted to the Plaintiff to establish the existence of a genuine issue for trial. Plaintiff must come forward with "specific facts showing that there is a genuine issue for trial." This Court finds that the record taken as a whole could lead a rational trier of fact to find for the Plaintiff. Thus, this Court finds that a genuine issue of material fact exists and therefore, Defendants are not entitled to judgment as a matter of law.
For the reasons stated above, Defendants' Motion for Summary Judgment is HEREBY DENIED. Furthermore, the parties are ORDERED to file nothing further on this issue in this Court, especially Motions to Reconsider or the like, unless they can present compelling and relevant new evidence or legal authority which they could not, through the exercise of due diligence, have presented upon original submission of this Motion. Any and all further relief on this issue shall be sought in due course from the United States Court of Appeals for the Fifth Circuit. The parties shall each bear their own costs incurred herein to date.
IT IS SO ORDERED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1606092/ | 85 F. Supp. 59 (1949)
HOUSTON
v.
ESCOTT.
Civ. A. No. 1152.
United States District Court D. Delaware.
June 23, 1949.
William S. Satterthwaite, of Wilmington, Del., and Raymond S. Shortlidge, of Philadelphia, Pa., for plaintiff.
William H. Bennethum (of Marvel & Morford) of Wilmington, Del., for defendant.
RODNEY, District Judge.
This action arises out of a claim for personal injuries incurred by the plaintiff as a result of being struck by a golf ball driven by the defendant while both parties, independently, were playing golf on the course of the Kennett Square Golf and Country Club at Kennett Square, Pennsylvania.
Defendant has moved under Rule 56, Federal Rules of Civil Procedure, 28 U.S. C.A., for summary judgment, basing his motion upon his own supporting affidavit and the plaintiff's amended complaint. Affidavits in opposition to the motion have been filed by the plaintiff and the other three members of the "foursome" in which plaintiff was playing when he was struck and injured by defendant's ball.
Jurisdiction is based upon diversity of citizenship and, therefore, the law of Delaware, including its Conflict of Laws, must be applied.[1] It is conceded by the parties, and now assumed by the court, that under the Delaware rule of Conflict of Laws the law of Pennsylvania, where the accident and injury occurred, controls in this proceeding.
From the amended complaint it appears that on the said golf course the first and eighteenth fairways, extending respectively from the tees to the greens, were adjacent and almost parallel to each other, the eighteenth tee being approximately seventeen yards from the first green, and the playing of the two holes was in opposite directions. The plaintiff alleges that, in *60 a foursome, he was on the first fairway a short distance from the first green. Defendant was driving his ball from the eighteenth tee.
The gist of the action appears in the tenth and twelfth paragraphs of the amended complaint as follows:
"10. That at the time and place aforesaid the defendant was on the said golf course engaged in playing a game of golf and during the course of such game drove a golf ball from the eighteenth tee in the eighteenth fairway on the said course in so negligent and careless a manner that the said ball struck plaintiff on the left leg between the knee and ankle causing the injuries hereinafter alleged."
"12. That the said negligence of the defendant consisted in driving the said ball from the said tee without first having observed plaintiff a short distance away on the said course and in failing to give timely warning of his intention to drive the ball although defendant knew or in the exercise of due care should have known that plaintiff was on the said course and in danger of being struck by the said ball."
Defendant's affidavit in support of the motion for summary judgment states that immediately prior to and at the time of the accident neither plaintiff nor anyone else in plaintiff's foursome was visible to or seen by defendant because of a rise in the terrain between the first and eighteenth fairways which obscured such persons from defendant's view. Defendant's affidavit also states that the distance between plaintiff and defendant at the pertinent times was not less than 170 yards.
The opposition affidavits state that immediately prior to and at the time of the accident plaintiff was in full view of anyone on or near the eighteenth tee and could and should have been seen by anyone about to drive from the eighteenth tee. These affidavits also state that at the pertinent times the distance between the plaintiff and the defendant was not more than 125 yards.
If the above facts are material and insisted upon, it is obvious that genuine issues of fact exist as to whether the plaintiff was in full view of or visible to the defendant at the time the ball was driven and as to the distance between the parties at such time.
At oral argument defendant's counsel contended that the above two disputed facts are not material and therefore conceded that the opposition affidavits should be accepted on these disputed facts. Thus, for the purposes of this motion, it is taken as a fact that at the time defendant was addressing his golf ball and hitting such ball from the eighteenth tee the plaintiff was in full view of defendant and could have been seen by defendant and that the distance between plaintiff and defendant at the pertinent time was not more than 125 yards.
Certain facts appear to be undisputed in the affidavits and amended complaint. The play of the first fairway, from tee to hole, runs in a general easterly direction; the play of the eighteenth fairway, from tee to hole, runs in a diverging or general northwesterly direction. Immediately prior to and at the time of the accident plaintiff was playing the first hole and was walking with one of the other members of his foursome toward the first green along the left hand or northerly side of the first fairway approximately two yards from such side. Plaintiff was approximately 50 yards south of the nearest point on the eighteenth fairway and about 55 yards south of the intended line of flight from the eighteenth tee to the eighteenth hole at such time.
At the pertinent time defendant was commencing play of the eighteenth hole. He "teed" his golf ball on the eighteenth tee preparatory to and with the intention and desire of driving the ball straight down the eighteenth fairway toward the eighteenth green. Defendant's sole object, of course, was to drive his ball from the eighteenth tee into the eighteenth hole in as few strokes as possible. Defendant drove his ball from the eighteenth tee without giving any previous warning that he was going to drive the ball.
The point where plaintiff was standing when struck was approximately 19 degrees left (or to the south) of the intended line of *61 flight of defendant's ball from the eighteenth tee to the eighteenth green. The accident occurred in the early afternoon of September 21, 1947.
The question in this case is whether under the law of Pennsylvania a golfer, playing a game of golf, is liable when his golf ball driven by him in the due course of the game and aimed at the green on his own fairway strikes another golfer standing some 50 or 55 yards to the left of and some 125 yards from him on a different fairway of the same golf course, even though visible at the time, when no warning is given that the ball is about to be driven.
Since concededly the law of Pennsylvania governs this controversy we have only to look to that source for controlling authority. The number of cases in Pennsylvania having direct application is small but the similarity and relevancy of the authority is striking. In Benjamin v. Nernberg, 1931, 102 Pa.Super. 471, 157 A. 10, 11,[2] the facts are strongly apposite. In the cited case the sixth and seventh fairways were somewhat parallel and quite close. The plaintiff was on the sixth green preparing to putt. The sixth green was some 100 feet in advance of the seventh tee and 120 feet to the left of the seventh fairway extending from the seventh tee to the seventh green. The defendant in the cited case was driving from the seventh tee intending to drive his ball directly to the seventh green but by some hook or slice, or as the result of an improper posture or stance, the ball struck the plaintiff, who was then on the sixth green, resulting in the injury complained of. In the cited case, as here, it was contended that the defendant was guilty of negligence in not warning the defendant before making the drive. In the cited case the court said, "* * * the entire No. 7 fairway was clear before the defendant; plaintiff was not in the line of defendant's play; he was not where any one could reasonably believe that he was in danger of being struck by a ball driven from No. 7 tee * * *. There was no duty, under the facts of this case, on defendant to warn plaintiff of his intention to play. * * *"[3]
The facts of the instant case, while almost identical with the case cited, seem considerably stronger. The plaintiff in both cases was playing on a different fairway from the defendant and not in the line of the defendant's play. In the cited case the plaintiff seems to have been about 156 feet from the defendant, while in the present case such distance is conceded to have been about 375 feet, or 125 yards.
The present plaintiff urges this court to adopt the views expressed by a Pennsylvania trial court en banc in Brosko v. Hetherington, 1931, 16 Pa. Dist. & Co. R. 761. In that case a caddy (not of the defendant player) was standing some 25 or 30 feet to the right and about six feet in front of the tee from which the defendant drove his ball. In that position he was struck by a ball "irregularly driven by the defendant after several attempts to drive from the tee." Reliance was had upon the failure to give warning of the intended shot.
I cannot adopt the views of Brosko v. Hetherington and disregard Benjamin v. Nernberg. In Brosko v. Hetherington the then recent Benjamin case was referred to and the two cases were distinguished upon the facts. Whether this distinction was well founded is now of no moment. The present case now pending cannot be distinguished by me from Benjamin v. Nernberg, with which it is almost precisely similar. If Brosko v. Hetherington could validly be distinguished from the Benjamin case and this case cannot be so distinguished, then the Brosko case is not here closely material. If the distinction between the Brosko and Benjamin cases was in words only, then this court must follow the *62 ruling of Benjamin v. Nernberg as being the judgment of an appellate tribunal and the judgment of the highest court of Pennsylvania that has considered the problem.
In Benjamin v. Nernberg the court said, "Having already decided that there was no duty on defendant to warn plaintiff of the intended play, it follows that, if plaintiff was struck by a ball driven by defendant, the plaintiff had assumed, as a matter of law, the risk of injury resulting from his own participation in the game he and all the others were then playing." Authorities upon the voluntary assumption of risk in sports and games may be found partially collected in a note in 21 Temple L.Q. 289 (January 1948).
Applying the Pennsylvania law as disclosed by Benjamin v. Nernberg, as I am bound to do, to the undisputed facts in this case, I must grant the summary judgment in favor of the defendant as moved by him. An order may be submitted.
NOTES
[1] Klaxon Co. v. Stentor Electric Mfg. Co., Inc., 1941, 313 U.S. 487, 496, 61 S. Ct. 1020, 85 L. Ed. 1477.
[2] Reported from the trial en banc in 79 Pitts. Legal Journal 47 and on appeal as above indicated.
[3] Allocatur in this case was denied by the Supreme Court of Pennsylvania. 102 Pa.Sup. Ct. XXV. An allocatur seems to be in the nature of a permissive appeal either allowed specially by the Superior Court or by any judge of the Supreme Court of Pennsylvania. Pennsylvania Act of June 24, 1895, Sec. 7, 17 P.S. § 181 et seq. For the effect of a denial of an allocatur see Dougherty v. Proctor & Schwartz, 317 Pa. 363, 365, 176 A. 439. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1612234/ | 745 F. Supp. 1540 (1990)
NEW KIDS ON THE BLOCK, a Massachusetts general partnership consisting of Donnie Wahlberg, Danny Wood, Jonathan Knight, Jordan Knight and Joe McIntyre, Dick Scott Entertainment, Inc., a New York corporation, Info-Tainment, Inc., a Pennsylvania corporation, Winterland Concessions Co., a California corporation, and Big Step Productions, Inc., a New York corporation, Plaintiffs,
v.
NEWS AMERICA PUBLISHING, INC., a Delaware corporation dba Star Magazine, Defendant.
NEW KIDS ON THE BLOCK, et al., Plaintiffs,
v.
GANNETT SATELLITE INFORMATION NETWORK, INC., a Delaware corporation dba USA Today, Inc., Defendant.
Nos. CV 90-1376 WJR (JRX), CV 90-1378 WJR (JRX).
United States District Court, C.D. California.
September 7, 1990.
*1541 Pillsbury, Madison & Sutro by Philip Heller, Los Angeles, Cal., for plaintiffs New Kids On The Block, et al.
O'Melveny & Myers by Charles Diamond, Los Angeles, Cal., for defendant Gannett Satellite.
Gibson, Dunn & Crutcher by Rex S. Heinke, Los Angeles, Cal., for defendant News America Pub., etc.
MEMORANDUM DECISION AND ORDER RE SUMMARY JUDGMENT
REA, District Judge.
The Court has reviewed and considered the moving and opposing papers, the record of the case, the arguments of counsel, the applicable authorities and good cause appearing therefore:
IT IS HEREBY ORDERED that the defendants' motions for summary judgment are GRANTED and the plaintiffs' motions for summary judgment are DENIED.
The issue before the Court is whether the First Amendment provides immunity to defendants from plaintiffs' causes of action for trademark infringement and misappropriation. The Court concludes that the test articulated in Rogers v. Grimaldi, 875 F.2d 994 (2d Cir.1989), is applicable in situations where claims of trademark infringement might encroach on First Amendment rights. As such, the First Amendment provides immunity to defendants in this case unless their use of the plaintiffs' trademark was wholly unrelated to news gathering and dissemination, misleading as to content, or falsely and explicitly denoted authorship, sponsorship, or endorsement *1542 by the New Kids on the Block. Similarly, the appropriate test for misappropriation claims under California law is that the First Amendment provides immunity unless the defendants' use of the New Kids on the Block name and likeness constituted pure commercial exploitation and was wholly unrelated to news gathering and dissemination. The Court finds that the defendants were involved in the constitutionally protected activity of news gathering and dissemination when they conducted a poll regarding the New Kids on the Block with 900 number technology. Plaintiffs have not raised a genuine issue of material fact that would strip defendants of First Amendment protection. Therefore, the First Amendment bars plaintiffs' trademark infringement claims and misappropriation claims.
BACKGROUND
Defendants Gannett Satellite Information (hereafter USA Today) and News America Publishing (hereafter Star Magazine) both used a 900 number service in their publications to conduct a poll relating to one of today's hottest pop music groups New Kids on the Block (New Kids). 900 number services can provide recorded information, allow callers to engage in conversation on a party line, or record information by punching in the appropriate number on a touch tone phone. Callers to 900 number services are charged a fee for participating in the telephone service.
The March 6, 1990 edition of Star Magazine included two articles, with photographs, about the New Kids. The "article" in question asked, "Now which kid is the sexiest?" and asked the readers to call a 900 number to cast their vote at a charge of 95 cents per minute. When a reader called Star Magazine's 900 number to name the sexiest New Kid, Star Magazine then solicited the caller's participation in "Star Magazine's entertainment trivia game," a separate 900 number service. Star Magazine has presented evidence that the results of this poll were never published because of this litigation.
In an "article" run on February 6, 1990, USA Today announced that it would conduct a survey on the New Kids in connection with a review of New Kids' Disney Channel concert and a story regarding the unveiling of the New Kids doll collection. The survey was conducted February 7, 1990, and included a logo asking "Who's the Best on the Block?" The survey asked "Which of the five is your fave? Or are they a turn off?", listed the 900 number to call, and stated that the results would be published in Friday's Life section. Callers were charged 50 cents per minute. USA Today's February 9, 1990 Life Section published a page-one story reporting the public's preferences among the New Kids' members.
Plaintiffs brought eleven causes of action against Star Magazine and USA Today alleging federal and state statutory and common law infringement; dilution[1] of the plaintiffs' trademark, service mark and trade name; and commercial misappropriation. The federal and state statutory and common law infringement claims are based on the theory that defendants disseminated false or misleading information to the public which was likely to confuse the public with respect to the relationship between the plaintiffs' and the defendants' 900 number services.[2] The misappropriation claims are based on the theory that the defendants' *1543 reference to the New Kids in announcing the 900 number surveys constituted a misappropriation of their publicity rights.[3]
Plaintiffs state that they have been using the New Kids mark since 1986 to identify the group and their goods and services. Among the New Kids' services under the New Kids mark are two 900 number telephone hotlines. Plaintiffs claim that the use by Star Magazine and USA Today of the 900 number to conduct a survey was a commercial, profit oriented venture that infringed on the New Kids trademark. Plaintiffs argue that defendants' New Kids surveys were disguised advertisements for the sale of a collateral commercial product namely, the 900 number service. Plaintiffs assert that defendants could have used an 800 number, but instead used a 900 number to commercially misappropriate the goodwill created by the New Kids and to capitalize on the public's familiarity with the goods and services identified by the New Kids mark. Plaintiffs have moved for summary judgment based on the allegation that defendants have clearly infringed on plaintiffs' intangible property rights and are not protected by the First Amendment.
Defendants Star Magazine and USA Today bring their motions for summary judgment mainly on the grounds that plaintiffs' claims are barred, as a matter of law, because the use of the 900 numbers constitutes news gathering and dissemination, and therefore, is constitutionally protected under the First Amendment.
DISCUSSION
The issue of whether the First Amendment bars the plaintiffs' causes of action is dispositive. Because the Court concludes that the First Amendment provides immunity to defendants, the Court need not address whether the New Kids have established, as a matter of law, defendants' liability for infringement or misappropriation.
I. Trademark Infringement
A. Standard
Plaintiffs assert that the proper test to evaluate the New Kids' intangible property rights in relation to the First Amendment is that outlined in Lloyd v. Tanner, 407 U.S. 551, 92 S. Ct. 2219, 33 L. Ed. 2d 131 (1972). In Lloyd, the Court addressed whether the First Amendment rights of protesters were violated when an owner of a shopping center prohibited all distribution of pamphlets on the premises. Initially, the Court found that the restriction on the distribution of pamphlets was content neutral. Next, the Court balanced the protesters' First Amendment rights against a property owner's right to exclude others from an owner's property. The Court found that property rights need not "yield to the exercise of First Amendment rights under circumstances where adequate alternative avenues of communication exist." Id. at 567, 92 S.Ct. at 2228. Plaintiffs argue that alternative methods existed for Star Magazine and USA Today to conduct surveys that would not constitute profit oriented commercial vehicles that would infringe on the New Kids trademark; for example, 800 number services, regular telephone services, letters, post cards, or telegrams were possible alternative methods. Plaintiffs state that enforcement of their property rights would not involve censorship in that plaintiffs do not want to prevent or limit reports or commentary on the New Kids. Plaintiffs characterize their case as follows: "This is not a case about communication; it is a case about remuneration. Communication is protected by the First Amendment; profit is not."
In contrast, defendants urge the Court to adopt the analysis outlined in Rogers v. Grimaldi, 875 F.2d 994 (2d Cir.1989). In Rogers, plaintiff, Ginger Rogers, brought an action against the producers and distributors of the motion picture "Ginger and *1544 Fred," alleging violations of the Lanham Act and infringement of her common law rights of publicity and privacy. The district court dismissed plaintiff's claims on summary judgment and the Second Circuit upheld the dismissal, although for different reasons. The appellate court held that the First Amendment did not provide absolute immunity to works of artistic expression because of the legitimate government concern regarding consumer deception. Id. at 997. Nevertheless, "[t]hough the First Amendment concerns do not insulate titles of artistic works from all Lanham Act claims, such concerns must nonetheless inform our consideration of the scope of the Act as applied to claims involving such titles." Id. at 998 (footnote omitted). The court concluded that the Lanham Act should be read narrowly so as not to unduly intrude on First Amendment values. Id. The court specifically rejected the plaintiff's request to apply the "no alternative avenues of communication" standard developed in Lloyd v. Tanner, 407 U.S. 551, 566-67, 92 S. Ct. 2219, 2227-28, 33 L. Ed. 2d 131 (1972) because this standard did not "sufficiently accommodate the public's interest in free expression." Rogers, 875 F.2d at 999. Thus, the court adopted a balancing test stating that the Lanham Act "should be construed to apply to artistic works only where the public interest in avoiding consumer confusion outweighs the public interest in free expression." Id. Specifically, the Court stated the test as follows: "In the context of allegedly misleading titles using a celebrity's name, that balance will normally not support application of the Act unless the title has no artistic relevance to the underlying work whatsoever, or, if it has some artistic relevance, unless the title explicitly misleads as to the source or the content of the work." Id. (footnote omitted). Although Rogers concerned First Amendment values in the context of artistic expression, the First Amendment plays the same central role regarding news gathering and dissemination. In Branzburg v. Hayes, 408 U.S. 665, 681, 92 S. Ct. 2646, 2656, 33 L. Ed. 2d 626 (1972), the Court stated, "We do not question the significance of free speech, press, or assembly to the country's welfare. Nor is it suggested that news gathering does not qualify for First Amendment protection; without some protection for seeking out the news, freedom of the press could be eviscerated." In Daily Herald Co. v. Munro, 838 F.2d 380, 384 (9th Cir.1988), the Ninth Circuit recognized that "the First Amendment protects the media's right to gather news" and held that exit polling is speech protected by the First Amendment.[4] The Ninth Circuit also rejected the argument that news gathering was closer to commercial speech, and therefore, worthy of less constitutional protection:
The state also argues that exit polling is closer to commercial speech than political speech, and therefore less deserving of constitutional protection. A profit motive by the media plaintiffs is irrelevant to the inquiry of whether the content of their speech is political or commercial. Pittsburgh Press Co. v. Pittsburgh Commission on Human Relations, 413 U.S. 376, 385, 93 S. Ct. 2553, 2558, 37 L. Ed. 2d 669 (1973). Newsgathering is not commercial speech; commercial speech "`does "no more than propose a commercial transaction."'" Bolger v. Youngs Drug Products Corp., 463 U.S. 60, 66, 103 S. Ct. 2875, 2880, 77 L. Ed. 2d 469 (1983) (quoting Virginia State Board of Pharmacy v. Virginia Citizens Consumer Council, 425 U.S. 748, 762, 96 S. Ct. 1817, 1825, 48 L. Ed. 2d 346 (1976).
*1545 Id. at 384 n. 4. Therefore, the Lanham Act will not prohibit the use of the New Kids trademark unless the defendants explicitly and falsely denoted authorship, sponsorship, or endorsement by the New Kids or explicitly mislead as to content.
B. Application
Both USA Today and Star Magazine have presented evidence that the use of the New Kids trademark was related to news gathering and dissemination. News worthiness is broadly defined and both Star Magazine and USA Today have represented that they conducted the 900 number survey to find out which member of the New Kids was the public's favorite and then publish those results. USA Today did in fact publish the results. Star Magazine has presented evidence of their draft article and stated that the article reflecting the survey's results was withheld because this lawsuit was initiated.[5] Thus, to raise a genuine issue of fact, plaintiffs have the burden of providing some evidence that the defendants' use of the New Kids trademark was misleading as to content or that defendants falsely and explicitly denoted authorship, sponsorship, or endorsement by the New Kids.
Plaintiffs have not alleged that the use of the 900 number was misleading as to content or that Star Magazine and USA Today explicitly misrepresented that the New Kids sponsored or endorsed the service. Rather, plaintiffs rely on the theory of implicit endorsement. The Court finds that the Lanham Act does not apply unless the defendants falsely and explicitly represented that New Kids sponsored or endorsed the use of the 900 number. The risk that some people might think that the New Kids implicitly endorsed or sponsored the Star Magazine's and USA Today's 900 number services is outweighed by the danger of restricting news gathering and dissemination. See Rogers, 875 F.2d at 1000.[6]
The Court finds that the First Amendment provides immunity to defendants on plaintiffs' federal and state trademark infringement claims, and thus, these claims do not raise a genuine issue of fact that requires submission to the trier of fact. The Court GRANTS defendants' motions for summary judgment as to claims one, two, three, four, seven, eight and nine.
II. Misappropriation
"The California Supreme Court has subjected the `right of publicity' under California law to a narrowing interpretation which accords with First Amendment values." Cher v. Forum Int'l, Ltd., 692 F.2d 634, 638 (9th Cir.1982) (citing Guglielmi v. Spelling-Goldberg Productions, 25 Cal. 3d 860, 873, 603 P.2d 454, 461-62, 160 Cal. Rptr. 352, 359-60 (1979) (Bird, J. concurring)).[7] The defendants' position is that their use of the New Kids name and likeness is protected by the First Amendment *1546 unless such use is wholly unrelated to constitutionally protected news gathering and dissemination.[8] In Midler v. Ford Motor Co., 849 F.2d 460 (9th Cir.1988), the court discussed the First Amendment in the context of whether defendant could use an imitation of plaintiff's voice to advertise merchandise.
The First Amendment protects much of what the media do in the reproduction of likenesses or sounds. A primary value is freedom of speech and press. Time, Inc. v. Hill, 385 U.S. 374, 388 [87 S. Ct. 534, 542, 17 L. Ed. 2d 456] (1967). The purpose of the media's use of a person's identity is central. If the purpose is "informative or cultural" the use is immune; "if it serves no such function but merely exploits the individual portrayed, immunity will not be granted." Felcher and Rubin, "Privacy, Publicity and the Portrayal of Real People by the Media," 88 Yale L.J. 1577, 1596 (1979).
Id. at 462. Here, USA Today's and Star Magazine's use of the New Kids name occurred in the context of a protected First Amendment activity gathering information for dissemination to the public. Defendants claim that they were using the New Kids name in a descriptive capacity. California courts have specifically allowed incidental commercial exploitation of a public figure's name and likeness in the context of a publication's advertising activities. See, e.g., Guglielmi, 25 Cal.3d at 873, 603 P.2d at 462, 160 Cal.Rptr. at 360. Total commercial exploitation is not allowed.
Midler, 849 F.2d 460.
Plaintiffs argue that the defendants' method of gathering information constitutes a collateral commercial enterprise which takes the defendants' use of the New Kids name outside of the protection of the First Amendment. Plaintiffs have raised an interesting issue in that the 900 number services could be construed as a commercial enterprise as distinguishable from the commercial enterprise of running the publication itself. Nevertheless, the fact that the use of the New Kids name was descriptive and related to the constitutionally protected activity of news gathering and dissemination and not merely commercial exploitation compels the conclusion that the activity is constitutionally protected.
Importantly, First Amendment protection does not hinge upon whether or not an activity is profitable or unprofitable. In Joseph Burstyn, Inc. v. Wilson, 343 U.S. 495, 501-02, 72 S. Ct. 777, 780, 96 L. Ed. 1098 (1952), the Supreme Court found as follows:
It is urged that motion pictures do not fall within the First Amendment's aegis because their production, distribution, and exhibition is a large-scale business conducted for private profit. We cannot agree. That books, newspapers, and magazines are published and sold for profit does not prevent them from being a form of expression whose liberty is safeguarded by the First Amendment. We fail to see why operation for profit should have any different effect in the case of motion picture.
The California Supreme Court has also rejected the relevance of a profit motive when First Amendment rights were involved in a misappropriation case. In Guglielmi v. Spelling-Goldberg Productions, 25 Cal. 3d 860, 160 Cal. Rptr. 352, 603 P.2d 454 (1979), the court stated that:
The First Amendment is not limited to those who publish without charge. Whether the activity involves newspaper publication or motion picture production, it does not lose its constitutional protection because it is undertaken for profit.... The fact that respondents sought to profit from the production and exhibition of a film utilizing Valentino's name *1547 and likeness is not constitutionally significant.
25 Cal.3d at 868-69, 160 Cal. Rptr. 352, 603 P.2d 454 (citations omitted); see also Daily Herald Co. v. Munro, 838 F.2d 380, 384 (9th Cir.1988) (stating profit motive irrelevant on issue of whether speech political or commercial).
Finally, this is not a case that would fall under the rule created by the United States Supreme Court in Zacchini v. Scripps-Howard Broadcasting Co., 433 U.S. 562, 97 S. Ct. 2849, 53 L. Ed. 2d 965 (1977). In Zacchini, the Court determined that a news-cast's broadcast of plaintiff's entire 15 second act of being shot out of a cannon infringed on plaintiff's right to publicity. The Court weighed defendant's First Amendment rights against plaintiff's right to earn a livelihood. The Court found that "[t]he broadcast of a film of petitioner's entire act poses a substantial threat to the economic value of that performance." Id. at 575, 97 S.Ct. at 2857. Because there is no similar substantial threat to the economic value of the New Kids name, the Court should not adopt the Zacchini rule in this case.
The Court finds, as a matter of law, that the defendants' use of the New Kids name and likeness was related to news gathering and not mere commercial exploitation. Thus, the First Amendment immunizes USA Today and Star Magazine from plaintiffs' misappropriation claims. The Court GRANTS defendants' motions for summary judgment as to claims five, six, and ten. Consequently, plaintiffs' eleventh cause of action for the remedy of a constructive trust is dismissed.
CONCLUSION
In concluding that the First Amendment bars plaintiffs' claims in this case, the Court is not holding that the First Amendment provides absolute immunity for tortious conduct in connection with news gathering and dissemination. Rather, the Court has balanced the First Amendment values against plaintiffs' intangible property rights. Reaching such a conclusion adequately protects the plaintiffs' rights in their intangible property and rights of publicity. Had the plaintiffs shown that USA Today or Star Magazine began running a 900 number in a manner that was wholly unrelated to news gathering and reporting, the First Amendment would provide no protection. For example, if the defendants provided 900 number services that had no relation to any proposed article or continued running the 900 number service past the time of the publication of the article, plaintiffs could sustain their burden of showing that a defendants' use of the New Kids name was not related to a protected First Amendment activity and constituted commercial exploitation. Because the plaintiffs have not raised a genuine issue of material fact regarding whether USA Today's and Star Magazine's use of a 900 number service was unrelated to news gathering and dissemination, misleading as to content, or explicitly false as to sponsorship, endorsement or authorization, summary adjudication of this matter is proper.
*1548-1552
NOTES
[1] It is in dispute whether or not plaintiffs have alleged a cause of action for dilution. Plaintiffs did not specifically cite California Business and Professions Code § 14330, but stated in paragraph 6 of the complaint that defendants "threaten to dilute" plaintiffs' mark. Even if this is sufficient to state a claim for dilution, the First Amendment analysis applies equally to this claim.
[2] The following causes of action fit under this theory: common law trademark infringement (First Claim); Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), (hereafter Lanham Act) false advertising (Second Claim); Lanham Act false designation of origin (Third Claim); Lanham Act unfair competition (Fourth Claim); trade name infringement (Seventh Claim), false advertising under Cal.Bus. & Prof.Code § 17200 (Eighth Claim); and unfair competition under Cal.Bus. & Prof.Code §§ 17200 and 17500 (Ninth Claim).
[3] The following causes of action fit under this theory: commercial misappropriation under Cal.Civ.Code § 3344 (Fifth Claim); common law misappropriation (Sixth Claim); and interference with prospective economic advantage (Tenth Claim). The Eleventh Claim for the remedy of a constructive trust is dependent on the viability of the other ten causes of action and does not stand on its own.
[4] See also Nicholson v. McClatchy Newspapers, 177 Cal. App. 3d 509, 223 Cal. Rptr. 58 (1986) ("First Amendment therefore bars interference with this traditional function of a free press in seeking out information by asking questions."); Clean-Up '84 v. Heinrich, 759 F.2d 1511 (11th Cir.1984) (holding that a state statute interfering with the news gathering activity of taking voter exit polls was unconstitutional). The Court notes that the First Amendment does not provide absolute immunity. See Dietemann v. Time, Inc., 449 F.2d 245, 249 (9th Cir.1971) (holding that "The First Amendment has never been construed to accord newsmen immunity from torts or crimes committed during the course of newsgathering. The First Amendment is not a license to trespass, to steal, or to intrude by electronic means into the precincts of another's home or office.").
[5] Star Magazine's case is somewhat distinguishable from USA Today's in that Star Magazine took the opportunity to solicit the caller's participation in "Star Magazine's entertainment trivia game," a separate 900 number service. Notwithstanding this fact, the Court still finds Star Magazine's activity within the broad scope of constitutional protection afforded to First Amendment activities.
[6] In Cher v. Forum Int'l, Ltd., 692 F.2d 634, 639-40 (9th Cir.1982), cert. denied, 462 U.S. 1120, 103 S. Ct. 3089, 77 L. Ed. 2d 1350 (1983), the court upheld the trier of fact's finding that Cher had demonstrated implied endorsement and stated a cause under an appropriation of publicity theory. Cher is distinguishable because it was an appropriation of publicity case versus a Lanham Act case. Additionally, even if allegations of implied endorsement are sufficient under the Lanham Act, plaintiffs have not raised a genuine issue of fact. In Cher, the defendants falsely stated that Cher had told its publication things that it wouldn't tell others. In contrast, the New Kids' claim of implied endorsement rests on the fact that the poll announcement was in the defendants' publications and this mere relationship is sufficient to state a cause of action for implied endorsement. This is insufficient as a matter of law. See Universal City Studios, Inc. v. Ideal Publishing Corp., 195 U.S. P.Q. 761 (S.D.N.Y.1977).
[7] Additionally, the California Supreme Court has interpreted the California Constitution as providing greater protection to speech than does the First Amendment. See Robins v. Pruneyard Shopping Center, 23 Cal. 3d 899, 592 P.2d 341, 153 Cal. Rptr. 854 (1979), aff'd, 447 U.S. 74, 100 S. Ct. 2035, 64 L. Ed. 2d 741 (1980) (declining to adopt the "alternative avenue of communication" test developed in Lloyd v. Tanner).
[8] Additionally, defendants claim that California Civil Code § 3344(d) expressly exempts from liability the use of a name or likeness in connection with a news report, and hence, plaintiffs' fifth and sixth causes of action are barred. Plaintiffs assert that § 3344(d) provides no more protection than that of the First Amendment. As the Court concludes that plaintiffs' causes of action are barred by the First Amendment, the Court need not reach a decision as to the scope of § 3344(d). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1613257/ | 513 F. Supp. 532 (1981)
Dr. Edwin G. HYDE
v.
JEFFERSON PARISH HOSPITAL DISTRICT NO. 2 and the East Jefferson Hospital Board.
Civ. A. No. 78-750.
United States District Court, E. D. Louisiana.
January 23, 1981.
*533 *534 *535 Phillip A. Wittman and John M. Landis Stone, Pigman, Wlather, Wittman and Hutchinson, New Orleans, La., for plaintiff.
Lucas J. Giordano, Mmahat, Gagliano, Duffy & Giordano, Metairie, La., for defendants.
MITCHELL, District Judge.
This matter was tried to the Court on a former date. The Court now makes the following written findings of fact and conclusions of law in accordance with Rule 52(a) of the Federal Rules of Civil Procedure.
FINDINGS OF FACT
I.
Plaintiff, Dr. Edwin G. Hyde, is a medical doctor, licensed to practice by the State of Louisiana. Dr. Hyde is board certified in anesthesiology and is engaged in the practice of that specialty, primarily doing obstetric work at Lakeside Hospital in Metairie, Louisiana.
II.
Defendant Jefferson Parish Hospital District No. 2 (hereinafter the District) is a political subdivision of the State of Louisiana, created by the Jefferson Parish Council in accordance with the provisions of La. R.S. 46:1051 et seq. The District owns East Jefferson General Hospital (hereinafter East Jefferson) which was constructed with public monies. The Jefferson Parish Council is the governing authority of the District and has delegated its responsibility to operate East Jefferson to a twelve man Board of Directors (hereinafter the Board) which has the ultimate responsibility for the quality of medical care provided by the hospital. The Board appoints an executive director to carry out its policies in the daily operations of the hospital. Mose Ellis has been employed as the Executive Director of the hospital since January, 1968 which was prior to the hospital's construction.
III.
The by-laws of East Jefferson Hospital provide for the appointment of a separate body, the Medical Staff, which consists of the heads of various medical departments in the hospital. The Medical Staff develops its own set of rules and by-laws, which are subject to ratification by the Board.
Physicians applying for medical staff privileges must submit an application to the hospital director. The accuracy of the information given is checked by hospital employees and the application is then forwarded to the Credentials Committee of the Medical Staff for review of the applicant's qualifications. That Committee then makes a recommendation to the Medical Executive Committee which in turn makes a recommendation to the Board of Directors.
Pursuant to the by-laws of the hospital and the medical staff the Board makes the ultimate determination with regard to the appointments of physicians to the medical staff with the limitation that it must make its choices from physicians who receive recommendations from the medical staff.
*536 IV.
East Jefferson entered into a contract with Roux & Associates, a professional medical corporation, to provide anesthesia services to the hospital prior to its opening in February, 1971. The contract provided that the anesthesia services would be exclusively provided by Roux and Associates and that members of the group would not provide its services elsewhere without the written authorization of the hospital. The Board felt that a closed group policy was in the best interest of quality patient care. Ellis testified that it was determined that a closed system would be more advantageous because anesthesiology is a hospital based specialty and the Board was of the opinion that the responsibility for the development and management of the department should be placed upon one individual with legal obligations to the institution. Other reasons given for choosing that system were that the supervision of some twenty nurses and the monitoring of specialized equipment could best be handled by one individual or group always present at the hospital. The hospital felt it necessary to have a group on call for twenty-four hours a day so that it could be assured of the presence of a physician in the event of an emergency arising. The closed system would also facilitate the scheduling of operations and result in a more efficient use of operating rooms since there would be no delay while waiting for outside anesthesiologists to arrive. The Board also felt a closed system would allow them to closely monitor the medical standards employed by the members of their department. The medical staff was well satisfied with the system under Roux and Associates and the Board wished to continue under the same conditions. Ellis stated that a patient was free to go to another hospital if he desired to use a particular anesthesiologist who is not on East Jefferson's staff.
V.
The hospital entered into a second contract with Roux and Associates in January 1976. At Dr. Roux's request the language designating the contract as an exclusive one was omitted. However, in another section, the contract continued to provide that all anesthesia services at the hospital were to be provided by the Roux group. Ellis stated that at no time did the Board express an intent to change its policy with regard to the closed system. Ellis had no firsthand knowledge of the Roux doctors practicing elsewhere though he had heard rumors that such was occurring. Ellis stated that doctors who are not on the East Jefferson medical staff could apply for temporary privileges to practice on a case by case basis.
VI.
Ellis testified that the hospital charges patients one fee for the professional services rendered by the anesthesiologist and for the anesthesia services provided by the hospital. The hospital pays the salaries of the nurses and purchases the equipment and supplies for the anesthesia department. A large number of the supplies are purchased from out of state. It also provides housekeeping, record keeping and maintenance services to the department.
The anesthesiologist determines the fee for the anesthesia service provided dependent upon the complexity and length of the operation performed. The hospital deducts 8% for bad debts, charity and other write offs from the gross receipts of the department and 50% of the remainder is paid to Roux and Associates for its professional services. Ellis testified that it was in accord with hospital industry practice to pay hospital based specialists a certain percentage of the receipts. Ellis also testified that the anesthesiology department generally made a profit but that the purpose of the closed anesthesiology department was to provide quality patient care and not for the financial profit of the hospital.
Ellis testified that anesthesia services were often paid in part by federal medicare and medicaid benefits.
VII.
Dr. Kermit Roux formed Roux and Associates in 1970 and began work at East Jefferson *537 in 1971. Roux testified that he requested the omission of the exclusive language in his 1976 contract because he believes a surgeon or patient is entitled to the services of the anesthesiologist of his choice. He admitted that he and others in his group did work outside East Jefferson following the 1976 contract but felt he was not in violation of the contract in light of the changes made in it.
Roux testified that he employed three other doctors in his group and that there are usually thirteen or fourteen certified registered nurse anesthesists (CRNA's) on duty during operations. CRNA's are registered nurses with two years training as anesthesists. They are used in every hospital in the New Orleans area because there are more hospitals than anesthesiologists in Louisiana.
Dr. Roux testified that the anesthesiologist prescribes the anesthetic to be given and the equipment to be used. The doctor administers the drugs and remains in the operating room until he is confident the patient is in stable condition. He then goes to another operating room leaving the nurse to monitor the patient. The doctor again checks the patient in the recovery room. In Roux's opinion neither the hospital nor its nurses are engaging in the practice of medicine.
Roux was unaware of any complaints being made about his group's services.
VIII.
Dr. Edwin Hyde submitted an application for medical staff privileges to the hospital on July 14, 1977. The Credentials Committee approved his credentials and qualifications and referred the application to the Medical Executive Committee which considered his qualifications and forwarded his application to the Board of Directors with a recommendation of approval.
A Board of Directors meeting was held on September 20, 1977 and the minutes reflect there was discussion with regard to the application of Dr. Hyde to the anesthesiology department. It was noted that Hyde would not be a member of the Roux and Associates group and a motion was made to table the application for further study.
A Board meeting was held on October 18, 1977 and the Hyde application was presented for action. The Board denied the application after a discussion with regard to the benefits of an exclusive contract with hospital based specialists and the Board concluded that a closed system was in the best interest of the hospital and quality patient care.
Ellis wrote Dr. Hyde on October 19, 1977 and informed him that he had not been accepted for medical staff membership due to the exclusive nature of the contract between the hospital and Roux and Associates and because there were no openings in the Department of Anesthesia. Ellis stated that in giving the second reason he meant that Dr. Roux had no membership openings in his group.
Dr. Hyde was not told of any right to appeal his decision nor provided with a copy of the hospital's by-laws.
IX.
Dr. Charles Eckert is an anesthesiologist employed by Roux and Associates. He also did some work at Lakeside Hospital in 1977 and 1978. Eckert wrote a letter of recommendation to East Jefferson on Dr. Hyde's behalf. It is his opinion that a patient should be given the right to choose his anesthesiologist.
Eckert stated that the Roux group had requested that the exclusive language be removed from its contract because the group was being criticized by their peers for acting unethically.
However, other than that criticism, Eckert stated there had been no other problems with the closed anesthesiology department which is a common practice in the majority of hospitals in the area. He believes such a department is advantageous because the same individuals are working together daily as a team and the technicians learn to anticipate the manner in which the *538 doctors proceed. Eckert also was of the opinion that it provides flexibility in the scheduling of operating rooms because the hospital does not have to postpone activity while waiting for another group to arrive. It is also easier to have one group operate and maintain the equipment used since they are immediately aware of any problems and can have them remedied. Eckert stated that members of his group had used Lakeside's equipment without any difficulty but that it is not as complex as the equipment used at East Jefferson where more difficult surgeries are performed.
Eckert testified that there are one hundred fifty-six anesthesiologists in Louisiana and three hundred forty-five hospitals with operating rooms. He testified that in order to have an anesthesiologist present at every operation, East Jefferson would have to employ more than twelve anesthesiologists on its staff.
X.
Mrs. Melvaize Tedeschi is the Director of Operating Rooms at East Jefferson Hospital. She stated that the hospital performs approximately 875 operations per month. She testified that there are generally twelve or thirteen operating rooms in use at one time and four anesthesiologists working. Tedeschi is of the opinion that the nurses are well monitored and has heard many compliments given to the Roux group. She is of the further opinion that if there were outside anesthesiology groups working at the hospital it would decrease the flexibility in scheduling of operations. She also pointed out that if an operation was cancelled there might be a waiting period until the next doctor arrives.
XI.
Dr. John Rourke has been a member of the East Jefferson Board since it was formed. He testified that the Board always assumed that certain departments would be administered by a single group which would develop that department.
Rourke stated that he knew that at one point Touro Hospital had used two separate groups and had experienced problems with competitiveness between those groups. The problems began because the surgeons would generally give priority to one group and he would then have problems dealing with the other group because they felt they were second choice. Touro eventually entered into a contract with one group.
Rourke stated that problems arise because the physicians all want to begin at the same time and also in the absence of a contract there may not be an anesthesiologist available in an emergency situation, thus placing a patient's health at risk.
Rourke stated the Board and staff were pleased with the work of the Roux group and wanted to continue to have a contract with them to guarantee their availability and the best patient care.
Dr. Rourke testified that a patient is paying a medical fee for the expertise of the anesthesiologist in prescribing the drugs used and performing complex procedures. He stated that the nurses merely monitor the patient's progress during the operation and are not making critical medical determinations.
Dr. Rourke stated that East Jefferson is not a charity hospital and the hospital's operating revenues are obtained from the patient's payments for services rendered. It is a public hospital because it was constructed with community funds.
XII.
Nicholas Gagliano has also been a member of the Board of Directors since the inception of the hospital.
He testified that the Board has had continued input from the medical staff with regard to the merits of the closed system anesthesiology department and that the Board has re-evaluated its policy and has continued to find that the closed system is the best manner to operate to insure the twenty-four hour availability of quality anesthesia services.
He testified that the hospital has informed the Roux group that it is in violation of its contract to practice elsewhere.
*539 XIII.
Dr. John Andriani has been practicing anesthesiology at Charity Hospital for forty years. He organized the CRNA training program and established the anesthesiology residency at Charity.
Dr. Andriani testified that he is opposed to the closed anesthesiology departments because a patient loses a right to select the anesthesiologist of his choice and also causes competent physicians to lose jobs. He opined the lack of competition within a hospital will discourage the group with the exclusive contract from improving or initiating new techniques and procedures. Andriani also believes that the closed system discourages anesthesiologists from coming to New Orleans and medical students from entering the field because of a lack of positions in this area.
Andriani is also of the opinion that the hospitals are employing CRNA's and improperly charging patient's medical fees for their services. He believes that one anesthesiologist should supervise no more than three and at most four nurses during operations.
XIV.
Dr. Edwin Hyde practiced anesthesiology in Florida and at Baptist Hospital, New Orleans, for seven years prior to joining the staff at Lakeside Hospital in 1971. He is associated with two other anesthesiologists at Lakeside. However, Lakeside Hospital has an open department and other anesthesiologists regularly practice there. Hyde testified that a booking secretary schedules the Lakeside operations and there is no problem with outside anesthesiologists coming in to work. He stated that similar systems had worked in the Florida hospital where he worked and at Baptist Hospital without any difficulties.
Hyde does not have a contract with Lakeside Hospital. He bills his patients separately and his group employs its own nurses. The hospital has a maintenance contract on the equipment and any problems with it are reported to Hyde since he is the chairman of the Department. Hyde stated that this system operates without any problems.
Hyde stated that he would continue his separate billing procedure at East Jefferson but would only bring his own nurses if he was doing a complex surgery. The majority of his work at Lakeside is obstetrics and he feels he could attract more doctors to his group if he could do different types of surgery at another hospital. He is of the opinion that exclusive contracts discourage anesthesiologists from coming into the area because they limit the openings at hospitals.
XV.
Jessie Smallwood, executive director of the Bayou River Health Systems presented data showing which hospitals the patients residing in certain zip code areas attend over various time periods. Her information was incomplete because at various times certain hospitals did not participate in the surveys. There is also no information with regard to which patients had surgery.
The data showed that approximately seventy per cent (70%) of the patients who are residents of Jefferson Parish entered hospitals located in the metropolitan New Orleans area other than East Jefferson. Seventy per cent (70%) of the patients entering East Jefferson are residents of East Bank Jefferson Parish. Several hundred patients from out of state were admitted to East Jefferson Hospital in 1978 and 1979.
XVI.
Based on the evidence presented the Court concludes that the Board of Directors was acting within its statutory authority under state law and the hospital's by-laws in not adopting the medical staff's recommendation and denying Dr. Hyde medical staff privileges.
XVII.
The Court also finds that the portion of the anesthesia fees retained by the hospital bears a reasonable relationship to the services and materials provided by the hospital in connection with anesthesiology services.
*540 The Court finds that the hospital did not improperly engage in the diagnosis and treatment of patients. The evidence shows that the anesthesia services are provided by the anesthesiologist who prescribes the drugs used and performs all procedures requiring expertise. The CRNA's work under the supervision of the anesthesiologists and their function is to monitor the patients while they are anesthetized.
XVIII.
The evidence shows that in the operation of its anesthesia department the defendants are involved in activities which have a not insubstantial effect on interstate commerce. These include buying anesthesia medicines and other supplies from out of state, the receipt by patients of federal medicare and medicaid benefits to pay for anesthesia services and the treatment of out of state patients who require anesthesia services.
XIX.
The evidence presented was that it is a common practice in the health care industry for hospitals to enter into exclusive contracts with physicians who are engaged in certain hospital based specialties, such as anesthesiology, radiology, pathology, etc. to insure the availability of these services to their patients. Generally a patient does not specifically select a certain individual to perform these services, which increases the hospital's responsibility to insure the quality of services it provides.
The evidence presented was that defendants instituted a closed system anesthesiology department because they believed the system resulted in the best quality of patient care. Specifically the system insures twenty-four hour anesthesiology coverage, aids in the control and standardization of procedures and the efficient and less costly operation of the department; it lends flexibility to the scheduling of operations because it is not necessary to accommodate physicians with outside commitments; it permits the physicians, nurses and other technicians in the department to develop a work routine and a proficiency with the equipment they use in patient treatment; and it increases the Board's ability to monitor the medical standards exercised because there are fewer individuals involved, maintenance of equipment is simplified and equipment breakdowns are minimized by limiting use to one group of physicians.
The Court does not find that the Board's motive in continuing the closed system is purely a pecuniary one. If that was its only motive it could retain a contract with one group continuing its present billing procedure and still allow other anesthesiologists to come in to practice. It appears to the Court that the Board feels that the closed system department is the best to employ to carry out their obligation to the public to offer the highest quality of medical care.
The Court concludes that the benefits discussed above support a finding of reasonableness that justifies the exclusive arrangement between the defendants and Roux and Associates.
XX.
The provision of anesthesia services is a medical service separate from the other services provided by the hospital. The hospital charges the patient a separate charge for this service.
The geographic area in East Jefferson competes in the New Orleans metropolitan area. Large numbers of patients from Jefferson Parish use the hospitals in Orleans Parish. Seventy per cent (70%) of the patients living in East Bank Jefferson Parish go to hospitals other than East Jefferson. The Court concludes that East Jefferson is competing for business at least with the hospitals located on the East Bank in Orleans Parish.
XXI.
The evidence presented did not show that East Jefferson had any advantages over any other hospitals in the area because it is a public hospital. Due to that fact (the hospital was built with public funds) however, it is not a charity hospital and its daily *541 operations are financed by patients' payments for hospital services. There was no evidence presented that East Jefferson was in a position to charge patients higher prices or to impose burdensome terms which could not be exacted in a completely competitive market. There was no evidence that East Jefferson was a dominant economic power in the market in which it competes.
The impact on commerce resulting from the East Jefferson contract is minimal. The contract is restricted in effect to one hospital in an area containing at least twenty others providing the same surgical services. It would be a different situation if Dr. Roux had exclusive contracts in several hospitals in the relevant market. As pointed out by plaintiff, the majority of surgeons have privileges at more than one hospital in the area. They have the option of admitting their patients to another hospital where they can select the anesthesiologist of their choice. Similarly a patient can go to another hospital if he is not satisfied with the physicians available at East Jefferson.
A closed department may enhance competition among the hospitals in the market by increasing the quality of medical care available. It may also serve to benefit competition among anesthesiology groups if the terms of the exclusive contracts are not for unreasonable periods of time. Such a system would serve to encourage anesthesiologists to improve the quality of their services in order to obtain these contracts with hospitals.
The Court concludes that the purpose of the exclusive contract is to enhance patient care and its restraint on competition in the field of anesthesiology is minimal.
CONCLUSIONS OF LAW
I.
The Court has jurisdiction over this action pursuant to the provisions of 28 U.S.C. § 1337 and 28 U.S.C. § 1343(3) and pendant jurisdiction over the state law claims.[1] Venue is properly laid in this district.
II.
The Sherman Antitrust Act prohibits every contract, combination or conspiracy which unreasonably restrains trade or commerce among the several states.[2] It encompasses far more than restraints on trade that are motivated by a desire to limit interstate commerce or that have their sole impact on interstate commerce. Wholly local business restraints can produce the effects condemned by the Act as long as the activity is an inseparable element of a larger program dependent for its success upon an activity which affects commerce between the states.[3]
Although it may have an effect on the determination of a violation of the Sherman Act, neither the nature of an occupation nor the public service aspect of a professional practice is controlling in determining whether or not the Act initially applies.[4] The payments exchanged for professional services constitute trade or commerce and, if the commerce involved is interstate in character, it is subject to the jurisdiction of the Sherman Act.[5]
A substantial effect on interstate commerce to satisfy the Act's jurisdictional requirements has been found in the health care field where the challenged activity has *542 some effect on the purchase of out-of-state medicines and supplies, the receipt of federal medicare and medicaid benefits and the treatment of out-of-state patients.[6] The evidence presented showed that East Jefferson Hospital made these interstate contacts in the course of the operations of its anesthesia department and the Court finds that these contacts had a not "insubstantial effect" on interstate commerce. Therefore we find jurisdiction under the Sherman Act.
III.
Plaintiff contends that the defendants have established a "tying arrangement" by tying the purchase of anesthesia services to the provision of hospital surgical facilities and that such agreement is illegal per se. We are of the opinion that the per se rules used in anti-trust cases governing regular commercial activities should not be made automatically applicable to cases involving professional activities. This will be discussed later in the opinion. However, the Court will discuss the elements involved in determining whether or not the tying agreement is illegal per se in the event an appellate court should disagree on this issue, which involves a relatively new area of law.
An agreement by a party to sell one product but only on the condition that the buyer also purchases a different or tied product, or at least agrees that he will not purchase the product from any other supplier, is a tying agreement.[7] Such agreements serve hardly any purpose beyond the suppression of competition. Tying agreements are unreasonable in and of themselves whenever a party has sufficient economic power with respect to the tying product to appreciably restrain free competition in the market for the tied product and a "not insubstantial amount" of interstate commerce is affected.[8] Where a seller has no control or dominance over the tying product so that it does not represent an effective weapon to pressure buyers into taking the tied item, any restraint of trade attributable to such arrangement is insignificant.[9] Indicia of economic power in the market is the ability of the seller to raise prices or to impose burdensome terms on purchasers which could not be exacted in a completely competitive market.[10] Another indication would be the uniqueness of the tying product (surgical procedures) which prevents the competitors from offering an equivalent product or services.[11] A third sign is that a substantial number of purchasers have accepted this agreement and there is no explanation for it other than the economic power of the seller.[12]
A relevant geographic market is the market area in which the seller operates and to which the purchaser can practically turn for supplies.[13] The evidence showed that 70% of the patients from the East Bank of Jefferson Parish go to hospitals in the metropolitan Orleans area other than East Jefferson. The data presented by the New Orleans Area/Bayou River Health System shows large numbers of Jefferson residents go to hospitals in the New Orleans area such as Mercy, Baptist, and Touro Hospitals and Hotel Dieu. Therefore plaintiff must show that East Jefferson dominated *543 the market which at least includes the Orleans Parish hospitals which are located on the East Bank. This plaintiff has failed to do. No evidence was presented that East Jefferson imposes any higher prices or imposes any more burdensome terms on its patients than other hospitals in the area. If the use of CRNA's in their anesthesia department is not a favorable procedure, it is one, according to the evidence, which is imposed by all hospitals in the area.
It does not appear from the evidence that the fact that the hospital is a public one gives it any advantage over others in the area other than that it was built with public funds. It is not a charity hospital and patients pay the same fees as they would pay elsewhere. There was no evidence that the surgical procedures available at East Jefferson are not available at other area hospitals or that the others could not provide equivalent services.
Plaintiff dwells heavily on the fact that seventy (70%) per cent of East Jefferson's patients are residents of the East Bank of Jefferson Parish. It is likely that any individual will choose to go to the hospital closest to his home if it is possible to do so for the convenience of the family. Persons living nearer to hospitals in other areas will choose to go to those hospitals if possible. The Court does not find that this factor is proof that East Jefferson is a strong economic power in the market in which it competes.
Based on the above analysis, the Court rejects plaintiff's argument that the agreement involved herein is illegal per se.
IV.
The United States Supreme Court in Goldfarb v. Virginia State Bar,[14] rejected the idea of professional occupational exemption from the anti-trust laws but intimated that a different standard should be applied to professional services in a now often cited footnote. The Court stated:
The fact that a restraint operates upon a profession as distinguished from a business is, of course, relevant in determining whether that particular restraint violates the Sherman Act. It would be unrealistic to view the practice of professions as interchangeable with other business activities, and automatically to apply to the professions anti-trust concepts which originated in other areas. The public service aspect may require that a particular practice, which could be properly viewed as a violation of the Sherman Act in another context, be treated differently.[15]
In light of that footnote the Court and commentators have suggested that the activities of professional groups should be analyzed according to the rule of reason even though the conduct might be considered a per se violation in another context.[16] Relying on the rule of reason, several courts have upheld the use of exclusive contracts in providing certain medical services to hospitals prior to the Goldfarb decision.[17]
In post Goldfarb cases different types of analysis have been suggested in applying the rule of reason to professions. One Court held that in order to survive a Sherman *544 Act challenge "a particular practice of a profession ... must serve the purpose for which the profession exists, viz, to serve the public. That is, it must contribute directly to improving service to the public. Those which only suppress competition between practitioners will fail to survive the challenge."[18] Other factors to be considered are the motive underlying the challenged restraint, as well as the relative positive and negative effects, the powers of the parties on the market they serve and whether other less restrictive means could be employed to achieve the same desired results.[19]
The Supreme Court in its first post Goldfarb decision, National Society of Professional Engineers v. U. S.,[20] implied that the inquiry of the Court in applying the rule of reason is not directed toward the justification of the anticompetitive practice, but rather toward determining whether the challenged practice has an anticompetitive effect.
We have noted in our findings of fact that there are many benefits arising from the closed system which result in improved patient care. We do not believe that the motive behind the system is a pecuniary one, as suggested by plaintiff. Any profits made in the department are put back into the hospital. It is not a situation where a certain individual or group is benefiting financially from the system. The motive appears to be to continue a system which has resulted in the operation of a successful department providing excellent health care. An open department would result in a loss of several of the advantages flowing from the system discussed in our fact findings.
We also find that the anticompetitive effect on the practice of anesthesia in the relevant market area is minimal. The East Jefferson group does not enjoy a monopoly nor does it control a substantial share of the provision of services in the relevant area. As far as the Board is concerned the Roux group practice is limited to East Jefferson Hospital. The contract does not prevent Dr. Hyde or any other anesthesiologist from practicing in any hospital other than East Jefferson in the relevant market area. This Court tends to agree with the suggestion of a commentator[21] that "exclusive relationships, such as those between hospitals and certain speciality services, can properly be characterized as enhancing competition by improving a hospital's ability to provide competent health care competitively."
V.
The Louisiana anti-trust laws provide that every contract in restraint of trade or commerce is illegal.[22] In interpreting its anti-trust laws, the Louisiana courts have looked to the federal jurisprudence for guidance.[23]
We conclude that there has been no unreasonable restraint of trade under the federal laws and that there has been no restraint in violation of the state anti-trust laws.
VI.
The operation of a public hospital, such as East Jefferson, constitutes state action and is subject to the requirements of the Fourteenth Amendment.[24]
The Fourteenth Amendment requires a public hospital to afford substantive due process to an applicant for admission *545 to a medical staff.[25] Substantive due process requires the hospital to consider applicants only on grounds that are reasonably related to the purpose of providing adequate medical care.[26] Courts have found that exclusive contracts between a public hospital and some of its staff members to operate a certain specialized facility to the exclusion of other physicians equally qualified are not unreasonable or arbitrary and are justified if their object is to provide proper medical care to surgical patients.[27]
We conclude that the defendants entered into the exclusive contract with Roux and Associates in order to provide its patients with quality anesthesia services and therefore the requirements of substantive due process have been met.
VII.
The requirements of procedural due process apply only to the deprivation of interests encompassed by the Fourteenth Amendment's protection of liberty and property. When protected interests are implicated, the right to some type of hearing is paramount. But the range of interests protected by procedural due process is not infinite.[28] The Fourteenth Amendment's protection of property is intended to secure the interests that a person has already acquired in specific benefits. For a person to have a property interest in a benefit, he clearly must have more than an abstract need or desire for it. He must have a legitimate claim of entitlement to it.[29] Relying on this principle, one court has held that a physician had no right to a due process hearing prior to the hospital denying him the right to use certain hospital facilities and equipment, finding that he had no more than a unilateral expectation to use them.[30]
The rationale behind providing a physician with the right to a hearing if he has been rejected for medical staff privileges is to give the applicant a chance to explain matters which might have lead the Board to reject him.[31] He is entitled to a hearing to clear his reputation where some stigma is being imposed on him by the state which may prevent him from taking advantage of future employment opportunities.[32] However, where an applicant's rejection has no connexity with his qualifications but rather is based on the state's desire to continue a particular system or operational regulation, his property rights are not infringed upon and he has no right to a hearing.[33]
We conclude that Dr. Hyde was not denied a property right to which he was legally entitled. It is also relevant to the Court that Dr. Hyde's qualifications were not the basis for the denial of the privileges. The Board was merely acting in conformity with its policy to have a closed system anesthesiology department. Dr. Hyde's reputation and qualifications were not at issue and therefore the underlying rationale for holding a hearing was not *546 present. Accordingly, we conclude that plaintiff was not entitled to such a hearing under the circumstances.
VII.
Defendant Jefferson Parish Hospital District was created by the Parish of Jefferson pursuant to Chapter 10 of Title 46 of the Louisiana Revised Statutes and, accordingly, the defendants are governed by the provisions of that chapter in operating the hospital.[34] Pursuant to those provisions "the Commission (the Board of Directors) shall appoint a medical staff. Such appointments shall be made upon the recommendations of the physicians who are authorized to practice in the hospital."[35] Plaintiff relies on the case of Giles v. Breaux[36] to support his argument that this provision imposes a mandatory duty on the Board of Directors to appoint physicians upon the recommendation of the medical staff.
Giles, an intermediate appellate court decision, involved an interpretation of Act No. 129 of 1950, containing the same language as the above cited provision, which was applicable to the St. Tammany Parish Hospital District. The case involved the revocation of staff privileges of a physician and the Court stated that, in its opinion, the language placed on the Commission the mandatory obligation to appoint any physician recommended for staff privileges by the medical staff.
This Court does not feel bound by Giles because it involved an interpretation of a different provision of law. We also find that the Giles court did not give a reasonable interpretation to the language contained in the provision.
The Jefferson Parish Council, by ordinance, has made the Board of Directors ultimately responsible for the administration and operation of East Jefferson Hospital.[37] The provisions of the hospital's bylaws[38] and the by-laws of the medical staff[39] provide for the Board making the ultimate determination with regard to the appointment of physicians to the medical staff after the Credentials and Medical Executive Committee have reviewed their qualifications and made a recommendation. We interpret La.R.S. 46:1058 to provide that the Board could not appoint a physician who has not received a favorable recommendation from the medical staff. It does not require the Board to appoint every physician receiving a favorable recommendation. Our interpretation gives the language used in the above provision its common and ordinary meaning in accordance with the rules of statutory construction.[40]
IX.
We hold that the hospital was not involved in the diagnosis or treatment of patients and was not illegally engaging in the unauthorized practice of medicine.[41]
X.
For the foregoing reasons, let judgment be entered in favor of defendants, Jefferson Parish Hospital District No. 2 and East Jefferson Hospital Board and against plaintiff, Dr. Edwin G. Hyde, dismissing plaintiff's suit at his cost.
NOTES
[1] United Mine Workers v. Gibbs, 383 U.S. 715, 86 S. Ct. 1130, 16 L. Ed. 2d 218 (1966).
[2] 15 U.S.C. § 1.
[3] Goldfarb v. Virginia State Bar, 421 U.S. 773, 95 S. Ct. 2004, 44 L. Ed. 2d 572 (1975); Gulf Oil Corporation v. Copp Paving Company, 419 U.S. 186, 95 S. Ct. 392, 42 L. Ed. 2d 378 (1975); United States v. Employing Plasterers Association, 347 U.S. 186, 74 S. Ct. 452, 98 L. Ed. 618 (1954).
[4] Goldfarb v. Virginia State Bar, supra; National Society of Professional Engineers v. United States, 435 U.S. 679, 98 S. Ct. 1355, 55 L. Ed. 2d 637 (1978); Horan and Nord, "Application of the Anti-trust Laws to the Health Care Delivery System", 9 Cumberland Law Review, 665 (1979).
[5] Ballard v. Blue Shield of Southern W. Va., Inc., 543 F.2d 1075 (CA4-1976).
[6] Hospital Building Company v. Trustees of Rex Hospital, 425 U.S. 738, 96 S. Ct. 1848, 48 L. Ed. 2d 338 (1976); Boddicker v. Arizona State Dental Association, 549 F.2d 626 (CA9-1977); Zamiri v. William Beaumont Hospital, 430 F. Supp. 815 (E.D.Mich.1977); Feminist Women's Health Center, Inc. v. Mohammad, 415 F. Supp. 1258 (N.D.Fla.1976).
[7] Northern Pacific Railway Company v. United States, 356 U.S. 1, 78 S. Ct. 514, 2 L. Ed. 2d 545 (1958).
[8] Spartan Grain & Mill Company v. Ayers, 581 F.2d 419 (CA5-1978).
[9] U. S. Steel v. Fortner Enterprises, Inc., 429 U.S. 610, 97 S. Ct. 861, 51 L. Ed. 2d 80 (1977).
[10] id.
[11] Moore v. Jas. H. Mathews & Co., 550 F.2d 1207 (CA9-1977).
[12] id.
[13] U. S. v. Phillipsburg National Bank & Trust Company, 399 U.S. 350, 90 S. Ct. 2035, 26 L. Ed. 2d 658 (1970).
[14] Goldfarb v. Virginia State Bar, supra, n.3.
[15] Id. at 788-89, Footnote 17.
[16] Boddicker v. Arizona State Dental Association, supra at note 6; Veizaga v. National Board for Respiratory Therapy, 19771 Trade Cas. 61, 274 (N.D.Ill.1977); Tyler, "Goldfarb v. Virginia State Bar: The Professions Are Subject to the Sherman Act", 41 Mo.Law Review, 1, 11 (1976); "Application of the Antitrust Laws to Anticompetitive Activities by Physicians", 30 Rutgers Law Review 991 (1977), see Horan and Nord at note 4.
[17] Datillo v. Tuscon Gen. Hospital, 23 Ariz. App. 392, 533 P.2d 700 (Ariz.App.1975) (exclusive contract to provide nuclear medicare services); Letsch v. Northern San Diego County Hospital District, 55 Cal. Rptr. 118, 246 Cal. App. 2d 673 (1963) (closed radiology department held reasonable and lawful); Blank v. Palo Alto Stanford Hospital Center, 44 Cal. Rptr. 572 (1965) (exclusive contract with diagnostic x-ray department held reasonable and proper method of operating a department); Benell v. City of Virginia, 104 N.W.2d 633 (1960) (closed radiology department was not arbitrary or unreasonable but in furtherance of hospital's duty to operate efficiently and economically); also see Radiology Prof. Corp. v. Trinidad Area Health, 577 P.2d 748 (Colo.1978).
[18] Boddicker v. Arizona Dental Association, supra at note 6.
[19] Hennessy v. National Collegiate Athletic Assoc., 564 F.2d 1136 (CA5-1977).
[20] National Society of Professional Engineers v. U. S., supra at note 4.
[21] See Horan and Nord, supra at note 4.
[22] La.R.S. 51:122.
[23] Loew's Inc. v. Don George, Inc., 110 So. 2d 553 (La.1959).
[24] Woodbury v. McKinnon, 447 F.2d 839 (CA5-1971).
[25] Shaw v. The Hospital Authority of Cobb County, 507 F.2d 625 (CA5-1975), affirmed on rehearing, 614 F.2d 946 (CA5-1980).
[26] Sosa v. Board of Managers of Val Verde Memorial Hospital, 437 F.2d 173 (CA5-1971).
[27] Capili v. Shott, 487 F. Supp. 710 (S.D. West Va.1978), affirmed 620 F.2d 438 (CA4-1979); Sam's v. Ohio Valley General Hospital, 413 F.2d 826 (CA4-1969); Adler v. Montefiore Hospital Association, 453 Pa. 60, 311 A.2d 634 (1973) cert. denied, 414 U.S. 1131, 94 S. Ct. 870, 38 L. Ed. 2d 755 (1974); Cobb Cty., etc. v. Prince, 242 Ga. 139, 249 S.E.2d 581 (1978) also see cases cited at n.17, supra.
[28] Perry v. Sindermanm, 408 U.S. 593, 92 S. Ct. 2694, 33 L. Ed. 2d 570 (1972).
[29] Board of Regents v. Roth, 408 U.S. 564, 92 S. Ct. 2701, 33 L. Ed. 2d 548 (1972).
[30] Adler v. Montefiore Hospital Ass'n. of W. Pa., 453 Pa. 60, 311 A.2d 634 (1973).
[31] Battle v. Jefferson Davis Mem. Hospital, 451 F. Supp. 1015 (S.D.Miss.1976).
[32] Williams v. Barry, 490 F. Supp. 941 (D.C. Dist. of Col.) (1980).
[33] Cook County College Techrs. Union Local 1600 v. Taylor, 432 F. Supp. 270 (N.D.Ill.1977); Manion v. Kreml, 264 N.E.2d 842 (Ill.App. 1970).
[34] La.R.S. 46:1051 et seq.
[35] La.R.S. 46:1058.
[36] Giles v. Breaux, 160 So. 2d 608 (La.App. 1 Cir. 1964).
[37] See plaintiff's exhibit 2, By-laws of East Jefferson General Hospital.
[38] Article VI, Section 1 of the East Jefferson By-laws provides upon recommendation by the Credentials Committee and the Executive Committee of the Medical Staff, the Board approves membership on the Medical Staff.
[39] Article III, Section 3 of the Medical Staff By-laws provide in part: Initial appointments ... to the Medical Staff shall be made by the governing body. The governing body shall act on appointments ... only after there has been a recommendation from the medical staff as provided in the by-laws.
[40] La.R.S. 1:3 and 1:4.
[41] Rush v. City of St. Petersburg, 205 So. 2d 11 (Fla.App.1967). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1614603/ | 497 F. Supp. 425 (1980)
RED RIVER TRANSPORT AND DEVELOPMENT CO., INC., d/b/a Air Freight Express, Plaintiff,
v.
CUSTOM AIRMOTIVE, INC., Defendant and Third Party Plaintiff,
v.
CHROME PLATE, INC., Third Party Defendant.
Civ. No. A3-80-42.
United States District Court, D. North Dakota, Southeastern Division.
September 9, 1980.
*426 J. P. Dosland, Dosland, Dosland & Nordhougen, Moorhead, Minn., for plaintiff.
Stephen W. Plambeck, Nilles, Hansen, Selbo, Magill & Davies, Ltd., Fargo, N.D., for defendant and third party plaintiff.
Mart R. Vogel, Vogel, Brantner, Kelly, Knutson, Weir & Bye, Ltd., Fargo, N.D., for third party defendant.
MEMORANDUM AND ORDER
BENSON, Chief Judge.
Chrome Plate, Inc., third party defendant in the above entitled action, seeks an order dismissing the third party complaint for lack of personal jurisdiction. This is a diversity action which was removed from Cass County District Court, East Central Judicial District of North Dakota to this court on April 2, 1980.
FACTS
The original complaint in this action alleges that defendant, Custom Airmotive, Inc. (Custom), sold plaintiff, Red River Transport and Development Co., Inc., d/b/a Air Freight Express (Red River), a defective Continental 10-520-F airplane engine. Red River further alleges that as a result of the engine defects, its airplane was substantially damaged by fire. Red River seeks damages in the amount of $37,669.95 for repairs and loss of use of the airplane during the repair period. Red River is a Minnesota corporation with a principal place of business in Fargo, North Dakota. Custom is an Oklahoma corporation with its principal place of business in Tulsa, Oklahoma.
Custom then instituted a third party complaint against Chrome Plate, Inc., a Texas corporation doing business in San Antonio, Texas. The complaint alleges that Chrome Plate sold Custom a defective and unreasonably dangerous cylinder which Custom installed in the engine it sold to Red River. Custom prays for contribution and/or indemnity from Chrome Plate should judgment be entered for plaintiff Red River. Custom also seeks damages of $4,638.00.
Chrome Plate, in turn, has moved for dismissal of the third party complaint for lack of personal jurisdiction. Chrome Plate asserts that as a Texas corporation, it does not have sufficient "minimum contacts" with the State of North Dakota as required to satisfy the due process clause of the United States Constitution and the North Dakota "long arm" statute, N.D.R.Civ.P. 4(b)(2).
MINIMUM CONTACTS: NORTH DAKOTA STANDARDS
Because this is a diversity case, this court must apply the law of the forum state of North Dakota in order to determine whether personal jurisdiction over Chrome Plate is proper. Pioneer Insurance Co. v. Gelt, 558 F.2d 1303, 1309 (8th Cir. 1977); Lakota Girl Scout Council, Inc. v. Harvey Fund-Raising Management, Inc., 519 F.2d 634, 637 (8th Cir. 1975); Caesar's World, Inc. v. Spencer Foods, Inc., 498 F.2d 1176, 1179 (8th Cir. 1974). The applicable standard is set out in Rule 4(b)(2) N.D.R.Civ.P. Rule 4, as amended, was promulgated and adopted by the North Dakota Supreme Court on August 11, 1978 and became effective as of January 1, 1979. The rule, in pertinent part, states as follows:
(2) PERSONAL JURISDICTION BASED UPON CONTACTS. A court of this state may exercise personal jurisdiction over a person who acts directly or by an agent as to any claim for relief arising from the person's having such contact with this state that the exercise of personal jurisdiction over him does not offend against traditional notions of justice or fair play or the due process of law, under one or more of the following circumstances:
(A) transacting any business in this state;
. . . . .
(C) committing a tort within or without this state causing injury to another person or property within this state;
*427 (D) committing a tort within this state, causing injury to another person or property within or without this state;
Rule 4(b)(2) essentially codifies the standard of International Shoe Co. v. Washington, 326 U.S. 310, 66 S. Ct. 154, 90 L. Ed. 95 (1945). In that case, the Court stated that in order for a forum state to assert in personam jurisdiction over a non-resident defendant, the defendant must have such minimum contacts with the forum state that "maintenance of the suit does not offend `traditional notions of fair play and substantial justice.'" Id. at 316, 66 S.Ct. at 158.
In addition to codifying the International Shoe standard, North Dakota has expressly adopted the Eighth Circuit format devised to aid in determining whether requisite minimum contacts are present. See Lumber Mart, Inc. v. Haas International Sales and Service, Inc., 269 N.W.2d 83, 88 (N.D. 1978). Therefore, the traditional two-step analysis which requires first, a consideration of the forum state's requirements for personal jurisdiction and second, a determination that the state requirements comport with constitutional due process shall be condensed into one test, that requiring compliance with federal due process standards. Id. at 89. Before discussing those standards, the affidavits of Chrome Plate and Custom must be considered, as they set out the facts to which the federal standards will be applied.
Chrome Plate, through an affidavit submitted by its president, George F. Spangler, asserts the following:
5. Chrome Plate, Inc. does no business in the State of North Dakota and has not done so in the past. It has never qualified to do business in that state and has no office or place of business there. It has never appointed an agent to accept service of process on its behalf in private litigation within the State of North Dakota. It now has no personnel, nor has it ever had personnel, in the State of North Dakota. It neither owns nor controls any property, real or personal, tangible or intangible, in the State of North Dakota; nor has it ever had a North Dakota telephone listing.
6. Chrome Plate, Inc. neither sells or ships its products to individuals, corporations or others located in the State of North Dakota and has never advertised its products in any publications within North Dakota.
7. Chrome Plate, Inc., does not pay any real estate, personal property, income or other taxes to the State of North Dakota, nor has it ever done so. Further, Chrome Plate, Inc. does not own any stock in any North Dakota corporation nor has it ever owned such.
. . . . .
8. Chrome Plate, Inc. has never had, nor does it now supervise, control or otherwise oversee any business operations in North Dakota, whether through distributors or dealers.
Custom, as third party plaintiff, bears the burden of proving that third party defendant Chrome Plate has maintained the minimum contacts necessary to enable the forum state of North Dakota to obtain personal jurisdiction over Chrome Plate. See Block Industries v. DHJ Industries, Inc., 495 F.2d 256, 259 (8th Cir. 1974); Glover v. Wagner, 462 F. Supp. 308, 310 (D.Neb. 1978). The only contacts alleged by Custom are set out in the affidavit of Norman D. Lickteig, President of Custom Airmotive, Inc. The affidavit merely states that Chrome Plate "advertises nationally in trade publications, and never at any time made any attempt to limit the states to which its cylinders would be shipped by Custom Airmotive, Inc."
MINIMUM CONTACTS: FEDERAL STANDARDS
Custom is essentially arguing that Chrome Plate should have foreseen the possibility that Custom would ship Chrome Plate's cylinder to North Dakota. Custom does not state any facts concerning Custom's prior dealings, if any, with North Dakota. Nor does Custom state any facts *428 concerning the size and scope of its business in general. Further, the Supreme Court has recently considered the impact of foreseeability in personal jurisdiction questions. World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 100 S. Ct. 559, 62 L. Ed. 2d 490 (1980).
In that case, respondents had purchased an Audi from World-Wide Volkswagen's retail dealer, Seaway. The evidence showed that World-Wide's market was limited to the states of New York, New Jersey and Connecticut. There was no evidence in the record of any contacts with the forum state of Oklahoma beyond the fact that the Audi was present in Oklahoma when it was involved in a car accident in which its alleged defective gas tank exploded. Id. at 299, 100 S.Ct. at 568. The Court rejected respondent's argument that it was foreseeable the Audi would be driven to Oklahoma and cause injury there. The Court made clear "the foreseeability that is critical to due process analysis is not the mere likelihood that a product will find its way into the forum State. Rather, it is that the defendant's conduct and connection with the forum State are such that he should reasonably anticipate being haled into court there." Id. at 297, 100 S.Ct. at 567. Custom has not set forth facts sufficient to uphold foreseeability as a basis for personal jurisdiction. The recent case Custom cites, Oswalt v. Scripto, Inc., 616 F.2d 191 (5th Cir. 1980), which was decided after World-Wide Volkswagen, is inapposite.
As previously noted, the Eighth Circuit has set out five well established general factors to be considered in determining whether assertion of personal jurisdiction complies with due process. These factors include the following:
(1) the nature and quality of the contacts with the forum state;
(2) the quantity of contacts with the forum state;
(3) the relation of the cause of action to the contacts;
(4) the interest of the forum state in providing a forum for its residents; and
(5) the convenience of the parties.
See Toro Co. v. Ballas Liquidating Co., 572 F.2d 1267, 1270 (8th Cir. 1978); Aaron Ferer & Sons Co. v. Atlas Scrap Iron, 558 F.2d 450, 453 (8th Cir. 1977); Pioneer Insurance Co. v. Gelt, 558 F.2d 1303, 1309 (8th Cir. 1977); Block Industries v. DHJ Industries, Inc., 495 F.2d 256, 259 (8th Cir. 1974); Caesar's World, Inc. v. Spencer Foods, Inc., 498 F.2d 1176, 1180 (8th Cir. 1974); Shern v. Tractor Supply Co. of Grand Forks, 381 F. Supp. 1331, 1335-36 (8th Cir. 1974).
The first three factors are of primary concern, the last two factors are of secondary concern. Toro Co., supra at 1270; Shern, supra at 1336. In any case, each question of jurisdiction must be determined on an ad hoc basis. Gardner Engineering Corp. v. Page Engineering Co., 484 F.2d 27, 31 (8th Cir. 1973). Considering these principles, it is apparent that Custom has failed to establish facts sufficient to establish any viable contacts between Chrome Plate and the state of North Dakota beyond the implication that trade journals containing advertising by Chrome Plate may have been present in North Dakota. Such a tenuous connection is not sufficient to require Chrome Plate to appear and defend itself in North Dakota. "[I]t is essential in each case that there be some act by which the defendant purposefully avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws." Hanson v. Denckla, 357 U.S. 235, 253, 78 S. Ct. 1228, 1240, 2 L. Ed. 2d 1283 (1958).
In 1974, this court considered a case with similar contacts including advertising via a contest promotion, mailing brochures and mailing information to travel agents in the forum state of North Dakota. These contacts were held insufficient to enable the court to assert personal jurisdiction over the defendant, a Delaware corporation doing business in San Francisco. Shern v. Tractor Supply Co. of Grand Forks, 381 F. Supp. 1331 (D.N.D.1974). A number of other courts, considering similar kinds of contacts, have reached the same conclusion. See *429 Uston v. Grand Resorts, Inc., 564 F.2d 1217 (9th Cir. 1977) (plaintiff's reliance on defendant's advertising brochures insufficient to establish personal jurisdiction); Rheem Manufacturing Co. v. Johnson Heater Corp., 370 F. Supp. 806 (D.Minn.1974) (limited advertising in two trade publications insufficient); Sanders v. Wiltemp Corp., 465 F. Supp. 71 (S.D.N.Y.1979) (newspaper advertisement insufficient); Baird v. Day & Zimmerman, Inc., 390 F. Supp. 883 (S.D.N.Y. 1974), aff'd mem., 510 F.2d 968 (2nd Cir. 1975) (advertisement in telephone directory insufficient); Honda Associates, Inc. v. Nozawa Trading Post, Inc., 374 F. Supp. 886 (S.D.N.Y.1974) (catalogs mailed to forum state as a result of ads defendant placed in nationally circulated magazine insufficient for venue purposes); Irvin v. Daniels Co. Contractors, Inc., 199 F. Supp. 766 (W.D.Pa. 1961) (advertising and solicitation alone insufficient). But see Parise v. AAA Warehouse Corp., 384 F. Supp. 1075 (W.D.Pa. 1974) (brochures distributed in forum state created expectation that defendant warehouser would load goods safely, thus establishing requisite minimum contacts).
Custom has failed to demonstrate the existence of facts sufficient to establish the necessary minimum contacts between third party defendant Chrome Plate and the forum state of North Dakota. International Shoe, supra.
IT IS ORDERED that defendant and third party plaintiff's third party complaint against third party defendant Chrome Plate, Inc. is dismissed for lack of personal jurisdiction. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1618194/ | 915 F. Supp. 828 (1995)
In re MOBILE TELECOMMUNICATION TECHNOLOGIES CORP. SECURITIES LITIGATION.
Master No. 3:94-CV-6.
United States District Court, S.D. Mississippi, Jackson Division.
November 6, 1995.
*829 *830 James R. Mozingo, Edmonson, Biggs, Mozingo & Holbrook, Jackson, MS, David J. Bershad, Lee S. Shalov, Regina L. LaPolla, Milberg, Weiss, Bershad, Hynes & Lerach, New York City, Leonard Barrack, Sheldon L. Albert, Samuel R. Simon, Barrack, Rodos & Bacine, Philadelphia, PA, for plaintiff Levin and consolidated plaintiffs Conn, Jackson, Cheles, Agris, Beladino. Trustee for Winslow's Pharmacy, Inc. Profit Sharing Plan.
Richard M. Edmonson, James R. Mozingo, Edmonson, Biggs, Mozingo & Holbrook, Jackson, MS, for plaintiffs Silverstein and Tolchin.
Alan Walter Perry, Forman, Perry, Watkins & Krutz, Jackson, MS, Thomas F. Cullen, Jr., James D. Wareham, Mary L. Hale, Jones, Day, Reavis & Pogue, Washington, DC, Michael J. McConnell, Jones, Day, Reavis & Pogue, Atlanta, GA, for defendants Mobile Telecommunication Technologies Corp., Palmer, Fugate, Garrison, A.I. P. Bhagat.
MEMORANDUM OPINION AND ORDER
TOM S. LEE, District Judge.
Defendant Mobile Telecommunication Technologies Corp. (Mtel), through its subsidiary operating companies, provides nationwide paging services and engages in other communications-related business, including telephone answering services and air-to-ground and marine telecommunications. In addition, Mtel maintains and develops international paging operations, and has developed and recently launched a two-way Nationwide Wireless Network (NWN) to enable users to send and receive messages, acknowledge message receipt and execute certain wireless transactions. Mtel's primary business, its nationwide paging service, is operated by its main subsidiary, SkyTel Corporation, *831 which accounts for most of Mtel's revenues. As detailed in the consolidated amended complaint filed in this case, throughout 1993, Mtel made a series of highly optimistic statements about the company's operations, as well as predictions about its future performance. The market responded, with Mtel's stock rising from $18.25 on March 31, 1993, to a high of $38.25 on October 14, 1993. On January 5, 1994, Mtel announced a long-term "strategic plan" which included a substantial reduction (from $69.95 to $39.95) in the retail price of its monthly service charge for SkyTel's nationwide paging service. The company simultaneously reported that it expected to incur start-up losses in certain international markets, particularly its wholly-owned businesses in Columbia and Argentina, and it announced that start-up losses from its NWN would begin in the second half of 1995. Although it predicted that SkyTel would remain profitable, Mtel projected that it would incur consolidated losses from operations in 1994 and 1995 as a result of reduced SkyTel profits and the expected start-up losses from the international ventures.
Following Mtel's announcement, the price of Mtel stock dropped dramatically, from $26 to $16.50, in extremely heavy trading. It is that decline which precipitated the present lawsuit. In the days following Mtel's announcement, five Mtel shareholders filed separate securities fraud complaints against Mtel, its chairman and chief executive officer, John N. Palmer, its chief financial officer, J. Robert Fugate, and its executive vice president, Jai P. Bhagat. These various plaintiffs thereafter filed a consolidated class action complaint, seeking to represent a class consisting of all persons and entities who purchased Mtel common stock during the period March 31, 1993 through January 5, 1994, inclusive, and alleging that during the class period, Mtel made material misstatements and omissions in violation of Section 10(b) of the Securities Exchange Act of 1934 (Act), 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. § 240.10b-5. The complaint also alleged claims against the individual defendants Fugate, Palmer and Bhagat, as "controlling persons," under § 20(a) of the Act, 15 U.S.C. § 78t(a), and raised state common law fraud and negligent misrepresentation claims.
Defendants have now moved to dismiss plaintiffs' complaint under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim for which relief can be granted and under Rule 9(b) for failure to plead fraud with particularity. Plaintiffs oppose dismissal and insist that they have adequately pled each of their claims. The court, having reviewed the parties' memoranda of authorities, and having thoroughly considered their arguments in support of their respective positions, concludes that defendants' motion to dismiss should be granted.
As indicated, plaintiffs allege that both before and during the class period, defendants made numerous false and misleading statements about Mtel's products, its business and its prospects (the specifics of which will be addressed hereinafter), all of which caused the market price for Mtel stock to become artificially inflated. In evaluating a motion to dismiss for failure to state a claim, the court must construe the complaint in the light most favorable to plaintiff, accepting as true all material factual allegations, as well as all reasonable inferences to be drawn therefrom (though the court will not accept conclusory allegations). Tuchman v. DSC Communications Corp., 14 F.3d 1061, 1067 (5th Cir.1994); Kaiser Alum. & Chem. Sales, Inc. v. Avondale Shipyards, Inc., 677 F.2d 1045, 1050) (5th Cir.1982), cert. denied, 459 U.S. 1105, 103 S. Ct. 729, 74 L. Ed. 2d 953 (1983). The court may then dismiss only if "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99, 101-02, 2 L. Ed. 2d 80 (1957). Usually a plaintiff's complaint must contain only a "short and plain statement of the claim showing that the pleader is entitled to relief." See Fed.R.Civ.Proc. 8(a)(2). In other words, he "must simply allege all of the elements of a right to recover against a defendant." Tuchman, 14 F.3d at 1067. However, claims of securities fraud, like other fraud claims, are subject to the heightened level of pleading established by Rule 9(b) of the Federal Rules of Civil Procedure, which requires that *832 "the circumstances constituting fraud or mistake shall be stated with particularity." See id.
In Tuchman, the Fifth Circuit recognized the important screening function which this more stringent pleading requirement serves in securities fraud suits, in particular, stating:
the heightened pleading standard provides defendants with fair notice of the plaintiffs' claims, protects defendants from harm to their reputation and goodwill, reduces the number of strike suits, and prevents plaintiffs from filing baseless claims then attempting to discover unknown wrongs.
Tuchman, 14 F.3d at 1067; see also Melder v. Morris, 27 F.3d 1097, 1100 (5th Cir.1994); Central Bank, N.A. v. First Interstate Bank, ___ U.S. ___, ___, 114 S. Ct. 1439, 1454, 128 L. Ed. 2d 119 (1994) (quoting Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 739, 95 S. Ct. 1917, 1927, 44 L. Ed. 2d 539 (1975)) ("Litigation under rule 10b-5 presents a danger of vexatiousness different in degree and in kind from that which accompanies litigation in general."). Thus, a securities fraud complaint is subject to dismissal unless it sets forth "certain minimum allegations, ... namely the specific time, place, and contents of the false representations, along with the identity of the person making the representations and what the person obtained thereby." Melder, 27 F.3d at 1100 (citing Shushany v. Allwaste, Inc., 992 F.2d 517, 521 (5th Cir.1993)).
Section 10(b) and Rule 10b-5 "offer protection against a certain kind of statement: one that is misleading because it either fails to state a material fact or states a material fact falsely." Isquith v. Middle South Utilities, 847 F.2d 186, 203 (5th Cir.), cert. denied, 488 U.S. 926, 109 S. Ct. 310, 102 L. Ed. 2d 329 (1988). To state a claim under § 10(b) and Rule 10-5, plaintiffs must allege specific facts to establish "(1) a misstatement or an omission (2) of material fact (3) made with scienter (4) on which the plaintiff relied (5) that proximately caused his injury." Shushany v. Allwaste, Inc., 992 F.2d 517, 520-21 (5th Cir.1993) (quoting Cyrak v. Lemon, 919 F.2d 320, 325 (5th Cir.1990)).
In their consolidated amended complaint, under the heading "Substantive Allegations," plaintiffs list a number of statements uttered by and about Mtel throughout 1993; then, as support for each of their various claims, they conclude that all of the public statements by defendants referenced in the complaint were materially false, misleading, or lacked a reasonable basis when made. And they allege that defendants wrongfully withheld or concealed material information. More particularly, plaintiffs purport to predicate liability on defendants' alleged "misrepresentation and non-disclosure of material facts regarding competition in the marketplace and the effects of increasing competition on Mtel's business, prices and future operating results;" defendants' "dissemination into the marketplace of positive statements and projections regarding Mtel's future prospects that lacked any reasonable basis because of undisclosed adverse business and competitive conditions (known to or recklessly disregarded by defendants at the time the challenged representations were made) that prevented Mtel from achieving the results forecasted by defendants at all relevant times"; and defendants' "failure to publicly disclose Mtel's active consideration and exploration of a strategic business plan, pursuant to which SkyTel would and ultimately did sharply reduce the prices of its various products." Plaintiffs maintain that these misstatements and omissions by defendants were intended to and did have the effect of creating in the market an unrealistically positive assessment of Mtel and its profitability, thus causing the company's common shares to be overvalued and artificially inflated, and resulting in loss to those who purchased Mtel stock during the class period. Plaintiffs' complaint is due to be dismissed for the reasons that follow.[1]
A number of the statements which plaintiffs cite in their complaint are statements of true historical facts. To the extent that plaintiffs may be attempting to base a charge of securities fraud on such statements, *833 they have not stated a viable claim for relief for such statements as these are not actionable as a matter of law. This applies to March 1993 statements characterizing SkyTel as a "pioneer" in wireless communications with "unmatched" capabilities in wireless messaging technologies. In fact, SkyTel did "pioneer the nationwide paging and voice messaging business in the United States," and in 1992 it did offer new and innovative "service and product offerings to further enhance its nationwide paging and voice messaging service in the United States." Moreover, defendant Palmer's March 1993 characterization of Mtel as a "well-capitalized company with an impressive track record of growth and a leadership position in the industry" was accurate when made and not the least bit misleading.[2]
True, too, was Mtel's May 1993 announcement that it had successfully completed tests of its NWN, which it touted as "a significant milestone in the development of the network." And the Company's June 1993 report that the FCC had awarded it the first final Pioneer's Preference for a two-way personal communications system, as well as its subsequent October 1993 report that competing applicants for pioneer preferences had been unsuccessful in their challenge to the FCC's award to Mtel, were likewise true. There was nothing false in Mtel's further declaration in connection with these reports that it intended to file a formal license application in October 1993 for authority to construct the NWN system, which it expected would be operational by mid-1995. Nor was there anything false or misleading about defendant Fugate's report in July 1993 that SkyTel had constructed a second frequency that "would significantly increase SkyTel's system capacity, thereby enabling SkyTel to achieve future growth." Finally, plaintiffs' reference to Mtel's October 12, 1993 announcement that it had completed a private stock placement, which produced net proceeds of $181 million, does not provide a basis for a securities fraud claim, as there is no allegation that this did not occur precisely as reported by Mtel.
Another category of statements identified in the complaint is opinions and predictions expressed by persons or entities other than the defendants. Such statements are not properly the subject of a claim for securities fraud against defendants. For example, plaintiffs allege that on June 25, 1993, the New York Times reported that analysts were projecting profits of as high as $.25 a share for Mtel in 1993, presumably based, at least in part, on a Morgan Keegan report, issued June 28, 1993, forecasting that Mtel would earn $.25 a share in 1993 and $.65 a share in 1994. The Morgan Keegan report recited:
the potential for above-average growth over the next five years indicates that the stock should continue to do well and [an analyst] rates it a Buy (1) for both near and long term. The company has turned positive in both cash flow and earnings and proved that a profitable market exists for nationwide paging.
Thereafter, a July 30, 1993 report from Alex Brown & Sons, Inc. upgraded Mtel's stock from "neutral" to "buy," and raised its 1993 earnings per share estimate from $.18 to $.27, stating that the 1994 earnings per share was "likely to be around $.55." At the same time, Alex Brown reported that PageNet the country's largest provider of regional paging servicesplanned to enter the nationwide paging market. But the analyst opined *834 that "the potential market appears large enough to accommodate several service providers."
Plaintiffs have pled no specific facts connecting defendants to any of these statements and predictions; therefore, at least for that reason, these statements cannot provide the basis for a federal securities law claim. See Raab v. General Physics Corp., 4 F.3d 286, 289 (4th Cir.1993) (defendant not liable for statements in analysts' report because allegations were insufficient to show that defendant "exercised the kind of control over the Goldman Sachs report that would render it liable for statements made therein"); Genna v. Potts, No. HAR 94-3260, 1995 WL 222043 (D.Md. Apr. 13, 1995) (quoting Raab).[3]
Plaintiffs point to other statements which, in the court's opinion, are far too vague to be material. Such statements include Mtel's January 1993 statement that it "remain[ed] highly encouraged by the market demand for wireless messaging in the U.S.," and Palmer's declaration in the 1992 Annual Report that Mtel's strategy at that time was "to continue to be a leader in the development of wireless messaging services on an international basis." See Raab, 4 F.3d at 289 ("`Soft,' `puffing' statements ... generally lack materiality because the market price of the share is not inflated by vague statements predicting growth.... No reasonable investor would rely on these statements, and they are certainly not specific enough to perpetrate a fraud on the market.").
That principle also dooms plaintiffs' allegations of liability respecting Mtel's January 1993 declaration that it "expect[ed] the record of growth achieved at SkyTel in 1992 to continue at similar levels in 1993," and Fugate's February 1993 statement, reported by Reuters, that "[w]e are highly optimistic that we will be profitable in 1993 as demand for nationwide and international wireless messaging services continues to grow both in the U.S. and in the international countries we serve." These statements of optimism are too vague and general to provide the foundation for a securities fraud claim.
Moreover, as plaintiffs acknowledge, these and other optimistic predictions for Mtel's 1993 performance proved true. Plaintiffs allege, for example, that on January 20, 1993, a Dow Jones News Wire report described Fugate as "`comfortable' with projections that SkyTel's revenues would increase in 1993 to approximately $100 million."[4] Then on April 22, 1993, Fugate, in connection with his announcement of Mtel's first-quarter results, declared that Mtel "expects to be profitable throughout 1993." On July 28, 1993, Mtel announced its 1993 second-quarter earnings, with Fugate stating that the construction of a second frequency by SkyTel "would significantly increase SkyTel's system capacity, thereby enabling SkyTel to achieve future growth ...," and forecasting that "earnings from operations in the fourth quarter are expected to increase from the third quarter level as SkyTel's revenues begin to grow." Plaintiffs do not contend that any of these statements proved false. Nevertheless, plaintiffs maintain that there was no reasonable basis for the statements when made. Contrary to defendants' position, standing alone, the fact that predictions turn out to be true does not necessarily always dictate dismissal of a plaintiff's fraud claim based on those statements. Cf. Renz v. Schreiber, 832 F. Supp. 766, 778 (D.N.J.1993) ("[B]ecause the defendants gave accurate predictions about the costs of starting up and expanding the FCB business, short term financial results, and FCB sales, when measured against actual experience, there are no facts upon which plaintiffs can show that *835 defendants' statements or omissions on these topics amounted to false or misleading information."). Of course, under Section 10(b) and Rule 10b-5, statements of existing fact are actionable only if false, but when predictions are involved, "the focus of the inquiry into falsity is different ... than it is in the case of statements of fact." In re Healthcare Compare Corp. Sec. Litig., No. 93 C 1970, 1994 WL 262730, at *4 (N.D.Ill. June 2, 1994). The focus is not on whether the statement was true or false, but whether there was a reasonable basis for the statement. Plaintiffs offer no factual explanation for their conclusory assertion in the case at bar that defendants lacked a reasonable basis for their 1993 predictions. What they do suggest is that it was merely "fortuitous" that the statements proved accurate. See 5B Jacobs, A., Litigation and Practice Under Rule 10b-5 § 61.01[b] ("[A] defendant cannot successfully defend on the ground that a subsequent fortuitous event rendered a misleading statement true, if plaintiff was committed to act prior to such event."). Yet they do not identify any "fortuitous" happening which they claim caused the statements to become true. In sum, plaintiffs have provided no factual basis for concluding that Mtel's attainment of the results predicted for 1993 was fortuitous, or that the statements were made without a reasonable basis.
In addition to defendants' predictions regarding Mtel's 1993 performance, statements were made relating to Mtel's position in the market, and predictions were made concerning Mtel's anticipated performance for 1994 and beyond. For example, on March 31, 1993, Mtel filed its Form 10-K in which it bullishly portrayed Mtel's business, existing products and new ventures, creating, according to plaintiffs' characterization, "the clear impression that Mtel was well-positioned for future growth and prosperity." Mtel contemporaneously issued its 1992 Annual Report to stockholders, wherein Palmer, after highlighting "industry developments in 1992 [that] offer new opportunities to expand [Mtel's] customer base," remarked:
Experts now acknowledge Mtel's pioneering role and head-start on the competition in our industry. As one market analyst said recently, "Over the next three or four years, we'll see a rapid building of the franchise value of Mtel as a clear leader in the first truly effective wave of wireless communications."
We agree with this assessment and believe that Mtel is well-positioned to benefit from a revolution in wireless technology.
Later, on April 22, 1993, Reuters reported Fugate as publicly projecting Mtel's capital expenditures would reach $35 million in 1993, but then decline in 1994 to $20 million. Then, in a June 14, 1993 Barron's article, Fugate was reported as stating that "Mtel expects to remain profitable for all of this year and to show even better results in 1994." Fugate, the article reported, stated that Mtel's "market isn't plagued by price-cutting." The writer concluded, "Fugate seems at ease with Street estimates that put Mtel net [earnings] at 20-25 cents a share in 1993 and 50-75 cents next year."
Regarding the actionability of predictions under the securities laws, the Fifth Circuit has recognized that Rule 10b-5 does not "exempt[] predictions, as a category, from its reach." Isquith, 847 F.2d at 203. Rather, "predictions may be regarded as `facts' within the meaning of the anti-fraud provisions of the securities laws." Id. The utterance of predictive statements will give rise to liability, however, only if the "statement was `false' when it was made." Id.; see also Shushany, 992 F.2d at 524 ("Statements that are predictive in nature are actionable only if they were false when made."). The determination of whether a predictive, or forward-looking statement, was "false" when made turns on whether the statement, when made, was made "without a reasonable basis" or was "disclosed other than in good faith," Isquith, 847 F.2d at 204 n. 12, since
the only truly factual elements involved in a projection are the implicit representations that the statements are made in good faith and with a reasonable basis.
Id. (quoting B. Hiler, The SEC and the Courts' Approach to Disclosure of Earnings Projections, Asset Appraisals, and Other Soft Information: Old Problems, Changing Views, 46 Md.L.Rev. 1114, 1123 (1987)). Discussing the actionability of predictive statements, *836 the Fifth Circuit observed in Rubinstein v. Collins, 20 F.3d 160 (5th Cir.1994), that "predictive statements are deemed to contain false statements of `fact' under Rule 10b-5 when the predictions embodied in those statements do not have a reasonable basis." Id. at 168. The court went on to say:
"Most often, whether liability is imposed depends on whether the predictive statement was `false' when made. The answer to this inquiry, however, does not turn on whether the prediction in fact proved to be wrong; instead, falsity is determined by examining the nature of the predictionwith emphasis on whether the prediction suggested reliability, bespoke caution, was made in good faith, or had a sound factual or historical basis.
In sum, a predictive statement is one that contains at least three factual assertions that may be actionable: 1) The speaker genuinely believes the statement is accurate; 2) there is a reasonable basis for that belief; and 3) the speaker is unaware of any undisclosed facts that would tend seriously to undermine the accuracy of the statement.
Rubinstein, 20 F.3d at 166 (quoting Isquith, 847 F.2d at 203-04).
Plaintiffs allege that defendants had no reasonable basis for their optimistic statements and predictions since defendants "affirmatively knew (or, at a minimum, recklessly disregarded) adverse material information regarding, inter alia, Mtel's operations, competitive position and future business prospects." Regarding competition specifically, plaintiffs charge that "defendants knew ... that ... increasing competition was eroding Mtel's profits and operating margins and would cause the Company to radically alter its pricing structure;" and they charge that "[d]efendants' public statements were false, misleading and lacking in reasonable basis" in that defendants misrepresented and/or failed to disclose, inter alia, that:
Contrary to defendants' public assurances that competitive forces would not adversely affect the Company's operations and financial results Mtel was experiencing and would continue to experience severe pricing pressure from competitors in the industry[.]
But the complaint alleges no facts from which one could reasonably infer that Mtel misrepresented its competitive position, either by affirmative statements or by omission of material information. That is, there is no factual allegation anywhere in the complaint that Mtel had any competitors, or had reason to anticipate any substantial competition at the time the challenged statements were made.
To recap, on the subject of competition, Palmer declared in the 1992 Annual Report that Mtel had a "headstart on the competition in our industry," and characterized "Mtel as a clear leader in the first truly effective wave of wireless communications." Later, Fugate, as reported by the June 1993 Barron's article, stated that Mtel's "market isn't plagued by price-cutting." Manifestly, the competitive threat to which plaintiffs allude is that posed by PageNet, for they do not identify any other competition which they contend undermined Mtel's competitive position. However, as plaintiffs' complaint makes clear, at the time these challenged statements were made, there had been no announcementformal or otherwisethat PageNet planned to enter the nationwide paging market. The first such announcement, according to plaintiffs' own allegations, occurred on July 30, and even then, there was no public disclosure of PageNet's specific intentions. Information concerning the extent of PageNet's planned competitive effort did not come until months later, on October 28, 1993, when PageNet announced that it intended to offer nationwide service for $39.95, nearly half the $69.95 charged by SkyTel, and that it intended to convert Mtel customers. In light of these factsfacts which plaintiffs have themselves alleged there is no factual basis for their conclusion that Mtel, at the time the above-referenced statements regarding Mtel's competitive position were made, was faced with "pricing pressure" or that "increasing competition was eroding Mtel's profits and operating margins."
Moreover, one cannot garner from the complaint any fact-based allegation to substantiate *837 plaintiffs' conclusory assertion that Mtel "downplayed" or "concealed" the potential effect of competition following PageNet's October 28, 1993 announcement. The only statement by the company on the subject of the PageNet announcement appeared in an October 28 article in The Dallas Morning News which anticipated that PageNet would announce "that it will launch a service that will drive down the costs of getting paged nationwide ...," and recited that PageNet was "expected to announce that it had completed construction of a nationwide paging network...." The writer continued:
The all-digital network could refashion the paging business, putting PageNet in direct competition with Skytel Corp. which pioneered the idea of national and international paging serviceand open the door for wide broadcasting of electronic messages to such new devices as palmtop computers, handheld communicators and personal organizers.
"There's ample room for growth and competition here," said David W. Garrison, president of Skytel, the Jackson, Miss. company that has dominated the field of nationwide paging with about 300,000 business customers. He estimates that Skytel and its current competitors, such as BellSouth Corp. and Pacific Telesis Group, have only tapped about 5 percent of a likely market of 5.6 million frequent travelers.
If nothing else, SkyTel could get squeezed. PageNet, which has driven costs down to about $10 a month for local paging service, is likely to announce a nationwide paging service that costs $30 a month, about half SkyTel's basic rate.
It is apparent from the tenor of the article that when the statements were made by Garrison, PageNet had not yet announced its specific intentions regarding pricing or its intention to convert Mtel's customers. In any event, the complaint alleges no facts that might tend to show that Garrison either did not believe his statement, that he lacked a reasonable basis for his professed belief that the market would readily accommodate both companies, or that he possessed information that undermined the accuracy of his statement.[5]
Moreover, other than plaintiffs' conclusory characterization, nothing in the complaint would support a finding that defendants made public assurances that Mtel's operations and financial results would not be adversely affected by competitive forces. To the contrary, the fact that competitionespecially from a company like PageNetcould adversely affect Mtel's prospects was disclosed by defendants. In its Form 10-K filed by Mtel on March 31, the following warning appeared under the heading "Competition":
Continuing technological advances in the communications industry make it impossible to predict the future competition in the businesses in which Mtel operates. Such technological advances may, for example, make available other alternatives to the services provided by SkyTel, thereby creating additional sources of competition. In addition, future entrants into the market which possess significantly greater financial resources than Mtel could have a significant, adverse competitive impact upon SkyTel's operations. (Emphasis added).
A further such proviso appeared in a June 25, 1993 article in The New York Times, cited by plaintiffs,[6] which reported:
*838 [F]uture profits from the new wireless data services that Mtel intends to provide are much more uncertain. Digital technology is advancing so rapidly that powerful new rivals are already muscling in with a slew of new alternatives.
Two companies already provide two-way nationwide data networks that are primarily designed for people using laptop computers. One is RAM Mobile Data, a company owned in party by BellSouth. The second is Ardis, a joint venture between I.B.M. and Motorola.
But far more formidable competition is on the horizon. The cellular industry has developed a technology called "cellular digital packet data," which will soon allow customers to use portable computers to send or receive data on the same frequencies used for telephone conversations....
The prospect of all this competition undermines one of Mtel's main investment enticementsits secure spot on the nation's crowded airways....
But in Mtel's case, some analysts believe this inherent value has been exaggerated. "The two-way data market is going to be very competitive," said Mark Roberts, a communications analyst at Alex Brown & Sons in Baltimore, who has given the stock a neutral rating. "A lot of investors are assuming very high franchise values," he said. "They're assuming just because you have a network in place, it has intrinsic value. We believe a lot of those expectations are too high."
Jai P. Bhagat, president of Mtel, said he hopes to launch his new network by July 1995, and he freely acknowledged that the competition would be intense. But he said his network would stand out from the crowd because of its nationwide reach and its special niche services....
"This is going to be a huge market," he remarked. "There will be room for lots of companies. The key will be developing applications."
Plaintiffs fault defendants for not disclosing, after PageNet's announcement of its entry into the nationwide paging arena, that PageNet was a competitive force to be reckoned with. In other words, Mtel's silence is suggested to have led the market to believe that Mtel would be unaffected by this development. Silence can give rise to liability under the federal securities laws, but only where there is a duty to disclose. See Basic, Inc. v. Levinson, 485 U.S. 224, 108 S. Ct. 978, 99 L. Ed. 2d 194 (1988) ("Silence, absent a duty to disclose, is not misleading under Rule 10b-5."). "Rule 10b-5 imposes ... a duty to disclose only when silence would make other statements misleading or false." Taylor v. First Union Corp., 857 F.2d 240, 244 (4th Cir.1988), cert. denied, 489 U.S. 1080, 109 S. Ct. 1532, 103 L. Ed. 2d 837 (1989). In the case at bar, plaintiffs' allegations are deficient since they have identified no statement that was actually rendered misleading by the defendants' alleged failure to specifically acknowledge, following PageNet's entry into the market, that it was confronted with serious competition and would have to take steps to effectively compete.
Additionally, where, as here, the information allegedly withheld is available to the market from other sources, there is no duty to speak. See Ward v. Succession of Freeman, 854 F.2d 780 (5th Cir.1988), cert. denied, 490 U.S. 1065, 109 S. Ct. 2064, 104 L. Ed. 2d 629 (1989). Here, the market was fully aware of PageNet's entry into the nationwide paging services market by offering products and services at prices significantly lower than SkyTel's. Upon PageNet's announcement of its intent to enter the market, Mtel had no duty to disclose the obvious fact that competition would increase.[7]
In summary, the court is of the opinion that plaintiffs have failed to identify any facts to support their conclusory assertion that defendants at any time misrepresented Mtel's competitive position or concealed any *839 material facts regarding Mtel's competitive position.
Plaintiffs also complain that defendants failed to disclose that they were "actively considering and exploring a long-term strategic business plan for the Company and SkyTel that would substantially reduce the Company's operating profits, revenues and margins." Defendants do not disputenor could they reasonably do sothat Mtel's plan to cut prices, once formed, was material and thus was required to be made publicly known. And it was made publicly known. The relevant inquiry, though, is when was it required to be made known. A company's tentative or preliminary consideration of a course of action is generally not considered material. See Taylor, 857 F.2d at 244-45.
[T]he more tentative the discussions the less useful such information will be to a reasonable investor in reaching a decision. Information of speculative and tentative discussions is of dubious and marginal significance to that decision. To hold otherwise would result in endless and bewildering guesses as to the need for disclosure, operate as a deterrent to the legitimate conduct of corporate operations, and threaten to "bury the share-holders in an avalanche of trivial information"; the very perils that the limit on disclosure imposed by the materiality requirement services to avoid.
Id; see also Panfil v. ACC Corp., 768 F. Supp. 54, 57 (W.D.N.Y.), aff'd without opinion, 952 F.2d 394 (2d Cir.1991); Gay v. Axline, No. 93-1491, 1994 WL 159426, at *5 (1st Cir. Apr. 26, 1994) ("the fact that discussion has begun about a project with a potentially substantial impact on a company's stock price ordinarily would not be material if the likelihood of its happening were extremely remote"); In re Goodyear Tire & Rubber Co. Sec. Litig., Civ.A. No. 88-8633, 1993 WL 130381, at *5-6 (E.D.Pa. Apr. 22, 1992) (no duty to disclose information that was not reasonably certain). Materiality, then, is judged by reference to when it became probable that Mtel would adopt the plan.[8]
In the case at bar, plaintiffs complain of defendants' "belated" disclosure of its strategic plan to slash prices. Yet plaintiffs are less than specific on the subject of when they contend disclosure should have been made. Defendants assert that plaintiffs' failure to allege this fact with specificity, as well as their failure to identify who knew this information and when, is fatal to any claim based on a failure to have earlier disclosed the plan. Plaintiffs, on the other hand, maintain that they cannot be required to plead facts that are exclusively within defendants' possession and control. Indeed, one would not necessarily expect the plaintiffs to be in a position to state the exact date that defendants' consideration of the plan became sufficiently advanced so as to give rise to a duty of disclosure. However, plaintiffs here have not identified even generally when defendants first began "actively" considering the plan. Nor have they suggested so much as a general time frame for when it became likely that the plan would be adopted (as, for example, whether this occurred before or after the PageNet announcement, or how long before or after the PageNet announcement).[9] The fact is, the plan was disclosed, and there is nothing in the complaint to support the conclusion that Mtel's failure to disclose the plan at an earlier time amounted to fraud.
Plaintiffs next charge both that Mtel's optimistic projections of growth and profitability were lacking a reasonable basis because defendants knew, yet failed to disclose, *840 inter alia, that "the substantial construction, development and other costs incurred by Mtel in connection with the NWN would negatively affect the Company's financial results on both a near and long-term basis." In fact, however, Mtel's previous disclosures on this subject were not inconsistent with Mtel's January 5, 1994 announcement that start-up losses from NWN would begin in the second half of 1995. In its 1992 Annual Report, Mtel stated:
The Company anticipates that its existing sources of capital, together with cash flow from operations, which are expected to increase because of the anticipated growth in SkyTel's subscriber base, will be sufficient to meet projected requirements through the end of 1993. However, the Company cannot predict the extent to which additional capital may be required in connection with its international development efforts or the development of new technology such as its proposed two-way nationwide wireless messaging system. As a result, the Company may be required to incur additional indebtedness and engage in other financings, the timing, nature, amount and source of which cannot presently be determined.
More to the point, a June 25, 1993 New York Times article reported that Mtel hoped to launch its new NWN by July 1995, and cautioned that while analysts had projected profits as high as $.25 a share,
those earnings will be from older SkyTel service. Setting up the new network, which will entail building paging sites in 300 markets, will cost about $100 million. Assuming the company can raise the necessary capital, the outlay may lead to losses, the company concedes, when the services are initially launched. (Emphasis added).
Additionally, a November 15, 1993 Alex Brown report warned:
The biggest risk to owning the shares may be lack of earnings predictability over the next two years.
The biggest variables are expected to be the costs of international start-ups in 1994, mainly Columbia and Argentina, and the costs of the NWN in 1995.
Mtel's announcement on January 5, 1994 thus reiterated, or confirmed risks that Mtel had already disclosed, or which were otherwise known. Consequently, defendants can have no liability under Rule 10b-5 based on these allegations.
Plaintiffs argue that such cautionary language as that quoted above was too vague and nonspecific and was hardly adequate to overcome Mtel's consistently upbeat and glowing predictions for the company's future. A studied review of the complaint, however, reveals that in fact, few of the statements which plaintiffs cite actually related to Mtel's future prospects, and even fewer related to its prospects beyond the year 1993. Plaintiffs allege, for example, that Fugate was reported on April 22, 1993 to have projected that "Mtel's capital expenditures for 1993 would reach $35 million, but then decline in 1994 to $20 million." (Emphasis added). Then on June 14, 1993, a Barron's article reported Fugate as stating that "Mtel expects to remain profitable for all of this year and to show even better results in 1994." (Emphasis added). Yet plaintiffs' complaint sets forth no clear factual basis for concluding that there was no reasonable basis for a belief that these statements were true when made.
It was never less than clear that Mtel's future performance was directly tied to and dependent upon SkyTel's performance. And, when each of the statements was made concerning Mtel's future performance, SkyTel was the clear leader in the market for nationwide paging services. At that time, nothing had occurred to undermine SkyTel's competitive position. Manifestly, the primary factor by far which adversely affected SkyTel's prospects was PageNet's entry into the nationwide paging market. Yet plaintiffs allege no basis (specific or otherwise) for concluding that Mtel knew, or that it could or should have known when these predictions were made that PageNet would soon announce that it would enter the market. Thus, on what basis might one conclude that Mtel's predictions of SkyTel'sand hence its own growth and profitability were other than well founded? Again, the potential for losses relating to the 1995 start-up of the NWN was *841 disclosed. The sole remaining basis for plaintiffs' charge that defendants' predictions lacked a reasonable basis is their allegation that Mtel knew, but failed to disclose, that "Mtel had incurred and would continue to incur significant start-up losses in connection with certain of its international ventures that would similarly impair the Company's near and long-term financial results." But plaintiffs do not allege when Mtel began to experience such losses in relation to the time of its announcement, nor do they specifically identify any previous statements that were rendered misleading by the failure to make these disclosures before January 5, 1994. Presumably plaintiffs mean to allege that defendants' predictions of profitability were false and misleading because of defendants' failure to disclose this fact. Yet they have not alleged or even intimated that such losses were experienced or anticipated at any time when Mtel was forecasting growth and profitability.
Plaintiffs' further allegation that defendants committed securities fraud by failing to disclose the fact that "Mtel was experiencing substantial cost over-runs in the development and construction of new products" and "a deterioration in its markets as a result of weakening economic conditions," are marked by similar deficiencies. Plaintiffs have not alleged which Mtel markets were deteriorating, how much they deteriorated, or when the deterioration occurred in relation to defendants' challenged statements and omissions. They have not identified which products were involved in the alleged cost overruns, how those alleged overruns affected (or had the potential to affect) the Company's overall performance, or when these occurred. Similarly general allegations were dismissed in Tuchman v. DSC Communications Corp., 818 F. Supp. 971, 977 (N.D.Tex.1993), aff'd, 14 F.3d 1061 (5th Cir.1994), wherein the district court explained:
Plaintiffs assert that "customer defections to DSC's competitors began to increase markedly, resulting in large-scale cancellation of orders, returns of equipment, and a fall-off in new orders." ... Plaintiffs fail to provide any facts to support these assertions. How many customers defected? Which customers? Which orders were cancelled? What equipment was returned? What figures demonstrate a fall-off in new orders? Plaintiffs' inability to distinguish facts from mere opinions and conclusions renders the Complaint insufficient to satisfy the particularity requirements of Rule 9(b).
Plaintiffs' allegation that defendants failed to disclose that "Mtel's business was not or would not be performing as well as had been previously internally budgeted because of increased advertising expenditures and financial concessions necessary to promote the sales of SkyTel's products" likewise fails to satisfy plaintiffs' pleading burden under Rule 9(b). That is, plaintiffs allege nothing about the timing of any such expenditures and concessions, or that this alleged revision in its internal budget was material. Moreover, Mtel could only have had a duty to publicly disclose a failure to perform as well as "previously internally budgeted" if such disclosure were required to correct a previous statement. Cf. In re Apple Computer Sec. Litig., 886 F.2d 1109, 1115 (9th Cir.1989) (corporation may have had duty to disclose internal memoranda which directly contradicted optimistic statements regarding development and qualities of new product); Debora v. WPP Group PLC, No. 91 Civ. 1775 (KTD), 1994 WL 177291, at *6 (S.D.N.Y. May 5, 1994) (duty to disclose may arise if speaker "made a statement that would become inaccurate, incomplete or misleading without disclosure of additional information"). There is no allegation to that effect in the complaint.
For all of the foregoing reasons, the court concludes that plaintiffs have failed to adequately plead a claim for securities fraud against Mtel under Section 10(b) or Rule 10b-5. That claim will therefore be dismissed. Since liability under Section 20(a) of the Securities and Exchange Act can attach only if the controlled entity itself is liable for a securities law violation, then it follows that the claim alleged against the individual defendants as "control persons" must be dismissed. Finally, plaintiffs predicate this court's jurisdiction over their state law claim *842 on the doctrine of supplemental jurisdiction. Having now concluded that plaintiffs' federal claims should be dismissed, the court declines to exercise supplemental jurisdiction over plaintiffs' state law claims. See 28 U.S.C. § 1367(c)(3) (court may decline supplemental jurisdiction over state claims if it "has dismissed all claims over which it has original jurisdiction").
Accordingly, for all of the foregoing reasons, it is ordered that defendants' motion to dismiss is granted. It is further ordered that all remaining motions, including plaintiffs' motion for class certification, are hereby denied as moot.
NOTES
[1] In ruling on the present motion, the court has considered only the pleadings, as well as documents incorporated in the complaint, and thus treats this as a motion to dismiss and not as a motion for summary judgment. See Rubinstein v. Collins, 20 F.3d 160, 162 n. 5 (5th Cir.1994).
[2] Many of these types of statements appeared in Mtel's 1992 Annual Report, issued in March 1993, where the following statements appear:
Mtel is a pioneer in wireless communications, with a focus on providing nationwide and international messaging services to business travelers.
Through its SkyTel Corp. subsidiary, Mtel is the leading provider of nationwide messaging services in the United States.
. . . . .
Our success has earned us the respect of our customers and the financial community, and Mtel today is a well-capitalized company with an impressive record of growth and a leadership position in the industry....
In July, the FCC awarded Mtel a tentative "Pioneer's Preference" to develop a two-way nationwide wireless messaging network, the first and only such award for a personal communications system (PCS). Based on this tentative Pioneer's Preference, Mtel is developing a new two-way network called Nationwide Wireless Network (NWN).
We estimate that NWN will become operational in 1995.
[3] The manner in which plaintiffs have arranged their complaint makes it difficult to know plaintiffs' purpose in citing these statements. It may be that plaintiffs' sole purpose in including these particular analysts' statements was to demonstrate the market's response to the positive news that Mtel was disseminating. In an abundance of caution, however, and in an effort to be comprehensive, the court will assume that plaintiffs are contending that these statements were fraudulent and attributable to defendants.
[4] Any claim based on this statement is subject to dismissal for the further reason that plaintiffs have failed to demonstrate that it is properly attributable to defendants. See Raab, 4 F.3d at 289.
[5] The mere fact that some two months later, Mtel announced a plan to cut prices does not provide the necessary factual basis for such an inference, since the question whether there was a reasonable basis for the statement is determined by reference to the point in time when the statement was made, and not by reference to subsequent events. It should be noted, as well, that Garrison did not purport to address Mtel's profit margins, nor did he in any way intimate that Mtel would not have to alter its pricing strategy in order to compete against PageNet in the event PageNet in fact offered its services at lower rates.
[6] Though plaintiffs' complaint recites only a portion of this article, the court may consider the remainder of the document in ruling on the present motion. See Cortec Indus., Inc. v. Sum Holding L.P., 949 F.2d 42, 47 (2d Cir.1991), cert. denied, 503 U.S. 960, 112 S. Ct. 1561, 118 L. Ed. 2d 208 (1992) ("[W]hen a plaintiff chooses not to attach to the complaint or incorporate by reference a prospectus upon which it solely relies and which is integral to the complaint, the defendant may produce the prospectus when attacking the complaint for its failure to state a claim, because plaintiff should not so easily be allowed to escape the consequences of its own failure.").
[7] That is, defendants were not required to disclose the obvious: that if two companies offer comparable products in the same market, one at half the cost of the other and seeking to convert the other's customers, then there exists a competitive threat.
[8] The fact that the plan was ultimately adopted and implemented does not establish materiality, for "[t]he probability of a transaction occurring must be considered in light of the facts as they then existed, not with the hindsight knowledge that the transaction was or was not completed." In re General Motors Class E Stock Buyout Sec. Litig., 694 F. Supp. 1119, 1127 (D.Del.1988).
[9] In their brief (though not in their complaint), plaintiffs state "defendants had begun to explore substantially before its ultimate disclosure on January 5, 1994a `strategic plan' to drastically reduce prices on SkyTel's products." It seems hardly likely that the plan was devised or adopted "substantially before" its ultimate disclosure. It is not reasonable to infer that Mtel would have drastically reduced its prices without a reason to do so; and there was no reason to do so until PageNet announced its planned pricing scheme on October 28, 1993. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1581538/ | 957 F.Supp. 1241 (1997)
UNITED STATES of America, Plaintiff,
Sidney Williams, et al., Plaintiff-Intervenors,
v.
The CITY OF MONTGOMERY, ALABAMA, et al., Defendants,
Gordon M. Ledbetter and John D. Shumway, Defendant-Intervenors.
Civil Action No. 3739-N.
United States District Court, M.D. Alabama.
March 21, 1997.
Thomas M. Goggans, Montgomery, AL, for defendants-intervenors.
M. Wayne Sabel, Montgomery, AL.
J. Richard Cohen, Montgomery, AL.
Kenneth L. Thomas, Donald V. Watkins, Montgomery, AL, for plaintiff-intervenors.
Kenneth E. Vine, U.S. Atty., Montgomery, AL, Marybeth Martin, Philip K. Eure, Employment Litigation Section, U.S. Dept. of Justice, Civ. Rights Div., Washington, DC, for plaintiff.
Thomas Tankersley, Robert C. Black, Hill, Hill, Carter, Franco, Cole & Black, Montgomery, AL, for defendant.
ORDER
MYRON H. THOMPSON, Chief Judge.
This is a longstanding race discrimination lawsuit against the City of Montgomery, Alabama, and others. In a memorandum opinion and judgment entered on December 18, 1996, United States v. City of Montgomery, 948 F.Supp. 1553 (M.D.Ala.1996), this court addressed whether the following orders could be, and should be, dissolved: (1) orders of April 21, 1992, and May 21, 1996, approving a permanent plan for the selection of deputy chief for the City of Montgomery Police Department; (2) order of October 5, 1992, approving permanent promotion procedures for the department; (3) orders of November 2, 1992, and June 24, 1996, approving permanent policies and procedures for transfers and assignments, the filing of internal complaints in the department; and (4) order of February 24, 1993, approving policies and procedures for assignments as mayoral aides. The court held that, unless the parties made an evidentiary showing that these orders are no longer necessary, the orders would not be dissolved. Id. at 1570.
I.
The court explained that, "In making the determination of whether to terminate relief and restore full control to a governmental entity, a court should be informed by, at least, the following three considerations: first, whether there has been full and satisfactory *1242 compliance with the court's outstanding orders; second, whether retention of judicial control is necessary or practical to achieve compliance with any outstanding orders; and third and finally, whether the governmental entity has demonstrated to the public and to those of the disfavored group its good-faith commitment to the whole of the court's orders and to those provisions of the law and the Constitution that were the predicate to the judicial intervention in the first instance." United States v. City of Montgomery, 948 F.Supp. at 1563. The court found that, as to the orders at issue, the parties had failed to satisfy these factors. Id. at 1566-67. The court gave the parties until February 28, 1997, to submit evidence that satisfied these factors. Id. at 1570. In a joint submission filed on February 14, 1997, the parties presented evidence, which, according to them, "demonstrate[s] that continuing jurisdiction of this Court is no longer necessary to maintain the progress made by Defendants over the years toward the achievement of the objectives of each of the cited orders." The evidence is as follows:
October 5, 1992, Order: By order entered on October 5, 1992, the court approved permanent promotion procedures for the Montgomery City Police Department. The procedures provided methods for certification by the Montgomery City-County Personnel Board of candidates for promotion to particular ranks within the Police Department. The department would then select from among those candidates, and all parties would be informed of their choices, including the race and gender of the preferred candidates. The parties would have seven days to lodge complaints with the court, and, if there were none, the board could implement the promotions. The promotion lists generated by these procedures were to be in place for only two years, after which new lists would be drawn up under the procedures. Since 1992, the parties have complied with these procedures.
November 2, 1992, and June 24, 1996, Orders: By order entered on November 2, 1992, the court required that the defendants implement an internal complaint procedure for the Police Department, one by which complaints charging race and sex discrimination, and related complaints charging retaliation, could be heard and mediated without being presented to the court. The internal complaint procedure was implemented upon the entry of the order and has been in effect since that time. In another order entered on November 2, 1992, the court approved a permanent assignment-and-transfer procedure for sworn Police Department personnel. By order entered on June 24, 1996, the court modified the earlier order approving the assignment-and-transfer policy. Since 1992, the parties have complied with the procedures established and approved in the November 1992 and June 1996 orders.
April 21, 1992, and May 21, 1996, Orders: By order entered on April 21, 1992, the court approved a permanent plan for the selection of deputy chief. Four years later, on May 21, 1996, the court modified the plan. In the meantime, by order entered on March 19, 1992, Sandra Pierce-Hanna was appointed one of two deputy chiefs for the Police Department. United States v. City of Montgomery, 788 F.Supp. 1563, 1582 (M.D.Ala. 1992). Later, in 1994, the other incumbent deputy chief retired. Since that time, Pierce-Hanna has been the Police Department's only deputy chief. Because Pierce-Hanna has assumed all the responsibilities of the position (formerly assigned to two persons), the City of Montgomery has not filled the other authorized deputy chief position. As a result, because the city has not undertaken to fill the second authorized position, the permanent plan for selection of deputy chief, as outlined in the April 1992 and May 1996 orders, has not been utilized. Nevertheless, the City of Montgomery, according to the parties, is committed to the continued use of the selection procedures for deputy chief.
February 24, 1993, Order: By order entered on February 24, 1993, the court established procedures for the selection of mayoral aides. Prior to the entry of that order, two officers had been serving as mayoral aides and they have since continued to serve in that capacity. For that reason, the list created by the February 1993 order has been used exclusively for the purpose of selecting *1243 "fill-in" aides for temporary assignment. The selection of these fill-in's has been without regard to race. According to the parties, should the Mayor of Montgomery need to make any permanent appointments, the appointments will be made in accordance with the February 1993 order and thus without regard to race.
The court, therefore, agrees with the parties that, to the fullest extent possible, there has been full and satisfactory compliance with the orders at issue. The first factor whether there has been full and satisfactory compliance with the court's outstanding orders has therefore been satisfied. The second and third factors whether retention of judicial control is necessary and practical to achieve compliance with outstanding orders, and whether the governmental entity has demonstrated to the public and to those of the disfavored group its good-faith commitment to these orders have been satisfied as well with regard to the orders at issue.
II.
In the December 18 memorandum opinion and judgment, the court also observed that "the United States remains concerned about the `banding' aspect of the Police Department's promotion procedures. The United States has sought to formalize the process of making selections from within bands." United States v. City of Montgomery, 948 F.Supp. at 1565. In their February 14 submission, the parties addressed this concern.
Since entry of the December 18 memorandum opinion and judgment, the defendants have, with the help of their testing expert, now fashioned a process for selecting from within bands. The process is as follows:
"When validated selection procedures utilize banding," the following is the process to be used in making selections from within bands. Once the City/County Personnel Department has transmitted the list to the Montgomery Police Department (MPD), AUM or some other testing consultant, which may be the Personnel Department in the future, will assist MPD in selecting candidates from bands as follows.
"The consultant will provide the Chief of Police with a rating form listing those [knowledges, skills, and abilities, also known as] KSAs[,] not tapped by the formal procedures that the consultant deems appropriate for consideration in within-band selection ("untapped KSAs"). The rating form will contain instructions for its use and procedures for quantifying the Chief's judgments. The consultant will also provide separate lists of the KSAs tapped by the formal procedures and the untapped KSAs deemed appropriate for consideration.
"The Chief will request recommendations from the members of the Chief's staff on what candidate(s) is/are best suited to fill a vacancy or vacancies for a given rank. The Chief will instruct the staff members to consider the untapped KSAs and any unique requirements of a specific vacant position or positions in making their recommendations. The staff members may consult personnel folders and other sources of information on candidates' job performance in making their recommendations.
"Once the staff members have made their recommendations to the Chief, the Chief will review the personnel folders of recommended candidates and any other candidates (in the band from which selections are being made) the Chief judges to be worthy of consideration for promotion. The Chief will complete the rating forms provided by the consultant and make his determination of which candidates are best suited for promotion. The Chief's determination will be based upon the scores the Chief assigns to the rating forms. The Chief will then forward the final list of promotees to the appointing authority, the Mayor, for his approval and action.
"In order to assist the staff members in their deliberations, AUM will meet with the Chief's staff members on 2 December 1996 and conduct a training session on selection from within bands. The content of the training session will address the following: 1) the formal promotion procedures and what they measured, 2) the KSAs deemed appropriate for consideration for within-band selection, 3) the need to avoid using KSAs tapped by the formal procedures in selecting candidates from within bands, 4) the need to focus on untapped *1244 KSAs in selecting candidates from within bands, and 5) the desirability of considering position-specific requirements in selecting candidates from within bands."
The evidence reflects that this process for selecting from within bands is appropriate as a general guide for those Police Department officials who are responsible for assessing the "KSAs" that are left untapped by the "formal procedure."
III.
Finally, the parties have presented evidence of the current racial composition of the sworn entry-level and promotional ranks within the Montgomery Police Department. This evidence, they contend, "generally reflects the implementation of policies and procedures which foster equal employment and promotional opportunities." They maintain that the orders at issue, as well as prior orders, have "led to a substantial increase in the number of African-Americans officers hired into the [Montgomery Police Department] and in those serving in all entry-level assignments as well as in the promotional ranks."
The evidence reflects that, as of September 1996, 133 African-American officers represented 33.1% of a total of 402 officers in the three entry-level assignments and positions, and 22 African-American officers represented 19.3% of a total of 114 officers in the first four promotional positions. As a result, the current African-American representation of promotional officers (including deputy chief and chief) is approximately 19%. In contrast, according to the parties, in 1979, shortly after this litigation began, 29 African-American officers represented only 11.2% of a total of 258 officers in entry-level assignments and positions, and two African-American officers represented only 3.4% of a total of 58 officers in the first four promotional positions. As a result, according to the parties, the African-American representation of promotional officers (including deputy chief and chief) was only 3.3%.
In conclusion, the court agrees with the parties that all remaining orders in this litigation should be dissolved. Accordingly, it is the ORDER, JUDGMENT, and DECREE of the court that:
(1) The orders of April 21, 1992, October 5, 1992, November 2, 1992, February 24, 1993, May 21, 1996, and June 24, 1996, are all dissolved.
(2) This lawsuit is dismissed in its entirety.
It is further ORDERED that costs are taxed against defendants, for which execution may issue. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1587229/ | 709 F.Supp. 925 (1989)
APPLE COMPUTER, INC., Plaintiff,
v.
MICROSOFT CORPORATION and Hewlett-Packard Company, Defendants.
No. C-88-20149-WWS.
United States District Court, N.D. California.
March 20, 1989.
*926 Jack E. Brown, Brown & Bain, P.A., Phoenix, Ariz., Lois W. Abraham, Chris R. Ottenweller, Martin L. Lagod, Brown & Bain, Palo Alto, Cal., for plaintiff Apple Computer, Inc.
David T. McDonald, Karl J. Quackenbush, Shidler McBroom Gates & Lucas, William O. Ferron, Jr., Seed & Berry, Seattle, Wash., John N. Hauser, Lynn H. Pasahow, McCutchen, Doyle, Brown & Enersen, San Francisco, Cal., for defendant Microsoft Corp.
S. Leslie Misrock, Jonathan A. Marshall, Jon R. Stark, Pennie & Edmonds, New York City, Neil Boorstyn, Townsend and Townsend, San Francisco, Cal., Stephen P. Fox, Roland I. Griffin, Hewlett-Packard Co., Palo Alto, Cal., for defendant Hewlett-Packard Co.
MEMORANDUM OF DECISION AND ORDER
SCHWARZER, District Judge.
Apple Computer, Incorporated ("Apple") brings this action against the Microsoft Corporation ("Microsoft") and the Hewlett-Packard Company ("H-P"), alleging that the visual displays and images in Microsoft's product Windows 2.03 infringe Apple's copyrighted audiovisual works. Microsoft denies the allegations and moves for summary judgment on its affirmative defense that the visual displays in Windows 2.03 are within the scope of a license granted by Apple to Microsoft in a Settlement Agreement entered into by the parties on November 22, 1985 ("1985 Agreement"). Apple, in turn, moves for partial summary judgment declaring that Windows 2.03 is an unauthorized derivative work of Apple's copyrighted visual displays and dismissing Microsoft's affirmative defense based on the 1985 Agreement.[1]
Argument by counsel has been heard and counsel have had an opportunity to examine and comment on a prior draft of this ruling.
The question before the Court concerns the interpretation of the agreement between the parties, which is a question of law. Beck Park Apts. v. United States Dept. of Hous. & Urb. Dev., 695 F.2d 366, 369 (9th Cir.1982). The parties agree that there is no disputed material issue of fact and that the question before the Court is ripe for decision on these motions for summary judgment.
I. FACTUAL BACKGROUND
A. The 1985 Agreement
Apple achieved commercial success with its Macintosh personal computer, largely because of its distinctive user friendly graphic user interface operating environment. Apple copyrighted the visual displays in the Macintosh operating system.
Microsoft developed a competing graphic user interface, called Windows, for IBM compatible personal computers. In October 1985 Apple informed Microsoft that it thought Windows infringed on its copyrighted visual displays. Apple and Microsoft entered negotiations to resolve their dispute. These negotiations resulted in the 1985 Agreement which is the subject of the motions now before the Court.
The preamble to the 1985 Agreement states that "a dispute has arisen concerning *927 the ownership and possible copyright infringement as to certain visual displays generated by ... `Microsoft Windows Version 1.0'" and five named applications programs created by Microsoft to run on the Macintosh. (MS App., Ex. A.)[2] Microsoft acknowledged that the visual displays in the named programs "are derivative works of the visual displays generated by Apple's Lisa and Macintosh graphic user interface programs." (Id., ¶ 1.)
Apple granted Microsoft a non-exclusive "license to use these derivative works in present and future software programs" (id., ¶ 2), and Apple released Microsoft from any copyright or other claim that it might have had "as to Windows Version 1.0" (id., ¶ 4). Microsoft, in turn, granted Apple a five-year, non-exclusive license "to use any visual displays created by Microsoft ... as part of its Microsoft Windows retail software product." (Id., ¶ 5.) Microsoft also agreed to develop software necessary to make the Macintosh attractive to business users, and to defer release of its Excel program for IBM compatible personal computers.
The 1985 Agreement also contains an integration clause stating that it constitutes the entire agreement between the parties. (Id., ¶ 7.G.)
B. Drafting of the 1985 Agreement
Apple prepared the initial draft of the settlement agreement, providing for a narrow license. (MS App., Ex. 0.) Apple's draft would have granted Microsoft a nonexclusive
license under Apple's visual copyrights covering Apple's Lisa and Macintosh user interfaces for Microsoft Windows and other Microsoft software products which are compatible with Apple's Macintosh computer ... only for use in Microsoft Windows program (as set forth in Exhibit A) in the form that shall exist after the completion of the changes set forth in paragraph 5 and such applications as are available as of the date of this Agreement that operate under Windows. After November 1, 1986, additional applications to operate under Microsoft Windows shall be covered by the license grant of this Agreement but at no time shall this grant extend to any appearance, look, feel, visual feature or operation other than that incorporated in Microsoft Windows as it shall exist after completion of the changes set forth in paragraph 5.
(Id., ¶ 1.)
Microsoft rejected the narrow license in Apple's draft and after further negotiations prepared a new draft agreement. (MS App., Ex. P.) Microsoft's draft was substantially different from the Apple draft and similar in form to the final agreement. The only relevant changes made to arrive at the final agreement were to specify more precisely that the dispute and settlement were with respect to visual displays in Windows 1.0. The description of Windows in the preamble by reference to the object code and the words "the current version of Windows" in the release clause both were replaced with the words "Microsoft Windows Version 1.0."
II. DISCUSSION
The issue before the Court is whether the license granted by Apple in the 1985 Agreement provides Microsoft with a complete defense against Apple's claims that the visual displays in Windows 2.03 infringe Apple's copyrights. Apple contends that the license is limited to visual displays in Windows 1.0 or virtually identical to those in Windows 1.0. Microsoft, in turn, contends that the license is broad enough to cover enhancements to the Windows program, and that, even if Apple's narrow construction is adopted, the visual displays *928 in Windows 2.03 are virtually identical to those in Windows 1.0.
A. Scope of the License Under the 1985 Agreement
The Court must interpret the 1985 Agreement so as to give effect to the mutual intentions of the parties at the time that the Agreement was entered. Cal.Civ. Code § 1636. The parties have submitted voluminous excerpts from depositions in which, for the most part, the protagonists testified to their intentions in entering into the 1985 Agreement in a manner invariably consistent with their respective positions in this law suit. Such self-serving testimony is of little assistance in interpreting the Agreement. Instead, the Court must rely principally on the contemporary evidence. Cal.Civ.Code § 1647; see also Anchor Casualty Co. v. Surety Bond Sav. & Loan Ass'n, 204 Cal.App.2d 175, 183, 22 Cal. Rptr. 278, 282 (1962) (prior negotiations relevant).
That evidence shows that whether the license should be limited to the existing visual displays in Windows 1.0 was a critical point of contention. Apple's initial draft contained a narrow license to use Apple's visual displays only in the then current version of Windows and in current and future applications programs. It also limited future applications programs so that the graphic display that a user would see on running a Windows applications program would never have an appearance, look, or feel other than that which already existed in Windows at the time of the 1985 Agreement. Microsoft rejected this narrow license and proposed different language. Apple felt that Microsoft's proposed language was too broad. The written comments of Apple's associate general counsel Rappaport on Microsoft's proposed license stated that the "[g]rant is broader than we intend; we intend to license only their current version of Windows." (MS App., Ex. Q.)
When the two principals primarily responsible for drafting the agreement, Rappaport and Microsoft vice president of legal and corporate affairs Neukom, met to go over Microsoft's draft, this point was discussed. Neukom testified that he understood from Rappaport that "he thought this was a product license, that is, that whatever visuals would be covered by the license would only, could only be used by Microsoft in current versions of its Windows product." (Neukom Depo., 53-54.) Neukom continued: "We felt quite to the contrary and had reflected in our draft how differently we approached the question ... because our license was intended not to have a limitation to the current version of Windows." (Id., 54.)
Thus, the issue was framed in the negotiations and the choice of words in the 1985 Agreement as executed must necessarily be considered to have been deliberate.
Had Apple's narrow provision been dropped without a substitute restriction, it would be reasonable to interpret the agreement as giving Microsoft a blanket license to develop future Windows programs.
However, the parties substituted language showing an intent to limit the license and accompanying release of claims to the visual displays in the then current version of Windows, Version 1.0, and in the named applications programs. The preamble of the Agreement defines the subject matter of the dispute as "certain visual displays generated by several Microsoft software products," and then goes on to specify those products as "Microsoft Windows Version 1.0" and certain named applications programs. (MS App., Ex. A (emphasis added).) Microsoft then acknowledges that "the visual displays in the above-listed Microsoft programs are derivative works of the visual displays generated by Apple's Lisa and Macintosh graphic user interface programs." (Id.) The license granted by Apple to Microsoft is "to use these derivative works in present and future software programs." (Id. (emphasis added).) Finally, Apple's release of copyright and other claims against Microsoft goes only to "Microsoft Windows Version 1.0." (Id. (emphasis added).)
Microsoft stresses that the license is for use in "present and future software programs," indicating that the parties foresaw *929 that Microsoft would continue to develop its Windows program, and intended to include future versions of Windows within the scope of the license. That language is limited, however, by the specification of the subject matter of the license, i.e., the "derivative works" as defined in the preamble and first paragraph of the 1985 Agreement. Hence these words do not expand the scope of the license to allow Microsoft to develop future versions of Windows as it pleases; instead they allow Microsoft only to use the licensed visual displays in future versions of Windows and in different applications programs, whether then in existence or not. That conclusion is supported by comparison of the specific language used in the license from Apple to Microsoft with the more general language used in the license from Microsoft to Apple, licensing Apple "to use any new visual displays created by Microsoft." (Id. (emphasis added).) See Cal.Civ.Code § 1641 (one clause of contract may be used to interpret another clause in contract).
Microsoft also contends that overlapping windows are not a visual display but, rather, that each individual window is itself a visual display, and that the combination of windows on the screen is a screen display and hence not a derivative work subject to the restrictions of the license. Thus, it maintains, the license allows it to put different windows on the screen in any way that it chooses, whether tiled or overlapping. Microsoft's technical witnesses concede, however, that the term "visual display" could mean anything from a single visual element to the entire screen display. (Trower Depo., II 23; Konzen Depo., 97-99.) Moreover, in light of Microsoft's promotion of Windows 2.0 as visually new and different, Microsoft's unsupported assertion of this distinction between "screen display" and "visual display" is not persuasive.
Even if Microsoft's interpretation of the words "visual display" were as plausible as Apple's, because Microsoft drafted the language, Apple's interpretation would control. See Interpetrol Bermuda Ltd. v. Kaiser Aluminum Int'l Corp., 719 F.2d 992, 998 (9th Cir.1983) ("Where, after examining all the evidence, including the course of relations between parties and the circumstances under which they executed the contract, a question of contract interpretation remains, a court is entitled to resolve the question against the party who prepared a writing.").
Microsoft also contends that the license covers any visual display that can be generated by any of the five named applications programs when run on the Macintosh. The parties devote considerable space in their memoranda to argument over the meaning of the words "generated by" in the preamble to the 1985 Agreement. The dispute is over whether the visual displays in issue are "generated by" Microsoft's applications software or by the Macintosh system software. This argument, reminiscent of the disputes of medieval savants over how many angels can dance on the head of a pin, need not be resolved.
There is no evidence that the negotiators of the 1985 Agreement were concerned with the highly technical and complex matter of the interplay of applications and system software. To the contrary, it is clear that what they were concerned with was the end product: the visual interface. Neukom's testimony shows that when he drafted the agreement, he attached no technical meaning to the words he chose; he used "visual displays generated by" and "visual displays in" the latter being the words used to define derivative works in paragraph 1 interchangeably. (Neukom Depo., 98-99.) And to construe the 1985 Agreement, by virtue of the addition of two innocuous words in one sentence, as licensing all visual displays that can be called up by running five applications programs on Macintosh would defy common sense.
Microsoft is correct when it maintains that Apple received valuable consideration for the license; but it is not reasonable to construe the 1985 Agreement as giving Microsoft in return an essentially open-ended license to use whatever visual displays its named software could generate on a Macintosh, then or in the future. What Microsoft *930 received was a license to use the visual displays in the named software products as they appeared to the user in November 1985.
Finally, Microsoft contends that, even if the license is limited to Windows 1.0, it would cover any visual display that an applications programmer could generate using Windows 1.0. Microsoft submits the declaration of one of its software engineers that he managed to write applications programs using Windows 1.0 that generated each of the visual displays offered by Apple as examples of infringing displays generated using Windows 2.03. (Gunderson Decl.)
This argument proves too much. If it were accepted, the logical conclusion would be that Apple licensed whatever visual displays a skilled programmer might be able to generate by writing new code that, incidentally, used calls to Windows 1.0 subroutines. This would amount to a license to all of the visual displays that make the Macintosh operating environment unique. Considering the great value to Apple of the graphic interface embodied in its Macintosh operating environment, it is contrary to reason and common sense to interpret the 1985 Agreement as creating a blanket license the limits of which are defined only by the limits of the ingenuity and skill of programmers. See, e.g., Howe v. American Baptist Homes of the West, Inc., 112 Cal.App.3d 622, 627, 169 Cal.Rptr. 418, 420 (1980) (reasonable construction consistent with language of contract must prevail over unreasonable construction).
Accordingly, the plain intent and meaning of the 1985 Agreement is to grant a license and release[3] limited to the visual displays in Windows 1.0 and the named applications programs as they then existed and appeared to the user.
B. Application of the License to Windows 2.03
Regardless of how one interprets the license in the 1985 Agreement, if the visual displays of Windows 2.03 are virtually the same as those of Windows 1.0, then Windows 2.03 is covered by the license. However, the testimony of Microsoft's witnesses and the contemporary record compel the conclusion that the visual displays of the two programs are fundamentally different.
The main applications window in Windows 1.0 uses a tiled format in which the different applications windows appear next to each other and do not overlap. (Apple App., Ex. 82, Microsoft Windows Software Development Kit, Application Style Guide, Version 1.03, p. 5.) Microsoft promoted this feature as distinguishing Windows 1.0 from other windowing programs. In the promotional brochure for Windows 1.0, after stating that Windows 1.0 allows an IBM compatible personal computer to "have the friendly kind of features that make computers like the Apple Macintosh so easy and efficient to run," the first distinguishing feature that Microsoft listed was
No Overlapping. Unlike other windowing products, Microsoft Windows doesn't overlap its application windows. With Windows, your views are "tiled," conveniently sitting next to each other, so you can see all of them.... [Y]ou never "lose" a window.
(Apple App., Ex. 79, Microsoft Windows At a Glance.)
In contrast, the main applications window in Windows 2.03 is an overlapping window. (Apple App., Ex. 83, Microsoft Windows Software Development Kit, Application Style Guide, Version 2.0, p. 5.) Microsoft chairman Gates testified that "the fundamental differences [between the two versions of Windows] were in the code between these two things.... [W]e changed the Style Guide to encourage people to use overlapping, and we took the tile code out.... The top-level main windows were changed so that the built-in applications worked in an overlapped fashion." (Gates Depo., 55-57.) Microsoft director of user interface design Trower testified that "the *931 most obvious difference between the products is the lack of tiled windows." (Trower Depo., 210.) Microsoft's lead programmer for the Windows user interface group Konzen agreed that "there are some fundamental differences between the visual displays of Windows 2.03 and the visual displays of Windows 1.0," including the change from tiled to overlapping windows. (Konzen Depo., 157-58.)
Microsoft featured this change from tiled to overlapping windows as a major selling point for Windows 2.0. The press release announcing the new version advertised a "new visual interface with overlapping windows." (Apple App., Ex. 85, Microsoft News Release.) And a Microsoft publication touting the new Windows system stated that there are substantial differences between Windows 1.0 and Windows 2.0, the first difference listed being the change from tiled to overlapping windows. (Apple App., Ex. 70, Vellon, The OS/2 Windows Presentation Manager: Microsoft Windows on the Future, Microsoft Systems J. 13, 15 (May 1987).)
Thus, it cannot be disputed that Windows 2.03 is significantly different from Windows 1.0. And this difference is significant to Apple. The Windows 1.0 operating environment, as shipped by Microsoft, was a tiled window system, different from the Macintosh operating environment; Windows 2.03 was designed, when run over an applications program, to generate overlapping windows, which is a major feature of the Macintosh operating environment; and Windows 2.03 is more similar in overall visual appearance to the Macintosh visual displays than Windows 1.0. (Konzen Depo., 26, 78, 118; see also Trower Depo. 210, 219; Davis Depo., 89.)
Without contesting that Windows 2.03 represents a major change from Windows 1.0,[4] Microsoft contends that Windows 2.03 is still within the scope of the license because Windows 1.0 supported overlapping windows substantially similar to those featured in Windows 2.03. However, as discussed in the previous section, the mere fact that it is possible to generate overlapping windows using Windows 1.0 is not sufficient to bring all overlapping windowing programs within the scope of the license. That overlapping windows were an insignificant aspect of Windows 1.0 is confirmed by Microsoft's promotional material distinguishing Windows 1.0 from the Macintosh operating environment by featuring non-overlapping windows. (See Apple App., Ex. 79, Microsoft Windows At a Glance.) It is not reasonable to conclude that Apple gave up this valuable distinguishing feature in the absence of explicit language.
C. Estoppel of Microsoft to Deny Copyright Infringement
Apple's contention that Microsoft is estopped to deny copyright infringement by reason of the 1985 Agreement is premature. Because the Court holds only that the Agreement is not a complete defense to the infringement claims against Windows 2.03, the issues of infringement and of whatever other defenses may be available to Microsoft must be deferred for resolution in the next phase of the litigation. The Court has no record before it that would enable it to determine whether there is a relevant and valid copyright and whether it is infringed. Thus it could not decide whether Microsoft is estopped to deny infringement of works for which it holds no license.
III. ORDER
For the reasons stated, Apple's motion for partial summary judgment is granted to the extent that the Court determines and adjudicates that the November 22, 1985 Settlement Agreement is not a complete defense to Apple's infringement claims with respect to Windows 2.03. In all other respects, Apple's motion is denied without prejudice. Microsoft's motion for summary judgment is granted to the extent that the Court determines and adjudicates that *932 the November 22, 1985 Settlement Agreement licenses Microsoft to use the visual displays in Windows 1.0 and the named applications programs in current and future software products. In all other respects Microsoft's motion is denied.
The parties are directed to meet and confer with respect to further proceedings in this action and be prepared to discuss them at a status conference to be held on April 14, 1989, at 10 a.m.
IT IS SO ORDERED.
NOTES
[1] In deciding the motions before it, the Court does not reach defendants' other affirmative defense that Apple's copyrights are invalid. It considers only whether the 1985 Agreement affords defendants a complete defense to this action.
[2] Citations to source materials conform to the following conventions: (1) Appendix to Apple's Motion for Partial Summary Judgment "Apple App."; (2) Supplemental Appendix to Apple's Motion "Apple Supp.App."; (3) Apple's Exhibits and Deposition Testimony Subject to Protective Order "Apple Conf. App."; (4) Appendix to Apple's Response "Apple Resp.App."; (5) Appendix to Apple's Reply "Apple Reply App."; and (6) Appendix to Microsoft's Motion for Summary Judgment "MS App.". Citations to depositions are by name of deponent, page number, and volume number where appropriate.
[3] Microsoft contends that this interpretation of the license provision renders the release clause redundant. However, the license covers future use of Apple's visual displays and the release covers past use.
[4] Microsoft would be hard pressed to make such a contention. The change in numbering from a "1" to the left of the decimal place to a "2" represented a major new version release. (Shirley Depo., 25.; Davis Depo., 78.) | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1595620/ | 12 F.Supp. 738 (1935)
A. P. W. PAPER CO., Inc.,
v.
RILEY, Collector of Internal Revenue.
FULD & HATCH KNITTING CO.
v.
SAME.
MOHAWK CARPET MILLS, Inc.,
v.
SAME.
District Court, N. D. New York.
October 18, 1935.
Dugan & Bookstein, of Albany, N. Y. (Isadore Bookstein and Avrom M. Jacobs, both of Albany, N. Y., of counsel), for A. P. W. Paper Co., Inc.
James W. Ferguson, of Amsterdam, N. Y. (Daisy Snook Borst, of Amsterdam, N. Y., of counsel), for Mohawk Carpet Mills, Inc.
Illch & Poskanzer, of Albany, N. Y. (Robert C. Poskanzer, of Albany, N. Y., of counsel), for Fuld & Hatch Knitting Co.
*739 Frank J. Wideman, Asst. Atty. Gen., and Oliver D. Burden, U. S. Atty., of Syracuse, N. Y. (Andrew D. Sharpe and Arthur P. Curran, Sp. Assts. to Atty. Gen., and B. Fitch Tompkins and Donald P. Gorman, Asst. U. S. Attys., both of Syracuse, N. Y., of counsel), for Collector of Internal Revenue.
COOPER, District Judge.
This matter comes before the court on two motions, one by all complainants to continue the temporary restraining order until the trial of the suits, and the other by the defendant to dismiss all three bills of complaint for lack of jurisdiction by the court and because of insufficiency.
These three suits are in equity to restrain the collection of process taxes under the Agricultural Adjustment Act of May 12, 1933, c. 25, 48 Stat. 31, 39, 40, § 15 (e), as amended by section 11 of the Act of May 9, 1934, c. 263, 48 Stat. 670, 676, 7 USCA § 615 (e).
In the A. P. W. Case, the tax is not levied upon the basic commodity, cotton, but upon wood pulp or paper, not one of the basic commodities named in the statute, but used by the A. P. W. Company in the manufacture of paper towels, which are deemed to compete with cotton towels, and this complainant is claimed to be liable for compensating and floor taxes.
In the other two cases the processing taxes are laid against the cotton used in the manufacture of underwear, etc., in the Fuld and Hatch case and carpets in the Mohawk Carpet Mills case.
These suits were all brought prior to the amendment of August 24, 1935, but the complaint in the A. P. W. and Fuld and Hatch cases has been amended to attack the amendment also.
The complainants attack the constitutionality of the act on various grounds, the more important of which are:
(a) That in setting up a scheme of local crop control the act is an attempt by Congress to legislate in a field expressly reserved to the several state sovereignties.
(b) That the legislation is not within the taxing power of Congress because it is not a tax levied for governmental purposes, but an exaction from a certain class of persons for the exclusive benefit of another class of persons.
(c) That the rate of the alleged tax is variable and impossible of exact determination, resulting in a rate of tax fixed by the administrative officer not on the basis of facts found, but based on his prophecy of future happenings, which rate is arbitrary, confiscatory, and constitutes a taking of property without due process in violation of the Fifth Amendment.
(d) That the legislation is an improper delegation of legislative authority by Congress to an administrative officer.
(e) That it is invalid under the interstate commerce power because only indirectly affecting interstate commerce.
The complainants allege various grounds of irreparable injury, such as inability to obtain funds to pay the taxes, threatened destruction and confiscation of their capital, business, and property if they fail to pay the taxes with the heavy penalties involved, competitors protected by temporary injunction tending to destroy complainant's market, not only inadequate remedy at law, but utter lack of practicable remedy at law since the amendment.
Government counsel contend that the act is constitutional, that the amendment in section 21 (d) (1, 2), 7 USCA § 623 (d) (1, 2), gives an adequate remedy at law for the recovery of any taxes illegally collected, that the court has no jurisdiction to entertain this suit, that no injunction should be granted because prohibited by section 3224, Rev. St. (26 USCA § 1543), as to taxes before August 24, 1935, and by section 21 (a) of the amendments of August 24, 1935 (7 USCA § 623 (a), later herein referred to, and that in any event complainants make no showing entitling them to a temporary injunction.
The act as it was before amendment (see 7 USCA § 601 et seq.) has been held to be an unconstitutional delegation of power to Congress in various cases, among which are the following: Butler, as Receiver of Hoosac Mills Corporation v. United States (C.C.A. 1) 78 F.(2d) 1; John A. Gebelein, Inc., v. Milbourne (D.C.Md.) 12 F.Supp. 105, August 13, 1935; F. G. Vogt & Sons, Inc., v. Rothensies (D.C.E.D.Pa.) 11 F.Supp. 225.
The act has also been held unconstitutional on the ground that it is an attempt to regulate matters within the exclusive power of states. John A. Gebelein, Inc., v. Milbourne, supra.
*740 It has also been held that because of special and extraordinary circumstances existing in particular cases both prior and subsequent to the amendment of August 24, 1935 (7 USCA § 602 et seq.), there was no adequate remedy at law to recover taxes illegally exacted under the act and temporary injunction was granted. John A. Gebelein, Inc., v. Milbourne, supra; Gold Medal Foods, Inc., v. Landy (Pillsbury Flour Mills Co. v. Landy, and concurrent cases) (D.C.) 11 F.Supp. 65, decided July 11, 1935, by three District Judges of Minnesota; Washburn Crosby Co. v. Nee (D.C.W.D.Mo.) 11 F.Supp. 822, decided July 31, 1935; Merchants Packing Co. v. Rogan (Luer Packing Co. v. Rogan) (C.C.A. 9) 79 F.(2d) 1, decided Sept. 24, 1935; Shenandoah Milling Co. v. Early (D.C.Va. Sept. 23, 1935). Oral opinion; G. B. R. Smith Milling Co. v. Thomas (D.C.N.D.Tex.) 11 F.Supp. 833, Sept. 20, 1935.
My colleague in this district has also granted temporary injunctions in several cases pending before him. Utica Knitting Co. v. Shaughnessy,[1] August 15, 1935.
While the Circuit Court of Appeals in the Ninth Circuit by a divided court denied injunction before the amendment in Fisher Flouring Mills Co. v. Vierhus, 78 F.(2d) 889, it granted an injunction, after the amendment in Luer Packing Co. v. Rogan, supra. They placed this change of view in part upon the amendment in these words: "The situation is changed by amendment to the law effecting the remedy of the taxpayer to recover an invalid tax."
All these cases, whether expressly so deciding or not, necessarily implied grave doubt of the constitutionality of the statute.
There are several cases, some in the Southern and Eastern District of New York, holding the act constitutional or denying temporary injunction, but most of those cases were decided before or without knowledge of the Hoosac Mills Corporation, Pillsbury Flour Mills Co., and Luer Packing Co. Cases, supra.
The weight of decision is that the statute is unconstitutional, and because the remedy at law is inadequate or lacking, temporary injunction was granted.
On August 24, 1935, various amendments to the Agricultural Adjustment Act became effective (7 USCA § 602 et seq.), which, so far as material here, sought to accomplish the following objects:
1. Give a remedy for the recovery of taxes collected both before and after the amendment of August 24, 1935, if the act shall be finally held unconstitutional or the collections were otherwise illegal. Sections 21 (d) (1-3).
2. Forbid all suits to prevent collection of processing taxes under the act, section 21 (a) (g).
3. Ratification of the taxes laid by the Secretary of Agriculture before August 24, 1935, section 21 (b).
The ratification by Congress of the taxes imposed by the Secretary of Agriculture seems like an admission, at least, of doubt, of the constitutionality of the delegation of power to the Secretary. While the amendment makes a slight change in the power given the Secretary, the changes are slight and leave unaffected the power of the Secretary to reduce, increase, modify, or eliminate the tax, not by any practicable standard, but largely by his opinion or prophecy of future prices and conditions. It still seems a delegation of legislative power. As a retroactive tax measure, its constitutionality is doubtful. Blodgett v. Holden, 275 U.S. 142, 276 U.S. 594, 48 S.Ct. 105, 72 L.Ed. 206.
At the most, even assuming that the amendment of August 24, 1935, cured the defective delegation of legislative power, the other grounds of invalidity remain.
The whole amendment was before the court in Luer Packing Co. v. Rogan (C. C.A. 9) 79 F.(2d) 1, supra, when it granted temporary injunction after denying it in the previous case of Fisher Flouring Mills Co. v. Vierhus.
The government also contends that section 21 (d) (1-3) and (g) give an adequate remedy for the recovery of the taxes paid if the act is declared unconstitutional or collections are otherwise excessive or illegal.
Section 21 (d) (1) and (2) seems to make requirements for recovery of the taxes extremely burdensome and impracticable of compliance. Under the guise of providing a method of recovery, it is subject to the challenge made by complainants that recovery thereunder is made practically impossible. But if the requirements could be met, there is no provision *741 for a real judicial review of the decision of the Commissioner of Internal Revenue.
These subdivisions provide that the taxpayer shall first apply to the Commissioner of Internal Revenue, an administrative officer for refund, that the latter may investigate and make his findings of fact and determine whether or not the taxpayer has satisfied the requirements for a refund under the burdensome conditions laid down.
The subdivision further provides that in any judicial proceedings the transcript of the hearing before the Commissioner must be considered as the record in the case in any court. It is reasonably clear that there can be no hearing de novo in a suit brought by the taxpayer as is in tax statutes generally provided, and also there can be no jury trial, for there are no facts to be established.
But, on the contrary, the court proceedings will be limited to a review of the record in the case as made by the Commissioner, and his decision is conclusive unless the court shall determine as a matter of law that his conclusions are wrong on the facts found by him. The record might well be made up, in part at least, of affidavits, etc., without any regard for the requirements of legal proof. There would, of course, be no examination or cross-examination of witnesses before the court. The judicial power is extremely limited.
This is very unlike procedure heretofore known as a remedy for the recovery of taxes paid in excess or illegally exacted.
Surely this may well constitute such special and extraordinary circumstances for the taxpayer with the other facts in the case to warrant injunction in spite of the provisions of section 3224 of the Revised Statutes (26 USCA § 1543), if it is still applicable, and of section 21 (a), 7 USCA § 623 (a).
The amendment of August 24, 1935, section 21 (d) (1) (2), (g) providing recovery of unconstitutionally or illegally collected taxes, penalties, etc., applies to any tax "which accrued, before, on, or after the date of the adoption of this amendment" (August 24, 1935). There can be little doubt that the only remedy for the recovery of taxes, penalties, etc., accruing before as well as after August 24, 1935, is contained in these subdivisions of section 21.
No recovery can be had, therefore, except by compliance with the provisions of such statute.
Whether there is any reasonably adequate means provided for the recovery of taxes or property which should not have been taken is for the court, not for the Congress.
While it is the function of Congress to provide the means, the means provided must have some reasonable relation to the end sought to be attained, and must furnish some reasonable method by which the taxpayer may recover what should not have been taken from him. Wilson v. Illinois Southern Ry. Co., 263 U. S. 574, 577, 44 S.Ct. 203, 68 L.Ed. 456; Union Pacific R. Co. v. Board of Com'rs of Weld County, 247 U.S. 282, 285, 38 S.Ct. 510, 62 L.Ed. 1110; Atlantic Coast Line R. Co. v. Doughton, 262 U.S. 413, 43 S.Ct. 620, 67 L.Ed. 1051.
The government counsel assert that section 21 (d) (1), (2) of the amendment of August 24, 1935, relating to the recovery of taxes illegally collected is like the provision of the Revenue Act of 1928 relating to sales tax, and therefore affords adequate remedy for recovery of such taxes.
The amendment of August 24, 1935, providing for recovery of taxes illegally paid goes far beyond the procedure outlined in section 424 (a) (2) of the Revenue Act of 1928 (c. 852, 45 Stat. 791).
The Circuit Court of Appeals in the Ninth Circuit in the Luer Packing Co. v. Rogan, 79 F.(2d) 1, supra, necessarily so held, for before this amendment in another like case (Fisher Flouring Mills Co. v. Vierhus) they denied injunction, whereas, after the amendment, that court granted temporary injunction in the Luer Packing Co. Case.
Perhaps the main reliance of government counsel is that section 21 (a) of the amendment of August 24, 1935 (7 USCA § 623 (a) forbids this court to grant an injunction against the collection of the processing tax under the act. This section, so far as material here, is as follows: "No suit, action, or proceeding (including probate, administration, receivership, and bankruptcy proceedings) shall be brought or maintained in any court if such suit, action, or proceeding is for the purpose or has the effect (1) of preventing or restraining the assessment *742 or collection of any tax imposed * * * on or after the date of this amendment [August 24, 1935]."
It is this provision which the government contends ousts the court of all jurisdiction as to postamendment taxes, leaving section 3224 of the Revised Statutes (26 USCA § 1543) applicable to preamendment taxes.
As the court understands it, the government's contention is in essence that under these two sections no court has any jurisdiction whatever as to the tax collections under this act, except in review of proceedings before the Commissioner under section 21 (d) (1), (2).
That in a tax law Congress may forbid injunction where it gives adequate remedy at large to recover illegally collected taxes is well settled.
But that the Congress may by unconstitutional statutes, denominated a tax law, take the property of the citizen without due process of law and then in the same statute forbid the citizen to seek injunction in a court of equity without giving him an adequate remedy at law has yet to be established by highest authority. There are authorities which at least inferentially hold to the contrary. Nichols v. Coolidge, 274 U.S. 531, 542, 47 S.Ct. 710, 71 L.Ed. 1184, 52 A.L. R. 1081; Brinkerhoff-Faris Trust & Savings Co. v. Hill, 281 U.S. 673, 679, 50 S.Ct. 451, 74 L.Ed. 1107; Graham & Foster v. Goodcell, 282 U.S. 409, 431, 51 S.Ct. 186, 75 L.Ed. 415.
Yet that is what section 3224, Revised Statutes, and the amendment of August 24, 1935, section 21 (a), do if the provision of the section 21 (d) (1) (2), (g), for the recovery of taxes illegally or unconstitutionally collected, is such in name only and is in truth a denial of such right of recovery.
There seems good reason to believe that the recovery provisions are such in name only.
If this AAA statute transcends the delegated powers of the federal government and is therefore unconstitutional, or if it is unconstitutional solely because of the prohibited delegation of legislative power to the executive branch of the government, or for any other reason, the whole tax scheme of the statute must fall before the constitutional bar, and section 21 (a) restraining injunction on equity against the collections would seem to fall with it.
Were it otherwise, Congress could, by unconstitutional legislation under the guise of a tax law, take the property of the citizen without due process of law, or otherwise deprive the citizen of his constitutional rights, and, by the mere device of prohibiting in such legislation redress at law or suit in equity, could prevent the citizen from seeking and the courts from granting redress, and there would be no possible way of having a judicial determination of the constitutionality of the statute or of preventing the collection of taxes unconstitutionally exacted or of recovering such taxes or of preserving the constitutional rights of the citizen.
And section 21 (a) as added by the amendment seems to run also to the Supreme Court, for the amendment prohibits suit in "any Court," and, if valid, would prohibit relief even in that court.
It is inconceivable that a court of equity would hold that Congress might thus nullify the Constitution. That would seem to be the end of constitutional government in the United States.
The courts are, by the Constitution, made a co-ordinate branch of the federal government.
Congress may not encroach upon the equity jurisdiction of the court intended by the Constitution. Michaelson v. United States, 266 U.S. 42, 64, 45 S.Ct. 18, 69 L.Ed. 162, 35 A.L.R. 451.
That the courts have jurisdiction despite the provisions of section 3224 of the Revised Statutes (26 USCA § 1543), where special and extraordinary conditions exist, is held in Miller v. Standard Nut Margarine Co., 284 U.S. 498, 52 S.Ct. 260, 76 L.Ed. 422. The same must be true under section 21 (a).
It is true that section 21 (a) does not in form affect the jurisdiction of the court, but it does, like section 3224, prohibit the suitor from entering the court. So that it directly affects the jurisdiction of the court unless the court disregards the statute. The courts do not disregard the statute, but oust the suitor in such a situation unless he can take himself out of the operation of the statute. Miller v. Standard Nut Margarine Co., 284 U.S. 498, 52 S.Ct. 260, 76 L.Ed. 422, supra.
*743 There is, nevertheless, some distinction between a statute denying jurisdiction to the court and one denying a suitor or access to the court. Section 21 at one time before enactment contained both denials, but, as finally agreed upon, contained only the denial to the suitor.
If the denial ran only to the suitor, the court might not be without jurisdiction when the government proceeded affirmatively to present its claim for taxes and ask for payment in a receivership proceeding as in the Hoosac Mills Corporation Case, supra.
It will be noted, however, that section 21 (a) of the amendment specifically covers receivership. It was probably intended by section 21 (a) to provide that in any kind of legal proceeding a processing taxpayer could not raise unconstitutionality or any other defense to an affirmative claim by the government for payment of the processing taxes, and that all the court could do would be to direct the payment of such taxes.
Undoubtedly the Congress acted in utmost good faith in the enactment of section 21 and intended by other provisions of the section to give a remedy for the recovery of taxes, if such recovery became warranted.
But in attempting to give such remedy, it apparently unconsciously imposed such conditions as to make recovery substantially impracticable, and this leaves the taxpayer without relief.
What has been said before concerning nullification of the Constitution by legislation is intended merely to point out the logical result of legislation restraining suit in equity without affording any adequate remedy at law.
This court is not unmindful that where a tax statute is declared unconstitutional by the lower court, that court should not enjoin collection of the taxes pending the Supreme Court decision where there is adequate remedy provided for the recovery of the taxes collected under the invalid statute. Bailey v. George, 259 U.S. 16, 42 S.Ct. 419, 66 L.Ed. 816 and similar cases.
But the provisions of the tax statutes involved in those cases permitting the recovery of the taxes illegally collected were relatively plain, simple, and adequate, while here there seems little reason to doubt that there is in the statute under consideration no such adequate remedy for the recovery of the taxes collected.
The constitutionality of the AAA is so doubtful, the confusion of decisions already rendered so great, the remedy at law to recover processing taxes collected, in the event of its being finally declared unconstitutional, seemingly so inadequate as to be almost nonexistent, the probability so great that the United States Supreme Court will in the near future determine its constitutionality in one or another of the cases before it, and the circumstances here existing so special and extraordinary, that the court is moved to continue the preliminary restraining order in the form of a temporary injunction until the trial of these cases or until a Supreme Court decision.
Such was apparently the view of the Circuit Court of Appeals in the Ninth Circuit in Luer Packing Company v. Rogan, 79 F.(2d) 1, supra.
The government motion for dismissal of the complaints is denied. Orders carrying into effect this decision may be entered.
The injunctions may run to the taxes assessed both before and after the amendment.
The bill of complaint may be amended in the Mohawk Mills case if counsel so desire.
NOTES
[1] No opinion written. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1582139/ | 469 F.Supp. 1258 (1979)
BA MORTGAGE COMPANY, INC., a Delaware Corporation, Plaintiff,
v.
UNISAL DEVELOPMENT, INC., a Wisconsin Corporation, Defendant.
Civ. A. No. 75-W-1287.
United States District Court, D. Colorado.
May 7, 1979.
*1259 Gorsuch, Kirgis, Campbell, Walker & Grover by John S. Pfeiffer and Stephen Klein, Denver, Colo., for plaintiff.
Wood, Ris & Hames by William K. Ris, Denver, Colo., for defendant.
MEMORANDUM OPINION
WINNER, Chief Judge.
After long pretrial skirmishing, and to almost the date of trial, plaintiff asserted both a contract claim and a fraud claim against defendant. Just before trial, the fraud claim was dismissed by plaintiff's trial counsel who had just entered their appearance. In fairness to defendant, there was not a scintilla of evidence of fraud in this case, and I have never before had occasion to try a case in which I was so convinced that experienced businessmen testifying on both sides of a case were testifying to their honest beliefs as to what had been agreed upon, albeit those beliefs were diametric. As always, when reckless charges of fraud are made, discussions ended with the filing of the complaint, and a bitter lawsuit which might have been avoided ensued.
The case is almost unbelievable when the amount of money involved is compared with the haste in which the underlying deal was entered into. There was a cash-out-of-pocket loan of $2,100,000.00, and plaintiff wants damages of $3,390,374.00, but, although there were pages and pages of boilerplate typed up to be hurriedly signed by the parties, there was never any meaningful discussion between representatives of the contracting companies concerning their supposed agreement, although both plaintiff and defendant are experienced in the lending business. Plaintiff, a Delaware corporation, is a wholly owned subsidiary of Bank of America, and defendant, a Wisconsin corporation, is no pygmy in the lending business, but both jumped into this transaction without any real analysis of the crucial agreement, and that's what makes for lawsuits.
The facts leading up to the parting of ways are all too familiar to Colorado natives. People from out of the state think that every mountain in Colorado is destined to be another Aspen or another Vail, and the seasonal nature of most mountain resorts is overlooked. Here, Jack Butz, a Tulsa architect, joined by Charles Burris, a Tulsa developer, decided that a Ramada Inn should be built in Estes Park, Colorado, and they ignored the sad fact of life that there is almost no fall, winter or spring season in Estes Park. Butz was the owner, architect and contractor of the job, and these triple roles eliminated the checks and balances governing most construction jobs. Burris was pretty much a silent partner, and all aspects of the project were under the control of Butz. Defendant's interest in financing the building was brought about by Butz acting through Wiggins, a loan broker, and the two of them obtained an appraisal of the proposed project. The appraisal was made by one Speckman, an MAI, and with the aid of hindsight, it can be said with certainty that he erroneously appraised the worth of the completed building at $2,278,000, to justify the desired loan for $2,100,000. The appraisal was mostly keyed to an income approach, and it greatly overestimated off-season demands for rooms. The Speckman appraisal was sent along to Unisal, and defendant indicated a willingness to make a $2.1 million loan subject to 17 conditions. Butz was also trying other sources to obtain the loan, and ultimately BA Mortgage made a construction loan commitment for the $2.1 million. It is evident that plaintiff too relied on the Speckman appraisal, and, in arranging for the takeout agreement which is the basis for this lawsuit, BA knew that Unisal was relying on the appraisal and on the claim of Butz and Burris that they had a net worth of $6-million or $7 million, which, of course, they didn't have. Although plaintiff questioned the validity of the Speckman appraisal, and although plaintiff knew Unisal *1260 was relying on it, no hint was given to Unisal as to plaintiff's concerns.
Plaintiff structured the transaction to have Chicago Title Insurance Company act under the Colorado Disbursing Statute [C.R.S. '73 § 38-22-126.] BA's construction loan agreement was to make $2.1 million available with interest at 3% above prime and with the building to be ready for occupancy by December 15, 1974. In an agreement which referred to BA as "the company", it was said that "this commitment shall be null and void if its conditions have not been met and the first disbursement is not made on or before January 15, 1974, unless such date is extended by the company at its sole option." [This extension, everyone admits, was entirely at the option of the lender, but as we shall see presently, when the shoe is on the other foot, BA says that extension of the agreement for a takeout loan should be at the option of the borrower.] Originally, the loan was to be secured by all furniture and equipment, but by an amendment to the commitment not disclosed to Unisal, BA Mortgage and Butz agreed that the furniture and equipment could be leased by the owner, an agreement which substantially lessened the security which would support the permanent loan.
January 31, 1974, counsel for plaintiff prepared a "Buy-Sell Agreement" which was an agreement between owner, plaintiff and defendant, and which incorporated numerous exhibits, including the construction loan agreement with its amendment, the original Unisal letter to Wiggins with an amendment, the note, security agreement, financing statements and many more related documents. The Buy-Sell Agreement made provision for effective incorporation by reference of an agreement called the "Building Loan Agreement", but the "Building Loan Agreement" omitted any reference to the fact that Butz was acting as owner-architect-contractor, a novel situation of conflict of interest known to BA Mortgage and not disclosed to Unisal.
As originally contemplated by Unisal, the loan was to be a typical mortgage loan, and it was BA Mortgage which structured the transaction to have Unisal agree to stand by for a possible takeout to be accomplished by a purchase of a note made payable to BA Mortgage a note which on its face gave the borrower every incentive to seek financing somewhere else and which permitted the borrower to do just that. Absolutely no penalty was imposed on the borrower if he obtained more favorable financing, and, had the deal been a good one, the borrower could have walked away from Unisal which had to stand ready to make the loan during the takeout agreement's term, and I suppose that this would be true during an extended term.
The mass of paper was prepared by the Colorado lawyer for BA Mortgage, and it was only at the last minute that Unisal had a Colorado lawyer look over the documents to "approve them as to form." Before I come to the confusion of paragraph 3 of the Buy-Sell Agreement which is the paragraph on which the parties so enthusiastically disagree, mention should be made of internal contradictions in the numerous boilerplate agreements counsel for BA Mortgage submitted. The loan agreement made no provision for extension of time, but the whole case revolves around the meaning of paragraph 3 of the Buy-Sell Agreement which supposedly provides for extensions of time. There was no provision for an extension of the completion date in any agreement; the promissory note required payment of interest through December 1, 1974, and it required that principal payments start on January 1, 1975. The Buy-Sell Agreement was by its terms tied to the Construction Loan Agreement, and defendant's obligations were conditioned upon there being no default under the note or security documents. [If there was no proper completion, default followed as night follows day.] As I shall discuss presently, the lawsuit boils itself down to a question of whether paragraph 3 of the Buy-Sell Agreement gave the borrower a unilateral option to extend the commitment, but if this be the meaning of that paragraph, there are multitudinous other internal contradictions which I do not take time to discuss.
The borrowers' option to buy the land expired on January 1, 1973, and, as that date approached, time pressures increased. *1261 It was only a few days before the time closing of the land purchase had to be accomplished that the Buy-Sell Agreement and its many exhibits were mailed to Unisal. After making one correction in the name of the borrower, paragraph 3 of the Buy-Sell Agreement was interlineated, and the interlineation was made between two semicolons, one of which was a typographical error, but perhaps the stenographic mistake was prescient. I am about to quote paragraph 3 of the Buy-Sell Agreement with the interlineated material in script to indicate the handwritten material, but to show the two semicolons before the pen and ink interlineation, paragraph 3 as originally typed read:
"3. Extension Purchase Date Permanent Lender hereby agrees that if completion of construction is delayed or hindered by reason of strikes, lockouts, weather, acts of God, riots, insurrection or war, Permanent Lender will extend the date for such completion and the date for the purchase of the Promissory Note for the period of the delay not to exceed six months;; and further agrees that said completion and purchase date may be extended in any event for successive periods of six months upon payment to Permanent Lender for an extension fee of $21,000 for each such six-month extension."
Interlineated, and with the use of "will" and "may" highlighted by capitalization, the agreement as signed was changed to read:
"3. Extension Purchase Date Permanent Lender hereby agrees that if completion of construction is delayed or hindered by reason of strikes, lockouts, weather, acts of God, riots, insurrection or war, Permanent Lender WILL extend the date for such completion and the date for the purchase of the Promissory Note for the period of the delay not to exceed six months; upon receipt of extension (sic) fee of $21,000.00 ___; and further agrees that said completion and purchase date MAY be extended in any event for successive periods of six months upon payment to Permanent Lender of an extension fee of $21,000.00 for each six-month extension."
There was absolutely no discussion among the parties as to the reasons for and the meaning of the interlineation, and the documents were signed with the added language without comment. Construction started, and the inevitable happened. Butz tried to supervise the building of a motel in Estes Park, Colorado, from his office in Tulsa, Oklahoma. He didn't understand construction problems in a mountain resort community with its floating, unreliable labor supply trying to work with sporadic deliveries of materials. The job was plagued with shortages, delays and shoddy workmanship, and, long after it was apparent the motel was months behind schedule, and just five days before the December 15, 1974, deadline, Butz tendered $21,000.00 to Unisal with his request for a six-month extension. No one claims that the requested extension should have been granted because of "unavoidable delay", and all agree that the extension was requested in accordance with whatever the second part of paragraph 3 means.
Unisal responded immediately by mailgram dated December 16, 1974, "Under the provisions of Paragraph 3 of Buy and Sell Agreement we have elected not to extend the commitment. We consider our commitment terminated as of December 15, 1974. Letter to follow." A letter did follow, and the tendered $21,000.00 check was returned. This lawsuit was commenced shortly thereafter.
In most cases, one side says an agreement is ambiguous and the other side says that it isn't. One side usually says parol evidence is needed to interpret the agreement, and the other says the agreement is not subject to explanation. This case differs from the norm in that BA Mortgage says that as any fool can plainly see, the option for a six-month extension was a right to be exercised by the borrower, but Unisal says that no one possessed of his senses could read the agreement to give the extension option to anyone other than the lender. Both sides argue rules of construction applied under Colorado law, and everyone agrees that Colorado law does govern. Each side says that under accepted rules of construction, the *1262 other side loses. I make no pretense of covering each and every argument advanced in the long and able pretrial briefs, trial briefs and post-trial briefs, but I try to mention the principal contentions of the parties, and I mention a few of the authorities cited. In some instances, both sides rely on the same authority, but they read the case differently.
Both sides argue that with the interlineation, the agreement is meaningless unless it is read to reach either (a) the result desired by plaintiff, or (b) the result desired by defendant. It just depends on who is doing the reading. Plaintiff argues that before the interlineation, no payment was required for an extension brought about by force majeure, and that "unless the final clause of numbered paragraph 3 of the Buy and Sell Agreement is construed so as to give the borrowers a right to an extension conditioned upon the payment of $21,000, then it must be regarded as nothing more than a waste of paper and type." Defendant counters by saying that under plaintiff's interpretation, "the `unavoidable delay' clause would be rendered mere surplusage. No reason would ever exist to exercise the `unavoidable delay extension,' if the `six months extension' were automatically to be avoided. Plaintiff's interpretation is therefore to be avoided." All of which is to say,
"`When I use a word,' Humpty Dumpty said, in rather a scornful tone, `it means just what I choose it to mean neither more nor less.'
"`The question is,' said Alice, `whether you can make words mean so many different things.'
"`The question is,' said Humpty Dumpty, `which is to be master that's all.'"
Depending upon which side's reading one wants to adopt,
"`Contrariwise,' continued Tweedledee, `if it was so, it might be; and if it were so, it would be, but as it isn't, it ain't. That's logic.'"
Plaintiff says that defendant's reading of the agreement makes the last part of the paragraph surplusage, and defendant says that plaintiff's reading makes the first part of the paragraph surplusage, but plaintiff and defendant both cheerfully say that there is no ambiguity. Reading the "before" and "after" interlineation versions of paragraph 3, it seems clear that the "before" language granted a force majeure extension without cost, and the "after version" said that there would be a $21,000.00 charge assessed for such an extension. That was the testimony as to the reason for the interlineation. I confess that if the intent was simply to charge for the force majeure extension, clearer language could have been selected, but, taking into account the time pressures which existed when the paperwork was sent to Unisal, taking into account that all of the papers had been prepared by BA Mortgage and taking into account that the change almost had to be by way of interlineation rather than by redrafting, I think that the most logical reading of the agreement is that a $21,000.00 payment gave the borrower a contractual right to a six months extension if required by force majeure, but that any extension requested because of reasons other than force majeure gave the lender the option to extend upon payment of the $21,000.00. (Happily, I am not faced with a situation in which the lender said it would extend upon payment of $42,000.00, because I recognize the availability of an argument the agreement could be read to give the lender the option to extend, but the cost of the extension was frozen.) If the agreement is not ambiguous, I think it should be read to give the borrower a mandatory force majeure extension and to let the lender decide if it wanted to extend for non-force majeure reasons.
However, I concede that the agreement is fairly susceptible to either the reading given it by plaintiff or the reading given it by defendant, and I think that many rules of construction should be considered, coupled with parol testimony, in deciding this case. The difficulty is that some rules of construction and some testimony support plaintiff's conclusion and some support defendant's. Both sides argue the rule that a contract should be read to give every sentence meaning, and this is surely the law. *1263 P.U.C. v. City of Durango, (1970) 171 Colo. 553, 469 P.2d 131, Ramsay v. Nordloh, (1960) 143 Colo. 526, 354 P.2d 513, Summit Construction Company v. Yeager Garden Acres, Inc., (1970) 28 Colo.App. 110, 470 P.2d 870, and a host of other cases. Plaintiff and defendant apply this same rule to arrive at opposite results, and the inevitable conclusion is that in final analysis each side says that either the first or the last part of the paragraph should be read out of the agreement. I don't think that either plaintiff or defendant can derive much solace from this rule of construction, because the argument is a two way street, and it is self-defeating.
Predictably, defendant lays great stress on the use of the words "will" and "may." Plaintiff concedes that ordinarily the word "will" is a word of command, while the word "may" grants a discretionary right. Plaintiff rests much of its argument on Carleno Coal Company v. Ramsay Coal Company (1954) 129 Colo. 393, 270 P.2d 755, but, because of other language in it, defendant likes the case too. I think that the language excerpted from the case by plaintiff is a trifle too selective to give fair meaning to the holding of the Colorado Supreme Court, and I do not read it the same way BA Mortgage does.
The parties there signed a contract making plaintiff defendant's distributor of coal. The contract provided for termination on "60 days written notice of claim of default and intention to cancel the contract specifying the particular breach it is claimed has been made and thereupon, unless such breach has actually existed, cancel and terminate the contract." Defendant notified plaintiff in writing that the contract was cancelled, but "defendant made no showing that any sixty day notice was given to plaintiff." The trial court upheld the cancellation and held that the contract could be cancelled for breach without affording opportunity to the distributor to cure the breach. As stated by the Colorado Supreme Court, the question was:
"Where parties enter into an agency contract, for a specific period of time, with a reservation that it could be cancelled before the expiration of that period by a sixty-day default notice, which must specifically set forth the default claimed, and permit the party claimed against sixty days within which to cure the default, can the contract be terminated for alleged failure of performance without giving the sixty-day notice of intention to end the agreement?
"The question is answered in the negative. It is argued by counsel for defendant that the provision for the sixty day notice is not mandatory in that it contains the clause `. . . the party not in default may give to the defaulting party 60 days written notice . . ..' Whether the word `may', as used in this clause of the contract shall be construed as imposing a mandatory duty upon the parties must be determined from the whole agreement, and the manifest intention of the parties as expressed therein must govern. It is always true that use of the word `may' imposes only a permissive right or procedure. It has been held that this word, when considered with the subject matter of a statute, means `must' or `shall.' [citations omitted] Generally, the rules applicable to the construction of constitutional provisions, statutes and contracts are the same. [citation omitted]. From paragraph 9 of the contract in the instant case it is clear that the parties intended to make exclusive provision for the termination of the agreement prior to the expiration date fixed by the instrument. To hold that use of the word `may' created no rights or duties, and that it amounted to no more than a permissive or optional procedure would be to give no meaning whatever to an entire paragraph of the contract, and to interpret it as mere surplusage. Where, by reasonable construction of a clause in a contract, the words employed can be given effect, it is our duty to thus construe the words used. It is presumed that each part of the contract has a purpose, and a construction which gives legal effect to every part thereof will be adopted. [citation omitted]. Certainly the parties intended to accomplish something by the considered language employed. The intention *1264 to cover the field of cancellation for default of either party is clear, and this means that the sixty-day notice of intention to terminate is mandatory, not-withstanding the use of the word `may.' By the use of that word in the contract before us, the employer has given the option to serve the sixty-day notice if it considered the default of sufficient consequence to terminate the contract. If it elected not to give such notice then the default was waived."
Full analysis of Carleno doesn't result in the conclusion plaintiff says is inevitable, because our paragraph 3 isn't fairly comparable. There is no question of waiver of a right to terminate involved in this case; the question is did the borrower have a right to demand an extension or did the lender have the option to grant an extension. Carleno had to do with a requirement that the employer perform a condition precedent to the right to terminate. Our takeout agreement has to do with an expiration by the agreement's own terms unless it is extended. Not involved in the Carleno decision was paragraph 9 of the agency agreement, "This agreement shall continue for 5 years from the date hereof, and for a further period of 5 years, at the option of seller, if seller gives producer written notice of intention to exercise such option at least 90 days prior to the expiration of the first period." That's the part of the agreement which could be fairly compared with paragraph 3 of the Buy-Sell Agreement, and the portion of the Carleno contract creating during the term of the agreement a termination right subject to a right to cure a default is not to be fairly compared with paragraph 3 of our Buy-Sell Agreement.
Plaintiff next argues that a contract should be construed to favor the party it was designed to protect, and I agree that this is the law. Christmas v. Cooley, (1965) 158 Colo. 297, 406 P.2d 333. With unfailing aim, plaintiff says the provision was intended to protect plaintiff, but the evidence just as easily supports the opposite conclusion. The evidence established to my satisfaction that the party to be protected was the takeout lender who was required to keep a couple of million dollars on hand for use by the borrower if he decided to make claim for the takeout loan. [Remember, there was no requirement that the borrower had to use Unisal's money if a better loan could be located elsewhere.] I think that one party to be protected was the takeout lender, and, at the very worst, it can't be said that only the borrower had any chips in the game. Read the way plaintiff wants to read paragraph 3, Unisal was required to hold $2.1-million in perpetuity upon payment to it of $42,000 per year. Unless my arithmetic is wrong, that's 2% compared with today's prime rate of about 10%. Even counsel for BA Mortgage conceded at time of trial that the claimed option to extend didn't run forever, but I have yet to hear what, under plaintiff's view, would trigger the cutoff of the alleged right to indefinite extensions.
Plaintiff acknowledges that contracts are to be construed against the party who prepares them, but plaintiff says that although its lawyer prepared all of the documents, the rule doesn't count because Unisal made the pen and ink interlineation. I don't think that the interlineation created the uncertainty, and I don't think it lets plaintiff escape the rule of construction. As originally drafted, paragraph 3 said that "completion and purchase date may be extended in any event for successive periods of six months upon payment to Permanent Lender of an extension fee of $21,000 for each six-month extension." The lawyer for BA Mortgage who drafted the agreement is the one who selected the words which create the problem, and I think that the rule of construction works against plaintiff.
Defendant argues the rule that contracts must be construed in accordance with generally accepted meanings of the words used and that the contract's construction must bring about a reasonable result. Radiology Professional Corp. v. Trinidad Area Health Association, Inc., (1978) Colo., 577 P.2d 748, Sunshine v. M. R. Mansfield Realty, Inc., (1978) Colo., 575 P.2d 847. I think that this is the rule, and, taking into account the absurdity of a contract which gives someone an indefinite right to keep money available *1265 at an annual cost of 2%, I think that the only reasonable construction of paragraph 3 is that Unisal had the option to extend for non-force majeure causes, but it had the obligation to extend where force majeure occurred.
Another thing perhaps worth considering is that study of paragraph 3 shows that "Permanent Lender" is mentioned twice, but "Borrower" isn't mentioned at all. If Borrower was to have the option, one would think that the lawyer for BA Mortgage would at least mention his name or his capacity.
It is settled that in construing a contract, reference should be made to ancillary agreements to try for a harmonious construction. Harty v. Hoerner, (1969) 170 Colo. 506, 463 P.2d 313, Fuller and Co. v. Mountain States Investment Builders, (1975) 37 Colo.App. 201, 546 P.2d 977. The construction urged by plaintiff would create conflict between the Buy-Sell Agreement on the one hand and the Building and Loan Agreement and the note on the other. By its terms, the Building and Loan Agreement ran out on December 15, 1974, and the Borrower was given no right to seek an extension. The promissory note required that principal payments be commenced January 1, 1975, and there is no provision for an extension of this time. It is not sensible to say that the time to make the takeout loan could be extended at Borrower's request, but payments on principal of the takeout loan would be required before the loan was made. Moreover, the Building and Loan Agreement in paragraphs 2 and 3 changes the effect of the note given BA Mortgage by the Borrower, and it says that any provision in the note to the contrary notwithstanding, everything by that time advanced "shall be due and payable on December 15, 1974." If paragraph 3 of the Buy-Sell Agreement be read the way plaintiff wants to read it, the Borrower's rights to an extension would be illusory under the requirements of paragraphs 2 and 3 of the Buy-Sell Agreement.
There was expert testimony in the case as to customs and practices in the lending industry, but I didn't find it to be very helpful because all experts agreed that each takeout loan agreement stands on its own feet. However, all the expert witnesses agreed that a takeout lender has to hold funds available to accomplish a takeout for only a reasonable period of time, and plaintiff's expert said that the agreement couldn't mean an extension in perpetuity. However, he encountered the same dilemma faced by plaintiff's counsel, and he made no suggestion as to how many extensions the borrower could request under plaintiff's interpretation of the agreement nor as to how the alleged right to an extension ran out or how it could be cut off.
One final rule of construction I shall mention which is to me perhaps the most important in this case. That is the rule that a contemporaneous construction by a party contrary to the position taken in the lawsuit is binding. George Tritch Hardware Co. v. Donovan, (1923) 74 Colo. 350, 221 P. 881. Applying this rule, plaintiff is twice hoist on the rule's petard. On October 30, 1974, Edward Emrich, BA's vice-president wrote Unisal saying that he hoped that the borrower wouldn't find it necessary "to request an extension" of the takeout agreement. To be consistent with plaintiff's position at trial, he should have, but he didn't, say that he hoped it wouldn't be necessary for the borrower to exercise any right to demand an extension. [See, Exhibit NN] A little more than a month later, December 2, 1974, Mr. Emrich wrote Unisal's general manager saying, "You [Unisal] also indicated a willingness to extend your commitment upon receipt of the extension fee described therein, if the borrower so elects." A recognition that a "willingness" on Unisal's part is a prerequisite to any extension flies in the teeth of the present claim that Unisal had no choice and that it was required to grant the extension. Thus, the late 1974 contract interpretation by BA Mortgage was identical with the contract interpretation of Unisal's two lawyers who advised Unisal that it didn't have to extend and it was identical with Unisal's interpretation throughout this lawsuit.
*1266 If, indeed, the contract is one which must be interpreted, I interpret it to mean that the option to grant the six-month extension of the loan agreement was Unisal's option and that the borrower had no right to demand or to insist upon an extension if supported by a tender of $21,000,00. The matter is not free from doubt, but, on balance, taking into account the testimony in the case and the rules of construction ordinarily applied in construing written agreements, I find that at least Unisal thought in good faith that the agreement was one giving it the right to consent to or to refuse an extension of the takeout agreement and that under all of the facts and circumstances of the case and usual rules of construction BA Mortgage should be held to this meaning of the agreement. That being so, I find and conclude that there was no breach of the agreement by Unisal.
I repeat that which I said at the outset of this case. "I have never before had occasion to try a case in which I was so convinced that experienced businessmen testifying on both sides of a case were testifying to their honest beliefs as to what had been agreed to, albeit those beliefs were diametric." I am sure that neither side thought much about paragraph 3 of the Buy-Sell Agreement or its meaning. I am equally sure that the principals of BA Mortgage assumed that the Borrower could extend the time during which Unisal would have to take out BA Mortgage, and I have the same certainty as to the beliefs of Unisal's representatives as to its rights to extend or refuse to extend the takeout time. These beliefs were held in good faith by the parties without devoting thought to any rules of construction or any absurdities which might develop from melding the several agreements. This is a case in which experienced and honest businessmen were dealing with each other, but they might as well have been contracting in a foreign language not understood by the other side, because in their haste to close a deal before the Borrower's option to buy the land ran out they just weren't communicating.
That being so, in addition to everything I have already said, plaintiff can't recover here because there was no meeting of the minds. It is hornbook law that without a meeting of the minds there can be no contract. Dartmouth College v. Woodward, 4 Wheat 518, 4 L.Ed. 629, Patrick v. Bowman, 149 U.S. 411, 13 S.Ct. 811, 37 L.Ed. 790, Beer v. Mackin, 145 U.S. 629, 12 S.Ct. 977, 36 L.Ed. 842, Minneapolis R. Co. v. Columbus Rolling Mill, 119 U.S. 149, 7 S.Ct. 168, 30 L.Ed. 376, Louisiana v. New Orleans, 109 U.S. 285, 3 S.Ct. 211, 27 L.Ed. 936, Dunning v. Thomas, 10 Colo. 84, 14 P. 49, Lamar Milling & Elevator Co. v. Craddock, 5 Colo. App. 203, 37 P. 950, Grogan v. Travelers Ins. Co., 25 Colo.App. 517, 139 P. 1045, Wilson v. Perkins, 147 Colo. 249, 363 P.2d 492, Mile Hi Apartments v. Mr. Lucky's, (Colo. App.) 518 P.2d 854, and the case on which plaintiff here relies, Sunshine v. M. R. Mansfield Realty, Inc., (1978) Colo., 575 P.2d 847. Sunshine and his wife owned real estate which they listed with Mansfield for the purpose of leasing. Mansfield found a tenant, and a deal was worked out which required that the lease be "guaranteed by the Small Business Administration", the guaranty to be obtained by the tenant. A guaranty was obtained to the extent of 80% of the lease payments, and this was all which was permitted under applicable federal statute. (15 U.S.C. § 636(a)(3)). The Sunshines tried to back out of the agreement because a 100% guarantee had not been obtained, and they said that they understood that the lease payments would be fully underwritten through the SBA guarantee. The Colorado Supreme Court recognized the rule that there must be a meeting of the minds before there can be a contract, but it held that where there is only one reasonable meaning, the parties would be held to that meaning. Justice Erickson said that with the federal statute in mind which permitted a maximum 80% guarantee, it was unreasonable to say that 100% was intended. Once more, I think that plaintiff's quotation from the case is selective, and I quote much more fully from it. The Colorado Supreme Court said:
"Where the record establishes that the parties to a contract originally attached the same meaning to a contractual term, and a disagreement as to the meaning of *1267 the term later arises, the trial court's determination of the provision's meaning is a finding of fact which is binding on appellate courts. However, where neither party at the time of the contract was aware that the other attached a different meaning to the contractual provision, the trial court's determination of the provision's meaning is a conclusion of law based upon its interpretation of the document's language. Sentinel Acceptance Corp. v. Colgate, 162 Colo. 64, 424 P.2d 380 (1967); Van Diest v. Towle, 116 Colo. 204, 179 P.2d 984 (1947); Conklin v. Shaw, 67 Colo. 169, 185 P. 661 (1919). In the latter situation, a trial court could find as a matter of fact that there had been a mutual mistake as to the provision's meaning, but it could not determine the meaning of the provision as a matter of fact, since the parties had never attached the same meaning to the provision.
"The record establishes that the Sunshines and James attached two different meanings to the guaranty's language. The Sunshines testified that they expected a 100% SBA guaranty, while James testified that he believed an 80% SBA guaranty was required. The trial court's conclusion that the lease's guaranty provision required a 100% guaranty, based upon its interpretation of the lease, is a conclusion of law not binding on an appellate court. Sentinel Acceptance Corp. v. Colgate, supra; Van Diest v. Towle, supra; Conklin v. Shaw, supra.
"The general rule is that when parties to a contract ascribe different meanings to a material term of a contract, the parties have not manifested mutual assent, no meeting of the minds has occurred, and there is no valid contract. Carpenter v. Hill, 131 Colo. 553, 283 P.2d 963 (1955). However, an exception to the general rule is observed when the meaning that either party gives to the document's language was the only reasonable meaning under the circumstances. In such cases, both parties are bound to the reasonable meaning of the contract's terms.1
"1 Construction of the contractual language to sustain a contract in such cases is not tantamount to the court's creation of a contract for the parties. The well-established and reasonable rule of construction applied in this case is a narrow exception to the general rule that a mutual mistake voids the contract.
"1 A. Corbin, Contracts § 104 (1963); see also 1 S. Williston, Contracts § 94 (W. Jaeger 3d ed. 1957). Moreover, the listing agreement was drafted by the Sunshines' attorney and must be construed most strictly against them. Christmas v. Cooley, 158 Colo. 297, 406 P.2d 333 (1965). "The Sunshines' understanding of the guaranty provision was clearly unreasonable, since a 100% SBA guaranty could not, as a matter of law, be obtained. Reference in the guaranty to the SBA necessarily incorporated and made the lease subject to the SBA's statutory restrictions as to maximum insurability. See 4 S. Williston, Contracts § 609 (W. Jaeger 3d ed. 1957). James was in the process of securing the maximum SBA guaranty available under the law when the Sunshines terminated the lease. We hold that James' construction of the guaranty provision under the circumstances was the only reasonable construction available.
"Since the lease did not require that James obtain a 100% SBA guaranty, the Sunshines' termination constituted `refusal or neglect of the owner to consummate the [contract] as agreed upon.' Mansfield Realty, who procured a ready, willing, and able lessee on the terms of the listing agreement, was, therefore, entitled to its commission. Section 12-61-201, C.R.S. 1973."
I think that Sunshine v. Mansfield, supra, is in point, but I don't think that it is supportive of plaintiff's position. This is not a case where Unisal's understanding was contrary to law; it is not a case where Unisal's understanding was unreasonable. It is a case where if there was any unreasonable understanding the unreasonableness was on the part of BA Mortgage, but I think that neither side was unreasonable and I think that both sides were in good faith in their belief as to what had been agreed to. That being so, the case falls squarely under the general rule noted by *1268 Justice Erickson in Sunshine v. Mansfield, and in his words,
". . . when parties to a contract ascribe different meanings to a material term of a contract, the parties have not manifested mutual assent, no meeting of the minds has occurred, and there is no valid contract."
Since there was no valid contract, Unisal cannot be liable for breach of a non-contract, and judgment must enter in favor of defendant.
Absent a contract and absent a breach of contract, there can be no damages, but counsel have filed long and excellent briefs on the extremely complicated damage questions which would have to be decided if there were liability. I do not intend to devote much time to damage discussion, but taking counsel's efforts into account, and hoping to reduce some of my thoughts to writing should there be a reversal, I make brief mention of some of the damage problems. I mentioned early on that plaintiff asks more than $3-million in damages, but most of the damages claimed wouldn't be recoverable even if there were liability.
We start from the proposition that recoverable damages must be a proximate result of defendant's wrong, but this rule is subject to slight modification in anticipatory breach cases as to date from which they run. As to principles generally applicable, see 5 Corbin on Contracts § 1053, and Cargill, Inc. v. Stafford, (1977) 10 Cir., 553 F.2d 1222. Here, under plaintiff's theory, defendant was required to grant a six-month extension to October 4, 1975 [the date of project completion plus 60 days], and then, if plaintiff were right, defendant would have had to come up with $2.1 million. Only foreseeable damages are recoverable and damages which plaintiff can be expected to mitigate can't be allowed. Here, the claim is that defendant breached a contract to lend money, and there is a special rule applicable to such contracts. That rule, according to the Restatement of Contracts, § 343, is:
"Damages for breach of a contract to lend money are measured by the cost of obtaining the use of money during the agreed period of credit, less interest at the rate provided in the contract, plus compensation for other unavoidable harm that the defendant had reason to foresee when the contract was made."
That being the rule, I don't think that the plaintiff proved the damages it could have recovered had there been a breach, and I don't think plaintiff can recover the damages it says it proved, because I don't think that they come under the rule. I don't think that operating losses can be allowed. I don't think that profits supposedly lost by a brand new business can be awarded. Milheim v. Baxter, 46 Colo. 155, 103 P. 376. Moreover, here, plaintiff foreclosed its mortgage and sold the property at a sheriff's sale. Plaintiff was the only bidder at a sale under which a receiver was appointed, and I am at a loss to see how the receiver's losses could be assessed. Damages must be foreseeable, but how could Unisal be held to foreseeing that a wholly owned subsidiary of Bank of America would operate a motel rather than come up with the required $2.1-million? I don't think that management fees for running the motel for BA Mortgage would be allowable, and I very much doubt the propriety of charging the foreclosure costs to one who breaches a contract to lend money. I don't agree with plaintiff's interest calculations, and my disagreement goes to rate, time and amount against which it is computed. I think that if plaintiff were to recover, interest should be 6% of $2.1-million for less than a week. I am lost by plaintiff's claim for the cost of a sewer line the need for which is in no way attributable to any failure to loan $2.1-million, and any obligation on Unisal's part to pay for furniture and fixtures is something I can't fathom. Where I really get lost in trying to follow plaintiff's damage claims is the argument that the alleged agreement was to loan $2.1-million, but plaintiff bid more than that amount at the foreclosure sale, and this fixed the fair market value of the property. 55 Am.Jur. Mortgages, § 908. Now, plaintiff says that the value is less than the value it irretrievably fixed by its bid. All in all, if defendant were held to have breached a contract to extend the time *1269 during which it had to provide a takeout loan, recoverable damages would be limited to a relatively small amount. I do not take the time to winnow the damage evidence nor the testimony which showed horrible defects in the building which would have to be cured before the motel could be found to be completed a condition precedent to any permanent loan.
This is enough to say about the extended briefs on damages, and, for the dual reasons discussed, judgment shall enter against the plaintiff and in favor of the defendant. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1585217/ | 815 F.Supp. 940 (1993)
MARTIN SALES & PROCESSING, INC., Plaintiff,
v.
WEST VIRGINIA DEPARTMENT OF ENERGY and West Virginia Division of Environmental Protection, Defendants.
Civ.A. No. 3:92-0668.
United States District Court, S.D. West Virginia, Huntington Division.
March 16, 1993.
*941 J. Thomas Hardin, Inez, KY, for plaintiff.
Darrell V. McGraw, Jr., Office of the Atty. Gen., Charleston, WV, Joseph A. Lazell and Franklin W. Lash, Office of the Atty. Gen., Nitro, WV, for defendants.
MEMORANDUM OPINION AND ORDER
HADEN, Chief Judge.
Pending are Defendants' motion to dismiss and Plaintiff's motion for leave to amend the complaint. Defendants allege this Court lacks subject matter jurisdiction over this dispute because the citizenship of the parties is not diverse within the meaning of 28 U.S.C. § 1332(a)(1) and because of the bar of the Eleventh Amendment to the United States Constitution. For reasons that follow, the Court GRANTS the motion to dismiss and DENIES the motion for leave to amend the complaint.
In this action Plaintiff, a Kentucky corporation, alleges the West Virginia agency charged with mining regulation and its predecessor have harmed the Plaintiff by refusing to transfer a mining permit to Plaintiff from Eagle Energy, a company to which Plaintiff formerly leased the mine property, by allowing Eagle to construct a refuse embankment on the property, and by "harassing" the company with constant inspections. Plaintiff seeks monetary damages in excess of 30 million dollars.
Plaintiff asserts this Court possesses jurisdiction of its claims under 28 U.S.C. § 1332(a)(1) by virtue of the diversity of citizenship of the parties. Although Defendants are state agencies, Plaintiff alleges they are separate and independent from the state, and *942 should be regarded as "citizens" within the meaning of § 1332(a)(1).
It is well settled that a state is not a citizen for purposes of diversity jurisdiction. Moor v. County of Alameda, 411 U.S. 693, 717, 93 S.Ct. 1785, 1799, 36 L.Ed.2d 596 (1973); State of West Virginia v. Morgan Stanley & Co., 747 F.Supp. 332, 336 (S.D.W.Va.1990) (citing Postal Tel. Cable Co. v. Alabama, 155 U.S. 482, 15 S.Ct. 192, 39 L.Ed. 231 (1894)); State of West Virginia v. Haynes, 348 F.Supp. 1374, 1376 (S.D.W.Va. 1972). An action between a state and a citizen of another state is not a suit between citizens of different states, and diversity jurisdiction does not exist. Morgan Stanley, 747 F.2d at 336; Postal Tel. Cable Co., 155 U.S. at 487, 15 S.Ct. at 194.
It is also well settled that courts should disregard nominal parties when determining whether diversity jurisdiction exists, and look instead to the real parties in interest in the controversy. Morgan Stanley, 747 F.2d at 336; Haynes, 348 F.Supp. at 1376-77. If the real party in interest is the state, diversity jurisdiction does not exist and a federal court may not hear the suit. State Highway Comm'n v. Utah Constr. Co., 278 U.S. 194, 199-200, 49 S.Ct. 104, 105-06, 73 L.Ed. 262 (1928). The Court must therefore decide whether Defendants are "citizens" for diversity purposes or whether the state is the real party in interest here.
To determine whether a state agency is an alter-ego of the state or is sufficiently independent to constitute a "citizen" in its own right, courts have generally looked to the attributes or characteristics of the agency which tend to associate it with or dissociate it from the sovereign. Haynes, 348 F.Supp. at 1376. If the state is more than a nominal or formal party and has a real interest, pecuniary or otherwise, in the outcome of the litigation, the state is a real party to the controversy and diversity jurisdiction does not exist. Morgan Stanley, 747 F.Supp. at 338. Moreover, in Santiago v. Clark, 444 F.Supp. 1077, 1079 (N.D.W.Va.1978), this Court held that "an agency which is dependent upon legislative appropriation for its operation or which channels revenues into the state treasury is entitled to immunity."
The West Virginia Division of Environmental Protection ("WVDEP"), and its predecessor the West Virginia Department of Energy ("WVDOE"), both named as Defendants in this action, were created by statute. W.Va.Code § 22-1-1 (1985); W.Va.Code § 22-1-1 (1991). In 1991, the West Virginia Legislature created within the executive branch of state government the WVDEP to consolidate in a single state agency the regulation and enforcement of all West Virginia environmental programs. W.Va.Code § 22-1-1 (1991). The WVDEP assumed all the powers and duties of the WVDOE, which had been charged with enforcing the state surface mining program pursuant to the West Virginia Surface Coal Mining and Reclamation Act. W.Va.Code § 22A-3-1 to -40 (Supp.1992).
Finding that "[t]he state has the primary responsibility for protecting the environment," the West Virginia Legislature created the WVDEP "to carry out the environmental functions of government in the most efficient and cost-effective manner." The Legislature found that establishment of the agency "is in the public interest and will promote the general welfare of the state of West Virginia ..." W.Va.Code § 22-1-1 (Supp.1992).
The WVDEP may execute contracts "in the name of the state," and may acquire property in its own name "for the state." W.Va.Code § 22-1-5(d)(1) and (4). The WVDEP director serves at the will and pleasure of the governor, and is subject to legislative oversight and review. W.Va.Code § 22-1-3 (Supp.1992). The WVDEP can promulgate regulations to implement environmental programs, but the regulations must be reviewed and approved by the Legislature. W.Va.Code § 22-1-13 (Supp.1992); W.Va.Code § 29A-3-1 to -17 (1993).
The agency depends entirely on appropriations from the state Legislature and grants from the federal government to operate its programs. Appropriations of state monies come from the state's general revenue fund and from certain special revenue funds. The agency's budget is prepared by the Secretary of the Department of Commerce, Labor, and *943 Environmental Resources. W.Va.Code § 5F-2-2(a)(6) (1990). Funds obtained from federal grants must be expended in accordance with federal law. W.Va.Code § 22-1-14 (Supp.1992). Given these statutory characteristics, the Court is persuaded that Plaintiff's attempt to characterize Defendants, rather than the state, as the real party in interest for diversity purposes is misguided. The benefits of the environmental programs the agencies have administered inure to the citizens of West Virginia. The sole reason for Defendants' existence is to promote and enforce the environmental interests of the state. Furthermore, a review of West Virginia law reveals that Defendants have no funds or ability to respond in damages but depend wholly upon governmental appropriations for their sustenance.
The Court thus concludes the State of West Virginia is the real party in interest to this controversy for purposes of diversity jurisdiction. Accordingly, West Virginia not being a citizen of any state for purposes of diversity jurisdiction, this court does not have subject matter jurisdiction over this action under the diversity provisions of § 1332(a)(1).
Defendants also claim this suit is barred by the Eleventh Amendment to the United States Constitution, which proscribes suits in federal court by private parties seeking to impose a liability which must be paid from public funds in the state treasury. In actions such as the instant one, where a plaintiff alleges that a state agency has violated state law, the Supreme Court has held the Eleventh Amendment bar applies regardless of the nature of the relief sought. Pennhurst State School & Hosp. v. Halderman, 465 U.S. 89, 100-101, 104 S.Ct. 900, 907-908, 79 L.Ed.2d 67 (1984); Missouri v. Fiske, 290 U.S. 18, 27, 54 S.Ct. 18, 21, 78 L.Ed. 145 (1933).[1] This Court has likewise held the Eleventh Amendment provides a bar to such claims against a state. Lynch v. State of West Virginia, 805 F.Supp. 12, 12-13 (S.D.W.Va.1992) (citing Pennhurst State School and Hospital, 465 U.S., at 100-101, 104 S.Ct., at 907-908); Akers v. Caperton, 797 F.Supp. 514, 517 (S.D.W.Va.1992).
In Westinghouse Elec. Corp. v. West Virginia Dept. of Highways, 845 F.2d 468, 469-71 (4th Cir.1988), cert. denied, 488 U.S. 855, 109 S.Ct. 143, 102 L.Ed.2d 116 (1988), the Fourth Circuit affirmed a decision by this Court that the Eleventh Amendment barred a claim for damages against the West Virginia Department of Highways. The Fourth Circuit recognized a state's general waiver of sovereign immunity will not suffice to waive the immunity conferred by the Eleventh Amendment. Citing the Supreme Court's holding in Atascadero State Hosp. v. Scanlon, 473 U.S. 234, 241, 105 S.Ct. 3142, 3146-47, 87 L.Ed.2d 171 (1985), the Fourth Circuit held that a state may waive its immunity in one of two ways only: (1) directly by statutory or constitutional provision, or (2) "constructively," i.e., by voluntarily participating in a federal program when Congress has expressly conditioned state participation in that program on the state's consent to suit in federal court. Westinghouse Elec. Corp., 845 F.2d at 470. *944 Neither means of waiver is present or available in the instant case.
Here, the State of West Virginia is the real party in interest, and the damages Plaintiff seeks necessarily must come from the State's treasury. Moreover, West Virginia clearly has not consented to suit. Consequently, Plaintiff's claims against the State are barred by the Eleventh Amendment. Because this Court is without subject matter jurisdiction over this dispute, and the claim is barred by the Eleventh Amendment, Defendants' motion to dismiss is GRANTED.
Plaintiff also moves this Court for leave to amend the complaint. Plaintiff wishes to include as a Defendant the United States Mine Safety and Health Administration ("MSHA"). Plaintiff does not advance an alternate theory under which this Court possesses jurisdiction over its allegation against MSHA, instead adopting its previous assertion that diversity jurisdiction exists pursuant to the provisions of § 1332(a)(1).
Although federal courts ordinarily grant leave to amend complaints freely under Fed. R.Civ.P. 15(a), it is well established that leave to amend should be denied where amendment of the complaint would be futile. Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 230, 9 L.Ed.2d 222 (1962); Ward Elec. Serv. v. First Commercial Bank, 819 F.2d 496, 497 (4th Cir.1987). Plaintiff has set forth no grounds under which this Court might possess diversity jurisdiction pursuant to § 1332(a)(1) over a claim against MSHA. The United States and its agencies generally are not citizens of any state for jurisdictional purposes. Texas v. Interstate Commerce Comm'n, 258 U.S. 158, 160, 42 S.Ct. 261, 262, 66 L.Ed. 531 (1922); Eastern Indemnity Co. of Md. v. J.D. Conti Elec. Co., 573 F.Supp. 1036, 1039-40 (E.D.Va.1983); Brumfield v. National Flood Ins. Program, 492 F.Supp. 1043, 1044 (M.D.La.1980); McGlynn v. Employers Commercial Union Ins. Co., 386 F.Supp. 774, 776 (D.C.P.R.1974).
A complaint must state on its face the grounds for a federal court's jurisdiction, irrespective of whether it is a case of diversity jurisdiction, federal question jurisdiction or both. Bowman v. White, 388 F.2d 756, 760 (4th Cir.1968), cert. denied, 393 U.S. 891, 89 S.Ct. 214, 21 L.Ed.2d 172 (1968). Here, were the Court to allow Plaintiff's amendment, the complaint with its jurisdictional assertions could not withstand a motion to dismiss. Plaintiff's proposed amendment would be futile. Accordingly, the Court DENIES Plaintiff's motion for leave to amend the complaint. The Court ORDERS this action be dismissed and stricken from the docket.
NOTES
[1] Where a plaintiff alleges that a state has violated federal law, courts must balance the need to promote the supremacy of federal law with the constitutional immunity of the states. Pennhurst State School & Hosp., 465 U.S. at 105-106, 104 S.Ct. at 910-911. Thus, a suit challenging a state official's unconstitutional acts is not considered to be a suit against the state, and injunctive relief may issue. Ex parte Young, 209 U.S. 123, 28 S.Ct. 441, 52 L.Ed. 714 (1908). When a plaintiff sues a state official alleging a violation of federal law, the federal court may award an injunction that governs the official's future conduct, but not one that awards retroactive monetary relief. Edelman v. Jordan, 415 U.S. 651, 677, 94 S.Ct. 1347, 1362, 39 L.Ed.2d 662 (1974).
But in a suit such as this one, where plaintiff alleges violations of state law by state agencies, the need to reconcile competing interests is wholly absent:
In such a case the entire basis for the doctrine of Young and Edelman disappears. A federal court's grant of relief against state officials on the basis of state law, whether prospective or retrospective, does not vindicate the supreme authority of federal law. On the contrary, it is difficult to think of a greater intrusion on state sovereignty than when a federal court instructs state officials on how to conform their conduct to state law. Such a result conflicts directly with the principles of federalism that underlie the Eleventh Amendment.
Pennhurst State School & Hosp., 465 U.S. at 106, 104 S.Ct. at 911. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1580023/ | 392 F.Supp. 305 (1974)
Vickie CUDNIK et al., Plaintiffs,
v.
Ralph KREIGER et al., Defendants.
No. C74-275.
United States District Court, N. D. Ohio, E. D.
July 16, 1974.
*306 Douglas L. Rogers, Legal Aid Society of Cleveland, Cleveland, Ohio, for plaintiffs.
John T. Corrigan, Pros. Atty. for Cuyahoga County, George Sadd, Richard A. Goulder, Thomas P. Gill, Asst. County Prosecutors, for defendants.
MEMORANDUM OPINION AND ORDER
BATTISTI, Chief Judge.
Plaintiffs bring this action for injunctive and declaratory relief under 42 U. S.C. § 1983. They seek to redress the deprivation of constitutional rights allegedly suffered by the actions of the following governmental officials: Ralph Kreiger, the sheriff of Cuyahoga County; Edward Payne, the deputy in charge of jail operations; and Dr. Stacey A. Besst, the physician at the county jail. Jurisdiction is predicated on 28 U.S.C. §§ 1343(3), (4) and 2201, 2202.
After the issuance of a temporary restraining order,[1] an evidentiary hearing was held on plaintiffs' motion for a preliminary injunction. The parties then briefed the issues joined at the hearing. Upon counsels' representation that no additional testimony would be adduced, the Court now proceeds to a final disposition on the merits.
I.
The named plaintiff and two intervenors bring this action on behalf of a class of individuals consisting "of all pretrial detainees presently confined at the jail, and all pretrial detainees who will be confined at the jail in the future, who before being incarcerated were receiving methadone as treatment for a drug addiction problem, such methadone having been prescribed by a duly licensed physician from a drug program regulated and supported by the state and federal governments."[2] The plaintiffs challenge the admitted jail policy which denies them methadone during pretrial confinement.
Plaintiff Cudnik was addicted to heroin for approximately five years prior to her acceptance in 1971 as a patient at the Cleveland Treatment Center of the Ohio Bureau of Drug Abuse (hereinafter "BUDA"). Pursuant to the course of treatment prescribed by BUDA physicians, this plaintiff now receives a daily dosage of methadone, a drug very similar to heroin in chemical formulation. Her participation in a drug treatment program prior to arrest and detention, a requirement contained in the class definition, is a material factor in the disposition of this lawsuit. Therefore, an examination of such programs is instructive.
Ohio drug treatment programs, such as BUDA, are subject to the regulation and approval of both the Food and Drug Administration of the Department of Health, Education and Welfare and the *307 Ohio Department of Mental Health and Mental Retardation. See generally, 21 C.F.R. § 310.505[3] and Ohio Rev.Code §§ 5122.51 and .52. To gain approval, a methadone treatment program must provide a range of services including medical treatment for addiction, counseling, vocational and educational guidance, and employment placement. 21 C.F.R. § 310.505(b)(1)(i) and (ii). BUDA, in particular, provides such services for an average of 431 patients per month.
Before gaining admittance to a program, the prospective patient must give voluntary consent to treatment, undergo a thorough physical examination, and demonstrate a physiologic addiction to a narcotic drug. The regulatory standards used to determine addiction are set forth in 21 C.F.R. § 310.505(d)(3)(ii) and include the observation of early withdrawal symptoms during initial drug abstinance, a urine test showing the presence of narcotics and various physical manifestations.
After the patient's admittance, the physician determines the drug treatment, if any, which is to be administered. Dr. Carl Ostermeyer, the present medical director at BUDA, stated that in a case of very mild addiction methadone is not necessarily prescribed. In such instances a patient is given counseling and guidance. Dr. Ostermeyer has also had occasion to provide a placebo for his patients who demonstate only a psychological need to take drugs.
When a patient suffers from a substantial addiction, methadone is substituted for the drug previously used. As explained by Dr. Joel Steinberg, a psychiatrist and past medical director of BUDA,[4] a daily dosage of methadone holds the physical aspect of addiction in check. This, in turn, gives the patient an opportunity to overcome the psychological and social causes of addiction before attempting to achieve a drug free state. By definition, "maintenance treatment" is the controlled daily use of methadone in conjunction with guidance and counseling. 21 C.F.R. § 310.505(a)(3). This regulation also acknowledges that while "an eventual drug free state is the treatment goal . . . it is recognized that for some patients the drug may be needed for long periods of time."
To achieve a drug free state, Dr. Steinberg and Dr. Ostermeyer prefer to detoxify their patients. The regulations define "detoxification treatment" as the "dispensing of methadone . . . in decreasing doses to reach a drug free state in a period not to exceed 21 days . . .." 21 C.F.R. § 310.505(a)(2). It is their medical opinion that withdrawal symptoms can be avoided by the gradual step-down in drug dosage.
Plaintiffs seek to represent a class of pretrial detainees all of who undergo the above-described medical treatment as patients in a methadone treatment program. Succinctly stated, the facts giving rise to the dispute at bar are as follows: Miss Cudnik was arrested on drug violation charges lodged against her two years previous to her arrest. Being unable to post bail, she informed jail officials of her drug addiction and participation in a treatment program. Plaintiff asked that she be permitted to receive methadone to prevent the onslaught of withdrawal. Her request was denied. She was told that the jail policy set by Sheriff Kreiger prohibited the dispensing of narcotic drugs. When Miss Cudnik began to experience withdrawal, Dr. Besst began a course of treatment designed to alleviate some of her more severe physical symptoms.
All of the expert medical witnesses agree that methadone withdrawal is less intense, but lengthier than heroin withdrawal. They further agree that during withdrawal without benefit of medical treatment, i. e., "cold turkey," a methadone addict will experience severe pain, aching bones and joints, stomach cramps, diarrhea, vomiting, twitching *308 muscles, running eyes and nose, and various levels of anxiety. It is also agreed that Dr. Besst's treatment modality, consisting of approximately 25 mg. of librium, 5 mg. of chloral hydrate, one capsule of Darvon Compound 65, and one tablet containing phenobarbital and belladonna, is a medically accepted course of treatment for withdrawal symptoms.
Dr. Besst informed the Court that he administers the above treatment twice a day for approximately ten days depending upon the individual's needs. The medical opinion offered by the defense is that the physical symptoms not alleviated by Dr. Besst's "withdrawal kit" are no worse than "a bad case of the flu." But, Dr. Ostermeyer and Dr. Steinberg assert that Dr. Besst's mode of treatment does not provide effective relief, especially when compared to the almost complete absence of physical discomfort associated with methadone detoxification. Miss Cudnik testified and the Court so finds that throughout her two-day treatment by Dr. Besst she suffered severe and debilitating symptoms of withdrawal.
A physician must be licensed to administer methadone. 21 C.F.R. § 310.505(c)(1); 21 U.S.C. § 802(20). Dr. Besst is not licensed, nor is he in complete agreement with the use of this drug in the treatment of addiction. But since the sheriff, who is charged with policy making, is opposed to the use of methadone at the county jail, Dr. Besst has no medical choice of treatment. He can only offer his "withdrawal kit" to afford some measure of relief to withdrawing addicts. Dr. Besst is also of the opinion that jail confinement provides an excellent opportunity to require an addict to withdraw. When asked whether the State ought to force withdrawal on a pretrial detainee, he replied: "Whereas they may not be guilty of the charge that they are there for, they have admitted guilt to addiction . . . and I think that they should have withdrawal and rehabilitation enforced upon them as a matter of the State's obligation."
In contrast, Dr. Ostermeyer and Dr. Steinberg offer their medical judgment that a pretrial detainee on a maintenance program should be permitted to receive a daily dosage of methadone if the period of confinement will only be a matter of a few days. However, it is their opinion that if a patient is to be confined for longer periods of time, the controlled environment of the jail would prompt them to detoxify the patient with methadone.
This in essence provides the scenario for the clash of medical opinion with respect to the treatment of methadone addicts in pretrial detention. The legal thrust, however, does not permit a resolution of this difference of opinion. Rather, the issue to be decided is whether, as a matter of due process, a pretrial detainee who is undergoing a specific treatment for drug addiction prior to detention has the right to the continuation of that treatment uninterrupted by officials at the detention facility.
II.
The defendants argue that the doctrine of abstention should preclude the Court's entertaining this cause of action. "Abstention is a judicially created doctrine that emerged in Railroad Commission of Texas v. Pullman Co., 312 U.S. 496, 61 S.Ct. 643, 85 L.Ed. 971 (1940). In that case the Supreme Court held that a federal court in certain narrowly defined `special circumstances' should abstain from exercising equity jurisdiction to enjoin the operation of a state statute." Gay v. Board of Registration Commissioners, 466 F.2d 879, 883 (6th Cir. 1972). The doctrine is predicated on the existence of an uncertainty in state law which might be authoritatively construed in the state courts; such a construction could thereby obviate the necessity of deciding a federal constitutional claim. Harman v. Forssenius, 380 U.S. 528, 534, 85 S.Ct. 1177, 14 L.Ed.2d 50 (1965). See also Procunier v. Martinez, 416 U.S. 396, 94 S.Ct. 1800, 40 L.Ed.2d 224 (1974); Wisconsin v. Constantineau, 400 U.S. 433, *309 438, 91 S.Ct. 507, 27 L.Ed.2d 515 (1971). Since, as demonstrated below, there is no uncertainty of state law involved, the Court declines to "stay its hand."
Prior to the institution of plaintiffs' action, the county common pleas court had before it a consolidated suit, Hannus v. Kreiger, Case No. 919,225 (1973), which presented a similar challenge to the jail methadone policy. These actions were foreclosed, however, when the state court of appeals issued a writ of prohibition directing the trial judge to dismiss the suits. Ohio ex rel. Kreiger v. Marshall, Case No. 33394 (1974). The short opinion accompanying the writ simply provided: "Writ allowed. See Sections 341.06 and 341.09 O.R.C., and Section 2917.17, O.R.C. Exc."
Section 341.06 of the Ohio Revised Code provides in pertinent part:
"The court of common pleas shall prescribe rules for the regulation and government of the county jail upon the following subjects:
* * * * * *
(f) The employment of medical or surgical aid, when necessary . . .."
Section 341.09 deals with the separation of prisoners at the jail and directs the judges of the common pleas court to enforce the statutory section through regulations. The last citation given by the court of appeals, section 2917.17, was repealed some three months prior to that court's decision. In sum, section 2917.17 prohibited the conveying of narcotic drugs into a jail, except in accordance with jail rules and regulations.
Sections 341.06 and .09 are not challenged by the action at bar. Nor are they ambiguous. Basically, the statutory scheme places regulatory authority over conditions at the county jail within the domain of the judges of the common pleas court. The regulations presently in force, of which the Court takes judicial notice, do not prohibit or condone medical treatment with narcotic drugs at the jail. Thus, no court regulation of uncertain scope is material to this suit.
What is being challenged is an operational rule imposed by the sheriff in his capacity as overseer of the jail. Ohio Rev.Code § 341.01 is the source of the sheriff's duties at the jail. He is charged with the responsibility of operating the jail in accordance with court regulations.
"The sheriff shall . . . govern and regulate the jail according to the rules and regulations prescribed by the court . . .." (Emphasis supplied.) O.R.C. § 341.01.
Plaintiffs claim that the sheriff's operational rule which prohibits them from obtaining methadone during pretrial detention impinges on their constitutional right to due process. It is true that federal courts must be mindful to avoid unnecessary interference with state functions or regulatory schemes. Lake Carriers Assoc. v. MacMullan, 406 U.S. 498, 92 S.Ct. 1749, 32 L.Ed.2d 257 (1972); Younger v. Harris, 401 U.S. 37, 91 S.Ct. 746, 27 L.Ed.2d 669 (1971). "Moreover, where state penal institutions are involved, federal courts have a further reason for deference to the appropriate prison authorities. 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 prisoner regulation or practice offends a fundamental constitutional guarantee, federal courts will discharge their duty to protect constitutional rights. Johnson v. Avery, 393 U.S. 483, 486 [89 S.Ct. 747, 21 L.Ed.2d 718] (1969)." Procunier v. Martinez, supra, 416 U.S. 396, 94 S.Ct. 1800, 1807, 40 L. Ed.2d 224 (1974). Finally, the "mere possibility" that a state court will vindicate constitutional rights in another lawsuit is no ground for a federal court to abstain. Id. at 4608, Wisconsin v. Constantineau, supra, 400 U.S. at 439, 91 S. Ct. 507, 27 L.Ed.2d 515 (1971); Zwickler v. Koota, 389 U.S. 241, 251, 88 S.Ct. *310 391, 19 L.Ed.2d 444 (1967); Jones v. Metzger, 456 F.2d 854, 856 (6th Cir. 1972).
III.
The named plaintiff and intervenors seek to represent a class of persons who, now and in the future, are (will be) receiving medical treatment in an approved methadone program prior to their pretrial detention at the jail. See class definition, supra, at 306. It is apparent that common questions of fact and law pertain to the constitutional scrutiny of the sheriff's policy.
Testimony received at the hearing indicates that at any given time approximately 35 methadone addicts are in the jail. These statistics, given by Dr. Besst, reflect the general jail population which averages 450 inmates and includes convicted prisoners as well as pretrial detainees. While the numerosity of the class of pretrial detainees cannot be easily determined, the fact that a constant turnover of individuals occurs as detainees are able to post bail, or are actually tried, weighs heavily in favor of permitting the suit to proceed as a class action. Jones v. Wittenberg, 323 F.Supp. 93, 99 (N.D.Ohio 1971), aff'd sub nom Jones v. Metzger, supra, 456 F.2d 854 (6th Cir. 1972). See also Johnson v. Lark, 365 F.Supp. 289, 292 (E.D.Mo.1973); Inmates of Suffolk County Jail v. Eisenstadt, 360 F.Supp. 676 (D.Mass.1973); Baker v. Hamilton, 345 F.Supp. 345, 350 (W.D. Ky.1972); Collins v. Schoonfield, 344 F.Supp. 257, 263 (D.Md.1972); Hamilton v. Love, 328 F.Supp. 1182, 1190-91 (E.D.Ark.1971). But see Inmates of Milwaukee County Jail v. Petersen, 51 F.R.D. 540 (E.D.Wisc.1971).
The requirements of Rule 23(a), including adequacy of representation, have been met. The class is certified under Rule 23(b)(2) as the defendants have been shown to engage in actions directed against the class as a whole and the suit is for injunctive and declaratory relief.
IV.
Cases brought by convicted prisoners raising claims of lack of adequate medical care have received wide attention in the federal courts. The Eighth Amendment's proscription of cruel and unusual punishment has been the constitutional standard employed in deciding such claims, and it is only where prison authorities have displayed a callous and deliberate disregard of the medical needs of inmates that such claims have been held to be actionable. See e. g., Martinez v. Mancusi, 443 F.2d 921 (2d Cir. 1970), cert. denied, 401 U.S. 983, 91 S. Ct. 1202, 28 L.Ed.2d 335 (1971).
In keeping with the above rationale, the defendants argue that the plaintiffs are not entitled to receive methadone at the jail. The reasons asserted essentially are: (1) that Dr. Besst offers a medically accepted treatment for withdrawal, (2) that the jail treatment does not evidence a disregard for the health of addicted inmates, and (3) that a choice between methadone and the jail "withdrawal kit" would entail a prohibited "second-guessing . . . [of] the adequacy of medical care that the state provides." Fitzke v. Shappell, 468 F.2d 1072, 1076 (6th Cir. 1972). This reasoning, while true for convicted prisoners, is in this instance misdirected.
The distinction between convicted prisoners and pretrial detainees bears greatly on the assessment of the constitutionality of the conditions of incarceration. Here, the class which plaintiffs represent consists only of pretrial detainees who are, as a fundamental constitutional tenent, presumed innocent of any wrongdoing. In re Winship, 397 U.S. 358, 363, 90 S.Ct. 1068, 25 L. Ed.2d 368 (1970). The Eighth Amendment standards which prohibit cruel and unusual treatment of prisoners has doubtful applicability to pretrial detainees, for the state may subject an individual to punishment only after conviction of a crime. Johnson v. Glick, 481 F.2d 1028, 1032 (2d Cir. 1973); Rhem v. Malcolm, 371 F.Supp. 594, 623-24 (S. *311 D.N.Y.1974); Hamilton v. Love, supra, 328 F.Supp. at 1191. Since an unconvicted individual may not be punished by the state, it follows that a proper analytical framework for the assessment of conditions of pretrial detention is the due process clause.[5] Jones v. Wittenberg, supra, 323 F.Supp. at 100, aff'd sub nom Jones v. Metzger, supra, 456 F.2d at 855; Fitzke v. Shappell, supra, 468 F.2d at 1076. See also Rhem v. Malcolm, supra, 371 F.Supp. at 623; Inmates of Suffolk County Jail v. Eisenstadt, 360 F.Supp. 676, 686, 688 (D. Mass.1973); Brenneman v. Madigan, 343 F.Supp. 128, 137 (N.D.Cal.1972); Hamilton v. Love, supra, 328 F.Supp. at 1193.
Certainly, a person who is detained for trial suffers a form of "punishment," the loss of liberty. But the state derives its authority to exact this deprivation from the constitutional implication that reasonable bail is a proper condition to an individual's liberty pending trial.[6] However, a pretrial detainee, innocent in the eyes of the law, retains all the rights and liberties that his bailed counterpart enjoys, except those necessarily lost through the fact of confinement. Inmates of Milwaukee County Jail v. Petersen, 353 F.Supp. 1157, 1160 (E.D.Wisc.1973); Collins v. Schoonfield, supra, 344 F.Supp. at 265. Cf. Coffin v. Reichard, 143 F.2d 443, 445 (6th Cir. 1944).
Given this permissible deprivation of liberty, due process and its concept of fundamental fairness dictate that a pretrial detainee should not be subjected to additional punishment or loss, unless such further deprivation receives justification from a valid interest of the state. Included in the ban of punishment without due process is forced and involuntary rehabilitation which in this instance the defendant jail officials seek to impose on plaintiffs. As aptly stated in Hamilton v. Love, supra, 328 F.Supp. at 1193:
"If the conditions of pre-trial detention derive from punishment rationales, such as retribution, deterrence, or even involuntary rehabilitation, then those conditions are suspect constitutionally and must fall unless also clearly justified by the limited . . . purpose and objective of pre-trial detention . . .."
See also Rhem v. Malcolm, supra, 371 F. Supp. at 622, 623; Inmates of Suffolk County Jail v. Eisenstadt, supra, 360 F. Supp. at 686; Conklin v. Hancock, 334 F.Supp. 1119, 1121 (D.N.H.1971); Seale v. Manson, 326 F.Supp. 1375, 1379 (D. Conn.1971).
Recent cases have held that pretrial confinement must be consistent with the least restrictive means available to achieve this valid governmental objective. Brenneman v. Madigan, supra, 343 F.Supp. at 138, citing Shelton v. Tucker, 364 U.S. 479, 488, 81 S.Ct. 247, 5 L.Ed. 2d 231 (1960). In Hamilton v. Love, supra, 328 F.Supp. at 1192, the court held:
"It is manifestly obvious that the conditions of incarceration for detainees must, cumulatively, add up to the least restrictive means of achieving the purpose requiring and justifying the deprivation of liberty."
See also Rhem v. Malcolm, supra, 371 F. Supp. at 622; Inmates of Suffolk County Jail v. Eisenstadt, supra, 360 F.Supp. at 686; Smith v. Sampson, 349 F.Supp. 268, 271 (D.N.H.1972); Collins v. Schoonfield, supra, 344 F.Supp. at 265.
The state's sole interest in detaining an individual prior to trial is to assure that person's appearance at *312 trial. A corollary to this is the state's interest in the security and internal order of its jails. Rhem v. Malcolm, supra, 371 F.Supp. at 623; Inmates of Suffolk County Jail v. Eisenstadt, supra, 360 F.Supp. at 685, 686; Smith v. Sampson, supra, 349 F.Supp. at 271, 272; Brenneman v. Madigan, supra, 343 F.Supp. at 137; Hamilton v. Love, supra, 328 F.Supp. at 1191. If the jail policy, here involved, furthers neither of the above interests and plaintiffs are shown to suffer a deprivation of liberty enjoyed by methadone addicts able to post bail, they are entitled to relief.
Factually, plaintiffs have been found to suffer severe pain and discomfort when their methadone is discontinued at the jail. The suffering has been shown to continue even though Dr. Besst makes a good faith medical attempt to alleviate the severe withdrawal symptoms. Plaintiffs' loss is substantial, whether it be deemed a liberty or property interest. The deprivation is not suffered by bailed methadone addicts who are able to continue to receive specialized treatment for drug addiction.
Significantly, Dr. Besst's method of treatment leaves the withdrawing addict "incapacitated" for an estimated period of ten days, a time when effective assistance of counsel could well be crucial. If plaintiffs were permitted to be maintained or detoxified on methadone during their pretrial confinement, they would not undergo any serious and incapacitating symptoms.
On balance, the jail prohibition of methadone has no relation to the primary state interest of securing the presence of an individual for trial. Nor is the secondary interest in jail security advanced by this policy. The testimony at the hearing revealed that one supposed threat to security would be the possibility that other inmates would also want drugs. If in fact a disruption occurred, detainees receiving methadone could be separately classified and isolated. The county jail already has separate facilities for both men and women, popularly referred to as the "drug range."[7] To deny methadone on this ground, where other means are available to insure jail security, would not be consistent with the least restrictive means of confinement.
Other alleged security problems advanced by the defendants include an illicit jail market for methadone and the possibility of theft of the drug. These problems are at best highly remote. Granting plaintiffs their requested relief would not necessitate storing methadone at the jail. Plaintiffs ask only that their physicians, or other treatment facility staff, be permitted to bring methadone to them daily. A jail market for the drug is also unlikely. Methadone can be and is administered in liquid form by BUDA personnel. The liquid must also be consumed in the presence of the person administering the drug.
As additional evidence of the lack of a security risk, plaintiffs have shown that BUDA staff members have administered methadone at other jails in the metropolitan area. Moreover, the prospect of an influx of medical personnel frequenting the jail should not create a security risk. Such persons would be subject to screening and observation as are attorneys and legal assistants who periodically visit the jail. Dr. Besst has also stated that he has on occasion permitted physicians to visit patient inmates of the jail.
The jail policy of denying methadone to pretrial detainees, who were receiving treatment at a methadone program prior to incarceration, is in essence a state sanctioned measure of involuntary rehabilitation. It is fostered by governmental *313 officials and constitutes state action under section 1983. The policy does not effectuate the state's narrow interests in pretrial confinement and causes a deprivation that is not suffered by bailed methadone addicts. The policy thus constitutes punishment imposed without a finding of criminal culpability and, as such, is violative of fundamental due process rights.
V.
Upon consideration of the foregoing findings of fact and conclusions of law,
It is ordered that defendants Ralph Kreiger, Dr. S. A. Besst, Edward Payne, and each of them individually and in their official capacities, their successors, agents, servants, and employees are permanently enjoined from preventing pretrial detainees of the Cuyahoga County Jail, who immediately prior to their detention were participating in an approved methadone treatment program, from receiving methadone administered as treatment for drug addiction by and within the medical discretion of the physicians of such methadone treatment programs or any designated agent of said physicians.
It is further ordered that the defendants, their successors, agents, servants, and employees shall permit the above methadone treatment to be rendered at an appropriate and secure area of the jail, or, alternatively and within the discretion of the sheriff, such treatment shall be rendered at the premises of the methadone treatment facility where an individual member of the class is a patient; and each detainee, during the administration of such treatment, shall be permitted to converse with this treating physician or the latter's designated agent for purposes of treatment.
It is further ordered that the defendants, their successors, agents, servants, and employees expressly inform all pretrial detainees who immediately prior to confinement were receiving treatment at a methadone program of their opportunity to continue to receive such treatment during their pretrial confinement.
It is so ordered.
NOTES
[1] The order issued April 3, 1974, was continued in effect by consent of the parties until final disposition.
[2] During the pendency of the action, Miss Cudnik posted the requisite bond for release.
[3] All citations to the Code of Federal Regulations reflect the March, 1974, recodification. See 39 Fed.Reg. 11680-11712 (1974).
[4] Dr. Steinberg is also a White House Consultant on drug abuse.
[5] When appropriate circumstances pertained, other courts employed the equal protection clause to gauge the constitutionality of pretrial confinement. Brenneman v. Madigan, 343 F.Supp. 128, 138 (N.D.Cal.1972), there as an alternative to the due process holding, the conditions of confinement for pretrial detaineees were compared to the conditions pertaining to convicted prisoners. See also Jones v. Wittenberg, 323 F.Supp. 93, 100 (N.D.Ohio 1971).
[6] The Eighth Amendment provides in pertinent part: "Excessive bail shall not be required . . .."
[7] Each "range" contains a day room with abutting cell blocks. The facility for males has 20 cells, each of which measures 5 feet by 8 feet. They are equipped with a wash basin and toilet; fresh towels, sheets, and a mattress are also provided. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1598922/ | 995 F.Supp. 781 (1998)
RE/MAX INTERNATIONAL, INC., Plaintiff,
v.
Robert ZAMES, et al., Defendants.
No. 1:97-CV-1589.
United States District Court, N.D. Ohio, Eastern Division.
February 20, 1998.
*782 Stephen J. Squeri, Mark J. Andreini, Jones, Day, Reavis & Pogue, North Point, Cleveland, OH, for Plaintiff.
Edward W. Cochran, Cochran & Cochran, Shaker Heights, for Defendants.
ORDER AND OPINION
GWIN, District Judge.
On June 10, 1997, Petitioner RE/MAX International, Inc. filed a motion and application to vacate the March 11, 1997, award of arbitrators selected under the parties agreement [Doc. 1]. On January 16, 1998, Respondents Robert Zames and Zames Realty, Inc. filed an application to confirm the March 11, 1997, arbitration award [Doc. 14]. For the reasons that follow, the Court denies Petitioner RE/MAX's application to vacate the award and the Court grants Respondent Zames' motion to confirm the arbitration award.
I
Petitioner RE/MAX International, Inc. seeks an order partially vacating an arbitration award on two grounds.[1] First, Petitioner RE/MAX says the arbitrators exceeded their powers in rendering an award in a breach-of-contract claim. RE/MAX claims that an express one-year contractual limitation period in the parties' written contract barred the award. Second, Petitioner RE/MAX says this Court should vacate the award because the award was procured by fraud.
*783 Petitioner RE/MAX is a corporation engaged in the business of selling real estate brokerage franchises. Respondent Robert Zames is an individual who made claims against RE/MAX in an arbitration. Respondent Zames Realty Inc. was the other claimant in the arbitration against RE/MAX International.
On May 9, 1991, Robert Zames, as franchisee, entered a Franchise Agreement with an affiliate of RE/MAX. On May 3, 1994, Respondents Robert Zames and Zames Realty Incorporated (collectively, "Zames") sued in the Court of Common Pleas for Lake County, Ohio, against RE/MAX International and others. The complaint generally alleged breach of contract, bad faith, wrongful use of trademarks, tortious interference of contract, and fraud arising out of the execution and performance of the Franchise Agreement.
On June 20, 1994, RE/MAX International moved to dismiss Zames' Lake County Complaint for lack of jurisdiction on two grounds. First, RE/MAX International contended that the applicable Franchise Agreement contained an enforceable arbitration clause that required Zames to submit any claims to binding arbitration under a dispute resolution system detailed in the Franchise Agreement. Second, RE/MAX International contended that the exclusive venue for the judicial enforcement of the arbitration provision and any judicial proceeding arising under the Franchise Agreement is in Denver County, Colorado.
In response, Zames' counsel's contended that they properly sited the arbitration in Ohio. Petitioner RE/MAX then suggested a new arbitration agreement. After negotiations, Petitioner RE/MAX and Zames entered a supplemental arbitration agreement dated December 1, 1994. Petitioner RE/MAX's attorneys drafted the supplemental agreement. In this supplemental agreement, Respondent Zames agreed to allow discovery that was not otherwise available under the parties franchise contract. Zames also agreed to a covenant not to bring a civil action against RE/MAX or any individual defendant associated with RE/MAX.[2] This supplemental arbitration agreement required the parties to submit any currently existing claims to binding arbitration in Cuyahoga County, Ohio pursuant to Section 2711 of the Ohio Revised Code.
The arbitration hearing began on December 20, 1995. On the first day of this hearing, Petitioner RE/MAX argued that Zames had failed to timely bring his claim. When the hearing reconvened for a second day, RE/MAX raised an issue whether the arbitration panel had jurisdiction because of the timeliness issue. RE/MAX recessed the hearing, claiming it would seek judicial determination of this issue. RE/MAX then delayed seeking such determination until February 1, 1996, when it filed a declaratory judgment action in the U.S. District Court for the Northern District of Ohio, Case No. 1:96-CV-213.
There, "RE/MAX International contends that the arbitration tribunal has no jurisdiction or authority to hear evidence on or decide the merits of the case" because "Zames' claims against it are all time-barred under the express terms of the Franchise Agreement."
On April 16, 1996, Judge Matia denied RE/MAX's request. He granted Zames' motion to compel arbitration.[3] While RE/MAX had raised the issue of timeliness, Judge Matia decided that a covenant not to sue stopped the action. RE/MAX filed a motion to reconsider this order. On August 6, 1996, Judge Matia denied this motion to reconsider. On September 5, 1996, RE/MAX filed a notice of appeal to the Sixth Circuit from Judge Matia's judgment. On June 6, 1997, RE/MAX dismissed its appeal to the Sixth Circuit.
The parties held an arbitration hearing from January 6, 1997 through January 11, 1997.[4] At the hearing, Zames made claims for breach of contract, bad faith, and violations *784 of Ohio's Business Opportunity Plans Act, Ohio Rev.Code § 1335.01 et seq. At the arbitration, Petitioner RE/MAX made claim for unpaid franchise fees. Petitioner RE/MAX also claimed that the arbitration panel did not have jurisdiction because Zames failed to bring his claim within one year of accrual.[5]
On March 11, 1997, the three-member arbitration panel rendered its award and opinion. The arbitration panel rejected Zames' claims for bad faith and for violation of Ohio's Business Opportunity Plans Act but awarded Zames $100,000 on his breach of contract claim. The arbitration panel denied Petitioner RE/MAX's counterclaim for unpaid franchise fees.
II
Petitioner RE/MAX says this Court should vacate the March 11, 1997, arbitration award because it says a one-year contractual limitation period in the Franchise Agreement barred the award. RE/MAX says that provision required Respondent Zames' claims be brought within one-year of accrual.[6] RE/MAX says it did not waive this requirement when it entered the supplemental agreement in December 1994. Petitioner RE/MAX claims the arbitrators exceeded their authority by giving Zames' an award despite Zames' purported concession that he did not file his contract claim within one year of the occurrence of the facts leading to his breach-of-contract claim.[7] Alternatively, Petitioner RE/MAX says this Court should vacate the arbitration award because it was obtained through fraud.
Res judicata bars repetitious suits involving the same cause of action. The bar rests upon considerations of economy of judicial time and public policy favoring the establishment of certainty in legal relations. The rule provides that when a court of competent jurisdiction has entered a final judgment on the merits of a cause of action, the parties to the suit and their privies are thereafter bound not only as to every matter offered and received to sustain or defeat the claim or demand, but as to any other admissible matter that they might have offered for that purpose. Sea-Land Services, Inc. v. Gaudet, 414 U.S. 573, 94 S.Ct. 806, 39 L.Ed.2d 9 (1974); Cromwell v. County of Sac, 94 U.S. 351, 352, 24 L.Ed. 195 (1876). The judgment stops the cause of action. The parties cannot litigate any issue whatsoever, absent fraud or other factor invalidating the judgment.
The doctrine of res judicata bars a suit on a cause of action that has been judicially determined on the merits in a prior suit involving the same parties or persons in privity with them. Thus, the Court requires the concurrence of three elements: (1) identity or privity of the parties to the actions; (2) identity of the causes of action; and (3) a prior judgment on the merits. Application of these principles to the case at the bar compels the conclusion that Petitioner RE/MAX's effort to challenge the jurisdiction on the argument of timeliness may not be relitigated. *785 Associated General Contractors of Massachusetts v. Boston Dist. Council of Carpenters, 642 F.Supp. 1435 (D.Mass.1986).
Res judicata embodies two preclusion ideas: "issue preclusion" and "claim preclusion." Issue preclusion refers to the effect of a judgment in foreclosing relitigation of a matter that has previously been litigated and decided. Claim preclusion refers to the effect of a judgment in foreclosing litigation of a matter that has never been litigated because of a determination that the matter should have advanced in an earlier suit. Claim preclusion therefore encompasses the law of merger and bar.[8]Heyliger v. State University and Community College System of Tennessee, 126 F.3d 849, 852 (6th Cir. 1997); Migra v. Warren City School Dist. Bd. of Educ., 465 U.S. 75, 77 n. 1, 104 S.Ct. 892, 79 L.Ed.2d 56 (1984).
There is no dispute that identity of the parties is present here. Secondly, there is sufficient identity of the causes of action. The critical inquiry here is whether the facts underlying the claims are identical and whether Judge Matia's judgment stops this action though it did not explicitly deal with the timeliness issue.
Advancing a new theory of recovery or seeking a new remedy cannot overcome res judicata's bar if the claim grows out of the same transaction, occurrence or agreement upon which a party based the previous claim. Here, a comparison of the factual predicates of both federal suits shows the identity of the asserted causes of action. In both, RE/MAX claimed the arbitration panel did not have jurisdiction because Zames failed to make a timely claim.
In the first litigation in federal court, Judge Matia did not explicitly determine RE/MAX's claim that the arbitration panel did not have jurisdiction because the demand was not timely brought. Where a judgment is rendered generally for the defendant, in a court of competent jurisdiction, the judgment must be considered as covering the whole case. A judgment stops a later cause of action upon any ground whatever in absence of some factor invalidating the judgment. When a party brings two suits upon the same cause of action and between the same parties, the judgment in the first is conclusive to the second as to every question that was, or might have been litigated.
Here, Petitioner RE/MAX raised the issue of timeliness in Northern District of Ohio Case No. 1:96-CV-213. Despite this, Judge Matia ordered the arbitration to go on. Absent reversal, this judgment binds the parties to the suit and their privies not only as to every matter that they offered and received to sustain or defeat the claim or demand, but as to any other admissible matter that they might have offered for that purpose. Res Judicata stops Petitioner RE/MAX claims as to the jurisdiction of the arbitration panel based on timeliness.
III
Even if res judicata did not stop RE/MAX's claims, which it does, RE/MAX's claims fail. As related, Petitioners say the arbitrators exceeded their powers by awarding Zames damages on his time-barred claim. Petitioners claim this requires this Court to vacate the arbitration award. Ohio Revised Code § 2711.10(D) provides:
In any of the following cases, the court of common pleas shall make an order vacating the award upon the application of any party to the arbitration if:
...
(D) The arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.
Ohio follows rules common to federal courts. In Council of Smaller Enterprises v. Gates, McDonald & Co., 80 Ohio St.3d 661, 687 N.E.2d 1352 (1998), the Ohio Supreme Court described rules common to both state *786 and federal review of arbitration decisions. The Court emphasized four considerations. First, arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute that he has not agreed so to submit. Second, the question of arbitrability is an issue for judicial determination. Third, in deciding whether the parties have agreed to submit a particular grievance to arbitration, a court is not to rule on the potential merits of the underlying claims. Fourth, where the contract contains an arbitration clause, there is a presumption of arbitrability in the sense that an order to arbitrate the particular grievance should not be denied unless the Court may say with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute. Courts should resolve doubts in favor of coverage.[9]
Petitioner RE/MAX principally argues that the arbitration panel did not have power to decide the timeliness of Respondent Zames' demand for arbitration. The parties' arbitration agreement provided, in part:
C. The parties agree to resolve any and all disputes that arise between them or which involve them in accordance with the following:
1. Except as provided below, in the event that any dispute regarding this Agreement or the rights and responsibilities of the parties under this Agreement should arise between the Franchisee and RE/MAX, the parties agree to submit the dispute to mediation and, if unsuccessful, to binding arbitration
Near December 1, 1994, the parties entered further agreement to arbitrate. As memorialized, the parties agreed:
1. Robert Zames and Zames Realty, Inc. (collectively "Zames") and RE/MAX International, Inc. ("RE/MAX") and Dennis Falvey and DFI, Inc. (collectively "Falvey") agree to submit to arbitration any and all claims currently existing between them, including without limitation, any and all claims that were or could have been sought, in the case of Zames, et al. v. RE/MAX International, Inc. et al, ...
7. The written award of the arbitrators shall be final and binding upon the parties and may be vacated or modified only as provided in §§ 2711.10 and 2711.11 of the Ohio Revised Code.
(RE/MAX's Mot. to Vacate, Ex. D).
Petitioner RE/MAX's argument is stated: *787 Zames' breach of contract claim was therefore time-barred because he commenced his action against RE/MAX International in May 1994 more than one year later. The arbitrators refused to follow this unambiguous provision. The arbitrators stated that the "panel ha[d] jurisdiction to consider the breach of contract claim" despite the one-year bar to Zames' contract claim. This is simply not so. Where, as here, a claim is asserted outside a contractual limitations period, "the question of jurisdiction is an issue for the trial court to decide, not the arbitrators."
(RE/MAX's Memorandum in Support of Mot. to Vacate, at 8).
In Council of Smaller Enterprises v. Gates, McDonald & Co., supra, the Ohio Supreme Court reviewed this issue.[10] In Gates, the Ohio Supreme Court reviewed whether courts or arbitrators selected by the parties should determine whether demand for relief was timely. The Court found that the arbitrator, not the court, should decide the timeliness of the demand for relief:
In applying the standard set forth in AT & T Technologies, Inc. Communications Workers of America, 475 U.S. 643, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986)] that the party resisting arbitration must meet in order to overcome the presumption in favor of arbitrability, we ask "whether, because of express exclusion or other forceful evidence, the dispute over the interpretation of [the ninety-day demand provision] is not subject to the arbitration clause." Id., 475 U.S. at 652. Our inquiry is "`strictly confined' ... to whether the parties agreed to submit disputes over the meaning of [the ninety-day demand provision] to arbitration. Because the ... agreement contains a standard arbitration clause, the answer must be affirmative unless the contract contains explicit language stating that disputes respecting [the ninety-day demand provision] are not subject to arbitration, or unless the party opposing arbitration ... adduces `the most forceful evidence' to this effect from the bargaining history." Id., 475 U.S. at 654-655 (Brennan, J., concurring)
Gates, McDonald, 80 Ohio St.3d at 667-68, 687 N.E.2d 1352 (emphasis added).
In construing a contract providing for dispute resolution by arbitration, we are mindful of the policy of the law to favor and encourage arbitration. Brennan v. Brennan, 164 Ohio St. 29, 128 N.E.2d 89 (1955); Campbell v. Automatic Die & Products Co., 123 N.E.2d 401, 162 Ohio St. 321, 329 (1954). A court should not deny arbitrability unless it may say with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute. They should resolve doubts in favor of coverage. This policy is consistent with the federal policy that "requires that we rigorously enforce agreements to arbitrate." Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 221, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985); Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985).
The Supreme Court expressed this policy with piercing clarity in the famous Steelworkers Trilogy. If parties are reluctant to arbitrate a dispute covered by an arbitration clause, the courts can order arbitration. "An order to arbitrate the particular grievance should not be denied unless the Court may say with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute. They should resolve doubts in favor of coverage." United Steelworkers v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582-83, 80 S.Ct. 1347, 4 L.Ed.2d 1409 (1960) (footnote omitted); Johnston Boiler Co. v. Local Lodge No. 893, Intern. Broth. of Boilermakers, Iron Ship Builders, Blacksmiths, Forgers and Helpers, AFL-CIO, 753 F.2d 40 (6th Cir. 1985); International Broth. of Boilermakers, Iron Ship Builders, Blacksmiths, Forgers & Helpers-Local 1603 v. Transue & Williams Corp., 879 F.2d 1388 (6th Cir.1989) ("[G]iven *788 the existence of an arbitration clause, a presumption of arbitrability arises, with all doubts resolved in favor of coverage.").
The function of the court is very limited when the parties have agreed to submit all questions of contract interpretation to the arbitrator. It is confined to find out whether the party seeking arbitration is making a claim that on its face is governed by the contract. Johnston Boiler, supra at 43; United Steelworkers v. American Manufacturing Co., 363 U.S. 564, 567-68, 80 S.Ct. 1343, 4 L.Ed.2d 1403 (1960). After the arbitrator has resolved a dispute, "[t]he refusal of courts to review the merits of an arbitration award is the proper approach to arbitration ...." United Steelworkers v. Enterprise Wheel & Car Corp., 363 U.S. 593, 596, 80 S.Ct. 1358, 4 L.Ed.2d 1424 (1960).
The parties here agreed to a broad arbitration provision. Under that provision, the parties agreed "to resolve any and all disputes that arise between them" through arbitration. The parties also agreed "to submit to arbitration any and all claims currently existing between them, including without limitation, any and all claims that were or could have been sought, in the case of Zames, et al. v. RE/MAX International, Inc. et al,..."
Given the strong policy favoring arbitration and given the Ohio Supreme Court's decision in Gates, McDonald, the Court cannot say with positive assurance that the parties did not intend to submit timeliness for the arbitration panel's decision. The Court accordingly finds the arbitration panel had jurisdiction to decide the timeliness issue. The Court denies RE/MAX's motion to vacate the arbitration award on grounds of timeliness.
IV
Alternatively, Petitioner RE/MAX seeks to vacate the March 11, 1997, award on the ground of fraud. RE/MAX says that Respondent Zames presented a copy of the parties franchise agreement containing handwritten interlineations that purported to nullify the binding arbitration and venue provisions in the agreement. RE/MAX claims that Zames represented the copy as authentic. RE/MAX claims reliance and seeks damages.
The elements of an action in actual fraud are: a representation or, when there is a duty to disclose, concealment of a fact, which is material to the transaction at hand, made falsely, with knowledge of its falsity, or with such utter disregard and recklessness as to whether its true or false that knowledge may be inferred, with the intent of misleading another into relying upon it, justifiable reliance upon the representation or concealment, and resulting damages proximately caused by the reliance. Gaines v. Preterm-Cleveland, Inc., 33 Ohio St.3d 54, 55, 514 N.E.2d 709 (1987); First Natl. Supermarkets, Inc. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 104 Ohio App.3d 289, 661 N.E.2d 1121 (1994).
The question of justifiable reliance requires an inquiry into the relationship between the parties. Lepera v. Fuson, 83 Ohio App.3d 17, 26, 613 N.E.2d 1060 (1992). Reliance is justified if the representation does not appear unreasonable on its face and if, under the circumstances, there is no apparent reason to doubt the veracity of the representation. Id. See also Togo Int'l, Inc. v. Mound Steel Corp., 106 Ohio App.3d 282, 286-87, 665 N.E.2d 1160 (1995).
On its face, this claim fails. Most obviously, RE/MAX shows no damages. RE/MAX claims the arbitration should have been held in Colorado. Nevertheless, this shows nothing supporting a claim that the results in Colorado would have been any different from the results it obtained in Ohio. The apparent argument is that RE/MAX did so badly after a six-day hearing in Ohio that it could have done no worse in Colorado. The proof of damages is an element essential to claims of both fraud and negligent misrepresentation. See Burr v. Board of County Com'rs of Stark County, 23 Ohio St.3d 69, 73, 491 N.E.2d 1101 (1986); Textron Fin. Corp. v. Nationwide Mut. Ins. Co., 115 Ohio App.3d 137, 684 N.E.2d 1261 (1996). RE/MAX's speculation that it might have done better in an arbitration held in Colorado is insufficient to support the claim of fraud.
RE/MAX must show reasonable reliance. In a representation to this Court, RE/MAX attorney Stephen J. Squeri said:
*789 Zames' counsel represented that Zames said his version of the Franchise Agreement constituted the true deal between Northeast and Zames.... In reliance on this representation, RE/MAX International agreed to forgo arbitration under the RE/MAX system (as required by the Franchise Agreement) and entered into the Supplemental Arbitration Agreement.
Attorney Squeri makes this representation despite his knowledge that on August 4, 1994, and four months before RE/MAX agreed to arbitrate in Ohio, his attorney associate had written:
As I have indicated to you, we have substantial reason to believe that the document in your possession, ... is neither authentic nor binding. You have also expressed some doubt as to the authenticity of the document in your possession, and you have informed me that you may not rely on your document in opposing our Motion.
For a claim based on an omission or a false representation to be successful under Ohio law, the party must have relied on the omission or misrepresentation and such reliance must have been justifiable. Rubin v. Schottenstein, Zox & Dunn, 110 F.3d 1247 (6th Cir.1997).
RE/MAX did not rely upon any representation by Respondent Zames. To the contrary, the evidence is clear that RE/MAX did not so rely. RE/MAX entered the December 1, 1994, agreement to arbitrate because it benefitted RE/MAX. In consideration of the agreement, RE/MAX received the right to discovery, protection from other claims, and protection for third parties.
RE/MAX makes no showing that would entitle it to vacate the arbitration agreement on the grounds of fraud. Thus, the Court denies Petitioner RE/MAX's application for partial vacation of the arbitration award.
V
Respondent Zames applies to have this Court confirm the March 11, 1997, arbitration award. In addition, Zames seeks prejudgment interest, pursuant to Ohio Revised Code § 1343.03.
On March 11, 1997, the arbitration panel gave an award to Zames for $100,000.00. The arbitration panel held:
"Indeed it was RMI which sold the Re/Max franchise to Dennis Falvey in January 1993. In selling the franchise to Falvey within the one-mile buffer zone or radius of the City of Mentor, RMI breached its contract with Zames."
Ohio Revised Code § 1343.03(A), provides:
(A) Except as provided in division (C)(2) of this section, in cases other than those provided for in sections 1343.01 and 1343.02 of the Revised Code, when money becomes due and payable upon any bond, bill, note, or other instrument of writing, upon any book account, upon any settlement between parties, upon all verbal contracts entered into, and upon all judgments, decrees, and orders of any judicial tribunal for the payment of money arising out of tortious conduct or a contract or other transaction, the creditor is entitled to interest at the rate of ten per cent per annum, except that, if a written contract provides a different rate of interest in relation to the money that becomes due and payable, the creditor is entitled to interest at the rate provided in that contract.
A trial court (but not an arbitration panel itself) has discretionary power to order prejudgment interest on a confirmed arbitration award. In Ohio, "a judgment upon a confirmed arbitrator's award can be considered an order in a civil action not settled by agreement of the parties," and as such, "prejudgment interest could be applicable to such action." Davidson v. Bucklew, 90 Ohio App.3d 328, 334, 629 N.E.2d 456 (1992).
In Royal Electric Const. Corp. v. Ohio State Univ., 73 Ohio St.3d 110, 652 N.E.2d 687 (1995), the Ohio Supreme Court effected a major change in the standard for the grant of prejudgment interest in contract claims.[11]
*790 In Royal, the Ohio Supreme Court focused review of applications for prejudgment interest on whether the party has been fully compensated:
It is apparent that courts in Ohio have attached great significance to the liquidated-unliquidated dichotomy, or have refined this rule and allowed prejudgment interest in situations where the claim is unliquidated but `capable of ascertainment.' ... It is also apparent that these judicial creations (liquidated-unliquidated and capable-of-ascertainment tests) have caused much confusion among members of our bench and bar in deciding under what circumstances prejudgment interest is warranted. Hence, we believe that the focus in these types of cases should not be based on whether the claim can be classified as `liquidated,' `unliquidated' or `capable of ascertainment.' Rather, in determining whether to award prejudgment interest ..., a court need only ask one question: Has the aggrieved party been fully compensated? Id., 652 N.E.2d 687 (citations omitted).
As stated in Royal, the purpose of an award of prejudgment interest is to compensate the successful plaintiff during the time between the accrual of the claim and judgment. An award of prejudgment interest encourages prompt settlement and discourages protracted litigation. The Ohio Supreme Court said that the focus should be on full compensation of the aggrieved party. Id. at 116, 652 N.E.2d 687.
Here, full compensation requires prejudgment interest. One can scarcely imagine circumstances more warranting in prejudgment interest than here. Respondent Zames initiated an action in May 1994. The parties entered the supplemental arbitration agreement dated December 1, 1994. RE/MAX delayed the arbitration till December 1995 and then recessed it. RE/MAX then delayed filing its first federal action until February 1, 1996. On April 16, 1996, Judge Matia ordered RE/MAX to arbitration and it delayed with a motion for reconsideration and an appeal that it dismissed on June 6, 1997. RE/MAX should not benefit from its dilatory actions. Respondent Zames should not be punished by RE/MAX's dilatory conduct. Prejudgment interest should be given.
The Court denies Petitioner RE/MAX's application to vacate the March 11, 1997, arbitration award. The Court grants Respondent Zames application to confirm the March 11, 1997, award. Further, the Court orders that Petitioner RE/MAX shall pay Respondent Zames interest at 10% per annum on $100,000.00 from February 1, 1993.
IT IS SO ORDERED.
NOTES
[1] Petitioner RE/MAX seeks to vacate the arbitration award pursuant to the Ohio Rev.Code § 2711.10. That section says, in pertinent part:
In any of the following cases, the court of common pleas shall make an order vacating the award upon the application of any party to the arbitration if:
(A) The award was procured by corruption, fraud, or undue means.
(D) The arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made. If an award is vacated and the time within which the agreement required the award to be made has not expired, the court may direct a rehearing by the arbitrators.
[2] The parties executed a mutual covenant not to sue.
[3] Initially, Judge Matia found RE/MAX acted frivolously in contesting the arbitration. He later withdrew this finding.
[4] RE/MAX sought to stay the arbitration hearing pending determination of its appeal to the Sixth Circuit. The District Court denied this request.
[5] The arbitration panel unanimously ruled:
1. This panel does have jurisdiction to consider the breach of contract claim since RMI [RE/MAX International] waived the contractual one-year statute of limitations by entering into the Arbitration Agreement. The key facts which distinguish this case from those cited by RMI is that RMI voluntarily entered into an Arbitration Agreement separate and distinct from the arbitration requirements contained in the franchise agreement, and after the one year statute of limitations had already expired.
[6] Section 14.L of the Franchise Agreement provides in relevant part:
L. Actions Barred. Except for claims by Franchisor for sums due under the terms of Section 9 hereof, claims relating to the trademarks, service marks, copyrights or trade secrets of RE/MAX International, Inc. or claims relative to the post-termination obligations set forth in Section 8 hereof, any and all claims and actions arising out of or relating to this Agreement (including, but not limited to, the offer and sale of the franchise covered by this Agreement), the relationship of Franchisee and Franchisor, or Franchisee's operation of the franchise, brought by any party hereto against the other, shall be commenced within one year from the occurrence of the facts giving rise to such claim or action, or such claim or action shall be barred. (Emphasis added.)
[7] Petitioner RE/MAX says Respondent Zames' contract claims arose from RE/MAX sale of a franchise to Dennis Falvey in December 1992. Falvey located his office within one mile of Zames' location. Petitioner RE/MAX says this Falvey's franchise opened in February 1993, more than one year before Zames first filed a complaint in May 1994.
[8] In Hapgood v. City of Warren, 127 F.3d 490 (6th Cir.1997), the Court described claim preclusion:
Therefore, claim preclusion has four elements in Ohio: (1) a prior final, valid decision on the merits by a court of competent jurisdiction; (2) a second action involving the same parties, or their privies, as the first; (3) a second action raising claims that were or could have been litigated in the first action; and (4) a second action arising out of the transaction or occurrence that was the subject matter of the previous action.
[9] In Gates McDonald, the Court summarized these rules:
In AT & T Technologies, Inc. v. Communications Workers of Am., 475 U.S. 643, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986), the United States Supreme Court summarized four general principles, developed in prior decisions of that court, to be applied when considering the reach of an arbitration clause. The essence of these general principles, set out primarily in the "Steelworkers Trilogy" (Steelworkers v. Am. Mfg. Co., 363 U.S. 564, 80 S.Ct. 1343, 4 L.Ed.2d 1403 (1960), United Steelworkers of America v. Warrior & Gulf Navigation Co., 363 U.S. 574, 80 S.Ct. 1347, 4 L.Ed.2d 1409 (1960); United Steelworkers of America v. Enterprise Wheel & Car Corp., 363 U.S. 593, 80 S.Ct. 1358, 4 L.Ed.2d 1424 (1960), is pertinent to our review, and provides a framework for our inquiry.
The first principle is that "`arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.' ... This axiom recognizes the fact that arbitrators derive their authority to resolve disputes only because the parties have agreed to submit such grievances to arbitration." AT & T Technologies, 475 U.S. at 648-649 quoting Warrior & Gulf, supra, 363 U.S. at 582.
The second principle is that "the question of arbitrability whether a[n] ... agreement creates a duty for the parties to arbitrate the particular grievance is undeniably an issue for judicial determination. Unless the parties clearly and unmistakably provide otherwise, the question of whether the parties agreed to arbitrate is to be decided by the court, not the arbitrator." Id., 475 U.S. at 649.
The third rule is, "in deciding whether the parties have agreed to submit a particular grievance to arbitration, a court is not to rule on the potential merits of the underlying claims." Id., 475 U.S. at 649.
The fourth principle is that "where the contract contains an arbitration clause, there is a presumption of arbitrability in the sense that `[a]n order to arbitrate the particular grievance should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute. Doubts should be resolved in favor of coverage.'" Id., 475 U.S. at 650, quoting Warrior & Gulf, supra, 363 U.S. at 582-582.
[10] Petitioner RE/MAX argues that Ohio law must control where the parties have selected state arbitration rules to govern their dispute, those rules control in an action to enforce or vacate an award in a diversity case filed in Federal Court. For support, they cite Eidi v. Kidder, Peabody & Co., Inc., 931 F.2d 893 (6th Cir.1991) (deciding diversity care under Ohio Rev.Code § 2711); Exquisito Services, Inc. v. Bartenders, Motel, Hotel & Restaurant Workers Local, 579 F.Supp. 873, 876 (S.D.Ohio 1984).
[11] Ohio courts formerly distinguished between contract claims where the damages were liquidated from those where the damage amounts were disputed. See Tony Zumbo & Son Const. Co. v. Ohio Dept. of Transportation, 22 Ohio App.3d 141, 148-49, 490 N.E.2d 621 (10th Dist. 1984) ("Where the amount owing under a contract is clear, interest runs on the debt from the time it was due and payable, even though liability for the debt is disputed."); Braverman v. Spriggs, 68 Ohio App.2d 58, 426 N.E.2d 526 (1980). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1608947/ | 973 F.Supp. 937 (1997)
William CABLE, M.D., Plaintiff,
v.
DEPARTMENT OF DEVELOPMENTAL SERVICES OF THE STATE OF CALIFORNIA, et al., Defendant.
No. SA CV 96-1190-GLT[cc].
United States District Court, C.D. California, Southern Division.
July 15, 1997.
*938 Francis X. Hardiman, Hardiman & Cahill, Santa Ana, California, for Plaintiff.
Thomas Scheerer, Deputy Attorney General, Los Angeles, California, for Defendants.
ORDER ON DEFENDANT'S MOTION TO DISMISS
TAYLOR, District Judge.
The motion to dismiss is granted in part and denied in part. Among other things, the court holds (1) exhaustion of administrative remedies is not required before bringing an ADA Title V retaliation claim for objecting to unlawful practices under ADA Title II, and (2) a California public entity's failure to provide services to disabled persons in the "most integrated setting appropriate" is actionable under ADA Title II.
I. BACKGROUND
It is the stated legislative policy of the State of California to "mainstream" developmentally disabled persons that is, transition them from hospitals into "natural community settings." See Cal. Welf. & Inst. § 4500 et seq. Plaintiff William Cable, M.D., the Chief of the Medical Staff at Fairview Developmental Center, contends the community placement program is being administered improperly, and he has been retaliated against because of his protests.[1]
Plaintiff contends Defendants Department of Developmental Services and Fairview have chosen the most severely developmentally disabled persons for community placement because they either are unable to object to the placement or do not have parents or guardians to object on their behalf. He further contends many of the community facilities *939 where Fairview patients have been placed are unable to adequately care for the needs of the severely developmentally disabled, and cites recent studies finding high morbidity and mortality rates after community placement.
According to Plaintiff, after he objected to the planned community placement of some of his patients, he was subjected to various forms of retaliation. Particularly, he alleges he received official reprimands and a 10-day suspension without pay, was removed from the adult care ward and assigned to a pediatric care ward, and was removed from the Behavior Management Committee and Pharmacy and Therapeutics Committee. Plaintiff claims his office was moved to an asbestos contaminated hallway and other punitive action was taken in additional retaliation for voicing his concerns.
Plaintiff sues the state's Department of Developmental Services, Fairview Developmental Center, and others for violations against him of the Americans With Disabilities Act (ADA), 42 U.S.C. § 12101 et seq., based on the claimed retaliation.[2] Defendants move to dismiss, contending that the claim is barred under the doctrine of res judicata and that Plaintiff fails to state an ADA claim.
II. DISCUSSION
A. Res Judicata
Plaintiff bases his claims partly on two adverse actions taken by the State Personnel Board under California Government Code sections 19570-88. Plaintiff was served with a Notice of Adverse Action charging him with inexcusable neglect of duty, discourteous treatment of the public and other failures of good behavior. Plaintiff received another Notice of Adverse Action charging him with dishonesty, inexcusable neglect of duty and using confidential information for private gain. After the second notice Plaintiff was suspended for ten days without pay. Plaintiff alleges each adverse action was taken in retaliation for speaking out against patient placement decisions.
Defendants contend each of these adverse actions is res judicata. Relying on Miller v. County of Santa Cruz, 39 F.3d 1030 (9th Cir.1994), Defendants argue Plaintiff's failure to appeal either action renders each a final judgment and beyond review by this Court. The Court disagrees.
For a prior administrative or judicial decision to have preclusive effect, the judgment must have been rendered in proceedings meeting due process standards. The party against whom the judgment was rendered must have had a "full and fair opportunity" to litigate its claims or defenses before an impartial tribunal. Kremer v. Chemical Constr. Corp., 456 U.S. 461, 480-82, 102 S.Ct. 1883, 1897, 72 L.Ed.2d 262 (1982); Miller, 39 F.3d at 1033 (holding administrative proceedings may be given preclusive effect only when an agency acts in a judicial capacity and resolves issues of fact "which the parties have had an adequate opportunity to litigate" (quoting Plaine v. McCabe, 797 F.2d 713, 721 (9th Cir.1986))).
Neither of the Notices of Adverse Action issued by the State Personnel Board is res judicata for purposes of this lawsuit. The initial proceedings by the Personnel Board did not provide Plaintiff with an opportunity to litigate the issues. There was no presentation of witnesses or evidence. Plaintiff could have contested the adverse actions by proceeding to a full evidentiary hearing, but he chose not to do so and filed this action instead. Had Plaintiff proceeded to the next administrative step of a contested hearing, it would likely have had res judicata effect. Miller, 39 F.3d at 1033. However, by choosing not to proceed administratively in a contested hearing and filing suit instead, Plaintiff is not bound by res judicata. Id. at 1034 n. 3.
*940 B. Americans With Disabilities Act
In Counts One, Two and Three of his Second Amended Complaint, Plaintiff alleges claims for unlawful retaliation under the ADA. Plaintiff alleges he was retaliated against for speaking out against practices he contends are unlawful under the ADA.
Under Title V of the ADA, it is unlawful to retaliate against an individual because "such individual has opposed any act or practice made unlawful" under the ADA. See 42 U.S.C. § 12203(a). To establish a prima facie case of retaliation, an employee must show "(1) that he or she engaged in activity protected by the statute; (2) that the employer ... engaged in conduct having an adverse impact on the plaintiff; and (3) that the adverse action was causally related to the plaintiff's exercise of protected rights." Henry v. Guest Services, Inc., 902 F.Supp. 245, 251 (D.D.C.1995) (quoting Passer v. American Chemical Society, 935 F.2d 322, 331 (D.C.Cir.1991)).
Defendants move to dismiss Plaintiff's ADA claims on several grounds. First, they claim Plaintiff failed to exhaust his administrative remedies. Second, they claim Plaintiff has not alleged he engaged in conduct protected by the ADA. Third, Defendants claim Plaintiff did not suffer an adverse action sufficient to state a retaliation claim. Last, Defendants contend there can be no individual liability under the ADA.
1. Exhaustion of Administrative Remedies
Defendants claim Plaintiff cannot pursue his retaliation claims under Title V of the ADA because he has failed to exhaust his administrative remedies. According to Defendants, "[c]ourts have repeatedly held that persons claiming discriminatory employment practices in violation of Title I of the ADA must exhaust their administrative remedies." Motion to Dismiss at 12. Defendants encourage the Court to extend this exhaustion requirement to Plaintiff's claim he suffered retaliation for objecting to practices made unlawful under Title II of the ADA.
In enacting Title V, Congress created a set of remedies and procedures which depends on the title of the ADA underlying the retaliation claim. Title V provides, "the remedies and procedures available under sections 12117, 12133, and 12188 of this title shall be available to aggrieved persons for violations of subsections (a) and (b) of this section, with respect to subchapter I, subchapter II and subchapter III of this chapter, respectively." 42 U.S.C. § 12203(c) (emphasis added). Thus, from the language of the statute, it appears Congress intended the enforcement remedies and procedures established for Title II violations, see 42 U.S.C. § 12133, to be applied to persons who have suffered retaliation for objecting to acts or practices which violate Title II.[3]
Courts have consistently held there is no exhaustion requirement under Title II of the ADA. See, e.g., Wagner v. Texas A & M University, 939 F.Supp. 1297, 1309 (S.D.Tex. 1996); Roe v. County Comm'n of Monongalia County, 926 F.Supp. 74, 77 (N.D.W.Va. 1996). See also Smith v. Barton, 914 F.2d 1330, 1338 (9th Cir.1990) (holding a plaintiff need not exhaust administrative remedies before filing suit under the Section 504 of the Rehabilitation Act). Here, Plaintiff's Title V claims rely on acts and practices Plaintiff alleges were unlawful under Title II of the ADA. Thus, Plaintiff was not required to exhaust administrative remedies before filing this action.
2. Protected Activity
Defendants contend the alleged conduct Plaintiff has opposed does not "fairly fall within the protection of" the ADA, therefore, Plaintiff cannot state a claim for retaliation. See Learned v. City of Bellevue, 860 F.2d 928, 932 (9th Cir.1988) (holding in the context *941 of Title VII, "the opposed conduct must fairly fall within the protection of Title VII to sustain a claim of unlawful retaliation."); Henry v. Guest Services, Inc., 902 F.Supp. 245, 251 (D.D.C.1995) (holding that an employee must show "that he or she engaged in activity protected by the statute" to establish a prima facie case of retaliation). For Plaintiff to have a Title V claim, he must have suffered retaliation for opposing an act or practice made unlawful under the ADA. 42 U.S.C. § 12203(a).
Plaintiff alleges he opposed practices made unlawful under Title II of the ADA: (1) the placement of Fairview patients in the community without regard for their individual needs, and (2) the placement of patients unable to object to the placement decision due to a severe disability or the lack of a conservator or interested parents. Defendants contend neither of these alleged practices violates the ADA, hence Plaintiff's protests were not ADA protected activity.
a. Failure to Provide Appropriate Services
Plaintiff alleges he has opposed Defendants' community placement program because Defendants fail to adequately account for the individual needs of patients in making community placement decisions. This practice, he contends, is unlawful under Title II of the ADA. Defendants claim such a practice, if true, is not actionable under the ADA. According to Defendants, the ADA serves the purpose of preventing discrimination only.
Title II of the ADA provides:
[N]o qualified individual with a disability shall, by reason of such disability, be excluded from participation in or be denied the benefits of the services, programs, or activities of a public entity, or be subjected to discrimination by any such entity.
42 U.S.C. § 12132. Although Title II expressly prohibits discrimination against the disabled, Congress did not intend to condition the protection of the ADA upon a finding of discrimination. Helen L. v. DiDario, 46 F.3d 325, 334 (3d Cir.1995) (addressing legislative history and administrative coordination regulations of the ADA). A state agency's failure to provide an individual services in the "most integrated setting appropriate" to the individual's needs without a proper justification violates the ADA. See id. at 331-336.
In Helen L., the plaintiffs alleged the Pennsylvania Department of Public Welfare was violating Title II of the ADA by requiring them to receive care in a segregated setting rather than through the state's attendant care, or community based, program. In concluding the plaintiffs were entitled to treatment through the state's attendant care program, the Helen L. court held the state was obligated to provide services in the "most integrated setting appropriate" to an individual's needs. Id. at 332.
Helen L. relied on the basic principle that a court should accord considerable weight to an executive department's construction of a statutory scheme it is entrusted to administer. See 46 F.3d at 332 (citing Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 844, 104 S.Ct. 2778, 2782-83, 81 L.Ed.2d 694 (1984)). Moreover, the court noted that, when Congress approves of an administrative interpretation of a statute, the interpretation acquires the force of law. See id. (citing United States v. Board of Comm'rs of Sheffield, Alabama, 435 U.S. 110, 134, 98 S.Ct. 965, 980-81, 55 L.Ed.2d 148 (1978)). The court then held, after a review of the legislative and regulatory history of the ADA, 28 C.F.R. section 35.130(d) has the force of law when it states, "A public entity shall administer services, programs, and activities in the most integrated setting appropriate to the needs of qualified individuals with disabilities." Id. (emphasis added).
Defendants argue Helen L. does not support Plaintiff's position because Plaintiff is making the opposite contention as the plaintiffs in Helen L., i.e., that Defendants are violating Title II by releasing individuals into the community from segregated care settings as opposed to retaining them in an institutional setting. The Court disagrees and holds Title II requires public entities to administer services in the "most integrated setting appropriate" regardless of whether that setting is an institution or a community home.
*942 Although "integration is fundamental to the purposes of the ADA," 28 C.F.R. Part 35, App. A. § 35.130, integration is not a goal to be achieved at any cost. The ADA does not protect the disabled merely from discrimination or unjustifiable segregation. As noted in the Code of Federal Regulations, the ADA further requires services be provided in "the most integrated setting appropriate to the needs of qualified individuals with disabilities." 28 C.F.R. § 35.130(d).
Plaintiff alleges he objected to the manner in which his patients were released into community treatment programs because it "impede[d] appropriate integration of the qualified disabled into the least restrictive environment." SAC ¶¶ 105, 114. Because the ADA requires services be provided in the "most integrated setting appropriate" to a patient's needs, Plaintiff's opposition to this practice constituted protected activity under Title V of the ADA. See 42 U.S.C. § 12203.
b. Transfer of Fairview Clients
Plaintiff contends Defendants have actively "discriminated" against severely disabled Fairview patients without conservators or interested parents in order to accelerate compliance with the Coffelt settlement agreement. Plaintiff alleges Defendants have retaliated against him for objecting to this discrimination. Defendants argue Plaintiff has not objected to ADA-prohibited activity, i.e., defendants contend the ADA does not prohibit discrimination on the basis of severity of disability. The Court concludes Plaintiff's allegations of discrimination are sufficient to state a claim under Title V of the ADA.
Title II of the ADA provides, "no qualified individual with a disability shall, by reason of such disability, be ... denied the benefits of the services, programs or activities of a public entity, or be subjected to discrimination by any such entity." 42 U.S.C. § 12132. Further, the Department of Justice has promulgated the following regulation applicable to recipients of federal aid:
A public entity, in providing any aid, benefit, or service, may not ... Provide different or separate aids, benefits, or services to individuals with disabilities than is provided to others, unless such action is necessary to provide qualified individuals with disabilities with aids, benefits, or services that are as effective as those provided to others.
28 C.F.R. § 35.130(b)(1)(iv). At least one court has interpreted the above to "prohibit discrimination on the basis of the severity of a person's disability." See, e.g., Messier v. Southbury Training School, 916 F.Supp. 133, 141 (D.Conn.1996). The Court concludes this is an accurate interpretation of the ADA.
As observed by the Ninth Circuit, Congress enacted the ADA "to provide a clear and comprehensive national mandate for the elimination of discrimination against individuals with disabilities." Crowder v. Kitagawa, 81 F.3d 1480, 1483 (9th Cir.1996) (quoting 42 U.S.C. § 12101(b)(1)). To conclude discrimination between the disabled and non-disabled is prohibited by the ADA, yet discrimination among disabled individuals is not, would conflict with the purposes of the ADA. The effect of either type of discrimination is the same. A decision to provide or withhold services based on a characteristic Congress has deemed unlawful violates Title II of the ADA.
Here, Plaintiff alleges Defendants have improperly chosen certain patients for community placement because they are more disabled than others or because they do not have interested parents or conservators. The Court concludes this may constitute discrimination on the basis of disability within the meaning of Title II. Accordingly, retaliation for objection to this practice is actionable under Title V of the ADA.
3. Adverse Employment Decision
For a plaintiff to allege a claim for unlawful retaliation, he must allege he was subjected to an "adverse employment decision." See Collins v. Illinois, 830 F.2d 692, 702-04 (7th Cir.1987). An adverse decision is one that causes "tangible harm, such as loss of salary, benefits, or position." Wu v. Thomas, 996 F.2d 271, 273 (11th Cir.1993). Defendants claim Plaintiff has not alleged he has suffered a tangible harm sufficient to state a claim under Title V of the ADA.
The Second Amended Complaint alleges Plaintiff suffered a ten-day suspension without *943 pay. This factual allegation alone is sufficient to constitute an adverse employment decision. He also contends he has been excluded from participation in Coffelt exit conferences, removed from various committees, and generally impeded in the performance of his administrative and medical duties. In this context, the Court concludes Plaintiff has alleged a "tangible harm" sufficient to constitute retaliation for purposes of the ADA.
4. Individual Liability
Defendants argue the Court should dismiss Plaintiff's ADA claims against the individual defendants because there can be no individual liability under the ADA. In support of their position, Defendants cite Miller v. Maxwell's Int'l, Inc., 991 F.2d 583 (9th Cir.1993) (holding individual employees cannot be held liable under Title VII) and Gallo v. Board of Regents, 916 F.Supp. 1005 (S.D.Cal.1995) (dismissing ADA claims against an individual). The Court concludes these authorities are persuasive, and holds individuals are not subject to liability under Title V of the ADA.
Title V prohibits "persons" from retaliating against individuals for opposing acts made unlawful by the ADA. 42 U.S.C. § 12203(a). In defining the term "person," the ADA adopts the meaning given the term in 42 U.S.C. § 2000e. See 42 U.S.C. § 12111(7). Although section 2000e(a) defines "person" as "one or more individuals," courts in the Ninth Circuit have held individuals cannot be held liable for damages under section 2000e. See Miller, 991 F.2d at 587; Padway v. Palches, 665 F.2d 965, 968 (9th Cir.1982). Given this judicial limitation on the scope of section 2000e liability, the scope of liability under the ADA is by extension similarly limited. See also EEOC v. AIC Security Investigations, Ltd., 55 F.3d 1276, 1282 (7th Cir.1995)(holding "that individuals who do not otherwise meet the statutory definition of `employer' cannot be liable under the ADA"). Accordingly, the Court holds individuals cannot be held liable under Title V of the ADA.
NOTES
[1] The state's community placement program is heavily influenced by the 1994 settlement of a lawsuit by institutional patients claiming to be eligible for community placement. Coffelt v. Department of Developmental Services, No. 916401 (S.F.Sup.Ct.1991). Under the Coffelt settlement, the State Department of Developmental Services was required to reduce the population of persons residing in developmental centers by one third (about 2000 people) within five years.
[2] Plaintiff's complaint asserts other claims not relevant to the issue decided here. Plaintiff has also brought a separate lawsuit as guardian ad litem on behalf of a named developmentally disabled person and others similarly situated claiming violations of their rights arising from administration of the community placement program. Richard S. v. Department of Developmental Services, No. SA CV 97-219-GLT (C.D. Cal. Mar 20, 1997).
[3] This interpretation of 42 U.S.C. § 12203(c) is supported by the ADA's legislative history. After amending section 12203(c) to include the language, "with respect to subchapter I, subchapter II and subchapter III of this chapter, respectively," the Committee Report commented:
[§ 12203(c)] provides the same remedies and procedures for victims of retaliation and coercion as in the underlying title. For example, an individual who was retaliated against in an employment discrimination complaint would have the same remedies and procedures available under [Title I] as an individual alleging employment discrimination.
H.R.Rep. No. 101-485, part III at 72. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1611531/ | 540 F.Supp.2d 1101 (2007)
Deborah CLAY, an individual and as the Successor in Interest to the Estate of Rodney Clay; Rodney Clay, Jr.; Velicia Hamilton; Tamiko Moon; and Thomasina Clay, Plaintiffs,
v.
The PERMANENTE MEDICAL GROUP, INC.; Kaiser Foundation Hospitals; Kaiser Foundation Health Plan; and Does 1-200, inclusive, Defendants.
No. 06-7926 SC.
United States District Court, N.D. California.
December 14, 2007.
*1103 Mark G. Crawford, Thomas Andrew Schultz, Lopez, Hodes, Restaino, Milman & Skikos, San Francisco, CA, for Plaintiffs.
Brian Soo Lee, Kennedy Park Richardson, Yvonne Michelle Pierrou, Jordan Otto Posamentier, Mark Aaron Palley, Attorney at Law, Oakland, CA, Ronald Russel Lamb, Wilke Fleury Hoffelt Gould & Birney LLP, Sacramento, CA, for Defendants.
ORDER GRANTING DEFENDANTS' MOTION TO COMPEL ARBITRATION
SAMUEL CONTI, District Judge.
I. INTRODUCTION
Plaintiffs Deborah Clay, individually and as the successor in interest to the estate of Rodney Clay, Rodney Clay, Jr., Velicia Hamilton, Tamiko Moon, and Thomasina Clay ("Plaintiffs") brought this suit against the Permanente Medical Group, Inc., Kaiser Foundation Hospitals, and Kaiser Foundation Health Plan ("Health Plan") (collectively "Defendants" or "Kaiser"), asserting nine claims related to Kaiser's alleged mishandling of a kidney transplant for Rodney Clay. See Notice of Removal, Docket No. 1, Ex. A ("Complaint"). Defendants removed the action from the Alameda County Superior Court to this Court, asserting jurisdiction pursuant to the Medicare Act, 42 U.S.C. § 1395 et seq., and the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001, et seq. See id. Defendants now move the Court to compel arbitration of all claims other than the claim for injunctive relief, and to stay this action pending arbitration. *1104 Mot. to Compel Arbitration ("Motion"), Docket No. 8. Plaintiffs filed an Opposition to the Motion, and Defendants filed a Reply. See Docket Nos. 27, 28. The parties appeared before the Court and argued the merits of the Motion on November 30, 2007.
Having considered all of the arguments and submissions of the parties, the Court hereby GRANTS Defendants' Motion.
II. BACKGROUND
In November 1991, Deborah Clay enrolled herself and her husband Rodney Clay as members of the Health Plan, pursuant to an agreement between the Health Plan and her employer, Integrated Device Technology. Dean Decl. ¶ 3. In 1994, the Health Plan entered into a Medicare Risk Contract with the Health Care Financing Administration to provide medical and hospital services for enrolled Medicare beneficiaries.[1]See Hall Decl. ¶¶ 2, 4.
When a Health Plan member expressed interest in enrolling in the Health Plan Senior Advantage program (Health Plan's name for its Medicare Advantage offering), Health Plan sent the member copies of the Health Plan Senior Advantage Election form and the Health Plan Senior Advantage Membership Agreement, also known as the Evidence of Coverage ("EOC"). Hall Decl ¶ 5. The EOC summarizes the Health Plan Senior Advantage coverage, and is subject to the Health Plan's Medicare Advantage contract with the CMS. Id. The Health Plan Senior Advantage EOC has always contained an arbitration clause. Id.
The Health Plan revises the EOC annually. Id. ¶ 6. Each year, the Health Plan submits to the CMS its proposed changes to the EOC for the following year. Id. Once CMS approves the changes, Health Plan mails a copy of the EOC and a letter summarizing the revisions to all Health Plan Senior Advantage enrollees. Id.
In July 2000, Rodney Clay enrolled as a member of the Health Plan Senior Advantage. See Dean Decl. ¶ 4. On the Senior Advantage Election form which Mr. Clay signed, the following text appears above his signature:
I have read, understand, and agree to the statements on the reverse side of this Election Form including the restrictions on the use of non-Plan providers. I hereby apply for Kaiser Permanente Senior Advantage membership. I understand that except for Small Claims Court cases and claims subject to the Medicare Appeals Procedure, any claim that I, my heirs, or other claimants associated with me, assert for alleged violation of any duty arising out of or relating to membership in Health Plan, including any claim for medical or hospital malpractice, for premises liability, or relating to the coverage for, or delivery of services, or items, irrespective of legal theory, must be decided by binding arbitration under California law and not by a lawsuit or resort to court process except as California law provides for judicial review of arbitration proceedings. I agree to give up my right to a jury trial and accept the use of binding arbitration.
Id. Ex. C. Mr. Clay's coverage under the Health Plan Senior Advantage program became effective on August 1, 2000. Id. ¶ 4.
Plaintiffs are the wife and grown children of Rodney Clay. Compl. ¶¶ 3-7. Plaintiffs allege as follows. In early 2000, *1105 Mr. Clay suffered kidney failure. Because Kaiser did not at that time operate its own kidney transplant center, Kaiser referred Mr. Clay to the UCSF Medical Center's kidney transplant program. Id. ¶¶ 29, 31. UCSF informed Mr. Clay that the typical wait was two to three years for a replacement kidney. Id. ¶ 31. Four years later, when Mr. Clay was supposedly near the top of the UCSF transplant list, Kaiser informed Mr. Clay that it had opened a transplant center and that he would be transferred to the Kaiser program that September. Id. ¶¶ 32, 33. Finally, Plaintiffs allege that in the year following Mr. Clay's transfer to the Kaiser transplant program, Kaiser repeatedly delayed the transplant, only to refer him back to UCSF. Id. ¶ 37. Before Kaiser completed the paperwork necessary for the transfer, Rodney Clay died of chronic renal failure. Id. ¶ 39.
Based on these allegations, Plaintiffs brought nine causes of action against Kaiser: (1) survival and wrongful death based on negligence; (2) fraud, deceit, and fraudulent concealment; (3) negligent misrepresentation; (4) negligence per se; (5) intentional infliction of emotional distress; (6) negligent infliction of emotional distress; (7) violation of California Business' & Professions Code section 17200, et seq.; (8) violation of California Business & Professions Code section 17500, et seq.; and (9) wrongful death due to breach of contract and tortious breach of the implied covenant of good faith and fair dealing. See id. Plaintiffs seek to recover compensatory and punitive damages, attorneys' fees and costs, and injunctive relief.
Defendants asked if Plaintiffs would agree to submit this dispute to arbitration. Plaintiffs refused. Lamb Decl. ¶ 2. Defendants therefore brought this Motion.
III. ANALYSIS
A. Applicability of the Federal Arbitration Act
Section 2 of the Federal Arbitration Act ("FAA") provides that "a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction ... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. Kaiser asserts that Health Plan's Senior Advantage Election Form involves commerce, and that the arbitration provision in that document is therefore enforceable under the FAA. See Mot. at 5-6. The Supreme Court has interpreted the phrase "involving commerce" very broadly, holding that it extends beyond "persons or activities within the flow of interstate commerce" to include anything that affects commerce. See Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 273, 277, 115 S.Ct. 834, 130 L.Ed.2d 753 (1995). In certain circumstances, the Health Plan pays for its members to receive medical services when they are traveling outside of California. See Hall Decl. Ex. A at 11, 16. Health Plan also provides coverage authorized by Medicare, a federal statute exercising the Commerce power. Applying the broad legal standard described above, the Court concludes that Health Plan's Senior Advantage Election form evidences a transaction involving commerce, and that the FAA is therefore applicable. Other courts have reached the same conclusion. See Schlegel v. Kaiser Found. Health Plan, Inc., No. 07-CV-00520-MCE, 2007 WL 2492393, *1-2, 2007 U.S. Dist. LEXIS 64299, *3-4 (E.D.Cal. Aug. 30, 2007); Mannick v. Kaiser Found. Health Plan, Inc., No. C 03-5905 PJH, 2005 WL 3454134, *2-3, 2005 U.S. Dist. LEXIS 40405, *6-7 (N.D.Cal. Dec. 16, 2005); Toledo *1106 v. Kaiser Permanente Med. Group, 987 F.Supp. 1174, 1180 (N.D.Cal.1997).
Where a valid and enforceable written arbitration agreement governs a dispute in litigation, the FAA authorizes the Court to "stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement...." 9 U.S.C. § 3. "[Q]uestions of arbitrability must be addressed with a healthy regard for the federal policy favoring arbitration.... The Arbitration Act establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration...." Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983).
B. California Health & Safety Code Section 1363.1
The FAA encourages arbitration where there is a valid and enforceable agreement. Here, Plaintiffs argue that the arbitration agreement contained in the enrollment form Mr. Clay signed is unenforceable because it violates the notice and disclosure requirements of California Health & Safety Code section 1363.1.
Section 1363.1 establishes conditions for any health care service plan that "includes terms that require binding arbitration to settle disputes and that restrict, or provide for a waiver of, the right to a jury trial...." Cal. Health & Safety Code § 1363.1. Plaintiffs assert that Defendants' arbitration agreement violates Section 1363.1(b), which requires that the arbitration agreement be "prominently displayed on the enrollment form signed by each subscriber or enrollee;" Section 1363.1(c), which requires that the arbitration agreement be "substantially expressed in the wording provided in subsection (a) of Section 1295 of the Code of Civil Procedure;" and Section 1363.1(d), which requires that the disclosure be displayed "immediately before the signature line for the individual enrolling in the health care plan." Id.
Under California law, compliance with Section 1363.1 is mandatory, and failure to comply voids an arbitration agreement:
Section 1361.1, therefore, establishes the requirements that must be satisfied in order to arbitrate disputes involving a health care service plan. Accordingly, even though section 1363.1 is silent on the effect of noncompliance, because the disclosure requirements are mandatory, the failure to comply with those requirements renders an arbitration provision unenforceable.
Malek v. Blue Cross of Cal., 121 Cal. App.4th 44, 64, 16 Cal.Rptr.3d 687 (2004) (emphasis in original).
C. The Medicare Act Preempts Section 1363.1
Although Defendants assert that their enrollment form and EOC comply with Section 1363.1, their primary position is that the Court need not consider Section 1363.1 because it is preempted by the Medicare Act.[2] The Court agrees.
*1107 1. Preemption Standards
"Where (as here) Congress regulates a field historically within the police powers of the states (public health), we proceed from the assumption that state law is not superseded unless there is a `clear and manifest purpose of Congress' to foreclose a particular field to state legislation." Pagarigan v. Sup.Ct. of Los Angeles County, 102 Cal.App.4th 1121, 1128, 126 Cal.Rptr.2d 124 (2002) (citing Medtronic, Inc. v. Lohr, 518 U.S. 470, 485, 116 S.Ct. 2240, 135 L.Ed.2d 700 (1996)).
Preemption may be either express or implied. Id. "[W]hen Congress has `unmistakably ... ordained,' that its enactments alone are to regulate a part of commerce, state laws regulating that aspect of commerce must fall." Jones v. Rath Packing Co., 430 U.S. 519, 525, 97 S.Ct. 1305, 51 L.Ed.2d 604 (1977) (quoting Fla. Lime & Avocado Growers, Inc. v. Paul, 373 U.S. 132, 142, 83 S.Ct. 1210, 10 L.Ed.2d 248 (1963)). Implied preemption may take either of two forms:
Absent explicit pre-emptive language, we have recognized at least two types of implied pre-emption: field pre-emption, where the scheme of federal regulation is so pervasive as to make reasonable the inference that Congress left no room for the States to supplement it, and conflict pre-emption, where compliance with both federal and state regulations is a physical impossibility, or where state law stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.
Gade v. Nat'l Solid Wastes Mgmt. Ass'n, 505 U.S. 88, 98, 112 S.Ct. 2374, 120 L.Ed.2d 73 (1992) (internal citations and quotations omitted).
Where there is a question about the scope of a statute's preemptive effect, courts look to the congressional purpose, "as revealed not only in the text, but through the reviewing court's reasoned understanding of the way in which Congress intended the statute and its surrounding regulatory scheme to affect business, consumers, and the law." Medtronic, 518 U.S. at 485, 116 S.Ct. 2240.
2. Applicable Law
The Court examines the Medicare Act "as it read at the time relevant to this case." See McCall v. PacifiCare of Cal., 25 Cal.4th 412, 422, 106 Cal.Rptr.2d 271, 21 P.3d 1189 (2001). Congress amended the preemption provisions of the Medicare Act in 2000 and in 2003. See Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000, H.R. 5661, enacted by Pub.L. No. 106-54, 114 Stat. 2763 (2000) ("BIPA"); Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Pub.L. No. 108-173, 117 Stat.2066 (2003) ("MMA").
Mr. Clay enrolled in the Health Plan Senior Advantage program in July, 2000. The front of the enrollment form mentions binding arbitration in a block of text immediately preceding Mr. Clay's signature, but it also says, "Please read the Conditions of Election and Authorization to Exchange Information on the back of this form." Dean Decl. Ex. C.[3] On the back of that form, the first paragraph appears as follows:
Conditions of Election
*1108 If you are electing Kaiser Permanente Senior Advantage Coverage, be certain that you fully understand the arbitration provision, benefits, limitations and conditions, which are described in the Kaiser Permanente Senior Advantage Group Disclosure Form and Evidence of Coverage or the Individual Membership Agreement and Disclosure Form and Evidence of Coverage.
Id. Ex. D. The Court interprets this text to mean that the full terms of the enrollee's agreement with Defendants, including the arbitration provision, are set forth in the Senior Advantage Group Disclosure Form and Evidence of Coverage. Jason Hall, Health Plan's Director of Medicare Compliance, testified by declaration that Health Plan sends the current EOC to any Health Plan member who expressed interest in the Senior Advantage Program. Hall Decl. ¶ 5. Hall further states that the EOC has always contained an arbitration provision. Id. Each year, when Health Plan sends its proposed revisions to the EOC to CMS for review, it sends an Annual Notice of Changes describing the revisions to each Senior Advantage enrollee, followed by a copy of the final, approved EOC. Id. ¶ 6.
The series of events purportedly giving rise to Plaintiffs' claims appears to have begun on June 22, 2004, when Defendants told Mr. Clay he would have to transfer out of the UCSF transplant program and into Kaiser's program. See Compl. ¶ 33. The operative version of the EOC, then, is the version that took effect on June 1, 2004. See Hall Decl. Ex. A. The Health Plan submitted this version to the CMS for review during 2004. See id.
Because the events giving rise to this suit took place in 2004, and the arbitration provision governing the suit was executed in that year (by CMS-approved amendment to the prior EOC), the Court concludes that the applicable version of the Medicare Act is that which was in effect in June of 2004, and which remains in effect today.
3. Preemption Analysis
The Medicare Act explicitly preempts application of state law to the arbitration agreement at issue here. After the most recent amendment, the Medicare Act preempts all state regulation of Medicare Advantage plans not relating to licensing or plan solvency:
Relation to State laws. The standards established under this part shall supersede any State law or regulation (other than State licensing laws or State laws relating to plan solvency) with respect to MA plans which are offered by MA organizations under this part.
42 U.S.C. § 1395w-26(b)(3). The standards established under this statute include 42 C.F.R. § 422.80, "Approval of marketing materials and election forms," and 42 C.F.R. § 422.111, "Disclosure requirements." These regulations set forth the rules governing approval and distribution of Medicare Advantage information to enrollees.
Specifically, 42 C.F.R. § 422.80(c) provides the guidelines for CMS review of Medicare Advantage marketing materials. The CMS review process checks to make sure that the disclosure is printed in a proper format and text size. Id. § 422.80(c)(1). The CMS also reviews the marketing materials to determine whether they include an laidequate written explanation of the grievance and appeals process, including differences between the two, and when it is appropriate to use each." Id. § 422.80(c)(1)(iii).
These regulations apply to all "marketing materials," as that term is defined in 42 C.F.R. § 422.80(b). This includes any informational materials targeted at Medicare Advantage beneficiaries which, among *1109 other things, "explain the benefits of enrollment in an MA plan, or rules that apply to enrollees." Id. 422.80(b) (3) (emphasis added). The regulation provides a number of examples of marketing materials, including, "[m]embership communication materials such as membership rules, subscriber agreements (evidence of coverage), member handbooks and wallet card instructions to enrollees." Id. § 422.80(b)(5)(v) (emphasis added).
The operative arbitration provision in this dispute is contained in the June 2004 EOC. By federal regulation, the EOC is considered "marketing material" and must be approved by the CMS. The CMS has a set of standards it uses in evaluating marketing materials, including the adequacy of the formatting and font size and the adequacy of the description of any grievance procedures. Pursuant to 42 U.S.C. § 1395w-26(b)(3), these regulations supersede any state law or regulation with respect to Medicare Advantage plans such as the Health Plan Senior Advantage plan in which Mr. Clay was enrolled. To the extent California Health & Safety Code section 1363.1 purports to regulate the adequacy of any disclosures in the EOC, it is superseded by federal law, and its application here is preempted.
Congressional intent confirms this result. The Conference Report accompanying the MMA clearly demonstrates that, in amending 42 U.S.C. 1395w-26, Congress intended to broaden the preemptive effects of the Medicare statutory regime, and that it intended to apply the new rules to all subsequent litigation:
The conference agreement clarifies that the MA program is a federal program operated under Federal rules. State laws, do not, and should not apply, with the exception of state licensing laws or state laws related to plan solvency. There has been some confusion in recent court cases. This provision would apply prospectively; thus, it would not affect previous and ongoing litigation.
H.R.Rep. No. 108-391, at 557 (2003).
At oral argument, Plaintiffs' counsel advanced two arguments against preemption. First, counsel asserted that because Section 1363.1 does not conflict with federal law that is, compliance with one does not require violation of the other federal law does not preempt. Second, counsel relied on the decision in Pagarigan, where the California Court of Appeal, on very similar facts, found that the Medicare Act did not preempt application of Section 1363.1. See 102 Cal.App.4th at 1135-36, 126 Cal. Rptr.2d 124. Both arguments fail because they rely on older versions of the Medicare Act.
Prior to the passage of the BIPA in 2000, Congress had not explicitly preempted state regulation of Medicare Advantage marketing materials. As such, preemption analysis required a court to consider whether compliance with both federal and state law was possible. In that situation, it was permissible for states to impose higher standards than federal law did. Because the preemption is now explicit, the state regulations must fall. See Jones, 430 U.S. at 525, 97 S.Ct. 1305.
The Pagarigan court followed the implied preemption analysis in reaching its conclusion that Section 1363.1 was not preempted. See 102 Cal.App.4th at 1147, 126 Cal.Rptr.2d 124 ("As Congress has expressly stated, state standards regarding matters outside the specified areas are superseded only to the extent any state regulation is `inconsistent' with such federal regulations.") (citing previous version of 42 U.S.C. § 1395w-26(b)(3)(A)) (emphasis in original). Under the facts of that case, application of the older preemption statute was appropriate. Pagarigan had enrolled in the Medicare program in 1995, the governing EOC had been approved in January *1110 2000, and Pagarigan died in June 2000. Id. at 1149, 126 Cal.Rptr.2d 124. All of this preceded passage of the BIPA, when Congress first made the decision to explicitly preempt state regulation of Medicare marketing materials such as the EOC. Id. The same was true in Zolezzi v. PacifiCare of Col., 105 Cal.App.4th 573, 129 Cal. Rptr.2d 526 (2003), on which Plaintiffs also rely. Id. at 588, 129 Cal.Rptr.2d 526 ("However, that provision was added by BIPA's amendment of the Act on December 21, 2000, which was subsequent to all of the relevant or operative acts and omissions of which Zolezzi complains in her first amended complaint."). Here, the explicit preemption was well-established before the CMS reviewed and approved the governing EOC, and before Defendants are alleged to have committed any of the wrongful acts identified in the Complaint. Nothing in Pagarigan compels a different result.
D. Applicability of the Arbitration Agreement to Plaintiffs
Plaintiffs argue that because they are not signatories to the arbitration agreement, even if the Court finds that agreement enforceable, it should not apply to them. Opp'n at 11. Defendants argue that the arbitration provisions in the applicable EOC extend to the enrollee's heirs or personal representatives (i.e., Plaintiffs), and that because Plaintiffs bring claims on behalf of the estate, they stand in Mr. Clay's shoes and are bound by his agreement.
The EOC includes the following provisions regarding the scope of arbitration:
Any dispute shall be submitted to binding arbitration if all of the following requirements are met:
1. The claim arises from or is related to an alleged violation of any duty incident to or arising out of relating to this EOC or a Member Party's relationship to Kaiser Foundation Health Plan, Inc., (Health Plan), including any claim for medical or hospital malpractice, for premises liability, or relating to the coverage for, or delivery of, Services, irrespective of the legal theories upon which the claim is asserted.
2. The claim is asserted by one or more Member Parties against one or more Kaiser Permanente Parties or by one or more Kaiser Permanente Parties against one or more Member Parties.
Hall Decl. Ex. A (2004-2005 EOC), at 35-36[4] The EOC further defines "Member Parties" to include the plan member, the member's heir or personal representative, or any "person claiming that a duty to him or her arises from a Member's relationship to one or more Kaiser Permanente Parties." Id. at 36.
Because Mr. Clay agreed to the terms of the EOC, his estate is bound by its terms. Therefore, the various causes of action in the Complaint which are brought on behalf of the estate must be submitted to arbitration. At a minimum, this includes the first, second, third, and fourth causes of action, each of which alleges that Defendants caused some financial injury to Mr. Clay and seeks to recover for that injury. See County of Los Angeles v.Super. Ct., 21 Cal.4th 292, 304, 87 Cal.Rptr.2d 441, 981 P.2d 68 (1999) ("In a survival action by the deceased plaintiffs estate, the damages recoverable expressly exclude `damages for pain, suffering, or disfigurement.' ... They do, however, include all `loss or damage that the decedent sustained or incurred before death, including any penalties or punitive or exemplary damages.'") (citing Cal.Code Civ. Proc. § 377.34).
*1111 Plaintiffs correctly identify a split in the California Courts of Appeals regarding the applicability of binding arbitration provisions to non-signatory adult heirs. Two lines of cases may apply. The first follows Rhodes v. California Hospital Medical Center, 76 Cal.App.3d 606, 143 Cal.Rptr. 59 (1978); the second follows Herbert v. Superior Court of Los Angeles County, 169 Cal.App.3d 718, 215 Cal.Rptr. 477 (1985). Though Plaintiffs identify the split, they fail to provide any reason the Court should follow one line of cases over the other in this matter.
Plaintiffs rely on Rhodes and its progeny. For the reasons set forth in Herbert, on which Defendants rely, Rhodes is distinguishable. Unlike the arbitration provision in Herbert and the one in the EOC, the agreement in Rhodes did not have a provision through which the signing party intended to bind her heirs. See Herbert, 169 Cal.App.3d at 725 n. 2, 215 Cal.Rptr. 477; Rhodes, 76 Cal.App.3d at 608-09, 143 Cal.Rptr. 59. It is also relevant that in Rhodes, the estate was not a plaintiff and there were no survival claims at issue. See Rhodes, 76 Cal.App.3d at 609, 143 Cal.Rptr. 59 ("This arbitration proceeding does not, at this stage, involve any question as to the existence of a cause of action in Mrs. Rhodes.... We are here concerned solely with the forum in which a new cause of action in the heirs may be brought.").
Similarly, in Baker v. Birnbaum, 202 Cal.App.3d 288, 292, 248 Cal.Rptr. 336 (Ct. App.1988), which follows Rhodes, there was "nothing on the face of the ... contract that extend[ed] it to any claim by" the plaintiff. Other facts in Baker distinguish it from the present matter as well. The suit did not involve a claim for wrongful death, and the plaintiff, who was not required to arbitrate, was not suing on behalf of a decedent's estate. Id. at 290, 248 Cal.Rptr. 336. As discussed below, in reference to Herbert, each of these factors is significant. In Baker, a husband and wife each brought claims against the wife's doctor. The wife's claim was for negligence, the husband's for loss of consortium. Id. at 290, 248 Cal.Rptr. 336. The court compelled arbitration of Mrs. Baker's claim because she had signed the arbitration agreement, but not Mr. Baker's claim. Id. at 292, 248 Cal.Rptr. 336.
Plaintiffs' final authority, Buckner v. Tamarin, 98 Cal.App.4th 140, 119 Cal. Rptr.2d 489 (2002), is also distinguishable. In Buckner, the decedent had signed an arbitration agreement purporting to bind his heirs. Id. at 141, 119 Cal.Rptr.2d 489. His grown children brought an action for wrongful death. Id. Unlike the present action, the decedent's spouse was not a co-plaintiff and the plaintiffs did not bring any claims on behalf of the estate. Here, the Plaintiffs include, in addition to Mr. Clay's grown children, his wife, suing individually and on behalf of his estate. As noted above, the estate must submit to arbitration. The Buckner court distinguished its facts from those in the Herbert line of cases in part because there was no plaintiff or group of plaintiffs in Buckner that was required to arbitrate, so there was no concern of splitting a wrongful death suit across forums or reaching inconsistent results. Id. at 142-43, 119 Cal. Rptr.2d 489.
The Court finds the facts in Herbert more analogous, and adopts the reasoning of that case and its progeny. The Herbert plaintiffs were the wife, five minor children, and three adult children of the decedent. 169 Cal.App.3rd at 720, 215 Cal. Rptr. 477. They brought a suit for wrongful death, fraud, and negligent infliction of emotional distress against hospital, health plan, and doctors involved in Mr. Herbert's care. Id. at 721, 215 Cal.Rptr. 477. The decedent's estate also filed claims for medical *1112 negligence and fraud, but those claims were dropped after the defendants filed a motion to compel arbitration. Id. As here, the arbitration agreement in Herbert applied to any claim brought by the health plan member or his heir or personal representative. Id. at 720, 215 Cal.Rptr. 477. The court found that the decedent's wife was bound by the arbitration agreement. Id. at 723, 215 Cal.Rptr. 477. The court relied on a prior decision which found that the fiduciary relationship between spouses establishes the power to contract for health care on one another's behalf, which implies the authority to agree on one another's behalf to arbitrate claims arising out of that health care. Id. (citing Hawkins v.Super. Ct., 89 Cal.App.3d 413, 418-19, 152 Cal.Rptr. 491 (1979)). Here, Rodney and Deborah Clay were both enrolled in the Health Plan through Deborah Clay's employer, and Deborah Clay remains enrolled. Dean Decl. ¶ 3. That is sufficient basis to bind Mrs. Clay to the arbitration provisions.
The Herbert court found that because some of the plaintiffs were bound by the arbitration agreement, the remaining plaintiffs had to submit their wrongful death claims to arbitration, regardless of the fact that they had signed the agreement. 169 Cal.App.3d at 725, 215 Cal. Rptr. 477. Under the "one action rule," "there may be only a single action for wrongful death, in which all heirs must join. There cannot be a series of such suits by individual heirs." Gonzales v. S. Cal. Edison Co., 77 Cal.App.4th 485, 489, 91 Cal.Rptr.2d 530 (1999). "Because a wrongful death cause of action may not be split, the case must be tried in a single forum." Herbert, 169 Cal.App.3d at 722, 215 Cal.Rptr. 477.
In addition to the one action rule requiring that all the heirs litigate together," the Herbert court identified other policy concerns favoring arbitration of all the heirs' claims:
[I] it is obviously unrealistic to require the signatures of all the heirs, since they are not even identified until the time of death, or they might not be available when their signatures are required. Furthermore, if they refused to sign they should not be in a position possibly to delay medical treatment to the party in need. Although wrongful death is technically a separate statutory cause of action in the heirs, it is in a practical sense derivative of a cause of action in the deceased.
Id. at 725, 215 Cal.Rptr. 477. The Herbert facts are very similar to those now before the Court, and the Herbert reasoning is persuasive. The Court therefore holds that the arbitration agreement in the EOC, which binds the estate and Mrs. Clay, also binds the remaining Plaintiffs.
IV. CONCLUSION
For the reasons set forth above, the Court GRANTS Defendants' Motion to Compel Arbitration and ORDERS as follows:
1. Plaintiffs are hereby ORDERED to submit all claims other than that seeking injunctive relief to binding arbitration.
2. This action is hereby stayed pending the outcome of the arbitration, pursuant to 9 U.S.C. § 3.
IT IS SO ORDERED.
NOTES
[1] The Health Care Financing Administration was renamed the Centers for Medicare & Medicaid Services ("CMS"). Hall Decl. ¶ 2. The Medicare Risk Contract was renamed Medicare + Choice Contract in 1999, and then renamed again as Medicare Advantage. Id. ¶ 3. The Court will use the current terms, CMS and Medicare Advantage.
[2] Defendants initially took the position that the FAA also preempts application of Section 1363.1, but abandoned this argument in their Reply and did not assert it at oral argument. See Reply at 1 ("Defendants acknowledge that the McCarran-Ferguson Act immunizes section 1363.1, Calif. Health & Safety Code, from what would otherwise be a clear-cut case of preemption by the Federal Arbitration Act."); see also Smith v. PacifiCare Behavioral Health of Cal., Inc., 93 Cal.App.4th 139, 162, 113 Cal.Rptr.2d 140 (2001) ("[T]he FAA, a federal statute of general application, which does not `specifically relate' to insurance, is foreclosed from application to prevent the operation of section 1363.1.").
[3] This text appears in bold print, in a different font from other parts of the enrollment form, and is surrounded by a black box which separates it from the rest of the form. See Dean Decl. Ex. C. At oral argument, Plaintiffs' counsel repeatedly drew the Court's attention to this box as an example of Defendants' ability to highlight important text on the enrollment form, purportedly to support Plaintiffs' claim that the arbitration provision was not itself prominently displayed.
[4] The EOC includes other requirements not material to this dispute. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1620416/ | 447 F.Supp. 509 (1977)
Don JOHNSTON, guardian of the person and the Estate of Dora L. Johnston, an incompetent person, Plaintiff,
v.
William M. FANCHER and Robert W. Bartlett, Defendants.
No. CIV-76-1039-D.
United States District Court, W. D. Oklahoma.
May 13, 1977.
*510 Jack S. Dawson, Oklahoma City, Okl., for plaintiff.
Larry M. Weber and H. Keith Myers, Jr., Altus, Okl., for defendants.
ORDER
DAUGHERTY, Chief Judge.
This is an action in which Plaintiff seeks actual and punitive damages from Defendants for fraudulently inducing Plaintiff's incompetent ward to sell certain real property located in Hollis, Oklahoma, to Defendants for $8,000.00 when the actual value of said property was $15,000.00. Prior to bringing this action, Plaintiff, a Texas resident, was appointed guardian of the person and estate of Dora L. Johnston by the District Court of Harmon County, Oklahoma. It is asserted that this Court has jurisdiction of the instant action based upon diversity of citizenship and amount in controversy pursuant to 28 U.S.C. § 1332.
Defendants have filed herein a Motion to Dismiss upon the grounds that Plaintiff lacks the legal capacity to bring this action. Said Motion is supported by a Brief and Plaintiff has filed a Response to said Motion.
In support of their Motion, Defendants contend that 12 Okla.Stat.1971 § 775[1] [sic] prohibits Plaintiff from being appointed *511 guardian; that pursuant to Rule 9, Federal Rules of Civil Procedure,[2] Plaintiff is without capacity to bring this action and same should be dismissed; that this matter may be properly raised by a Motion to Dismiss; and that as it is necessary to examine pleadings and documents outside of the pleadings in this cause, Defendants' Motion may be treated as a Motion for Summary Judgment.
In his Response, Plaintiff contends that Defendants have proceeded incorrectly in that the proper procedure would have been for Defendants to file an Answer denying the necessary capacity and then move for summary judgment by an additional Motion; that even though Defendants make it appear that the state court erred in appointing Plaintiff as guardian in view of Plaintiff's Texas citizenship, said decree may not be questioned in this Court on such grounds, for such would be a collateral attack; and that 58 Okla.Stat.1971 §§ 861 et seq.[3] may allow a non-resident to serve as guardian for a non-resident ward. Plaintiff relies on Mock v. Stricklin, 315 P.2d 247 (Okl.1957), as prohibiting a collateral attack on letters of guardianship where county courts have found that they have the necessary jurisdiction to appoint a guardian. Plaintiff has submitted a Supplement to Response which shows that he was also appointed guardian of the person and estate of Dora L. Johnston by the County Court of Briscoe County, Texas, on April 18, 1977. Said county is where Dora L. Johnston resides.
Upon consideration of the Motion to Dismiss filed herein with supporting Brief and exhibits and Plaintiff's Response and Supplement to Response with supporting exhibits, the Court finds that said Motion should be sustained.
As Defendants and Plaintiff have each presented matters outside the pleadings in connection with said Motion, which the Court has not excluded, the Court will treat said Motion to Dismiss as a Motion for Summary Judgment pursuant to Rules 12(b) and 56, Federal Rules of Civil Procedure.
Plaintiff's contention that Defendants have proceeded incorrectly through their Motion is without merit. Lack of capacity may be raised on a Motion to Dismiss. See, Wright and Miller, Federal Practice and Procedure: Civil § 1360. Furthermore, as the Court will convert the instant Motion to Dismiss to a Motion for Summary Judgment, the result is the same as if Defendants had followed the procedure suggested by Plaintiff of Answering and then filing a separate Motion for Summary Judgment.
An examination of 58 Okla.Stat.1971 §§ 861-866 reveals no provisions that modify the one year residency requirement of 58 Okla.Stat.1971 § 775 or that authorize the appointment of a non-resident as a guardian under the circumstances of the instant case. The record presently before the Court indicates without dispute that Plaintiff was a resident of Texas at the time of his appointment as guardian by the Harmon County District Court and when this action was commenced. Therefore, Plaintiff's appointment does not appear to be authorized by Oklahoma law and is contrary to § 775. A federal court can review the judgment of a state court (as in effect this Court is required to do in determining Plaintiff's capacity to bring this action) when the state court entered a judgment it had no power to enter. Daniels v. Thomas, 225 F.2d 795 (Tenth Cir. 1955), cert. denied, 350 U.S. 932, 76 S.Ct. 303, 100 L.Ed. 815 (1956).
*512 Mock v. Stricklin, supra, is of little aid to Plaintiff. Note 1 of the court's syllabus in Mock reads as follows:
"The county court in guardianship proceedings having found the necessary jurisdictional facts and having issued letters of guardianship, such guardianship proceedings are not subject to a collateral attack unless the proceedings are void upon their face." (Emphasis added)
A judgment void on its face may be collaterally attacked. Mitchell v. Village Creek Drainage District, 158 F.2d 475 (Eighth Cir. 1947). Likewise, case law in Oklahoma has long permitted a collateral attack upon a judgment or order that is void on its face. See, Faulkner v. Kirkes, 276 P.2d 264 (Okl. 1954); Crawford v. LeFevre, 177 Okl. 508, 61 P.2d 196 (1936); Moroney v. State, 168 Okl. 69, 31 P.2d 926 (1934); State v. Armstrong, 158 Okl. 290, 13 P.2d 198 (1932); Yawitz v. Hopkins, 70 Okl. 158, 174 P. 257 (1918). In the instant case, it appears on the face of both the "Petition for Appointment of Guardian" and the "Order Appointing Guardian" that Plaintiff was not an Oklahoma resident as required by Oklahoma law. Therefore, the appointment of Don Johnston as Guardian of the Person and the Estate of Dora L. Johnston, an Incompetent Person, in the Harmon County District Court is void upon its face and is subject to collateral attack. In Daniels v. Thomas, supra, it is said:
"It is a principle as old as our dual state and federal judicial systems that a federal court is without jurisdiction to interfere with a judgment in a state court action in which the state court had jurisdiction of the subject matter and of the parties thereto. It is only when the judgment of a state court is void either because that court lacked jurisdiction of the subject matter or of the parties to the action, or because it entered a judgment which it had no power to under the law, that such judgment may be reviewed in a federal court." (Emphasis supplied)
From an examination of the Motion and Brief, the Response and Supplement to Response thereto, and the exhibits submitted by both sides, the Court finds and concludes that no genuine issue of material fact exists as to Plaintiff's lack of capacity to bring this action. Therefore, Summary Judgment is appropriate and should be granted in favor of Defendants dismissing Plaintiff's Complaint.
It is so ordered this 13th day of May, 1977.
NOTES
[1] Intended citation was apparently 58 Okla. Stat. 1971 § 775. Said section provides in part as follows:
"No person who has not been a resident, in good faith, of the State of Oklahoma for one (1) year past shall be appointed guardian of the property or person of a minor or one of unsound mind by the State Courts of the State of Oklahoma . . .."
[2] Rule 9, supra, provides in part as follows:
"(a) Capacity. It is not necessary to aver the capacity of a party to sue or be sued or the authority of a party to sue or be sued in a representative capacity . . . except to the extent required to show the jurisdiction of the court. When a party desires to raise an issue as to . . . the capacity of any party to sue or be sued or the authority of a party to sue or be sued in a representative capacity, he shall do so by specific negative averment, which shall include such supporting particulars as are peculiarly within the pleader's knowledge.
[3] 58 Okla.Stat. 1971 §§ 861-866 deal specifically with guardians for non-resident wards. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1621337/ | 215 F.Supp. 87 (1963)
UNITED STATES of America, Plaintiff,
v.
NYSCO LABORATORIES, INC., a corporation, and Eugene J. Yoss, an individual, Defendants.
No. 60-C-530.
United States District Court E. D. New York.
March 4, 1963.
Joseph P. Hoey, U. S. Atty., Eastern Dist. of New York, for plaintiff; Martin R. Pollner, Asst. U. S. Atty., of counsel.
Bass & Friend, New York City, for defendants; Solomon H. Friend, New York City, of counsel.
BRUCHHAUSEN, District Judge.
The plaintiff moves for summary judgment.
This action was instituted, pursuant to 21 U.S.C. § 321 et sequa, to enjoin the defendant corporation and its president, Eugene J. Yoss, and those in participation with them from introducing into interstate commerce a certain drug containing phenylpropanolamine hydrochloride. The plaintiff, in its complaint, alleges that the labeling, accompanying the *88 drug, represents and suggests that it is adequate and effective in weight reduction and control by curbing the appetite, as an adjunct in the control of obesity and that such statements are false and misleading.
The statutes, 21 U.S.C. §§ 321, 331, 332 (a) and 502 empower the appropriate district court to grant an injunction against false or misleading labeling of drugs. Such labeling is termed misbranding.
Approximately twelve in rem actions were instituted by the Government in various district courts for the seizure and forfeiture of large quantities of the drug located within those jurisdictions. Pursuant to the libels, the drugs were seized by and now are in the possession of the Marshals. All of the cases were transferred to the District Court of New Jersey for disposition. The case of United States v. 60 28-Capsule Bottles, etc., Unitrol, D.C., 211 F.Supp. 207 was chosen as being representative of the others and tried before Judge Thomas F. Meaney. The defendant, Nysco Laboratories, Inc., appeared as the claimant therein. Judge Meaney wrote a lengthy opinion, containing findings, followed by judgment dated January 22, 1963. Included therein are the following provisions:
"An examination of all the evidence presented compels the conclusion that a daily dosage level of 75 mg. PPA has no significant pharmacological value as a weight-reducing agent and that therefore any representation to the effect that PPA in that dosage is an adequate and effective appetite depressant or that it is adequate and effective in the management or control of obesity, would be a misbranding within the meaning of Title 21 U.S.C. § 352(a). The court finds that the labeling of claimant's product Unitrol represents that its sole active ingredient PPA is adequate and effective for the above purposes and consequently that this product is to be condemned according to the provisions of Title 21 U.S. C. § 334(d).
"Since the court has considered the biological and physiological effects of PPA, and the general character of the labeling which represents that PPA depresses the appetite with a consequent significant loss of weight, not confining its opinion to the greater claims made by the labeling in the instant case such as a loss of fourteen pounds in fourteen days, it feels that its conclusions are dispositive of all of the cases involving this product which are presently before the court.
"This opinion shall serve as findings of fact and conclusions of law.
* * * * *
"ORDERED, ADJUDGED, AND DECREED that the articles seized in each of these actions are misbranded as alleged in their respective Libels of Information, within the meaning of 21 U.S.C. 352(a), and pursuant to 21 U.S.C. 334(a), are condemned and forfeited to the United States of America, * * *
"ORDERED, ADJUDGED, AND DECREED that pursuant to 21 U.S. C. 334(d) and (f) (2), the United States Marshal in and for the respective Districts in which each of the articles have been seized shall destroy the seized articles and make return to this Court, but this provision shall be stayed * * * pending the final disposition of Claimant's appeal to the United States Court of Appeals for the Third Circuit."
Undoubtedly the granting of the stay against destruction of the drug was to preserve the claimant's right of appeal, otherwise it would have been rendered moot. See United States v. 3 Unlabeled, etc., Dried Mushrooms, 7 Cir., 157 F.2d 722.
The said judgment has the effect of an injunction, restraining the claimant from distributing and marketing the seized *89 drugs. As previously mentioned, those drugs remain in the possession of the Marshals.
The plaintiff contends that the said determination in the New Jersey court is res adjudicata of the issues in the subject action.
The claimant in the New Jersey action is Nysco Laboratories Inc., hereinafter called the Corporation. The defendants in the subject action are the Corporation and its president, Eugene J. Yoss. They admit that he is the president and has a voice in the policies and activities of the Corporation. (Par. 3 of the answer)
The Corporation in its answer admitted the allegations in paragraph 4 of the complaint, viz.:
"Said defendants have been and are now engaged in the business of manufacturing, packaging, labeling, selling and distributing in interstate commerce, articles of drug consisting of timed disintegration capsules containing 75 milligrams of phenylpropanolamine hydrochloride, timed disintegration capsules containing 50 milligrams of phenylpropanolamine hydrochloride, a straight 25 miligram tablet of phenylpropanolamine hydrochloride, chewing gum containing 25 milligrams of phenylpropanolamine hydrochloride, and a capsule containing phenylpropanolamine hydrochloride combined with vitamins and minerals."
The defendants admit that the labeling, alleged in paragraph 5(c) of the complaint is part of the labeling they use for the drugs. The paragraph is lengthy. A portion thereof is quoted, viz.:
"Each capsule contains 75 mgm. Phenylpropanolamine Hydrochloride in a special timed disintegration base * * *.
"Phenyl Propanolamine Nyscaps aid in weight reduction and control by curbing the appetite, thereby making it easier to adhere to a low caloric diet. * * *
"Phenylpropanolamine Hydrochloride is useful as an appetite suppressant in the dietary control of obesity and in reduction of maintenance of weight levels. * * *
"Easy-Slim works as an adjunct in the control of obesity.
"Easy-Slim works in two wonderfully clinically proven ways to slim off excess dangerous pounds. It acts to reduce craving for foods and acts as a stimulant to increase physical and mental activity, thus burning up unwanted calories."
The defendants further admit, in paragraph 7 of their answer, that the Corporation induces purchase of the said drug on the basis of representations made in labeling material that the said drug is an over-the-counter appetite depressant product and with adequate and effective treatment to aid in weight reduction by controlling the appetite.
Judge Meaney held that the product has no significant value as a weight-reducing agent nor as an appetite suppressant nor is it effective in the control of obesity and that it was misbranded.
It is apparent that the determination by Judge Meaney is res adjudicata as to the Corporation in the subject action. The latter action is based on the same claim between the same parties or those in privity with them. See Cromwell v. County of Sac, 94 U.S. 351, 24 L.Ed. 195. The defendants do not seriously dispute identity of subject matter and parties, for in their brief they state that "in the instant case, there is no question but that the Unitrol case, (decided by Judge Meaney) upon final determination, would be res adjudicata to the instant case." Surely to be res adjudicata, after affirmance on appeal, it must be held to be res adjudicata at the time judgment was entered in the court below. It continues to be res adjudicata until reversed on appeal.
The defendants' principal plea is for a stay of the subject action pending the outcome of the appeal of the New Jersey judgment upon the ground that "the injunction (in this action) will have the effect of destroying the defendants' *90 business with respect to the product PPA." In this connection, it may be asserted that the defendants' business is now partially destroyed for Judge Meaney has ordered that all of the defendants' PPA drugs, seized by the Marshals in some twelve jurisdictions, shall remain in their possession and not be returned to the Corporation. The defendants appear to rest content with this ruling. The Government in pursuance of that ruling would be justified in instituting actions for seizure in every other jurisdiction, where the drugs are located. The grant of an injunction in this case obviates a multiplicity of suits.
In furtherance of their plea against an injunction, the defendants contend that such relief is inequitable and contrary to settled law.
The statutes previously alluded to empower the district courts "to restrain" the introduction or delivery for introduction into interstate commerce of any drug that is misbranded. A drug is misbranded if its labeling is false or misleading in any particular.
In Walling v. Brooklyn Braid Co., Inc., 2 Cir., 152 F.2d 938, a case involving the Fair Labor Standards Act, which Act does not provide for injunctive relief, the Court wrote:
"In a case like this it is self-evident that the public interest is directly concerned in the proper enforcement of a valid wage order. Good administration of the statute is in the public interest and that will be promoted by taking timely steps when necessary to prevent violations either when they are about to occur or prevent their continuance after they have begun. The trial court is not bound by the strict requirements of traditional equity as developed in private litigation but in deciding whether or not to grant an injunction in this type of case should also consider whether the injunction is reasonably required as an aid in the administration of the statute, to the end that the Congressional purposes underlying its enactment shall not be thwarted. See Skidmore v. Swift Co., supra, 323 U.S. at 133 [134]-140, 65 S.Ct. 161-164 [89 L.Ed. 124]."
In United States v. W. T. Grant Co., 345 U.S. 629, 83 S.Ct. 894, 97 L.Ed. 1303, involving a claim of violation of Section 8 of the Clayton Act, 15 U.S.C. 19, prohibiting interlocking directorates, it was held that the trial court did not abuse its discretion in denying injunctive relief. The accused directors resigned thus, as the trial judge stated, there "is not the slightest threat that the defendants will attempt any future activity in violation of Section 8."
At page 633, 73 S.Ct. at page 897, the Court said:
"The purpose of an injunction is to prevent future violations, Swift & Co. v. United States, 276 U.S. 311, 326, [48 S.Ct. 311, 72 L.Ed. 587] (1928), and, of course, it can be utilized without a showing of past wrongs. But the moving party must satisfy the court that relief is needed. The necessary determination is that there exists some cognizable danger of recurrent violation, something more than the mere possibility which serves to keep the case alive."
The danger of recurrent violation by the defendants is not in dispute in that the defendants assert that they desire to continue to market the PPA drug with all its misbranding, despite the adverse ruling of Judge Meaney.
The motion is granted. Settle order on five (5) days' notice. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1633114/ | 167 F.Supp. 940 (1957)
RIVOLI TRUCKING CORPORATION, Plaintiff,
v.
NEW YORK SHIPPING ASSOCIATION, New York Shipping Association, Inc., Alcoa Steamship Company, Inc., et al., Defendants.
United States District Court S. D. New York.
September 25, 1956.
Rehearing Denied June 15, 1957.
*941 Robert E. L. Welch, New York City, for plaintiff. J. Gerard Cregan, New York City, of counsel.
Lorenz, Finn & Giardino, New York City, for defendants New York Shipping Ass'n, New York Shipping Ass'n, Inc., Alcoa S. S. Co., Inc., and others.
Kirlin, Campbell & Keating, New York City, for defendants Bay Ridge Operating Co., Inc., and others. James H. Herbert, John J. McDonnell, New York City, of counsel.
Burlingham, Hupper & Kennedy, New York City, for defendant Luckenbach S. S. Co., Inc.
Herman Goldman, New York City, for defendants Atlantic Stevedoring Co., Inc., and others. Benjamin Wiener, Seymour H. Kligler, New York City, of counsel.
DIMOCK, District Judge.
Plaintiff brings this action under the anti-trust laws to recover treble damages for injuries suffered due to an alleged conspiracy by defendants. Plaintiff is in the business of picking up freight at the terminals and delivering the freight to consignees. Defendants are common carriers in foreign and interstate commerce, terminal operators, and stevedores. Defendants and the Federal Maritime Board now move pursuant to Rule 12(b), F.R.C.P., to dismiss this action on the ground that this court lacks *942 jurisdiction over the subject matter, as primary jurisdiction over violations of the Shipping Act, 39 Stat. 728, 46 U.S. C. § 801 et seq., is vested in the Federal Maritime Board pursuant to the provisions of that Act.
Plaintiff raises two issues in resisting this motion for dismissal. First, that it is not subject to the Shipping Act. Second, that the cause of action is within the general jurisdiction of this court.
Plaintiff states that it is a "trucker", that the Shipping Act nowhere provides for "truckers", therefore plaintiff is not subject to the Shipping Act. Plaintiff need not be subject to the Shipping Act to have rights under it. Section 22 of the Shipping Act provides, in part:
"Any person may file with the commission a sworn complaint setting forth any violation of this chapter by a common carrier by water, or other person subject to this chapter, and asking reparation for the injury, if any, caused thereby." (Emphasis added.)
Plaintiff's second issue is that its claim is within the general jurisdiction of the court. Plaintiff alleges that its trucks and loading equipment have unreasonably been refused admission to defendant's pier, that it has been subject to the penalty of demurrage charges, that it has been "locked out" from defendant's terminals, and that defendants have engaged in and are continuing to engage in unethical trade practices and wrongful conduct. Section 16 of the Shipping Act makes it unlawful for any common carrier by water, or other person subject to this Act, "to * * * give any undue or unreasonable preference or advantage to any particular person * * * or to subject any particular person * * * to any undue or unreasonable prejudice or disadvantage in any respect whatsoever". Section 17 of the Shipping Act provides "Every such carrier and every other person subject to this act shall establish, observe, and enforce just and reasonable regulations and practices relating to or connected with the receiving, handling, storing, or delivering of property." If the allegations of the complaint are true there would be a violation of the Shipping Act, over which the Federal Maritime Board has primary jurisdiction.
Primary proceedings charging a defendant, who is subject to the Shipping Act, with a violation of the Shipping Act must be brought before the Federal Maritime Board. United States Navigation Co. v. Cunard Steamship Co., 284 U.S. 474, 52 S.Ct. 247, 76 L.Ed. 408; Far East Conference v. United States, 342 U.S. 570, 72 S.Ct. 492, 96 L.Ed. 576; United States v. Alaska S. S. Co., D.C. W.D.Wash., 110 F.Supp. 104; American Union Transport, Inc. v. River Plate & Brazil Conferences, D.C.S.D.N.Y., 126 F. Supp. 91, affirmed on opinion below, 2 Cir., 222 F.2d 369.
Plaintiff attempts to avoid the effect of this rule by asking for damages rather than an injunction but the rule is applicable with respect to claims for damages. American Union Transport, Inc. v. River Plate & Brazil Conferences, supra.
On Motion for Reargument
On September 25, 1956, I filed a memorandum indicating that the complaint should be dismissed on the ground that primary jurisdiction over the subject matter was vested in the Federal Maritime Board. Plaintiff now moves for reargument on the ground of newly discovered evidence.
The voluminous papers filed indicate that plaintiff has misconceived the basis for my original decision. It was based on the fact that, even if everything alleged in the complaint were true, this court would have no jurisdiction. Plaintiff has now, with great but misapplied industry, collected and submitted a large amount of evidence obviously intended to substantiate the original charges. The action failed not because the charges *943 were not substantiated but because, even if they were substantiated, the Federal Maritime Board was the only body with primary authority to consider them. Motion denied. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1620663/ | 447 F. Supp. 309 (1978)
Beverly REED et al.
v.
SISTERS OF CHARITY OF the INCARNATE WORD OF LOUISIANA, INC.
Civ. A. No. 760349.
United States District Court, W. D. Louisiana, Shreveport Division.
March 9, 1978.
*310 Frank E. Brown, Jr., Piper & Brown, Shreveport, La., for plaintiffs.
Arthur R. Carmody, Jr., Wilkinson, Carmody & Woods, Shreveport, La., for defendant.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
DAWKINS, Senior District Judge.
Findings of Fact
1.
This suit was brought as a would-be class action against the Sisters of Charity of the Incarnate Word of Louisiana, whose correct corporate name now is Sisters of Charity of the Incarnate Word, Shreveport, Louisiana (incorrectly cited as Schumpert Medical Center in the original complaint), a religious, non-profit institution which has furnished medical and nursing services, as well as moral and spiritual guidance, to persons of all races and creeds in this area for more than seventy years.
2.
The action was filed on March 31, 1976, and on June 25, 1976, defendant moved to dismiss the complaint, or, alternatively, to deny class certification pursuant to Rule 23, F.R.C.P. In support of this motion, there was filed a tape recording and transcript of a highly inflammatory speech made by Frank E. Brown, Jr., plaintiffs' lead counsel, to some 150 black persons at the Carver Branch of the Y.M.C.A. in Shreveport. Many of these persons were employed by defendant, and several eventually became plaintiffs in this litigation. The speech was given on February 26, 1976, approximately one month prior to the filing of this suit. Several plaintiffs testified, in discovery depositions, that it was only after hearing this solicitous, highly improper, and unprofessional speech that they decided to join in the suit.
3.
On June 25, 1976, the Clerk's office immediately notified Mr. Brown of this filing, sending him a copy of our Local Rule 10(f) which, in effect, states that, when a motion is opposed, the opposing party shall file his response within ten days after service of the motion. On July 7, 1976, no response of any kind having been filed in opposition to the motion, we caused the following minute entry to be entered in the record of the case:
"Plaintiff, having failed to file a brief in opposition to the motion by `Sisters of Charity' to dismiss complaint or, alternatively, to deny class certification, within the 10 days required by 10(f) of the Rules of this Court, it is hereby ordered that the alternative motion to deny class certification under Rule 23 F.R.C.P., filed 6-25-76 be and the same is hereby granted."
4.
The remarks made by Mr. Brown at the pre-suit meeting are shown by the tape recording and transcript. They include the following statement:
*311 "I would like to commend all of you on your laudatory effort in your pursuit of suing Schumpert Hospital for alleged employment discrimination . . .."
"So if there is anything our office can do in supporting your effort, please call upon us."
". . . Schumpert's attorney, Arthur Carmody, who is a damn liar if he says he doesn't discriminate against you at the Schumpert. Carmody is a liar." (Cheering and applause.)
"For those who desire to do 'em [i. e., file charges with the Equal Employment Opportunity Commission] you have to do 'em within 180 days after you think you have been injured by some discriminatory act, otherwise any possible action you have might be barred. So those of you who haven't filed charges and desire to I have thousands of 'em. For those of you who don't want to come to the office and get them you can write off to New Orleans and get some."
"So if there is anything we can do, or you think we might be able to do, to help you, call upon us."
"In no other instance has George D'Artois ever met with any other black employees of this city and we filed over 20 lawsuits for employment discrimination. Without being braggadocio, some have been successful, and others pending in court."
"Any time that you people feel that you have had the most you can take at Schumpert and want to take some affirmative action, call upon us."
Even had Mr. Brown responded to defendant's motion to dismiss, as to the class aspects of this case, we would have dismissed them. His remarks were so unprofessional, inflammatory, and solicitous that we never would have allowed them to serve as a predicate for creating a class.
5.
On February 7, 1977, the case, having been put at issue by answer filed, was placed upon the Pretrial Calendar for a Conference on May 11, 1977. However, plaintiffs' attorney failed timely to initiate and file a pretrial order, and on May 4, 1977, in accord with our Local Rules, it was removed by the Clerk from both the Pretrial and Trial Calendars.
6.
On October 19, 1977, a new Pretrial and Trial Calendar was issued, setting the Pretrial Conference for January 9, 1978, and Trial for January 16, 1978. The trial commenced as scheduled and was concluded on January 17, 1978.
7.
Upon conclusion of all the testimony, a motion was made by defendant, pursuant to rule 41(b) F.R.Civ.P., to dismiss the suit on the grounds that, upon the facts and the law, the plaintiffs had shown no right to relief. For the reasons noted infra, we found this motion to be well founded, and judgment was rendered in favor of defendant.
8.
Nine named plaintiffs filed this lawsuit: Beverly Reed, Sammie Lee Lewis, Betty Ann Parker, Grady Mae Brown, Lola Pryor, Irma Jean Marlow, Josephine McGaskey, Annie Mae Richardson, and M. L. Brown. However, only six testified at trial. Their claims were frivolous and, indeed, ridiculous. They were totally lacking in merit.
9.
Beverly Reed, a black, was a Licensed Practical Nurse (LPN) employed by defendant on January 8, 1974. She initially was assigned to the 11:00 p. m.-7:00 a. m. shift. Her sole complaint was that she requested but was not assigned to the 7:00 a. m.-3:00 p. m. shift, although she alleged other employees with less seniority were assigned that shift.[1]
*312 The evidence showed that defendant does not operate on a strict seniority system but that relative ability and qualifications, hospital needs, and experience in certain nursing areas are taken into account when making shift arrangements. Evidence further showed that defendant reasonably attempted to accommodate her several requests for shift assignments: In November of 1974, she accepted a shift change to the 3:00-11:00 p. m. shift on the CICU unit; on March 16, 1975, she requested, and was granted, a change from the CICU unit to the "rotate and float" unit; and, after she requested a permanent 7:00 a. m.-3:00 p. m. shift from the Director of Nursing Services in July of 1975, she obtained the second opening that became available. (The first was filled by a black who had requested it earlier.)
Mrs. Sibyl Wood, the hospital's Director of Nursing Services, testified that Beverly Reed requested and was granted more shift changes than nearly any other employee of the hospital. (Schumpert Medical Center has approximately 1,300 employees, of whom approximately 34 per cent are black.)
We further found Mrs. Reed to be lacking in credibility. She testified that prior to coming to Schumpert she was employed at the Louisiana Ordnance Plant but left because of "a reduction in force." However, written records of the company operating the Plant, introduced at trial, reflected that she quit because of her dissatisfaction with her shift assignments.
Even more determinative of her lack of credibility was her answer on cross-examination that she had been counseled on only one occasion about the quality of her nursing services. Written evidence offered by defendant showed that she had been counseled (criticized) in writing at least a dozen times in less than a two-year period more than any other employee at Schumpert except Betty Parker including:
(1) June 21, 1975 improper charting by B. Davis, R. N.
(2) October 29, 1975 patient complaints made to Sister Rebecca.
(3) November 14, 1975 failure to order medication, according to charts, for patients in her wing, F. McNeill, R.N.
(4) December 1, 1975 poor attitude; not checking off patients' orders, R. McNeill, R.N.
(5) December 1, 1975 leaving floor without permission, Sibyl Wood, R.N.
(6) November 26, 1975 failure to give patient pain medication, S. Wood, R.N.
(7) November 26, 1976 errors in medication, a quite serious violation, Sister Emily.
(8) March 18, 1977 sending patient to anesthesia prior to surgery with dentures in place, a most serious violation, C. Bourgeois, R.N.
(9) March 19, 1977 attempting to "counsel" her superior, J. Wallace, R.N.
(10) March 20, 1977 patient complaints concerning her indifference and attitude, J. Mawry, R.N.
(11) March 21, 1977 medication errors, C. Bourgeois, R.N., and Director of Personnel John Nelson.
(12) On March 23, 1977, she was late for work and then, in a belligerent manner attempted to counsel her superiors, C. Bourgeois and Sister Emily, both of whom are registered nurses. Upon recommendation of Sister Emily, she was discharged that day.
We find that defendant did not unlawfully discriminate against this plaintiff regarding shift assignments and that, indeed, it walked the extra mile in its efforts to rehabilitate her.
*313 10.
The second plaintiff who testified was Betty Parker, a nurse's aide[2] employed on August 4, 1973. (Her allegations in the complaint admittedly were erroneous there she alleged she was employed in 1968 as an "orderly.") The gravamen of her complaint was that she was terminated on January 29, 1976, without explanation or reason, due to her race. The evidence over-whelmingly established that she was discharged for cause a generally poor attitude and substandard job performance. As with Mrs. Reed, she denied any counseling incidents, but written concurrent documentation, as well as the testimony of her supervisors, showed counseling for:
(1) September 20, 1974 leaving floor without consent, by H. Williams, R.N.
(2) September 27, 1974 leaving duty early, by B. Davis, R.N.
(3) September 28, 1974 leaving duty early, by B. Davis, R.N.
(4) October 2, 1974 leaving floor without permission, by B. Davis, R.N.
(5) October 27, 1974 insubordination to supervisor, by B. Davis, R.N.
(6) January 19, 1975 not following instructions, refusal to count pulse, attitude, and insubordination, by V. Putnam, R.N.
(7) May 1, 1975 refusal to help patient with bandaged hand eat meal, B. Davis, R.N.
(8) May 1, 1975 leaving work early without permission, B. Davis, R.N.
(9) August 10, 1975 wearing civilian clothes on duty, poor attitude, by Sister Rebecca.
(10) August 15, 1975 Director of Nursing Services Sibyl Wood called in Mrs. Parker, reviewed her poor work history and advised her that she would be terminated if these complaints continued.
(11) August 18, 1975 she was counseled by Sister Jane because of her insistence on giving a patient a bath while wearing rubber gloves, contrary to all standard nursing practices.
(12) December 8, 1975 counseled by Mrs. Wood regarding patient complaints, insubordination, and not following directions. On the same day, Sister Rebecca, a floor supervisor with over 20 years experience, requested in writing that Mrs. Parker not be re-assigned to her floor. At trial, she testified that this was the first and only such request she had ever made in her long nursing career but that her entire staff both black and white would have resigned had Mrs. Parker come back to the floor.
(13) January 29, 1976 Mrs. Parker was discharged on recommendation of Sister Rebecca by Mrs. Wood and Director of Personnel John Nelson.
The claims made by this plaintiff were absurd, unsubstantiated, and the product of sheer imagination. Her work history was replete with acts of misconduct, any one of which would have warranted her being fired on the spot. One of defendant's witnesses, Ann Bolden, testified she attempted specially to assist Mrs. Parker in performance of her duties and warned her she was on "thin ice" and in danger of losing her job. Mrs. Bolden said the decision to terminate Mrs. Parker was in the best interest of the hospital, its patients and employees and that she supported it fully. On cross-examination, she also denied an iota of racial discrimination at Schumpert Medical Center. Mrs. Bolden was a black LPN; now she is an R.N.
Although not binding upon us, it was shown affirmatively by defendant that the Louisiana Department of Employment Security ruled on March 26, 1976, that Betty Parker's discharge was for "misconduct connected with employment."
*314 We find this plaintiff was discharged for cause, in no way related to her race.
11.
Plaintiffs devoted the major part of their case to the testimony of Beverly Reed and Betty Parker, which has been considered in detail above. Their other witnesses were perfunctory and had no substantial complaints; but their allegations and the evidence will be treated fully in order to illustrate the frivolous nature of this entire lawsuit and to support the sanctions which we believe should be applied, not only to attempt to compensate defendant here but to prevent such abuse in the future.
12.
Lola Pryor was the third plaintiff to testify. Born in 1931, she completed one year of high school, then began working as a household maid. In 1962, she was employed as a dishwasher by defendant at $130 per month. The following year she requested, and was granted, a transfer to the laundry department where she began as a "folder" and since has acquired the skills to do almost every job in the laundry. She now earns $650 per month.
This plaintiff's sole complaint relates to the fact that one of her friends, hired off the street, obtained a job as a "patient escort." This is a minimum pay, non-skill job; it simply requires some one to wheel or escort patients to various areas of the hospital or to their automobiles at discharge. She testified that late in 1975 she met Director of Personnel John Nelson in the hall and, in passing, said she thought she would like to be a "patient escort." Mr. Nelson, who has had 20 years experience in hospital administration with the United States Army, and over ten years at Schumpert, testified he did not believe she was serious because of the vast pay differential between the two jobs. Nevertheless, on reflection, he called her to his office, explained to her the pay differential between her skilled work in the laundry and the non-skilled requirements of a patient escort. He then asked her if she indeed was serious in her request to change jobs, to put it in writing and it would be considered. Nothing further was heard from Mrs. Pryor. Her claim was totally frivolous.
13.
The next plaintiff to testify was Sammie Lee Lewis, a black female who stated she obtained an accounting degree from Southern University in December of 1975 but was "denied the opportunity to fill out an application or be interviewed by defendant." On balance, these contentions might appear serious; on the merits, however, they proved nothing. Mrs. Lewis did obtain a college degree in accounting from Southern University, and, on a Monday, when she went to pick up her husband who worked as an orderly at Schumpert, she allegedly went to the employment office. Schumpert does not interview for jobs on Mondays; no one remembers her coming; admittedly she never returned, or attempted to fill out an application. She admitted on cross-examination she had applied for a job to over 60 agencies and companies, including all agencies of the federal and state governments in Dallas and Shreveport, all major utility companies in these two cities, plus several dozen banks, as well as a number of insurance companies and private firms, all without success. Moreover, Schumpert showed that, in its accounting department, there are only two positions requiring a degree, one of which was filled in 1962 and the other in 1965, and that there has been no vacancy for an accountant since that time. The evidence convincingly shows this plaintiff was not unlawfully discriminated against by defendant in any respect. This claim is frivolous.
14.
The next plaintiff who testified was Irma Marlow. Her sole complaint was that "she has requested several times to be transferred to a permanent floor. Despite her requests she has been denied a transfer and whites have been given the permanent floor." Mrs. Marlow was born in 1945, received a high school education, and, in 1973, *315 was licensed as a practical nurse by the Shreveport-Bossier Vocational-Technical School. She applied for and obtained employment as an LPN at Schumpert. Mrs. Wood, Director of Nursing Services, testified that, in staffing a large hospital such as Schumpert, it always is necessary to have persons in nursing service (i. e., registered nurses, LPN's, aides, and orderlies) who "rotate" and "float"; that is, who are subject to assignment to different floors and shifts, in order to cover for absences, vacations, weekends, and the like. Shift assignments and schedules are determined by Nursing Services. Both black and white employees rotate and float, as well as others having permanent assignments. Mrs. Wood testified that, with some 725 persons in nursing services, it is not possible always to give each person the shift preference he or she requests but that she attempts to do so consistent with the needs of the hospital.
The written records from Nursing Services showed that the first request made by Mrs. Marlow was on June 22, 1975, when she requested a transfer from the 11:00 p. m.-7:00 a. m. shift on Hall 700 to the Float Unit on the 7:00 a. m.-3:00 p. m. shift. This request was granted. Evidence showed that, while she was working the float unit, she was offered a regular 7:00 a. m.-3:00 p. m. shift in the surgical unit but refused the offer.
On June 22, 1976, a vacancy occurred on the 7:00 a. m.-3:00 p. m. shift in Hall 800. She had advised Mrs. Wood sometime earlier that she would like to have this position if it opened up and, since she was the first LPN to request this position, it was given to her when the vacancy occurred.
Her credibility was weakened by her discovery deposition wherein she testified she was the only LPN who was required to float but, on cross-examination, admitted by name a large number of both black and white LPN's who both "floated" and "rotated."
We find no evidence of any unlawful discrimination with respect to the employment of this witness by defendant. This claim is frivolous.
15.
The last of the six plaintiffs who testified was Grady Mae Brown, a nurse-aide with a high school education who was employed by defendant in 1969. She has worked regularly as an aide since that time.
In 1967, she took LPN training at the Vo-Tech Center in Shreveport but failed the examination and never attempted it again. In March of 1976, she received a one-week suspension for leaving her duty area early without permission. By all accounts, she was an average employee.
Her sole complaint was that she sought promotion to the Medical Records Department and was informed there were no openings and was not given that job. Sister Mary Alberic, Director of the Medical Record Department, testified that she never received a request for a job or application by Mrs. Brown but that, even if she had, she would not have been accepted. On cross-examination, Mrs. Brown frankly admitted that she had no typing, shorthand, transcription, or vocabulary skills and was not qualified for a job in medical records. It was shown affirmatively that every employee in this department had these skills when hired.
Her claim, for a position for which she admittedly was not qualified, is frivolous.
16.
The remaining plaintiffs, Mary Brown, Joseph McGaskey, and Annie May Richardson, did not testify, and their claims must be denied.
17.
Although plaintiffs failed to make any semblance of a case, and we were inclined to grant defendant's motion to dismiss at the end of plaintiff's evidence, we deferred ruling on this motion and required defendant to respond with evidence. This overwhelmingly and conclusively refuted all claims made by all plaintiffs.
*316 18.
Without going into excessive detail, defendant established that the religious congregation known as the Sisters of Charity of the Incarnate Word was established by the Bishop of Galveston immediately following the end of the War between The States. Its original members were three young French nuns who founded a hospital and orphanage in Galveston, Texas. From these early days, the Congregation has grown to over 400 professed religious women, all of whom have taken perpetual vows of poverty, chastity, and obedience. They now operate with great success most of the finest health care facilities in Louisiana, Texas, Arkansas, Oklahoma, Utah and in Guatemala and Ireland. Except for this proceeding, the Congregation never has been charged with any type of racial discrimination by either an individual or governmental agency. In this Court's personal knowledge, it was the first medical facility in north Louisiana voluntarily to integrate its facilities, long before that became the law of this land.
19.
We were impressed with, and accept as true, the candid, straight-forward testimony of the several religious nuns who testified, such as Sister Agnesita, Sister Rebecca, Sister Alberic, and Sister Emily, all of whom are accredited and experienced nurses and many of whom possess advanced nursing, personnel and hospital administration degrees from some of the leading universities in this country. We also accept them as close adherents to the vows and goals of the Congregation.
For nearly a century they have been among the pre-eminent medical institutions in the southern and southwestern States. They have been in the forefront of acceptance of black patients, granting staff privileges to black physicians, and, foremost in rendering quality patient care to all patientssome 85 per cent of whom are not of the Catholic faith.
20.
We also were impressed with, and accept as factual, the uncontradicted testimony of John R. Nelson, Director of Personnel, and Sibyl Wood, R.N., Director of Nursing Services. Each of these individuals is a highly trained, competent professional. Each testified from personal knowledge, as well as from written hospital records maintained in the regular course of business.
Following his graduation from Louisiana Tech University in 1941, Mr. Nelson entered the military and served in increasingly important positions in military hospital management, including personnel work at Brook General Hospital in San Antonio, Texas, and as chief administrative officer of the 28th General Hospital in France. Following his discharge in 1963, he became Director of Personnel at Schumpert Medical Center, the largest private medical facility in Louisiana.
Mrs. Wood was licensed as a Registered Nurse in 1944 and was commissioned immediately in the nurses' corps of the United States Army where she served in various surgical units in combat areas in the South Pacific. Following her honorable discharge by the Army, she served in various nursing capacities in this area and, due to her special skills and expertise, was requested to set up, equip, staff, and train personnel for several small (20- to 30-bed) hospitals in Louisiana and Texas. She later served as chief nurse of the Texas Eastman Plant in Longview, Texas, which is one of the largest companies in this area. Thereafter, she served as director of nursing services at Physicians & Surgeons Hospital in Shreveport, and in 1975 accepted a similar position at Schumpert Medical Center. Her responsibilities include the hiring of all employees in Nursing Services (aides, orderlies, Licensed Practical Nurses and Registered Nurses); continuing education and in-house training of these personnel; matters of discipline and discharge; shift scheduling, and the like. It was clear to us, and actually unchallenged by plaintiffs, that Mr. Nelson and Mrs. Wood are extremely fair, competent, and conscientious in performing their *317 jobs and none of their decisions relating to any of the plaintiffs here were racially discriminatory.
21.
For the foregoing reasons, we find the claims of plaintiffs are insubstantial, indeed, frivolous, and that not a single count of unlawful racial discrimination was proven, even remotely, against defendant.
Conclusions of Law
1.
The Court has jurisdiction over the subject matter of this action. 28 U.S.C. § 1343(3), (4); 42 U.S.C. § 2000e-5(f)(3). The parties are subject to the personal jurisdiction of the Court. The Court is one of proper venue. 28 U.S.C. §§ 1391(b), 1393(a); 42 U.S.C. § 2000e-5(f)(3).
2.
Section 703(a) of Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e-2(a)(1), (2):
"(a) It shall be unlawful employment practice for an employer
(1) to fail or refuse to hire or to discharge any individual, or otherwise to discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual's race, color, religion, sex, or national origin; or
(2) to limit, segregate, or classify his employees or applicants for employment in any way which would deprive or tend to deprive any individual of employment opportunities or otherwise adversely affect his status as an employee, because of such individual's race, color, religion, sex, or national origin."
3.
Complainants in an employment discrimination case must carry the initial burden of proving a prima facie case of discrimination. Griggs v. Duke Power Company, 401 U.S. 424, 91 S. Ct. 849, 28 L. Ed. 2d 158 (1971); Peters v. Jefferson Chemical Co., 516 F.2d 447 (5th Cir. 1975).
4.
The United States Supreme Court has set forth the standards of proof governing an individual case of employment discrimination in McDonnell Douglas Corp. v. Green, 411 U.S. 792, 93 S. Ct. 1817, 36 L. Ed. 2d 668 (1973). In addressing itself to the issue of the "order and allocation of proof in a private, non-class action challenging employment discrimination," the Court said:
"The complainant in a Title VII trial must carry the initial burden under the statute of establishing a prima facie case of racial discrimination. This may be done by showing (i) that he belongs to a racial minority; (ii) that he applied and was qualified for a job for which the employer was seeking applicants; (iii) that, despite his qualifications, he was rejected; and (iv) that, after his rejection, the position remained open and the employer continued to seek applicants from persons of complainant's qualifications." [Citations omitted.]
5.
If such a showing is made, then the burden shifts to the employer to articulate some legitimate, non-discriminatory reason for the employee's rejection. (McDonnell, supra.)
6.
As in other civil litigation, the rule of "preponderance of the evidence" is applicable in trial of Title VII and Civil Rights cases, and the burden of proof ultimately is upon the plaintiff to prove the violations alleged. Barnes v. Lerner Shops, 323 F. Supp. 617 (S.D.Tex.1971). Furthermore, in order for the allegedly aggrieved party to succeed there must be demonstrated, by the required burden of proof, the fact that such discriminatory practice or policy was the cause of the claimed injury. Gerstle v. Continental Container, Inc., 358 F. Supp. 545 (D.Colo.1973).
*318 7.
Here there was no burden to shift to defendant because plaintiffs totally failed to prove a case. We find not only no pattern or practice of discrimination but no iota of evidence of a single act of discrimination which would be actionable.
(a) Mrs. Reed complained only about her shift assignment. The record shows she requested and was granted any number of shift assignments and received the principal one she wanted when she was next in line for the vacancy. Although her discharge was not an issue in this suit, we note her exceedingly poor work performance record, the many contradictions and inability to recall material transgressions, all of which cast substantial doubt upon her credibility. Thus, defendant did not discriminate against this witness in the matter of shift assignments.
(b) Betty Parker claimed she was discharged without cause due to her race. However, we have set forth at some length her long record of substandard nursing performance, her failure to follow instructions, her many warnings and counseling sessions, and finally the floor supervisor's testimony that, if Betty Parker were not terminated, she would lose every employee black and white on the floor. The evidence clearly shows she was discharged for cause.
(c) Irma Marlow, an LPN, only complained of not receiving a preferential shift assignment. The written personnel records showed that, after she applied for the shift, she obtained the first vacancy which opened. Thus her individual claim must fail.
(d) Sammie Lee Lewis had a college degree. She testified she applied for a position in Schumpert's accounting department and was not hired. Even if her testimony were literally correct, there would be no proof of any discrimination, since defendant's evidence showed that there are only two degree positions in the accounting department, both having been filled in the 1960's, and that no one, black or white, degree or no degree, has been hired in that department since the date of her alleged application in December of 1975. The evidence regarding this witness requires further comment: On the day she said she was at Schumpert (a Monday) employment applications and interviews are not given; she admittedly did not return to follow through on her purported application. Of even more significance is the fact that she applied for employment as an accountant at over 60 major companies in the Shreveport and Dallas area, including agencies of the state and federal government, and received not a single job offer.
(e) The claim of Grady Mae Brown to move from a nurse's aide position (after failing the LPN examination) into Medical Records, when she admittedly had no shorthand, typing, or transcription skills, is patently frivolous. Sister Alberic testified this plaintiff never formally applied for a position in Medical Records, and, even if she had, she would not have been employed since she was not qualified for the job. Thus her individual claim must fail.
(f) Finally, the claim of Lola Pryor to transfer from a skilled position in the laundry, earning $650 per month, to a non-skilled, minimum-pay "patient escort" job is clearly without merit. In fact, Mr. Nelson thought she was making the request in jest she was told, however, that if she was serious to put the request in writing. Nothing more was heard from her regarding the "patient escort" job. There is no evidence that this plaintiff was discriminated against, and her claim must fail.
(g) The other three individual plaintiffs, Mary Lee Brown, Josephine McGaskey, and Annie Mae Richardson, did not testify. They presented no evidence *319 whatever on any claim of discrimination. Thus their claims must fall. (Neloms v. Southwestern Electric Power Company, et al., 440 F. Supp. 1353, on the Docket of this Court, opinion filed November 23, 1977, page 33, paragraph 30.)
8.
Plaintiffs offered no "outside" witnesses. None established any racial bias toward themselves. All (except Sammie Lee Lewis) were hired for the positions they applied for. None could name a higher paying job for which they were qualified and had sought. None testified as to any white employee receiving more pay for the same work. On the other hand, defendants affirmatively showed that there is no disparity in pay, fringe benefits, or working conditions between black and white employees. Although it was not an issue, with respect to the individual claims, the record showed that many blacks were employed at Schumpert Medical Center in supervisory and highly technical medical positions. There was no evidence of any racial discrimination at this institution.
Attorney's Fees
9.
The Court may award the prevailing party in a Title VII action a reasonable attorney's fee as part of the cost of the action. 42 U.S.C. § 2000e-5(k). Only one of the plaintiffs, Beverly Reed, was in Court pursuant to 42 U.S.C. § 1981. It now is well established by 42 U.S.C. § 1988 that jurisdiction has been conferred on the district courts:
". . . for the protection of all persons in the United States in their civil rights, and for their vindication . . . to furnish suitable remedies . . . in its discretion, may allow the prevailing party, other than the United States, a reasonable attorney's fee as part of the costs." (Emphasis supplied.)
This is particularly true where the entirety of plaintiffs' claims are frivolous. This litigation indeed was frivolous, and, indeed, vexatious in the highest degree.
The following citation from Carrion v. Yeshiva University, 535 F.2d 722 (2nd Cir. 1976) has special application:
"Appellant's first argument here is that the District Court abused its discretion in awarding Yeshiva counsel fees in the sum of $5,000. There is no doubt that 42 U.S.C. § 2000e-5(k), invoked by the defendant, explicitly provides that `the court, in its discretion, may allow the prevailing party, other than the Commission or the United States, a reasonable attorney's fee as part of the costs.' It is not disputed that the prevailing party may be either the plaintiff or the defendant. Alyeska Pipeline Service Co. v. Wilderness Society, 421 U.S. 240, 261-62, 95 S. Ct. 1612, 1624, 44 L. Ed. 2d 141, 155 (1975).
* * * * * *
This is not the sole rationale, however, since the statute does not limit the award of fees to plaintiffs. Although appellant argues that permitting a prevailing defendant an award of attorney's fees discourages the civil rights litigant from initiating litigation and thus frustrates the policy of the Civil Rights Acts, the answer undoubtedly is that the Congressional intention was to encourage responsible litigation but to discourage baseless or frivolous actions." (Emphasis supplied.)
See also United States v. Allegheny-Ludlum Industries, Inc., 558 F.2d 742 (5th Cir. 1977), and the more recent Supreme Court decision in Christiansburg Garment Co. v. E. E. O. C., ___ U.S. ___, 98 S. Ct. 694, 54 L. Ed. 2d 648 (1978).
Also see Judge Hill's opinion in Goff v. Texas Instruments, Inc., 429 F. Supp. 973 (N.D.Tex.1977), where he said:
"When, however, a plaintiff proceeds on a clearly frivolous legal basis, such as suing a private corporation under § 1983 without any contentions of state action, he should be liable for reasonable attorney's fees."
*320 Therefore, attorney's fees and costs in the amount of $2,000.00 will be assessed in solido against all plaintiffs.
10.
This record further clearly reflects that the inflammatory speech of lead counsel on February 26, 1976, approximately one month prior to filing this suit, was instrumental in fomenting this litigation. Because of this conduct, the Court is exercising its discretion and awarding additional attorney's fees and costs in the amount of $2,000.00 against the firm of Piper & Brown.
A suitable judgment should be submitted by defendant's counsel within five days.
NOTES
[1] The written notations in Mrs. Reed's personnel file reflect that she was given this shift when the second vacancy opened after she requested it. It was shown that the three white employees she complained about had requested the shift prior to Mrs. Reed. Moreover, one had seniority going back to 1968 and another was specially requested for assignment to the shift by a floor supervisor because of her special training and experience in surgery.
[2] An aide is an entry-level position in Nursing Services; above this position are Licensed Practical Nurses and Registered Nurses. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1622229/ | 851 F.Supp. 1271 (1994)
Allen R. McCULLEY, Plaintiff,
v.
UNITED STATES DEPARTMENT OF VETERANS AFFAIRS and Douglas A. Wallin, Defendants.
No. 93-C-0405.
United States District Court, E.D. Wisconsin.
May 10, 1994.
*1272 *1273 Allen R. McCulley, pro se.
James L. Santelle, Asst. U.S. Atty., Milwaukee, WI, for defendants.
DECISION AND ORDER
WARREN, Senior District Judge.
Before the Court is the defendant's Motion to Dismiss or for Summary Judgment in the above-captioned matter. For the following reasons, the Court orders dismissal of this case for lack of subject matter jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(1) ("Rule 12(b)(1)").
I. FACTUAL AND PROCEDURAL BACKGROUND
Plaintiff Allen R. McCulley served in the United States Army from 1948 to 1962, when he was honorably discharged. (Maddox Aff. *1274 at ¶ 3.) From 1968 to 1977, he filed numerous claims for compensation with defendant United States Department of Veteran's Affairs ("VA") for alleged service-connected medical conditions, (Id. at ¶ 1.);[1] he presently receives compensation for arterial hypertension evaluated as 20% disabling, chronic lumbosacral strain evaluated as 20% disabling, and atrophic left testicle due to mumps with orchiditis evaluated as 0% disabling.[2] (Id.) On April 10, 1975, the plaintiff underwent surgery to remove a "small leiomyoma" on his esophagus; the attending physician noted the presence of "a small hiatal hernia on gastrointestinal series without demonstrable reflux." (Pl. Mem. Opp'n Summ. J., Ex. 2.) On May 7, 1975, the plaintiff returned to the VA complaining of low back pain, weakness in his right arm, and "right vocal cord paralysis." (Id. at Ex. 2-A.) In February of 1982, he expressed to the VA his desire to establish service-connection for paralysis of the right vocal cord secondary to such surgery. (Maddox Aff. at ¶ 4, Ex. 1.) In June of 1982, the VA issued a Rating Decision holding that service-connection for such condition was not established under 38 U.S.C. § 351 (currently renumbered § 1151); the plaintiff filed a notice of disagreement. (Id.) In March of 1983, the plaintiff amended his claim to include service-connection for an adjunct condition, diabetes; in February of 1984, the VA issued a Rating Decision denying establishment of a service-connection for such condition. (Id.)
*1275 In April of 1988, the plaintiff filed three separate actions in Milwaukee County Circuit Court against various VA employees, two of which were immediately removed to the United States Court for the Eastern District of Wisconsin; the United States was substituted as defendant, and an amended complaint was filed alleging "defamation of character with malice aforethought" and a "false rating decision of 1974." (Def. Mem. Supp. Summ. J., Ex. A.) After a September 1988 status conference, the parties agreed to send the plaintiff's records to a VA Regional Office other than Wisconsin for evaluation. (Id., Ex. B.) On December 29, 1988, the Washington D.C. VA Regional Office issued a Rating Decision finding that "all rating decisions completed during the period 1974 through 1976 are consistent with the medical evidence," (Maddox Aff. at ¶ 5, Ex. 2); however, it also noted the "adult onset of diabetes mellitus, hiatal hernia with fair control, dysphagia and recurrent laryngeal nerve injuries due to previous esophageal surgery." (Pl. Mem. Opp'n Summ. J., Ex. 1-A.) The third above-referenced state action was removed to the United States District Court for the Eastern District of Wisconsin in June of 1989 and consolidated with the other two cases; the United States was again substituted as defendant. (Def. Mem. Supp. Summ. J., Ex. C.) The United States moved for, and was granted, summary judgment. (Id.) The Seventh Circuit affirmed, McCulley v. United States, 929 F.2d 703 (7th Cir.1991), and the United States Supreme Court denied certiorari. McCulley v. United States, ___ U.S. ___, 112 S.Ct. 207, 116 L.Ed.2d 165 reh'g denied, ___ U.S. ___, 112 S.Ct. 627, 116 L.Ed.2d 648 (1991).
On February 4, 1992, the plaintiff requested disability compensation from the VA under § 1151 for "residuals of esophageal surgery performed by the VA Hospital Milwaukee in 1975"; he submitted additional documents on February 19, 1992 asking to "reopen [his] claim for service-connect[ed] ... laryngeal nerve injury due to esophageal surgery" and requesting "compensation for diabetes, and a hiatal hernia in addition to service-related low back pain." (Maddox Aff. at ¶ 6, Ex. 3-4.) On March 11, 1992, the VA notified the plaintiff that it was suspending the adjudication of all claims involving a potential denial of service-connection disabilities until the Court of Appeals for the Federal Circuit reviewed the United States Court of Veterans Appeals decision in Gardner v. Derwinski, 1 Vet.App. 584 (1991), which invalidated a provision in 38 C.F.R. § 3.358 used by the VA in deciding § 1151 claims. (Id. at ¶ 7-8, Ex. 5-7.) On February 25 and April 6, 1993, the VA notified the plaintiff that his claim remained suspended pending an appellate ruling in Gardner. (Id. at ¶ 9, Ex. 8-9.)[3]
On April 22, 1993, the plaintiff, acting pro se, brought the instant action against the VA and Douglas A. Wallin, Adjudication Officer for the Wisconsin VA Regional Office, alleging that he suffers the following ten (10) disabilities due to complications from his esophageal surgery: "1. recurrent laryngeal nerve injuries, 2. paralysis of right vocal cord, 3. hiatal hernia, 4. dysphagia, 5. gastroenteritis, 6. diverticulitis, 7. diabetes mellitus, 8. psychophysiological reaction manifested by anxiety with somatic complaints, 9. function bowel syndrome and 10. intervertebral disc syndrome." According to the plaintiff, the defendants' refusal to comply with § 1151 violates his Fourteenth Amendment right to Equal Protection, and he seeks "service-connected disabilities compensation for injuries, the residual of injuries and aggravation of an injury as the result of hospitalization, medical and surgical treatment, ... [and damages for] suffering, grave grievous, mental anguish and pain, lost [sic] of job, ... and punitive damage[s]." (Compl. at 4.) On June 22, 1993, the defendants filed the instant motion; the plaintiff responded on July 14, 1991, and the defendants replied on July 28, 1993.[4]
*1276 II. STANDARD OF REVIEW
"Rule 12(b)(1) requires that an action be dismissed if the court lacks jurisdiction over the subject matter of the lawsuit." Unity Sav. Ass'n v. Federal Sav. & Loan Ins. Corp., 573 F.Supp. 137, 140 n. 4 (N.D.Ill. 1983). When ruling on such a motion, the Court "is not bound to accept as true the allegations of the complaint which tend to establish jurisdiction where a party properly raises a factual question concerning the jurisdiction of the ... court to proceed with the action." Grafon Corp. v. Hausermann, 602 F.2d 781, 783 (7th Cir.1979); Chicago Dist. Council of Carpenters Pension Fund v. Kustom Line Garage Door Co., 1989 WL 152531 (N.D.Ill. Dec. 11, 1989). Instead, the Court should "look beyond the jurisdictional allegations in the complaint and view whatever evidence has been submitted on the issue in determining whether in fact subject matter jurisdiction exists." Grafon, 602 F.2d at 783; Chicago Dist., 1989 WL 152531, at *1. Where subject matter jurisdiction is at issue, "the party invoking jurisdiction has the burden of supporting the allegations of jurisdictional facts by competent proof." Grafon, 602 F.2d at 783; Geiger v. United States, 1989 WL 31100 (N.D.Ill. March 28, 1989). See also Western Transp. Co. v. Couzens Warehouse & Dist., Inc., 695 F.2d 1033, 1038 (7th Cir.1982); Nuclear Eng'g Co. v. Scott, 660 F.2d 241, 252 (7th Cir.1981). Unlike a Rule 12(b)(6) motion, a Rule 12(b)(1) motion cannot "evolve into a dismissal [for summary judgment] pursuant to Rule 56." Capitol Leasing Co. v. Federal Deposit Ins. Corp., 999 F.2d 188, 191 (7th Cir.1993); Crawford v. United States, 796 F.2d 924, 928 (7th Cir. 1986).
Rule 12(b)(6) authorizes the Court to dismiss a case "for failure to state a claim upon which relief can be granted." Unlike a Rule 12(b)(1) motion, the Court must accept as true all well-pleaded factual allegations contained in the plaintiff's complaint, viewing all reasonable inferences in the light most favorable to the plaintiff. Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 2233, 81 L.Ed.2d 59 (1984); Gillman v. Burlington N. R.R. Co., 878 F.2d 1020, 1022 (7th Cir.1989); Republic Steel Corp. v. Pennsylvania Eng'g Corp., 785 F.2d 174, 177 n. 2 (7th Cir.1986). The complaint, however, must set forth factual allegations adequate to establish the essential elements of his or her claim, see Benson v. Cady, 761 F.2d 335, 338 (7th Cir.1985); Sutliff, Inc. v. Donovan Co., Inc., 727 F.2d 648, 654 (7th Cir.1984), and legal conclusions lacking adequate support should not be considered. Benson, 761 F.2d at 338. The Court must deny such a motion unless it appears beyond doubt that the plaintiff is unable to prove any set of facts which would entitle him or her to relief. Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-02, 2 L.Ed.2d 80 (1957); Benson, 761 F.2d at 338. The Court's inquiry is generally limited to the factual allegations contained within the four corners of the complaint, see, e.g., Hill v. Trustees of Indiana Univ., 537 F.2d 248, 251 (7th Cir.1976); however, "[i]f ... matters outside the pleading are presented to and not excluded by the court," a Rule 12(b)(6) motion must be treated as a Rule 56 Motion for Summary Judgment. See Capitol Leasing, 999 F.2d at 191; R.J.R. Services, Inc. v. Aetna Casualty and Sur. Co., 895 F.2d 279, 281 (7th Cir.1989); Winslow v. Walters, 815 F.2d 1114, 1116 (7th Cir.1987).
Rule 56(c), in turn, deems summary judgment appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). A genuine issue of fact exists only where a reasonable jury could make a finding in favor of the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986); Santiago v. Lane, 894 F.2d 218, 221 (7th Cir.1990). An issue of fact must also be material, as "only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson, 477 U.S. at 248, 106 S.Ct. at 2510. See also Clifton v. Schafer, 969 F.2d 278, 281 (7th Cir.1992); Local 1545, United Mine Workers of Am. v. Inland Steel Coal Co., 876 F.2d 1288, 1293 (7th Cir.1989). The presence of a genuine issue of material fact is to be determined by the substantive law controlling *1277 that case or issue. Anderson, 477 U.S. at 254-55, 106 S.Ct. at 2513-14; Santiago, 894 F.2d at 221. Where the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no genuine need for trial and summary judgment is proper. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986).
The moving party has the initial burden of demonstrating that it is entitled to judgment as a matter of law. Celotex, 477 U.S. at 323, 106 S.Ct. at 2252-53; Local 1545, 876 F.2d at 1292. Once this burden is met, the non-moving party must "go beyond the pleadings" and designate specific facts to support or defend each element of the cause of action, showing that there is a genuine issue for trial. Celotex, 477 U.S. at 322-23, 106 S.Ct. at 2552-53; Local 1545, 876 F.2d at 1293. Neither party may rest on mere allegations or denials in the pleadings, Anderson, 477 U.S. at 248, 106 S.Ct. at 2510; Koclanakis v. Merrimack Mut. Fire Ins. Co., 899 F.2d 673, 675 (7th Cir.1990), or upon conclusory statements in affidavits, Palucki v. Sears, Roebuck & Co., 879 F.2d 1568, 1572 (7th Cir.1989); First Commodity Traders, Inc. v. Heinold Commodities, Inc., 766 F.2d 1007, 1011 (7th Cir.1985), and both parties must produce proper documentary evidence to support their contentions. Whetstine v. Gates Rubber Co., 895 F.2d 388, 392 (7th Cir.1990); Local 1545, 876 F.2d at 1293. In deciding a summary judgment motion, the Court must view the record in the light most favorable to the non-moving party, and all reasonable inferences shall be drawn in that party's favor. Matsushita, 475 U.S. at 587, 106 S.Ct. at 1356; Santiago, 894 F.2d at 221. A court need not draw every inference from the record, only reasonable inferences. Local 1545, 876 F.2d at 1292-93; Spring v. Sheboygan Area Sch. Dist., 865 F.2d 883, 886 (7th Cir.1989).
III. DISCUSSION
A. PARTIES' ARGUMENTS:
The defendants cite five (5) bases supporting either dismissal or summary judgment. They first claim that, under Rule 12(b)(1), this Court lacks subject matter jurisdiction because (1) no current federal statute waives sovereign immunity of the VA from suit in federal district court, (2) no current federal statute provides a remedy in federal district court for the plaintiff's Constitutional claim, (3) the plaintiff's claims are precluded under 38 U.S.C. § 511, (4) the plaintiff does not allege a procedural Constitutional violation, (5) the VA has complied with 38 U.S.C. § 1151, and (6) suit is barred by the Tucker Act, 28 U.S.C. § 1346(d). The defendants also claim that, because the plaintiff has offered no jurisdictional basis or statutory authority for his Constitutional claims, he has failed to state a claim upon which relief can be granted under Rule 12(b)(6). Thirdly, they argue that, because the plaintiff's VA claim remains suspended pending the appellate ruling in Gardner, he has failed to exhaust all available administrative remedies. The defendants further claim that the statutory authority granted to the United States Court of Veterans Appeals to review VA benefits decisions includes the review of purported Constitutional violations. Finally, the defendants assert that, absent Congressional authorization, the VA may not be sued eo nomine.
The plaintiff's somewhat cryptic response charges that the Washington D.C. Regional Office's Rating Decision "is a written, signed and adjudicated confession, admitting [that] the above disabilities were the fault made by the [VA] on 4/10/75." (Emphasis in original). He argues that other evidence, including the surgeon's indication that his small hiatal hernia was a preexisting condition and post-surgery physician's reports indicating proper functioning of both vocal cords, is outweighed by this "admission." He also claims that the defendants misled the Court by inaccurately citing § 1151 in its brief in violation of his "guaranteed right" to Equal Protection under the Constitution. Finally, the plaintiff alleges that the defendants "willfully violated" 38 C.F.R. § 3.358(c)(3), and have wrongly held his current claim in abeyance pending appellate resolution of Gardner.
B. LEGAL STANDARD:
Military veterans injured by treatment or vocational rehabilitation at VA hospitals may *1278 be eligible for disability benefits under 38 U.S.C. § 1151 (formerly § 351),[5] which provides, in relevant part, that:
"[w]here any veteran shall have suffered an injury, or an aggravation of an injury, as the result of hospitalization, medical or surgical treatment, or the pursuit of a course of vocational rehabilitation ..., awarded under any of the laws administered by the Secretary [of Veterans Affairs] or as a result of having submitted to an examination under any such law, and not the result of such veteran's own willful misconduct, and such injury or aggravation results in additional disability to or the death of such veteran, disability or death compensation under this chapter and dependency and indemnity compensation ... shall be awarded in the same manner as if such disability, aggravation, or death were service-connected."
The Secretary, through regional VA offices, makes initial determinations as to the propriety and amount of such compensation. See 38 U.S.C. § 511 (formerly § 211(a)). The Board of Veterans Appeals ("BVA"), in turn, provides final administrative review of such decisions. 38 U.S.C. § 7104 (formerly § 4004).
The Veterans Judicial Review Act ("VJRA"), enacted on November 18, 1988 with an effective date of September 1, 1989, provides a limited waiver of sovereign immunity for litigants seeking judicial review of BVA benefit decisions. See Pub.L. No. 100-687, 102 Stat. 4105 (1988).[6] The VJRA amended § 511 to read as follows:
"(a) The Secretary [of Veterans' Affairs] shall decide all questions of law and fact necessary to a decision by the Secretary under a law that affects the provision of benefits by the Secretary to veterans or the dependents or survivors of veterans. Subject to subsection (b), the decision of the Secretary as to any such question shall be final and conclusive and may not be reviewed by any other official or by any court, whether by an action in the nature of mandamus or otherwise.
(b) The second sentence of subsection (a) does not apply to
(1) matters subject to section 502 of this title;
(2) matters covered by sections 1975 and 1984 of this title;
(3) matters arising under chapter 37 of this title; and
(4) matters covered by chapter 72 of this title [38 U.S.C. 7251 et seq.].
(Emphasis added). Chapter 72 of the VJRA, in turn, grants the United States Court of Veterans Appeals ("CVA") "exclusive jurisdiction" to review decisions of the BVA. 38 U.S.C. § 7252.[7] In limited circumstances, *1279 decisions by the CVA may be further reviewed by the Court of Appeals for the Federal Circuit. 38 U.S.C. § 7292.[8]
C. ANALYSIS:
The defendants request dismissal of this case based on the Court's lack of subject matter jurisdiction under Rule 12(b)(1) and the plaintiff's failure to state a claim upon which relief may be granted under Rule 12(b)(6). As previously indicated, only the latter acts as a dismissal on the merits, thereby entitling the movant to seek summary judgment motion under Rule 56. Winslow, 815 F.2d at 1116. As a result, where the VA raises both defenses in a suit brought by a veteran to challenge disability benefits awarded under § 1151, the Seventh Circuit recognizes that:
"[t]he VA should [move] for dismissal for want of jurisdiction under 12(b)(1) and, in the alternative, for failure to state a claim under 12(b)(6). See Fed.R.Civ.P. 12(g) (consolidation of defenses in a motion). The district court would [ ] then consider[ ] whether it ha[s] jurisdiction. [If] the court [finds] that it ha[s] jurisdiction, it would [] then consider[] the VA's motion asserting that the plaintiff ha[s] failed to state a claim. If the court [finds] that [the plaintiff] has not stated a claim, it could [] grant[] summary judgment."
Id. In this case, then, we must first consider the defendants' Rule 12(b)(1) motion; as previously indicated, the plaintiff maintains the burden of proving that jurisdiction exists, and the Court must look beyond the complaint and view all relevant evidence.
In ascertaining whether the Court has subject matter jurisdiction over the plaintiff's Constitutional claim, we must analyze the historical development of § 511 and its precursor, § 211(a). The Second Circuit traced the evolution of § 511 in Larrabee by Jones v. Derwinski, 968 F.2d 1497 (2nd Cir. 1992).[9] In Larrabee, the sister/conservator of a physically disabled and legally incompetent Vietnam veteran sued the VA in the District of Connecticut, claiming that the VA failed to provide him with adequate care in violation of, inter alia, substantive and procedural *1280 due process; the VA moved to dismiss the former claim under Rule 12(b)(6) and as barred by § 511, and moved for summary judgment on the latter claim. Id. at 1498-99. The district court judge granted both motions. Id.
After noting that the "fulcrum of the controversy" was § 511, and that "none of the exceptions in section 511(b) [gave] the district court jurisdiction," the Second Circuit found that the district court lacked subject matter jurisdiction over either of the plaintiff's Constitutional claims. Id. at 1499. In reaching this conclusion, the Larrabee court outlined the "long and rich history" of § 511:
"Since Congress first legislated in the area of veterans' benefits over fifty years ago, it has consistently precluded judicial review of veterans' benefits determinations. Section 211(a) of the Veterans' Benefits Act of 1957, Pub.L. No. 85-56, 71 Stat. 83, 92 (current version at 38 U.S.C.A. § 511(a) (1991)), which consolidated and simplified veterans' benefits law, prohibited review of `any question of law or fact concerning a claim for benefits or payments.'
A procession of decisions by the D.C. Circuit, however, `significantly narrow[ed] the preclusion statute.' In 1970, Congress responded to the D.C. Circuit's `fairly tortured construction [of section 211],' by amending the statute to overrule that court's grudging interpretation of the preclusion provision. The 1970 version of section 211(a), which is substantially similar to current section 511(a), provided that `the decisions of the Administrator on any question of law or fact under any law administered by the Veterans' Administration providing benefits for veterans and their dependents or survivors shall be final and conclusive and no other official or any court of the United States shall have power or jurisdiction to review any such decision by an action in the nature of mandamus or otherwise.'
In 1974, the Supreme Court had its first opportunity to review the 1970 amendments, and it held that section 211(a) insulated from judicial review decisions `made by the Administrator in the interpretation or application of a particular provision of the statute to a particular set of facts.' Johnson v. Robison, 415 U.S. 361, 367, 94 S.Ct. 1160, 1166, 39 L.Ed.2d 389 (1974). It did not bar review of the very statute itself. Accordingly, under Johnson, facial challenges to the veterans' benefits statutes could be brought in district court pursuant to its federal question jurisdiction, 28 U.S.C. § 1331.
Since Johnson, we have distinguished between attacks upon the statute as drafted and the statute as applied; and we have held that section 211(a) precludes judicial review of non-facial constitutional claims, adding `that one may not circumvent § 211(a) by seeking damages on a constitutional claim arising out of a denial of benefits.' These cases clearly establish that section 211(a) precludes federal courts from hearing claims even if draped in constitutional terms seeking a particular type or level of medical care.
This conclusion is buttressed by Congress's response to the Supreme Court's extension of Johnson in Traynor v. Turnage, 485 U.S. 535, 545, 108 S.Ct. 1372, 1380, 99 L.Ed.2d 618 (1988) (`the question whether a [VA] regulation violates the Rehabilitation Act is not foreclosed from judicial review by § 211(a)'). Concerned that `the Court's opinion in Traynor would inevitably lead to increased involvement of the judiciary in technical VA decision-making,' Congress overhauled section 211 in the Veterans' Judicial Review Act ("VJRA"), Pub.L. NO. 100-687, 102 Stat. 4105 (1988). The VJRA provides, for the first time, judicial review of veterans' benefits determinations in the Federal Circuit; at the same time it broadens section 211's preclusion of judicial review by other courts.
By providing judicial review in the Federal Circuit, Congress intended to obviate the Supreme Court's reluctance to construe the statute as barring judicial review of substantial statutory and constitutional claims, see Traynor, 485 U.S. at 542-43, 108 S.Ct. at 1378-79; Johnson, 415 U.S. at 366-67, 94 S.Ct. at 1165-66, while maintaining uniformity by establishing an exclusive mechanism for appellate review of decisions of the Secretary. Under the VJRA, after the Secretary makes a decision *1281 on the award of benefits, a veteran may appeal it to the Board of Veterans' Appeals. The Board's decision constitutes the Secretary's final determination, which may then be appealed to the Court of Veterans Appeals, an Article I court established by the VJRA with `exclusive jurisdiction' to review the decisions of the Board of Veterans' Appeals. Decisions of the Court of Veterans Appeals may then be appealed, but only to the Federal Circuit ...
We agree (with the only other Circuit to consider this statutory scheme) that `[t]hese provisions amply evince Congress's intent to include all issues, even constitutional ones, necessary to a decision which affects benefits in this exclusive appellate review scheme.' Hicks v. Veterans Admin., 961 F.2d 1367, 1370 (8th Cir. 1992). Although district courts continue to have `jurisdiction to hear facial challenges of legislation affecting veterans' benefits,' Disabled Am. Veterans v. United States Dep't of Veterans Affairs, 962 F.2d 136, 140 (2d Cir.1992) (emphasis added), other constitutional and statutory claims must be pursued within the appellate mill Congress established in the VJRA. The district court, therefore, lacked jurisdiction to entertain Larrabee's claims that the defendants violated his due process rights in this case."
(Citations omitted) (emphasis added). In Larrabee, then, the Second Circuit recognized that Congress, in passing the VJRA, granted the CVA and the Federal Circuit, and not the district courts, exclusive jurisdiction to review all constitutional claims involving disability benefits decisions by the VA except those challenging the facial validity of applicable statutes.[10]See also Hicks v. Veterans Admin., 961 F.2d 1367, 1369 (8th Cir. 1992) (finding that the VJRA scheme of review "does not exclude claims which are based upon the Constitution ... [and] includes all claims, whatever their bases, as long as the claim is `necessary to a decision by the Secretary under a law that affects the provision of benefits by the Secretary to veterans'").
As noted in Larrabee, passage of the VJRA significantly altered the jurisdictional landscape in federal court of non-facial constitutional challenges to the VA's benefits decisions under § 1151, including that exercised by district courts within the Seventh Circuit. In July of 1988, nearly four months prior to the enactment of the VJRA and over one year prior to its effective date, the Seventh Circuit addressed the authority of district courts to hear such claims in Marozsan v. United States, 852 F.2d 1469 (7th Cir. 1988). In Marozsan, a Navy veteran who had been denied disability benefits several times "filed an action in federal court alleging, among other things, that the VA employed an arbitrary quota system in processing claims that denied him due process of law." Id. at 1471. The district court entered summary judgment in favor of the VA, finding that § 211(a) (now § 511) "was an unequivocal bar to judicial review of Marozsan's due process claims, and rejected on the merits his equal protection challenge to the statute itself." Id.
In an en banc opinion, the Seventh Circuit affirmed summary judgment for the VA as to the merits of the plaintiff's equal protection claim; however, it reversed the district court's failure to address the merits of his due process claim. Id. After noting that the plaintiff challenged "the methods not the decision of the Administrator," the Marozsan court found that the district court's interpretation of § 211(a) "would imply that Congress has chosen not to grant Marozsan a judicial remedy against VA procedures that violate the Constitution." Id. at 1472. "As a result, the plaintiff "would have no judicial forum, and indeed since the VA disclaims authority to consider constitutional claims no forum at all in which to raise his due process claim." Id. (footnotes omitted). To avoid "profound and long-debated questions about the power of Congress, consistent with Article III, to preclude all judicial review of executive agency action ... [and] to preserve [§ 211(a)'s] constitutionality," the Seventh Circuit crafted into § 211(a) a requirement that veterans be allowed "substantial constitutional *1282 challenges [in district court] to the veterans' benefits statutes and regulations, as well as to the procedures established by the VA to administer them." Id. See also Winslow, 815 F.2d at 1117 (finding that § 211(a) did not bar district court review of claims that the procedures of the VA violated the due process clause).
This Court reads Larrabee as a refinement, rather than abandonment, of the principles enunciated in Marozsan. As an initial matter, both cases recognize that, whether or not the validity of veterans' benefits laws are challenged on their face, veterans raising constitutional objections to VA benefits decisions are entitled to judicial review. In addition, the constitutional claim brought by the plaintiff in Marozsan, that an administrative procedure employed by the VA in applying § 211(a) violated his due process rights, is a small step from a constitutional challenge of the facial validity of the statute itself, which Larrabee recognizes as the only post-VJRA circumstance in which a district court retains jurisdiction to review a VA benefits decision; both claims, in turn, are far removed from a challenge of a fact-specific benefits determination by the VA, recognized by both Larrabee and Marozsan as immune from federal judicial review. Larrabee, 968 F.2d at 1500-01; Marozsan, 852 F.2d at 1475, n. 13. Nevertheless, given the VJRA's grant of "exclusive jurisdiction" to the Federal Circuit to "interpret constitutional and statutory provisions, to the extent presented and necessary to a decision," 38 U.S.C. § 7292(c), (d); see Hicks, 961 F.2d at 1369 (finding that "[t]he statutory language in Chapter 72 of Title 38 reinforces the interpretation that constitutional claims are included within [VJRA] scheme of review ... and [] refutes [the plaintiff's] assertion that concurrent jurisdiction exists"), any attempt in Marozsan to grant district courts broad-based power to hear non-facial constitutional challenges to VA benefits decisions appears outmoded. By channeling such claims to the CVA and the Federal Circuit, the VJRA continues to serve the two legislative purposes of § 211(a) recognized in Marozsan; (1) shielding the district courts from the burden of reviewing individual claims determinations, and (2) ensuring the expert and uniform adjudication of individual claims. Marozsan, 852 F.2d at 1475. For these reasons, this Court finds that the Seventh Circuit ruling in Marozsan does not cloak district courts with subject matter jurisdiction regarding non-facial constitutional challenges to VA benefits decisions.
In the instant case, it is clear that the plaintiff does not challenge the validity of § 1151 on its face; he simply claims that the VA denied him equal protection under the Fourteenth Amendment by failing to grant him relief thereunder and to properly apply 38 C.F.R. § 3.358(c)(3).[11] The former asks for a review of the VA's application of § 1151 to his specific factual circumstance; judicial review is clearly precluded under both Larrabee and Marozsan. His latter claim, while arguably reviewable by this Court prior to enactment of the VJRA pursuant to Marozsan, must, as indicated in Larrabee, now be brought before the CVA and Federal Circuit.[12] The plaintiff, then, fails to meet his burden of showing the presence of subject matter jurisdiction by competent proof. As a result, the Court must grant the defendants' Motion to Dismiss pursuant to Rule 12(b)(1), and is precluded from addressing the merits of his case or entering summary judgment pursuant to Rule 56.
*1283 IV. SUMMARY
For the foregoing reasons, the Court hereby GRANTS the defendants' Motion to Dismiss pursuant to Rule 12(b)(1), and ORDERS that the above-captioned matter be dismissed without prejudice.
SO ORDERED.
NOTES
[1] His first such filing, in June of 1968, claimed service-connection for malaria, mumps, a back condition, and hypertension. (Maddox Aff. at ¶ 4, Ex. 1.) In December of 1968, the VA issued a Rating Decision establishing that the plaintiff had service-connected arterial hypertension evaluated as 10% disabling and service-connected atrophic left testes due to mumps with orchiditis evaluated as 0% disabling. (Id.) In April of 1969, the plaintiff reopened his claim, seeking an increased evaluation for his service-connected hypertension and adding a claim for a stomach condition. (Id.) In May of 1970, the VA issued a Rating Decision establishing that the plaintiff had a 20% disabling service-connected chronic lumbosacral strain, and failing to establish a service-connection for gastritis, functional bowel syndrome, headaches, chronic colds, and a bilateral eye condition. (Id.)
In April of 1971, the plaintiff reopened his claim for a third time, requesting an increased evaluation of his service-connected hypertension and adding claims for eye and stomach conditions. (Id.) In May of 1971, the VA denied such claims. In March of 1972, the plaintiff again reopened his claim for an increased evaluation of his service-connected hypertension and purported eye condition. (Id.) In May of 1972, the plaintiff's service-connected arterial hypertension evaluation was increased from 10% disabling to 20% disabling; however, the VA failed to establish a service-connection for obesity. (Id.) In September of 1972, the plaintiff reopened his claim for a fifth time, requesting an increased evaluation of his service-connected hypertension. (Id.) In June of 1974, the VA increased its evaluation of his service-connected arterial hypertension from 20% disabling to 40% disabling; however, it failed to establish service-connections for a back condition, heart condition, eye condition, renal condition, gastritis, and a hiatal hernia. (Id.) In February of 1975, the Board of Veterans Appeals ("BVA") held that the plaintiff's hiatal hernia and psychophysiological gastrointestinal reaction were not service-connected, his visual defect and personality disorder were not compensable diseases, his cardiac enlargement and optic disease were not demonstrated, and an increased evaluation for his service-connected hypertension and chronic lumbosacral strain was not established. (Id.)
In March of 1975, the VA issued another Rating Decision denying the plaintiff's request for an increased evaluation for his back condition. (Id.) In June of 1975, the plaintiff requested a temporary 100% evaluation for lower back pain; the VA issued a Rating Decision granting a temporary 100% evaluation during his period of hospitalization. (Id.) In November of 1975, the plaintiff appeared before the VA Rating Board seeking another increased evaluation for his high blood pressure and back condition; in January of 1976, a Rating Decision was issued holding the evaluation for his service-connected back condition and reducing the evaluation for his hypertension from 40% disabling to 20% disabling. (Id.) In January of 1977, the BVA declined to increase the evaluation for the plaintiff's hypertension and chronic lumbosacral strain. (Id.)
In April of 1977, the plaintiff again reopened his claim of service-connection for a hiatus hernia, diverticulosis, gastroenteritis, and intervertebral disc syndrome. (Id.) In May of 1977, the VA issued a Rating Decision holding that (1) the issue of service connection for a hiatus hernia was previously considered by the BVA in February of 1975 and the plaintiff had submitted no new material evidence, (2) diverticulitis was not shown during his period of active service, (3) gastroenteritis was an acute condition and therefore not a ratable disability, (4) an intervertebral disc syndrome had not been diagnosed on official examinations, and (5) the plaintiff's service-connected back symptoms were properly evaluated under the diagnosis of chronic lumbosacral strain. (Id.)
[2] See id.
[3] See infra note 11.
[4] On August 2, 1993, the plaintiff filed a document entitled "Reply Brief of Plaintiff in opposition to the reply Brief of Defendants in support of their motion to dismiss or for summary judgment." However, because a non-moving party is not authorized to file a "reply to the movant's reply brief" under the Federal Rules of Civil Procedure or § 6.01 of the Local Rules for the Eastern District of Wisconsin, it has not been considered by the Court.
[5] Title 38 was renumbered pursuant to the Department of Veterans Affairs Codification Act, which became effective August 6, 1991. See Pub.L. No. 102-83, 105 Stat. 378 (1991); Larrabee by Jones v. Derwinski, 968 F.2d 1497, 1499 n. 1 (2nd Cir.1992).
[6] It is fundamental that, under the doctrine of sovereign immunity, the United States cannot be sued without its consent. United States v. Testan, 424 U.S. 392, 96 S.Ct. 948, 47 L.Ed.2d 114 (1976); United States v. Sherwood, 312 U.S. 584, 61 S.Ct. 767, 85 L.Ed. 1058 (1941). Consent must be expressed unequivocally, and is strictly construed. E.g., United States v. Mitchell, 445 U.S. 535, 538, 100 S.Ct. 1349, 1351-52, 63 L.Ed.2d 607 (1980); United States v. King, 395 U.S. 1, 4, 89 S.Ct. 1501, 1502-03, 23 L.Ed.2d 52 (1969). Waiver of sovereign immunity must be given for a plaintiff to seek monetary damages for alleged Constitutional violations. Testan, 424 U.S. at 400-01, 96 S.Ct. at 954-55; Radin v. United States, 699 F.2d 681, 685 (4th Cir.1983).
[7] 38 U.S.C. § 7252 states that:
"(a) The Court of Veterans Appeals shall have exclusive jurisdiction to review decisions of the Board of Veterans' Appeals. The Secretary may not seek review of any such decision. The Court shall have power to affirm, modify, or reverse a decision of the Board or to remand the matter, as appropriate."
(b) Review in the Court shall be on the record of proceedings before the Secretary and the Board. The extent of the review shall be limited to the scope provided in section 7261 of this title. The Court may not review the schedule of ratings for disabilities adopted under section 1155 of this title or any action of the Secretary in adopting or revising that schedule.
(c) Decisions by the Court are subject to review as provided in section 7292 of this title.
(Emphasis added). 38 U.S.C. § 7261(a), in turn, provides that:
"In any action brought under this chapter, the Court of Veterans Appeals, to the extent necessary to its decision and when presented, shall
(1) decide all relevant questions of law, interpret constitutional, statutory, and regulatory provisions, and determine the meaning or applicability of the terms of an action of the Secretary;
(2) compel action of the Secretary unlawfully withheld or unreasonably delayed;
(3) hold unlawful and set aside decisions, findings (other than those described in clause
(4) of this subsection), conclusions, rules, and regulations issued or adopted by the Secretary, the Board of Veterans' Appeals, or the Chairman of the Board found to be
(A) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law;
(B) contrary to constitutional right, power, privilege, or immunity;
(C) in excess of statutory jurisdiction, authority, or limitations, or in violation of a statutory right; or
(D) without observance of procedure required by law; and
(4) in the case of a finding of material fact made in reaching a decision in a case before the Department with respect to benefits under laws administered by the Secretary, hold unlawful and set aside such finding if the finding is clearly erroneous."
(Emphasis added).
[8] 38 U.S.C. § 7292(c) and (d)(1) state that:
"(c) The United States Court of Appeals for the Federal Circuit shall have exclusive jurisdiction to review and decide any challenge to the validity of any statute or regulation or any interpretation thereof brought under this section, and to interpret constitutional and statutory provisions, to the extent presented and necessary to a decision. The judgment of such court shall be final subject to review by the Supreme Court upon certiorari, in the manner provided in section 1254 of title 28.
(d)(1) The Court of Appeals for the Federal Circuit shall decide all relevant questions of law, including interpreting constitutional and statutory provisions. The court shall hold unlawful and set aside any regulation or any interpretation thereof (other than a determination as to a factual matter) that was relied upon in the decision of the Court of Veterans Appeals that the Court of Appeals for the Federal Circuit finds to be
(A) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law;
(B) contrary to constitutional right, power, privilege, or immunity;
(C) in excess of statutory jurisdiction, authority, or limitations, or in violation of a statutory right; or
(D) without observance of procedure required by law.
(2) Except to the extent that an appeal under this chapter presents a constitutional issue, the Court of Appeals may not review (A) a challenge to a factual determination, or (B) a challenge to a law or regulation as applied to the facts of a particular case."
(Emphasis added).
[9] See also Marozsan v. United States, 852 F.2d 1469, 1486-87 (7th Cir.1988) (Easterbrook, J., dissenting).
[10] For the VJRA to apply to such claims, the veteran must have filed a notice of disagreement as to the VA's benefits decision on or after November 18, 1988. Hicks v. Veterans Admin., 961 F.2d 1367, 1369 (8th Cir.1992).
[11] As previously indicated, the VA suspended the plaintiff's claim for disability benefits stemming from his esophageal surgery pending appellate review of Gardner v. Derwinski, 1 Vet.App. 584 (1992), which invalidated the VA's use of § 3.358(c)(3) in granting disability benefits pursuant to § 1151. On September 13, 1993, the Federal Circuit issued its opinion, affirming the invalidation of 38 C.F.R. § 3.358. Gardner v. Brown, 5 F.3d 1456, 1459 (Fed.Cir.1993) (finding, inter alia, that "38 U.S.C. § 1151 unambiguously does not require the veteran to prove that the VA treatment was faulty or that an accident occurred during the treatment"), cert. granted ___ U.S. ___, 114 S.Ct. 1396, 128 L.Ed.2d 69 (1994) (No. 93-1128). While not relevant to our decision in this matter, the Federal Circuit's opinion in Gardner may once again have triggered administrative review of the plaintiff's claims.
[12] Id. Pursuant to Gardner, the VA is required to review the plaintiff's eligibility for disability benefits under § 1151 without applying 38 U.S.C. § 3.358(c)(3); thus, subject to Supreme Court review of Gardner, this claim may be mooted for purposes of appeal to the CVA and Federal Circuit. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1621420/ | 215 F. Supp. 333 (1963)
UNITED STATES of America, Plaintiff,
v.
William S. CULBERT, Defendant.
No. 21201-4.
United States District Court W. D. Missouri, W. D.
March 20, 1963.
*334 F. Russell Millin, U. S. Atty., by Clifford M. Spottsville, Asst. U. S. Atty., Kansas City, Mo., for plaintiff.
William S. Culbert, pro se.
BECKER, District Judge.
On January 5, 1962, in the United States District Court for the Western District of Missouri, William S. Culbert, the movant herein, appearing in person and by his Court-appointed counsel, Stanford M. Katz, waived indictment and entered a plea of not guilty to a three-count information charging in Count I that on December 7, 1961, he did acquire and otherwise obtain a quantity of marihuana without having paid the transfer tax thereon, in violation of Title 26 U.S. C.A. § 4744(a); in Count II that on December 8, 1961, he did transfer a quantity of marihuana not pursuant to a written order of the person to whom said marihuana was transferred, in violation of Title 26 U.S.C.A. § 4742(a); and in Count III that on December 8, 1961, he did acquire and otherwise obtain a quantity of marihuana without having paid the transfer tax thereon, in violation of Title 26 U.S.C.A. § 4744(a).
On January 30 and 31, 1962, defendant was tried before a jury and found guilty on all three counts.
On February 9, 1962, this Court sentenced defendant to two years on each of Counts I and III and to six years on Count II, and ordered the sentences on all counts to run concurrently.
On July 3, 1962, defendant filed a motion pursuant to Rule 35 of the Federal Rules of Criminal Procedure to reduce sentence and for correction of illegal sentence and a petition for a writ of habeas corpus ad testificandum. The motion and petition were overruled October 22, 1962. United States v. Culbert (W.D. Mo.), Criminal No. 21201-6.
Defendant subsequently filed a motion pursuant to Title 28 U.S.C.A. § 1915, "for Leave to be Granted a Transcript Copy of the Minute and records filed * * *" in United States v. Culbert (W.D.Mo.), Criminal No. 21201-4. This motion was overruled by this Court's order of December 18, 1962, because viewed as a motion pursuant to Title 28 U.S.C.A. § 1915, defendant's motion failed to disclose any pending suit, action, proceeding or appeal as contemplated by that section and was not accompanied by the requisite affidavit, and because viewed as a motion pursuant to Title 28 U.S.C.A. § 2250, the motion was not related to any petition for writ of habeas corpus filed in this Court by or on behalf of the defendant (and because in any event, this Court did not have jurisdiction to entertain such a petition since the defendant was incarcerated outside the territorial jurisdiction of this Court). On December 27, 1962, one week after the issuance of this Court's order overruling the last mentioned motion, the Clerk of this Court received and filed a "Response to Respondent Brief of Opposition for Certified Copies of Records and Transcript in Forma Pauperis."
In this "Response" the defendant asserts that his trial counsel was ineffective in
(a) "waiving unstitutional [sic] right of indictment,"
(b) "Failure to motion to have Insubstantial Evidence Suppressed * * * Evidence which was Hearsay and uncorroborated," and
(c) "not advising Petitioner of his right for an appeal and therefore disqualified him because of the `in time clause' in filing notice of appeal."
Defendant further stated that "there are reversible errors and prejudicial errors that happen during the course of the *335 trial which the Records & Transcript will verify and wherefore Petitioner prays that said transcript & Record will be afforded Petitioner without prepayment or cose [sic]."
This last communication from the defendant will be treated as (1) a motion to vacate sentence pursuant to Title 28 U.S.C.A. § 2255, and (2) a renewal of the previously denied motion pursuant to Title 28 U.S.C.A. § 1915.
Considered as a motion pursuant to section 2255, the motion claims that the defendant was denied effective representation by counsel as guaranteed by the Sixth Amendment to the United States Constitution.
These attacks upon the competency of counsel are not received with much sympathy by the courts. Gallarelli v. United States (C.A.1) 260 F.2d 259; Dario Sanchez v. United States (C.A.1) 256 F.2d 73; Walker v. United States (C.A.7) 218 F.2d 80; Ford v. United States (C.A.6) 234 F.2d 835, l. c. 837; United States ex rel. Swaggerty v. Knoch (C.A.7) 245 F.2d 229; United States v. Miller (C.A.2) 254 F.2d 523. Nevertheless each case must be decided on its individual merits, and the Court must carefully protect the right granted by the Sixth Amendment to an accused in a criminal proceeding to have the assistance of counsel for his defense as "This is one of the safeguards * * * deemed necessary to insure fundamental human rights of life and liberty." Johnson v. Zerbst, 304 U.S. 458, l. c. 462, 58 S. Ct. 1019, l. c. 1022, 82 L. Ed. 1461, l. c. 1465.
First we will consider the complaint that counsel waived indictment. A transcript of the arraignment proceedings, filed herein, shows that the defendant voluntarily waived indictment personally and with a full understanding of his rights. Counsel's announcement of the waiver of indictment was not acted upon by the Court. The defendant was personally examined by the Court, was advised of his rights and personally, knowingly and voluntarily waived the indictment. The transcript on arraignment is made a part hereof by reference.
Next we will take up the complaint that counsel failed to move to have hearsay and uncorroborated evidence suppressed. No motion to suppress such evidence was authorized or required. Counsel vigorously defended the accused and made every objection reasonably possible. Stanford M. Katz, Esquire, acting for the defendant by appointment of this Court, displayed extraordinary zeal, vigor and skill in the defense of this case. The extensive trial notes kept by the Court, filed in this case and made a part hereof by reference, simply confirm a clear memory of the superior performance of defense counsel. A transcript of the evidence would add nothing substantial and has not been ordered.
The alleged failure to advise the defendant of his right of appeal must next be considered.
From the files and records in this cause no determination can be made about whether defense counsel advised the defendant of his right of appeal. A transcript of the trial proceedings would not aid this determination. The time for taking an appeal has expired under Rule 37(a) (2) of the Federal Rules of Criminal Procedure. The time for taking the appeal cannot be extended by this Court under Rule 45(b) of the Federal Rules of Criminal Procedure.
Because no relief in respect to the appeal could be granted by this Court, and because the motion and the files and records in this cause show conclusively that the defendant is entitled to no relief under section 2255, the motion pursuant to Title 28 U.S.C.A. § 2255, will be overruled. Dario Sanchez v. United States (C.A.1) 256 F.2d 73.
Turning to that part of defendant's "Response" considered a renewal of the previously denied motion pursuant to Title 28 U.S.C.A. § 1915, the defendant's motion discloses no pending suit, action, proceeding or appeal (other than those ruled upon hereinabove) as contemplated the section 1915. Nor has *336 petitioner filed the affidavit required by section 1915(b).
Therefore the request for copies of the transcript and record must be denied for the reasons set forth in the memorandum and order filed in this case on December 20, 1962.
It is therefore
Ordered that defendant's "Response" be, and it is hereby, treated as a motion to vacate sentence pursuant to Title 28 U.S.C.A. § 2255, and a motion for transcript and records pursuant to Title 28 U.S.C.A. § 1915. It is further
Ordered that the defendant's motion to vacate be, and it is hereby, overruled. It is further
Ordered that the defendant's motion for transcript and records without cost be, and the same is hereby, overruled. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1623464/ | 303 F. Supp. 119 (1969)
Bernard E. URY, Louis Gottlieb, Alan Shor and James M. Gilmore, Plaintiffs,
v.
Kenneth SANTEE, James A. Schwietert, Thelma B. Simon, Robert McHugh, William C. Orth, James Reichmann, Frank Fernholz, Lorene Burghart, J. Kroy Ostergaard, Lemuel H. Tate and Russell B. Joseph, Defendants.
No. 69 C 1146.
United States District Court N. D. Illinois, E. D.
August 25, 1969.
*120 *121 Sonnenschein, Levinson, Carlin, Nath & Rosenthal, Rupert J. Groh, Jr., Chicago, Ill., for plaintiffs.
Matthew J. Beemsterboer, Blue Island, Ill., Robert J. Mangler, Wilmetta, Ill., William H. Alexander, Chicago, Ill., for defendants.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
NAPOLI, District Judge.
This cause having come on for hearing on the merits of the complaint and answers thereto, the court has considered the evidence, the defendants' motion to dismiss and the plaintiffs' memorandum in opposition thereto, and the arguments of counsel, and, being fully advised in the premises, finds that it has jurisdiction of the parties hereto and the subject matter hereof, finds the facts as follows and states the following conclusions of law thereon:
FINDINGS OF FACT
1. Plaintiffs are citizens of the United States of America and are residents of the Village of Wilmette, State of Illinois, and were, on April 15, 1969, duly registered and qualified to vote in an election held on April 15, 1969, for the offices of President of the Board of Trustees of the Village of Wilmette, Illinois, three members of the Board of Trustees of the Village of Wilmette, Illinois, and Clerk of the Village of Wilmette, Illinois, and for separate referenda relating to a fire protection tax, police protection tax, street lighting bond issue and adoption of a council-manager form of government.
2. Defendant Kenneth Santee is a resident of the Village of Wilmette, Illinois, and on February 4, 1969, and to and including the date hereof, was and is President of the Board of Trustees of the Village of Wilmette, Illinois. Defendants James A. Schwietert, Thelma B. Simon, Robert McHugh, William C. Orth, James Reichmann and Frank Fernholz are residents of the Village of Wilmette, Illinois, and on February 4, 1969, and to and including the date hereof, were and are members of the Board of Trustees of the Village of Wilmette, Illinois. Defendant Lorene Burghart is a resident of the Village of Wilmette, Illinois, and on February 4, 1969, and to and including the date hereof, was and is Clerk of the Village of Wilmette, Illinois. Defendants J. Kroy Ostergaard, Lemuel H. Tate and Russell B. Joseph are also residents of the Village of Wilmette, Illinois and were purportedly elected to the office of trustee on April 15, 1969.
3. At all Village of Wilmette elections for at least 20 years prior to the election of April 15, 1969, only a single slate of candidates has been set forth on the ballots for the election of Village officers. In each such election, candidates for Village offices had been selected under a caucus system by a non partisan convention. In the past 20 years, the only contest had been a write-in campaign for Village President in 1959. All other Village elections were uncontested. Prior to the election of April 15, 1969, there had been no election for Village officers in which there were two competing political parties which presented competing slates of candidates for election to Village offices.
4. Prior to the Village election of April, 1965, the ordinances authorizing *122 Village elections provided for the same number of precincts as in general elections. In the April, 1959 and April, 1961 Village elections there were 25 precincts and in the April, 1963 Village election there were 28 precincts.
5. In March, 1965 and March, 1967, the Village Board of Trustees passed ordinances consolidating the number of precincts for the Village elections of April, 1965 and April, 1967, respectively, into six precincts and providing for only five judges at each of such six consolidated precincts. This was done for reasons of economy. The six precincts were located at the following schools in Wilmette, Illinois:
1. Central School
2. St. Francis School
3. Howard Jr. High School
4. Harper School
5. Romona Jr. High School
6. Loyola Academy.
In establishing the boundaries of the six consolidated precincts, the Village Board of Trustees made such precincts comparatively equal in geographical area, but such precincts were substantially unequal in terms of numbers of registered voters included in each precinct. The Village elections of April, 1965 and April, 1967 were both uncontested elections.
6. On February 4, 1969, the defendants, Kenneth Santee, James A. Schwietert, Thelma B. Simon, Robert McHugh, William C. Orth, James Reichmann and Frank Fernholz, acting in their respective official capacities as President and Members of the Board of Trustees of the Village of Wilmette, Illinois adopted a resolution authorizing the combining of the precincts for the forthcoming Village Election on April 15, 1969, from 32 into 6.
7. Prior to February 4, 1969 and since December, 1968, the Village caucus, known as the Harmony Convention, had been actively engaged in interviewing and selecting proposed nominees to be presented to the caucus for adoption of a single slate of candidates to be placed on the ballot of the April 15, 1969 Village election.
8. On or about January 27, 1969, defendant Schwietert advised the Harmony Convention that a second party was being formed and that a hard campaign would be waged. On or about January 30, 1969, a political party opposing the Harmony Convention was organized, known as the United Party. The United Party proposed a slate of candidates headed by defendant Schwietert for Village President. On January 31, 1969 defendant Schwietert and the other candidates signed loyalty oaths indicating their intention to become candidates of the United Party. The formation of the United Party and its intention to make the election a contested election was publicized in the local press, in particular in the February 3, 1969 issue of Wilmette Life, in which the United Party listed its slate of candidates and officers. Prior to February 4, 1969, defendants knew or should have known that the United Party had been organized with the intention of offering the people an alternative to the candidates of the Harmony Convention.
9. On February 4, 1969 the defendant Burghart, acting in her capacity as Village Clerk, recommended to the Board of Trustees that the precincts for the April 15, 1969 election be consolidated from 32 to six in the interests of economy. The suggestion was approved by the Board as above mentioned.
10. On February 7, 1969, the United Party filed with the Village Clerk its nominating petition setting forth a complete slate of candidates to be placed on the ballot for the April 15, 1969 Village election. On February 10, 1969, the Harmony Convention, which designated itself as the 1969 Harmony Party, filed its nominating petition setting forth a complete slate of candidates to be placed on the ballot for the April 15, 1969 Village election.
11. Between February 4, 1969 and March 4, 1969, both parties vigorously campaigned against each other for the forthcoming election. Each party opened *123 a campaign office. Opposing platforms were published. All aspects of the campaign were publicized. The local newspaper referred to controversial and complex issues being raised and there were various charges and counter-charges made by the parties. The widespread controversy and interest aroused by this contest was known to all the defendants on and prior to March 4, 1969.
12. On February 18, 1969, Ordinance No. 69-0-6 was presented to the Village Board. Such ordinance provided for the Village election to be held on April 15, 1969, dividing Wilmette into the same six precincts that had been set up in the uncontested elections of April, 1965 and April, 1967. There was no discussion by the Board at this meeting as to the effect of such consolidation.
13. On March 4, 1969, Ordinance No. 69-0-6 was adopted unanimously by the Board, again without discussion. No consideration was given by the Board at this meeting, or at any prior meeting, as to the effect of consolidation of 32 precincts into six precincts in a contested election, and no consideration was given as to the numbers of voters assigned to the respective precincts, the possibility of inequality of the number of voters in the precincts, the numbers of voters likely to vote at the forthcoming contested election, the number of judges who would be required to serve such precincts in a contested election, or the amount of economy that would be effected by the consolidation.
14. At no time did any of the defendants intend to deprive any person of the right to vote in the April 15, 1969, election.
15. Defendants published a legal notice of special election, which appeared in the classified advertising section of the Wilmette Life issued March 17, 1969. Such notice designated the six precincts, stated the polling place and outlined, by boundaries, the area included in such precinct. The notice did not indicate which regular precincts were consolidated into the six precincts or the number of registered voters that were assigned to each or the inequality of the numbers of voters so assigned or that only one set of election judges would be present at each precinct.
16. The number of registered voters in the respective consolidated precincts were as follows:
No. Registered
Precinct No. Location Voters
1 Central School 3,370
2 St. Francis School 2,563
3 Howard Jr. High School 3,939
4 Harper School 2,928
5 Romona Jr. High School 3,622
6 Loyola Academy 1,539
________
Total 17,961
The two largest precincts contained roughly two and a half times as many voters as the smallest precinct.
17. In the contested general elections whch preceded the Village election of April 15, 1969, an extremely high percentage of the registered voters of the Village of Wilmette applied for ballots. In the presidential election of November, 1968, there were 17,674 applications for ballots, representing substantially more than 90% of the registered voters. In the congressional election of November, 1966, there were 15,832 applications *124 for ballots, representing over 80% of the registered voters of Wilmette.
18. On election day, April 15, 1969, qualified voters who desired to vote were forced to wait unreasonable lengths of time to obtain and cast their ballots in certain of the precincts, particularly at Howard and Romona, as a result of the consolidation of 32 precincts into six precincts, because of the assignment of excessive numbers of registered voters to the precincts, the establishment of inadequate voting facilities and the failure to provide sufficient numbers of judges to service such polling places. In many instances voters at Romona and Howard were required to wait for periods of two to four hours to cast their ballots and were forced to attempt to vote three, four and, in one instance, five times, and were otherwise hindered in their right to cast ballots by reason of the excessively crowded conditions at the polling places and their environs. Substantial traffic jams occurred with the result that police were forced to direct traffic away from the polling place at Romona School. As a result of the action of the defendants in consolidating 32 precincts into six precincts and the assignment of excessive numbers of voters to a single precinct, hundreds of voters were effectively deprived of their right to vote in the April 15, 1969 Village election. Many of those who did succeed in voting had to mark their ballots outside the polling booths.
19. The voting process in each precinct consisted of a required search by the judges through several regular precinct binders to find voter registration information, the completion of a registration application by the voter, the initialing and distribution by the judges to the voters of eight printed ballots and the marking by the voters of such ballots. The actual voting process, exclusive of the time required to reach the judges' table, took from 10 to 20 minutes in each precinct.
20. The number of persons who voted in each of the six precincts on April 15, 1969, and the candidates for whom they voted was as follows:
Precincts 1 2 3 4 5 6 Total
No. Voting 1,484 1,306 1,598 1,262 1,518 755 7,923
Village President
Schwietert (U) 930 737 1,036 958 243 244 4,148
Webb (H) 537 548 540 293 1,267 505 3,690
Not Counted 18 21 22 6 8 6 81
Village Clerk
Klaiber (U) 798 612 936 840 203 203 3,592
Burghart (H) 670 670 639 413 1,304 546 4,242
Not Counted 17 24 23 9 11 6 90
Village Trustees
Tate (U) 919 748 1,015 955 234 233 4,104
Joseph (U) 899 725 1,016 915 231 233 4,019
Ostergaard (U) 890 716 1,014 921 220 228 3,989
Fisher (H) 573 571 572 310 1,282 523 3,831
Bonynge (H) 568 546 558 331 1,276 510 3,789
Gunn (H) 548 542 557 306 1,284 513 3,750
Not Counted 57 70 62 48 27 26 290
*125 21. In the Village election of April, 1969, 7923 voters, or 44% of the registered voters, succeeded in voting. The record also contains the affidavits of 397 named voters who attempted to vote in said election and who were unable to do so.
22. The total vote cast number would have been substantially less had the judges insisted on following the requirements of the Illinois Election Code, Ch. 46, Sec. 17-11, which requires that voters utilize voting booths and which permits voters at least five minutes in the voting booth.
23. The overcrowded condition in certain of the consolidated precincts on April 15, 1969, resulted in the effective deprivation of plaintiffs' right to vote in the Village election on such date and was a consequence of the consolidation by the Village Board of 32 regular precincts into six consolidated and unequal precincts and of the Village Board's failure to provide adequate and equal voting facilities for all of the qualified voters who desired to cast their ballot on such date.
24. The Board knew or should have known on or prior to March 4, 1969
(a) that the contested election of April 15, 1969 would bring great numbers of Wilmette voters to the polls;
(b) that six consolidated precincts, each manned by only one board of five election judges, would be wholly inadequate for the thousands of voters that could be expected;
(c) that the inadequacy of voting facilities would unduly hinder and delay such voters in the exercise of their franchise and would effectively deprive hundreds of voters of their right to vote;
(d) that the precincts were grossly unequal in the number of registered voters which they respectively contained;
(e) that such inequality would seriously prejudice and discriminate against voters residing in the more populous precincts; and
(f) that the consequence of such discrimination, coupled with such inadequacy of voting facilities, would effectively deprive hundreds of voters of their right to vote.
25. In view of the substantial numbers of voters who were unable to cast their ballots the inability of such voters to cast their votes had the effect of either changing the election results or rendering such results doubtful.
26. The election challenged in this action, which involved the election of four members of a seven-man board, involved the control of the Village Board of the Village of Wilmette for the next four years, and to permit persons purportedly elected at an invalid election to exercise power of government of the Village of Wilmette would constitute irreparable injury to plaintiffs and other citizens of the Village of Wilmette similarly situated, for which they have no adequate remedy at law.
27. The cost of conducting a second election with adequate and substantially equal voting facilities is not likely to exceed $5,000.
CONCLUSIONS OF LAW
1. This action arises under 42 U.S.C. § 1983, and the Fourteenth Amendment to the United States Constitution, of which this court has jurisdiction under 28 U.S.C. § 1343.
2. This action is properly brought by the plaintiffs pursuant to Rule 23 of the Federal Rules of Civil Procedure, on behalf of themselves and all other registered and qualified voters resident in the Village of Wilmette, Illinois, similarly situated.
3. 42 U.S.C. § 1983, provides that every person who, under color of any statute or ordinance of any State, subjects or causes to be subjected any citizen of the United States to the deprivation of any rights, privileges or immunities secured by the United States Constitution shall be liable to the party injured in an action of law, suit in equity or other proper proceeding in redress.
*126 4. The rights, privileges and immunities encompassed by 42 U.S.C. § 1983, include the right to equal protection of the laws as well as the right to due process of law.[1]
5. In order to maintain an action under 42 U.S.C. § 1983, it is not necessary to allege or prove that the defendants intended to deprive plaintiffs of their constitutional rights or that they acted wilfully, purposefully or in pursuance of a conspiracy. It is sufficient to establish that the deprivation of constitutional rights or privileges was the natural consequence of the actions of defendants acting under color of law, irrespective of whether such consequence was intended.[2]
6. In conducting the election of April 15, 1969, in reducing the number of precincts from 32 to six, in providing for precincts grossly unequal in number of registered voters, and in failing to provide sufficient election judges or adequate voting facilities, defendants acted under color of the statutes of the State of Illinois and the ordinances of the Village of Wilmette within the meaning of 42 U.S.C. § 1983.
7. It was the duty of defendants as the responsible officers and trustees of the Village of Wilmette to provide adequate and substantially equal voting facilities to the citizens of Wilmette at the election of April 15, 1969. Defendants failed to perform such duties.[3]
8. As a consequence of the failure of defendants to provide adequate voting facilities, plaintiffs and those similarly situated were hindered, delayed and effectively deprived of their rights secured by the Constitution of the United States to vote in the April 15, 1969 election.
9. As a consequence of the failure of defendants to provide substantially equal voting facilities, plaintiffs and those similarly situated were discriminated against in the exercise of their franchise and were denied the right secured by the United States Constitution to equal protection of the laws.
10. United States citizens do have a right guaranteed by the Constitution to a reasonable opportunity to vote in local elections, that is, to be given reasonable access to the voting place, to be able to vote within a reasonable time and in a private and enclosed space.
11. The legal notice published in the classified section of Wilmette Life on March 17, 1969 was not intended and did not put plaintiffs or any persons similarly situated on notice of the number of voters in the respective consolidated precincts or of the number of election judges assigned thereto or the inadequacy of voting facilities or of the gross inequality between the respective precincts and the number of voters assigned thereto. Defendants have failed to prove the defense of laches.
12. The defendants holding over as President of the Village Board, members of the Board of Trustees and Village Clerk, whose terms would have expired had the purported winners of the election of April 15, 1969 been elected and qualified, are vested with full power and authority to continue to act as such officers until their successors are elected and qualified, and until such election and qualification the official acts of said defendants subsequent to April 15, 1969 are and will be as valid and binding as their acts prior to such date.[4] It is therefore not necessary for the conduct of any Village business that the candidates purportedly elected at the *127 invalid election of April 15, 1969 be permitted to hold office prior to the holding of a fair, proper and valid election.
13. The injury suffered by plaintiffs and other citizens similarly situated in permitting persons not validly elected to assume control of the government of the Village of Wilmette would far outweigh the cost of conducting a fair, proper and valid election.
14. The case at bar was not and could not have been adjudicated by an order entered August 1, 1969 in the case of Leve v. Village of Wilmette, No. 69 CO 767, in the Circuit Court of Cook County, Illinois, ruling upon cross motions for summary judgment; in that order the Circuit Court, without findings, opinion or recommendations, granted the defendants' motion and denied the plaintiffs' motion. The Leve case had been filed as an election contest under a special Illinois statutory proceeding and at the time of the motions for summary judgment the only issue before the Illinois court was a claim under Article VII, § 1, of the Illinois Constitution.[5] The defendants in the Illinois case had challenged this claim on jurisdictional as well as substantive grounds; the Illinois record gives no clue as to the reason for the state court's decision; under no circumstances could that decision have determined the rights of the plaintiffs in the case at bar under the Constitution of the United States[6] and 42 U.S.C., § 1983.
JUDGMENT
This cause having come on for trial and the court having heard the evidence and having filed herein its findings of fact and conclusions of law,
It is ordered, adjudged and decreed:
A. That the defendants' motions to dismiss the complaint, for judgment on the pleadings and for a directed verdict are hereby denied.
B. That the purported election of candidates on April 15, 1969, for the offices of President of the Board of Trustees of the Village of Wilmette, Illinois, three members of the Board of Trustees of the Village of Wilmette, Illinois, and Clerk of the Village of Wilmette, Illinois, be and it is hereby declared to be invalid, null, void and of no effect.
C. That the defendants, their officers, agents, servants, employees and attorneys and those persons in active concert or participation with them, be and they are hereby restrained and permanently enjoined from swearing in, or causing, suffering or permitting to be sworn in, the defendant James A. Schwietert, as President of the Board of Trustees of Wilmette, Illinois, and defendants J. Kroy Ostergaard, Lemuel H. Tate and Russell B. Joseph, as members of the Board of Trustees of Wilmette, Illinois, and defendant Lorene Burghart as Clerk of the Village of Wilmette, Illinois, pursuant to the said invalid election of April 15, 1969.
D. That defendants Kenneth Santee, James A. Schwietert, Thelma B. Simon, Robert McHugh, William C. Orth, James Reichmann, Frank Fernholz and Lorene Burghart are hereby ordered and directed to cause to be held a general election in and for the Village of Wilmette, Illinois, at the earliest possible date, for the purpose of electing a President of the Board of Trustees of said Village, three members of the Board of Trustees of said Village and a Clerk of said Village; and for the purpose of holding said general election to divide the Village of Wilmette into the same 32 precincts as used in the General Election of November 5, 1968; and to select and designate such judges of said election as may be necessary and appropriate.
E. That plaintiffs have and recover their costs.
NOTES
[1] Adams v. City of Park Ridge, 293 F.2d 585 (7th Cir. 1961); Huey v. Barloga, D.C., 277 F. Supp. 864.
[2] Monroe v. Pape, 365 U.S. 167, 81 S. Ct. 473, 5 L. Ed. 2d 492 (1961); Joseph v. Rowlen, 402 F.2d 367, 369 (7th Cir. 1968).
[3] It may be noted that the standard set by the Illinois legislature for creating equal and adequate voting facilities is 500 voters except in uncontested elections. Ill.Rev.Stat.1969, Ch. 46, § 11-2.
[4] Ill.Rev.Stat.1969, Ch. 24, § 3-5-2.
[5] On May 6, 1969, the state court entered an order expressly dismissing all claims except the Illinois state constitutional claim.
[6] E. g., E. I. DuPont de Nemours and Co. v. Union Carbide Corp., 7 Cir., 369 F.2d 242 (1966). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1919421/ | 106 B.R. 938 (1989)
The OFFICIAL COMMITTEE OF SENIOR UNSECURED CREDITORS OF FIRST REPUBLICBANK CORPORATION, Appellant,
v.
FIRST REPUBLICBANK CORPORATION and IFRB Corporation, Appellees.
Civ. A. No. 3-89-0143-T.
United States District Court, N.D. Texas, Dallas Division.
June 19, 1989.
*939 *940 Hugh M. Ray, James Donnell, Douglas Bacon, Houston, Tex., for appellant; Andrews & Kurth, R. Terry Bell and Van Oliver, Dallas, Tex., of counsel.
Robert J. Rosenberg and Bennett J. Murphy, Latham & Watkins, New York City, for Official Committee of Jr. Unsecured Creditors of First RepublicBank Corp.
Ronald S. Orr, Lindsee P. Granfield, Deborah L. Schrier-Rape, and Andrew B. Ross, Gibson Dunn & Crutcher, Dallas, Tex., for appellees.
Martin J. Bienenstock, Pamela B. Corrie, and Martin A. Sosland, Weil Gotshal & Manges, Dallas, Tex., for IFRB Corp.
ORDER OF DISMISSAL
MALONEY, District Judge.
This is an appeal from an order of the Bankruptcy Court dated December 16, 1988, approving the sale of assets of Appellees' (the debtors) estate outside the ordinary course of business. The appeal presents a somewhat novel issue of law in this district regarding the reviewability of a bankruptcy court's order allowing a sale of assets under 11 U.S.C. § 363(b), or, as argued by Appellant's counsel to the Bankruptcy Court, the ability of the bankruptcy court to "shoot the dog."[1] The Bankruptcy Court ultimately shot the dog by entering its order approving the sale of assets. Appellant did not seek a stay from this Court pending appeal of that order. This Court therefore finds that the dog is dead and the appeal is moot.
Background Facts
Appellees filed petitions for relief under Chapter 11 of the Bankruptcy Code on July 30, 1988. On August 14, 1988, the United States Trustee appointed Appellant and the Official Committee of Junior Unsecured Creditors as the statutory creditors' committees in First RepublicBank Corporation's Bankruptcy Proceedings.
On November 21, 1988, Appellees filed their Motion for Order (1) Approving a Sale of Property of the Estates Outside the Ordinary Course of Business; (2) Ratifying Certain Corporate Acts; (3) Preserving Certain of Debtors' Rights Vis-a-Vis Each Other; and (4) Approving Compromise of a Controversy. The motion sought permission from the Bankruptcy Court to consummate *941 a Purchase Agreement between the Appellees and NCNB Texas National Bank ("NCNB Texas"). The terms of the sale were basically that Appellees would transfer the stock of First RepublicBank Services Corporation and First RepublicBank Integrated Processing Corporation ("the Services Companies") to NCNB Texas and would dismiss with prejudice a suit pending in state court against NCNB Texas, in exchange for $55 million cash from NCNB Texas.
On December 12, 1988, Appellant filed its Limited Objection to Appellees' motion for approval of the transaction. Appellees filed their response to the objection on December 14, 1988. The Bankruptcy Court held a hearing on Appellees' motion on December 14, 1988, and entered its findings of fact and conclusions of law on December 16, 1988. The Bankruptcy Court found that the proposed sale complied with 11 U.S.C. §§ 363(b) and (f), and authorized the sale. Also on December 16, 1988, Appellant moved the Bankruptcy Court for a stay pending appeal, which the Bankruptcy Court denied the same day. Instead, the Bankruptcy Court stayed effectiveness of its order only until noon, December 19, 1988. Appellant did not seek a stay pending appeal from the District Court, and Appellees consummated the sale of assets at noon on December 19, 1988. On December 19, 1988, Appellant filed its Notice of Appeal, seeking reversal of the Bankruptcy Court's order dated December 16, 1989.
On appeal, Appellant essentially asserts that the purchase transaction constituted an impermissible sub rosa plan of reorganization that denied Appellees' creditors the Chapter 11 due process protections owed to them. In response, Appellees assert that this appeal is moot. For the reasons explained below, the Court is of the opinion that this appeal is moot and should be dismissed.
Discussion
It is well-settled that if a party appeals from an order authorizing a sale but does not procure a stay of the order pending appeal and the sale is properly consummated, the appeal will be dismissed as moot. See In re Onouli-Kona Land Co., 846 F.2d 1170 (9th Cir.1988) (mootness rule applies when appellant has failed to obtain a stay from an order that permits sale of debtor's assets); In re Sewanee Land, Coal & Cattle, Inc., 735 F.2d 1294 (11th Cir.1984) (although as general rule a party need not seek stay of lower court's judgment in order to protect right to appeal, failure to obtain stay permits prevailing party to treat judgment as final and act on it); In re Vetter Corporation, 724 F.2d 52 (7th Cir.1983) (party who appeals bankruptcy court's order authorizing sale of debtor's assets to a good faith purchaser must obtain stay during appeal, otherwise issue becomes moot on appeal); Matter of Bleaufontaine, Inc., 634 F.2d 1383 (5th Cir. 1981) (where no stay of sale order is obtained, appellate court cannot affect sale and appeal is dismissed as moot); American Grain Association v. Lee-Vac, Ltd., 630 F.2d 245 (5th Cir.1980) (in absence of stay of lower court's judgment, irreversible acts may be taken in reliance on judgment, making appeals court powerless to grant relief; under such circumstances appeal will be dismissed as moot).
The basis for the foregoing rule is found in 11 U.S.C. § 363(m), which states:
The reversal or modification on appeal of an authorization under subsection (b) or (c) of this section of a sale or lease of property does not affect the validity of a sale or lease under such authorization to an entity that purchased or leased such property in good faith, whether or not such entity knew of the pendency of the appeal, unless such authorization and such sale or lease were stayed pending appeal.
That section recognizes that a sale such as that in the instant action should not be undone once consummated, absent lack of good faith on the part of the purchaser, and effectively denies Appellant any relief in this case.
The December 16, 1988, order of the Bankruptcy Court approved the sale of the Services Companies to NCNB Texas pursuant to §§ 363(b) and (f) of the Bankruptcy *942 Code. The sale was consummated after the order was final and while no stay was in effect.[2] Pursuant to § 363(m) and the authorities cited above, this Court is of the opinion that it can fashion no relief.
Appellant raises two issues in response to Appellees' mootness argument which the Court will address briefly. First, Appellant argues that a completed sale of property is not moot under § 363(m) unless the Bankruptcy Court makes a specific finding that the purchaser of such property acted in good faith. In support of this argument, Appellant cites In re Bleaufontaine Inc., 634 F.2d 1383 (5th Cir.1981). However, in that case, the Fifth Circuit did not require such a finding, and it is unclear whether such a finding is necessary. See e.g., In re Zinke, 97 B.R. 155 (E.D.N.Y.1989) (provision of Bankruptcy Code insulating authorized sale from appeal unless authorization of sale is stayed pending appeal did not require bankruptcy court to make explicit finding of "good faith" prior to authorization of sale). In Matter of Andy Frain Services, Inc., 798 F.2d 1113 (7th Cir.1986), the appellate court itself made the determination of whether the purchaser was in good faith.
Appellant argues that, "[T]he record is replete with the Committee's objections that this was a contrived emergency sale and that adequate information concerning the transactions had not been given to creditors."[3] However, Appellant does not cite to a single instance where it made an objection. Significantly, Appellant's Limited Objection to Debtors' Motion for Order, filed December 12, 1988, is devoid of any allegations of bad faith on the part of NCNB Texas.
Further, even if Appellant had put its current objections properly before the Bankruptcy Court, they are not of the nature that would put NCNB Texas' good faith into issue as "good faith" is meant in § 363(m). The type of conduct of a purchaser which would destroy its good faith status in § 363(m) involves fraud, collusion between the purchaser and other bidders of the trustee, or an attempt to take grossly unfair advantage of other bidders. Matter of Bleaufontaine, Inc., 634 F.2d at 1388, n. 7. See also In re Rock Industries Machinery Corp., 572 F.2d 1195 (7th Cir.1978) (requirement that purchaser act in good faith speaks to integrity of his conduct in course of sale proceedings); Matter of Andy Frain Services, Inc., 798 F.2d 1113 (7th Cir.1986). Rather, the conduct of NCNB Texas to which Appellant now objects and alleges indicates lack of good faith, occurred before the sale of the assets and does not include fraud, collusion, or an attempt to take grossly unfair advantage of other bidders.
Therefore, if in fact a finding of the purchaser's good faith is required for the sale to be insulated from reversal pursuant to § 363(m), the burden is on the party contesting the sale on the basis of lack of good faith to properly put the issue before the Bankruptcy Court for ruling. Appellant failed to do so, and cannot be *943 heard on appeal to complain about a lack of finding by the Bankruptcy Court below.
Second, Appellant argues that even if the sale of assets is not subject to reversal in the absence of a stay pending appeal, the "corporate cleanup"[4] and compromise of claims authorized by the December 16, 1988, order are not protected by § 363(m). This argument must also fail. The compromise of the Appellees' claims against NCNB Texas and the "corporate cleanup" were terms of the Purchase Agreement of which the Bankruptcy Court approved. The sale of the Services Companies cannot now be separated from the terms on which the sale was made.
The court in Matter of Andy Frain Services, Inc., 798 F.2d 1113 (7th Cir.1986) was presented with a similar argument. In that case, a term included in the purchase agreement for the debtor's assets was the compromise of various claims among interrelated entities. The appellant failed to obtain a stay of the order authorizing the sale pending appeal. On appeal, the appellant argued that even if the sale of assets was moot, certain elements of the sale agreement were still fair game on appeal. In rejecting the appellant's argument, the court stated:
"If a party could wilfully ignore the law [by not seeking a stay pending appeal] . . . and then upset a sale to a good faith purchaser by attacking specific terms of the sale agreement, section 363(m) would be meaningless. Given the important role section 363(m) plays in assuring a good faith purchaser at a bankruptcy sale good title, we find that the sale, including all of its terms, cannot be challenged on appeal when the appellant fails to obtain a stay.
Matter of Andy Frain Services, Inc., 798 F.2d at 1127.
This Court therefore concludes that the "corporate cleanup" and the compromise of claims which were included in the Purchase Agreement and approved by the Bankruptcy Court as part of the Purchase Agreement cannot, on appeal, be separated from the sale of the Services Companies, especially in light of the fact that Appellant failed to obtain a stay of the Bankruptcy Court's order pending appeal.
It is therefore ORDERED that the appeal of the Bankruptcy Court's order dated December 16, 1988, is dismissed as moot.
NOTES
[1] At the hearing on Appellees' motion for order approving the sale of assets, counsel for Appellant analogized the Appellees' position on the sale of assets to the January, 1973 issue of National Lampoon Magazine. The cover of that issue showed a white dog with a revolver pointed at its head, and the caption read, "If you don't buy this magazine, we'll kill this dog."
[2] Bankruptcy Rule 9014 makes Rule 62 of the Federal Rules of Civil Procedure applicable to "Contested Matters" and therefore this to case. Rule 62 stays execution upon a judgment until the expiration of 10 days after its entry. Bankruptcy Rule 9001(7) defines "judgment" as any appealable order. The parties do not contest that the Bankruptcy Order of December 16, 1988 is appealable, and this Court so holds. See Matter of Greene County Hospital, 835 F.2d 589 (5th Cir.1988). Therefore, the Bankruptcy Court's order of December 16, 1988, was automatically stayed for ten days following its entry. See In re Sun Valley Ranches, Inc., 823 F.2d 1373 (9th Cir.1987); see also In re de Jesus Saez, 721 F.2d 848 (1st Cir.1983). However, after denying Appellant's motion for stay pending appeal, the Bankruptcy Court ordered that the December 16, 1988, order only be stayed until noon on December 19, 1988, thereby shortening the automatic stay. Although no party is contesting the Bankruptcy Court's ability to do so, this Court is of the opinion that such action is within the discretion of the Bankruptcy Court, and because the court found that the value of the Services Companies was quickly diminishing and in danger of disappearing completely, the shortening of the automatic stay with notice to the parties was appropriate under the circumstances and not an abuse of discretion.
[3] Reply Brief of Appellant The Official Committee of Senior Unsecured Creditors of First RepublicBank Corporation, filed February 27, 1989, at 7. The court therefore allowed a "corporate cleanup" of Appellees' records.
[4] The Bankruptcy Court found that, "Various documents, instruments and records regarding the organization, capitalization, corporate existence and activities of the Services Companies and their predecessor corporations are either missing, incomplete or were not issued or executed." Transcript of Ruling on December 16, 1988, p. 11, 1., 4-8. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1919158/ | 106 B.R. 758 (1989)
In re CLUB CANDLEWOOD ASSOCIATES, L.P., a Georgia Limited Partnership, Debtor.
CLUB CANDLEWOOD ASSOCIATES, L.P., Appellant,
v.
HOME FEDERAL SAVINGS AND LOAN ASSOCIATION, Appellee.
Civ. A. No. 1-89-CV-987-JOF.
United States District Court, N.D. Georgia.
October 4, 1989.
James C. Morton, Bondurant, Mixson & Elmore, Atlanta, Ga., for Home Fed S & L.
John A. Christy, Schreeder, Wheeler & Flint, Atlanta, Ga., for debtor.
ORDER
FORRESTER, District Judge.
This matter is before the court on Home Federal's motion to dismiss this bankruptcy appeal. The bankruptcy court dismissed the case in an order dated March 24, 1989, 106 B.R. 752, and entered on the docket March 30, 1989, because it found the debtor filed the petition for bankruptcy in bad faith. The debtor never sought a stay pending appeal, and on April 4, 1989, the debtor's sole asset, an apartment complex, was sold at foreclosure. The asset was purchased by Home Federal, who held a security interest in the property. Home Federal moves to dismiss the appeal as moot because of this sale.
Settled law in the Eleventh Circuit is that when the bankruptcy court lifts the stay, the debtor does not get a stay pending appeal, and the property is foreclosed on, the appeal is moot. Sewanee Land, Coal & Cattle, Inc. v. Lamb, 735 F.2d 1294 (11th Cir.1984); Lashley v. First National Bank of Live Oak, 825 F.2d 362 (11th Cir.1987), cert. denied, 484 U.S. 1075, 108 S. Ct. 1051, 98 L. Ed. 2d 1013 (1988). The debtor contends that this doctrine does not apply in this case because the case was dismissed rather than the stay being lifted. There is no ground for distinguishing this case from those decided by the Eleventh Circuit because this case was dismissed. The court in Lashley affirmed the district court finding of mootness after the case had been dismissed and the property was foreclosed on. There is no principled difference in effect between lifting a stay and dismissing the case. Dismissal must be effective to lift the stay.
Also, the Lashley court found that the bankruptcy court had no authority to impose the stay retroactively after the foreclosure. A decision by this court that this appeal is not moot would be as if the court were retroactively imposing a stay. This, it has no authority to do. Lashley, 825 F.2d at 362.
The debtor points to an order by Judge Moye of this court, Northwest Place, Ltd. v. Cooper, 108 B.R. 809 (N.D.Ga.1988). Judge Moye in that case found that the appeal was not moot. However, the bankruptcy court there imposed conditions on the sale of property to preserve the appeal and prevent mootness. Therefore, Northwest is distinguishable from the case at bar.
*759 As the debtor never sought a stay pending appeal and the property has been foreclosed on, this appeal is moot. It is hereby DISMISSED.
SO ORDERED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1919036/ | 106 B.R. 113 (1989)
William Roger GRIBBONS, et al., Appellants,
v.
FEDERAL LAND BANK OF LOUISVILLE, et al., Appellees.
Civ. A. No. C 89-0229-L(A).
United States District Court, W.D. Kentucky, at Louisville.
September 25, 1989.
Theodore H. Lavit, Lebanon, Ky., Merritt S. Deitz, Jr., Deitz, Fridy and Freeburger, Sebree, Ky., for appellants.
Lisa Koch Bryant, Thomas W. Volk, Louisville, Ky., for Fed. Land Bank.
Joseph H. Mattingly III, Lebanon, Ky., for Farmers Nat. Bank.
E. Gregory Goatley, Springfield, Ky., for Peoples Bank.
MEMORANDUM OPINION
ALLEN, Senior District Judge.
This case presents the appeal of debtors William and Loreda Gribbons ("the Gribbons") from the decision of the United States Bankruptcy Court refusing to confirm their plan and dismissing their Chapter 12 petition. The matter is now before *114 the Court on motion of appellee creditors ("the Banks") to dismiss the appeal, on the Gribbons' motion for oral argument, and on the briefs of the parties on the merits of the appeal.
On February 16, 1989, the Gribbons filed Notice of Appeal from the February 7 Bankruptcy Court order. On February 28, the Gribbons filed their designation of record, stating their intent to pursue two specific issues on appeal. The Banks seeks dismissal of this appeal on grounds that the Gribbons have failed to brief the two cited issues, and that the Gribbons have attempted instead to brief two issues that were not properly preserved for review.
It is clear that the substance of this appeal concerns the proper time for applying the "liquidation test" that appears at 11 U.S.C. Sec. 1225(a)(4) as a prerequisite to confirmation of a Chapter 12 plan:
[T]he value, as of the effective date of the plan, of property to be distributed under the plan on account of each allowed unsecured claim is not less than the amount that would be paid on such claim if the estate of the debtor were liquidated under chapter 7 of this title on such date[.].
The two issues stated in the February 28 declaration were as follows:
1. Whether the failure of the bankruptcy judge, under 11 U.S.C. Section 1224, to conduct a hearing within 45 days after the filing of the plan was error and prejudicial to debtors;
2. Whether the liquidation test of 11 U.S.C. Section 1225(a)(4) was erroneously construed by the bankruptcy judge as having to be met on the date of the confirmation hearing, rather [than] on the date of submission or filing of the plan as amended.
As to the first issue, we note that the record reflects no insistence on a prompt confirmation hearing, and no argument to the Bankruptcy Court that there was legal error in the failure to conduct a hearing within 45 days after the filing of the plan (or within 135 days after the filing of the petition). The record does reflect five continuances of the hearing, one due to court conflicts, one on the Banks' motion, and three on the Gribbons' motion. Such circumstances are not supportive of any contention that there was legal error in the timing of the confirmation hearing per se.
With this conclusion, the Gribbons appear to have no direct dispute. They contend, however, that while they do not seek recognition of an absolute obligation to hold a hearing within 45 days after the filing of the amended plan, they are entitled to have the liquidation test applied as of the date the confirmation hearing should have been held.
As to the second issue, the record reflects an attempt by the Gribbons to apply the liquidation test as of the date of filing the amended plan; that attempt was rejected by the Bankruptcy Court. The record does not, however, reflect any contention by the Gribbons that the liquidation test should be applied as of the date of the filing of the Chapter 12 petition, which is the argument presented to this Court.
These circumstances make determination of the motion to dismiss a close question. We are of the opinion, however, that the motion should be overruled insofar as it seeks dismissal solely on the lack of complete consonance between the stated issues and those actually briefed. With respect to the second issue quoted above, it does not appear that the Banks would suffer any prejudice as a result of consideration of the appeal as presented. Furthermore, it is quite clear from the transcript of the confirmation hearing that the Bankruptcy Court was committed to applying the liquidation test as of the date of the confirmation hearing, and the essence of the arguments presented on this appeal is whether that decision was legally in error.
After examining the arguments of the parties and the relevant authorities, we are of the opinion that oral argument would not be of significance assistance to our determination of this appeal. The motion for oral argument will be overruled.
The Gribbons urge this Court to adopt the reasoning of In re Nielsen, 86 B.R. 177 (Bkrtcy.E.D.Mo.1988), which ruled that the *115 liquidation test should be applied as of the date of the petition. The Banks argue that the appropriate date of application of the test is the date on which the plan could be put into action, a date that could not precede the confirmation hearing. In re Perdue, 95 B.R. 475 (Bkrtcy.W.D.Ky.1988).
In the case of In re Musil, 99 B.R. 448 (Bkrtcy.D.Kan.1988), the court examined this question, and pointed out that the Nielsen court's conclusion was based on a misreading of Eighth Circuit authority. See also, Matter of Bluridg Farms, Inc., 93 B.R. 648 (Bkrtcy.S.D.Iowa 1988). The Musil court also observes that interpreting "effective date of the plan" as the date of the petition would create disharmony within Secs. 1129, 1225 and 1325, and with other sections of the Code.
In the case of In re Milleson, 83 B.R. 696 (Bkrtcy.D.Neb.1988), the court held that "effective date" could not occur earlier than the entry of the confirmation order, since the plan cannot be effective until it is approved. The court reasoned that while "effective date" is not defined in Section 1225, Section 1227 provides that the "effect" of confirmation is to bind the various parties.
The Gribbons' argument is based in part on their contention that Chapter 12 should be interpreted differently from Chapters 11 and 13 because of the unique nature of farming income. In United States v. Arnold, 878 F.2d 925, 927 (6th Cir.1989), however, the court held that identical provisions appearing in Chapters 12 and 13 should be similarly construed. It may be observed that a provision identical to that appearing in Sec. 1225(a)(4) appears in Section 1325. If a distinction is to be made between the nature of the relief available to the family farmer and that available to the wage-earner, it must be made by Congress, and it must appear in the statutory language.
One distinction that does appear between the statutory language of Chapter 12 and that of Chapter 13 is the directive that family farm petitions be handled in a very expedited manner. 11 U.S.C. Sec. 1224 requires that a plan be filed within 90 days of the filing of the petition, and that the confirmation hearing be concluded within 45 days thereafter. This provision serves as the basis of the Gribbons' contention that the latest date on which the liquidation test could properly be applied is 135 days following the filing of the petition.
In the circumstances of this case, however, this issue has not been preserved for appellate review. The Gribbons filed a proposed plan on January 12, 1988, within the statutory ninety day period. A pre-confirmation hearing was promptly scheduled, but was twice continued at the Gribbons' request. When the hearing was finally held on April 13, the Court ordered a modified plan and set a May 16 confirmation hearing. That hearing was continued three times, once on the court's own motion, once on the Banks' request, and once on the Gribbons' request. The confirmation hearing was held on September 6, 1988, at which time the court allowed the Gribbons to file a modified plan. The confirmation hearing was finally held on January 31, 1989. There is no suggestion whatsoever that the Gribbons sought an early hearing date, that they ever intimated that they could be prejudiced in any fashion by failure to hold an early hearing, or hinted that the liquidation analysis should have anything to do with the statutory hearing schedule. The Gribbons have clearly waived any argument to this effect.
An order affirming the judgment of the United States Bankruptcy Court has this day entered.
ORDER OF AFFIRMANCE
This matter having come before the Court on appeal from the United States Bankruptcy Court, and the Court having entered its memorandum opinion and being advised,
IT IS ORDERED that the motion of appellees to dismiss the appeal is overruled.
IT IS FURTHER ORDERED that the motion of the appellants for oral argument is overruled.
*116 IT IS FURTHER ORDERED that the judgment of the United States Bankruptcy Court is affirmed.
This is a final and appealable order and there is no good cause for delay. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1958580/ | 433 B.R. 671 (2010)
In re NORTHERN MICHIGAN FRUIT COMPANY, INC., Debtor.
Thomas A. Hails Company, Inc., Creditor-Appellant,
v.
Colleen Olson, Movant-Appellee.
No. 1:09-cv-1127.
United States District Court, W.D. Michigan, Southern Division.
July 15, 2010.
*672 Michael P. Corcoran, Traverse City, MI, for Debtor.
OPINION
JANET T. NEFF, District Judge.
Pursuant to 28 U.S.C. § 158(a), Creditor Thomas A. Hails Company, Inc. appeals from an October 15, 2009 order of the bankruptcy court, the Honorable Scott W. Dales, granting Summary Judgment to Colleen Olson, the Chapter 7 Trustee of the bankruptcy estate of the Debtor, Northern Michigan Fruit Company, Inc. The Court finds that the relevant facts and arguments are adequately presented in the parties' briefs and that oral argument would not aid the decisional process. For *673 the following reasons, the Court affirms the decision of the bankruptcy court.
I. BACKGROUND
In September 2002, the Debtor, a fruit processing company, filed a petition for bankruptcy protection under Chapter 11 of the Bankruptcy Code, 11 U.S.C. § 1101 et seq. The case was converted to a case under Chapter 7 on February 18, 2004, see 11 U.S.C. § 1112(a), and Olson was appointed as Trustee. On April 14, 2005, the Trustee filed a Notice of Possible Dividends to Creditors, indicating that "[i]n order to share in this distribution, a creditor must file a proof of claim ... within 90 days of the date of service."
On July 13, 2005, within the ninety days allotted, the Creditor, a food broker, filed a Proof of Claim seeking an unsecured priority claim totaling $223,699.68 pursuant to the Perishable Agricultural Commodities Act (PACA), 7 U.S.C. § 499a et seq. The Creditor contended that it made an agreement with the Debtor in 1990 that the Debtor would pay it brokerage fees or commissions "at least once a year, generally after the cherry pack, and ... the Hails Company would carry it as an accounts receivable," although the Creditor did not produce any written documentation of the agreement (10/13/2009 Mot. Hr'g Tr. at 14-17; see also 10/12/2009 Aff., Thomas A. Hails, ¶¶ 12-13).
On March 24, 2008, the Trustee filed a Notice of Trustee's Report and Final Account to the Creditors. On April 22, 2008, the Creditor filed an Objection to the Notice, asserting that the Trustee had no basis for treating its claim as a general, unsecured claim. The Trustee, however, asserted that the majority of the funds available for distribution consisted of the Trustee's recoveries from entities to whom the Debtor had made pre-petition payments. The Trustee contended that these funds could not be impressed with a PACA statutory trust. The Creditor disputed the Trustee's position, claiming that a PACA trust follows the payments into the bankruptcy estate.
In October 2008, the Trustee requested the Creditor to "produce a copy of your written notice of intent to preserve the PACA trust or your claim to the PACA trust that you sent to the commission merchant, dealer or broker pursuant to 7 U.S.C. § 499e(c)(3)." The Creditor did not produce a written notice of intent but "objected" to the request "in that the same seeks to impose a statutory burden that does not exist."
At a pretrial conference on January 20, 2009, the parties and the bankruptcy court agreed that resolution of the dispute would benefit from briefing and decision on certain pivotal issues in the case. The bankruptcy court required the parties to first file dispositive motions on what amounts were currently held by the bankruptcy estate subject to the Creditor's PACA claim, leaving the question of whether the Creditor had properly preserved its PACA claim for a decision at a later date (5/21/2009 Mot. Hr'g Tr. at 6, 36).
The parties filed their cross-motions in March 2009 on the first issue, and the bankruptcy court held a hearing on May 21, 2009. After hearing argument, the bankruptcy court informed the Creditor that regarding "[t]he property that came in by virtue of the creation of the estate at the instant [ ] the petition was filed, I think you've got your floating trust argument there. The property that came in under 541(a)(3), which is post-petition property, I think you're going to have to make the tracing argument because, by definition, it came in from someone else" (5/21/2009 Mot. Hr'g Tr. at 39). According to the bankruptcy court, the Creditor bears "the burden of tracing its PACA trust entitlement into the hands of the defendant's *674 preference or otherwise from whom the trustee recovered postpetition" (id. at 38). On May 28, 2009, the bankruptcy court issued a "Memorandum of Decision and Order Regarding Cross-Motions for Summary Judgment in Contested Matter" in which the bankruptcy court ruled that the funds in the estate "may be distributed to the estate's creditors unless the PACA Claimant establishes, by a preponderance of the evidence, that the funds are traceable back to the Debtor and, while in the Debtor's hands, remained subject to the floating trust." The bankruptcy court indicated that "[t]his will be determined after the court hears evidence."
On October 1, 2009, the Trustee filed a "Motion for Summary Judgment Regarding the Creditor's Failure to Provide Written Notice of Intent to Preserve its PACA Claim." The bankruptcy court heard the motion on October 13, 2009. The Trustee argued that a creditor seeking protection under PACA must "strictly" comply with the statutory notice requirements (10/13/2009 Mot. Hr'g Tr. at 5). The Trustee argued that the Creditor had not strictly complied with the notice requirements where (1) the Creditor concedes there were no payment terms in place with regard to this brokerage; and (2) even if there is a letter between the Creditor and Debtor referencing their brokerage relationship, the letter does not meet the notice requirements of the statute or the applicable federal regulation (id. at 31, 33).
The Creditor argued that "substantial" compliance with the statutory notice requirements is sufficient, that the "trend" in the case law was away from strict compliance and toward a substantial compliance approach (10/13/2009 Mot. Hr'g Tr. at 13, 27). The Creditor opined that "unless ... you take this strict compliance stand," the notice issue could not be resolved without testimony about the parties' long brokerage relationship in the fruit industry and their purported 1990 agreement (id. at 16, 27). Pointing to a February 12, 2001 letter the Creditor sent the Debtor after the Debtor removed the brokerage fees due from its current liabilities, the Creditor argued that it was "disingenuous" to "sit here and argue that the parties didn't know what transaction they were talking about, that letter [was] sufficiently detailed to provide Mr. Weaver and Northern Michigan Fruit the intent that this was, `hey, my PACA brokerage needs to be paid or given some protection per our agreement'" (id. at 11, 34-35).
The bankruptcy court indicated to counsel for the Creditor that the court had searched the record "in vain" for the February 12, 2001 letter the Creditor referenced in its response to the Trustee's motion for summary judgment (10/13/2009 Mot. Hr'g Tr. at 28). The Creditor agreed that the letter was not attached to either its discovery responses or its response to the Trustee's motion (id.). The Creditor indicated that it had instead supplied the bankruptcy court with the letter as an exhibit in the trial binders it delivered to the court (id.) The trial exhibits, which were not electronically filed, were not then available to the bankruptcy court, so the Creditor attached the letter to an e-mail to the court during the motion hearing (id. at 32).
The bankruptcy court therefore reviewed the letter for the first time during the motion hearing. After its review, the bankruptcy court indicated on the record that the letter "makes no mention of PACA whatsoever" and "makes no mention of that letter being an intent to preserve the PACA trust benefits" (10/13/2009 Mot. Hr'g Tr. at 33). The bankruptcy court further noted that the letter "doesn't contain any of the specific information required by not only section ... 499e(c)(3) but it also doesn't contain any of the specific *675 information that is required under 7 C.F.R. § 46.46(f)" (id.).
The bankruptcy court orally ruled on the summary judgment motion before it, framing the issue as whether "there is a genuine issue of material fact concerning whether the creditor preserved its statutory trust rights under ... PACA" (10/13/2009 Mot. Hr'g Tr. at 40). The bankruptcy court pointed out that the Creditor's "failure to preserve the PACA trust rights, if established, would render immaterial every other factual dispute, including whether the Creditor could trace the funds from the debtors, through the preference defendants, and back to the estate" (id. at 42). The bankruptcy court indicated that the Creditor's priority distribution depended on "whether the Creditor protected itself by complying with 7 U.S.C., section 499e(c)(3)" (id. at 43). The bankruptcy court concluded that the Creditor had not so protected itself, for the following reasons:
[I]n view of the statute of frauds that's imbedded in section 499e, the Creditor's response fails for two reasons. First, theas I indicated, the February 12th letter does not satisfy the statute's requirement as a written notice of intent to preserve PACA rights. And, second, assuming the February 12 letter would qualify under section 499e(c)(3), the court cannot determine whether the Creditor sent it within 30 days after the payment date that the Creditor and Debtor expressly agreed to in writing before entering into the transaction because, first of all, the Creditor did not supply any such agreement in response to the motion. And, secondly, it appears from argument today that there really was no payment deadline. It was a rather informal accommodation to assist the parties with their cash flow. It's quite possible that the Creditor is relying on an informal arrangement in which it would forebear from demanding payments as long as the Debtor listed the obligations among its current liabilities, and that this arrangement is "consistent with the creditor's practice of not requiring the debtor to abide by any specific terms of payment." And that is a quote from the Overton Distributors case, 340 F.3d at 367. There is, of course, nothing improper about such an arrangement, but it does not comply with PACA's requirements for preserving trust benefits, requirements that depend upon substantial compliance with the statute of frauds that Congress included in the trust preservation portion of the statute....
In response to the Trustee's well supported motion, the Creditor offered no evidence of any written notice of intent to preserve its PACA trust benefits, and no evidence of any written agreement that would make the February 12th, 2001 letter satisfactory. There is no genuine issue of any material fact concerning whether the creditor is PACA qualified and therefore entitled to priority in distribution. Clearly the Creditor is not so entitled....
Under these circumstances, the Court will enter an order sustaining the Trustee's objection to claim and authorizing her to treat the Creditor's claim as a general unsecured claim not entitled to priority treatment.
10/13/2009 Mot. Hr'g Tr. at 47-49. The bankruptcy court effectuated its ruling on October 15, 2009, issuing an order granting the Trustee summary judgment "for the reasons set forth on the record."
On November 4, 2009, the Creditor instituted the appeal in this Court, challenging the bankruptcy court's resolution of the notice issue as well as its earlier ruling that the Creditor bears the burden of tracing the funds in order to show that the funds are impressed with a PACA trust. *676 The parties stipulated to a stay pending the proceedings in this Court.
II. ANALYSIS
The PACA provides in pertinent part that "[p]erishable agricultural commodities received by a commission merchant, dealer, or broker in all transactions, and all inventories of food or other products derived from perishable agricultural commodities, and any receivables or proceeds from the sale of such commodities or products, shall be held by such commission merchant, dealer, or broker in trust for the benefit of all unpaid suppliers or sellers of such commodities or agents involved in the transaction, until full payment of the sums owing in connection with such transactions has been received by such unpaid suppliers, sellers, or agents." 7 U.S.C. § 499e(c)(2).
The Act further provides that "[t]he unpaid supplier, seller, or agent shall lose the benefits of such trust unless such person has given written notice of intent to preserve the benefits of the trust to the commission merchant, dealer, or broker within thirty calendar days (i) after expiration of the time prescribed by which payment must be made, as set forth in regulations issued by the Secretary, (ii) after expiration of such other time by which payment must be made, as the parties have expressly agreed to in writing before entering into the transaction, or (iii) after the time the supplier, seller, or agent has received notice that the payment instrument promptly presented for payment has been dishonored." Id. (emphases added). "The written notice to the commission merchant, dealer, or broker shall set forth information in sufficient detail to identify the transaction subject to the trust." Id. "Under all circumstances, the seller must give the buyer written notice of the seller's intention to preserve its trust benefits." Overton Distributors, Inc. v. Heritage Bank, 340 F.3d 361, 365 (6th Cir.2003).
"The statute and the federal regulations expressly lay out the steps that a produce seller must take to come within PACA's protection." Overton, 340 F.3d at 365. The pertinent federal regulation is 7 C.F.R. § 46.46(f)(1), which delineates in the following manner the amount of detail necessary for inclusion in a notice of intent to preserve trust benefits:
(f) Filing notice of intent to preserve trust benefits
(1) Notice of intent to preserve benefits under the trust must be in writing, must include the statement that it is a notice of intent to preserve trust benefits and must include information which establishes for each shipment:
(i) The names and addresses of the trust beneficiary, seller-supplier, commission merchant, or agent and the debtor, as applicable,
(ii) The date of the transaction, commodity, invoice price, and terms of payment (if appropriate),
(iii) The date of receipt of notice that a payment instrument has been dishonored (if appropriate), and
(iv) The amount past due and unpaid.
At issue here is whether the bankruptcy court erred in holding that the Creditor's written notice of intent to preserve its claim to any PACA trust assets that the bankruptcy estate may be holding did not meet the statutory notice requirements. "This Court must review a bankruptcy court's findings of fact for clear error and the bankruptcy court's conclusions of law de novo." WesBanco Bank Barnesville v. Rafoth (In re Baker & Getty Fin. Serv., Inc.), 106 F.3d 1255, 1259 (6th Cir.1997). "On an appeal the district court *677... may affirm, modify, or reverse a bankruptcy judge's judgment, order, or decree or remand with instructions for further proceedings." FED. R. BANK. P. 8013. "Findings of fact, whether based on oral or documentary evidence, shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the bankruptcy court to judge the credibility of the witnesses." Id.
Summary judgment is proper where no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law. FED. R. CIV. P. 56(c); FED. R. BANKR. P. 9014. In considering such a motion, a court must construe all reasonable factual inferences in favor of the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S. Ct. 1348, 89 L. Ed. 2d 538 (1986). The central issue is "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986).
The parties do not dispute that a PACA trust beneficiary must give written notice of intent to preserve a trust (Dkt 8 at 31; Dkt 10 at 20). The parties also do not dispute that the written notice must (1) include sufficient detail to identify the transaction subject to the trust; and (2) be delivered within 30 days, the 30-day period being measured from one of three deadlines provided in the statute, 7 U.S.C. § 499e(c)(3)(i)-(iii) (Dkt 8 at 31; Dkt 10 at 18-20).[1]
The parties agree that on the facts of this case, the 30-day period is not measured from either "the time ... set forth in regulations," 7 U.S.C. § 499e(c)(3)(i); or "the time the supplier, seller, or agent has received notice that the payment instrument promptly presented for payment has been dishonored," 7 U.S.C. § 499e(c)(3)(iii) (Dkt 8 at 31; Dkt 10 at 18). The only basis upon which the Creditor is claiming it preserved its trust protections is 7 U.S.C. § 499e(c)(3)(ii), which provides for delivery of a notice of intent within 30 days "after expiration of such other time by which payment must be made, as the parties have expressly agreed to in writing before entering into the transaction" (Dkt 8 at 31; Dkt 10 at 18).
The writing upon which the Creditor relies is the February 12, 2001 letter from the Creditor to the Debtor, sent one week after the Debtor changed the terms of their agreement (Dkt 8 at 32). Unfortunately, the Creditor did not electronically file the letter after the motion hearing in bankruptcy court so that the letter would be a part of the bankruptcy court record subsequently made available to this Court, nor did the Creditor attach the letter to its appellant's brief filed in this Court. As with its omission at the bankruptcy court level, the Creditor failed to provide the document that forms the crux of its notice argument.
In any event, the existence of the letter is not in dispute, nor is there any dispute over the bankruptcy court's factual representations about the letter. The Creditor does not contend that the letter includes a statement that the letter is a notice of intent to preserve trust benefits. See 7 C.F.R. § 46.46(f)(1). Second, although there is no dispute that the letter demands *678 payment, the Creditor does not contend that the letter otherwise identifies the transaction subject to the trust with the specificity required by the applicable regulation, 7 C.F.R. § 46.46(f)(1)(i)-(iv). Last, as the Creditor supplied no memorialization of the brokerage agreement between the Creditor and Debtor, there is no basis upon which to properly conclude under 7 U.S.C. § 499e(c)(3)(ii) that the February 12, 2001 letter was sent within 30 days after a time "expressly agreed to in writing" by the parties.
To avoid the consequences of its failure to comply with PACA's notice requirements, the Creditor argues on appeal, as it argued in bankruptcy court, that a substantial compliance approach to the statutory notice requirements compels a different result, specifically, that the Creditor's purported notice should permit it to survive the Trustee's summary judgment motion and have its requested "day in court." The Creditor asserts that "[c]ourts are split on whether there must be strict compliance with P.A.C.A. preservation notice requirements, or whether `substantial compliance' is enough" (Dkt 8 at 32). The Creditor opines that the bankruptcy court clearly erred in its "baseless" and "Draconian" reliance on "some `format' that the notice is required to have" (id. at 34-35). The Creditor emphasizes that the parties "intended the written notice to be notice" and that the Debtor "understood the written notice to protect the P.A.C.A. brokerage due" (id. at 34). The Creditor requests this Court reverse the bankruptcy court's grant of summary judgment to the Trustee and remand the matter to the bankruptcy court for the Creditor to provide testimony at trial in support of its position that the Debtor accepted the Creditor's letter as a preservation of PACA trust protections (id. at 36).
The Sixth Circuit Court of Appeals considered and rejected a similar substantial-compliance argument made in Overton, where the creditor argued that it should be permitted to avoid the consequences of its failure to comply with PACA's requirements "due to its good faith effort to substantially comply with PACA." 340 F.3d at 366. The Sixth Circuit determined that the statute "imposes strict disclosure obligations" and ultimately held that the creditor had failed to preserve its trust benefits under PACA where the creditor changed the terms appearing on its invoices, thereby extending the payment term outside both that provided for in the parties' written agreement and PACA's 30-day maximum allowable payment term. Id. at 367. Indeed, the Sixth Circuit reached this holding even though the payment terms included on the relevant invoices "had the effect of requiring payment within thirty days on shipments." Id.
As the Trustee argues in its appellee brief, the February 12, 2001 letter on which the Creditor places its after-the-fact reliance in this case is an even weaker basis for a substantial-compliance approach than the facts in Overton (Dkt 10 at 17-24). As previously stated, the February 12, 2001 letter does not include a statement that the letter is a notice of intent to preserve PACA trust benefits, does not identify the transaction subject to a PACA trust, and was not delivered within 30 days of any written brokerage agreement between the Creditor and Debtor. The Creditor has simply not demonstrated any factual or legal error in the bankruptcy court's decision to grant the Trustee summary judgment in this case. Rather, the Court holds that the bankruptcy court properly applied the requirements set forth in the statute and the federal regulation and properly found that the Creditor did not take the steps necessary to preserve *679 its rights and come within PACA's protection.
The remaining issue the Creditor seeks to present on appeal is its challenge to the bankruptcy court's ruling that the Creditor bears the burden of tracing the purported PACA trust funds. However, as the bankruptcy court recognized, the tracing issue is irrelevant, given that the Creditor's claim shall not be treated as a priority PACA claim but as a general, unsecured claim. This Court is not empowered to give an opinion on a moot question or declare a rule of law that cannot affect the matter in issue in the case before it. See Alabama Power Co. v. Clean Earth Ky., LLC (In re Clean Earth Ky., LLC), 312 Fed.Appx. 718, 719 (6th Cir.2008) (citing Deakins v. Monaghan, 484 U.S. 193, 199, 108 S. Ct. 523, 98 L. Ed. 2d 529 (1988)).
III. CONCLUSION
For the foregoing reasons, the Court affirms the bankruptcy court's decision to grant the Trustee summary judgment. An Order consistent with this Opinion will be entered.
ORDER
In accordance with the Opinion entered this date:
IT IS HEREBY ORDERED that the decision of the bankruptcy court, "Order Granting Trustee's Motion for Summary Judgment regarding the Creditor's Failure to Provide Written Notice of Intent to Preserve its PACA Claim," issued October 15, 2009, is AFFIRMED.
NOTES
[1] In addition to the method of preserving the benefits of the trust specified in paragraph (3) of the statute, paragraph 4 provides that a licensee "may use ordinary and usual billing or invoice statements to provide notice of the licensee's intent to preserve the trust." 7 U.S.C. § 499e(c)(4). The Creditor conceded that its invoices did not contain this required language (10/13/2009 Mot. Hr'g Tr. at 5, 9, 26, 42). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1959636/ | 631 F. Supp. 2d 564 (2009)
Lisa J. STENGLE, Plaintiff,
v.
OFFICE OF DISPUTE RESOLUTION, et al, Defendants.
Civil No. 06-1913.
United States District Court, M.D. Pennsylvania.
April 27, 2009.
*566 Jana R. Barnett, Wyomissing, PA, for Plaintiff.
Brooke E.D. Say, Stephen S. Russell, Stock and Leader, York, PA, Sharon M. O'Donnell, Marshall Dennehey Warner Coleman and Goggin, Sarah C. Yerger, Office of Attorney General, Harrisburg, PA, for Defendants.
MEMORANDUM
JOHN E. JONES III, District Judge.
THE BACKGROUND OF THIS MEMORANDUM IS AS FOLLOWS:
Pending before this Court are two Motions for Summary Judgment. (Rec. Docs. 88, 90). For the reasons that follow, the Motions will be granted.
PROCEDURAL HISTORY:
On September 27, 2006, Plaintiff Linda Stengle ("Plaintiff" or "Stengle") initiated the instant action by filing her first Complaint. (Rec. Doc. 1). On October 31, 2006, prior to any responsive pleadings, Plaintiff filed an Amended Complaint. (Rec. Doc. 12). On March 21, 2007, 479 F. Supp. 2d 472, we issued a Memorandum and Order (Rec. Doc. 30) granting in part and denying in part a Motion to Dismiss the Amended Complaint (Rec. Doc. 21) that had been filed by two Defendants to this action, the Pennsylvania Department of Education ("PDE") and Linda O. Rhen ("Rhen").[1]
On July 13, 2007, this Court granted Plaintiff leave to file a Second Amended Complaint. (Rec. Doc. 41). Plaintiff's Second Amended Complaint named six (6) additional Defendants.[2] On October 10, *567 2008, a Motion for Summary Judgments was filed by Defendants PDE, Helling, Castlebuono, Fullerton, Tierney, Tommasini, and Rhen (two or more referred to collectively as "PDE Defendants"). (Rec. Doc. 88) (the "PDE Motion"). On the same day, a Motion for Summary Judgment was filed on behalf of Defendants ODR, LLIU, and Smith (two or more referred to collectively as "ODR Defendants"). (Rec. Doc. 90) (the "ODR Motion"). Having been fully briefed, these Motions are ripe for disposition.
STANDARD OF REVIEW:
Summary judgment is appropriate if "there is no genuine issue as to any material fact and ... the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c); see also Turner v. Schering-Plough Corp., 901 F.2d 335, 340 (3d Cir. 1990). The party moving for summary judgment bears the burden of showing "there is no genuine issue for trial." Young v. Quinlan, 960 F.2d 351, 357 (3d Cir.1992). Summary judgment should not be granted when there is a disagreement about the facts or the proper inferences that a fact finder could draw from them. See Peterson v. Lehigh Valley Dist. Council, 676 F.2d 81, 84 (3d Cir.1982).
Initially, the moving party has the burden of demonstrating the absence of a genuine issue of material fact. See Celotex Corporation v. Catrett, 477 U.S. 317, 323, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986). This may be met by the moving party pointing out to the court that there is an absence of evidence to support an essential element as to which the non-moving party will bear the burden of proof at trial. See id. at 325, 106 S. Ct. 2548.
Rule 56 provides that, where such a motion is made and properly supported, the non-moving party must then show by affidavits, pleadings, depositions, answers to interrogatories, and admissions on file, that there is a genuine issue for trial. See Fed. R. Civ. P. 56(e). The United States Supreme Court has commented that this requirement is tantamount to the non-moving party making a sufficient showing as to the essential elements of their case that a reasonable jury could find in its favor. See Celotex, 477 U.S. at 322-23, 106 S. Ct. 2548 (1986).
It is important to note that "the non-moving party cannot rely upon conclusory allegations in its pleadings or in memoranda and briefs to establish a genuine issue of material fact." Pastore v. Bell Tel. Co. of Pa., 24 F.3d 508, 511 (3d Cir.1994) (citation omitted). However, all inferences "should be drawn in the light most favorable to the non-moving party, and where the non-moving party's evidence contradicts the movant's, then the non-movant's must be taken as true." Big Apple BMW Inc. v. BMW of North America, Inc., 974 F.2d 1358, 1363 (3d Cir.1992) (citations omitted).
Still, "the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986). "As to materiality, the substantive law will identify which facts are material." Id. at 248, 106 S. Ct. 2505. A dispute is considered to be genuine only if "the evidence is such *568 that a reasonable jury could return a verdict for the nonmoving party." Id.
STATEMENT OF MATERIAL FACTS:
As required by the aforesaid standard of review, our factual recitation herein is based upon our viewing of the evidence, and drawing of all inferences in the light most favorable to the non-moving party, the Plaintiff.
At all times relevant to the instant action, Plaintiff Stengle was an independent contractor who entered into consecutive yearly contracts[3] to be an ODR special education due process hearing officer with either the LLIU 13 or LLIU 16. (See Rec. Doc. 89 ¶ 9; Rec. Doc. 91 ¶ 7).[4] The ODR is an office and program that is tasked with coordinating and managing the statewide special education dispute resolution system. (See Rec. Doc. 89 ¶ 15; Rec. Doc. 91 ¶ 3).[5] At the time in question, Defendant Smith was the Director of the ODR. Id. 4:19-21.[6]
Although the ODR and PDE are separate entities, they have a fiscal relationship; namely, a submit of the latter, known as the "Bureau of Special Education," is responsible for ensuring that the Pennsylvania Training and Technical Assistance Network, of which ODR is a part, has the necessary funding to complete its programs. (Rec. Doc. 89 ¶ 18).[7] However, the PDE has no further oversight into ODR. (Id.). At all relevant times, Defendants Rhen, Tierney, Tommasini, Castlebuono, Helling, and Fullerton were employees of PDE.[8]
In or about October or November 2005, Plaintiff was appointed to the Gaskin Advisory Panel (the "Gaskin Panel" or "Panel").[9]*569 (Rec. Doc. 89 ¶ 21). Plaintiff was one of two hearing officers appointed to the Panel,[10] which was meant to work with PDE, and specifically the Bureau of Special Education, to implement the Gaskin Settlement Agreement (the "Gaskin Agreement"). (Id. ¶ 22). The first Gaskin Panel meeting was held in mid-December 2006 and was attended by, inter alia, Plaintiff, Defendants Rhen and Fullerton, and two LLIU members. (Id. ¶ 32); Stengle Dep. 160:13-14. At this meeting, Plaintiff expressed her belief that the Gaskin Agreement should be fully implemented, pointed out perceived deficiencies in previous attempts to do so, and expressed concerns about the meeting process itself.[11] Although there were no verbal displays of displeasure with Plaintiff's comments, Plaintiff asserts that discontent could be inferred from Defendant Rhen's facial expressions (frowning and flushing of the face). (See id. ¶ 35).
In February 2006, Plaintiff started an internet blog in which she regularly discussed special education issues.[12] (Id. *570 ¶ 41). The purpose of the blog was to "share information about inclusion and the implementation of the Gaskin Settlement Agreement from the perspective of one parent of a class member and to provide a means to share information with other class members." (Rec. Doc. 107 Ex. P, p. 1).[13] In articulating this information, Stengle relied on her experiences as a hearing officer and in the special education industry, which engendered discussions involving Gaskin issues and other legal issues with which she was confronted in her capacity as a hearing officer. (Rec. Doc. 89 ¶ 43).
In or around the spring of 2006, Defendant Fullerton became a regular reader of Plaintiff's blog. (Id. ¶ 44). Fullerton perceived the blog as "bashing" the PDE and ultimately informed Rhen and Brinkley that the blog addressed Gaskin issues. (Id. ¶ 45-46).[14] On April 13, 2006, Rhen wrote a letter to Plaintiff asking her to correct misinformation on her blog that caused confusion in the education community. (Id. ¶ 47). Concerns about the content of Plaintiff's blog were not limited to personnel inside PDE and ODR. These complaints are too numerous to recount them in their totality; however, we will memorialize several in order to highlight their content and scope.
Anne Hendricks, of the Levin Legal Group, contacted Defendant Smith and stated her opinion that, given Stengle's statements against school districts, Plaintiff was not able to maintain the impartiality required of a hearing officer. (Id. ¶ 50).[15] A parent involved in the litigation of a case that was to go before a hearing officer stated that after review of Plaintiff's blog, she did not want Plaintiff to be the hearing officer in her case because she doubted Plaintiff's ability to maintain impartiality. (Id. ¶ 53). Attorney Faust also emailed Defendant Smith regarding his concerns regarding Stengle's ability to remain impartial. (Id. ¶ Ex. S).[16] Scott Wolpert, a school district attorney, requested Plaintiff's recusal[17] from a case, citing her blog as a reason. (Rec. Doc. 91 ¶ 28(e)). Judy Gran, lead attorney for the *571 Gaskin litigation, requested Stengle's recusal from a case because of her blog and her position on the Gaskin Panel. (Id. ¶ 28(f)). In May 2006, Smith forwarded an email from a child advocate and school district counsel, both of whom were trying to have Stengle recuse herself because of their concerns about her impartiality. (Rec. Doc. 89 ¶ 56).[18]
Faced with numerous emails expressing doubts over Plaintiff's ability to remain impartial in her duties as a hearing officer, Defendant Smith sought legal advice. Smith consulted Ed Titterton ("Titterton"), an attorney who provided consulting services to ODR,[19] and Robert Frankhouser ("Frankhouser"), an attorney from IU-13. (Id. ¶ 58, 60).[20] Smith's specific concerns involved whether it was appropriate for a hearing officer who was required to be impartial to advocate issues of least restrictive environment in a blog when those same issues came before her. (Id. ¶ 59).
Frankhouser was tasked with: (I) determining if Stengle's blog posts were appropriate given her responsibilities as a hearing officer; (II) advising on the decision of whether to renew Plaintiff's hearing officer contract; and (III) to advise on how remove Plaintiff from that position. (See id. ¶ 61, 62). Frankhouser's initial impression of the blog can be characterized as one of shock; he was "surprised that a hearing officer who heard due process cases involving districts and parents and disabled kids would engage in that kind of advocacy." Frankhouser Dep. 15:14-21, July 3, 2008.[21] Frankhouser's legal opinion was that Stengle's contract should be "non-renewed." (Rec. Doc. 89 ¶ 64).[22] Defendant Smith ultimately followed Frankhouser's advice when, on June 2, 2006, she sent Plaintiff a letter[23] notifying Plaintiff that her contract *572 as a hearing officer was non-renewed. (Id. Ex. W).[24]
The letter set forth three reasons[25] for the decision to non-renew: (I) Plaintiff's blog constituted "advocacy," which ultimately compromised her ability to serve as an impartial hearing officer; (II) in refusing to recuse herself in one matter and using intemperate and inappropriate language in denying the recusal motion; and (III) Plaintiff failed to comply with timeliness requirements in rendering her opinions.[26] (See id.). It is noteworthy that, since 2002, Smith has not renewed the contracts of four additional hearing officers. (Rec. Doc. 91 ¶ 40).[27]
Prior to sending this letter, and on the advice from counsel, Smith informed the other PDE Defendants of the decision to non-renew Stengle's contract. (Rec. Doc. 89, Ex. W; Frankhouser Dep. 38).[28] Defendant Helling replied with an email, stating, "I'm glad you and the IU are doing the right thing. I thought the termination letter was very well done. This may be difficult and I wish you all the best as this matter proceeds." (Rec. Doc. 89 Ex. Y). Additionally, Defendant Castlebuono, issued a letter to PDE personnel apprising *573 them of ODR's decision to non-renew Stengle's contract. (Id. Ex. AA). In this letter, Castlebuono insinuates that although ODR and PDE are separate entities, given Stengle's husband's active involvement in the special education world, the decision to non-renew her contract could precipitate serious political consequences for PDE. (Id.).[29]
DISCUSSION:
As a preliminary matter we note that the PDE Defendants take issue with the responses Plaintiff has given to their statement of undisputed facts. In particular, PDE Defendants claim that paragraphs to which Plaintiff responded by raising a hearsay objection should be admitted as true. In the Third Circuit, "hearsay statements can be considered on a motion for summary judgment if they are capable of admission at trial." Shelton v. Univ. of Med. & Dentistry of New Jersey, 223 F.3d 220, 223 (3d Cir.2000) (citations omitted). The statements at issue involve conversations between individuals who have already been deposed in this case. Accordingly, there is no reason to believe that the declarant will not be able to testify regarding the alleged hearsay statement at trial. Therefore, we elect to consider these statement as we dispose of the instant Motion.
PDE Defendants also take issue with Plaintiff's allegedly improper denials to statements of fact. As they note, it is not the Court's task to wade through improper denials and legal argument in search for a genuine issue of material fact. U.S. v. Hoffecker, 530 F.3d 137, 162 (3d Cir.2008) (quoting U.S. v. Dunkel, 927 F.2d 955, 956 (7th Cir.1991) ("Judges are not like pigs, hunting for truffles buried in briefs")). Accordingly, all denials unaccompanied by a citation to the record shall be deemed admitted.
Further, PDE Defendants argue that improper citations to the record should be discounted and their corresponding statements of facts admitted as true. Although such action is technically within our discretion, we will decline the invitation to do so. The miscitations are not so numerous as to burden the Court and we can understand how these mistakes can occur when citing to a record as voluminous as the one sub judice. Where these miscitations have occurred, the Court has made a good faith effort to locate the proper record evidence in support of denial. If we have found this evidence, we have considered it in our resolution of the instant matter where relevant. If we were unsuccessful in locating the proper evidence after a diligent effort to do so, we have considered the statement of fact corresponding the to miscited evidence admitted.[30]
Having resolved these preliminary matters, we proceed to the substance of this case. To recapitulate, Plaintiff has lodged the following counts and allegations in her Second Amended Complaint: (I) violations of the First and Fourteenth Amendments pursuant § 1983, asserted against ODR; (II) violations of the First and Fourteenth Amendments pursuant to § 1983, asserted against Smith in her individual capacity; (III) conspiracy to violate First and Fourteenth Amendment rights pursuant to § 1983, asserted against Smith, Tierney, Tommasini, Castlebuono, Helling, Fullerton, and Rhen; (IV) violations of § 504 of the Rehabilitation Act of 1973, asserted against ODR, PDE, LLIU, Smith, and Rhen; (V) violation of Pennsylvania's *574 Whistleblower Law, 43 Pa.C.S. §§ 1422-1428, asserted against ODR and Smith; and (VI) violations of the First and Fourteenth Amendments pursuant to § 1983, asserted against LLIU. Accordingly, the ODR Motion involves all six counts of the Second Amended Complaint, while the PDE Motion only addresses counts III and IV. We will address these claims seriatim.
A. THE ODR MOTION[31]
I. Count IFirst and Fourteenth Amendment Violations Against Defendant ODR
At the outset, we note that Plaintiff appears to utilize the Fourteenth Amendment not as an independent cause of action, but as a mechanism to enforce the First Amendment against state actors. Therefore, our analysis of substantive law shall be confined to Plaintiff's First Amendment claim.
The First Amendment to the United States Constitution states, in pertinent part, "Congress shall make no law... abridging the freedom of speech." U.S. CONST. amend I. At bottom, Plaintiff asserts a First Amendment retaliation claim, essentially claiming that her free speech was abridged in retaliation for operating her blog. The Third Circuit has announced a three-part test that is to be used in analyzing such claims. First, "the employee must demonstrate that his/her speech is protected, that is, it [was spoken as a citizen and] addresses a matter of public concern and the `employee's interest in the speech outweighs' the employer's countervailing interest `in promoting workplace efficiency and avoiding workplace disruption.'"[32]Reilly v. City of Atlantic City, 532 F.3d 216, 224 (3d Cir.2008) (quoting Springer v. Henry, 435 F.3d 268, 275 (3d Cir.2006)). Second, the employee bears the burden of proving "that his/her speech was `a substantial or motivating factor' in the retaliatory action against him/her." Reilly, 532 F.3d at 224 (citing Springer, 435 F.3d at 275). If satisfied, the burden then shifts to the employer, who must "prove that the `allegedly retaliatory action would have been taken absent the protected [speech].'" Reilly, 532 F.3d at 224 (citing Springer, 435 F.3d at 275). As we shall see, Plaintiff ultimately fails the first prong of this test. See infra p. 577-78.
ODR Defendants argue that Plaintiff's speech, as contained on her blog, occurred within the ambit of her official duties as an impartial hearing officer. In supporting this contention, ODR Defendants note that we must examine the "content, form, and context of [the] statement[s], as revealed by the whole record." Hill v. Borough of Kutztown, 455 F.3d 225, 243 (3d Cir.2006) (quoting Rankin v. McPherson, 483 U.S. *575 378, 384, 107 S. Ct. 2891, 97 L. Ed. 2d 315 (1987)). Accordingly, ODR Defendants contend that Plaintiff has conceded that: (I) her blog was an extension of her membership on the Gaskin Panel; (II) her blog addressed topics that were before her as a hearing officer; and (III) she relied upon her experience as a hearing officer in writing the blog and addressing special education issues contained therein. However, Plaintiff has adduced evidence supporting her contention that her conduct on the blog was an ultra vires act. First, she notes that the "preface" of her blog states, "This journal is intended to share information about inclusion and the implementation of the Gaskin Settlement Agreement from the perspective of on parent of a class member and to provide a means to share information with other class members. Interested others are welcome to participate as well." (Rec. Doc. 109, Ex. 29) (emphasis added). Further, Plaintiff contends that nowhere in her hearing officer contract was she obliged to publicly express her opinions on inclusion or the Gaskin Agreement.[33]
In light of these contentions, we believe that the Plaintiff has adduced evidence from which a reasonable jury could conclude that she was not maintaining her blog in her official capacity as a hearing officer. Merely incorporating knowledge gleaned from her experience as a hearing officer into an independently created, maintained, and operated blog does not necessarily render her actions within the scope of her official duties. We believe Plaintiff has satisfied her burden in this regard and we will therefore proceed with the First Amendment analysis.
ODR Defendants concede that Plaintiff's speech was a matter of public concern, (Rec. Doc. 94 p. 10), and so we consider whether Plaintiff's interest in her speech outweighs ODR's interest in promoting workplace efficiency and avoiding workplace disruption. In the case sub judice, the Plaintiff's interest is obviously in exercising her right to free speech. The government's interest is in ensuring that impartial due process is afforded those seeking resolution of special education issues.
It is clearly established law that "[m]aintaining the appearance of impartiality of the judiciary is an interest of vital importance." Kirchgessner v. Wilentz, 884 F. Supp. 901, 912 (D.N.J.1995) (citing U.S. Civil Serv. Comm'n v. Nat'l Assoc. of Letter Carriers, 413 U.S. 548, 564, 93 S. Ct. 2880, 37 L. Ed. 2d 796 (1973)). In Civil Serv. Comm'n, the Supreme Court of the United States stated, "[I]t is not only important that the Government and its employees in fact avoid practicing political justice, but it is also crucial that they appear to the public to be avoiding it, if confidence in the system of representative Government is not to be eroded to a disastrous extent.'" Civil Serv. Comm'n, 413 U.S. at 565, 93 S. Ct. 2880 (emphasis added) (addressing issues of impartiality in the executive branch). As a colleague in our Circuit has noted, "[W]hen weighing the competing interests between a public employer's need to have wide discretion in running an efficient operation and the speech and associational rights of its employees, the judiciary has greater concerns of maintaining its impartiality both in appearance and in fact than other branches of government." Kirchgessner, 884 F.Supp. at 912 (Lechner, J.).
Although the aforementioned sentiments were made in regard to Article III judges, "the role of the [administrative law judge], the impartial officer designated *576 to hear a case, is similar to that of an Article III judge." Tennessee Student Assist. Corp. v. Hood, 541 U.S. 440, 457, 124 S. Ct. 1905, 158 L. Ed. 2d 764 (2004) (quoting Federal Maritime Comm'n v. South Carolina State Ports Auth., 535 U.S. 743, 758, 122 S. Ct. 1864, 152 L. Ed. 2d 962 (2002)). Further, our Circuit has recognized that the role of a federal hearing officer or an administrative law judge is "functionally comparable" to that of an Article III judge. See Figueroa v. Blackburn, 208 F.3d 435, 441 (3d Cir.2000) (quoting Butz v. Economou, 438 U.S. 478, 513, 98 S. Ct. 2894, 57 L. Ed. 2d 895 (1978)). We believe that the analogy drawn in Butz and adopted in Figueroa applies with equal force to the instant matter.[34] Accordingly, we can easily conclude that the maintenance of Plaintiff's impartiality, and appearance thereof, was crucial to the effective operation of the hearing officer system. However, this conclusion does not end our inquiry, as we must balance this crucial government interest against Plaintiff's interest in exercising her free speech rights.
The Free Speech Clause of the First Amendment is a pillar of our American system of governance. It is the vehicle through which dissenting, minority opinions challenge the status quo. The Free Speech Clause affords the public the opportunity to assess the merits of the dissenting opinion, to examine the majoritarian view in light thereof, and to adapt, revise, or refine the status quo accordingly. This, in turn, produces societal progress, as it ensures that antiquated ideas and beliefs fade from the popular consciousness. However, the right to free speech is not absolute, as there are times when countervailing interests outweigh it. We are cognizant that the Supreme Court has recently articulated on such instance; "[s]o long as employees are speaking as citizens about matters of public concern, they must face only those speech restrictions that are necessary for their employers to operate efficiently and effectively." Garcetti v. Ceballos, 547 U.S. 410, 418, 126 S. Ct. 1951, 164 L. Ed. 2d 689 (2006).
Cognizant of this precedent, Plaintiff contends that her conduct did not prevent the ODR from operating efficiently and effectively. Plaintiff notes that the ODR Defendants base their disruption argument on two claims: (I) Plaintiff's refusal to recuse herself in a single case; and (II) numerous complaints involving concerns about Plaintiff's impartiality. Plaintiff proceeds to claim that the case in which she refused to recuse herself was appealed on numerous grounds, only one of which was her ostensible bias. Accordingly, she asserts that her blogging activity did not produce additional work for the ODR because the case would have been appealed even if her blog did not exist. Plaintiff further contends that a multitude of the "numerous complaints" regarding her alleged bias were either mistakenly lodged against her or were lodged because the complainant wanted the hearing officer to contravene the law and knew that Plaintiff would not do so.[35]
*577 Put bluntly, Plaintiff's arguments miss the mark. The Supreme Court has stated that in order to pass constitutional muster, restrictions on free speech must be "directed at speech that has some potential to affect the entities' operations." Garcetti, 547 U.S. at 421, 126 S. Ct. 1951 (emphasis added). Accordingly, the government need not point to actual disruptiveness in order for its conduct to be rendered constitutional. See id. Plaintiff's contentions only address actual incidents of alleged disruptiveness, meaning that even if we accept her views concerning these incidents, it would not necessarily render ODR Defendants' conduct unconstitutional. In order to do so, Plaintiff would be obliged to show that the conduct in question, her blogging activities, had no potential to disrupt government operations. The facts of this case belie this possibility.
Regardless of whether Stengle's blog activity qualified as "advocacy," her conduct in that regard had the potential to raise questions as to her impartiality and indeed did just that. Plaintiff acknowledges that two attorneys, Andrew Faust of Sweet Stevens and Anne Hendricks of Levin Legal Group, stated that they intended to file formal recusal motions because they questioned Plaintiff's ability to be impartial in light of her blog entries. (See Rec. Doc. 109 p. 15). While those attorneys never filed the contemplated motions, that fact does not alter the essential inference to be drawn from this factual array. Again, actual disruptiveness need not occur; ODR Defendants need only target potential disruptiveness. From these facts, one can readily infer that Plaintiff's blog had the potential to induce recusal motions from those who came before her in her hearing officer capacity. If such a motion were to be filed, either one of two things could happen. Plaintiff could recuse herself, or she could elect to deny the motion and hear the case to its conclusion. In either instance, governmental efficiency would be adversely affected.
If Plaintiff denied the motion and retained the case, the losing party could appeal the decision on due process grounds, alleging that it was denied an impartial adjudication of its rights. See Everett v. Marcase, 426 F. Supp. 397, 401 (E.D.Pa.1977) (standing for the proposition that a hearing officer's lack of impartiality gives rise to a due process claim). This would entail additional governmental resources being dedicated to the appeal, which would clog dockets and ultimately reduce governmental efficiency. On the other hand, if Plaintiff chose to grant the motion and recuse herself, the case would be transferred to another hearing officer, which would not only serve to delay resolution of the case, but also to clog the docket of the newly assigned hearing officer, thereby reducing his or her ability to efficiently dispose of his or her load. Accordingly, it is easy to see that an increased number of recusal motions would severely hamper the government's ability to efficiently and effectively resolve special education issues. Since Plaintiff's blog had the potential to induce such motions, and since the blog was easily accessible to anyone with an internet connection, it is our determination that said blog posed a legitimate threat to the efficient operation of the due process system at issue. Accordingly, we conclude that Plaintiff's free speech rights could be constitutionally abridged under the extant circumstances, and she has thus not suffered a deprivation of those rights as afforded under the First Amendment. Consequently, we will grant the ODR Motion to this extent.
*578 II. Count IIFirst and Fourteenth Amendment Violations Against Defendant Smith (individually)
The above analysis applies equally to Plaintiff's free speech claim against Defendant Smith. Simply stated, Plaintiff did not suffer a deprivation of her First Amendment rights. Even if she had, we believe that the doctrine of qualified immunity would protect Defendant Smith.
Qualified immunity protects government officials performing discretionary functions so long as their conduct does not violate established constitutional rights of which a reasonable person would have known. Harlow v. Fitzgerald, 457 U.S. 800, 818, 102 S. Ct. 2727, 73 L. Ed. 2d 396 (1982). The Plaintiff must adduce specific allegations or evidence as to the allegedly violative conduct of Smith in order to avoid the vesting of qualified immunity. See Good v. Dauphin Soc. Servs., 891 F.2d 1087, 1092, 1096-97 (3d Cir.1989). Essentially, we must determine whether there was a constitutional violation and whether there was good reason for Smith to know her actions were unconstitutional. Wilkie v. Robbins, 551 U.S. 537, 127 S. Ct. 2588, 2617, 168 L. Ed. 2d 389 (2007) (citing Saucier v. Katz, 533 U.S. 194, 201, 121 S. Ct. 2151, 150 L. Ed. 2d 272 (2001)); see also Pearson v. Callahan, ___ U.S. ____, 129 S. Ct. 808, 172 L. Ed. 2d 565 (2009) (modifying Saucier to the extent that courts need not first determine whether facts alleged or shown by plaintiff make out violation of constitutional right).
As recounted above, First Amendment retaliation cases require courts to engage in the three part balancing test articulated in Reilly and Springer. As such, there is no "bright-line" rule in this particular area of law. Even if Defendant Smith's actions were unconstitutional, which we believe they were not, absent such a rule, she had no way of knowing they were unconstitutional. To the contrary, we believe that given the importance of hearing officer impartiality and the threat to Plaintiff's impartiality posed by Plaintiff's blog, Smith reasonably believed that her actions were constitutional, insofar as they preserved the impartiality of the due process system at issue in this case. Plaintiff has provided no case law challenging anything that undergirds this conclusion. Consequently, even if Plaintiff had suffered an unconstitutional abridgment of her First Amendment rights, which again we firmly believe she did not, Defendant Smith would be cloaked with qualified immunity as to that claim. Accordingly, the ODR Motion will be granted to this extent, as it relates to Defendant Smith.
III. Count IIIConspiracy to Violate the First and Fourteenth Amendments Against Defendant Smith
Plaintiff's conspiracy claim, as contained in Count III of the Second Amended Complaint, is based in 42 U.S.C. § 1983, not 42 U.S.C. § 1985. In order to maintain a § 1983 conspiracy claim, Plaintiff "must plead with particularity the `circumstances' of the alleged wrong doing in order to place the defendants on notice of the precise misconduct with which they are charged. Only allegations of conspiracy which are particularized, such as those addressing (1) the period of the conspiracy, (2) the object of the conspiracy, and (3) certain actions of the alleged conspirators taken to achieve that purpose, will be deemed sufficient." Labalokie v. Capital Area Intermediate Unit, 926 F. Supp. 503, 508-09 (M.D.Pa.1996) (citations omitted). However, before addressing these issues, as a threshold matter in all § 1983 claims, Plaintiff must aver that Defendant Smith deprived her of her constitutional rights while acting under color of state law. See Carter v. City of Philadelphia, 989 F.2d 117, 119 (3d Cir.1993). We have already *579 concluded that Plaintiff's First Amendment rights were not unconstitutionally abridged. Therefore, she cannot maintain a § 1983 claim of conspiracy to violate her First Amendment rights. Accordingly, we will grant the ODR Motion in this regard as it relates to Defendant Smith.
IV. Count IVRehabilitation Act Violations Against Defendants ODR, LLIU, and Smith
§ 504 of the Rehabilitation Act ("RA") bars "both federal agencies and private entities that receive federal funding from discriminating on the basis of disability...." Freed v. CONRAIL, 201 F.3d 188, 191 (3d Cir.2000). Plaintiff's Rehabilitation Act claim, as memorialized in Count IV of the Second Amended Complaint, is a retaliation claim. The anti-retaliation provision of the RA states, in relevant part, "No recipient or other person [of Federal financial assistance] shall intimidate, threaten, coerce, or discriminate against any individual ... because he has made a complaint, testified, assisted, or participated in any manner in an investigation, proceeding or hearing under this part." 34 C.F.R. § 100.7(e). Essentially, Plaintiff's claim seems to be that her hearing officer contract was non-renewed as a result of her criticism of the ODR's failure to fully implement the Gaskin Settlement (specifically involving concerns over least restrictive environment and inclusion), which was manifested in her blog and through her statements at the initial Gaskin Panel meeting in December 2006.
Retaliation claims under § 504 of the RA and the American with Disabilities Act are analyzed identically. See Derrick F. v. Red Lion Area Sch. Dist., 586 F.Supp.2d, 282, 300 (M.D.Pa.2008) (Rambo, J.). Accordingly, the instant claim is subject to the burden-shifting framework established in McDonnell Douglas Corp. v. Green, 411 U.S. 792, 93 S. Ct. 1817, 36 L. Ed. 2d 668 (1973), although both parties appear to have ignored the applicability of this case to the instant matter. Under the McDonnell schema, the initial burden is on the plaintiff to satisfy the elements of a prima facie case of retaliation. Shaner v. Synthes, 204 F.3d 494, 499 (3d Cir.2000). In doing this, the plaintiff must show: "(1) that she engaged in protected activity, and the retaliator knew of the involvement; (2) adverse action was taken by the defendant either during or after the protected activity that was sufficient to deter a person of ordinary firmness from engaging in protected activity; and (3) a causal connection between the protected activity and the adverse action." Id. at 499. If a plaintiff establishes her prima facie case, the burden of production shifts to the defendant to advance a legitimate, non-retaliatory reason for the adverse action. Id. at 500. If the defendant is successful in this endeavor, the burden of production shifts back to the plaintiff to identify sufficient evidence for a fact finder to conclude that the defendant's legitimate, non-retaliatory reason is pretextual. Id. at 501. However, the "defendant may defeat the claim of retaliation by showing that it would have taken the same action even if the plaintiff had not engaged in the protected activity." Lauren W. ex rel. Jean W. v. DeFlaminis, 480 F.3d 259, 267 (3d Cir.2007).
As Plaintiff notes, the RA was ratified in order to, inter alia, "achieve equality of opportunity, full inclusion, and integration in society, employment, independent living, and economic and social self-sufficiency, for [disabled] individuals." 29 U.S.C. § 701 (emphasis added). In spite of this, ODR Defendants urge that Stengle's criticisms of the incomplete implementation of the Gaskin Agreement, which addressed issues of inclusion, was not a "protected activity" because it did not constitute "advocacy."
*580 We find this contention both ironic and inconsistent, since ODR Defendants based their argument for dismissal of Plaintiff's First Amendment claim on the assertion that these statements did in fact constitute advocacy. Regardless, within the employment context, "making complaints to management [and] writing critical letters to customers" are acceptable forms of advocacy. Isler v. Keystone Sch. Dist., 2008 WL 3540603 (W.D.Pa.2008) (quoting Sumner v. U.S. Postal Serv., 899 F.2d 203, 209 (2nd Cir.1990)). We believe that Plaintiff's "pointing out of problems" with the implementation of § 504 and the Gaskin Settlement at the first Gaskin Panel training session is similar to "complaining to management," since LLIU members were present at that session. Further, we consider her blog activity analogous to "writing critical letters to customers" since the blog was read by those who had special interests in special education (i.e., the "customers" of the ODR and LLIU). "A plaintiff alleging a claim of retaliation need not demonstrate that the conduct he or she opposed was actually a violation of the law, so long as he or she possessed a reasonable, good faith belief that the underlying actions of the employer actually violated the law." Isler at *9 (citing Aman v. Cort Furniture Rental Corp., 85 F.3d 1074, 1085 (3d Cir.1996) (discussing a prima facie case of discrimination under Title VII, which, as seen in Derrick F., 586 F.Supp.2d at 299, requires the same showing as a prima facie case of discrimination under the RA)). There is nothing in the record to case doubt upon Plaintiff's candor in expressing her concerns.
Accordingly, we are of the opinion that Stengle was in fact engaged in "protected activity." We believe that the ODR Defendants were aware of this activity because: (I) LLIU employees were present at the initial Gaskin Panel training session;[36] and (II) Defendant Smith, who ran the ODR, was unequivocally aware of the statements contained in Plaintiff's blog. Consequently, Plaintiff has established the first prong of her prima facie case.
As for the second prong, Plaintiff has established that after her criticism, her contract as a hearing officer was non-renewed. Further, we believe that the threat of such action is certainly sufficient to dissuade a reasonable person from engaging in criticism. However, in order to conclude that Plaintiff has established the second prong of her prima facie case, we must find that the ODR Defendants played a role in the adverse action. Defendant Smith has admitted that she was the individual who determined that Plaintiff's contract as a hearing officer would be non-renewed. Smith was an employee of ODR and LLIU 13.[37] Therefore, Plaintiff has satisfied the second prong of her prima facie case, meaning that we will proceed to the third prong.
"To establish the requisite causal connection a plaintiff usually must prove either (1) an unusually suggestive temporal proximity between the protected activity and the alleged retaliatory action, or (2) a pattern of antagonism coupled with timing to establish a causal link. In the absence of that evidence the plaintiff must show that from the `evidence gleaned from the record as a whole' the trier of fact should infer causation." Lauren W., 480 F.3d at 267 (internal citations and quotations omitted). Plaintiff has adduced a multitude of evidence indicating that Defendant Smith was concerned about the content of her *581 blog and the inferences that could be drawn therefrom. In fact, Plaintiff's blog activities were cited as one of the reasons for her non-renewal. Accordingly, in light of this explicit statement, we conclude that Plaintiff has satisfied the third prong of her prima facie and has therefore carried her burden with regard thereto.[38] This, then, shifts the burden of production to ODR Defendants.
ODR Defendants have articulated non-discriminatory reasons for Plaintiff's non-renewal. First and foremost, ODR Defendants claims that Plaintiff was not non-renewed because of the mere fact that she maintained a blog or even because she criticized or "bashed" the ODR on that blog; rather, they claim that she was non-renewed because the content of the blog caused members of the public, some of whom were parties in cases she heard as hearing officer, to question her impartiality, which ultimately inhibited the effective administration of the hearing officer system. Further, ODR Defendants claim that there are two additional non-retaliatory reasons for her non-renewal articulated in her non-renewal letter(I) her refusal to recuse herself in one matter and her use of intemperate and inappropriate language in denying the recusal motion, and; (II) her failure to comply with timeliness requirements. This satisfies ODR Defendants' burden and shifts the onus back to Plaintiff to prove pretext. As we will describe below, Plaintiff has failed to carry this burden.
Simply put, Plaintiff has failed to adduce any evidence that calls into question the legitimacy of ODR Defendants first non-retaliatory reason, the perceived compromise of her impartiality occasioned by her blog. Plaintiff has not produced any evidence from which a reasonable jury could infer that she was non-renewed merely because she maintained the blog or because of the fact that she criticized ODR in it. As aforestated, it was the deleterious effect the blog had on ODR's efficiency, as well as on Plaintiff's need to present herself as an unbiased hearing officer, that ultimately caused her non-renewal. There is absolutely no indication in the record evidence that the concerns regarding her impartiality were subterfuge for retaliatory animus. To the contrary, ODR received innumerable complaints from the public regarding her perceived bias on certain issues, and these perceptions eventually seeped into her work environment, as parties began to file recusal motions to remove her as the hearing officer in certain cases.[39]
It is apparent that Plaintiff felt that she could firewall her blogging activities so that they did not interfere with her duties as an impartial hearing officer, and we do not question her honest intentions in this regard. However, while she may have been able to maintain her impartiality in fact, the public perception was that such a feat was impossible.[40] And, unfortunately for Plaintiff, as is many times the case, perception became reality. No matter *582 how many reassurances she uttered, in the minds of the public and bar there arose a fundamental conflict between Plaintiff's blogging activities and her duties as a hearing officer that could not be resolved.[41] This, as we have noted, presented the ODR with legitimate administrative problems that carried with them measurable consequences for the effective, efficient, and legitimate operation of the hearing officer system. Plaintiff was at least quasi-judicial, if not fully judicial, in her function, and this fact should have restrained her from engaging in unbridled blogging regarding issues that conceivably could have come before her. Accordingly, it is evident that the concerns regarding her impartiality were real and palpable and placed the ODR Defendants in an untenable situation. There is nothing in the record evidence calls this into question, we hold that the Plaintiff has not successfully rebutted ODR Defendant's non-retaliatory reason for her non-renewal. We will therefore grant the ODR Defendants' Motion insofar as it addresses Plaintiff's RA claim.
V. COUNT VViolation of the Pennsylvania Whistleblower Law Asserted Against Defendants ODR and Smith
The germane section of the Pennsylvania Whistleblower Law ("PAWL") states, "No employer may discharge, threaten or otherwise discriminate or retaliate against an employee regarding the employee's compensation, terms, conditions, location or privileges of employment because the employee ... makes a good faith report... to the employer or appropriate authority [of] an instance of wrongdoing or waste." 43 P.S. § 1423 (1986). The statute contains a definition section that addresses words integral to the proper interpretation of the statute. Among the words included in the definition section is "employee." That word is defined as "[a] person who performs a service for wages or other remuneration under a contract of hire, written or oral, express or implied, for a public body." Id. § 1422. The statute proceeds to define an "employer" as "[a] person supervising one or more employees, including the employee in question; a superior of that supervisor; or an agent of a public body." Id. Defendants contend that the Plaintiff cannot maintain a cause of action under the PAWL because she is not an "employee" as defined by that statute.
Specifically, ODR Defendants contend that Plaintiff qualifies as an "independent contractor," which is a categorization that is not encompassed by the term "employee." To support this, ODR Defendants note that Plaintiff used an IRS Form 1099 to represent this status to the Internal Revenue Service during the years relevant to this lawsuit. Additionally, ODR Defendants note that Plaintiff has admitted to her status as an independent contractor her Undisputed Statement of Material Facts appurtenant to the ODR Motion. (Compare Rec. Doc. 91 ¶ 7 with Rec. Doc. 108 ¶ 7). Accordingly, we too will consider Plaintiff's status as that of an independent contractor.
With this established, ODR Defendants point to persuasive authority from the *583 Eastern District of Pennsylvania in support of the proposition that independent contractors do not fall under the purview of "employees" for purposes of the PAWL. In Rankin v. City of Philadelphia, Judge Brody concluded that there is a viable interpretation of the PAWL under which "the `contract of hire' language [in the definition of "employee"] ... serves to exclude [from that definition] volunteers, independent contractors, and others who might otherwise seek to bring an action under the Whistleblower Law." Rankin v. City of Philadelphia, 963 F. Supp. 463, 470 (E.D.Pa.1997). Plaintiff's only response to this contention is to claim that ODR Defendants position is a misinterpretation of the case law. Based upon the above-quoted language, it is clear to us that ODR Defendants have not misapprehended the essence of Rankin; rather, it is the Plaintiff who distorts its holding.[42]
Judge Brody's holding and reasoning are based on a meticulous semantic analysis of the PAWL. After a careful reading of Rankin and a thorough reflection upon the PAWL, we see nothing in the case sub judice that casts doubt upon Judge Brody's methodology or conclusions. Further, the Plaintiff has failed to provide us with any viable reason for discounting the dictates established in Rankin within the context of the case at bar. Accordingly, we find Rankin to be persuasive in our resolution of the instant matter. Consequently, we conclude that because Stengle qualifies as an "independent contractor," a designation that precludes her from being an "employee," as that term is defined in the PAWL, she cannot satisfy the definitional requirements necessary for maintaining a viable PAWL claim. Therefore, we will grant the ODR Motion to this extent.
VI. Count VIViolation of the First and Fourteenth Amendments Against Defendant LLIU
We have already concluded that Plaintiff did not suffer an unconstitutional abridgment of her Free Speech rights. Accordingly, on this basis we will grant the ODR Motion to this extent as it relates to Defendant LLIU.
B. THE PDE MOTION
I. Count IIIConspiracy to Violation the First and Fourteenth Amendments Against Defendants Tierney, Tommasini, Castlebuono, Helling, and Rhen
As we have explained above, Plaintiff's conspiracy claim is made pursuant to § 1983. Accordingly, there must be an underlying constitutional violation in order for the PDE Defendants to be held liable for conspiracy. Since we have concluded that there was no violation of Plaintiff's Free Speech rights, PDE Defendants cannot be held liable for conspiracy to violate same. Consequently, we will grant the PDE Motion to this extent.
II. Count IVRehabilitation Act Violations Against Defendants PDE and Rhen (individually)
As we have stated above, Plaintiff has not adduced any evidence that indicates *584 the non-retaliatory reason for her non-renewal, her perceived impartiality, was a pretext for retaliatory animus. Accordingly, even if Plaintiff could establish a prima facie case of retaliation against Defendants PDE and Rhen, she cannot maintain her RA claim because she cannot rebut the non-retaliatory reason for her non-renewal, as required by the burden shifting scheme announced in McDonnell Douglas. Therefore, we will grant the PDE Motion to this extent.
CONCLUSION:
To reiterate, this Court fully recognizes the cherished right of free speech, as well as the commendable goals of the RA. But these cannot wash away the bona fide concerns that arise when a judicial officer elects to disseminate her opinions in cyber-space with little or no restraint. Because of her position, Plaintiff's attempts to qualify her stances as solely her own were entirely ineffectual. With particular jobs come certain precise responsibilities. In Plaintiff's case, one of these included avoiding even the appearance of bias via extra-judicial comments. Plaintiff's deep concerns about the special education issues and the resulting creation of her blog ultimately caused her to face a dilemma that she alone created. The choices she freely made thereafter led to her non-renewal, and as aforestated we do not find any of the Defendants' conduct actionable under the circumstances.
For the foregoing reasons, we will grant both the ODR Motion (Rec. Doc. 90) and PDE Motion (Rec. Doc. 88) in their entireties. An appropriate Order will enter.
NOTES
[1] In addition to PDE and Rhen, Kerry Voss Smith ("Smith") and the Office for Dispute Resolution ("ODR") were also named as a Defendants in Plaintiff's original Complaint.
[2] The additional Defendants named in the Second Amended Complaint are: Abigail Tierney ("Tierney"), John Tommasini ("Tommasini"), Diane Castlebuono ("Castlebuono"), Ernest Helling ("Helling"), Patricia Fullerton ("Fullerton"), and Lancaster-Lebanon Intermediate Unit 13 ("LLIU").
The Second Amended Complaint contains the following counts and allegations: (I) violations of the First and Fourteenth Amendments pursuant to 42 U.S.C. § 1983 ("§ 1983"), asserted against ODR; (II) violations of the First and Fourteenth Amendments pursuant to § 1983, asserted against Smith in her individual capacity; (III) conspiracy to violate First and Fourteenth Amendment rights pursuant to § 1983, asserted against Smith, Tierney, Tommasini, Castlebuono, Helling, Fullerton, and Rhen; (IV) violations of § 504 of the Rehabilitation Act of 1973, asserted against ODR, PDE, LLIU, Smith, and Rhen; (V) violation of Pennsylvania's Whistleblower Law, 43 Pa.C.S. §§ 1422-1428, asserted against ODR and Smith; and (VI) violations of the First and Fourteenth Amendments pursuant to § 1983, asserted against LLIU.
[3] These contracts ran from approximately July 1, 1998 through June 30, 2006. (Rec. Doc. 89 ¶ 9). The final contract contained a term of July 1, 2005 through June 20, 2006 with Intermediate Unit 13. (Id. ¶ 10). The contract stipulated that continuation thereof was contingent upon Stengle's reappointment as a hearing officer, which was contingent upon the satisfactory performance of all hearing officer duties, as determined by the ODR Director. (Rec. Doc. 91 ¶ 7). Pursuant to that contract, Plaintiff's responsibilities included, inter alia, maintaining impartiality. (Rec. Doc. 89 ¶ 9).
[4] LLIU 13 managed several programs, one of which was ODR. (Rec. Doc. 91 ¶ 2). LLIU 13, as the fiscal agent of ODR, approved the contracting of hearing officers in general, not specific hearing officers in particular. (Id. ¶ 5). The Board of LLIU 13 had no involvement in determining which hearing officers were or were not offered contracts and is never provided the names of those individuals. (Id.).
[5] Since the ODR is a program of the LLIU 13, employees of the ODR are employees of LLIU 13. Smith Dep. 6:4-5, September 3, 2008. LLIU 13, through a contract with PDE, assumed the responsibility for implementing a due process system for special education litigation and for coordinating and managing statewide special education dispute resolution. (See Rec. Doc. 91 ¶ 4).
[6] In this capacity, Smith's duties included, inter alia: administering the process, timeliness, competence, and attendance of hearing officers and evaluating the performance of hearing officers and determining whether to renew their contracts. See generally, Smith Dep. 45-46, 123-125.
[7] Although ODR operates through money coming from PDE and PDE must account for how that money is utilized, no one at ODR reports to anyone at the PDE and the PDE does not give assignments to anyone at the ODR. Smith Dep. 124:23-25, 125:1-11.
[8] Rhen was the Director of the Bureau of Special Education for the PDE. Rhen Dep. 5:21-25. Tierney was Assistant Council with the PDE. Tierney Dep. 5:1-2, May 7, 2008. Tommasini was the Assistant Director of the Bureau of Special Education. Tommasini Dep. 5:1-2. Castlebuono was the Deputy Secretary for Elementary and Secondary Education at the PDE. Castlebuono Dep. 26:15-19. Helling was acting Chief Counsel of the PDE. Helling Dep. 6:5-9. Fullerton was the Assistant Chief Counsel with the PDE. Fullerton Dep. 5:1-4
[9] Gaskin v. Commonwealth, 389 F. Supp. 2d 628 (E.D.Pa.2005), Was a class action lawsuit filed in the Eastern District of Pennsylvania, which alleged that PDE failed to enforce compliance with the least restrictive environment aspects of the Individuals with Disabilities Education Act, the Rehabilitation Act of 1973, and the Americans with Disabilities Act. (Rec. Doc. 12, ¶ 32). The parties in Gaskin ultimately reached a settlement agreement, and the Gaskin Panel was created at the direction of the District Court to implement that agreement, which required all Pennsylvania school districts to "mainstream" their special education students into a least restrictive environment classroom and increase the capacity of school districts to include students with disabilities in regular education classrooms. (Rec. Doc. 89 ¶ 20). It is of note that because Plaintiff had a child who was eligible for special education services, Plaintiff was a class member in the Gaskin litigation. (Rec. Doc. 12, ¶ 33).
[10] The prospect of hearing officers serving on the Gaskin Panel raised concerns among members of the PDE. These misgivings were first articulated in an email conversation involving Jeanie Brinkley, the administrative person assigned to help with the Gaskin Panel, and Defendants Rhen and Fullerton. Rhen stated to Fullerton, "[T]hought about staying out of it totally, but we will be questioned on this issue by someone, I am sure, and we should feel comfortable that all panel members meet the standard of the settlement agreement." (See Rec. Doc. 89 Ex. J, p. 93-100).
Doubts persisted after Plaintiff informed Defendant Smith, the Director of ODR, of her appointment to the Panel. Smith sent an email to Defendant Rhen, and copied Defendants Helling and Tierney as she was told to do when communicating with PDE officials, to inform her that she (Smith) had spoken to Tierney on the issue of hearing officers being appointed to the Panel and afterwards agreed to draft a letter to the hearing officers articulating the concerns. (Rec. Doc. 89 Ex. L, p. 11); See Smith Dep. 8, 125.
[11] Specifically with regard to the Panel procedures, Stengle opined about: (I) the intemperate attitude of the moderator, which she believed impeded discussion; (II) Dr. Rhen's disagreement regarding advisory panels and Rhen's assertion regarding policies governing advisory panels; (III) Rhen's controlling the agenda, which Plaintiff perceived prevented the Panel from fulfilling its obligations under the settlement agreement. (Rec. Doc. 89 ¶ 33). Further, Plaintiff made, inter alia, the following suggestions at the initial Panel meeting: (I) she wanted to table the discussion to adopt Operating Rules and Procedures; (II) she wanted to keep the Policy and Compliance Committee as one entity; (III) she thought it prudent for Advisory Panel to direct specific persons to develop and disseminate a press release regarding the formation and membership of the Advisory Panel; (IV) and she wanted Rhen and the PDE to add a section to its website entitled "Advisory Panel Positions and Recommendations." (See Rec. Doc. 107 ¶ 33).
[12] Before this time, Defendant Smith had noticed a change in Stengle's behavior. (Rec. Doc. 91 ¶ 23). Additionally, Andrew Faust, an attorney specializing in law related to school district education, noticed that Stengle was "nervous" and "frenetic." Andrew Faust Dep. 89:6-13, August 11, 2008.
[13] In her blog, Plaintiff took positions in favor of least restrictive environment/inclusion and invited commentary on that issue. (Rec. Doc. 107 Ex. P). According to Plaintiff, "Pennsylvania seemed pretty devoted to this segregation of children on the basis of disability." (Stengle Dep. 98:14-18). Based on her blog entries, Stengle appeared to be a proponent of full inclusion and made recommendations to individuals about filing complaints, due process, and private communications. (Id. Ex. P). The Defendants characterize her blog as "advocacy," a position the Plaintiff controverts, claiming that the content of her blog was "free speech." (Compare Rec. Doc. 89 ¶ 48 with Rec. Doc. 107 ¶ 48).
[14] Upon reading the blog, Rhen had the same impression. (Rec. Doc. 89 ¶ 46).
[15] Smith ultimately forwarded Hendricks' email complaint to Defendants Tommasini, Helling and Tierney. (Id. ¶ 51). Tommasini replied that he was unsure how much longer Plaintiff's activities could be ignored in light of her hearing officer's duty to maintain impartiality. (Id. Ex. Q; see Tommasini Dep. 14).
[16] Faust thought that the blog was "lurid" and that the biases reflected therein were inconsistent with someone holding the position of an impartial hearing officer. He emailed these opinions to Smith and requested that Plaintiff's position as a hearing officer be terminated. Faust Dep. 14:1-14.
Smith forwarded this email to Defendants Helling, Tierney, and Tommasini in order to keep them informed. (Rec. Doc. 89 ¶ 55). Plaintiff notes that the email was not forwarded to Defendant Rhen, despite Smith's testimony that she would copy PDE attorneys when communicating with or about their clients.
[17] At the time relevant to the instant action, ODR's Hearing Officer Handbook and the Pennsylvania Special Education Dispute Resolution Manual required hearing officers to recuse themselves when they, inter alia, "had a personal or professional interest that would conflict with his or her objectivity in the hearing." Sec. Am. Compl. ¶ 58.
[18] While Stengle declined this invitation to recuse, (Rec. Doc. 89 ¶ 57), she was cognizant that her blog could potentially force her to recuse herself in some instances. For example, Plaintiff acknowledged that if someone with whom she had communicated or interacted on the blog came before her in a hearing, she should and would recuse herself. See Stengle Dep. 430:1-7.
[19] Titterton also contracted with ODR to work with hearing officers on, inter alia, decision-writing and review of hearing officer decisions. See Titterton Dep. 7:10-8:9.
[20] Plaintiff notes that Smith's overtures for legal advice came approximately three months after she became aware of the blog. In that time, Smith forwarded to Defendants Helling, Tierney, and Tommasini emails from school district attorneys complaining that Stengle should be disqualified as a hearing officer in light of her blog activity. (See Rec. Doc. 107 Exs. 9, 10). Within these email exchanges, Defendant Tommasini asserted that he believed Stengle should be removed as a hearing officer. (Id. Ex. 12). Defendant Tierney responded by asking, "When is [Stengle's] contract up for renewal? Procedurally, it will be easier to accomplish if we simply refuse to renew .... I think we could successfully defend that." (Id. Ex. 13) (Plaintiff emphasizes that Tierney used the word "we," which she claims connotes concerted action).
[21] Frankhouser's conclusion that Plaintiff was engaged in "advocacy" was based on his perception that "she was quite clear in the voluminous content of her blog how she felt about inclusion, least restrictive environment,... school districts in general, and ... schools districts in particular." Frankhouser Dep. 15:22-25-16:1-3. Smith testified that Frankhouser insinuated that no judge would tolerate Stengle's conduct, referring to her blog activity. Smith Dep. 149:18-22. Smith further claimed that both she and Frankhouser believed Stengle's conduct to be in violation of her duty of impartiality. Id. 151:8-11.
[22] Smith considered Frankhouser's legal advice to be conclusive on the legal issues before him, Smith Dep. 157:3, and Frankhouser realized the import of his opinions, Frankhouser Dep. 21:12-18.
[23] On May 26, 2006, Frankhouser sent Smith a draft of the non-renewal letter that was to be sent to Plaintiff. Frankhouser Dep. 30, 33.
[24] Smith testified that she did not seek legal counsel from Defendants Helling, Fullerton, Tierney or Castlebuono. Smith Dep. 142:6-8; 145:10-12. Smith maintains that the decision to non-renew Plaintiff's contract was hers alone and that any opinions expressed by PDE members were merely reactions to that decision and had no effect on the decision-making process. See Smith Dep. 139-142. However, in an email regarding the letter sent prior to its official dissemination, Smith wrote, "I still don't have approval from Dr. Rhen to send the letter but in the meantime, please delete the paragraph about her being on the [G]askin [P]anel ...." (Rec. Doc. 107, Ex. 25). Further, Plaintiff notes that in April 2006, Smith was part of the aforementioned email stream in which Tierney stated inquired, "When is her contract up for renewal? Procedurally, it will be easier to accomplish of we simply refuse to renew." (Rec. Doc. 107 ¶ 68).
[25] As we have already alluded, in addition to the three reasons stated in the actual letter sent to Plaintiff, Frankhouser's draft of that letter contained a fourth reason, involving a conflict arising from Plaintiff's dual roles as a hearing officer and Gaskin Panel member, for nonrenewing Plaintiff's contract. See Frankhouser Dep. 34:10-20. Smith was uncomfortable with this reason and removed it after Frankhouser assured her that doing would not effect his legal analysis. Id. 35:5-8. It appears as though Defendant Rhen and either Defendant Tierney or Defendant Heller also urged Smith to remove the Gaskin Panel reference. (See Rec. Doc. 89 ¶ 75, 76); see Smith Dep. 144:16-24. Plaintiff maintains that this fact belies Smith's assertion that the opinions of other Defendants had no effect on her decision to non-renew Plaintiff's contract.
[26] Smith maintains that four of Stengle's decisions in the last reporting period prior to her non-renewal were late. Smith Dep. 52-59. Plaintiff maintains that the timeline did not apply to most of her cases in light of the statute under which the case was initiated. (Rec. Doc. 108, Ex. 37); see ODR's website at www.pattan.net/files/ODR/ODR_IDEA + 2004_implem. Defendant Smith believed that no such exception existed. Smith Dep. 53:9-19. Further, Plaintiff notes that other hearing officers were also late with some of their decisions during that same reporting period; however, those individuals were merely advised not to let it happen again. Smith Dep. 60:4-13.
[27] Defendant Smith determined not to renew the contracts of two other hearing officers when the appearance of impartiality and neutrality had been compromised by the hearing officers' "extracurricular" activities. Smith Dep. 135-136.
[28] Smith informed the PDE of Stengle's non-renewal because: (I) the PDE funds her program; (II) the political ramifications in said non-renewal had the potential to be dire; (III) Stengle was a hearing officer appointed to the Gaskin Panel, which was overseen by PDE; (IV) Stengle's involvement in a case which included both ODR and PDE. See Smith Dep. 127:13-130:9.
[29] In fact, Stengle eventually contacted then-Pennsylvania Representative Dennis E. Leh regarding her non-renewal appearing to appeal for his intervention in the matter. (See Rec. Doc. 89 Ex. EE).
[30] Our deference in this matter should not be taken as a license to carelessly and lackadaisically cite to the record. While we have afforded some courtesy here in the interest of justice, our largesse is not boundless.
[31] Defendant Smith was the Director of ODR and, as such, actions taken in her official capacity are imputed to ODR. With regard to LLIU, there is evidence that although LLIU approved the contracting of hearing officers in general, (Rec. Doc. 91 ¶ 5), its Board of Directors had no involvement in determining which hearing officers were or were not offered contracts. (Id.). However, there is also testimony that since the ODR is a program of the LLIU 13, employees of the ODR are employees of LLIU 13. Smith Dep. 6:4-5. Therefore, we believe that there is a material issue of fact as to the relationship between ODR and LLIU. Since we must take the facts in the light most favorable to Plaintiff, for purposes of disposing of the ODR Motion, we will assume that employees of ODR are employees of LLIU. Accordingly, Smith's official actions can also be imputed to LLIU.
[32] The first prong encapsulates the Pickering Test, enunciated by the Supreme Court of the Untied States in Pickering v. Bd. of Educ., 391 U.S. 563, 88 S. Ct. 1731, 20 L. Ed. 2d 811 (1968). The Pickering analysis applies equally to independent government contractors as it does to government employees. See Bd. of County Commissioners v. Umbehr, 518 U.S. 668, 116 S. Ct. 2342, 135 L. Ed. 2d 843 (1996).
[33] Indeed, in asserting that the maintenance of the blog placed Plaintiff in direct conflict with her duties as a hearing officer, ODR Defendants impliedly concede that Plaintiff's conduct with regard to her blog was outside the scope of her duties as a hearing officer.
[34] Much like Article III judges, Plaintiff was required to: (I) maintain impartiality; (II) preside over hearings; (III) render decisions; and (IV) memorialize those decisions in written form. (See Rec. Doc. 109, Ex. 23 (Hearing Officer Contract 2005-06)).
[35] Specifically, Plaintiff asserts that one of the complaints received by Defendant Smith concerned a different blog and that another complaint addressed the decision of a previous hearing officer. (Rec. Doc. 109 p. 16). Further, Plaintiff contends, "Ms. Smith received a complaint from a parent who apparently hoped that the hearing officer would not follow the law regarding inclusion, and concluded that Mrs. Stengle would not render a decision consistent with her goals." (Id.). Accordingly, Plaintiff concludes that her blogging activity did not vitiate that effectiveness or efficiency of the ODR.
[36] From their presence a reasonable person can logically infer that they heard Plaintiff's criticisms. The LLIU can be imbued with such knowledge as the employer.
[37] During her deposition, Smith admitted, "[ODR] is an office. So the employees are IU employees." Smith Dep. 6:4-5.
[38] Again, since for purposes of this Motion we consider Smith an employee of both ODR and LLIU, her official actions are imputed to them. Since Smith sent the non-renewal letter to Plaintiff in her capacity of ODR Director, this ostensibly retaliatory conduct is imputed to ODR and LLIU.
[39] In this vein, the records reveals that Plaintiff was certainly aware that her blog was in conflict with her duties as an impartial hearing officer. From this, she could easily infer that her continued maintenance of her blog could jeopardize her employment. We therefore do not believe that her non-renewal could have surprised Plaintiff in the least.
[40] While Plaintiff does not characterize the content of her blog as "advocacy," others did regard the blog as such. This public perception, and the consequences it engendered, are undisputed facts of this case that inform our resolution of the instant Motion.
[41] Consider if a Pennsylvania Supreme Court Justice created a blog to discuss important legal issues of the day, some of which were involved in cases before the Court. Problems similar to those in the case sub judice would arise in this instance. Lawyers practicing in front of the Supreme Court would be obligated to read the Justice's blog and identify any biases that would materially affect his ability to remain impartial in a particular case. If one was located, the lawyer might properly move for recusal of that Justice. If such a sequence occurred with regularity, not only would the efficiency of the Pennsylvania Supreme Court be adversely effected, but the prudence of retaining the Justice would also be called into question.
[42] As ODR Defendants note, Stengle most likely reaches her conclusion because Judge Brody ultimately determined that the plaintiff in Rankin could proceed with a PAWL claim. However, this determination was made based on Judge Brody's finding that the plaintiff was under a contract of hire with an independent contractor (a nursing home) that was an agent of the city of Philadelphia. Since the city was a "public body," the nursing home, as an agent thereof, was an "employer," and since the plaintiff was under a contract of hire with the nursing home, the plaintiff was an "employee." In short, Judge Brody did in fact conclude that Rankin was an employee and contrasted this term with the concept of an independent contractor. Plaintiff simply misinterprets the reasoning of Judge Brody. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1959694/ | 631 F. Supp. 1222 (1986)
Alfred Linden HOWELL, Plaintiff,
v.
Charles FREIFELD, Harbor Investments, Inc., Heinold Commodities, Inc., Judith King, a/k/a/ Judy King, Gregory G. Olsen a/k/a/ Greg Olsen, and Gerald E. Carr, a/k/a Jerry Carr, Defendants.
No. 83 Civ. 1703 (PKL).
United States District Court, S.D. New York.
March 28, 1986.
*1223 Charles J. Hecht, P.C., New York City, for plaintiff.
Sidley & Austin, New York City (Steven M. Bierman, William J. Nissen, of counsel), for Heinold defendants.
Litman, Kaufman & Asche, New York City (Richard Asche, of counsel), for defendants Charles Freifeld and Harbor Investments, Inc.
LEISURE, District Judge:
This matter is before the Court on the motion of defendants Heinold Commodities, Inc. ("Heinold"), Judith King, Gregory Olsen and Gerald Carr (collectively referred to as the "Heinold Defendants"), for summary judgment dismissing the second, third and fourth causes of action asserted against them. Defendants Charles Freifeld and Harbor Investments, Inc. ("Harbor") have not joined in this motion. For the reasons presented below, the motion is denied as to the second and third causes of action, but is granted as to the fourth cause of action.
Factual Background
Plaintiff Alfred Linden Howell ("Howell") seeks in this action to recover alleged losses of $821,516.72 incurred in connection with a discretionary commodity futures trading account maintained by him with Heinold during 1979 and 1980. Defendants Freifeld and Harbor acted as investment advisors to Howell, having been granted trading authority pursuant to a power of attorney. The account was opened following discussions with Heinold employees, including defendants King, Olsen and Carr. At the time he opened the account with Heinold, plaintiff had limited investing experience. He had invested in gold, owned some real estate, and once had a securities account for a period of three or four months. He approached Heinold to begin investing in commodities, about which he admittedly knew little.
Plaintiff alleges that the Heinold Defendants persuaded him to open the account with marketing brochures and other documents which represented the trading record of Freifeld and Harbor in a favorable light. The Heinold Defendants represented to plaintiff that they would work with Freifeld and Harbor to manage plaintiff's account in a conservative fashion. Plaintiff was assured that the combination of Heinold's supervision and Freifeld's conservative trading techniques would prevent substantial losses. After he made initial deposits of $25,000 and $125,000 in the summer and fall of 1979, plaintiff alleges that defendants persuaded him to commit to his account the proceeds of a $750,000 certificate of deposit about to come due. During the meetings and discussions with defendants that preceded his decision to invest the certificate of deposit proceeds, plaintiff claims that defendants emphasized to him that the placement of stop-loss orders would guarantee that he could not lose more than 50% of his investment.
While the account was maintained, plaintiff communicated with the Heinold Defendants and had no contact with Freifeld. In February, 1980, substantially all of plaintiff's funds had been committed to margin for commodity futures contracts traded in foreign markets centered in London, England. Apparently, the foreign markets are not as strictly regulated as the American commodities markets. Consequently, taking positions there entails greater risk for the investor than comparable investments in this country. Defendants never told plaintiff that a substantial portion of his assets would be committed to trading on foreign markets. At or about the end of February or early March, 1980, plaintiff was advised by King and Olsen *1224 that everything was going well with his account. Plaintiff told them that he was going to California and they assured him that the account was in good hands with them.
On Friday, March 7, 1980, the market began to move in a direction adverse to the positions taken in plaintiff's account. Olsen and Freifeld noted this shift. Olsen recommended that steps be taken to reduce the exposure of plaintiff's account, but no actions were taken. By the time defendants arrived at work on Monday, March 10, 1980, at or around 9:00 a.m. New York time, there had been a precipitous drop in the foreign markets, which had been trading for some five hours by that time. Although defendants put in stop orders by 11:00 a.m. New York time, it was too late to save plaintiff's account from incurring an almost complete loss.
The complaint contains five causes of action. The first alleges fraud in connection with inducing plaintiff to open his account in violation of the Commodity Exchange Act, 7 U.S.C. § 6b(A), (B), (C) and (D), 7 U.S.C. § 6c(a), 7 U.S.C. § 6h, 7 U.S.C. § 6o(l) and the rules and regulations promulgated thereunder. The second cause of action alleges fraud in the operation and maintenance of plaintiff's account in violation of the aforementioned sections of the Commodity Exchange Act. In addition to realleging the allegations of the first cause of action, this claim details how plaintiff's account was fraudulently managed. The third cause of action alleges negligence. Plaintiff has consented to dismissal of the fourth cause of action, which alleged negligent infliction of emotional distress suffered by plaintiff as a result of losing his life's savings. The fifth cause of action alleges common law fraud and seeks compensatory and punitive damages.
The Heinold Defendants move to dismiss the second and third causes of action on the grounds that since Freifeld and Harbor were given exclusive authority to make investment decisions on plaintiff's behalf, the Heinold Defendants cannot be responsible for the losses plaintiff suffered. In support of this contention, the Heinold Defendants cite to documents plaintiff signed which state that Heinold's role with respect to the account was to be limited to executing the trades which were ordered by Harbor and Freifeld and that Heinold would not be responsible to plaintiff for any losses caused by the actions of Harbor and Freifeld. In addition, plaintiff signed a risk disclosure statement which acknowledged that commodities trading was very risky and that all of his investment, and more, could be lost in an adverse market. There was an agreement with Freifeld and Harbor which gave plaintiff the right to terminate the account and liquidate all positions if the value of the account at the close of any business day was less than 50% of the amount initially invested. But, Heinold was not a party to this agreement. The Heinold Defendants argue that the allegations of the second and third causes of action, directed at defendants' failure to enter stop-loss or other orders to limit plaintiff's losses to 50% of his investment, should accordingly be dismissed as to them. They had neither the duty nor the authority to enter such orders without first being directed to do so by Harbor and Freifeld.
In deciding this motion, it is significant that plaintiff maintained a discretionary account with Heinold. This imposed upon Heinold "broad" fiduciary duties to plaintiff with respect to the management of the account. Leib v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 461 F. Supp. 951, 953 (E.D.Mich.1978).[1] The cases cited by the Heinold Defendants to the contrary are inapposite since they describe the responsibilities of a broker executing trades for a non-discretionary account maintained by a sophisticated investor. The duties imposed in such a situation are more circumscribed. Id. The contentions of the parties on this motion raise *1225 material factual questions whether Heinold and its employees breached a fiduciary duty to plaintiff.
Issues of material fact are presented in two other respects. First, factual issues exist with regard to the extent to which the Heinold Defendants gave assurances to plaintiff concerning the abilities of Freifeld/Harbor, the investment adviser they recommended. Rolf v. Blyth, Eastman Dillon & Co., 637 F.2d 77, 80-81 (2d Cir.1980) (broker-dealer liable when it "actively lulled the investor by expressing confidence in the adviser without bothering to investigate whether these assurances were well founded"). Second, factual issues are presented with regard to the relationship between the Heinold Defendants and Freifeld and Harbor in the maintenance of the account. Faturik v. Woodmere Securities, Inc., 431 F. Supp. 894, 896 (S.D.N.Y. 1977) (close working relationship of two firms); Margaret Hall Foundation, Inc. v. Atlantic Financial Management, Inc., 572 F. Supp. 1475, 1480-81 (D.Mass.1983) (close relationship between two companies and use of one entity's name "to lend credibility" to the other); Hawkins v. Merrill, Lynch, Pierce, Fenner & Beane, 85 F. Supp. 104, 122 (W.D.Ark.1949) (clearing broker's knowledge of correspondent broker's method of trading).
The argument that plaintiff signed statements which purport to represent plaintiff's understanding that trading authority was vested in Freifeld/Harbor only and that Freifeld/Harbor and Heinold are unrelated, does not provide a sufficient basis to grant this motion for summary judgment. In Embeita v. Heinold Commodities, Inc., [1984-86 Transfer Binder] Comm.Fut.L.Rep. (CCH) ¶ 22,594 (E.D.Va. 1985), the Court denied Heinold's summary judgment motion to dismiss plaintiff's claims which arose due to "its failure to supervise the handling of her accounts." Id. at 30,552. Heinold had argued that because plaintiff had signed certains documents "professing her understanding that [the advisor] was not the agent of Heinold," id., no material issues of fact existed on the issue of agency. The court rejected this contention, holding that "[p]arties to an agency relationship do not change the nature of that relationship merely by calling it something other than its legal name," id., since "[a]gency is a legal concept which depends on the manifest conduct of the parties, not on their intentions or beliefs as to what they have done." Id. quoting Interocean Shipping Co. v. National Shipping & Trading Corp., 523 F.2d 527, 537 (2d Cir.1975), cert. denied, 423 U.S. 1054, 96 S. Ct. 785, 46 L. Ed. 2d 643 (1976).
The Court must, therefore, look beyond the written statements of the parties and examine their conduct to determine whether any disputed issue of fact exists or any conflicting inferences could arise about the relationship between [the advisor] and Heinold.
Embeita, at 30,552. Accord Berisko v. Eastern Capital Corp., [1984-86 Transfer Binder] Comm.Fut.L.Rep. ¶ 22,274 (CFTC 1984). In this case, the circumstances surrounding plaintiff's introduction to Freifeld/Harbor, as well as the nature of the subsequent contacts with the defendants and the cooperation between the defendants in the maintenance of plaintiff's account, lead the Court to conclude that there are disputed issues of fact and conflicting inferences concerning the relationship between Freifeld and Harbor and Heinold. The motion for summary judgment dismissing the second cause of action is denied.
The Heinold Defendants next seek to dismiss the third cause of action, which alleges negligence in the operation of the account and in the making of misrepresentations concerning Harbor's previous trading record. They argue that negligence actions are not available for the recovery of economic losses except where a party has contracted to perform services. Consolidated Edison Co. v. Westinghouse Electric Corp., 567 F. Supp. 358, 363-66 (S.D.N.Y.1983). This argument assumes that Heinold had no contractual duties to investigate Harbor's track record or to supervise the activity of the account. The Court has already determined that material *1226 factual issues exist as to whether the Heinold Defendants breached a fiduciary duty to plaintiff and whether the nature of the relationship between Freifeld/Harbor and Heinold amounted to some type of agency arrangement. These considerations require the Court to refrain from granting summary judgment on this claim, since resolution of these issues may entail a determination that Heinold was contractually bound to perform certain services for plaintiff with regard to his account.
Conclusion
The motion for partial summary judgment to dismiss the second and third causes of action as against the Heinold Defendants is denied. The motion to dismiss the fourth cause of action is granted.
SO ORDERED.
NOTES
[1] Case law developed under the securities laws is pertinent to cases decided under the Commodity Act. Sherman v. Sokoloff, 570 F. Supp. 1266, 1269 n. 9 (S.D.N.Y.1983); CFTC v. U.S. Metals Dep. Co., 468 F. Supp. 1149, 1152 n. 5 (S.D.N.Y.1979) (Weinfeld, J.). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1959771/ | 284 B.R. 638 (2002)
In re Billy W. & Reada F. GOOLSBY, Debtors.
C & J Leasing Corp., Appellant,
v.
Robert H. Waldschmidt, Appellee.
Bankruptcy No. 301-09684. Adversary No. 301-1587A. Civil No. 3:02-0418.
United States District Court, M.D. Tennessee, Nashville Division.
October 15, 2002.
*639 *640 Howard W. Wilson, Wilson & Bradley, Murfreesboro, TN, for debtors.
Robert H. Waldschmidt, Nashville, TN, pro se.
Beth Roberts Derrick, Nashville, TN, for U.S. Trustee.
MEMORANDUM
TRAUGER, District Judge.
On this appeal from a decision of the United States Bankruptcy Court for the Middle District of Tennessee, C & J Leasing Corp. ("C & J") asserts that the Bankruptcy Court erred in concluding that C & J's UCC-1 financing statement was invalid under T.C.A. § 47-9-402. (Docket No. 26). In a March 19, 2002 telephonic order, the Bankruptcy Court held that (1) "Authorized Signature by: Kelly Seward" did not satisfy § 47-9-402(1)'s requirement that the debtor "sign" the UCC-1 and (2) this error was too serious for § 47-9-402(8) to save the UCC-1. (Docket No. 25, Pp. 3-4).[1]
For the reasons discussed herein, the March 19, 2001 decision of the Bankruptcy Court will be affirmed.
I. STATEMENT OF FACTS AND PROCEDURAL HISTORY
On December 15, 2000 Billy and Reada Goolsby executed a lease agreement with C & J Leasing Corp. ("C & J") for a Vermeer Brush Chipper 1230, S/N 797.[2] As part of the leasing agreement, the Goolsbys gave C & J power of attorney to sign and file a financing statement (UCC-1) on their behalf in order to protect its interest in the Chipper. C & J then prepared a UCC-1 for the Vermeer Brush Chipper. Where the UCC-1 calls for the debtor's signature, C & J's employee, Kelly Seward, signed it: "Authorized Signature by: Kelly Seward." C & J sent the UCC-1 to the Tennessee Secretary of State's office for filing on January 8, 2001. The office stamped "REJECT" on the form but proceeded to file it on January 9, 2001 anyway. (Docket No. 26, Ex. C).
The Goolsbys filed a Chapter 7 bankruptcy petition on August 29, 2001. Robert Waldschmidt was appointed as trustee on August 30, 2001. C & J then filed a proof of claim, alleging a secured claim on the Chipper, and attached a copy of the UCC-1 that it had filed with the Tennessee Secretary of State. Waldschmidt responded by filing an Adversary Proceeding to void C & J's security interest in the Chipper. The parties made cross-motions for summary judgment. By telephonic order issued on March 19, 2002, Chief United States Bankruptcy Judge George C. Paine, II granted Waldschmidt's motion for summary judgment. (Docket No. 26, Transcript of Proceedings Before the Honorable George C. Paine, II United States Bankruptcy Judge). C & J appeals from this order.
II. ANALYSIS
This court has jurisdiction to hear this appeal under 28 U.S.C. § 158(a) *641 (1994). The district court, acting as an appellate court, "reviews a bankruptcy court's decision to determine whether its factual findings are clearly erroneous and its legal conclusions, which are subject to de novo review on appeal, are correct." In re Caldwell, 851 F.2d 852, 857 (6th Cir.1988).
A. THE COURT DECLINES TO CERTIFY THIS QUESTION TO THE TENNESSEE SUPREME COURT
The Appellant has requested that the court certify this question to the Tennessee Supreme Court. (Docket No. 26, Brief of the Appellant, P. 3). The court finds that this question is not appropriate for certification. While there is no Tennessee authority on the issue at hand, the available authorities from other jurisdictions unanimously agree that an authorized signature on a UCC-1 must evidence the source of the signer's authority in order to fulfill § 47-9-402(1)'s signature requirement.[3] Especially since this is an issue of Uniform Commercial Code interpretation, the court concludes that the Tennessee Supreme Court would likely follow the existing authorities. Because this court can predict the Tennessee Supreme Court's decision, certification would only cause unnecessary delay and expense.
B. THE FINANCING STATEMENT DOES NOT COMPLY WITH T.C.A. § 47-9-402
For the reasons discussed below, the court finds that C & J's UCC-1 was ineffective because it did not meet the requirements of § 47-9-402.
Two statutory provisions are at issue here. The first, T.C.A. § 47-9-402(1), explains the requirements for preparing financing statements:
A financing statement is sufficient if it gives the names of the debtor and the secured party, is signed by the debtor, gives an address of the secured party from which information concerning the security interest may be obtained, gives a mailing address of the debtor and contains a statement indicating the types, or describing the items, of collateral. T.C.A. § 47-9-402(1)(emphasis added).
The second provision, T.C.A. § 47-9-402(8), protects the effectiveness of some erroneously prepared financing statements. "A financing statement substantially complying with the requirements of this section is effective even though it contains minor errors which are not seriously misleading." T.C.A. § 47-9-402(8). In Brown v. Belarus Machinery, Inc., the Bankruptcy Court for the Eastern District of Tennessee explained the purpose of § 402(8):
Minor mistakes in financing statements are not fatal because . . . [§ 47-9-402] was intended to provide merely a system of notice filing. . . . Thus, even though there may be errors or deficiencies in descriptions, addresses, names, and even signatures, such errors will not destroy the effectiveness of a financing statement so long as they do not frustrate the underlying purpose of the filing requirements in affording notice to creditors of the possible existence of security interests.
Brown v. Belarus Machinery, Inc., 83 B.R. 515, 517 (Bankr.E.D.Tenn.1988) (citing J. White and R. Summers, Handbook of the Law Under the Uniform Commercial Code, § 23-16 (2d ed.1980). The determination of whether or not an error in a financing statement is seriously misleading, and thus whether § 402(8) saves a *642 defective UCC-1, is a question of fact to be determined by the trial court. Lankford v. U.S., 1991 WL 185224, *10 (M.D.Tenn.)); Belarus Machinery, 83 B.R. at 517.
The main issue in this case is whether Kelly Seward's signature, signed as "Authorized Signature by: Kelly Seward," satisfies § 47-9-402's requirement that the debtor sign the UCC-1. More precisely, this is a question of whether Seward's signature was sufficient, despite the fact that it did not describe the source of Seward's authority.[4]
In American Pulverizer Co. v. Cantrell,[5] the Court of Appeals of Kentucky found that, in order to be sufficient, an authorized individual's signature must evidence his agency relationship with the debtor. American Pulverizer, 694 S.W.2d at 717. In that case, Alexander Hutchings, the incorporator of debtor Energy Klenzing, Inc., simply signed the UCC-1 "Alexander Hutchings." Id. The court noted a jurisdictional split on whether a signature affixed in an individual capacity can suffice as the corporate debtor's signature but found that no jurisdiction had found such an individual signature to be sufficient if it did not "evidence [either] that the individual signer was an officer of the corporation or duly authorized by the corporate debtor to sign on its behalf." Id. Thus, the court concluded that the signature must include evidence of the signer's authority in order to be sufficient.
An example of such a case is Sherman v. Upton,[6] in which the Supreme Court of South Dakota found that the individual signatures of the President and Secretary of Upton, Inc., followed by the titles "Pres." and "Sec." satisfied § 402(1)'s requirements because these signatures were "indicative of their intention to appear on these documents as corporate officers." Upton, 242 N.W.2d at 671.
In Murray v. Conrad,[7] the Supreme Court of Iowa distinguished the signature requirement for financing statements from the signature requirement for security agreements in finding that Gerald Conrad's individual signature validly bound Conrad Distributing, Inc. to a security agreement. Murray, 346 N.W.2d at 819-820.
Section 9-402 requires that the financing statement include the name, as well as the signature of the debtor. The inclusion of the debtor's name on the financing statement generally prevents misfiling and establishes who the debtor is. The security agreement signature requirement, on the other hand, is primarily a statute of frauds. Thus, when an authorized principal of the company has executed a security agreement, the absence of the true business name should not defeat the security interest.
Id. (quoting J. White and R. Summers, Handbook of the Law Under the Uniform Commercial Code 913 (2d ed.1980)) (emphasis added). The court went on to indicate that "[n]otice and filing are not issues here." Id. at 820. By implication, the Supreme Court of Iowa concurs that a financing statement is invalid where the agent-signer fails to evidence his authority.
Similarly, in Provident v. Beneficial Finance *643 Co.,[8] the Court of Appeals of North Carolina found that a wife's signature on her husband's behalf was invalid because she simply signed her name without indicating that she was acting as his agent. Provident, 36 N.C.App. 401, 245 S.E.2d 510, 515. That court also opined that, while the § 402 requirements are generally intended to be applied liberally, the debtor's signature requirement is intended to be applied more strictly than are the other requirements. Id. (citing J. White and R. Summers, Uniform Commercial Code 835 (1972)).
Appellant relies on Plemens v. Didde-Glaser, Inc.,[9] in which the Court of Appeals of Maryland found that Kenneth C. Slatkoff's signature on behalf of Slatkoff-Tuvin, Inc. "substantially complied" with the UCC's requirements such that the financing statement was not invalid. Plemens, 224 A.2d at 469. However, this case is distinguishable because it was not based on Maryland's equivalent of § 402(1), but rather its equivalent of § 402(8). Id. The court found that the UCC-1 was valid because there was "no showing that anyone was misled by the signature." Id. Thus, Plemens does not show that the requirements of § 402(1) can be satisfied by a signature that does not evidence the signer's authority, but rather only that in Plemens the error was minor enough that § 402(8) protected the financing statement's effectiveness. Thus, Plemens is inapposite to the § 402(1) issue in this case.
In In re Garrett O. Driscoll & Assoc.,[10] the Bankruptcy Court for the Eastern District of Massachusetts found that the signature "Garret O. Driscoll" was sufficient for a financing statement to perfect the creditor's claim against Garrot O. Driscoll and Associates, Inc. Driscoll, 151 B.R. at 636. The court gave no reasons for this conclusion but cited Plemens and some other cases.[11]Id. Because In re Driscoll was so factually similar to Plemens, and because Plemens was the only authority that the Driscoll court cited that actually supported its conclusion,[12] the most reasonable interpretation of Driscoll is that it, too, found the UCC-1 effective under § 402(8) rather than § 402(1).
Therefore, because the available authorities unanimously find that § 402(1) requires that an authorized individual's signature provide evidence of the signer's authority, and because Kelly Seward's signature did not describe the basis of her authority at all, the court finds that Kelly Seward's signature did not fulfill the requirements of § 402(1).
Furthermore, the court finds that § 402(8) does not save the financing statement because the error was not minor. Again, whether an error is minor and not seriously misleading is a question of fact for the trial court and is reviewed on appeal only for clear error. Lankford, 1991 WL 185224, *10; Belarus Machinery, 83 B.R. at 517; Bankr.R. 8013. In this case, *644 the bankruptcy court found that, "The ineffective signature of the debtor is not a minor error." (Docket No. 25, P. 4). The court does not view this finding as clearly erroneous. The error is far more significant and misleading than the one at issue in Plemens. In Plemens the signer's last name, "Slatkoff," was the same as the first half of the corporate debtor's name, "Slatkoff-Tuvin, Inc." Plemens, 224 A.2d at 465-66. Thus, a reasonable reader could fairly conclude that there is a decent probability that the signer, Slatkoff, was an agent of the debtor, Slatkoff-Tuvin, Inc. No such obvious connection can be drawn between "Kelly Seward" and "Billy and Reada Goolsby." Therefore, the court concludes that the bankruptcy court's finding was not clearly erroneous.
C. THE COURT DECLINES TO ADDRESS THE ISSUE OF THE "REJECT" STAMP
The bankruptcy court declined to address the effect of the "REJECT" stamp on the UCC-1 because the issue was mooted by the court's conclusion that the UCC-1 was invalid under § 402(1) for lack of a debtor's signature. This court agrees that this issue is mooted by the § 402(1) problem and declines to address it.
III. CONCLUSION
For the reasons discussed herein, the court finds that the bankruptcy court's conclusions of law were correct and its findings of fact were not clearly erroneous. The March 19, 2002 decision of the bankruptcy court will be AFFIRMED.
An appropriate Order will enter.
NOTES
[1] Due to a mistake or an electronic failure, the March 19 telephonic delivery of the court's ruling was not recorded. On July 24, 2002, Judge Paine filed a written version of his oral ruling to "serve as the official transcript." (Docket No. 25).
[2] Unless otherwise noted, the facts have been drawn from the parties' Pretrial Statement to the bankruptcy court containing certain "Uncontested Facts" and Exhibits. (Docket No. 29, Brief of Appellee, P. 3).
[3] See Part IIB for a survey and analysis of these authorities.
[4] Waldschmidt does not dispute Kelly Seward's actual authority to sign on the Goolsby's behalf. The Goolsbys granted limited power of attorney to C & J to sign financing statements in the leasing agreement, and Kelly Seward was acting as C & J's agent.
[5] 694 S.W.2d 714 (Ky.Ct.App.1985).
[6] 90 S.D. 467, 242 N.W.2d 666 (1976).
[7] 346 N.W.2d 814 (Iowa 1984).
[8] 36 N.C.App. 401, 245 S.E.2d 510 (1978).
[9] 244 Md. 556, 224 A.2d 464 (1966).
[10] 151 B.R. 634 (Bankr.D.Mass.1993).
[11] The court also cited In re Great Basin Trans., Inc. 32 B.R. 365 (Bankr.W.D.Okla.1983), Murray v. Conrad, 346 N.W.2d 814 (Iowa 1984), and Sherman v. Upton, Inc., 90 S.D. 467, 242 N.W.2d 666 (1976). However, both In re Great Basin and Murray related to the validity of individual signatures on security agreements, not financing statements, and in Sherman the signature included evidence of the signer's authority. Therefore, these cases are actually inapposite to the question of whether an individual's signature that does not evidence the signer's agency relationship can satisfy the signature requirement for financing statements.
[12] See footnote 11. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2843707/ | Opinion issued April 29, 2010
In The
Court of
Appeals
For The
First District
of Texas
————————————
NOS. 01-10-00129-CR
01-10-00130-CR
01-10-00131-CR
———————————
Andres Gilberto FLores, Appellant
V.
The State of
Texas, Appellee
On Appeal from the 268th District Court
Fort Bend County, Texas
Trial Court Case No. 52683, 52684, 52685
MEMORANDUM OPINION
We
lack jurisdiction to hear these appeals.
The trial court sentenced appellant, Andres Gilberto Flores, and signed
a final judgment in this case on November 16, 2009. Appellant did not file a motion for new
trial, and therefore the deadline for filing a notice of appeal was December
16, 2009, 30 days after sentencing. Tex. R. App. P. 26.2(a)(1).
Appellant
filed a notice of appeal on January 27, 2010, 42 days after the deadline. An untimely notice of appeal fails to vest
the appellate court with jurisdiction to hear the case. Slaton v. State, 981 S.W.2d 208, 209-10
(Tex. Crim. App. 1998); Olivo v. State, 918 S.W.2d 519, 522 (Tex. Crim.
App. 1996); Douglas v. State, 987 S.W.2d 605, 605-06 (Tex. App.—Houston
[1st Dist.] 1999, no pet.).
We
therefore dismiss the appeals for lack of jurisdiction.
All
pending motions are denied as moot.
It is
so ORDERED.
PER CURIAM
Panel consists of Chief Justice Radack and Justices
Alcala and Higley.
Do
not publish. Tex. R. App. P. 47.2(b). | 01-03-2023 | 09-03-2015 |
https://www.courtlistener.com/api/rest/v3/opinions/1632601/ | 649 F. Supp. 820 (1986)
UNITED STATES of America, Plaintiff,
v.
James Vernon MAGEEAN, Defendant.
No. CR-R-84-67-ECR.
United States District Court, D. Nevada.
Order and Minute Order October 10, 1986.
Supplemental Order and On Petitions to Adjudicate Claims November 24, 1986.
Donald Cavin Hill, Asst. U.S. Atty., Reno, Nev., for plaintiff.
Paul G. Sloan, Jeffrey S. Ross, San Francisco, Cal., and John L. Conner, Reno, Nev., for defendant.
ORDER
EDWARD C. REED, JR., Chief Judge.
FACTS
On March 12, 1986, James Vernon Mageean was found guilty of violations of the RICO statute, 18 U.S.C. § 1962(c) and (d). The acts giving rise to this conviction occurred between April of 1978 and May of 1984. Following the conviction, the Court ordered forfeiture of 100% of the shares of Ark Distributing Company, Inc., (Ark), an enterprise engaged in racketeering activities. Pursuant to 18 U.S.C. § 1963(m)(1), the United States gave notice of the forfeiture both by publication and by direct notice to interested third parties.
On December 23, 1985, an airplane in which Ark owned an interest crashed into the Sun Valley Shopping Center in Concord, California. The crash caused seven deaths and several injuries. Suits have been filed on behalf of several of those injured in California state court against *821 Ark and other defendants. The state court action has been stayed pending determination by this Court of the tort claimants' rights against Ark's assets.
Several of these tort claimants have also filed petitions to adjudicate their claims in the forfeited property of Ark pursuant to 18 U.S.C. § 1963(m). These tort claimants now move this Court for an order requiring that the assets of Ark be held intact until the rights of all lawful claimants are determined. Notice of the setting of the hearing on this motion was given by order of the Court on August 16, 1986.
The United States Attorney has petitioned this Court for an order approving the settlement of five claims made pursuant to 18 U.S.C. § 1963(m). The government also requests that the Court authorize the disposition of the assets involved and the division of proceeds from such sales.[*] The claimants include Friedman, Sloan & Ross, P.C., a law firm which represents Ark in an ongoing civil litigation, and four parties claiming to have security interests in property held by Ark. In exchange for withdrawing their claims against Ark, the settlements contemplate that these claimants will be paid off by the government. In connection with their motion to require that Ark's assets be held intact, the tort claimants have petitioned the Court to stay these settlements so that the assets of Ark may be preserved until their claims are adjudicated.
Several other unsecured parties have filed petitions to adjudicate their interests in the forfeited property. The Court notes, however, that none of these parties have joined the tort claimants' motions to hold Ark's assets intact and to stay the government's proposed settlements.
DISCUSSION
Two issues are raised by the tort claimants' motions to freeze Ark's assets. First, the Court must determine what assets were forfeited to the United States pursuant to this Court's forfeiture order. And second, it must be determined whether, under the circumstances of this case, this Court has the authority to grant the relief requested by the tort claimants.
Although the forfeiture order explicitly applied only to 100% of the stock in Ark, the government and all other interest parties have acted as if the corporation's assets themselves were also forfeited. Therefore, the Court must determine the extent of the forfeiture order.
It appears that there are no cases which decide whether the forfeiture of stock is equivalent to forfeiture of the underlying assets, although the issue has been raised by other courts. See United States v. Ambrosio, 575 F. Supp. 546, 549 (E.D.N.Y. 1983). The statute and its legislative history, however, provide guidance. 18 U.S.C. § 1963(a) and (b) read:
(a) Whoever violates any provision of section 1962 of this chapter shall be fined not more than $25,000 or imprisoned not more than twenty years, or both, and shall forfeit to the United States, irrespective of any provision of State law
(1) any interest the person has acquired or maintained in violation of section 1962;
(2) any
(A) interest in;
(B) security of;
(C) claim against; or
(D) property or contractual right of any kind affording a source of influence over;
any enterprise which the person has established, operated, controlled, conducted, or participated in the conduct of in violation of section 1962; and
(3) any property constituting, or derived from, any proceeds which the person obtained, directly or indirectly, from racketeering activity or unlawful debt collection in violation of section 1962.
The court, in imposing sentence on such person shall order, in addition to *822 any other sentence imposed pursuant to this section, that the person forfeit to the United States all property described in this subsection. In lieu of a fine otherwise authorized by this section, a defendant who derives profits or other proceeds from an offense may be fined not more than twice the gross profits or other proceeds.
(b) Property subject to criminal forfeiture under this section includes
(1) real property, including things growing on, affixed to, and found in land; and
(2) tangible and intangible personal property, including rights, privileges, interests, claims and securities.
18 U.S.C. § 1963(a) and (b) (emphasis added).
Congress intended to emphasize the mandatory nature of criminal forfeiture by directing that the courts "shall" order forfeiture of all property described in § 1963(a). S.Rep. No. 225, supra, at 3383. See also United States v. Kravitz, 738 F.2d 102, 104-105 (3rd Cir.1984), cert. denied, 470 U.S. 1052, 105 S. Ct. 1752, 84 L. Ed. 2d 816 (1985). It is also clear that Congress intended that the concept of "property" as used in § 1963 to be broadly construed. S.Rep. No. 225, 98th Cong., 2d Sess., reprinted in 1984 U.S. Code Cong. & Ad. News 3182, 3374, 3383. In this case, all of Ark's assets fall within § 1963(a)'s description of property. Moreover, since Ark, as an enterprise, was involved in racketeering activities, and since its assets constitute proceeds from that activity, the entire enterprise could have been forfeited to the United States. See United States v. Thevis, 474 F. Supp. 134, 144-145 (N.D.Ga. 1979) aff'd, 665 F.2d 616 (5th Cir.1982), cert. denied, 458 U.S. 1109, 102 S. Ct. 3489, 73 L. Ed. 2d 1370 (1981) (if the government shows that each of a corporation's assets contributed to or were utilized in forwarding racketeering activities, then forfeiture of all of its assets would be proper). Therefore, the Court finds that the assets of Ark were forfeited to the United States pursuant to the forfeiture order of March 13, 1986.
The Court will now address the issue of whether it has the authority to order that the assets of Ark be held intact and that the execution of the proposed settlements be stayed pending determination of the lawful claims made against those assets. The Court notes at the outset that under 18 U.S.C. § 1963 its authority is very limited. With regard to claims made by third parties asserting an interest in forfeited property, the Court merely has the power to determine the validity of the claims and to amend the order of forfeiture in accordance with its determination. 18 U.S.C. § 1963(m). The Court notes, however, that it may have an adjunct power to stay the disposition of forfeited property pending its adjudication of third party claims even though the statute gives no express authority for such actions. But even assuming arguendo that this Court holds this power, it could only be exercised in circumstances where the Court's jurisdiction to adjudicate claims cognizable under 18 U.S.C. § 1963(m)(6)(A) and (B) is at issue. Therefore, for purposes of this motion, it is necessary to determine whether the tort claimants have any interest under the statute in the forfeited assets of Ark.
This Court appears to be writing on a clean slate on the issue of whether tort claimants have a judicially cognizable interest in forfeited property under 18 U.S.C. § 1963. The legislative history of the 1984 amendments to § 1963 and cases in other areas, however, are instructive on this issue.
Prior to the 1984 amendments, third parties asserting an interest in forfeited property could seek redress only by petitioning the Attorney General. S.Rep. No. 225, supra, at 3374, 3390. Congress enacted 18 U.S.C. § 1963(m) so that certain third parties challenging the validity of a forfeiture order could instead petition the courts to adjudicate the validity of their interests. As part of this scheme, Congress created two statutory categories of claimants entitled to have the Court amend its forfeiture *823 order if they proved their claims. The two categories recognized by the statute are:
(A) the petitioner has a legal right, title, or interest in the property, and such right, title, or interest renders the order of forfeiture invalid in whole or in part because the right, title, or interest was vested in the petitioner rather than the defendant or was superior to any right, title, or interest of the defendant at the time of the commission of the acts which gave rise to the forfeiture of the property under this section; or
(B) the petitioner is a bona fide purchaser for value of the right, title, or interest in the property and was at the time of purchase reasonably without cause to believe that the property was subject to forfeiture under this section ...
18 U.S.C. § 1963(m)(6).
In enacting subsection (m), Congress recognized that since criminal forfeiture actions are in personam proceedings, a forfeiture order would be invalid if it reached a third party's interest in property which was either exclusive of or superior to the interest of the defendant. S.Rep. No. 225, supra, at 3391. Having provided a judicial remedy for these categories of claimants, however, other third party claimants are expressly denied any other judicial remedy:
(j) Except as provided in subsection (m), no party claiming an interest in property subject to forfeiture under this section may
(1) intervene in a trial or appeal of a criminal case involving the forfeiture of such property under this section; or
(2) commence an action at law or equity against the United States concerning the validity of his alleged interest in the property subsequent to the filing of an indictment or information alleging that the property is subject to forfeiture under this section.
18 U.S.C. § 1963(j).
The legislative history also makes clear that the exclusive remedy for parties having claims based on equitable grounds and parties who fail to obtain relief under the ancillary hearing provision of 18 U.S.C. § 1963(m)(6) is to petition the Attorney General for remission or mitigation of forfeiture. S. Rep. No. 225, supra, at 3391-3392. The Attorney General, pursuant to 18 U.S.C. § 1963(h)(1) and (i)(2), has promulgated procedures which make this remedy available. See 28 C.F.R. Part 9.
Therefore, the tort claimants have no right to have the forfeiture order amended unless they fit within one of the statutory categories. Since the aircrash occurred after the criminal acts giving rise to the forfeiture, the only category into which these claims possibly fit is that of bona fide purchaser for value.
This reasoning is reinforced by 18 U.S.C. § 1963(c) which reads:
(c) All right, title, and interest in property described in subsection (a) vests in the United States upon the commission of the act giving rise to forfeiture under this section. Any such property that is subsequently transferred to a person other than the defendant may be the subject of a special verdict of forfeiture and thereafter shall be ordered forfeited to the United States, unless the transferee establishes in a hearing pursuant to subsection (m) that he is a bona fide purchaser for value of such property who at the time of purchase was reasonably without cause to believe that the property was subject to forfeiture under this section.
Thus, the United States had a vested interest in Ark at the time of the aircrash superior to any interest of the tort claimants, unless they establish that they are bona fide purchasers.
The tort claimants may argue that they should be considered bona fide purchasers because the intent of Congress is not served by applying the "relation-back" doctrine to them. A recent case may aid this argument. In United States v. Figueroa, 645 F. Supp. 453 (W.D.Pa.1986), the district court held that, under 21 U.S.C. § 853(n)(2), a good faith provider of legal services falls within the scope of persons that Congress recognized as being entitled to a judicial *824 determination of their claims. The court acknowledged that the attorney was not, in a literal sense, an innocent bona fide purchaser under § 853(c) (which is identical to § 1963(c)). According to the court, however, the legislative histories of §§ 853 and 1963 show that the purpose of the relation-back doctrine is to "close a potential loophole in current law whereby the criminal forfeiture statute would be avoided by transfers that were not `arm's length' transactions." 645 F.Supp. at 456, quoting, S.Rep. No. 225, supra, at 3383-3384. Therefore, the court held that the purpose of the statute would not be undermined by exempting legitimate attorney's fees from forfeiture. 645 F.Supp. at 456. See also, United States v. Reckmeyer, 631 F. Supp. 1191 (E.D.Va.1986).
Based on these cases, the tort claimants could argue that no statutory purpose is served by denying them relief. While it is true that their claims were not created through "sham" transactions, it does not seem possible to stretch the definition of bona fide purchaser to include the tort claimants. This is especially true since Congress could have easily provided for judicial determination of tort claims but chose instead to protect only two classes of claimants. Moreover, at least one court has held that the relation-back doctrine applies to tort claims. United States v. One 1957 Model Tudor Ford, 167 F. Supp. 864 (E.D.S.C.1958). Therefore, their sole remedy is to petition the Attorney General.
For the reasons stated above, the Court concludes that the tort claimants have no cognizable interest in the assets of Ark under 18 U.S.C. § 1963(m)(6)(A) and (B). The extent of this Court's authority is limited to adjudicating interests under those sections. Therefore, where the movants have no statutory interest in the assets, this Court has no authority to order that the assets of Ark be held intact or that the execution of the proposed settlements be stayed.
IT IS, THEREFORE, HEREBY ORDERED that the motion for an order requiring that the assets of Ark be held intact pending the determination of the rights of lawful claimants and staying the execution of the proposed settlements by the United States is DENIED.
MINUTE ORDER IN CHAMBERS
October 9, 1986
IT IS HEREBY ORDERED THAT a hearing will be held on Monday, October 20, 1986, at 9:30 o'clock A.M., to adjudicate the validity of the claims of Imco Realty Services, Inc., Dorothy Graham, Carol and Lawrence Holst, John Zyla, Elizabeth Zyla, and John Nemec, Friedman, Sloan & Ross, P.C., Sandoz Chemicals, VWR Scientific, Butler Paper Co., Thomas Printing Inks, Inc., and Brenton Safety, Inc. Each side shall be limited to one hour.
At said hearing pursuant to 18 U.S.C. § 1963(m)(6)(A) and (B) the Court will determine whether the petitioners have a legal right, title or interest in the forfeited property of Ark Distributing Company, Inc. ("ARK"), which renders the order of forfeiture invalid in whole or in part, or whether the petitioners are bona fide purchasers for value of the right, title, or interest in the forfeited property of ARK.
The Court will also determine the nature and extent of such interests, including whether the various unsecured trade creditors are entitled to have the forfeiture order amended. See United States v. Figueroa, 645 F. Supp. 453 (W.D.Pa.1986); United States v. Reckmeyer, 631 F. Supp. 1191 (E.D.Va.1986).
Upon adjudication of these claims, the Court will amend the order of forfeiture, if appropriate, and will determine that the United States shall have clear title to the forfeited property of ARK and may warrant good title to any subsequent purchaser or transferee.
With regard to the government's motion for Court approval of its proposed settlements, the Court finds that 18 U.S.C. § 1963(g) and (h)(4), give the Attorney General, rather than the Court, the authority to dispose of the forfeited property and 18 U.S.C. § 1963(g) gives him the authority to *825 settle and compromise claims in the forfeited property once their validity has been adjudicated by the Court under 18 U.S.C. § 1963(m)(6).
The Court's authority in this context is limited by 18 U.S.C. § 1963(m) to the determination of whether petitioners for adjudication of claims in forfeited property have an interest in or are bona fide purchasers of that property. The statute does not grant the Court the authority to approve settlements or compromises with respect to the forfeited property or to approve the disposition of the same or division of proceeds from such sales. The proposed actions of the Attorney General with respect to the forfeited property may be subject to judicial review, but prior court approval is not authorized. Therefore, the Court will deny the government's motions to approve the settlements.
IT IS FURTHER ORDERED that the United States' motions for an order approving the settlement of the petitions of Imco Realty Services, Inc., Dorothy Graham, Carol and Lawrence Holst, John Zyla, Elizabeth Zyla and John Nemec and Friedman, Sloan & Ross, P.C., are DENIED.
SUPPLEMENTAL ORDER
Following the criminal conviction of James Vernon Mageean, the Court, on March 13, 1986, ordered forfeiture of 100% of the shares of Ark Distributing Company, Inc. ("Ark") pursuant to 18 U.S.C. § 1963 (1986). Pursuant to 18 U.S.C. § 1963(m), the United States gave notice of the forfeiture by publication and by direct notice to known interested third parties.
On December 23, 1985, an airplane in which Ark owned an interest crashed into the Sun Valley Shopping Center in Concord, California. The crash caused seven deaths and several injuries. Suits have been filed on behalf of many of those injured in California state court against Ark and other defendants.
Several of these tort claimants have also filed petitions to adjudicate their claims in the forfeited property of Ark pursuant to 18 U.S.C. § 1963(m). The issue presently before the Court is whether the tort claimants have any cognizable interest in the forfeited assets of Ark which would entitle them to a hearing under 18 U.S.C. § 1963(m). The legislative history of section 1963(m) clearly indicates that this Court has the authority to deny a hearing to any petitioner who fails to state any basis for relief described in that section. S.Rep. No. 225, 98th Cong., 2d Sess., reprinted in 1984 U.S.Code Cong. & Ad. News 3374, 3391.
The tort claimant's contend that the due process clause mandates a hearing of their claims. They assert that if they presently held enforceable judgments against Ark, they would have a right, title or interest in the forfeited property. This, however, is simply not the case. The Court in its Order of October 9, 1986, extensively addressed the issue of whether the tort claimants have a statutory interest in the forfeited assets. In that Order, the Court found that it was without authority to grant the tort claimants' motion for an order that the assets of Ark be held intact because the tort claimants have no cognizable interest in Ark's assets under 18 U.S.C. § 1963(m)(6)(A) and (B). The Court adheres to this view and is not persuaded by the tort claimants argument.
The tort claimants are innocent parties who have suffered a tragic loss. Therefore, they have a strong argument that recognizing their claims would be consistent with the purposes of the forfeiture statute. In fact, in a contemporaneous order, the Court concluded that unsecured trade creditors who had provided goods and services to Ark had cognizable interests in the property under § 1963(m)(6)(B).
Unfortunately, however, the same conclusion cannot be made with respect to the tort claimants. At the core of the Court's decision regarding the trade creditors was the fact that they paid value to Ark in Exchange for their claims against Ark's assets. Therefore, the Court held that the trade creditors were bona fide purchasers of their claims to the same extent as a third *826 party who purchased tangible property of Ark. Although the trade creditor's losses may be insignificant in comparison to the tort claimants' injuries, the tort claimants were not involved in an arm's length transaction with Ark and did not pay value for their claims. Therefore, their claims do not fit within any realistic definition of "bona fide purchaser."
Although section 1963(m)(6)(A) and (B) should be read in view of the forfeiture statute's purposes, United States v. Reckmeyer, 628 F. Supp. 616, 620 (E.D.Va.1986), the Court cannot ignore the language of the statute. While it may be true that the relation-back doctrine is designed to void sham transactions and not to affect innocent parties, the United States had an interest in the defendant's property as of the date of the relevant criminal acts that defeats all subsequent transfers unless the transferee is a "bona fide purchaser for value." 18 U.S.C. § 1963(c). Since Congress could have easily provided an exception for tort creditors and other innocent parties but chose instead to protect only certain categories of claimants, this Court will not create another exception.
Thus, this case is distinguishable from Reckmeyer and, even if they had an enforceable judgment against Ark, the tort claimants would not have a statutory interest in the property. Moreover, they have failed to show any "property" right under the Constitution. The only case other than Reckmeyer cited by the tort claimants in support of their right to a hearing is United States v. One Piece of Real Estate, 571 F. Supp. 723, 725 (W.D.Tex.1983). This case does more harm than good to the tort claimants argument, however, because it recognizes that under United States v. Stowell, 133 U.S. 1, 17-18, 10 S. Ct. 244, 247-48, 33 L. Ed. 555 (1890), the government's interest in property is fixed as of the date of the relevant criminal acts and that no third party can acquire a legally recognized interest in the forfeited property after that date. Id. Moreover, any modification of the relation-back doctrine made by this case is not based on constitutional grounds. Therefore, the tort claimants have not shown that section 1963(c) is unconstitutional. In fact, the weight of authority legitimates the relation-back component of the the statute. See e.g., Stowell, supra; Simons v. United States, 541 F.2d 1351, 1352 (9th Cir.1976). The Court also notes that prior to the 1984 amendments, there was no judicial remedy for any third party claiming an interest in forfeited property. Since Congress could choose to provide no judicial remedy, it is not unconstitutional for Congress to provide a remedy only for certain claimants even though this choice leads to disparate treatment of different classes of claimants asserting an interest in forfeited property. See United States v. One 1971 Mercedes Benz, 542 F.2d 912, 914 (4th Cir.1976).
The Court concludes that the tort claimants' petitions are facially invalid and, therefore, the tort claimants are not entitled to a hearing under 18 U.S.C. § 1963(m)(6)(A) and (B). The tort claimants' sole remedy is to petition the Attorney General for remission and mitigation of forfeiture pursuant to 18 U.S.C. § 1963(h)(1) and (i)(2) and 28 C.F.R. Part 9.
The petitioners also assert that some of the tort claimants have not been given direct notice of the forfeiture and, therefore, notice to the class as a whole is inadequate. This claim is not well taken. Since the Court has determined that these claimants have no interest in the assets of Ark, notice may be unnecessary. Moreover, the tort claimants before the Court do not cite any authority to show that they have standing to raise this claim on behalf of those not receiving notice. And finally, the notice provision of 18 U.S.C. § 1963(m)(1) provides that "the United States shall publish notice ..." of the forfeiture and "may also, to the extent practicable, provide direct written notice to any person known to have an alleged interest in the property ..." It is well established that direct notice to all interested parties is not constitutionally mandated and that notice by publication is permissible if the identity of interested parties is unknown and not easily ascertainable. Mullane v. Central Hanover Bank *827 & Trust Co., 339 U.S. 306, 317-19, 70 S. Ct. 652, 658-60, 94 L. Ed. 865 (1950). In this case, the creditors who did not receive notice were unknown to the government. Therefore, this claim must also fail.
IT IS, THEREFORE, HEREBY ORDERED that the petition for adjudication of claims in the forfeited property of Ark Distributing Company, Inc., made by the Evangelista family, the Molina family, Harold Carlson, Kenith Roberson, the Camcam family, Robert Widick, the Lodge family, the Oliver family, the Lewis family, the Trice family, the Larson family, and Jonathan Crouch are DISMISSED.
On Petitions to Adjudicate Claims
Following the conviction of James Vernon Mageean under 18 U.S.C. § 1962(c) and (d) (1984), this Court ordered that 100% of the shares of Ark Distributing Co., Inc. (Ark) be forfeited to the United States. The acts giving rise to forfeiture occurred between April of 1978 and May of 1984. In its order of October 9, 1986, the Court determined that the forfeiture order also extended to the assets of Ark. The United States gave notice of the forfeiture by publication and by direct notice to interested third parties as required by 18 U.S.C. § 1963(m) (1986).
Pursuant to 18 U.S.C. § 1963(m), several parties have filed petitions to adjudicate their claims in the forfeited property of Ark. The petitions at issue here were filed by Sandoz Chemicals, the San Francisco branch of VWR Scientific, Butler Paper Co., Brenton Safety, Inc., and Thomas Printing Inks, Inc. These parties provided goods and services to Ark and are unsecured trade creditors. A hearing to adjudicate these petitions was held before the Court on November 10, 1986. The only claimant represented at said hearing was Sandoz Chemicals.
These trade creditors claim that under 18 U.S.C. § 1963(m)(6) they have a legal interest in the forfeited property of Ark and, therefore, they are entitled to have the order of forfeiture amended. The United States argues, however, that general unsecured creditors have no claim to the forfeited assets under § 1963(m)(6).
To decide this issue, the Court must carefully examine the relevant statutes. Under the Comprehensive Crime Control Act of 1984, which included the Comprehensive Forfeiture Act of 1984, the provisions of § 1963 were amended substantially. These amendments were intended to make forfeiture a more powerful weapon in the fight against drug trafficking and racketeering. Congress emphasized that under the prior law defendants could defeat forfeiture by removing, transferring or concealing their assets prior to conviction. S.Rep. No. 225, 98th Cong., 2d Sess., reprinted in 1984 U.S.Code Cong. & Ad.News 3374, 3378 (hereinafter cited as S.Rep.).
To strengthen the hand of law enforcement officials, Congress enacted 18 U.S.C. § 1963(c) (1986).[1] Under this provision, forfeiture relates back to the date of the commission of the acts giving rise to the forfeiture. Although the "relation back doctrine" does not affect a third party's interest in the forfeited property if his interest arose before that date, see 18 U.S.C. § 1963(m)(6)(A), the government's interest does defeat subsequent transfers of the defendant's property. The one exception to § 1963(c) is for a third party who shows that under § 1963(m)(6)(B) he is a bona fide purchaser for value of the defendant's property reasonably without cause to believe that the property was subject to forfeiture. Therefore, for the trade creditors *828 to prevail they must show that their claims are cognizable under § 1963(m)(6)(A) and (B).
Under 18 U.S.C. § 1963(m)(6)(A) and (B), the order of forfeiture will be amended if the trade creditors fit within one of two statutory classes. The two classes are:
(A) the petitioner has a legal right, title, or interest in the property, and such right, title, or interest renders the order of forfeiture invalid in whole or in part because the right, title, or interest was vested in the petitioner rather than the defendant or was superior to any right, title, or interest of the defendant at the time of the commission of the acts which gave rise to the forfeiture of the property under this section; or
(B) the petitioner is a bona fide purchaser for value of the right, title, or interest in the property and was at the time of purchase reasonably without cause to believe that the property was subject to forfeiture under this section ...
18 U.S.C. § 1963(m)(6). Since the trade creditors claims arose after Mageean's criminal acts began, and, therefore, they did not have an interest superior to the defendant's interest at the time of the commission of the criminal acts, only subsection (B) potentially applies to their claims. Moreover, if their claims do not fit within this class, the trade claimants sole remedy is to petition the Attorney General for remission and mitigation of forfeiture pursuant to 28 C.F.R. Part 9. S.Rep. at 3391-92. See also 18 U.S.C. § 1963(j) (1986).
According to the government, only legal interests are recognized by § 1963(m)(6), and, therefore, unsecured trade creditors have no cognizable interest under that section. It cites the following legislative history to support this argument:
Paragraph (6) provides that a third party will prevail if his claim falls into one of two categories: first, where the petitioner had a legal interest in the property that, at the time of the commission of the acts giving rise to the forfeiture, was vested in him rather than the defendant or was superior to the interest of the defendant; or second, where the petitioner acquired his legal interest after the acts giving rise to the forfeiture but did so in the context of a bona fide purchase for value and had no reason to believe that the property was subject to forfeiture.
S.Rep. at 3392 (footnote omitted).
The Court agrees that only legal interests are recognized and concedes the trade creditors do not, in a technical sense, have legal interests in the forfeited property. In determining the scope of § 1963(m)(6) and that section's definition of the term "legal interest," however, its language must be interpreted to effectuate the overall intent of the statute. United States v. Reckmeyer, 628 F. Supp. 616, 620 (E.D.Va.1986) ("Reckmeyer I"). And, as the Supreme Court stated, "[f]orfeitures are not favored; they should be enforced only when within both the letter and spirit of the law." United States v. One Ford Coach, 307 U.S. 219, 226, 59 S. Ct. 861, 865, 83 L. Ed. 1249 (1939) (citation omitted). Moreover, the intent of the statute is far from clear because the amendments were very hastily passed. In fact, not all of the Act's pages were included in the copy signed by the President. United States v. Rogers, 602 F. Supp. 1332, 1336 (D.Col.1985). Therefore, this piece of legislative history alone is not convincing. Upon closer examination of the statute and its legislative history, the Court concludes that recognizing the trade creditors' claims as legal interests in the forfeited property is consistent with the Congressional intent.
Congress stated that the purpose of subsection (c) of 18 U.S.C. § 1963:
[I]s to permit the voiding of certain preconviction transfers and so close a potential loophole in current law whereby the criminal forfeiture sanction could be avoided by transfers that were not "arms' length" transactions. On the other hand, this provision should not operate to the detriment of innocent bona fide purchasers of the defendant's property.
*829 S.Rep. at 3383-84. Perhaps an even more persuasive statement of legislative intent is contained in a footnote to the passage cited by the government. It states that § 1963(m)(6)(A) and (B) "should be construed to deny relief to third parties acting as nominees of the defendant or who have knowingly engaged in a sham or fraudulent transactions." S.Rep. at 3392 n. 47. Other portions of the legislative history also confirm this view of the statute. See Sen.R. at 3377, 3378-79. See also United States v. Figueroa, 645 F. Supp. 453, 455 (W.D.Pa.1986); United States v. Basset, 632 F. Supp. 1308, 1317 (D.Md.1986); United States v. Reckmeyer, 631 F. Supp. 1191, 1196 (E.D.Va.1986) (a case connected to Reckmeyer I and hereinafter cited as Reckmeyer II); United States v. Rogers, 602 F. Supp. 1332, 1342 (D.Col.1985).
Based on this legislative history, it appears that Congress did not intend to exclude the interests of unsecured trade creditors from its definitions of "legal interest" and "bona fide purchaser for value." Although a bona fide purchaser is traditionally thought of as a buyer of tangible property, given the purposes of the statute, there is no reason that a good faith provider of goods and services cannot be a bona fide purchaser under the statute. The trade creditors before the Court are innocent parties and their transactions with Ark were made at arm's length. If a bona fide obligation arose between Ark and the trade creditors as a result of these transactions, then the trade creditors have purchased "property" i.e., their claims against Ark. As long as these were not fraudulent transactions, the Court will not distinguish between trade creditors who paid value for their claims against Ark with the goods and services they provided, and a third party who buys a defendant's property with other forms of consideration.
The relevant case law supports this view of the statute. Reckmeyer I is the only case discussing the status of unsecured creditors under the amended forfeiture statutes. In Reckmeyer I, the government argued that an unsecured lender had no standing under 21 U.S.C. § 853(n)(6) (1986) to contest a forfeiture.[2] The court disagreed, however, and held that general creditors have standing to assert their claims. Id. at 621-22. It set forth two rationales for its decision. First, the Court found that Congress enacted § 853(n) to provide for a hearing of third-party claims because it recognized that the harsh impact of in personam forfeiture should not be imposed on innocent parties. Id. at 620. Therefore, the court stated:
The court does believe Congressional intent that "Third parties who assert claims to criminally forfeited property, which in essence are challenges to the validity of the order of forfeiture, are entitled to a judicial determination of their claim," [Sen.R. at 3391] ... mandates that it construe § 853(n)(6)(A) to provide standing for all general creditors to make claims which may rebut the government's presumption of forfeitability under § 853(d).
Id. at 621.
The second rationale is based on the Fifth Amendment's guarantee of due process of law. Since this Court finds that § 1963(m)(6) provides a remedy for unsecured creditors, it is unnecessary to address the Fifth Amendment issue. The Court agrees with Reckmeyer I that a general creditor has a "legal interest" in the forfeited property if it shows, by a preponderance of the evidence, that a bona fide obligation exists between the creditor and the defendant which would overcome the government's interest. Id. at 621-22. See *830 also Reckmeyer II, 631 F.Supp. at 1194 and n. 1.
Further guidance is provided by several cases which hold that legitimate attorney's fees are exempt from forfeiture. In Reckmeyer II, the district court held that an attorney who represented the defendant in his criminal trial but had not been paid for his services, had standing under § 853(n)(6). Although the attorney could not make a specific claim for relief under § 853(n)(6), the court's analysis of the legislative history showed that he had a legal interest in the forfeited property and that he was entitled to a judicial determination of his claim. Id. at 1194, citing S.Rep. at 3391. Although the court stated that a contrary reading of the statute would violate the Sixth Amendment, it also emphasized that the statute's purpose was not served by applying forfeiture to bona fide legal fees. Id. at 1196.
Similarly, in Rogers, the Colorado District Court found that attorneys who provided legitimate services and were reasonably without cause to know that assets were subject to forfeiture were bona fide purchasers for value. Rogers, 602 F.Supp., at 1346. Citing Black's Law Dictionary's definition of bona fide purchaser,[3] the court stated that an "attorney who receives fees for services rendered pays value," and, therefore, his claim is within § 1963(m)(6)(A) and (B). Id. Moreover, the court said that exempting legitimate attorney's fees would not undermine the purpose of § 1963(c) because "[a]n attorney who receives funds in return for services legitimately rendered operates at arm's length and not as part of an artifice or sham." Id. at 1348. See also Basset, 632 F.Supp. at 1315-16; United States v. Badalamenti, 614 F. Supp. 194, 198 (S.D.N.Y. 1985). But cf., Payden v. United States, 605 F. Supp. 839, 849-50 n. 14 (S.D.N.Y. 1985), rev'd on other grounds, 767 F.2d 26 (2nd Cir.1985) (stating, in dicta, that attorneys cannot be bona fide purchasers because they have actual notice of the defendant's indictment, and, therefore, cause to believe that the defendant's property is subject to forfeiture).
The Figueroa case is even broader since it involved a court-appointed attorney's claim, and, therefore, the Sixth Amendment was not implicated. The court held in Figueroa that a good faith provider of legal services is entitled to a judicial determination of his claims. Id. 645 F.Supp. at 453. Although a literal reading of § 853(c) might cut off the attorney's claim, the court stated that the purpose of that subsection to defeat illusory transfers does not apply to an attorney who renders services at arm's length. Thus, Figueroa seems to imply that any party who transacts at arm's length with a defendant and has no knowledge of his criminal activities, has an interest in forfeited property.
Reckmeyer I and the attorneys' fees cases stand for the proposition that a good faith provider of goods and services has a right to be paid for those goods and services under § 1963(m)(6). It is important to note that, like the trade creditors, the petitioners in these cases were not bona fide purchasers of property in the traditional sense. Instead, the attorneys had provided legal services to the defendants and, in Reckmeyer I, the petitioner loaned money to the defendant. In each of these cases, although the court recognized that the petitioners' claims might not be recognized by a literal interpretation of the forfeiture statutes, they held that the petitioners paid value and therefore their claims should be allowed.
The trade creditors also are bona fide purchasers in the sense that they paid value for their claims against Ark.[4] Even the *831 court in Payden apparently recognized that forfeiture does not extend to one who receives funds from the defendant in exchange for goods and services rendered at arm's length and without knowledge that the funds are subject to forfeiture. Payden, 605 F.Supp. at 849 n. 14. See also, Rogers, 602 F.Supp. at 1348. The Court does not see any distinction between a trade creditor who has been paid in full and one who has not since under the statute both would have to establish that they are bona fide purchasers. The Court also notes that the petitioners in Reckmeyer I, Reckmeyer II and Figueroa had not been paid and merely held unsecured claims. These cases persuade the Court that the trade creditors are entitled to relief under § 1963(m)(6)(B).
The government has not cited any authority which refutes this line of cases. It has cited several cases which predate the 1984 amendments and which state that an innocent owner of forfeited property has no right to a judicial remedy unless Congress provides for it. See, e.g., United States v. Andrade, 181 F.2d 42, 46 (9th Cir.1950). While this may be true, Congress did create a judicial remedy when it enacted § 1963(m)(6) and the Court reads this section to include unsecured creditors. Therefore, the government's cases are not persuasive.
In conclusion, the trade creditors have shown, by a preponderance of the evidence, that they are bona fide purchasers and that at the time they transacted business with Ark, they were reasonably without cause to believe that Ark's assets were subject to forfeiture. Therefore, the order of forfeiture must be amended.
As noted above, only counsel for Sandoz Chemicals was present at the hearing of this matter. The government and Sandoz stipulated that the amount owed Sandoz by Ark was $4,627.00. With regard to the other claims, the government made an offer of proof that VWR Scientific was owed $3,921.90 and that Butler Paper Co. was owed $854.15. The government explained that the difference between these amounts and the amounts claimed in the petitions is due to materials shipped to Ark after the date of forfeiture which were returned by the government and discrepancies in the billing rates, respectively. The government did not dispute the amounts claimed to be owed to the other claimants.
IT IS, THEREFORE, HEREBY ORDERED that petitioner, Sandoz Chemicals, as an unsecured creditor, is possessed of a legal right, title or interest pursuant to Title 18, United States Code, Section 1963(m)(6)(A) and (B) in the amount of $4,627.00.
IT IS FURTHER ORDERED that petitioner VWR Scientific, San Francisco branch, as an unsecured creditor, is possessed of a legal right, title or interest pursuant to Title 18, United States Code, Section 1963(m)(6)(A) and (B) in the amount of $3,921.90.
IT IS FURTHER ORDERED that petitioner Butler Paper Co., as an unsecured creditor, is possessed of a legal right, title or interest pursuant to Title 18, United States Code, Section 1963(m)(6)(A) and (B) in the amount of $854.15.
IT IS FURTHER ORDERED that petitioner Thomas Printing Inks, Inc., as an unsecured creditor, is possessed of a legal right, title or interest pursuant to Title 18, United States Code, Section 1963(m)(6)(A) and (B) in the amount of $260.32.
IT IS FURTHER ORDERED that petitioner Brenton Safety, Inc., as an unsecured creditor, is possessed of a legal right, title or interest pursuant to Title 18, United States Code, Section 1963(m)(6)(A) and (B) in the amount of $487.97.
IT IS FURTHER ORDERED that the order of forfeiture dated March 13, 1986, shall be AMENDED in accordance with the foregoing Orders of this Court.
NOTES
[*] The Court does not purport to deal with the government's motions for approval of settlements in this order. With reference to the separate minute order filed contemporaneously with this order, the Court also notes that it is without authority to approve such settlements.
[1] 18 U.S.C. § 1963(c) reads:
(c) All right, title, and interest in property described in subsection (a) vests in the United States upon the commission of the act giving rise to forfeiture under this section. Any such property that is subsequently transferred to a person other than the defendant may be the subject of a special verdict of forfeiture and thereafter shall be ordered forfeited to the United States, unless the transferee establishes in a hearing pursuant to subsection (m) that he is a bona fide purchaser for value of such property who at the time of purchase was reasonably without cause to believe that the property was subject to forfeiture under this section.
[2] Section 853 is the forfeiture provision of the Comprehensive Drug Abuse and Control Act of 1970. Like § 1963, § 853 was amended by the Crime Control Act of 1984. As amended, the two statutes are, in nearly all respects, identical. S.Rep. at 3392.
More importantly, §§ 853(n)(6) and 1963(m)(6) establish identical procedures for the hearing of third party claims. S.Rep. at 3397. Since these sections are given the same interpretations, Basset, 632 F.Supp. at 1309; Reckmeyer II, 631 F.Supp. at 1195 n. 2, the cases dealing with § 853(n)(6) are directly on point.
[3] Black's Law Dictionary defines bona fide purchaser as:
One who has purchased property for value without any notice of any defects in the title of the seller [citation omitted]. One who pays valuable consideration, has no notice or outstanding rights of others, and acts in good faith [citation omitted].
[4] This factor distinguishes the claims of the trade creditors from those made by the tort creditors of Ark. As the Court held in its contemporaneous order, tort creditors cannot be bona fide purchasers since they have not paid value or rendered goods and services to Ark. Therefore, although they have suffered a great injury, the tort creditors are not bona fide purchasers. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1634535/ | 602 F. Supp. 986 (1984)
HAPPY DACK TRADING COMPANY, LIMITED and Main Fair Trading Company, Limited, Plaintiffs,
v.
AGRO-INDUSTRIES, INC., Mayer Rooz and Joshua Sternhell, Defendants.
AGRO-INDUSTRIES, INC., Mayer Rooz and Joshua Sternhell, Third-Party Plaintiffs,
v.
CHONG KING FAN, Kenneth S.K. Li and Edward Wu, Third-Party Defendants.
No. 83 Civ. 3134 (RLC).
United States District Court, S.D. New York.
December 12, 1984.
*987 *988 Cleary, Gottlieb, Steen & Hamilton, New York City, for plaintiffs and third-party defendants; Richard F. Ziegler, Lawrence B. Friedman, New York City, of counsel.
Mandel, Weiss, Campise, Eisenberger & Mandel, New York City, for defendants and third-party plaintiffs; Steven Norman Weiss, New York City, of counsel.
OPINION
ROBERT L. CARTER, District Judge.
This is a motion by plaintiffs for summary judgment in a breach of contract action, and for dismissal of defendants' RICO counterclaim.
These are the facts, according to plaintiffs:
Between July and November, 1982, plaintiff Main Fair Trading Company, Ltd. ("Main Fair"), a Hong Kong trading company, entered into six contracts with two trading agencies of the People's Republic of China requiring Main Fair to provide the People's Republic with two types of lowdensity polyethylene resin manufactured by ARCO Polymers, Inc. ("ARCO"), specifically, 14,000 metric tons of the resin known as ARCO 2020F and 3,000 metric tons of the resin known as ARCO 1000F.[1]
Each time Main Fair entered into a contract with the People's Republic, plaintiff Happy Dack Trading Company, Ltd. ("Happy Dack") another Hong Kong trading company and Main Fair's joint venture partner, entered into a corresponding contract with defendant Agro-Industries, Inc. ("Agro"), a New York export-import company wholly owned by defendants Mayer Rooz and Joshua Sternhell, under which Agro agreed to supply Happy Dack with the resin that Main Fair would sell to the People's Republic. Between July and November, 1982, Agro and Happy Dack entered into five[2] agreements by telex, stating that Agro would sell Happy Dack 14,000 metric tons of ARCO 2020F and 3,000 metric tons of ARCO 1000F for shipment to the People's Republic.[3] These telexes *989 also state that payment to Agro under each agreement was to be made by drawings under an irrevocable letter of credit opened by Main Fair in Agro's favor, confirmed by a bank in New York; that the resin would be shipped directly to the People's Republic in five-ply paper bags with a one-ply polyethylene liner; that each shipping bag would be marked with the number of the contract between Main Fair and the People's Republic to which the shipment related; and that for each shipment Agro would supply a certificate of quality, quantity and weight issued by ARCO.
On November 30, 1982, representatives of Happy Dack, Main Fair and Agro met in Agro's offices in New York and executed five written contracts on Agro letterhead memorializing the agreements already reached by telex. Each contract identifies the telexes on which it is based, and the terms of the contracts parallel the terms of the telexes.
Under the first contract, Agro shipped 1,000 metric tons of resin to Shanghai and 913.544 metric tons to Dalian in late October, 1982. The next month, Agro shipped to Shanghai 2,189.82 of the 3,000 metric tons called for in the second contract. As required by the contracts, Agro delivered manufacturer's certificates of quality, quantity and weight with each shipment. The certificates, which appear to be on ARCO letterhead, purport to be ARCO's representation that the product shipped to the People's Republic was ARCO 2020F, with a uniform melt index of 2.0 and a density of 0.918.
Agro was paid $1,044,527.12 for the amounts it shipped under the first contract and $1,393,271.26 for the amounts it shipped under the second contract, upon presentation of the required documents (including the ARCO certificates) to the New York bank which had confirmed the letters of credit.
The shipments sent under the first contract arrived in Dalian on January 7, 1983, and in Shanghai two days later. On January 17, Agro sent Happy Dack a telex stating Agro would not be able to ship any more resin under the third, fourth or fifth contracts because ARCO had stopped manufacturing low-density polyethylene resin and had sent Agro a claim of force majeure under Agro's existing contracts with ARCO.[4]
Happy Dack replied by telex that it would hold Agro to the contracts since Agro had told Happy Dack that Agro had pre-existing commitments from ARCO for the delivery of the full amount of the resin. Happy Dack also notified Agro in this telex that it had received advance word from the People's Republic that the resin already shipped did not conform to specifications.
The first shipments of resin had been inspected shortly after they arrived in the People's Republic. Analysis showed that the resin varied substantially from the product specifications for ARCO 2020F. The Chinese inspectors found that the melt indices diverged widely even within small samples, the density was not as specified, the resin was discolored, the bags were improperly marked, and the shipments were damaged because of poor packaging. The People's Republic notified Main Fair that the resin could not be used for its intended purpose[5] and that they were rejecting it. Happy Dack notified Agro of the People's Republic's rejection and itself *990 rejected the product. Agro replied by telex that Happy Dack's claims were speculative and unfounded, and warned Happy Dack to stop "harassing [Agro] with all these lies and inuendos [sic]." To date, Agro has not shipped the balance of resin due on the second contract, or any resin under the third, fourth or fifth contracts.
After learning of the People's Republic's rejection of the resin, Kenneth Li, assistant manager of Main Fair, traveled to Beijing, Dalian, Shanghai and Xian to investigate the claims made by the Chinese inspectors. Li inspected the shipments and collected samples which he then submitted for analysis to a Hong Kong laboratory. Li's findings and the laboratory report confirmed the Chinese inspectors' findings.
Main Fair investigated the possibility of mitigating damages by taking the off-grade resin back from the People's Republic for resale in international markets and repurchasing conforming resin for delivery to the People's Republic. This alternative proved very costly, however, so Main Fair negotiated a settlement with the People's Republic under which the People's Republic agreed to keep the resin shipped and Main Fair agreed to pay the People's Republic $895,148.49 over eight months as compensation for the nonconformities.
Plaintiffs are now suing to recover the $895,148.49 plus interest, $15,441.17 in travel and incidental expenses, and $130,800 in lost profits on the resin not delivered under the second, third, fourth and fifth contracts.
Defendants admit that they exchanged telexes with Happy Dack between July and November, 1982 for sale of ARCO 2020F and ARCO 1000F. (Defendants' Rule 3(g) Statement ¶ 3). They concede that the telexes state the contract terms and conditions asserted by the plaintiffs, (id.), and that on November 30, 1982, the parties signed five written documents which purport to be contracts. (Defendants' Rule 3(g) Statement ¶ 4). Defendants also admit that the resin they shipped to the People's Republic of China was not manufactured by ARCO and did not conform to the specifications included in the Agro-Happy Dack telexes or contracts. (Sternhell Deposition at 156). They admit that they forged the ARCO manufacturer's certificates of quality, quantity and weight, (Rooz Deposition at 144-46), and that they were paid $2,437,798.38 for the off-grade resin they shipped. (Defendants' Rule 3(g) Statement ¶ 8).
Defendants contend, however, that their conduct was in furtherance of a prior oral agreement they had entered into with Happy Dack and Main Fair to sell the People's Republic non-ARCO off-grade resin while telling the People's Republic that the resin was ARCO 2020F and ARCO 1000F. Defendants assert that plaintiffs told them that off-grade resin was perfectly acceptable to the ultimate users in the People's Republic, but that government officials in Beijing insisted on documentation indicating that only prime virgin resins were being shipped.
Defendants state that the telexes sent by Agro to Happy Dack showing that Agro had agreed to ship to the People's Republic quantities of ARCO 2020F and ARCO 1000F were actually dictated to Agro by Happy Dack and Main Fair personnel in the course of several telephone conversations. Defendants claim that Happy Dack and Main Fair told them they wanted those telexes in their files in case the Chinese agencies ever sought to review Main Fair's and Happy Dack's records. Similarly, defendants state that the documents they signed on November 30, 1982, were not contracts at all, but rather an elaborate cover for the actual oral contract between Agro and Happy Dack to ship off-grade resin to the People's Republic. Though defendants admit forging the ARCO certificates, they state that Happy Dack and Main Fair personnel suggested the forgery, supplied Agro with blank ARCO letterheads, and provided Agro with a model ARCO certificate with the names of ARCO officials to forge.
In short, defendants contend that the type of resin they shipped to the People's Republic was precisely the type of resin actually ordered by Happy Dack and that *991 there was no breach of contract. They argue that the motion for summary judgment should be denied since a genuine issue of fact remains as to whether the telexes and written documents constitute the true meeting of the minds between the parties.
Defendants have also filed a RICO counterclaim against plaintiffs and three of their employees, alleging that they engaged in a pattern of racketeering activity, 18 U.S.C. § 1961, using mail fraud, 18 U.S.C. § 1341, and wire fraud, 18 U.S.C. § 1343, to injure Agro and the People's Republic.
Plaintiffs deny that there ever was a prior oral agreement to ship low-grade resin to the People's Republic.
DISCUSSION
1. Parol Evidence
Ordinarily, where, as here, the parties dispute material facts, summary judgment is inappropriate. See Heyman v. Commerce and Industry Co., 524 F.2d 1317, 1319-20 (2d Cir.1975). However, plaintiffs here argue that defendants' version of the facts is barred by the parol evidence rule, so that plaintiffs are entitled to summary judgment as a matter of law.
The parol evidence rule is a rule of substantive law of the State of New York.[6] Under the parol evidence rule the clear and unambiguous terms of a valid, integrated written instrument cannot be contradicted or varied by prior or contemporaneous extrinsic oral or written evidence. Barclays Bank of New York v. Goldman, 517 F. Supp. 403, 411 (S.D.N.Y.1981) (Cannella, J.).
In determining whether the parol evidence rule applies to this case the first issue to be resolved is whether the Agro-Happy Dack telexes and written agreements were integrated. I find that they were. "[U]nder New York law a contract which appears complete on its face is an integrated agreement as a matter of law." Battery S.S. Corp. v. Refineria Panama, S.A., 513 F.2d 735, 738 n. 3 (2d Cir.1975). The telexes on their face purport to express the complete agreement of the parties. They include provisions covering the nature of the product, quantity, unit price, total value, packing requirements, manufacturer, date of shipment, port of loading, method of payment, and certificate of quality, quantity and weight. The November, 1982 written contracts likewise appear complete; they track the telexes provision by provision, and each contract refers to the telex on which it is based. Even defendants have not argued that the writings do not appear to be complete.
The court also finds that the terms of the writings are clear and unambiguous. Defendants argue that two of the contracts dated November 30, 1982, are unclear in that they call for shipments to occur in August and September, 1982, respectively, before the contract date. Defendants assert that parol evidence is necessary to explain this back-dating. The August and September delivery dates do not render the contract terms unclear or ambiguous, especially in light of the fact that the contracts memorialize and refer specifically to agreements *992 contained in telexes exchanged before the delivery dates.
Defendants' offered defense thus falls squarely within the scope of the parol evidence rule. Defendants seek to introduce evidence of prior oral agreements to alter clear and unambiguous terms chiefly, the terms concerning specifications and manufacturer of the resin in integrated writings.
Defendants argue, however, that the parol evidence rule does not bar their defense. They note, quite rightly, that the rule does not keep out parol evidence offered to show that a writing which purports to be a contract is not a contract at all, but merely a sham. See, e.g., Bernstein v. Kritzer, 253 N.Y. 410, 415-16, 171 N.E. 690, 242 N.Y.S.Appdx. (1930); Arner v. Arner, 89 App.Div.2d 899, 453 N.Y.S.2d 716 (2d Dept.1982). Defendants contend that the real Agro-Happy Dack agreement was oral, and that the telexes and written contracts were merely shams. They argue that parol evidence offered to prove that should not be barred.
While New York courts have held that parol evidence is admissible to show that a contract is not a contract but a sham, "that principle is predicated on proof of the intention of the parties that the entire contract was to be a nullity, not as here that only certain provisions of the agreement were not to be enforced ... but that other provisions were to be enforcible." Bersani v. General Accident Fire & Life Assurance Corp., 36 N.Y.2d 457, 461, 369 N.Y.S.2d 108, 112, 330 N.E.2d 68, 72 (1975). See also Kirtley v. Abrams, 299 F.2d 341, 345 (2d Cir.1962) (although parol evidence is admissible to show that "there never was any agreement such as the writing purported to be," parol evidence is inadmissible to vary certain terms of a written agreement); Meinrath v. Singer Co., 482 F. Supp. 457, 460 (S.D.N.Y.1979) (Weinfeld, J.), aff'd mem., 697 F.2d 293 (2d Cir.1982) (although parol evidence is admissible to prove fraud, proof must be offered to show intention of the parties that the entire contract was to be a nullity and not that certain provisions were not to be enforced).
Defendants do not contend that there was no contractual relationship at all between the parties. They concede "that contracts existed between Agro and Happy Dack requiring shipment of polyethylene resin...." (Answer at ¶ 19). In effect, defendants seek to leave intact some terms of the writings the general subject matter, the prices, the destinations while altering several other terms the manufacturer and specifications of the resin. In fact, defendants acted on the terms of the written contracts in shipping to Dalian and Shanghai and in receiving payment through Main Fair's letter of credit. Since defendants seek to introduce parol evidence to alter a handful of terms in the contracts and not to demonstrate that the entire contracts are nullities, defendants' offered defense is barred as a matter of law.[7]See *993 Lewis v. Owens, 338 F.2d 740 (6th Cir.1964) (parol evidence inadmissible to show that wage agreements were shams where plaintiff already acted on the agreements by making wage payments).
In the absence of defendants' offered defense, there is no dispute as to any fact material to plaintiffs' breach of contract claim. There is no dispute that (1) contracts were formed between Happy Dack and Agro, (2) Happy Dack performed by having Main Fair establish the letter of credit in Agro's favor, (3) Agro shipped non-conforming resin and then shipped no resin at all,[8] and (4) Happy Dack and Main Fair were damaged as a result of Agro's action. Consequently, plaintiffs are entitled to summary judgment as a matter of law. See, e.g., United States v. Wallace & Wallace Fuel Oil Co., 540 F. Supp. 419 (S.D.N.Y.1982) (Duffy, J.) (parol evidence barred defense in contract action, entitling plaintiff to summary judgment).
2. Damages
Plaintiffs are claiming damages for the delivery of the nonconforming resin, for incidental expenses, and for lost profits on the contracts under which Agro shipped no resin at all.[9]
Damages for delivery of nonconforming resin are measured by the "difference at the time and place of acceptance between the value of the goods accepted and the value they would have had if they had been as warranted, unless special circumstances show proximate damages of a different amount." N.Y.U.C.C. § 2-714(2). "The buyer's direct damages are not limited to the measure of damages set forth in UCC § 2-714(2). Official Comment 3 makes clear that UCC § 2-714(2) describes the usual standard and a reasonable method for calculating damages in the event of a breach, but is not intended as an exclusive measure of damages. Read together, subsections (1) and (2) of § 2-714 provide that plaintiff may recover for its direct damages *994 in any manner which is reasonable." American Electric Power Co. v. Westinghouse Electric Corp., 418 F. Supp. 435, 454 n. 34 (S.D.N.Y.1976) (Carter, J.).
Here, plaintiffs are seeking to recover $895,148.49, the amount they paid the People's Republic of China in compensation for retaining the nonconforming resin. Since this amount was fixed pursuant to arm's length bargaining (Li Declaration ¶ 17), it may be considered the difference in fair market value between conforming and nonconforming resin. Moreover, relying on § 2-714(2), this court has held that under New York law when a seller delivers nonconforming goods to ultimate buyers, the intermediate buyer may claim as damages the amount it had to pay the ultimate buyers to compensate them for the delivery of the defective goods. Rite Fabrics, Inc. v. Stafford-Higgins Co., Inc., 366 F. Supp. 1 (S.D.N.Y.1973) (Levet, J.). Accordingly, plaintiffs are entitled to recover $895,148.49, plus interest. Since the loss plaintiffs incurred in this case was pecuniary loss from having to pay People's Republic's compensation, interest should be computed from the date payment was made. Mount Sinai Hospital v. Borg-Warner Corp., 527 F. Supp. 922, 925-26 (S.D.N.Y.1981) (Weinfeld, J.). See also Re Estate of Kummer, 93 App.Div.2d 135, 461 N.Y.S.2d 845 (2d Dept.1983); Gelco Builders and Burjay Construction Corp. v. Simpson Factors Corp., 60 Misc. 2d 492, 301 N.Y.S.2d 728 (Sup.Ct.N.Y.Co.1969). As payment to the People's Republic of China was made in installments, interest will be computed separately for each installment from the date it was paid. NYCPLR § 5001(b).
Pursuant to N.Y.U.C.C. § 2-715(1), which allows "expenses reasonably incurred in inspection ... of goods rightfully rejected", plaintiffs are also entitled to the $15,441.17 in travel and testing expenses incurred by Li after the People's Republic of China rejected the resin.
In addition, plaintiffs seek $130,800 in lost profits as a result of defendants' failure to complete their shipments under the second contract and to make any shipments whatsoever under the third through fifth contracts. "[I]n appropriate cases of contract breach, New York law will grant lost profits in its computation of damages." Joneil Fifth Avenue, Ltd. v. Ebeling & Reuss Co., 458 F. Supp. 1197, 1201 (S.D.N. Y.1978) (Weinfeld, J.). Where, as here, the buyer seeks to recover profits lost when the seller failed to deliver goods that the buyer had intended to resell at a profit, the buyer must show that "the seller at the time of contracting had reason to know" that buyer would lose profits, and that the lost profits "could not be reasonably prevented by cover or otherwise," for instance, by purchasing substitute goods in the open market for resale. N.Y.U.C.C. § 2-715(2)(a), cited in Bende & Sons, Inc. v. Crown Recreation, Inc., 548 F. Supp. 1018, 1022 (E.D.N.Y.1982), aff'd mem., 722 F.2d 727 (2d Cir.1983) and in Harbor Hill Lithographing Corp. v. Dittler Brothers, Inc., 76 Misc. 2d 145, 348 N.Y.S.2d 920 (Sup. Ct.Nassau Co.1973). In this case, the first requirement of § 2-715(2)(a) is satisfied: defendants admit they knew plaintiffs meant to resell the resin to the People's Republic of China at a profit; defendants even shipped the resin directly to People's Republic ports. Moreover, Comment 6 to § 2-715 provides: "In the case of sale of wares to one in the business of reselling them, resale is one of the requirements of which the seller has reason to know within the meaning of subsection (2)(a)." The second requirement of § 2-715(2)(a), however, is not satisfied in this case. Plaintiffs could have prevented at least partially the loss of profits by purchasing conforming resin in the open market and reselling it to the People's Republic. The difference between the market price and the contract price with Agro, if any, would have been recoverable as standard contract damages. N.Y.U.C.C. § 2-713. But plaintiffs do not allege that they tried and were unable to cover by buying conforming resin for resale.[10] Consequently, lost profits cannot be awarded.
*995 3. RICO
Defendants' RICO counterclaim must fail in light of the Second Circuit's recent rulings in Sedima, S.P.R.L. v. Imrex Co., Inc., 741 F.2d 482 (2d Cir.1984) and Bankers Trust Co. v. Daniel Rhoades, 741 F.2d 511 (2d Cir.1984). In those cases, the Second Circuit held that RICO requires "that the plaintiff show injury different in kind from that occurring as a result of the predicate acts themselves, or not simply caused by the predicate acts, but also caused by an activity which RICO was designed to deter." Sedima, supra, at 496. (The type of activity RICO was designed to deter is the use of a pattern of racketeering activity "to invest in, control, or conduct, a RICO enterprise." Bankers Trust, supra, at 516.) In this case, defendants have alleged that they were injured not by the use of the pattern of racketeering activity in connection with a RICO enterprise, but rather by the predicate acts the individual alleged acts of mail fraud and wire fraud that comprised the pattern of racketeering activity. Consequently, defendants have failed to state a RICO claim.
Moreover, the Second Circuit held in Sedima, supra, at 496, that a prior criminal conviction is a prerequisite to a civil RICO action. Defendants have not claimed that plaintiffs have been criminally convicted for any of the acts upon which the RICO claim is based. For this reason, too, defendants' RICO claim must fail.
CONCLUSION
Plaintiffs' motion for summary judgment on the breach of contract claim is granted. Plaintiffs' claim for lost profits is denied. Defendants' RICO counterclaim is dismissed.
IT IS SO ORDERED.
NOTES
[1] The principal terms of these contracts may be summarized as follows:
Amount (in Ship Ship
Contract No. Date Product metric tons) From To
82XMK769328MR 7/19/82 Arco 2020F 1000 Houston Shanghai
82XEK769329MR 7/19/82 Arco 2020F 1000 Houston Dalian
82RX-6062K 9/6/82 Arco 2020F 3000 Houston Shanghai
83XEK769024CK 9/25/82 Arco 2020F 3000 Houston Hsinkang
83XEK769144MR 10/31/82 Arco 1000F 3000 U.S.ports Shanghai
83XEK769145MR 10/31/82 Arco 2020F 6000 U.S.ports Whampoa
[2] The six Main Fair-People's Republic contracts correspond to only five Happy Dack-Agro contracts because the first Happy Dack-Agro contract refers to the first two Main Fair-People's Republic contracts.
[3] The principal terms of these contracts may be summarized as follows:
Amount (in
Date Product metric tons) Price Contract No.
July 1982 Arco 2020F 2000 $1,091,720 82XMK769328MR and
"First Contract" 82XEK769329MR
Sept. 1982 Arco 2020F 3000 $1,899,240 82RX6062K
"Second Contract"
Sept. 1982 Arco 2020F 3000 $1,928,640 83XEK769024CK
"Third Contract"
Nov. 1982 Arco 1000F 3000 $1,960,200 83XEK769144MR
"Fourth Contract"
Nov. 1982 Arco 2020F 6000 $3,920,400 83XEK769145MR
"Fifth Contract"
[4] Agro said it would try to ship the balance due under the second contract.
[5] The People's Republic had intended to convert the resin into a thin film, for agricultural purposes. Because of the large variance in the melt index even within individual samples of the resin shipped by Agro, substantial portions of the resin either could not be made into film at all, or the resulting film would have holes, carbonized spots and blobs of resin that would not melt. (Li Declaration ¶ 5).
[6] The parties agree that New York law applies in this case. Under Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 61 S. Ct. 1020, 85 L. Ed. 2d 1477 (1941), we must apply New York's choice-of-law rules. In contract disputes, New York courts apply the law of "that state which has the greatest interest in or most significant relationship to the transaction and the parties." Index Fund, Inc. v. Insurance Co. of North America, 580 F.2d 1158, 1162 (2d Cir.1978), cert. denied, 440 U.S. 912, 99 S. Ct. 1226, 59 L. Ed. 2d 461 (1979); Intercontinental Planning, Ltd. v. Daystrom, Inc., 24 N.Y.2d 372, 382-85, 300 N.Y. S.2d 817, 825-28, 248 N.E.2d 576, 584-87 (1969). In the instant case, New York is the only jurisdiction with which both defendants and plaintiffs have had contacts. The written contracts were executed in New York. Defendants arranged for the shipment of resin to the People's Republic in New York with New York suppliers. Moreover, New York as an international financial capital has a great interest in having its law applied to this case. J. Zeevi and Sons, Ltd. v. Grindlays Bank (Uganda) Ltd., 37 N.Y.2d 220, 227, 371 N.Y.S.2d 892, 898, 333 N.E.2d 168, 174, cert. denied, 423 U.S. 866, 96 S. Ct. 126, 46 L. Ed. 2d 95 (1975).
[7] There are two other possible grounds for deciding that defendants' offered defense is not sufficient to prevent summary judgment for the plaintiffs.
First, the New York Court of Appeals has held that "when the outcome of the admission of parol evidence, to the effect that the parties to the written contract ... did not intend it to be an agreement of any force or efficacy, would be contrary to law and public policy, such proof would be inadmissible and the written contract ... would be enforced according to its terms...." Bersani, supra, 36 N.Y.2d at 460-61, 369 N.Y.S.2d 108, 330 N.E.2d 68 (citations omitted) (emphasis added). Plaintiffs in this case argue that the parol evidence is being offered to demonstrate that there existed a scheme to defraud People's Republic. Since such a scheme would be against law and public policy of New York, they claim, the parol evidence should be barred. This court, interpreting New York case law, has recently suggested that parol evidence will be barred on grounds of public policy only in cases which "involve the deception of a public institution and the contravention of clear public policy," and not in cases which "involve the deception of a private third party who consequently suffer[s] harm that is either negligible or uncertain." Bank of America National Trust and Savings Association v. Gillaizeau, 593 F. Supp. 239, 244 (S.D.N.Y. 1984) (Goettel, J.). Since we have already held that the parol evidence is barred as a matter of law on other grounds, we need not reach the question whether the parol evidence in this case would be barred under the Gillaizeau standard or whether the Gillaizeau standard should be respected.
The second alternative grounds on which to award plaintiffs summary judgment is that defendants' offered defense, even if admissible, would not be sufficient to bar summary judgment. Defendants have offered no documentary evidence, no testimony from non-party witnesses, no affidavits nothing beyond their own conclusory allegations to support their story. "When, as here, the movant for summary judgment introduces evidence demonstrating that his adversary's claim is baseless, the opposing party cannot rely on mere conclusory allegations to defeat that motion. Rather, he must offer specific facts showing that there is a genuine issue for trial." Ritz v. United States, 573 F. Supp. 234, 235 (S.D.N.Y.1983) (Carter, J.). What is more, defendants' "claim is effectively repelled by documentary evidence including [defendants'] own writings." Meinrath v. Singer, supra, 482 F.Supp. at 460. For example, if, as defendants contend, the real agreement was to ship approximately 4,000 metric tons of resin to the People's Republic (Defendants' Rule 3(g) Statement ¶ 6), why would defendants exchange telexes and sign contracts for the sale of 17,000 metric tons even if these documents were meant as window dressing to protect Happy Dack and Main Fair, as defendants claim? Similarly, if both Agro and Happy Dack knew that the resin did not conform to ARCO specifications, why would Agro respond to Happy Dack's notification of the resin's nonconformity by accusing Happy Dack of uttering "lies and inuendos [sic]?" Again, since we have found defendants' assertions inadmissible as a matter of law, we need not reach the question whether, if admitted, defendants' allegations would be sufficient to prevent summary judgment for plaintiffs.
[8] Defendants do not contend, as their January 17, 1983 telex to Happy Dack might suggest, that their non-performance should be excused because of ARCO's claim of force majeure with respect to the resin due under the second through fifth contracts. Defendants do not argue here that ARCO really made a claim of force majeure (which might excuse non-performance, though we do not reach the question). In fact, defendants do not state they ever really had a contract with ARCO at all. Rather, defendants claim that plaintiffs dictated the force majeure message to them, and asked defendants to send that message for plaintiffs to have in their files. (Sternhell Deposition at 225-26).
[9] In their Rule 3(g) Statement, defendants dispute plaintiffs' claims regarding damages (¶¶ 10-13). Defendants, however, offer no specific facts; they merely state that they lack firsthand knowledge of plaintiffs' dealings with the People's Republic and therefore dispute the claims of damage. This is insufficient to defeat a motion for summary judgment. See, e.g., Ritz v. United States, supra n. 7.
[10] Main Fair's Kenneth Li does state that after nonconforming resin was delivered under the first and part of the second contracts, he considered taking the nonconforming resin back from the People's Republic for resale and repurchasing conforming resin for delivery to the People's Republic, but rejected this idea because of "the high cost of collecting the nonconforming resin and transporting it to the People's Republic coast, the low price of offgrade resin in international markets and the rising price of conforming resin." (Li Declaration ¶ 16). Significantly, Li does not state that conforming resin was unavailable to substitute under the second through fifth contracts where no resin was delivered. The fact that the price of conforming resin was "rising" does not mean that it would have been impossible to prevent or mitigate the loss of profits. Even if the market price had been greater than the Agro-Happy Dack contract price, plaintiffs could have mitigated damages, so long as market price remained less than the Main Fair-People's Republic contract price. Without open market quotations, an award of lost profits on this motion for summary judgment would be improper. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1635321/ | 602 F. Supp. 874 (1984)
Jack ABADJIAN, Mark Ball, Joseph Brown, Ben Ceson, John Eghenian, Brad May, Nassir Mazarei, Donald Prouse, Al Rosenstein, Herb Schweizer, Aram Shishmanian, Joe Smiderle, and Stephen Webber, Plaintiffs,
v.
GULF OIL CORPORATION, a Pennsylvania corporation; Gulf Oil Real Estate Development Corporation, a wholly owned subsidiary of Gulf Oil Corporation; Robert W. Baldwin; J. Roger Kemple; Tom Otjen; Joe Mayers; George Williams; Otto Meyer; Glen R. Jensen, Thrifty Oil Co., a California corporation; and DOES 1 through 100, inclusive, Defendants.
No. CV 83-6686:TJH(Px)
United States District Court, C.D. California.
March 9, 1984.
*875 Kenneth P. Roberts, Mark E. Lehman, Shapiro, Laufer, Krane, Jacobson & Posell, Los Angeles, Cal., for plaintiffs.
Jack D. Fudge, Michael L. Hickok, Ralph Zarefsky, McCutchen, Black, Verleger & *876 Shea, Los Angeles, Cal., Donald C. Smaltz, Leighton M. Anderson, Thomas H. Mabie, Smaltz & Neelley, Los Angeles, Cal., for defendants.
MEMORANDUM OPINION
HATTER, District Judge.
This cause of action arises from the decision of Gulf Oil Corporation ("Gulf") to withdraw from the Southern California gasoline market and to sell its service stations in the area to Thrifty Oil Company ("Thrifty"). With the exception of plaintiff Herb Schweizer,[1] each plaintiff occupies and operates a gasoline service station under a lease originally executed with Gulf before June, 1978. Plaintiffs can be classified into two sub-groups according to the marketing plan they have adopted from Gulf. Some of the plaintiffs operate their leased service stations under a single supply agreement with Gulf and market fuel purchased from the company using its trademark, trade name and symbol.[2] The remaining plaintiffs operate "unbranded" service stations pursuant to several continuous supply agreements with Gulf. All these stations were included in the service stations Gulf agreed to sell to Thrifty.
The "unbranded" operators allegedly discontinued their use of Gulf trademarks and symbols on the suggestion of the company. Plaintiffs contend that because Gulf had difficulty competing in the Southern California market it decided to create a debranding program for its independent operators. The first amended complaint alleges that in January, 1978, Gulf called a general operators meeting which several plaintiffs attended. (See First Amended Complaint, ¶ 14.) According to plaintiffs, Gulf announced a new marketing program at this meeting, whereby branded Gulf service station operators would debrand their stations and sell Gulf motor fuel without the benefit of trademarks and logos. (See First Amended Complaint, ¶ 14.) In exchange, Gulf allegedly promised the proposed debranded operators an increased supply of motor fuel at reduced rates, if they agreed to the new marketing plan. Id. Consequently, several operators agreed to adopt this plan.
Following the announced debranding program, Gulf prepared to sell its assets in the Southern California market to another oil distributor. In 1979, Gulf initially planned to sell all of its assets located in the Los Angeles Division, which covered the states of Arizona, California, and Nevada, as part of a "package deal." The available package included Gulf's asphalt plants, its Santa Fe Springs Refinery, and more than three hundred service stations, including the stations leased to the plaintiffs. By September, 1980, Gulf had accepted an offer from Thrifty covering the leased service stations (rather than the entire "package deal") and the parties executed a written agreement (the "1980 Letter Agreement") acknowledging the proposed transaction.
After Gulf notified the independent operators about the Thrifty sale, the relationship between Gulf and the independent operators deteriorated. In August 1981, plaintiffs filed their original complaint in state court alleging several violations of state and federal law. Most of the counts in the complaint were premised on state law. The state counts involved claims for fraud, violations of the California Franchise Investment Law, estoppel, unfair competition and requests for declaratory and injunctive relief arising from an alleged conspiracy between Gulf and Thrifty to violate plaintiffs' rights under both state and federal law. Thrifty sought unlawful *877 detainer actions against the leases as their new landlord.
The alleged federal question jurisdiction arises from plaintiffs' claim that the September, 1980, sales agreement between Thrifty and Gulf terminated plaintiffs' franchises and obligated Gulf, under the provisions of the Petroleum Marketing Practices Act (the "PMPA"), 15 U.S.C. § 2801 et seq., to offer plaintiffs first refusal rights before closing the Thrifty sale. In opposition, Gulf argues: (1) whether there is a franchise relationship with each plaintiff, and (2) if yes, then the franchise relationship has been assigned to Thrifty as part of the sale of assets transaction. Thus, the defendants claim none of plaintiffs' rights have been violated under the PMPA.
In November, 1981, defendants first petitioned for removal to federal court asserting that the amended state complaint alleged a federal question under the PMPA. However, this Court remanded the entire case to state court for the following reasons. First, the Court found jurisdiction over Thrifty unattainable under the Act since Thrifty is not plaintiffs' franchisor. Secondly, the Court found jurisdiction over the claims against Gulf could not be maintained because it could not sever Gulf's claims from the nonremovable claims against Thrifty. Finally, the Court remanded on the grounds that the Ninth Circuit does not recognize pendent party jurisdiction. See Aldinger v. Howard, 513 F.2d 1257 (9th Cir.1975), aff'd. 427 U.S. 1, 96 S. Ct. 2413, 49 L. Ed. 2d 276 (1976).
Defendants now seek a second opportunity at removal. This most recent removal petition, filed October 17, 1983, contends that plaintiffs' October, 1983, filing of a motion for summary adjudication in state court under the PMPA justifies removal to federal court. At the subsequent removal hearing, the Court requested additional information concerning the merits of defendants' claim that Thrifty is a franchisor as contemplated under the Act. Defendants submit the Santa Fe Springs Refinery Contract ("SFSR Contract"), which assigns Gulf's rights in supply agreements with independent dealer-operators to Thrifty, as proof supporting their renewed claim of federal jurisdiction of the counts relating to Thrifty. Thus, the Court faces a reconsideration of its earlier remand order and addresses the issue of defendant's timeliness in this second removal petition.
Timeliness of the Present Removal Petition
Plaintiffs are generally considered the masters of their complaints and free to decide the forum in which to bring an action. However, Congress has provided a mechanism for a defendant to gain access to a federal tribunal though the plaintiff brings his action in state court. Under the removal statute, a defendant need only show that the removal petition is timely filed and that a federal court has original jurisdiction over the action. 28 U.S.C. §§ 1446(b) and 1446(a).
Section 1446(b) sets forth a thirty day limitation for filing a petition once a basis for removability exists. Here, plaintiffs assert that defendants second removal petition, filed October 17, 1983, is untimely and should relate back to the filing date for the original complaint, not the date when plaintiffs filed for summary adjudication in state court. Thus, plaintiffs argue this Court lacks jurisdiction over the petition.
However, the statutory time limit for removal petitions is merely a "formal and modal requirement"; it is not jurisdictional. See Fristoe v. Reynolds Metal Co., 615 F.2d 1209, 1212 (9th Cir.1980); 1A Moore's Federal Practice and Procedure ¶ 0.168[3.-5] (1974 ed.). Even if the Court adopted the relation back argument, plaintiffs would be estopped from objecting to the timeliness of the removal petition, since defendants' present petition for removal is based on plaintiffs' own October 5, 1983 motion for summary adjudication of actions arising "under PMPA." Id. At a minimum, the court may find that plaintiffs most recent summary judgment motion extends the time period for defendants to file a removal petition. Moreover, the plain *878 language of the removal statute provides that the thirty day period commences after defendants receive "a copy of an amended pleading, motion, order or other paper" from which removability can be ascertained. § 1446(b) (emphasis added). Thus, defendants' petition falls within the necessary time limitation.
Theories for Removability
In a removal action involving multiple defendants, movants can invoke several theories to support federal jurisdiction. They can remove on the grounds that the cause of action arises under federal law, or they can rely on diversity of citizenship, or they can remove under the pendent party theory. 28 U.S.C. § 1441; See also Aldinger v. Howard, 513 F.2d 1257 (9th Cir. 1975), aff'd., 427 U.S. 1, 96 S. Ct. 2413, 49 L. Ed. 2d 276 (1976); Schroeder v. Trans-World Airlines, Inc., 702 F.2d 189, 191 (9th Cir.1983). In the present action, diversity and pendent party jurisdiction are unavailable to these defendants. The complaint indicates that several defendants, including Thrifty, are California residents or citizens, thus, complete diversity does not exist as to them. In addition, the Ninth Circuit strongly disapproves of pendent party jurisdiction unless the parties can show an independent ground of jurisdiction exists over the claims against the pendent party. See, Benson v. U.S. Small Business Administration, 644 F.2d 1366, 1367 (9th Cir.1981); Libby, McNeill, and Libby v. City National Bank, 592 F.2d 504, 510 (9th Cir.1978); Ayala v. United States, 550 F.2d 1196 (9th Cir.1977). Therefore, this Court's decision on removability turns on the federal character of the claims against Thrifty.[3]
The Merits of Federal Jurisdiction in this Case
Federal jurisdiction under the PMPA must be decided on the merits because the jurisdictional issue and substantive issues are so intertwined with the resolution of crucial facts. Sun Valley Gasoline, Inc. v. Ernst Enterprises, Inc., 711 F.2d 138, 139 (9th Cir.1983). In PMPA cases, the Ninth Circuit has instructed the district courts to avoid dismissal for lack of subject matter jurisdiction solely on the face of the pleadings. Id. at 139-40. Relying on the Sun Valley holding, defendants contend the Ninth Circuit has prohibited jurisdictional fact finding under PMPA without a trial on the merits. Thus, they argue that by asserting a federal claim against Thrifty on the face of their papers plaintiffs have created a jurisdictional issue which must be resolved at trial.
This Court does not read the holding of Sun Valley as broadly as defendants wish. In ruling on a challenge to subject matter jurisdiction, a district court is ordinarily free to hear evidence regarding jurisdiction before trial, resolving factual disputes where necessary. Augustine v. United States, 704 F.2d 1074, 1077 (9th Cir.1983); Thornhill Publishing Co. v. General Telephone and Electronics Corp., 594 F.2d 730, 733 (9th Cir.1979). Courts have been careful to distinguish between the standards of jurisdictional analysis under motions to dismiss and jurisdictional fact finding in summary judgment proceedings. Augustine, 704 F.2d at 733-34. In Sun Valley, the district court dismissed, pursuant to Fed.R.Civ.P. 12(h)(3), ten counts of the complaint that alleged PMPA violations on the grounds defendant noted the absence in the complaint of an allegation regarding defendants ability to use a refiner's trademark, commonly referred to as "branding authority." Sun Valley, 711 F.2d at 139. Later, the court of appeals refused to uphold the dismissal of the PMPA claims without specific jurisdictional fact finding by the court under the Act. Id. at 141. However, the court of appeals *879 left open the district court's ability to resolve PMPA jurisdictional questions in summary judgment proceedings by noting, "[w]e do not exclude the possibility that these claims may be suitable for Rule 56 disposition." Id.
In an exemplary pretrial proceeding where the party seeking dismissal prevailed, the court had an opportunity to develop substantial evidence on the interrelated jurisdictional and factual issues under the rigorous standards of Rule 56. See Thornhill, 594 F.2d at 735-36 (Sherman Act case in which Ninth Circuit affirmed summary judgment on the issue of interstate commerce under the Act after reviewing deposition testimony and exhibits). Similarly, in the instant case, this Court has had an opportunity to conduct an extensive review of the record and of matters outside the pleadings to resolve the material issues. The parties seeking remand will prevail on the basis of the undisputed material facts and underlying law. However, my decision is limited solely to the questions relating to jurisdiction over the claims against Thrifty.
The purpose of PMPA is to establish "minimum Federal Standards governing the termination and nonrenewal of franchise relationships for the sale of motor fuel by the franchisor or supplier of such fuel." Checkrite Petroleum, Inc. v. Amoco Oil Co., 678 F.2d 5, 7 (2d Cir.1982), quoting S.Rep. No. 95-731, 95th Cong., 2d Sess. 15, reprinted in [1978] U.S.Code Cong. & Ad.News 873, 873 (emphasis added). Congress enacted PMPA to protect franchisees from arbitrary or discriminatory termination of their franchises. S.Rep. No. 95-731, supra at 874. The Act limits the termination of any franchise except on the specifically enumerated grounds and upon compliance with notice requirements. 15 U.S.C. §§ 2802(a), (b)(1). Crucial elements that extend jurisdiction under the Act are the existence of a franchise relationship and the occurrence of an event within the regulatory scheme of the statute. See 15 U.S.C. § 2802.
The status of Gulf as plaintiffs' initial franchisor is undisputed. Both the branded and unbranded dealers operated their stations under supply agreements with Gulf which predated June, 1978. Even the unbranded dealers sold Gulf gasoline under the company's trade name before the new marketing program in 1978. Thus, the branded dealers operate under a franchise agreement described in 15 U.S.C. § 2801(1)(A); the unbranded dealers operate under a franchise within the reach of 15 U.S.C. § 2801(1)(B)(ii)(II). The triggering event for PMPA jurisdiction over these dealers arose when Gulf allegedly terminated the dealers franchises. The claims against Thrifty arises from the same nucleus of facts. Therefore, defendants can properly remove this action only if independent grounds of federal jurisdiction can be established over Thrifty.
The absence of an independent franchise agreement between Thrifty and plaintiffs defeated defendant's first attempt at removal. Defendants now contend that Gulf's assignment under the SFSR contract to Thrifty created a "franchise relationship" between Thrifty and plaintiffs. However, the record lacks any evidence of a subsequent contract between Thrifty and plaintiffs; the record lacks any proof of a marketing plan by Thrifty for plaintiffs; finally, the parties do not mention the existence of any franchise fee imposed upon plaintiffs by Thrifty. All of the above items are essentially components of a franchise agreement. See e.g. Cal.Corp.Code § 31005 (West 1977); See also 34 Cal. Jur.3d, Franchise, Distribution, and Dealership Contracts § 1 (3d ed. 1977).
Moreover, the issue of Thrifty's lack of Gulf trademark rights is undisputed. Thrifty generally asserts that the SFSR contract included "branding authority or trademark rights", but it points to the specific terms of that agreement noting, "Although, in general, `Gulf indicia' are excluded from the sale under paragraph 2.07 of the SFSR Contract ...." See Thrifty's Supplemental Memorandum In Support of *880 Jurisdiction at 4.[4] This Gulf indicia represents the trademark rights essential to finding a valid franchise relationship. See 15 U.S.C. §§ 2801(1)(B)(i) and (2).[5]
In defining the "franchise relationship" under PMPA, the Congress recognized the interrelated nature of the leased premises with the motor fuel supply agreement in petroleum franchises. The Senate noted:
The franchise relationship in the petroleum industry is unusual, in fact perhaps unique, in that the franchisor commonly not only grants a trademark license, but often controls, and leases to the franchisee, the real estate premises used by the franchisee. In addition, the franchisor almost always is the primary, even exclusive, supplier of the franchisee's principal item: motor fuel.
S.Rep. No. 95-731, 95th Cong., 2d Sess. 17, reprinted in 1978 U.S.Code Cong. & Ad. News 873, 875. Thus, it appears at first glance that Congress intended PMPA to reach every motor fuel supply agreement where the supplier is the primary source of fuel or the exclusive source. This broad reading of the statute could bring Thrifty within the definition of a franchisor "but for" the limiting language noted further in the legislative history. "The term `franchise' is defined in terms of a motor fuel trademark license. It should be noted that the term is applicable only to the use of a trademark which is owned or controlled by a refiner." Supra at 888 (emphasis added).
Although the Ninth Circuit remains silent on whether branding authority is essential to the existence of a franchise relationship under PMPA, see Sun Valley, 711 F.2d at 141, most courts favor the express need for granting trademark use to support a finding of a franchise relationship. See Lasko v. Consumers Petroleum of Connecticut, Inc., 547 F. Supp. 211, 219 (D.Conn.1981) (implying necessity of branding authority), and Blackwell v. Power Test Corp., 540 F. Supp. 802, 807 (D.N.J. 1981) (SAME), aff'd. mem., 688 F.2d 818 (3d Cir.1982). Given the emphasis placed on the use of trademark rights in PMPA cases, only two alternative theories could possibly provide jurisdiction over Thrifty absent branding authority by Gulf. Either the Court must find (1) a valid assignment of the franchise relationship by Gulf to Thrifty, or (2) it must find that Gulf and Thrifty's sales transaction involved a less than arms length deal between the parties. See Bsales v. Texaco, Inc., 516 F. Supp. 655, 661 (D.N.J.1981) (cited for the latter proposition).
The legislative history of PMPA allows the assignability of a petroleum franchise as provided by state law. S.Rep. No. 95-731, supra at 901. In the absence of an express agreement, the applicable California statutes "clearly manifest a policy in favor of the free transferability of all types of property, including rights under contracts." Farmland Irrigation Co. v. Dopplmaier, 48 Cal. 2d 208, 222, 308 P.2d 732, 740 (1957); See Cal.Civ.Code § 1458 (West 1982); see also, Cal.Comm.Code § 2210 (West 1968).[6] But, a closer analysis of the PMPA legislative history reveals a district court's ability to invoke its equitable powers and preempt state law on assignability to comply with the overall scheme of the Act:
[T]here is an area in which Federal termination provisions under this legislation *881 and state-granted rights of assignability of a franchise may conflict. It is intended that the harmonizing of these competing interests be left to judicial balancing of competing equities on a case-by-case basis. No hard and fast statutory rule would accomplish the desired goal of harmonizing the competing statutory objectives as equitably as application of general principles of equity to specific fact situations.
S.Rep. No. 95-731, supra at 901.
Under PMPA, a franchisor's withdrawal from a relevant geographic market can amount to a termination of non-renewal of the franchise agreement that triggers both notice and first refusal rights for franchisors. See 15 U.S.C. § 2802(b)(2)(E). The undisputed facts indicate that Gulf intended to sell all its assets in the Los Angeles Division and to withdraw from the highly competitive Southern California gasoline market.[7] The subsequent actions taken to sell plaintiffs' leased premises and the Santa Fe Springs Refinery are incidental to Gulf's stated purpose: market withdrawal. For this Court to find that the "package deal" involving Thrifty amounted to an assignment of the "franchise relationship," and not a market withdrawal, would result in the complete circumvention of the Act. Thus, it is my determination view that Thrifty cannot hold the same status as a franchisor to these plaintiffs as held by Gulf. At most, Thrifty may have an assignment of the leased premises under state law if Gulf complied with PMPA in the first instance.
As a general rule, a contractual relationship between the individual parties is a precondition for jurisdiction under PMPA. See Bsales, 516 F.Supp. at 662 N. 4. However, a second alternative theory for PMPA jurisdiction over a noncontractual third party such as Thrifty involves a judicially recognized, narrow exception to the franchise relationship rule. In Bsales, the district court implied in dicta that through an "extraordinary situation" a landlord of premises used in a franchise operation may owe certain duties to the franchisee, even though the landlord is not a franchisor. 516 F.Supp. at 661. The district court noted:
[I]f the landlord and the franchisor enter into a lease which is not the product of arm's length negotiations and that lease expires and is not renewed, then the franchisee may have a cause of action [under PMPA] against both the franchisor and the landlord. Similarly, the absence of an arm's length relationship between the franchisor and the landlord at the time that an option to renew a lease is under consideration might give the franchisee rights against both parties, if the option is not exercised.
Id. at 661 (emphasis added).
In Bsales, similar to the allegations in this case, plaintiffs alleged a conspiracy existed between the franchisor and the landlord to deprive plaintiffs of their rights under PMPA. The district court did not find a conspiracy between the parties in the absence of "direct and explicit evidence of such a conspiracy." 516 F.Supp. at 662. The court concluded that an inference of a conspiracy could not be made merely by an allegation that the defendants negotiated with their own interest in mind, absent proof that the franchisor exercised control over the new landlord. Id. at 662-63. Even a party's negotiating in bad faith is not actionable under this theory. Id. at 663 n. 8.
The instant plaintiffs argue that defendants conspired to terminate their service station leases and deprive plaintiffs' of their first refusal rights under PMPA. (See First Amended Complaint ¶ 33b.) The only evidence plaintiffs allege establishes a conspiracy between defendants Thrifty and Gulf is the SFSR contract and the September 1980 letter agreement, but the undisputed facts demonstrate these agreements resulted from vigorous negotiations to purchase Gulf's Los Angeles Division assets after Gulf decided to withdraw from that market. Although Gulf and Thrifty en *882 tered into a sales agreement that included the stations leased by plaintiffs, this Court finds plaintiffs have offered no evidence establishing an intent by either defendant to circumvent the Act. Nor is there any evidence that Gulf in any way controlled Thrifty's actions during their negotiations or anytime afterwards. While the complaint properly alleges, inter alia, Gulf failed to comply with the notice, termination, and first refusal rights of plaintiffs as required by PMPA, these allegations are unrelated to any proven conspiracy between Gulf and Thrifty.
CONCLUSION
Having decided that the claims against Thrifty do not arise under PMPA, the Court no longer has an independent basis of subject matter jurisdiction to entertain plaintiffs state law claims against Thrifty. Limitations on the Court's power to exercise "pendent party" jurisdiction and the interrelatedness of the claims against all the defendants requires this Court to remand the entire case. Thus, the motions of plaintiffs for remand to state court are granted and the Court does not make any further findings.
NOTES
[1] Plaintiff Herb Schweizer was one of several Gulf dealers to whom Gulf offered a right of first refusal to acquire its interest in the service station. Schweizer accepted Gulf's offer and thus has no claim against it for noncompliance with the Petroleum Marketing Practices Act, 15 U.S.C. § 2801 et seq.
[2] These plaintiffs are catagorized as "branded dealers." They are identified as Jack Abadjian, Brad May, and Al Rosenstein.
[3] Since the Court has already determined that the claims against Gulf and Thrifty are inextricably intertwined, removability under 28 U.S.C. § 1441(c) is also unavailable to these defendants. Section 1441(c) provides that a separate and independent federal claim may be joined with otherwise nonremovable state claims, thereby permitting removal of an entire action to federal court.
[4] In addition, Barry W. Berkett, Vice President and Assistant Secretary of Thrifty Oil Co., testified through deposition testimony that he was unaware of any of the plaintiffs ever purchasing motor fuel from Thrifty as of December 2, 1983 (Berkett deposition at 16).
[5] Thrifty has not, as of December 2, 1983, granted any of the plaintiffs the right to utilize the Gulf trademark (Berkett deposition at 36).
[6] A contract may be nonassignable if the duties imposed upon one party is of such a personal nature that their performance by someone else would in effect deprive the contracting party of the benefit of its bargain. See Dopplmaier, 48 Cal.2d at 222, 308 P.2d at 740. It is possible that a franchise agreement involving trademark rights is such a contract, however, the present decision rests strictly on an interpretation of the federal statute involved in this case leaving questions of franchise agreement assignability to the state court for its resolution.
[7] See I. Roger Kemple's deposition testimony at 78-79; 99-100. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1635439/ | 264 F. Supp. 1010 (1967)
Annie WILLIS et al., Plaintiffs,
v.
CHRYSLER CORPORATION, Defendant.
Civ. A. No. 66-H-404.
United States District Court S. D. Texas, Houston Division.
March 9, 1967.
David A. Gibson, Houston, Tex., for plaintiffs.
Baker, Botts, Shepherd & Coates, Finis E. Cowan, Houston, Tex., for defendant.
*1011 Memorandum:
INGRAHAM, District Judge.
This action is brought by the survivors of James Willis against Chrysler Corporation for breach of manufacturer's warranty. Willis was fatally injured when the 1963 Plymouth police car he was driving was involved in a collision with another vehicle in Houston, Harris County, Texas. The police car broke into two sections as a result of the impact.
The defendant has filed the deposition of J. M. Levrier who was the Captain in charge of the accident investigation division of the Houston Police Department at the time of the accident. Levrier testified that he was at the scene of the accident shortly after it happened before any of the vehicles had been moved. The testimony of Levrier and the scaled diagram of the accident scene submitted with the deposition indicate that the police vehicle was traveling east and had veered into the oncoming or left lane of Market Street Road when the accident occurred. Levrier estimated that the police car was traveling sixty-five to seventy miles per hour at the time of impact (Levrier deposition, page 14). Levrier did not estimate the speed of the oncoming automobile which collided with the police vehicle but noted that it left 205 feet of skid marks and continued in its direction of travel for 81 feet after impact. As a result of this high speed collision, all occupants of both vehicles were killed. The impact caused the police car to break into two sections at a point just behind the front seat. The two sections came to rest approximately one hundred feet apart.
The plaintiffs in this suit do not allege that the accident was caused by any defect in the Plymouth automobile. The basis of the plaintiffs' suit is that the defendant breached an implied warranty of fitness because the design of the car allowed it to separate into two sections as a result of the collision. The suit is now before this court for consideration of defendant's motion for summary judgment.
This case, in its present posture, is similar to the procedural questions faced by this court in Kahn v. Chrysler Corporation, 221 F. Supp. 677 (S.D.Tex. 1963). The determinative question in this suit is whether the defendant can be charged with a duty to manufacture an automobile which can withstand an impact as disclosed by the evidence in this case without separating into two sections. The existence and nature of such a duty is a question of law. Evans v. General Motors Corp., 359 F.2d 822 (7 CA 1966), cert. denied, 385 U.S. 836, 87 S. Ct. 83, 17 L. Ed. 2d 70; Kahn v. Chrysler Corporation, supra, and cases cited therein. If the defendant owed a duty to Willis, then a substantial fact issue is raised as to whether it was breached or not. If no duty exists, then a motion for summary judgment is proper.
The nature of the duty which an automobile manufacturer owes to the users of its product is to design the automobile so that it is reasonably fit for the purpose for which it was intended. Evans v. General Motors Corp., supra; Gossett v. Chrysler Corp., 359 F.2d 84 (6 CA 1966); Kahn v. Chrysler Corp., supra, relying on Muncy v. General Motors Corp., 357 S.W.2d 430 (Tex. Civ.App.1962). This duty does not extend to require a manufacturer to design his product so that it is accident proof or foolproof. Gossett v. Chrysler Corp., supra; Evans v. General Motors Corp., supra.
The apparent position of the plaintiffs is that although an automobile's intended purpose is transportation on the highways, an incident of this intended use is its possible involvement in collisions with other objects. Because of the foreseeability of collisions, the plaintiffs assert that the manufacturer has a duty to design its automobiles to withstand such collisions.
The Seventh Circuit in Evans v. General Motors Corp., supra, has answered *1012 such a contention in no uncertain language. Judge Knoch states, 359 F.2d at page 825:
"The intended purpose of an automobile does not include its participation in collisions with other objects, despite the manufacturer's ability to foresee the possibility that such collisions may occur. As defendant argues, the defendant also knows that its automobiles may be driven into bodies of water, but it is not suggested that defendant has a duty to equip them with pontoons."
The Texas case of City of Dallas v. Maxwell, 248 S.W. 667, 27 A.L.R. 927 (Tex.Com.App.1923), opinion adopted, involved a suit against the City of Dallas for failure to erect a barricade along a street. The plaintiff asserted that the failure to provide a barricade allowed his car to plunge into a ravine after the steering gear broke. The court in discussing the duty imposed upon the city in design of its streets made the following statement:
"We are not unmindful of the obvious fact that motor-driven vehicles do become defective and unmanageable * * * and that drivers are sometimes negligent, and accidents more or less serious result. In a sense all such occurrences are foreseeable. But, when not brought about by some defects in the highway, they are not incident to ordinary travel, and do not happen as a result of the ordinary use of the highwaysthat use for which they are designed." (Emphasis added).
In Gossett v. Chrysler Corp., supra, 359 F.2d at page 87, the Sixth Circuit defined the duties of a manufacturer relative to product design as follows:
"It is the duty of a manufacturer to use reasonable care under the circumstances to so design his product as to make it not accident or foolproof, but safe for the use for which it is intended. This duty includes a duty to design the product so that it will fairly meet any emergency of use which can reasonably be anticipated. The manufacturer is not an insurer that his product is, from a design viewpoint, incapable of producing injury. 76 A.L.R.2d Section 1(b)."
This court is of the opinion that the defendant had no duty to design an automobile that could withstand a high speed collision and maintain its structural integrity. It would require tenuous reasoning to broaden the implied warranty of "fitness for intended use" to an implied warranty of "fitness to survive a collision". This court agrees with the Evans case that, "the intended purpose of an automobile does not include its participation in collisions with other objects".
The majority of the cases cited by the plaintiffs are the progeny of MacPherson v. Buick Motor Co., 217 N.Y. 382, 111 N.E. 1050, L.R.A.1916F, 696 (1916). These cases are distinguishable from the present suit as they involve injury caused by a defectively manufactured part while the product was being used for its intended purpose. The rest of the cases cited by the plaintiffs involve an element of misrepresentation. A particular article is advertised as being able to perform a certain function and then fails to perform as advertised, giving rise to a claim for injuries sustained when the article failed. In this case there is no allegation or evidence that Chrysler advertised or represented that its automobiles or their occupants would survive such a collision.
The defendant's motion for summary judgment will be granted. Counsel will draft and submit judgment accordingly. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1636353/ | 203 F. Supp. 152 (1962)
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, a national banking association, as Trustee of the Trust created under the Last Will and Testament of Kernan Robson, Deceased, Plaintiff,
v.
UNITED STATES of America, Defendant.
Civ. A. No. 38060.
United States District Court N. D. California, S. D.
March 9, 1962.
*153 Robert J. Dreher, Dreher, McCarthy & Dreher, San Francisco, Cal., for plaintiff.
Cecil F. Poole, U. S. Atty., Richard L. Carico, Asst. U. S. Atty., San Francisco, Cal., for defendant.
WOLLENBERG, District Judge.
The facts in the above entitled action show that Kernan Robson was a resident of California when he died on January 13, 1956. His will was admitted to probate in the Superior Court of California on February 6, 1956 and the Bank of America was appointed executor of the estate on that same day.
The residue of decedent's estate was left to the Bank of America as trustee, with directions to pay monthly to certain named beneficiaries income earned by the trust, no part to be paid out of principal except to decedent's wife in the trustee's discretion if an emergency arises. The trust is to end December 31, 1977, or, if all of the income beneficiaries die before December 31, 1977, on the death of the last income beneficiary. The principal, at the termination of the trust, is to be paid to certain charitable institutions.
The estate had, for its first fiscal year running from January 13, 1956, the date of death, to October 31, 1956, a distributable net income of $178,109.00, which consisted of capital gains and income earned by the decedent prior to death and ordinary income of $65,470.44 earned by the estate.
On October 15, 1956 the Superior Court for the County of Marin entered a decree of preliminary distribution of the estate. Pursuant to the decree the estate distributed to the trustee assets of the estate, the value of which was in excess of the distributable net income of the estate; however, the property distributed did not include any of the income earned by the estate.
*154 The estate then filed its federal income tax return for its first fiscal year, deducting the sum of $178,109.00 as amounts distributed to a beneficiary of the estate. The trustee filed his first federal income tax return, choosing for the trust's first fiscal year the period from October 15, 1956, the date of the preliminary distribution, to October 31, 1956. The trustee included $178,109.00 in the gross income of the trust and deducted $8,075.00 as depreciation expense and the remainder, $170,034.00, as funds permanently set aside for charitable beneficiaries.
The government disallowed the $65,470.44 of the trust's deduction which was income earned by the estate subsequent to decedent's death, and $8,276.35 which was the amount to go to the Marin County Hospital District, one of the remainder beneficiaries, alleging it did not qualify as a charity within I.R.C. § 170 (c). 26 U.S.C.A. § 170(c).
The trustee paid the tax on these amounts, plus interest, and now sues to recover said sums.
The issues to be decided now are as follows:
(1) Was that portion of the income distributable to beneficiaries by the estate, which was the $65,470.44 earned by the estate, and includable in the first tax return of the trustee in his gross income, income currently distributable to the income beneficiaries of the trust?
(2) If the said amount in question received by the trustee from said estate was not income currently distributable to the income beneficiaries of the trust, was the same gross income permanently set aside by the trust for charitable purposes?
(3) Does the bequest in the testamentary trust of the decedent for the benefit of Marin County Hospital District qualify as a charitable deduction?
It is the government's contention in denying to the trustee the $65,470.44 deduction that, since it was income earned by the estate during the period of administration and no provision was made in the will as to the disposition of any such monies earned, the income beneficiaries under the trust were entitled to it. In re De Laveaga's Estate, 50 Cal. 2d 480, 326 P.2d 129 (1958). And, accordingly, under the theory of the conduit rule the tax liability on such income passes to the Trust even though, in the taxable year involved, the said income was retained by the estate and was not distributed to the Trust and its income beneficiaries until a subsequent taxable year not here at issue.
I.R.C. § 661(a) allows the estate to deduct from its gross income any amount distributed to its beneficiary up to its distributable net income, no matter what assets were actually distributed to the beneficiary. And even though the estate retained the income earned during administration Congress provided that the beneficiary receiving the distribution from the estate include the amount so received in its gross income, up to the distributable net income of the estate [I.R. C. § 662(a)]. This both parties admit.
The government then contends that I.R.C. §§ 661(b) and 662(b) require the application of the conduit theory which, it says, treats the beneficiary (in this case, the trust) as having received the income and the classes of income actually received by the estate, which consisted of income and capital gains earned prior to decedent's death, and income earned during administration, and therefore the $65,420.44, which was earned by the estate during administration, is income earned by the trust and must be distributable to the income beneficiaries.
The government's argument wears thin in two places, however. It is agreed that the terms of the governing instrument and applicable local law prevail to define "income" and to determine whether the income is required to be distributed when the word "income" is in issue and is not preceded by the words "`taxable', `distributable net', `undistributable net' or `gross.'" I.R.C. § 643(b), Regulations § 1.661(a)-2(b). See also Judge Hand's opinion in Johnston v. Helvering (2nd Cir., 1944) 141 F.2d 208 at 210.
*155 It is clear from a careful reading of the decedent's will, which in part reads, "I hereby direct that all payments to be made by my said trustee to" any of the income beneficiaries "shall be made only out of the net income derived from this trust and not out of principal * * *", that decedent intended all other monies, no matter what the source, to go to the remainder beneficiaries.
A basic policy underlying the taxation of beneficiaries of estates and testamentary trusts is to tax whoever has a present right to the receipt of income or assets, and not the actual receipt of said income or assets. Freuler v. Helvering, 291 U.S. 35 at 42, 54 S. Ct. 308 at 311, 78 L. Ed. 634 (1934); Polt v. C. I. R. (2nd Cir. 1956), 233 F.2d 893.
If this be the case, we find the will directing the trustee to permanently set aside all assets other than actual earned income given it by the estate solely for the benefit of the remainder beneficiaries. As the remainder beneficiaries in this instance are charities, and the trustee has permanently set aside the assets thus distributed to it under the decree of distribution made in the taxable year herein involved for their benefit, the trustee is entitled to deduct from his gross income that amount under the provisions of I.R.C. § 642(c).
It follows then that the government's contention that the conduit theory of I.R.C. §§ 661(b) and 662(b) be used to determine tax liability is erroneous as its application would require distribution by the trust, in the taxable year involved, of the amount of income earned during administration of the estate to the income beneficiaries, when in fact no such income was actually distributed to the trust during the taxable year herein involved.
The conduit theory should be applied, as the trustee insists, not to find tax liability, but to determine only the character of the amounts distributed for the purposes of assessing taxes after tax liability has been established. The plaintiff in his brief uses the following two examples to demonstrate this contention:
"(1) Under a will A bequeathed and devised his entire estate to a charitable organization duly qualified under Section 170 of the Internal Revenue Code. During its first fiscal year the estate of A received a gross income of $15,000.00. Prior to the close of its fiscal year the estate distributed to the charitable beneficiary under a Decree of Preliminary Distribution One hundred shares of X Company stock, owned by the decedent at the date of his death, and having a fair market value of $20,000.00. No income received by the estate during the period of administration was distributed. The actual income of the estate, namely, the sum of $15,000.00, consisted of $5,000.00 in dividends, $5,000.00 in rental income, and $5,000.00 in long-term capital gains. During the said taxable period the estate had no deductible expenses. Under the provisions of Section 662 (a) the estate would be required to deduct from its gross income the said sum of $15,000.00 as deductions for distributions to beneficiaries. The distributee, being a tax-exempt charitable organization, would not be liable for any income taxes on account of said distribution even though, pursuant to the said so-called `conduit rule', the amounts thus distributable constituted taxable dividends, rents and capital gains.
"(2) Assuming the same facts as in the foregoing example, except that the distributee is an individual subject to tax, the results as far as the estate is concerned would be the same. The individual, however, being a taxable entity, would be required to report a gross income of $15,000.00 received from the estate. At that point, it having been determined that the beneficiary is a taxable entity, the conduit rule would then come into application. *156 The result would then be that the beneficiary had received $15,000.00 in `gross income' from the estate pursuant to Section 662(a). His tax would then be determined and calculated on $5,000.00 dividend income and on $5,000.00 gross rental income and $5,000.00 long-term capital gains."
See also Regulation § 1.663(a)-(b) (3).
The last issue is whether or not the Marin County Hospital District qualifies as a charity within I.R.C. §§ 170 and 642. The will of decedent directs the trustee to distribute, at the termination of the trust, "(f) Ten per cent (10%) thereof unto the Marin County Hospital District for use in the Marin General Hospital for the establishment of free room or rooms, first, for the persons designated as beneficiaries of this trust and, then, for such other person or persons as the Board of Directors of said hospital may from time to time direct;".
The government contends that, because the will of decedent required free rooms to be made available to the beneficiaries of the trust "first", without requiring the named beneficiaries to show financial need, this was not "exclusively" for charitable purposes as is required by I.R.C. §§ 642(c) and 170(c).
But it has been held that a charitable deduction will not be denied merely because the donor is the controller of the donee's beneficiary and arranges to have some of the charitable services performed for his relatives. Mallery, 40 B. T.A. 778, Dec. 10845; Agnes C. Robinson, 1 T.C. 19, Dec. 12880.
The government attempts to distinguish these cases from the case at bar by saying the beneficiaries in the case at bar would benefit simply because they were named beneficiaries and not solely because of need.
However, there is nothing in decedent's will which would require the hospital to give to the beneficiaries free rooms if there was no need shown, or if the beneficiaries were refused. It is unreasonable to think the decedent intended this bequest to be treated differently.
Judgment is therefore entered for plaintiff in the amount of $39,449.61, plus interest thereon from February 26, 1958, and for $9,497.11, plus interest thereon from July 23, 1959, and for costs of suit. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1662224/ | 650 F. Supp. 2d 604 (2009)
Luis Alberto PITA SANTOS, Plaintiff,
v.
EVERGREEN ALLIANCE GOLF LIMITED, LP, Defendants.
Civil Action No. H-08-1869.
United States District Court, S.D. Texas, Houston Division.
June 30, 2009.
*606 Luis Alberto Pita Santos, Katy, TX, pro se.
Stewart Edmond Hoffer, Munsch Hardt Kopf & Harr, P.C., Houston, TX, Nancy J. Bush, Munsch Hardt et al., Dallas, TX, for Defendants.
MEMORANDUM AND OPINION
LEE H. ROSENTHAL, District Judge.
The plaintiff, Luis Alberto Pita Santos, sued his former employer, Evergreen Alliance Golf Limited, LP ("EAGL"), the Texas Workforce Commission, and the Equal Employment Opportunity Commission alleging discrimination on the basis of race and national origin, retaliation, and conspiracy, among other claims. The claims against the EEOC were dismissed for lack of subject-matter jurisdiction. (Docket Entry No. 20). The claims against the TWC were dismissed because it is a state agency immune from suit in federal court under the Eleventh Amendment. (Docket Entry No. 38). After giving Pita Santos several opportunities to amend his complaint, this court liberally construed the allegations and retained for further consideration the claims that Pita Santos was terminated from his job by EAGL because of his national origin and because of retaliation. This court dismissed the retaliation claim on February 24, 2009. (Docket Entry No. 46).
EAGL has now moved for summary judgment on the national-origin discrimination claim. (Docket Entry No. 51). EAGL argues that even assuming Pita Santos has made a prima facie showing of discrimination, it has presented a legitimate nondiscriminatory reason for the termination decision and Pita Santos has not identified or submitted any evidence of pretext. Pita Santos has filed several documents in response, including Proof 95, (Docket Entry No. 52), Proof 96, (Docket Entry No. 53), Proofs 97, 98, 99 (Docket Entry No. 54), Proof 100, (Docket Entry No. 55), Proof 101, (Docket Entry No. 56), Proof 102, (Docket Entry No. 57), Proof 103, (Docket Entry No. 58), Proof 104, (Docket Entry No. 59), Proof 106, (Docket Entry No. 60), Proof 107, (Docket Entry No. 61), Exhibits, (Docket Entry No. 64), Proof 117, (Docket Entry No. 65), and Exhibits, (Docket Entry No. 66). EAGL filed a reply in support of its motion for summary judgment, (Docket Entry No. 63).
Based on careful review of the pleadings, the motion, responses, and reply, and *607 the applicable law, this court grants EAGL's motion for summary judgment. The reasons are explained below.
I. Background
EAGL owns and operates the Cinco Ranch Golf Course located in Katy, Texas. Pita Santos began working at Cinco Ranch on April 10, 2006 as an equipment operator and landscaper. His primary responsibilities included maintenance work and replacing ice and water around the golf course. Pita Santos was hired by Wade Warms, Superintendent of Cinco Ranch, and Chris Teafatiller, Assistant Superintendent. Warms and Teafatiller were Pita Santos's supervisors during his employment at Cinco Ranch.
The record shows that beginning in the spring of 2007, Pita Santos had a series of confrontations with his supervisors. First, Pita Santos was discovered collecting golf balls from ditches on the golf course while "on the clock." (Docket Entry No. 51, Ex. A, Affidavit of Wade Warms, at ¶ 5). Warms gave him a verbal reprimand and told Pita Santos not to spend his time going into the ditches to collect golf balls. In response, Pita Santos became "extremely angry," "loud and obstinate," "called all the witnesses liars," and acted in an "inappropriate and unprofessional" manner. (Id. at ¶ 5). On a different occasion, Pita Santos was reprimanded for not driving the golf carts on the path and causing ruts in the fairways of the course. When his supervisors told him not to drive the carts on the fairways, Pita Santos responded in a similarly loud and angry fashion. (Id. at ¶ 6). On Friday, May 25, 2007, Pita Santos confronted Teafatiller and claimed that he had not been paid enough. (Docket Entry No. 51, Ex. B, Affidavit of Chris Teafatiller, at ¶ 7). Pita Santos had taken two vacation days during the previous pay period. EAGL paid him for those days, but the pay was recorded under a separate line item on his pay stub. According to Teafatiller, Pita Santos "aggressively confronted" him about the amount of the pay check in front of other employees. (Id. at ¶ 7). Teafatiller did not report the incident to Warms, the superintendent, who was not at work that day. On Monday, May 28, 2007, Warms returned to work. Teafatiller had the day off. At the end of the work day, Pita Santos told Warms that he would no longer perform "his assigned tasks of ice and water maintenance." (Docket Entry No. 51, Ex. A, Warms Affidavit, at ¶ 7). According to EAGL, Santos was hired "primarily . . . for ice and water facility maintenance." (Id. at ¶ 3). Warms told Pita Santos to go home and that they would talk about it in the morning. (Id., at ¶ 7). The next morning, Warms assigned Pita Santos to do landscaping work around the lake. When Teafatiller returned to work, he told Warms about Friday's incident and Pita Santos's behavior. Based on the incidents about the golf balls and golf carts and Pita Santos's behavior on May 25 and May 28, Warms decided to terminate Pita Santos's employment on May 30, 2007.
Pita Santos's initial complaint, filed on June 11, 2008, was a 120-page filing with rambling and unconnected statements. Pita Santos appeared to allege that he was fired based on national-origin discrimination and in retaliation for protected activities. (Docket Entry No. 1). EAGL moved to dismiss and to require a more definite statement. On July 28, 2008, this court ordered Santos to file an amended complaint consistent with the Rule 8 requirements. (Docket Entry No. 13).
Pita Santos filed an amended complaint on August 13, 2008. (Docket Entry No. 15). Although the first amended complaint was shorter, it did not provide a short and plain statement of the claims against the defendants. Pita Santos did not allege what conduct by the defendants *608 was improper or unlawful. Instead, Pita Santos made "continuing allegations and complaints against many offenders entrepreneurs Eagles with a plot increased number of rulers, criminals and TWCCRD, EEOC, offices of Texas San Antonio, Dallas and Central Texas (perhaps some already deposed or replaced) to conceal a increased number of violations, crime and damage types of labor and civilians to mi [sic] person for over 16 months, and having provided ample proof and evidence, I reiterate my complaint so categorical, emphatic and concise against" EAGL, TWC, and EEOC. (Id.). Pita Santos alleged that EAGL is "guilty of crimes of discrimination and retaliation" (Id.). Pita Santos further alleged that EAGL discriminated against him based on the fact that he was "1) Spanish-Cuban who speaks and understands very little English; 2) Professor university graduate of History and Political Economy; 3) Leading express and tortured by the tyranny in Cuba for dissent and opposing his facing; 4) Defender of Human Right for my homeland, both on the island and in exile; 5) Scientific and innovative certain educational ane [sic] methodological advances that will be useful for the progress and welfare of U.S. and the world; 6) Excellent job, insurmountable for the rest of my colleagues in the maintenance department in Cinco Ranch and at any other centers where he worked above and beyond; 7) Revindicative of human rights, civil and labor mine and those of my colleagues at work." (Id.)
On September 9, 2008, EAGL renewed its motion to dismiss and again moved to require a more definite statement. At the Rule 16 initial pretrial conference on September 26, 2008, the defendants appeared by telephone. On September 30, 2008, Santos filed a document titled "Total Absence of My Legal Contenders." (Docket Entry No. 28). In that document, Santos contended the defendants did not appear in person at the initial conference because they recognized the failure of their arguments and "preferred to avoid the confrontation of a very humiliating defeat." (Id.). During the initial conference, EAGL reiterated their request for a more definite statement. This court again ordered Pita Santos to file a short, plain statement of his claims against EAGL.
Pita Santos filed another "modified" statement. (Docket Entry No. 29). On October 9, 2008, EAGL moved to dismiss under Rule 41(b) of the Federal Rules of Civil Procedure for failure to comply with Rule 8 and this court's orders. Alternatively, EAGL moved to dismiss for lack of subject-matter jurisdiction under Rule 12(b)(1) and for failure to state a claim on which relief can be granted under Rule 12(b)(6). (Docket Entry No. 31). After EAGL moved to dismiss, Pita Santos filed documents entitled "Proclaim Plan of Peaceful Protest," (Docket Entry No. 32), "Abuse of Power," (Docket Entry No. 34), "A World Public Opinion," (Docket Entry No. 35), and "Proofs," (Docket Entry No. 37).
With respect to the claims against EAGL, this court found that "[l]iberally construed, the second amended complaint. . . alleges discrimination on the basis of national origin ("Being a foreigner, Spanish-Cuban"). It also appears to allege retaliation for protected activity ("Claimed human rights, civil and industrial mine, and those of my colleagues at work"), but it is not clear whether this activity occurred before or after Pita Santos was fired." (Id.). This court denied EAGL's motion to dismiss as to the national-origin discrimination claim but granted the motion as to the retaliation claim. (Id.). After Pita Santos was allowed to amend to attempt to cure the pleading problems with the retaliation claim, this court granted EAGL's renewed motion to dismiss the retaliation claim. EAGL's motion for summary *609 judgment on the national-original discrimination claim followed.
II. The Legal Standard for Summary Judgment
Summary judgment is appropriate if no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law. FED. R. CIV. P. 56(c). "The movant bears the burden of identifying those portions of the record it believes demonstrate the absence of a genuine issue of material fact." Triple Tee Golf, Inc. v. Nike, Inc., 485 F.3d 253, 261 (5th Cir. 2007) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 322-25, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986)).
If the burden of proof at trial lies with the nonmoving party, the movant may satisfy its initial burden by "`showing'that is, pointing out to the district courtthat there is an absence of evidence to support the nonmoving party's case." See Celotex, 477 U.S. at 325, 106 S. Ct. 2548. While the party moving for summary judgment must demonstrate the absence of a genuine issue of material fact, it does not need to negate the elements of the nonmovant's case. Boudreaux v. Swift Transp. Co., 402 F.3d 536, 540 (5th Cir.2005) (citation omitted). "A fact is `material' if its resolution in favor of one party might affect the outcome of the lawsuit under governing law." Sossamon v. Lone Star State of Texas, 560 F.3d 316, 326 (5th Cir.2009) (quotation omitted). "If the moving party fails to meet [its] initial burden, the motion [for summary judgment] must be denied, regardless of the nonmovant's response." United States v. $92,203.00 in U.S. Currency, 537 F.3d 504, 507 (5th Cir.2008) (quoting Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir.1994) (en banc)).
When the moving party has met its Rule 56(c) burden, the nonmoving party cannot survive a summary judgment motion by resting on the mere allegations of its pleadings. The nonmovant must identify specific evidence in the record and articulate how that evidence supports that party's claim. Baranowski v. Hart, 486 F.3d 112, 119 (5th Cir.2007). "This burden will not be satisfied by `some metaphysical doubt as to the material facts, by conclusory allegations, by unsubstantiated assertions, or by only a scintilla of evidence.'" Boudreaux, 402 F.3d at 540 (quoting Little, 37 F.3d at 1075). In deciding a summary judgment motion, the court draws all reasonable inferences in the light most favorable to the nonmoving party. Connors v. Graves, 538 F.3d 373, 376 (5th Cir.2008).
III. Analysis
Pita Santos claims that EAGL discriminated against him based on national origin by terminating his employment. EAGL asserts that Pita Santos was fired for multiple acts of insubordination and that his national origin played no part in his termination.
Under Title VII, employers are prohibited from discriminating on the basis of national origin. 42 U.S.C.A. § 2000e-2(a). A plaintiff must carry the initial burden of establishing a prima facie case of discrimination on the basis of national origin. Panlilio v. Dallas Indep. Sch. Dist., 643 F.2d 315, 317 (5th Cir.1981). To establish a prima facie case of discrimination based on national origin, plaintiff must prove that he: "(1) was part of a protected class, (2) was qualified for the position held, (3) suffered an adverse employment action, (4) was treated differently than others similarly situated." Abarca v. Metropolitan Transit Authority, 404 F.3d 938, 941 (5th Cir.2005) (citing Rios v. Rossotti, 252 F.3d 375 at 378 (5th Cir.2001)). A plaintiff will not satisfy the "qualified for position held" element of the test if the defendant can show that he was not "performing *610 his job at a level that met his employers legitimate expectations at the time of his discharge." McClaren v. Morrison Mgmt. Specialists, Inc., 316 F. Supp. 2d 489, 497-98 (W.D.Tex.2004); See also Detz v. Greiner Indus. Inc., 346 F.3d 109, 119 (3rd Cir.2003); Johnson v. S. Mississippi Home Health, 158 F.3d 584, 1998 WL 648526, at *1 (5th Cir.1998) (unpublished table decision). Once a plaintiff has made this showing, the burden shifts to the employer to present a legitimate, nondiscriminatory reason for the termination. Frank v. Xerox Corp., 347 F.3d 130, 137 (5th Cir.2003). If the employer does so, the burden shifts back to the plaintiff to show that the defendants' proffered reason for the termination is not the real reason. Id. If the plaintiff fails to make such a showing, then the claim fails. Id.
In a mixed-motive case, if the plaintiff shows that the illegal discrimination was a motivating factor, the defendant must respond with evidence that the same employment decision would have been made regardless of discriminatory animus. Taylor v. Peerless Industries, Inc., 322 Fed.Appx. 355, 360-61 (5th Cir.2009) (citing Rachid v. Jack in the Box, 376 F.3d 305, 312 (5th Cir.2004)). The plaintiff has the ultimate burden of showing a genuine issue of material fact on whether the defendant discriminated on the basis of the plaintiff's membership in the protected class. Reeves v. Sanderson Plumbing Prods., 530 U.S. 133, 143, 120 S. Ct. 2097, 147 L. Ed. 2d 105 (2000).
It is undisputed that Pita Santos is part of a protected class and that he suffered an adverse employment action. Pita Santos asserts that he was qualified for his job and that he was treated differently from others in his position. EAGL asserts that Pita Santos has not submitted evidence of similarly situated employees whose employment was not terminated. EAGL submitted affidavit testimony that other Cinco Ranch maintenance workers have been fired for insubordination. (Docket Entry No. 51, Ex. A, Affidavit of Wade Warms, at ¶ 12).
To establish the fourth element of the prima facie case, a plaintiff may present "circumstantial evidence that she has been treated differently than similarly situated non-members of the protected class." Williams v. Trader Pub. Co., 218 F.3d 481, 484 (5th Cir.2000) (citation omitted). In disparate treatment cases involving employee misconduct and discipline, a "plaintiff must show that the employer gave preferential treatment to another employee under nearly identical circumstances; that is, that the misconduct for which the plaintiff was discharged was nearly identical to that engaged in by other employees." Okoye v. Univ. of Texas Houston Health Science Center, 245 F.3d 507, 514 (5th Cir.2001) (internal quotations omitted); see also Berquist v. Wash. Mut. Bank, 492 F.3d 576, 584 (5th Cir.2007) ("In disparate treatment cases, the plaintiff-employee must show `nearly identical' circumstances for the employees to be considered similarly situated."). "[P]ut another way, the conduct at issue is not nearly identical when the difference between the plaintiff's conduct and that of those alleged to be similarly situated accounts for the difference in treatment received from the employer." Wallace v. Methodist Hosp. Sys., 271 F.3d 212, 221 (5th Cir.2001). Moreover, the "alleged comparator employees [must have been] similarly situated from the perspective of their employer at the time of the relevant employment decisions," Perez v. Tex. Dept. of Criminal Justice, 395 F.3d 206, 209 (5th Cir.2004), and the comparator employees' position in the organizatione.g., job title, duties, supervisorshould be roughly the same. See, e.g., Wyvill v. United Cos. Life Ins. *611 Co., 212 F.3d 296, 305 (5th Cir.2000). Pita Santos has failed to identify any support for an inference that other EAGL employees were treated more favorably under "nearly identical circumstances." There is no allegation or evidence in the record of employees outside the protected class with similar job responsibilities who engaged in similar misconduct but who were not fired. To the contrary, the record evidence shows that other maintenance employees at Cinco Ranch who engaged in insubordination were also terminated.
Even assuming that Pita Santos had established a prima facie case, EAGL has offered a legitimate nondiscriminatory reason for the termination. The record shows that Pita Santos was fired for multiple acts of insubordination and for refusing to perform specific parts of his job. Cases treat such acts as a legitimate nondiscriminatory basis for job termination. See Aldrup v. Caldera, 274 F.3d 282 (5th Cir.2001) ("Insubordination on three separate occasions was sufficient nondiscriminatory reason for. . . termination of Title VII plaintiff's employment"); Chaney v. New Orleans Pub. Facility Mgmt., 179 F.3d 164, 167 (5th Cir.1999) (concluding that the failure of a subordinate to follow a direct order of a supervisor is a legitimate nondiscriminatory reason for taking adverse employment action).
Pita Santos has failed to point to any evidence supporting the inference that the stated reasons for his termination were a pretext for discrimination. Although a court is not required to ferret through the record to locate summary-judgment evidence for which the parties do not provide a citation,[1] this court did search the voluminous filings by Pita Santos and was not able to locate any evidence of pretext. Pita Santos's unsubstantiated assertions that the termination was based on his national origin are insufficient to survive summary judgment on this claim. See Calbillo v. Cavender Oldsmobile, Inc., 288 F.3d 721, 725 (5th Cir.2002) (noting that conclusory allegations and unsubstantiated assertions are insufficient to overcome summary judgment). Moreover, EAGL is entitled to the same-actor inference of nondiscrimination. Warms hired Pita Santos in April 2006 and fired him in May 2007, after the incidents in which he refused to do certain work and had angry confrontations with his supervisors. See Brown v. CSC Logic, Inc., 82 F.3d 651, 658 (5th Cir.1996). The record provides no basis to conclude that discrimination was the reason for Pita Santos's termination.
EAGL's motion for summary judgment on the national-origin discrimination claim is granted.
IV. Conclusion
EAGL's motion for summary judgment is granted. Final judgment is entered by separate order.
NOTES
[1] Rule 56 does not obligate this court to search for evidence to support a party's motion for, or opposition to, summary judgment. See Ragas v. Tenn. Gas Pipeline Co., 136 F.3d 455, 458 (5th Cir.1998) ("Rule 56 does not impose upon the district court a duty to sift through the record in search of evidence to support a party's opposition to summary judgment."); Nicholas Acoustics & Specialty Co. v. H & M Constr. Co., Inc., 695 F.2d 839, 846-47 (5th Cir.1983) ("Judges are not ferrets!"); Albrechtsen v. Bd. of Regents, 309 F.3d 433, 436 (7th Cir.2002) ("`Judges are not like pigs, hunting for truffles buried in' the record." (quoting United States v. Dunkel, 927 F.2d 955, 956 (7th Cir. 1991))). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1669748/ | 375 F. Supp. 482 (1973)
Hazen KREIS and Robert A. Epperson
v.
VENTURE OUT IN AMERICA, INC.
Civ. A. No. 8299.
United States District Court, E. D. Tennessee, N. D.
November 27, 1973.
Jack B. Draper, Knoxville, Tenn., for plaintiffs.
A. Paul Cadenhead, Atlanta, Ga., Hugh W. Morgan, John B. Rayson, Kramer, Dye, Greenwood, Johnson, Rayson & McVeigh, Knoxville, Tenn., for defendant.
MEMORANDUM AND ORDER
ROBERT L. TAYLOR, District Judge.
This case originated in the Chancery Court of Knox County, Tennessee and *483 was removed to this Court by the defendant on the basis of diversity of citizenship. Plaintiffs seek specific performance of a contract or alternatively damages for an alleged breach by the defendant.
Plaintiffs are former stockholders, directors and officers of the Tennessee corporation. By means of a written agreement executed on April 26, 1971, to become retroactively effective March 11, 1971, plaintiffs sold their capital stock interest in the defendant corporation consisting of 1,020,000 shares to the defendant. In exchange for such capital stock, plaintiffs bargained for and received of the defendant valuable consideration, including the following:
"As consideration for the aforesaid sale, assignment and transfer of the share of Kreis and Epperson in Venture Out, Venture Out agrees:
"(a) To convey in consideration for the transfer of stock hereunder, by warranty deed containing full covenants of title certain property on the eastern side of Highway AIA in St. Lucie County, Florida, as described on Exhibit "C" hereto attached and incorporated herein by reference. Such conveyance will be made subject to existing easements and taxes for the year 1971. Said property consists of two (2) tracts, one fronts 350 feet on the eastern side of the highway and extends in an eastern direction to the ocean (Katz property), and the other fronts 1,606 feet, more or less, on the eastern side of the highway, adjoining the Katz property on the south but extends back only 58 feet on the south and 112 feet on the northern end together with a strip 2 feet in width which extends from the highway to the ocean. Kreis and Epperson agree to assume $50,000.00 of the existing mortgage in favor of A. Paul Young, et al, as to the second parcel with the understanding that Venture Out will pay, or cause to be paid before default all amounts due, or becoming due, as to the remaining amounts owing with respect to said mortgage to the end that Kreis and Epperson will suffer no jeopardy as to a foreclosure of the mortgage on account of a default therein.
* * * * * *
"(c) With respect to St. Lucie County properties, Kreis and Epperson, their heirs and assigns, shall be entitled to tap onto the water and sewer facilities of Holiday Out in America at St. Lucie, Inc. ("Holiday Out"), so as to serve the properties conveyed to them with both sewer treatment facilities and water service upon the specific condition that should any modification be required in the opinion of Venture Out to the sewer plants in order to accommodate the combined needs of the transferred lands and those of Holiday Out, the cost of such accommodation, including all engineering, shall be borne exclusively by Kreis and Epperson, their heirs and assigns, and under no circumstances will either the cost of operation or improvement of the sewer plant become an additional expense of Holiday Out. Kreis and Epperson shall pay for all water and sewer services received after a tap is made hereunder."
Plaintiffs contend that the boundaries of one of the tracts conveyed to them by the defendant was purposely designed by the parties in such a way as to landlock what was described by the witnesses as the Slifka property. This parcel is contiguous to Tracts Nos. 1, 2 and 3, which was all of the property purchased by plaintiff from the defendant and is shown on the map filed as Exhibit No. 1. Subsequent to the sale, plaintiffs purchased the Slifka property. Plaintiffs contend that the water and sewer tap rights are of great value and that they made subsequent developments in reliance upon their belief that defendant was obligated to permit them to tap onto defendant's sewer and water facilities. Notwithstanding their reliance, defendant has refused and continues to refuse *484 such tap. Plaintiffs seek specific performance of what they claim was their agreement with the defendant to tap such facilities or in the alternative for damages for defendant's refusal.
Defendant contends that the contract sued upon does not obligate it to permit the plaintiffs to hook up to the water supply lines to serve the Slifka property. Defendant, however, is agreeable to plaintiffs' hooking up to the water and sewage lines to serve Tracts Nos. 1, 2 and 3 shown on Exhibit 1, in accordance with the agreement made April 26, 1971.
Defendant contends further that its sewer plant cannot be modified, as the term is used in the agreement, to accommodate the combined needs of defendant and plaintiffs' proposed development of 383 condominium apartments.[1]
The material issue, as formulated in the pre-trial order, is:
Does paragraph 5 of the agreement sued upon obligate the defendant to permit the plaintiffs to tap on the water and sewer facilities of Holiday Out in America at St. Lucie, Inc., so as to serve a proposed development consisting of 383 condominium apartments to be located in part upon lands conveyed to plaintiffs by defendant, and in part upon lands acquired by the plaintiffs from others?
The answer to this question involves the construction of the contract between plaintiffs and the defendant, particularly Sections 5(a) and 5(c). Plaintiffs' attorney has outlined the pertinent rules to be followed by the Court in reaching a decision on this point. One rule of construction, which is designated as a cardinal one, is to give effect to the intention of the parties in light of all the surrounding circumstances. City of Memphis, Tennessee v. Ford Motor Co., 304 F.2d 845, 849 (6th Cir. 1962). The language of the instrument and intention of the parties control. A. J. Armstrong Co. v. Lincoln Finance & Thrift, Inc. et al, 291 F. Supp. 1008, 1010 (E.D.Tenn., 1968). As a general rule, the Courts cannot only look to the language of the contract but must ascertain, if possible, the intention of the parties and make a construction that is fair and reasonable. Real Estate Management, Inc. v. Giles, 41 Tenn.App. 347, 293 S.W.2d 596 (1956).
If the language of a contract is contradictory, obscure, and ambiguous and its meaning doubtful so as to make it the subject of two constructions, one of which makes it fair and such as prudent men would naturally execute, while the other makes it inequitable, unusual or such that reasonable men would not execute, the interpretation which makes a rational and probable agreement must be preferred. Commerce Street Company v. Goodyear Tire and Rubber Co., 31 Tenn.App. 314, 329-330, 215 S.W.2d 4 (1948). However, when the language is plain, simple and unambiguous, it is the function of the Court to enforce it as written notwithstanding that it may contain terms considered harsh and unjust. Petty v. Sloan, 197 Tenn. 630, 277 S.W.2d 355 (1955). If the language is plain and unambiguous, parole evidence may not be received to vary or change its terms. Pettyjohn v. Brown Boveri Corp., Tenn.App., 476 S.W.2d 268, 271 (1971); 30 Am.Jur.2d, Evidence, Section 1069.
Furthermore, a person who has obligated himself by contract may not be excused from performance because of unforeseen difficulties, unexpected expense or because it is unprofitable. Clinchfield Stone Co. v. Stone, 36 Tenn. App. 252, 254 S.W.2d 8 (1952).
The evidence shows that both at the time of negotiations and at the time of *485 execution of the contract each party was represented by counsel. Plaintiffs contend, and the proof clearly reflects, that representatives of the defendant knew that plaintiffs were to negotiate for the Slifka property and that their purpose in obtaining Tracts 1 and 2 was to landlock the Slifka tract, presumably in order to prevent any other party from buying it. Defendant's representatives also knew that plaintiffs contemplated condominium development of the properties which would require water and sewer facilities. Plaintiffs, therefore, argue that it was the intention of the parties that defendant furnish water and sewer services at the cost of plaintiffs despite the increased burden, for if the contract is construed otherwise, their right to tap on for only those properties conveyed in paragraph 5(a) would be meaningless.
If this was the intention of the parties, there was nothing to prevent the inclusion of a clause in the contract to the effect that defendant would likewise service the Slifka tract if and when acquired. It is not the prerogative of the Court to write a new contract for the parties and in order to sustain the contention of plaintiffs, this would have to be done.[2]
Applying the foregoing principles to the facts under consideration, the Court must conclude that Sections 5(a) and 5(c) are clear and unambiguous and that under those sections and the contract as a whole, defendant is not required to permit plaintiffs to tap its water and sewer facilities except to serve Tracts 1, 2 and 3 as shown on Exhibit 1. Defendant is not required to permit a tap to serve the property described in the record as the Slifka property.
Accordingly, it is ordered that plaintiffs' action be, and same hereby is, dismissed.
NOTES
[1] The evidence indicates that these units will be constructed on the south end of the property now owned by plaintiffs. The evidence further shows that approximately 90% of this construction will occur on the lands purchased by plaintiffs from Slifka with only 10% occurring on the lands conveyed under paragraph 5 of the contract.
[2] Paragraph 11 of the agreement reads:
"This instrument contains the entire agreement between the parties hereto with respect to the transactions contemplated herein." Additionally, Mr. Henry Ogle, attorney for plaintiffs during the negotiations, when asked if the contract represented the entire agreement of the parties, replied that it did. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1669997/ | 899 F. Supp. 188 (1995)
UNITED STATES of America
v.
Eric ZUBER.
Crim. No. 95-07-01.
United States District Court, D. Vermont.
August 18, 1995.
*189 *190 Peter W. Hull, Assistant U.S. Attorney, Burlington, VT, for the Government.
Ernest M. Allen, III, Burlington, VT, for defendant.
OPINION-ORDER
MURTHA, Chief Judge.
On May 22, 1995, Defendant Eric Zuber filed a Motion to Dismiss and a Motion to Suppress. The United States filed opposition to both Motions, and the Court heard oral argument on the matter at a hearing on August 7, 1995. Having reviewed the respective positions of the parties, the Court now makes the following Findings of Fact and Conclusions of Law.
I. FINDINGS OF FACT
This case began with an investigation that the United States Drug Enforcement Administration ("DEA") conducted during the Spring and Summer of 1991 into James Temple's involvement in cocaine distribution in the Burlington, Vermont area. DEA Special Agent Rick Carter made five controlled purchases of cocaine from Temple between April 23, and July 18, 1991. Carter arrested Temple after the final purchase on July 18, and Temple then identified the Defendant, Eric Zuber, as the source of the cocaine which Temple had been distributing. Temple agreed to cooperate with the DEA's investigation by making controlled purchases of cocaine from Zuber.
While cooperating with the DEA, Temple made controlled purchases of cocaine from Zuber on July 23 and July 24. Temple informed Carter that Zuber planned to receive another shipment of cocaine shortly. Agent Carter testified at the hearing that he expected the next shipment to arrive on Friday, and that when it did he anticipated arresting Zuber after Temple made another controlled purchase. Carter contacted DEA Special Agent Doud and apprised him of the status of the investigation, including his plan to arrest Zuber when the next shipment of cocaine arrived.
Temple maintained contact with both Zuber and Carter during the next three days, and at approximately 11:00 a.m. on Saturday, July 27, Temple telephoned Carter and told him that Zuber had received the cocaine. Carter contacted Doud and informed him that he planned to follow Temple to Zuber's residence for the purchase, determine if there was additional cocaine present, and then arrest Zuber.
Carter, Doud, and three other DEA agents assembled at the DEA office at approximately 12:00 p.m. The agents discussed their plan for the operation with Temple, who was *191 also present, and they outfitted Temple with a wire so that his contact with Zuber could be monitored. The group then left for Zuber's residence in 4-5 separate cars at approximately 1:45 p.m.
Followed by the agents, Temple drove from Burlington to Zuber's residence in Hinesburg, where Zuber lived with his mother Mary Zuber on an unpaved, dead-end road near Lake Iroquois.[1] When they arrived, Temple entered Zuber's residence to make the controlled purchase. Carter monitored the transmissions from Temple's wire while the remaining agents patrolled the area in their vehicles. Inside the house, Zuber told Temple that he had four ounces of cocaine and that he would sell two of them to Temple. Zuber also indicated that he planned to leave the residence shortly to distribute more of the cocaine.
After being in the house for approximately fifteen minutes, Temple left and met Carter at a nearby fishing access. Carter took the two ounces of cocaine from Temple, searched him, and then debriefed him. Temple informed Carter that Zuber had two more ounces of cocaine and was planning to leave the house shortly, and that there were other people in the house. Carter radioed Doud, summarized the situation for him, and indicated that the agents should prevent Zuber from leaving and arrest him as soon as possible.[2] Carter then drove to Zuber's residence.
In the meantime, Agent Doud contacted the other agents and prepared to approach the Zuber residence. Armed with semi-automatic pistols and service revolvers, the agents donned flak jackets and surrounded the house. Agent Doud approached the front entrance with two agents while the third agent guarded the rear door to insure that no one left unnoticed.
Agent Doud proceeded to the entrance first, knocked on the door, and saw Mary Zuber walk in his direction. Doud then opened the door himself, and the three agents entered the house with their guns drawn. Doud identified himself and explained the purpose of the entry while the other agents searched the house for Zuber and the other occupants.
After attempting unsuccessfully to calm Mrs. Zuber, Doud went upstairs and saw that the other two agents had secured Zuber and another man, Chris Lavigne. Both Zuber and Lavigne were lying on the floor on their stomachs with their hands cuffed behind their backs. Zuber's girlfriend, Terri Baker, was also present.
At this time, Agent Carter arrived at the Zuber residence. Carter went upstairs with his weapon drawn, and then holstered it when he saw that the area was secured. He took Zuber into a bedroom and explained to him that Temple had been wearing a wire and that Zuber would be charged with cocaine distribution. Zuber then retrieved the two additional ounces of cocaine he had and turned them over to Carter. At that point, Agent Carter read Zuber his Miranda rights. Zuber acknowledged that he understood his rights and that he was willing to cooperate. Zuber then made a detailed statement in which he acknowledged distributing wholesale quantities of cocaine on an ongoing basis.
After Zuber gave his statement, he and Baker were placed under arrest and brought to the DEA office in Burlington. The agents did not detain Lavigne, and they later released Baker without filing charges against her. At the DEA office, Zuber gave another statement describing his cocaine distribution activities. Zuber was later charged with cocaine distribution and with possession of cocaine with the intent to distribute.
II. CONCLUSIONS OF LAW
A. MOTION TO DISMISS
The Defendant argues that the DEA agents used Temple in a manner that was so *192 coercive toward Zuber that it rose to the level of outrageous government conduct, violating Defendant's due process rights and requiring dismissal of the charges against him. The Government contends that Zuber's due process rights were not violated because Temple never coerced Zuber into making the cocaine sales.
The Government's use of an informant may be so coercive toward a defendant that it constitutes outrageous government conduct and violates due process. Hampton v. United States, 425 U.S. 484, 493, 96 S. Ct. 1646, 1651, 48 L. Ed. 2d 113 (1976); United States v. Myers, 692 F.2d 823, 837, 842-43 (2d Cir.1982). In the present case, however, Temple had only been involved with the investigation since his own arrest, which was slightly more than a week before Zuber's arrest. Defendant then assisted the agents during the ensuing week by maintaining contact with Zuber and by making controlled purchases from him. There is no evidence suggesting that Zuber's decision to sell cocaine to Temple was coerced in any way. The use of an informant as a facilitator in this manner is fully consistent with due process. United States v. Romano, 706 F.2d 370, 372-73 (2d Cir.1983). Consequently, Defendant's Motion to Dismiss must be DENIED.
B. MOTION TO SUPPRESS
1. Fifth Amendment Claim
Defendant claims that all the statements he gave at his residence and at DEA headquarters must be suppressed because he never validly waived his Miranda rights. The Government contends that Zuber was fully advised of his Miranda rights and that he then voluntarily and validly waived them.
The Court finds that the Defendant knowingly and voluntarily waived his Miranda rights when he stated that he understood his rights under Miranda and that he was nevertheless willing to fully cooperate with the investigation. Defendant himself admits he acknowledged that he understood his Miranda rights because he had been arrested before. Defendant's Motion to Suppress at 2. This acknowledgment, in conjunction with the agent's full explanation to Defendant of his Miranda rights, is sufficient to render Defendant's waiver valid. See North Carolina v. Butler, 441 U.S. 369, 373, 99 S. Ct. 1755, 1757, 60 L. Ed. 2d 286 (1979); Tague v. Louisiana, 444 U.S. 469, 471, 100 S. Ct. 652, 653, 62 L. Ed. 2d 622 (1980) (per curiam).
Since Defendant was informed of his rights under Miranda and chose to waive them, the Fifth Amendment does not require suppression of the statements he made at his home and at DEA headquarters. Consequently, Defendant's Motion To Suppress on Fifth Amendment grounds is hereby DENIED.
2. Due Process Claim
Defendant claims that all the statements he gave at his home and at the DEA office must be suppressed because they were involuntarily made and thus violated his due process rights. The Government contends that no due process violation occurred because Defendant provided his statements voluntarily.
The Due Process Clauses of the Fifth and Fourteenth Amendments bar the admission of involuntary confessions. Spano v. New York, 360 U.S. 315, 324, 79 S. Ct. 1202, 1207-08, 3 L. Ed. 2d 1265 (1959). In order for a statement to be involuntary for due process purposes, it must be the product of government coercion. Colorado v. Connelly, 479 U.S. 157, 167, 107 S. Ct. 515, 521, 93 L. Ed. 2d 473 (1986). Government coercion is typically manifested by such conduct as threatened or actual use of violence, Brown v. Mississippi, 297 U.S. 278, 286, 56 S. Ct. 461, 465, 80 L. Ed. 682 (1936), use of psychological pressure, Spano, 360 U.S. at 323, 79 S.Ct. at 1207, promises of leniency, Lynumn v. Illinois, 372 U.S. 528, 534, 83 S. Ct. 917, 920, 9 L. Ed. 2d 922 (1963), or government deception. Arizona v. Fulminante, 499 U.S. 279, 287-88, 111 S. Ct. 1246, 1252-53, 113 L. Ed. 2d 302 (1991); Leyra v. Denno, 347 U.S. 556, 558-61, 74 S. Ct. 716, 717-19, 98 L. Ed. 948 (1954). Whether a statement is voluntary depends upon an examination of the totality of the circumstances in which the statement was *193 given. Fulminante, 499 U.S. at 285, 111 S.Ct. at 1251.
Analyzing the totality of the circumstances in the present case, the Court finds that the Defendant offered his statements voluntarily. Although the circumstances may not have required the agents to be as aggressive as they were, their conduct was entirely directed toward securing the premises and making an arrest. The agents did not threaten Zuber in any way, and they made no attempt to pressure him into confessing. Rather, the agents provided Defendant with his Miranda rights, he agreed to cooperate, and he then gave a statement detailing his involvement with cocaine distribution. In the absence of government coercion, a statement given under these circumstances is fully voluntary.
Since Defendant's inculpatory statements were voluntarily made, their admission does not violate due process. Consequently, Defendant's Motion To Suppress on Due Process grounds is hereby DENIED.
3. Fourth Amendment Claim
It is well established that "(t)he Fourth Amendment generally prohibits the warrantless entry of a person's home, whether to make an arrest or to search for specific objects." Illinois v. Rodriguez, 497 U.S. 177, 181, 110 S. Ct. 2793, 2797, 111 L. Ed. 2d 148 (1990) (citing Payton v. New York, 445 U.S. 573, 100 S. Ct. 1371, 63 L. Ed. 2d 639 (1980), Johnson v. United States, 333 U.S. 10, 68 S. Ct. 367, 92 L. Ed. 436 (1948)).[3]See also United States v. Deutsch, 987 F.2d 878, 883 (2d Cir.1993) (citing United States v. Campbell, 581 F.2d 22, 25 (2d Cir.1978) (in the absence of exigent circumstances, warrantless entry of law enforcement officers into the private home of a suspect for the purpose of making an arrest is barred by the Fourth Amendment)). The rule prohibiting warrantless entries into the home applies even if there is probable cause to arrest the suspect. Minnesota v. Olson, 495 U.S. 91, 95, 110 S. Ct. 1684, 1687, 109 L. Ed. 2d 85 (1990). Thus, when government authorities enter a person's home, the warrant requirement imposed by the Fourth Amendment will only yield when "exigent circumstances require law enforcement officers to act without delay." United States v. Gordils, 982 F.2d 64, 69 (2d Cir.1992), cert. denied ___ U.S. ___, 113 S. Ct. 1953, 123 L. Ed. 2d 657 (1993).[4]
The warrantless entry rule articulated by the Supreme Court in Payton is premised on the fact that "`physical entry of the home is the chief evil against which the wording of the Fourth Amendment is directed.'" Payton, 445 U.S. at 585-86, 100 S.Ct. at 1379-80 (quoting United States v. United States District Court, 407 U.S. 297, 313, 92 S. Ct. 2125, 2134, 32 L. Ed. 2d 752 (1972)). As the Court noted in Payton, the protections afforded by the Fourth Amendment embody the "overriding respect for the sanctity of the home that has been embedded in our traditions since the origins of the Republic." 445 U.S. at 601, 100 S.Ct. at 1387.
This traditional respect for the home is manifested in the warrant requirement of the Fourth Amendment, which guards against unnecessary intrusions into private dwellings by requiring that an "impartial magistrate determine from an affidavit showing probable cause whether information possessed by law-enforcement officers justifies the issuance of a search warrant." Jones v. United States, 357 U.S. 493, 498, 78 S. Ct. 1253, 1256, 2 L. Ed. 2d 1514 (1958).[5]See also *194 Welsh v. Wisconsin, 466 U.S. 740, 748-49, 104 S. Ct. 2091, 2096-97, 80 L. Ed. 2d 732 (1984). The warrant requirement is grounded upon the principle that a neutral judicial officer is better able to make an objective and detached analysis of the evidence proffered by the government in support of its warrant application than are the government officers who are themselves actively engaged in the investigation. Johnson v. United States, 333 U.S. 10, 13-14, 68 S. Ct. 367, 368-69, 92 L. Ed. 436 (1948).[6] The Second Circuit reiterated these principles when it observed that
(t)o be arrested in the home involves not only the invasion attendant to all arrests but also an invasion of the sanctity of the home. This is simply too substantial an invasion to allow without a warrant, at least in the absence of exigent circumstances, even when it is accomplished under statutory authority and when probable cause is clearly present.
United States v. Reed, 572 F.2d 412, 423 (2d Cir.1978). Because of the exceptionally high privacy interest that our society recognizes in one's personal dwelling, the Payton Court "drew a line at the entrance to the home," Harris, 495 U.S. at 18, 110 S.Ct. at 1643, and barred the government from crossing that line without either a warrant or exigent circumstances.
Where, as here, the Government argues that a warrantless arrest was necessitated by exigent circumstances, the Government bears the burden of establishing by a preponderance of the evidence that such circumstances did, in fact, exist. Payton, 445 U.S. at 590, 100 S.Ct. at 1382. As the Supreme Court has indicated, "(b)efore agents of the government may invade the sanctity of the home, the burden is on the government to demonstrate exigent circumstances that overcome the presumption of unreasonableness that attaches to all warrantless home entries." Welsh, 466 U.S. at 750, 104 S.Ct. at 2098. Thus, warrantless home entries carry with them a presumption of unreasonableness, and the "police bear a heavy burden when attempting to demonstrate an urgent need that might justify warrantless searches or arrests." Id. at 749-759, 104 S.Ct. at 2096-2103. See also United States v. Acosta, 965 F.2d 1248, 1251 (3d Cir.1992).
In the Second Circuit, "the test for determining whether a warrantless entry is justified by exigent circumstances is an objective one that turns on the district court's examination of the totality of the circumstances confronting law enforcement agents in the particular case." United States v. MacDonald, 916 F.2d 766, 769 (2d Cir.) (en banc), cert. denied 498 U.S. 1119, 111 S. Ct. 1071, 112 L. Ed. 2d 1177 (1990). The essential question in this test is "whether law enforcement agents were confronted by an `urgent need' to render aid or take action." Id. (quoting Dorman v. United States, 435 F.2d 385, 391 (D.C.Cir.1970) (en banc)). The Second Circuit has adopted a six-factor analysis to aid the Court's determination of whether the Government's need was sufficiently urgent to constitute exigent circumstances: (1) the gravity or violent nature of the offense charged; (2) whether there is a reasonable belief that the suspect was armed; (3) a clear showing of probable cause to believe the suspect committed the crime; (4) strong reason to believe that the suspect is in the premises; (5) a likelihood that the suspect will escape if not swiftly apprehended; and (6) the peaceful circumstances of the entry. Gordils, 982 F.2d at 69 (citing MacDonald, 916 F.2d at 769-70). These six factors "are merely illustrative, not exhaustive, and the presence or absence of any one factor is not conclusive." Id. at 769-70 (quoting United States v. Medina, 944 F.2d 60, 68 (2d Cir. 1991)). When these principles are applied to the present case, the Court finds that there were clearly no exigent circumstances that justified the warrantless entry into the Defendant's home.
The Court observes preliminarily that the circumstances surrounding Defendant's *195 arrest provided the Government with a very clear picture of the situation at Defendant's home on July 27, 1991. Agent Carter met with Temple, who was cooperating with the Government, only a few minutes after Temple had left the Defendant's house. During this exchange Carter had an opportunity to question Temple extensively, and the Government was therefore provided with a detailed and contemporaneous description of the precise situation at the Defendant's home. After Temple described the scene at Defendant's house to Carter, Carter summarized that information to Doud on the radio before the agents approached and entered the house.
Because Temple had just provided them with this information, the Government agents knew that the Defendant was unarmed and that there were apparently no weapons in the house. The agents were thus aware that the operation posed no serious danger to them or to anyone else in the house.
Although the Government argues that their warrantless entry was justified to prevent the removal of the cocaine, the agents were fully aware it was unlikely the Defendant would escape with the drugs if he was not immediately arrested. Temple gave no indication to Carter that Zuber suspected an arrest was imminent or that he was a risk of flight. More importantly, agent Carter correctly believed that Zuber lived on a deadend street, and the only road away from Zuber's house was closely guarded by a half-dozen DEA agents. When the agents approached the house they essentially surrounded it and covered each door, again cutting off any avenue of escape. Consequently, there was no threat of escape or removal of evidence that provided the agents with the authority to force their way into Zuber's home without a warrant and arrest him.
The Court finds it relevant that the Government had ample time within which to secure a warrant, but chose not to do so. Agent Carter testified at the hearing that, during the days before the arrest, he anticipated using Temple to make a controlled cocaine purchase that would result in Zuber's arrest. Agent Carter expected Zuber to receive the shipment of cocaine at any time, and he planned to initiate the operation by following Temple to Zuber's home with a team of agents as soon as the drugs arrived. There was time during which a warrant could have been prepared and sought.
This same analysis applies to the day of the arrest. Temple alerted Carter that the drugs had arrived at approximately 11 a.m., and Carter then contacted Doud to tell him that the plan to make a controlled purchase was ready for execution, and that he anticipated arresting Zuber. The team of agents then assembled at the Burlington DEA office with Temple to prepare for the operation. They did not depart for Zuber's until approximately 1:45 p.m., so the government agents had nearly three hours during which they could have telephoned a judicial officer and obtained a warrant.
It is true that Carter's discussion with and search of Temple just prior to the raid confirmed that Zuber was in the house and that he had sold cocaine to Temple. In addition, there is no doubt that distributing cocaine is a serious offense. See MacDonald, 916 F.2d at 770. Under these circumstances, however, the Court finds that the gravity of the Defendant's offense and the Government's knowledge of his presence at the house is outweighed by the serious constitutional violation committed by the agents when they conducted a warrantless assault on the home of an unarmed suspect who posed no apparent threat of escape. Because no exigent circumstances existed to justify it, this warrantless entry violated the Defendant's Fourth Amendment right to be secure in his home from unreasonable searches and seizures.
The exclusionary rule generally prohibits the introduction at trial of evidence that has been obtained in violation of the Fourth Amendment. Rodriguez, 497 U.S. at 183, 110 S.Ct. at 2798. Mapp v. Ohio, 367 U.S. 643, 652, 81 S. Ct. 1684, 1690, 6 L. Ed. 2d 1081 (1960). With respect to violations of Payton, "a warrantless entry will lead to the suppression of any evidence found, or statements taken, inside the home." New York v. Harris, 495 U.S. 14, 20, 110 S. Ct. 1640, 1644, 109 L. Ed. 2d 13 (1990). Consequently, the *196 Court must suppress any evidence taken by the agents at Defendant's home, including the two bags of cocaine, as well as all statements that the Defendant made there to the agents.
The Court must apply a balancing test in resolving the tensions between the actions of police officers and the rights that the Constitution secures for all citizens. The Supreme Court took note of these competing interests when it observed that
(c)rime, even in the privacy of ones own quarters, is, of course, of grave concern to society, and the law allows such crime to be reached on proper showing. The right of officers to thrust themselves into a home is also a grave concern, not only to the individual but to a society which chooses to dwell in reasonable security and freedom from surveillance. When the right of privacy must reasonably yield to the right of search is, as a rule, to be decided by a judicial officer, not by a policeman or Government enforcement agent.
Johnson, 333 U.S. at 14, 68 S.Ct. at 369. Thus, the Fourth Amendment resolves the tension between security and liberty by requiring government officers to secure a warrant before entering a person's home.
Because the Government failed to do so in the present case, Defendant's Motion to Suppress on Fourth Amendment grounds is hereby GRANTED. All evidence taken by the agents at Defendant's home, including the two ounces of cocaine, and all statements that the Defendant made there to the agents, shall be excluded at Defendant's trial.
III. CONCLUSION
Based upon the foregoing analysis, the Court hereby:
1. DENIES Defendant Eric Zuber's Motion to Dismiss dated May 22, 1995; and
2. GRANTS IN PART and DENIES IN PART Defendant Eric Zuber's Motion to Suppress dated May 22, 1995. Defendant's Motion to Suppress is DENIED with respect to his Fifth Amendment and Due Process claims. Defendant's Motion to Suppress is GRANTED with respect to his Fourth Amendment claim. All evidence taken by the Government at the Defendant's home on July 27, 1991, including the two ounces of cocaine and all statements that the Defendant made there to the agents, shall be excluded at Defendant's trial.
SO ORDERED.
NOTES
[1] Agent Carter testified at the hearing that he was aware that the Zuber residence was located on a dead-end road.
[2] There is some confusion over the precise instructions that Carter gave Doud. Agent Carter testified that it was his understanding that Zuber would not be arrested unless he left the house. Agent Doud testified that he understood Carter to mean that Zuber should be arrested right away, whether he had left the house or not.
[3] The Fourth Amendment provides, in pertinent part, that "(t)he right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated." U.S. CONST. Amend. IV.
[4] The Court notes that the Fourth Amendment's prohibition of warrantless entries also does not apply in situations where the property owner has consented to the entry. Rodriguez, 497 U.S. at 181, 110 S.Ct. at 2797 (citing Schneckloth v. Bustamonte, 412 U.S. 218, 93 S. Ct. 2041, 36 L. Ed. 2d 854 (1973)); United States v. Garcia, 56 F.3d 418, 423 (2d Cir.1995). This is not an issue in the present case, however, because it is not alleged that anyone in the Defendant's house consented to the agents' entry.
[5] As Justice Harlan eloquently explained in Jones, "(w)ere federal officers free to search without a warrant merely upon probable cause ..., the provisions of the Fourth Amendment would become empty phrases, and the protection it affords largely nullified." 357 U.S. at 498, 78 S.Ct. at 1257.
[6] Writing for the Court in Johnson, Justice Jackson concluded that "(a)ny assumption that evidence sufficient to support a magistrate's disinterested determination to issue a search warrant will justify the officers in making a search without a warrant would reduce the Amendment to a nullity and leave the people's homes secure only in the discretion of police officers." 333 U.S. at 14, 68 S.Ct. at 369. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1671512/ | 234 F. Supp. 207 (1964)
Leonard S. LEVENTHAL, Trustee in Bankruptcy of the Estate of Robert Spillman, Bankrupt, Plaintiff,
v.
Robert SPILLMAN, Selma Spillman and Safe-Tee Banisters, Ltd., Defendants.
No. 60 C 899.
United States District Court E. D. New York.
September 29, 1964.
*208 Solomon B. Terkeltoub, New York City, for plaintiff.
Eli Wager, Mineola, N. Y., for defendants.
DOOLING, District Judge.
The plaintiff trustee in bankruptcy sues to set aside as fraudulent the bankrupt's conveyance in bulk to a newly formed corporation, all the stock of which was acquired by his wife, of all his business assets in return for the corporation's *209 agreement to pay the bankrupt's business debts but none of the bankrupt's numerous other creditors. The principal defenses are that the conveyance as a bulk "sale" was perfected in compliance with the Bulk Sales Act (former New York Personal Property Law, McKinney's Consol.Laws, c. 41, § 44) and that the transfer was not fraudulent in fact (as required by New York Debtor and Creditor Law, McKinney's Consol.Laws, c. 12, § 276) but, at worst, simply preferential of one class of creditors and unassailable because consummated more than four months before bankruptcy. It is concluded that the transfer was a fraudulent conveyance under Section 276 of the New York Debtor and Creditor Law and must be set aside.
The facts, separately found, disclose that in February 1956 the bankrupt was deeply insolvent. He was then in the business of making and selling ornamental railings; his business had shown a loss in 1955 of about $13,000 after deducting the bankrupt's "drawings" of $6,300, but his insolvency had arisen mainly from a dissociated and calamitous promotional venture. The ornamental railing business seemed worth saving and so a plan was developed among the bankrupt, his wife, and a committee of the creditors of the railing business to perpetuate that business for their benefit to the exclusion of the remaining creditors.
The plan was boldly simple. The bankrupt in February 1956 transferred all the assets of his railing business to a newly formed corporation in exchange for its promise to pay the $12,400 of the bankrupt's business debts at the rate of ten percent a month, starting December 1, 1956, and to pay, in addition, the bankrupt's withholding tax liabilities. The total indebtedness of the bankrupt at the time was about $125,000.
The transferee corporation had no assets other than those received from the bankrupt except $2,500 which the bankrupt's wife borrowed to put into it. The bankrupt's wife lent $2,000 of the borrowed money to the new company and, with the remaining $500, acquired all its capital stock. The consent of the business creditors to the transfer and to the deferment of their debts was conditioned on the payment of the $2,500 into the new company by the bankrupt's wife.
The transfer was a bulk sale and the new company complied with the Bulk Sales Act, former New York Personal Property Law, § 44. The new company gave advance notice of the sale to all the bankrupt's creditors and disclosed in the notice the terms of the proposed sale, giving the names and the amounts of the claims of the relatively few creditors who were being promised payment.
The bankrupt and his wife both were directors of the new company from its inception. The bankrupt's wife became its president; the bankrupt worked for it as a salesman. Husband and wife were each paid $75 weekly as salary. Starting in March 1956, the bankrupt's wife commenced repaying the loan of $2,500 at the rate of $100 a month; the funds to do so were derived from the salary the new company paid her. A part of the wife's salary was also used to maintain the couple's home; the indication of the evidence is that the couple's salaries from the new company were the support of their home.
Later on the new company by negotiation with the business creditors substantially scaled down its liability on the assumption of the bankrupt's debts. Meanwhile, in the balance of the year 1956 the new company about broke even in the railing business, after paying $7,850 in salary to the bankrupt and his wife. There is no indication in the evidence of how the new company fared later.
The evidence is not adequate to support any definite finding about the value of the property transferred to the new company or the total enterprise value that the business represented viewed not as properties only but as a going concern. The book value of the properties (with the tangibles at cost before depreciation) was about $11,300 but that *210 figure excludes any values for good will, trade names and marks, and going concern value, and no evidence of their value was presented. The evidence of record, in consequence, does not establish that the assumption of the business debts by the new company was not a fair consideration.
The compliance with the Bulk Sales Act is quite beside the point of the action. The conveyance is challenged as a fraudulent conveyance, not as a transfer in disregard of the Bulk Sales Act. An arrant fraudulent conveyance can be carried out in full compliance with the Bulk Sales Act for the Act requires only that, in advance of consummating the sale, the seller supply the buyer with a detailed inventory at cost of the property and a complete list of creditors and that the buyer notify each listed and known creditor of the proposed sale and its price, terms and conditions. The Act contains no substantive requirements at all: the consideration may be inadequate, the seller insolvent, the terms of sale such as to delay all creditors in the collection of their claims, and yet the Act may be fully complied with, simply by making the statutory disclosures; it is a notice statute and the creditors are expected, when notified, to attack the transfer for what it is by their appropriate remedy if the transfer, substantively, violates their rights as creditors. 1 Glenn, Fraudulent Conveyances (Rev. Ed.1940) 547; Gross v. Grossman, 5th Cir. 1924, 2 F.2d 458; In re Baker, S. D.Cal.1926, 13 F.2d 413, 414. Here, for example, the transfer was a studied preference and, by that fact, an act of bankruptcy (Bankruptcy Act, § 3, sub. a(2), 11 U.S.C.A. § 21, sub. a(2)) and an avoidable preference if bankruptcy came within four months (Bankruptcy Act, § 60, 11 U.S.C.A. § 96). In consequence the cases reflect repeated and emphatic statements that compliance with the Bulk Sales Act does not purge a fraudulent conveyance and that a bulk sale cannot be used as if it were a substantively competent species of insolvency procedure. Sterling National Bank & Trust Co. v. Complex Dresses, Inc., 1st Dept. 1934, 240 A.D. 57, 269 N.Y.S. 110; Lubinsky v. Hoffman, Bronx Co., 1934, 158 Misc. 261, 284 N.Y.S. 549, aff'd, 1st Dept. 1936, 246 A.D. 803, 285 N.Y.S. 1074; Delta Trading Corp. v. Kohn & Son, Inc., N.Y.Co.1961, 28 Misc. 2d 894, 215 N.Y.S.2d 607.
The transfer is attacked under sections 273 and 276 of the New York Debtor and Creditor Law (Sections 4 and 7 of the Uniform Fraudulent Conveyance Act). The transaction is invulnerable to attack under Section 273 because, although the bankrupt was insolvent when the transfer was made, the transfer has not been shown to have been made without a fair consideration. There was not here free transfer of an equity in encumbered property; the assumption of debt was express, the face amount of debt assumed exceeded the book value of the property and the new money, although borrowed, was real enough and added something of substance to the assumption. On such facts, in the absence of countervailing evidence of value, inadequacy of consideration is not shown.
The transfer was, however, fraudulent in fact under § 276 for it was made with actual intent to hinder, delay or defraud the bankrupt's creditors. The term "fraudulent conveyance" embraces much more than unreal, seeming transfers that leave the transferor in covert but real possession of his property. Greenwald v. Wales, 1903, 174 N.Y. 140, 143-145, 66 N.E. 665. If the dicta in Cooper v. Maurer, Sup., N.Y.Co.1942, 37 N.Y.S.2d 992 are read as requiring a transaction to be sham or fictitious if it is to fall under the denunciation of Section 276, the dicta do not express New York or general law.
The transfer hindered and delayed, and was meant to hinder and delay, all the creditors of the bankrupt whose debts were not assumed. The bankrupt's assets were removed from their reach irrecoverably. The transfer was, characteristically, a calculatedly preferential transfer. Every preference to some extent *211 hinders, delays and defrauds creditors (Irving Trust Co. v. Chase Nat. Bank, 2d Cir. 1933, 65 F.2d 409, 410-411) but, because of the supposed "right" of a debtor to prefer his creditors, it is said that if a transfer hinders and delays some creditors only in virtue of its preferring other creditors, it is not a fraudulent conveyance. Irving Trust Co. v. Kaminsky, S.D.N.Y.1937, 19 F. Supp. 816. The rule is defended on the ground that a single creditor's suit under Section 276 (or any analogous successor of the Statute of Elizabeth of 1571) would simply shift the preference from one creditor to another (Irving Trust Co. v. Kaminsky, supra; 1 Glenn, Fraudulent Conveyances (Rev. ed. 1940) 488-489), an argument that appears to underestimate the resources of courts proceeding on equitable principles (see, e. g., White v. Cotzhausen, 1889, 129 U.S. 329, 345, 9 S. Ct. 309, 32 L. Ed. 677; contrast North American Car Corp. v. Shell Petroleum Corp., 10th Cir. 1937, 91 F.2d 564, 568) and to overlook the practical importance of the frequent vesting in bankruptcy trustees under section 70, sub. e of the Bankruptcy Act, 11 U.S.C.A. § 110, sub. e, of creditors' rights to set conveyances aside as fraudulent under state law.
Whatever may be the precise limits on setting preferential transfers aside as per se fraudulent, New York has been of all the states one of the most inhospitable to the preference. Cf. Merillat v. Hensey, 1911, 221 U.S. 333, 343-344, 31 S. Ct. 575, 55 L. Ed. 758, 36 L.R.A.,N.S., 370. A preferential transfer in trust for the benefit of chosen creditors is fraudulent in New York if the creditor in form reserves to himself any surplus after execution of the trust is complete, even though the "surplus" right is valueless (Collomb v. Caldwell, 1857, 16 N.Y. 484; Barney v. Griffin, 1849, 2 N.Y. 365) and even though reservation of the "surplus" right is inadvertent and is formally relinquished by supplementary instrument. Sutherland v. Bradner, 1889, 116 N.Y. 410, 22 N.E. 554. To be tolerated a preferential transfer must leave any potential surplus over the preferred debts fully executionable so that the other creditors are not hindered or delayed in their rights. Leitch v. Hollister, 1850, 4 N.Y. 211. New York's law governing assignments for the benefit of creditors forbids any preferences except for wage claims in general assignments and provides for authorizing the assignee to recover preferences given within four months of the assignment. Debtor and Creditor Law, § 15, subd. 6-a, § 23. Under New York's insolvent debtors law the debtor cannot be discharged if, while insolvent, he gave a preference. Debtor and Creditor Law, § 74, subd. 2. And, in the corporate context, where Section 15 of the Stock Corporation Law, McKinney's Consol. Laws, c. 59 formerly applied, preferences appear almost automatically to have been regarded as fraudulent conveyances. Beol, Inc. v. Dorf, N.Y.Co.1959, 22 Misc. 2d 798, 193 N.Y.S.2d 394, aff'd, 1st Dept., 1960, 12 A.D.2d 459, 209 N.Y.S.2d 267; Newfield v. Ettlinger, N.Y.Co.1959, 22 Misc. 2d 769, 194 N.Y.S.2d 670, 678; Bachner v. Robinson, 2d Cir. 1939, 107 F.2d 513, 515; New York Credit Men's Assn. v. Hasenberg, S.D.N.Y.1938, 26 F. Supp. 877, aff'd, 2d Cir. 1939, 107 F.2d 1020.
There certainly is no principle, then, that being a preference precludes being a fraudulent conveyance and the narrow principle, if it really exists today, is that if a transfer is subject to criticism solely because it is a preference, then it is not by that fact standing all alone also and automatically a fraudulent conveyance. The New York corollary is that only a little more than the bare preference will suffice to tip the scale against the transfer, and that "little more" can be a formal defect. Here, much is present in addition to the preferential effect. In form nothing was reserved upon the transfer to the bankrupt but two things were done that preclude treating the transaction as a permitted preference of a class of creditors. First, the property was not transferred to the creditors or for their unrestricted *212 benefit because the surplus, if any, in it was reserved by the nature of the transfer to the new company and the stock of that company was detained from the creditors and placed in the hands of the bankrupt's wife against whom the creditors had no rights. Second, the bankrupt and his wife reserved to themselves the management and operation of the property of the new company and positions of profit in its employment. Cf. Billings v. Russell, 1886, 101 N.Y. 226, 229-230, 4 N.E. 531.
The wife's payment of $2,500 into the new company for its stock and as a loan avail nothing. The wife invested in something, not in nothing, and it is the preexisting something in which she invested to the exclusion of the unprovided-for creditors that was lost to the creditors. The favored creditors' insistence on the payment emphasizes the exclusion of the disfavored creditors and underlines the existence of salvageable values in the business transferred to the new company.
Nor is the fact, if it be such, that the bankrupt and his wife both rendered service to the new company any answer to the significance of the reservation to them from the creditors of positions of profit in the new company. They diverted to themselves the use of the properties of the new company to produce the gross profits so large a part of which was paid to them as salaries.
That the values reserved and diverted may not be large or measurable is not material. Even a notional detention of potential executionable value from the creditors is enough where inherently the preferential nature of the arrangement has already given it the necessary effect of hindering, delaying and defrauding the disfavored creditors. Where intended preference is present, there can be no reservation to the transferor or to a third party; such third party intervention brings no privilege of retention based on new value where the whole scheme is designed to prefer one class of creditor and preclude the rights of another class. Cf. Dean v. Davis, 1917, 242 U.S. 438, 444, 37 S. Ct. 130, 61 L. Ed. 419; Lovett v. Faircloth, 5th Cir. 1925, 10 F.2d 301. Cf. In re Greenberg, E.D. N.Y.1942, 46 F. Supp. 289, 290-291.
While Perkins v. Becker's Conservatories, Inc., 1945, 318 Mass. 407, 61 N.E.2d 833 arose under Massachusetts law, its striking similarity on the facts to the present case, and its clear conclusion that the transaction was a fraudulent conveyance, support the conclusion here arrived at.
The discharge of the bankrupt, it is well settled, is no defense to the present sort of suit: the property transferred is its object, not the exaction of payment for the creditors from the bankrupt personally. In re Pierce, N.D. N.Y.1900, 103 F. 64; Rice v. Chapman, 1st Dept. 1932, 234 A.D. 279, 255 N.Y.S. 35; Annotation 109 A.L.R. 427.
Plaintiff is entitled to judgment setting the conveyance aside as fraudulent. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/8569575/ | *144TEXTO COMPLETO DE LA SENTENCIA
I
Los apelantes de epígrafe son los hijos y hermana de Zoraida Rivera Figueroa, quien falleció el 24 de febrero de 2004, como consecuencia de una metástasis generalizada de un cáncer de la lengua.
La presente controversia está relacionada al tratamiento médico recibido por la causante en el período anterior a su muerte entre 1996, y la fecha de su fallecimiento en 2004. Durante este período, la causante de los apelantes fue atendida por varios médicos y dentistas, entre los cuales se incluye el Dr. José A. Morales Morales. Los apelantes alegan que los facultativos en cuestión actuaron de manera negligente al no detectar el cáncer de la Sra. Rivera, omitiendo iniciar a tiempo el tratamiento contra dicha enfermedad. Ello provocó que para cuando fue finalmente detectado, el padecimiento de la causante se hallaba en una etapa muy avanzada, lo que causó que no pudiera salvársele la vida.
Según alegan los apelantes, en febrero de 1996 la Sra. Rivera comenzó a quejarse de que tenía una pequeña laceración en el lado izquierdo de su lengua. Dicha laceración no cicatrizó ni sanó en el tiempo que era de esperarse, por lo que la Sra. Rivera visitó a varios médicos y dentistas en los meses subsiguientes. A pesar de ser examinada y tratada, la lesión en la lengua de la causante continuó sin sanar.
En noviembre de 1996, la Sra. Rivera visitó al Dr. Miguel Garratón, especialista en otorrinolaringología. Esta la examinó y sospechó que la lesión podía ser cancerosa. El Dr. Garratón ordenó una biopsia del tejido de la lesión.
El examen fue llevado a cabo por el Dr. José A. Rosa Sierra, especialista en patología. El 15 de noviembre de 1996, el Dr. Rosa Sierra rindió un informe escrito sobre la muestra de tejido que le había sido enviada. En su informe, el Dr. Rosa hizo constar las siguientes observaciones:
“Gross and Microscopic Diagnosis:
Mucosa of tongue, biopsy, focal necrosis with acute inflammation and extensive eosinophilic fibronous coagula.
Note: These histopathologic changes are suggestive of erythema multiforme. Please clinically correlate. ’’
A pesar de que estos hallazgos debieron de alertar al Dr. Garratón sobre la posible existencia de cáncer en la paciente, dicho facultativo erróneamente interpretó que el informe del Dr. Rosa era negativo para cáncer y no inició tratamiento para esta enfermedad.
Para diciembre de 1996, la lesión en la lengua de la causante continuaba empeorando. Para esta fecha, la causante estaba siendo atendida también por la Dra. Zhura Pereira, dentista. La Dra. Pereira refirió a la Sra. Rivera al apelado, Dr. José Morales. El Dr. Morales es dentista con especialidad en cirugía maxilofacial. Aparentemente, a la fecha de los hechos, el Dr. Morales tenía algunas funciones docentes en el Recinto de Ciencias Médicas de la Universidad de Puerto Rico.
La Sra. Rivera visitó al Dr. Morales en su oficina el 27 de diciembre de 1996. En esa ocasión, la causante informó al Dr. Morales sobre su historial, su padecimiento y los diversos tratamientos a los que se había sometido. El Dr. Morales realizó a la causante un examen extra-oral y otro intra-oral.
*145A base de su examen, el Dr. Morales sospechó que la causante pudiera tener una ulceración traumática de la lengua. Ésta le recomendó a la Sra. Rivera que se realizara una nueva biopsia del tejido. Según los apelantes, el Dr. Morales le indicó a la causante que la nueva biopsia tenía que ser efectuada en el Recinto de Ciencias Médicas, pero que ella tendría que esperar hasta enero porque dicho Recinto se encontraba entonces cerrado por el receso navideño.
El Dr. Morales examinó nuevamente a la causante en enero de 1997. En esa ocasión, le ordenó pruebas de alergias.
El 19 de febrero de 1997, la Sra. Rivera visitó al Dr. Femando Longo quien la examinó y le ordenó una segunda biopsia, la que se efectuó el 7 de marzo de 1997. La biopsia efectuada el 7 de marzo de 1997 reveló que la causante tenía cáncer en la lengua, que el mismo se había extendido hasta el lado derecho y que requena tratamiento inmediato. La causante fue referida al Memorial Sloan-Ketterin Cancer Center en los Estados Unidos.
El 16 de abril de 1997, la Sra. Rivera fue operada en el mencionado hospital. Se le extirpó toda la lengua, se le efectuó una gastrostomía y se le implantó un tubo para alimentarla. Posteriormente, la Sra. Rivera recibió cuarenta y cinco tratamientos de radiación.
En marzo de 1998, la parte apelante instó la presente demanda por daños y perjuicios por impericia médica contra las partes de epígrafe ante el Tribunal de Primera Instancia, Sala Superior de San Juan, solicitando compensación por los daños sufridos por la Sra. Rivera y sus familiares como resultado en la dilación en la detección de su cáncer.
La demanda fue posteriormente enmendada en varias ocasiones. Los demandados contestaron la demanda, negando las alegaciones.
El 24 de febrero de 2002, estando pendiente el procedimiento, la Sra. Rivera falleció, como consecuencia de la metástasis de su cáncer.
Posteriormente, el apelado Dr. Morales presento una mocion de sentencia sumaria, solicitando la desestimación de la reclamación en su contra.
En su moción, el apelado alegó que, contrario a la versión de la parte apelante, durante su examen de la Sra. Rivera el 27 de diciembre de 1996, el apelado había advertido a ésta que ella debía repetir su biopsia, lo que debía realizar “inmediatamente”. El apelado señalo que inicialmente la Sra. Rivera no había querido hacerse una nueva biopsia, porque la que le habían realizado había resultado muy dolorosa. -
El apelado alegó que él había referido a la causante al Recinto de Ciencias Médicas para la realización de la biopsia y de otros estudios, porque, a diferencia de otros laboratorios, el laboratorio de dicho recinto acostumbraba realizar biopsias de muestra doble, realizando estudios de Hematoxilia y Eosina (“77. Y E”) e inmunoflorecencia. Este último estudio es especializado, y requiere un medio especial que sólo estaba disponible en ciertos laboratorios, como el del Recinto de Ciencias Médicas. Dicho laboratorio estaba cerrado en la época navideña, por lo que el Dr. Morales le sugirió a la Sra. Rivera hacerse los estudios a principio de enero de 1997.
Según el apelado, la Sra. Rivera hizo caso omiso a sus órdenes y no fue hasta el 7 de marzo de 1997, bajo el tratamiento del Dr. Longo Rodriguez, que la causante se hizo la segunda biopsia recomendada.
El apelado alegó que los informes de los peritos contratados por la parte apelante no le imputaban *146negligencia y/o resultaban especulativos y solicitó la desestimación de la reclamación en su contra.
La moción del apelado estaba apoyada por una declaración jurada prestada por dicha parte y por varios otros documentos del expediente de la Sra. Rivera.
Los apelantes se opusieron a la moción del apelado. En su moción, los apelantes señalaron que la versión ofrecida por la Sra. Rivera sobre su entrevista con el apelado resultaba “totalmente distinta a la versión del codemandado Morales”. En particular, la parte apelante negó que el apelado hubiese manifestado a la causante que era necesario que ella se realizara una segunda biopsia “inmediatamente”, según lo había alegado el apelado.
Según la parte apelante, el apelado le había manifestado a la Sra. Rivera que esperara a enero para realizarse las pruebas, ya que el Recinto de Ciencias Médicas estaba en receso. No obstante, en enero de 1997, cuando la Sra. Rivera regresó a la oficina del apelado, éste la envió a realizarse pruebas de alergia.
Los apelantes señalaron que, a base de esta versión de los hechos, su perito, el Dr. James Elmore, había opinado que el apelado había actuado con negligencia. El informe del Dr. Elmore concluia sobre este particular:
“[A] jury and I are obligated to hold Dr. Morales to a higher standard as a professor and educator who most probafbly] has resident teaching responsibilities. I do not have Dr. Morales[’] records available and STRON[G]LY suggest their inclusion in my review. It is inconceivable that a man of this stature could miss a fulminate tongue carcinoma and order allergy tests. Additionally, I have no indication of follow-up care. Lastly, the doctor’s refusal to see the patient because school was in recess is unacceptable in the context of [Zoraida Rivera Figueroa’s] “seeing” the doctor in 12/96 and not evaluated until 01/97 (not specified). His obligation if the description of events is accurate, is to have a peripheral party, an OMS resident if available or ... emergency room physician and subsequent referral, appropriately evaluate and treat [Zoraida Rivera Figueroa]. If accurately described in the narrative, I regard Dr. Morales performance as unconscionable and deserving of UPR Ethics Committee review as well [as] the Puerto Rico State Licensure Board. No matter how important the practitioner, he has a moral obligation to care appropriately for human beings and not treat them as cattle. ”
Luego de otros trámites, el 18 de febrero de 2003, mediante la sentencia parcial apelada, el Tribunal de Primera Instancia declaró con lugar la moción de sentencia sumaria presentada por el apelado y ordenó la desestimación de la demanda en su contra.
La sentencia parcial del Tribunal fúe emitida a base de los hechos incontrovertidos propuestos por el apelado en su moción, sin que el Tribunal formulara determinaciones de hechos.
Oportunamente, los apelantes solicitaron al Tribunal que formulara determinaciones de hechos, en apoyo a su dictamen. Mediante resolución emitida el 6 de noviembre de 2003, el Tribunal denegó dicha solicitud.
Insatisfechos, los apelantes acudieron ante este Tribunal mediante el presente recurso de apelación.
II
En su recurso, los apelantes plantean que el Tribunal de Primera Instancia erró al declarar con lugar la moción de sentencia sumaria presentada por el Dr. José Morales Morales.
La Regla 36.2 de las de Procedimiento Civil, 32 L.P.R.A. Ap. Ill, R. 36.2, según se conoce, permite a una parte presentar una moción basada o no en declaraciones juradas, para que se dicte sentencia sumaria a su favor sobre la totalidad o cualquier parte de una reclamación. P.A.C. v. E.L.A. I, 150 D.P.R. 359, 374 (2000); Piñero *147v. A.A.A., 146 D.P.R. 890, 904 (1998); Soc. de Gananciales v. Vélez & Asoc., 145 D.P.R. 508, 526 (1998).
La Regla 36.3 de las de Procedimiento Civil, 32 L.P.R.A. Ap. HI, R. 36.3, por su parte, autoriza al tribunal a dictar sentencia sumaria cuando "no existe controversia real sustancial en cuanto a ningún hecho material y como cuestión de derecho debe dictarse sentencia sumaria a favor de la parte promovente . Vease, en general, P.A.C. v. E.L.A. I, 150 D.P.R. a la pág. 374; Soto v. Rivera, 144 D.P.R. 500, 518 (1997); Tello, Rivera v. Eastern Airlines, 119 D.P.R. 83, 86 (1987); Corp. Presiding Bishop CJC of LDS v. Purcell, 117 D.P.R. 714, 720 (1986).
El propósito principal de este mecanismo es propiciar la resolución justa, rápida y económica de litigios que no presentan controversias genuinas de hechos materiales, por lo que no se justifica la celebración de un juicio en su fondo. López v. J. Gus Lallande, 144 D.P.R. 774, 783 (1998); Neca Mortg. Corp. v. A&W Dev. S.E., 137 D.P.R. 860, 869 (1995).
El Tribunal Supremo de Puerto Rico ha aclarado, sin embargo, que la sentencia sumaria sólo procede en casos claros cuando el Tribunal tiene ante sí la verdad sobre todos los hechos pertinentes y no hace falta una vista evidenciaría. Rivera v. Dpto. de Hacienda, 149 D.P.R. 141, 154-155 (1999); J.A.D.M. v. Centro Com. Plaza Carolina, 132 D.P.R. 785, 802 (1993).
Si existen dudas sobre la procedencia de la sentencia sumaria, el Tribunal debe brindar a las partes la oportunidad de una vista evidenciaría. Véanse, S.L.G. v. S.L.G., 150 D.P.R. 171, 193 (2000); Rivera v. Depto. de Hacienda, 149 D.P.R. a la pág. 158; Bonilla Medina v. P.N.P., 140 D.P.R. 294, 304 (1996); Rivera et al. v. Superior Pkg., Inc., et al., 132 D.P.R. 115, 133 (1992).
La determinación de disponer de un pleito mediante este mecanismo es una que está confiada a la discreción del foro de primera instancia. PFZ Props., Inc. v. Gen. Acc. Ins. Co., 136 D.P.R. 881, 914 (1994).
Al hacer su evaluación, el Tribunal puede considerar la totalidad de las alegaciones y documentos que obren en el récord, los cuales se toman de la manera más favorable a la parte promovida. PFZ Props., Inc. v. Gen. Acc. Ins. Co., 136 D.P.R. a la pág. 913; Corp. Presiding Bishop of LDS v. Purcell, 117 D.P.R. a las págs. 721-723; Flores v. Municipio de Caguas, 114 D.P.R. 521, 525 (1983); Padín v. Rossi, 100 D.P.R. 259, 263-264 (1971).
El peso para demostrar que no existe controversia real sustancial sobre los hechos materiales recae sobre la parte que solicita la sentencia sumaria. Soto v. Rivera, 144 D.P.R. a la pág. 518; Pilot Life Ins. Co. v. Crespo Martínez, 136 D.P.R. 624, 632 (1994). El sólo hecho de no presentar evidencia que contravierta la presentada por la parte promovente rio implica "qüe riécesarlámeffte proceda la sentencia sumaria. Jusino et al. v. Walgreens, 155 D.P.R._(2001), 2001 J.T.S. 154, a la pág. 374; PFZ Props, Inc. v. Gen. Acc. Ins. Co., 136 D.P.R. a la pág. 913.
Tiene que haber quedado demostrado que la parte promovida no tiene derecho alguno bajo cualquier circunstancia discernible de las alegaciones que no hayan sido refutadas. Asoc. Pesc. Pta. Figueras v. Pto. del Rey, 155 D.P.R._(2002), 2002 J.T.S. 4, a la pág. 583; García Rivera, et al. v. Enriquez, 153 D.P.R.-(2001), 2001 J.T.S. 15, a la pág. 820.
La moción debe ser evaluada de la forma mas favorable a la parte que se opone a la solicitud de sentencia sumaria y toda inferencia que se haga a base de los hechos y documentos presentados, debe ser interpretada de manera favorable a dicha parte. Mgmt. Adm. Serv. Corp. v. E.L.A., 152 D.P.R.-(2000), 2000 J.T.S. 189, a las págs. 440-441.
Al evaluar una moción de sentencia sumaria, el Tribunal no debe entrar en la credibilidad de los testigos. *148Rosario v. Nationwide Mutual, 158 D.P.R._(2003) 2003 J.T.S. 34, a la pág. 644 n. 11; PFZ Props., Inc. v. Gen. Acc. Ins. Co., 136 D.P.R. 881, 913 (1994).
Al dictar una sentencia sumaria, el tribunal: (1) analizará los documentos que acompañan la moción solicitando sentencia sumaria y los documentos incluidos con la moción de oposición y aquéllos que obren en el expediente del tribunal; (2) determinará si el oponente controvirtió algún hecho material o si hay alegaciones de la demanda que no han sido controvertidas o refutadas en forma alguna por los documentos. El tribunal no debe dictar sentencia sumaria cuando: (1) existen hechos materiales no controvertidos; (2) hay alegaciones afirmativas en la demanda que no han sido refutadas; (3) surge de los propios documentos que se acompañan con la moción una controversia real sobre algún hecho material; o (4) como cuestión de derecho no procede. PFZ Props., Inc. v. Gen. Acc. Ins. Co., 136 D.P.R. a la pág. 913.
El Tribunal Supremo de Puerto Rico ha observado que existen ciertos tipos de litigios y controversias que, por su naturaleza, resultan inapropiados para ser adjudicados por la via sumaria. Entre estos se encuentran las controversias que envuelven elementos subjetivos, en las que el factor de credibilidad juega un papel esencial para llegar a la verdad y donde el litigante depende en gran parte de lo que extraiga del contrario en el curso de un juicio vivo. Rosario v. Nationwide Mutual, 2003 J.T.S. 34, a las págs. 641-642; Jusino et als. v. Walgreens, 2001 J.T.S. 154, a la pág. 374; G.G. & Supp. Corp. v. S. & F. Systs., Inc., 153 D.P.R._(2001), 2001 J.T.S. 57, a la pág. 1,142; Rivera v. Depto. de Hacienda, 149 D.P.R. a la pág. 152; PFZ Props., Inc. v. Gen. Acc. Ins. Co., 136 D.P.R. a la pág. 914; Corp. Presiding Bishop CJC of LDS v. Purcell, 117 D.P.R. a las págs. 722-723.
En la situación de autos se trata de una solicitud de sentencia sumaria presentada en el contexto de una acción de daños y perjuicios por mala práctica de la medicina.
Según se conoce, en nuestra jurisdicción, la responsabilidad civil resultante de actos u omisiones culposas o negligentes está regida por el Artículo 1802 del Código Civil, 31 L.P.R.A. see. 5141. Dicho precepto establece que el que por acción u omisión cause daño a otro, mediante culpa o negligencia, viene obligado a reparar el daño causado. El artículo añade que la imprudencia concurrente del perjudicado no exime de responsabilidad, pero conlleva la reducción de la indemnización.
El Tribunal Supremo de Puerto Rico ha aclarado que para que exista responsabilidad bajo dicho precepto, es necesario que concurran los siguientes elementos: (1) un daño, (2) una acción u omisión negligente, y (3) la relación causal entre el daño y la conducta culposa o negligente. Pons Anca v. Engebretson, 160 D.P.R._ (2003), 2003 J.T.S. 151, a la pág. 229; Montalvo v. Cruz, 144 D.P.R. 748, 755 (1998); Toro Aponte v. E.L.A., 142 D.P.R. 464, 473 (1997); Elba A.B.M. v. U.P.R., 125 D.P.R. 294, 308 (1990).
La culpa o negligencia eonsiste-enTa omisión de aquella diligencia que-exija la naturaleza de la obligación, correspondiendo tal diligencia a las circunstancias de las personas, del tiempo y del lugar. La diligencia exigible en estos casos es la que correspondería ejercitar a un buen padre de familia o un hombre prudente y razonable. Pons Anca v. Engebretson, 2003 J.T.S. 151, a las págs. 227-228; Toro Aponte v. E.L.A., 142 D.P.R. a la pág 473; Elba A.B.M. v. U.P.R., 125 D.P.R. a la pág. 309.
El deber de cuidado impone tanto la obligación de anticipar, como la de evitar, la ocurrencia de daños cuya probabilidad es razonablemente previsible, y no se limita a anticipar solamente el riesgo preciso o las consecuencias exactas de determinada conducta. Montalvo v. Cruz, 144 D.P.R. a la pág. 756; Ginés Meléndez v. Autoridad de Acueductos, 86 D.P.R. 518, 524-525 (1962). No se responde, sin embargo, por acontecimientos que no son razonablemente previsibles, es decir, por sucesos fortuitos. Toro Aponte v. E.L.A., 142 D.P.R. a la pág. 473.
Para determinar si una omisión es generadora de responsabilidad, se considera: (1) la existencia o *149inexistencia de un deber jurídico de actuar por parte del alegado causante del daño, y (2) si de haberse llevado a cabo el acto omitido el daño se hubiera evitado. Toro Aponte v. E.L.A., 142 D.P.R. a la pág. 474.
En nuestro ordenamiento rige la teoría de causalidad adecuada para determinar responsabilidad por los daños bajo el citado artículo 1802. Según dicha doctrina, “no es causa toda condición sin la cual no se hubiera producido el resultado, sino la que ordinariamente lo produce según la experiencia general”. Pons Anca v. Engebretson, 2003 J.T.S. 151, a la pág. 228; Montalvo v. Cruz, 144 D.P.R. a la pág. 756; Soc. de Gananciales v. Jerónimo Corp., 103 D.P.R. 127, 134 (1974).
Si el daño se debe a la conducta de más de una persona, todos responden civilmente ante el peijudicado, como cocausantes del daño, de acuerdo a sus respectivas culpas. Dichos cocausantes del daño son responsables solidariamente frente al peijudicado, sin perjuicio de que en la relación interna entre ellos la obligación se divida de acuerdo a la proporción en que la culpa o negligencia de cada uno contribuyó a la ocurrencia del daño. Torres Ortiz v. E.L.A., 136 D.P.R. 556, 564-565 (1994); Sánchez Rodríguez v. López Jiménez, 118 D.P.R. 701, 705-706 n. 2 (1987); Ramos v. Caparra Dairy, Inc., 116 D.P.R. 60, 62-64 (1985).
En cuanto al grado de diligencia que deben observar los profesionales de la salud, el Tribunal Supremo ha establecido que los mismos están obligados a seguir las normas mínimas de cuidado, conocimiento y destrezas del “profesional razonable”. El contenido de esta obligación queda delimitado conforme al estado de conocimiento y práctica prevaleciente, que satisface las exigencias generalmente reconocidas por la referida profesión, a la luz de los modernos medios de comunicación y enseñanza. Castro Ortiz v. Mun. de Carolina, 134 D.P.R. 783, 793 (1994); Medina Santiago v. Vélez, 120 D.P.R. 380, 384-385 (1988); Zambrana v. Hospital Santo Asilo de Damas, 109 D.P.R. 517, 522 (1980); Oliveros v. Abréu, 101 D.P.R. 209, 226 (1973); véase, además, Colón Prieto v. Géigel, 115 D.P.R. 232, 239-240 (1984).
Para establecer un caso prima facie contra un profesional de la salud, el demandante viene obligado a: (1) presentar prueba sobre las normas mínimas de conocimiento y cuidado aplicables al área en cuestión, (2) demostrar que el demandado incumplió con estas normas en el tratamiento deLpaciente,...y..(3) que esto fue la causa del daño sufrido por el paciente. Véanse, Blás v. Hosp. Guadalupe, 146 D.P.R. 267, 322 (1998); Santiago Otero v. Méndez, 135 D.P.R. 540, 549 (1994); Rodríguez Crespo v. Hernández, 121 D.P.R. 639, 650 (1988); Medina Santiago v. Vélez, 120 D.P.R. a la pág. 385; Matos v. Adm. Serv. Médicos de P.R., 118 D.P.R. 567, 569 (1987).
Existe una presunción de que un profesional de la salud ha observado un grado razonable de cuidado y atención en la administración de tratamiento y que los exámenes practicados al paciente han sido adecuados. El hecho de que un paciente haya sufrido un daño o que el tratamiento no haya tenido éxito es insuficiente, de por sí, para derrotar dicha presunción. Corresponde a la parte demandante. controxeríir la misma, comprueba que demuestre algo más que la mera posibilidad de que el daño se debió al incumplimiento por parte del demandado de su obligación profesional. La relación de causalidad no puede establecerse a base de meras especulaciones o conjeturas, sino al igual que en todo caso civil, por preponderancia de la prueba. Si la evidencia señala a la existencia de múltiples causas del daño, no puede imponérsele responsabilidad al profesional de la salud a menos que del conjunto de la evidencia surja que con mayor probabilidad la actuación negligente fue la causa del daño. Véanse, Blás v. Hosp. Guadalupe, 146 D.P.R. a la pag. 322; Ramos, Escobales v. García, Gonzalez, 134 D.P.R. 969, 976 (1993); Rodríguez Crespo v. Hernández, 121 D.P.R. a la pág. 650; Viuda de López v. E.L.A., 104 D.P.R. 178, 183 (1975).
A los médicos y otros profesionales de la salud se les reconoce una amplia discreción profesional en su trabajo. No existe responsabilidad “por ‘ impericia cuando el demandado'se enfrenta a' una sitüációñ en la cual cabe una duda educada y razonable sobre el curso de tratamiento a seguir. El error de juicio es oponible como defensa, siempre y cuando el profesional de la salud hubiese efectuado esfuerzos concienzudos para enterarse y *150cerciorarse de los síntomas y de la condición del paciente, agotando los medios de diagnóstico a su disposición y cuando las autoridades están divididas sobre el curso a seguir. Santiago Otero v. Méndez, 135 D.P.R. a las págs. 549-550; Ramos, Escobales v. García, Gonbzález, 134 D.P.R. a la pág. 975; Lozada v. E.L.A., 116 D.P.R. 202, 217 (1985); Cruz v. Centro Médico de P.R., 113 D.P.R. 719, 729-730 (1983); Oliveros v. Abreu, 101 D.P.R. a la pág. 228; véase, además, Blas v. Hosp. Guadalupe, 146 D.P.R. a la pág. 296.
De ordinario, lo que constituye o no una práctica profesional adecuada en un caso de impericia debe ser establecido mediante testimonio pericial. Véanse, Ríos Ruiz v. Mark, 119 D.P.R. 816, 828-829 (1987); Reyes v. Phoenix Assurance Co., 100 D.P.R. 871, 877 (1972); Guzmán v. Silén, 86 D.P.R. 532, 538 (1962). No corresponde a los tribunales prescribir tratamientos de salud. Véanse, Ríos Ruiz v. Mark, 119 D.P.R. a la pág. 821; Cruz v. Centro Médico de P.R., 113 D.P.R. a la pág. 736.
En la evaluación de este tipo de prueba, el tribunal apelativo está en la misma posición que el juzgador de primera instancia. Ramos, Escobales v. García, Gonbzález, 134 D.P.R. a la pág. 976; Ríos Ruiz v. Mark, 119 D.P.R. a la pág. 820; Cruz v. Centro Médico de P.R., 113 D.P.R. a la pág. 721; véanse, además, Dye-Tex Puerto Rico, Inc. v. Royal Insurance Company of Puerto Rico, 150 D.P.R. 658 (2000); Culebra Enterprises Corp v E.L.A., 143 D.P.R. 935, 952 (1997).
En el presente caso, según hemos visto, la parte apelante ha planteado que Dr. Morales fue un co-causante de los daños sufridos por esta parte. Se alega, específicamente, que dicho profesional de la salud actuó negligentemente al no detectar que la condición de la Sra. Rivera se debía a un cáncer y al no actuar con premura para verificar el origen de su lesión. Esta tardanza, unida a la negligencia original de los otros facultativos que atendieron a la causante, propició que el cáncer no fuera detectado a tiempo para ser tratado, lo que llevó a que la parte apelante sufriera daños.
En su moción de sentencia sumaria, el apelado alegó que no existía evidencia para establecer que él hubiera actuado con negligencia. Dicha parte alegó que él había recomendado a la Sra. Rivera que se realizara una segunda biopsia de manera inmediata y que fue ésta quien no estuvo inclinada, de primera impresión, a someterse a dicha prueba, porque la primera biopsia le había resultado dolorosa.
Lo cierto es que existe controversia entre las partes sobre este punto. La parte apelante alega que el Dr. Morales no indicó a la Sra. Rivera que resultaba necesario que ella se sometiera a la biopsia “inmediatamente”, según alega el apelado. Dicha parte aduce que el apelado no trasmitió a la Sra. Rivera que existiera premura alguna en realizar la biopsia.
Al contrario, según la prueba ofrecida por los apelantes, el Dr. Morales le indicó a la Sra. Rivera que ella debía esperar hasta después del período navideño para realizarse la biopsia en el Recinto de Ciencias Médicas. Al entrevistar a la paciente en enero de 1997, el apelado supuestamente ordenó a la causante someterse a pruebas para alergia, sin mostrar urgencia alguna en la necesidad de llegar a una determinación sobre si la Sra. Rivera efectivamente tenía cáncer. El perito de la parte apelante, Dr. Elmore, opinó que dicha actuación había constituido impericia médica.
Somos de la opinión, en vista de lo anterior, que el Tribunal de Primera Instancia debió de haberse abstenido de dictar sentencia sumaria sobre la reclamación.
El apelado alega que el informe del Dr. Elmore está basado en meras conjeturas, porque dicho perito no tuvo acceso al record médico del tratamiento brindado por el apelado. Alega, además, que no existe una base para imponerle responsabilidad en el caso de autos.
Reconocemos que las alegaciones contra dicha parte no parecen, de su faz, contundentes. A diferencia de *151las alegaciones de los apelantes contra el Dr. Garnatón, la responsabilidad del Dr. Morales en este caso no está predicada en la interpretación incorrecta por parte de dicho facultativo de los exámenes tomados a la causante, ni de su omisión de ordenar las pruebas diagnósticas necesarias. Más Ibien se atribuye responsabilidad al Dr. Morales por la dilación de varias semanas en la repetición de los exámenes de biopsia, la que fue provocada en parte por el hecho de que el Recinto de Ciencias Médicas estaba cerrado! por resultar ser período navideño.
No obstante, aunque reconocemos que las bases de la reclamación contra el Dr. Morales no resultan inexpugnables, no podemos decir que los apelantes carezcan enteramente de evidencia para establecer su causa de acción contra dicho facultativo.
Según hemos señalado, consideramos que existe, cuando menos, controversia real sustancial entre las partes sobre este particular. En estas circunstancias, el Tribunal de Primera Instancia no debió haber declarado con lugar la moción del apelado, en esta etapa. Rosario v. Nationwide Mutual, 2003 J.T.S. 34, a las págs. 641-642; Jusino et als. v. Walgreens, 2001 J.T.S. 154, a la pág. 374; PFZ Props., Inc. v. Gen. Acc. Ins. Co., 136 D.P.R. a la pág. 914; Corp. Presiding Bishop CJC of LDS v. Purcell, 117 D.P.R. a las págs. 722-723.
Observamos que, según se desprende del informe pericial del Dr. Ejlmore, dicho perito no ha tenido acceso a los récords del apelado, por lo que su opinión en cuanto a las ejecutorias de dicha parte posiblemente no debe considerarse definitiva. El Tribunal Supremo de Puerto Rico ha advertido, en este sentido, que un Tribunal no debe dictar sentencia sumaria, salvo que la parte promovida haya tenido una oportunidad adecuada de concluir el proceso de descubrimiento de prueba. García Rivera et als. v. Enriquez, 2001 J.T.S. 15, a la pág. 820; Pérez v. El Vocero de P.R., 149 D.P.R. 427, 447 (1999); Medina v. M.S. & D. Química P.R., Inc., 135 D.P.R. a la pág. 733.
En la situación de autos, contrario a la apreciación de la distinguida Sala recurrida, no estimamos que el récord sustente la solicitud de sentencia sumaria del apelado.
Por los fundamentos expresados, se revoca la sentencia apelada) Se devolverá el caso al Tribunal de Primera Instancia para procedimientos consistentes con este dictamen.
Lo pronunció y lo manda el Tribunal y lo certifica la señora Secretai}ia General.
Aida Ileana Oquendo Graulau
Secretaria General | 01-03-2023 | 11-23-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/1675036/ | 261 F. Supp. 746 (1966)
Jerry Lee DIXON
v.
STATE OF MARYLAND by The Honorable Joseph CARTER, the Honorable Charles E. Moylan, Jr., Warden John P. Garrity, Warden Hiram Schoonfield, Commissioner Vernon Pepersack.
Civ. No. 17336.
United States District Court D. Maryland.
December 13, 1966.
*747 Jerry Lee Dixon, plaintiff, pro se.
Robert C. Murphy, Atty. Gen. of Maryland, and Franklin Goldstein, Asst. Atty. Gen., Baltimore, Md., for defendants Joseph Carter, Charles E. Moylan, Jr., John P. Garrity and Vernon Pepersack.
Joseph Allen, City Sol., and Victor W. Palmer, Asst. City Sol., Baltimore, Md., for defendant, Hiram Schoonfield.
THOMSEN, Chief Judge.
The Court has permitted plaintiff to file a paper entitled "Complaint to Prosecute" in which plaintiff seeks to "prosecute" the State of Maryland, the Honorable Joseph Carter, a Judge of the Supreme Bench of Baltimore City, Charles E. Moylan, Jr., present State's Attorney for the City of Baltimore, John P. Garrity, Warden of the Maryland House of Correction, Hiram Schoonfield, Warden of the Baltimore City Jail, and Vernon Pepersack, Commissioner of the Department of Correction of Maryland, for alleged violations of his civil rights.
The "Complaint to Prosecute" is carefully typed, is in appropriate legal form, and contains references to many decisions of the Supreme Court. It bases jurisdiction solely upon 18 U.S.C. § 52, which is now 18 U.S.C. § 242, the federal statute which provides criminal sanctions against violation of certain rights of citizens under color of law.[1]
Despite the limited claim of jurisdiction the complaint ended with the following paragraph:
"WHEREFORE, the Plaintiff, respectfully moves that upon this complaint to prosecute, warrants be issued and respondents be held to answer to criminal information, and further as a result of the violation of rights, that the Plaintiff be Granted a restraining Order from further prosecution for the allege [sic] offense and further that the respondents be libel [sic] in a civil action for damages to the Plaintiff."
Because of plaintiff's apparent intention to seek an injunction and to claim damages against defendants which could only be done under 42 U.S.C.A. § 1983; see also 28 U.S.C.A. § 1343 this Court permitted the complaint to be filed and required the State to answer.
The State has filed a motion to dismiss on behalf of all defendants except the Warden of the Baltimore City Jail; a similar motion has been filed in his behalf by the City Solicitor.[2] As Exhibits *748 to a memorandum attached to the motion, the Attorney General has supplied the Court with copies of the papers filed in the State proceedings.
Thereupon, plaintiff filed an answer to defendants' motions to dismiss in which he reiterated his prior claims and controverted the position of defendants. However, plaintiff also stated: "That the plaintiff's action, in the main, is not for the purpose of relief, but instead is a prosecution against defendants for the lack of their responsibility of [sic] plaintiff's rights, to protection under the Fourteenth Amendment of the Constitution." He further stated: "* * * plaintiff is no longer seeking a restraint" and "That at this time the plaintiff has no intentions to either sue the State of Maryland or individually the five persons named; however, the plaintiff does wish to reserve the right to do so at a later date, should he feel so incline [sic]."
The following facts appear from the complaint, as clarified by the Court papers filed by the State. Plaintiff was convicted in 1965 of the crime of burglary and sentenced to a term of three years in the Maryland House of Correction. He appealed the conviction and it was stricken out pursuant to the ruling in Schowgurow v. State, 240 Md. 121, 213 A.2d 475 (1965). Plaintiff was remanded to the custody of the State for reindictment and retrial. Because of the great number of prisoners whose convictions had been vacated after the Schowgurow decision and who had been remanded for reindictment and retrial, the facilities of the Baltimore City Jail became extremely overcrowded, creating a serious hazard to inmates, to employees of the jail and to the public. Pursuant to an order of Judge Carter, presiding in the Criminal Court of Baltimore, dated February 11, 1966,[3] plaintiff was transferred *749 from the Baltimore City Jail to the Maryland House of Correction. Other prisoners whose cases had been remanded were also transferred. Plaintiff was reindicted, and on April 13, 1966, was returned to the Baltimore City Jail and appeared for arraignment on the new indictment. He was retried on April 25, 1966, was convicted of the crime of burglary, and was again sentenced to three years in the Maryland House of Correction, dating from October 24, 1964. Plaintiff's appeal from that conviction is pending in the Court of Appeals of Maryland. During the proceedings against him in the Criminal Court plaintiff filed a motion to dismiss based on double jeopardy and a motion to quash certain counts of the indictment against him on the same grounds. Plaintiff also challenged the legality of his transfer from the Baltimore City Jail to the Maryland House of Correction.
In his "Complaint to Prosecute" filed in this Court, plaintiff contends that his transfer was illegal under Maryland law, in that there was no statute authorizing it and that the "jurisdiction" of the House of Correction and of the Department of Correction is limited to convicted criminals, citing Article 27, sections 689 and 690 of the Maryland Code. Plaintiff claims that Judge Carter was without jurisdiction to order the transfer, that by being transferred he was removed from the jurisdiction of Baltimore City, with the effect that Baltimore City could not regain jurisdiction over him, that while he was in the custody of the House of Correction he was subjected to involuntary servitude without having been duly convicted, and that his attempts to secure bail have been defeated by the State's Attorney. He contends that his rights under the Fifth, Eighth, Thirteenth and Fourteenth Amendments have been violated because only persons whose cases had been remanded pursuant to Schowgurow were transferred to the House of Correction.
It appears from plaintiff's reply to the State's motion to dismiss that his primary intention is to institute personally a criminal proceeding against the State and the individual defendants. That cannot be done. Any such complaint should have been sent to the United States Attorney, and in a proper case the Court might refer the papers to him, but that would be futile in this case.
Regarded as a civil action for an injunction restraining the prosecution now pending in the State Court or for damages against the several defendants, the complaint must be dismissed for several reasons. The injunction sought by plaintiff was moot before this case was filed. Any challenge to the validity of the conviction should be presented on appeal or by means of collateral attack. The complaint fails to state a claim upon which relief can be granted. The State itself cannot be sued in such an action. Insofar as Judge Carter is concerned, he is protected by the doctrine of judicial immunity. Bradley v. Fisher, 13 Wall. 335, 20 L. Ed. 646 (1872); Rhodes v. Meyer, 8 Cir., 334 F.2d 709, cert. den., 379 U.S. 915, 85 S. Ct. 263, 13 L. Ed. 2d 186 (1964), 383 U.S. 939, 86 S. Ct. 1073, 15 L. Ed. 2d 856 (1966); Sires v. Cole, 9 Cir., 320 F.2d 877 (1963); Ryan v. Scoggin, 10 Cir., 245 F.2d 54 (1957); Francis v. Crafts, 1 Cir., 203 F.2d 809, cert. den. 346 U.S. 835, 74 S. Ct. 43, 98 L. Ed. 357 (1953). See Tenney v. Brandhove, 341 U.S. 367, 71 S. Ct. 783, 95 L. Ed. 1019 (1951); Barr v. Matteo, 360 U.S. 564, 569, 79 S. Ct. 1335, 3 L. Ed. 2d 1434 (1959). State's Attorney Moylan is also protected by the doctrine of immunity. Rhodes v. Meyer, supra; Sires v. Cole, supra. The transfer from the jail to the House of Correction was made by the other defendants pursuant to an order, regular and fair on its face, entered by a judge presiding in the Criminal Court of Baltimore, and the doctrine of immunity extends to the jailer and the officials of the Department of Correction under the facts of this case. Francis v. Lyman, 1 Cir., 216 F.2d 583, 588-589 (1954); Delaney v. Shobe, D.Ore., 235 F. Supp. 662 (1964). See also Roberts v. Pepersack, D.Md., 256 F. Supp. 415 (1966); Carder v. Steiner, 225 Md. 271, *750 170 A.2d 220 (1961); Davis, Administrative Law Treatise, 1965 Supp. § 26.06. Monroe v. Pape, 365 U.S. 167, 81 S. Ct. 473, 5 L. Ed. 2d 492 (1961), does not require a different conclusion. No facts amounting to involuntary servitude within the meaning of the Thirteenth Amendment have been alleged.
The complaint is hereby dismissed.
NOTES
[1] "§ 242. Deprivation of rights under color of law
"Whoever, under color of any law, statute, ordinance, regulation, or custom, willfully subjects any inhabitant of any State, Territory, or District to the deprivation of any rights, privileges, or immunities secured or protected by the Constitution or laws of the United States, or to different punishments, pains, or penalties, on account of such inhabitant being an alien, or by reason of his color, or race, than are prescribed for the punishment of citizens, shall be fined not more than $1,000 or imprisoned not more than one year, or both." June 25, 1948, c. 645, 62 Stat. 696.
[2] The grounds stated in the motions are as follows:
"1. That the Plaintiff has failed to exhaust available State remedies.
"2. That the contentions set forth in the civil action are conclusory in nature and fail to adequately allege any facts supporting the contentions.
"3. That this Honorable Court lacks jurisdiction over the subject matter of the cause of action.
"4. That this Honorable Court lacks jurisdiction over the person of one of the Defendants, the State of Maryland.
"5. That the civil action as filed fails to set forth a claim upon which relief can be granted.
"6. That the doctrine of judicial immunity applies herein, the Plaintiff having been remanded to an institution under the jurisdiction of the Department of Correction pursuant to an Order of Court as a result of an emergency situation at the Baltimore City Jail which was a serious and immediate hazard to the health and safety of the inmates and employees of the Baltimore City Jail and the citizens of the City of Baltimore. A copy of the said Order of Court is attached hereto and made a part of this Motion to Dismiss."
[3] The order reads as follows:
"JERRY LEE DIXON : CRIMINAL COURT
: OF
: BALTIMORE
: Ind. No. 4418; 4420; 5040/64
: : : : : : :
ORDER OF COURT FOR CUSTODY
"The Court having been advised that due primarily to the granting of new trials to persons heretofore convicted as a result of the decision of the Court of Appeals of Maryland in Schowgurow vs. State, 240 Md. 122, 213 A.2d 475 (1965) the facilities of the Baltimore City Jail have become extremely overcrowded, and that such overcrowding represents a serious and immediate hazard to the health and safety of the inmates and employees of the Baltimore City Jail and to the citizens of the City of Baltimore, and
"The Court, after investigation, finding such representations to be true, and further finding that immediate relief of overcrowded conditions at the Baltimore City Jail is imperative, and the Department of Correction having agreed to accept such custody, it is, therefore, this 11th day of February , 1966, by the Criminal Court of Baltimore;
"ORDERED that the Defendant in this case be transferred under guard to and/or held in an institution under the jurisdiction of the Department of Correction, to be held pending reindictment by the Grand Jury and/or trial of the indictments pending against him in the Criminal Court of Baltimore, subject to the further Order of this Court.
(S) JOSEPH L. CARTER
JUDGE" | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1675736/ | 596 F. Supp. 1325 (1984)
Stephen J. GDOVIN, et al., Plaintiffs,
v.
CATAWBA RENTAL CO., INC., et al., Defendants.
No. C84-2419.
United States District Court, N.D. Ohio, E.D.
October 19, 1984.
Louise M. Klubert, James M. Kehn & Assoc., Cleveland, Ohio, for plaintiffs.
Frank Soldat, Cleveland, Ohio, for defendants.
MEMORANDUM OPINION AND ORDER
BATTISTI, Chief Judge.
Defendants have moved for a change of venue, transferring the above-captioned case from this Court to the United States District Court, Southern District of West Virginia, Beckley Division, under 28 U.S.C. *1326 § 1404(a). For the reasons outlined below, this Court denies Defendants' Motion for Change of Venue and retains this action in the Northern District of Ohio, Eastern Division.
I.
On March 25, 1983, Plaintiffs Stephen J. Gdovin and Margaret D. Gdovin, residents of the State of Ohio, were travelling by car north on the West Virginia Turnpike near Mile Post 43. Plaintiff Margaret D. Gdovin was driving the car, a 1980 Oldsmobile, at the time. Plaintiffs' car collided with a tractor-trailer owned by Defendants. Defendant Victor Fulbright, an employee of Defendants Southern Furniture, Inc. and Catawba Rental Company, was driving the truck at the time of the collision. Fulbright as well as the two corporate defendants are all residents or domiciled in the state of North Carolina. Plaintiffs sustained multiple injuries as a result of the collision and brought this action on July 31, 1984. This Court exercises its diversity jurisdiction pursuant to 28 U.S.C. § 1332.
II.
"For the convenience of the parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought." 28 U.S.C. § 1404(a). It is clear that Plaintiffs could have originally brought this action in the Southern District of West Virginia [hereinafter referred to as the transferee district] since the allegedly negligent acts of the Defendants and the situs of the collision occurred in that district; venue, jurisdiction and service of process would all have been proper there in the first instance. See Sherman v. Moore, 86 F.R.D. 471 (S.D.N.Y.1980); Miller v. Cousins Properties, Inc., 378 F. Supp. 711 (D.Vt.1974); see also 28 U.S.C. § 1391(a).
Having satisfied the requirement that the transferee district be one in which the action could have been originally brought, this Court must consider only the convenience of the parties, the convenience of the witnesses and the interest of justice. Forest Nursery Co. v. Crete Carrier Corp., 319 F. Supp. 213 (D.C.Tenn.1969). This Court exercises broad discretion, Lemon v. Druffel, 253 F.2d 680 (6th Cir.1958), cert. denied 358 U.S. 821, 79 S. Ct. 34, 3 L. Ed. 2d 62. To succeed in its motion to transfer, the moving party must show the preponderance of the balance in his favor.[1]Crawford Transport Co. v. Chrysler Corp., 191 F. Supp. 223 (E.D.Ky.1961).
Defendant-Movant's initial argument is that the condition of the turnpike is an element of proof and that a view of the turnpike by the finder of fact supports transfer to the district in which the turnpike is located. However, Defendant has not stated why the view is necessary in the interest of justice. As Plaintiff notes in its Brief in opposition, Defendant has not (nor has the Plaintiff) raised the condition of the road as an issue in its pleadings. In addition to denying negligence, Defendants' only other defense is that the negligence of third parties caused the collision. Hence, Defendant has not stated sufficient grounds to conclude justice can only be served through an inspection. See Marbury-Pattillo Constr. Co. v. Bayside Warehouse Co., 490 F.2d 155 (5th Cir. 1974). Furthermore, in collision cases, photographs of the accident scene may be used instead of an actual view of the site, making transfer unnecessary. Sell v. Greyhound Corp., 228 F. Supp. 134 (E.D.Pa. 1964).
Another factor to be considered is the availability of witnesses. Defendants contend that all of the available witnesses, namely the employees of Defendants, are *1327 in the transferee district or North Carolina. The moving party must once again do more than merely assert the appropriateness or value of a different forum for witnesses; rather, he must show that the witnesses will not attend or will be severely inconvenienced if the case proceeds in the forum district. Weltman v. Fletcher, 431 F. Supp. 448 (N.D.Ohio 1976). In the instant case, Defendants have made no such showing. The balance might shift if Defendants were moving for transfer to North Carolina, the state of their domicil. However, Defendants by transferring this action to West Virginia would still have to travel out-of-state. Given the proximity of West Virginia and Ohio, this Court cannot deem the additional distance Defendants (or their witnesses) will have to travel substantial enough to pose a serious inconvenience. Furthermore, those witnesses who are unavailable can be deposed. Securities and Exchange Commission v. Dimensional Entertainment Corp., 493 F. Supp. 1270 (S.D.N.Y.1980). It is of little value to this Court's determination that Plaintiffs' expert witnesses reside in Ohio; even were this matter to be transferred, expert witnesses could be found and retained in the transferee district. Berkshire International Corp. v. Alba-Waldensian, Inc., 352 F. Supp. 831 (S.D.N.Y.1972). It is more important that Plaintiffs' treating physicians reside in Ohio. Meyers v. Freedom Newspapers, 274 F. Supp. 93 (N.D.Ohio 1967).
This Court finally places great weight on Plaintiffs' original choice of forum. See Norwood v. Kirkpatrick, 349 U.S. 29, 75 S. Ct. 544, 99 L. Ed. 789 (1955). Since Defendants have not raised more compelling grounds to transfer, this Court is indisposed to deny Plaintiffs' choice. Furthermore, since Plaintiffs have sustained severe injuries, it is likely that transfer would impose additional physical and financial hardship on them. It does not appear that Plaintiffs in choosing the Northern District of Ohio sought to harass or oppress Defendants by imposing unnecessary legal expenses on them. See Holiday Rambler Corp. v. American Motors Corp., 254 F. Supp. 137 (W.D.Mich.1966). Since Plaintiffs reside in Rocky River, Ohio, which is in the forum district, it can be assumed they are bringing this action in the district closest and most convenient to their home. This is Plaintiffs' prerogative and it will not be upset by this Court.
III.
For the foregoing reasons, this Court finds that Defendant-Movant has not demonstrated the necessity of transferring the instant case to the Southern District of West Virginia. Defendants' Motion to Change Venue is denied. This action will proceed in United States District Court, Northern District of Ohio.
IT IS SO ORDERED.
NOTES
[1] The Court is aware that the purpose of 28 U.S.C. § 1404(a) was to make it easier for a movant to transfer a case than under the old forum non conveniens standard. See C. Wright, A. Miller & E. Cooper, Federal Practice and Procedure: Jurisdiction §§ 3847, 3848. Despite the difficulty of articulating the differences between the standards, this Court believes in the instant case Defendants have not met even the lower but still substantial standard under § 1404(a). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1634496/ | 602 F.Supp.2d 319 (2009)
Neviyebel CINTRON-ALONSO, Plaintiff,
v.
GSA CARIBBEAN CORPORATION Defendants.
Civil No. 08-1450 (SEC).
United States District Court, D. Puerto Rico.
March 18, 2009.
*321 Manuel Porro-Vizcarra, Yesenia M. Varela-Colon, Manuel Porro Vizcarra Law Office, Guaynabo, PR, for Plaintiff.
Gilberto Mayo-Pagan, Gilberto Mayo Pagan Law Office, San Juan, PR, for Defendants.
OPINION AND ORDER
SALVADOR E. CASELLAS, District Judge.
Pending before the Court is a "Motion to Dismiss and Memorandum in Support Premised Upon, Rule 12(b)(1) and (6), and Summary Judgment Rule 56(b) and (c)" (Docket # 10) submitted jointly by co-defendants GSA Caribbean Corporation ("GSA"), Edgardo Gorils Zapata ("Gordils"), Norma Serrano Melendez ("Serrano"), and the Gordils-Serrano conjugal partnership (collectively "Defendants"). Plaintiff has filed a timely opposition thereto (Docket # 14). After reviewing the parties' filings, the evidence in the record and the applicable law, for the reasons explained below, Defendants' Motion to Dismiss is GRANTED in part and DENIED without Prejudice in part.
Standard of Review
Defendants have filed a motion that they purport to be both a motion to dismiss and a motion for summary judgment. Accordingly, they have attached a supporting statement of material facts in accordance with Local Rule 56(b). However, in this case, the pertinent factual controversy relates to a jurisdictional threshold issue regarding whether GSA had a sufficient number of employees at the time of the alleged discriminatory acts to qualify as an employer under Title VII. See 42 U.S.C. § 2000e(b). The First Circuit has established that, "[t]he attachment of exhibits to a Rule 12(b)(1) motion does not convert it to a Rule 56 motion. While the court generally may not consider materials outside the pleadings on a Rule 12(b)(6) motion, it may consider such materials on a Rule 12(b)(1) motion, such as the one in this case." Gonzalez v. United States, 284 F.3d 281, 288 (1st Cir.Mass.2002). Because the pith of Defendants' motion is based on factual assertions regarding this Court's jurisdiction, the motion will be considered under FED. R. CIV. P 12(b)(1), and FED. R. CIV. P 12(b)(6) for those" arguments related to Plaintiff's failure to state a claim.
FED. R. Civ. P. 12(b)(1)
FED. R. CIV. P 12(b)(1) is the proper vehicle for challenging a court's subject matter jurisdiction. Valentin v. Hospital Bella Vista, 254 F.3d 358, 362-63 (1st Cir. 2001). Under this rule, a wide variety of challenges to the Court's subject matter jurisdiction may be asserted, among them those based on sovereign immunity, ripeness, mootness, and the existence of a federal question. Id. (citations omitted). When faced with a similar jurisdictional challenge, this Court must "... give weight to the well-pleaded factual averments in the operative pleadings [... ] and indulge every reasonable inference in the pleader's favor." Aguilar v. U.S. Immigration and. Customs Enforcement Div. of Dept. of Homeland Sec., 510 F.3d 1, 8 (1st Cir.2007).
A plaintiff faced with a motion to dismiss for lack of subject matter jurisdiction has the burden to demonstrate that such jurisdiction exists. See Lord v. Casco Bay Weekly,' Inc., 789 F.Supp. 32, 33 (D.Me.1992); see also SURCCO v. PRASA 157 F.Supp.2d 160, 163 (D.P.R.2001). This Court is empowered to resolve factual disputes by making reference to evidence in the record beyond the plaintiff's allegations without having to convert the motion to dismiss into one for summary judgment. Id. "Where a party challenges the accuracy *322 of the pleaded jurisdictional facts, the court may conduct a broad inquiry, taking evidence and making findings of fact." Herndndez-Santiago v. Ecolab, Inc., 397 F.3d 30 (1st Cir.2005). Therefore, this Court may consider extrinsic materials, "and, to the extent it engages in jurisdictional fact-finding, is free to test the truthfulness of the plaintiff's allegations." Dynamic Image Technologies, Inc. v. U.S., 221 F.3d 34, 38 (1st Cir.2000). That is, the principle of conversion of a motion to dismiss into a motion for summary judgment when extrinsic materials are reviewed, does not apply in regards to a motion to dismiss for lack of subject matter jurisdiction. Id.
FED. R. Civ. P. 12(b)(6)
In assessing whether dismissal for failure to state a claim is appropriate, the court must take "plaintiffs' well-pleaded facts as true and [indulge] all reasonable inferences therefrom to their behoof." Buck v. American Airlines, Inc., 476 F.3d 29, 32 (1st Cir.2007). "In conducting that tamisage, however, bald assertions, unsupportable conclusions, periphrastic circumlocutions, and the like need not be credited." Id. at 33; see also Rogan v. Menino, 175 F.3d 75, 77 (1st Cir.1999); see also Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 1967-1968, 167 L.Ed.2d 929 (2007). Therefore, "even under the liberal pleading standards of Federal Rule of Civil Procedure 8, the Supreme Court has recently held that to survive a motion to dismiss, a complaint must allege `a plausible entitlement to relief.'" Rodríguez-Ortiz v. Margo Caribe, Inc., 490 F.3d 92, 95 (1st Cir.2007).
Although the standard of review under Fed.R.Civ.P. 12(c) and 12(b)(6) is generally limited to the facts stated on the face of the complaint, a court may also consider documents appended to the complaint, documents incorporated by reference, and matters of which judicial notice can be taken. See Allen v. WestPoint-Pepperell, Inc., 945 F.2d 40, 44 (2nd Cir. 1991); Kramer v. Time Warner, 937 F.2d 767 (2nd Cir.1991).
Background and Relevant Material Facts
Plaintiff worked as a receptionist for GSA between August of 2005 and June 28, 2006. See Docket # 3, ¶¶ 13 & 29. Gordils and Serrano are executive officers of GSA, and were Plaintiff's direct supervisors. On June 21, 2006, Plaintiff informed Serrano of her pregnancy. See Docket #3, ¶ 19. Allegedly, Serrano reacted angrily upon hearing the news, and informed Plaintiff that she was not entitled to any pregnancy related benefits, and referred her to Gordils. After this, the work environment allegedly changed for the worse, and GSA tried to change her position to that of insurance agent supervisor, which would have allegedly forced her to work "on the street," stripped her of maternity leave, and shifted her compensation exclusively to commissions. See Docket # 3, ¶ 20-21. After she refused the move, Gordils and Serrano became upset, and during a series of meetings were hostile towards her. See Docket # 3, ¶ 26-28. At a final meeting, after insisting Plaintiff change positions against her will, Gordils announced her dismissal from GSA. See Docket # 3, ¶ 9.
Plaintiff seeks redress for pregnancy and sex discrimination from Defendants under Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq and 42 U.S.C. § 1981a, Article II of the Constitution of the Commonwealth of Puerto Rico, and various supplemental Commonwealth statutes premised on the same alleged actions, to wit: Law 100 of June 30, 1959, P.R. Laws Ann. tit. 29, § 146 (sex discrimination); *323 Law 69 of July 6, 1985, P.R. Laws Ann. tit. 29, § 1321 (sex discrimination); Law 80 of May 30, 1976, P.R. Laws Ann. tit. 29, § 185a (unjust dismissal); Law 3 of March 13, 1942, P.R. Laws Ann. Tit. 29, § 469 (pregnancy discrimination); and Articles 1802 and 1803 of the P.R. Civil Code, 31 L.P.R.A. § 5141 and § 5142. See Docket #3.
Gordils and Serrano admit that, at all relevant times, they were the executive officers of GSA. See Docket 11 at 2; D.S.U.M.F., ¶ 4-5. However, Defendants also allege that at no time did GSA maintain an employment relationship with more than fifteen (15) employees. D.S.U.M.F., ¶ 6. To substantiate this claim, they provide their quarterly filings with the Puerto Rico Department of Labor and Human Resources. See Docket # 11-2, Exh. 6. Defendants argue that GSA is not an employer under 42 U.S.C.2000e(b), because it has less than the statutory minimum of fifteen (15) employees. Docket # 10 at 8; Exh. 6. In fact, they allege that the number of employees fluctuated between two and six. Accordingly, they seek dismissal.
Plaintiff does not contest the authenticity of the Documents used by Defendants, but she makes the counter allegation that GSA had many more than 15 insurance agents, and that these were employees, despite not being included in GSA's filings with the Puerto Rico Department of Labor. See Docket # 14-2, Exh. 1. The only documents in this Court's possession are the employee lists submitted by Defendants, and Plaintiff's assertoric statement that she observed more than fifteen (15) employees working at GSA during the period relevant to this suit. Plaintiff also argues that Gordils and Serrano are employees of GSA for the purpose of Commonwealth statutes Law 3, Law 69, and Law 100. See Docket # 14 at 7-8. However, the administrative complaint with the EEOC was only filed against GSA. D.S.U.M.F., ¶ 6; Exh. 8.
Gordils and Serrano did not receive individual notification of said complaint. D.S.U.M.F., ¶ 9-10. As such, these codefendants allege that they were not given proper notice, and that the claims against them were not tolled. Hence, they were time barred when Plaintiff filed the claim in 2008, more than a year after her employment with GSA terminated. Conversely, Plaintiff avers that her EEOC claim mentions Gordils and Serrano, who are executive officers of GSA, and thus, they were given de facto notification of the EEOC complaint. She maintains that her timely EEOC complaint constituted a valid extrajudicial claim, effectively tolling her claims under Title VII and Commonwealth law.
Applicable Law and Analysis
Title VII and State Law Claims against the Individual Defendants
Gordils, Serrano, and their conjugal partnership, allege that Title VII does not apply to them, because they were not Plaintiff's employers in the statutory sense of the word. Furthermore, they posit that Title VII does not provide for individual liability. This Court agrees that it is settled law in this district that "... no personal liability can be attached to agents or supervisors under Title VII." Gonzalez v. Guidant Corp., 364 F.Supp.2d 112, 115 (D.P.R.2005); Rochet Canabal v. Aramark Corp., 48 F.Supp.2d 94, 96-97 (D.P.R. 1999). Accordingly, a complaint must be dismissed in as much as it seeks to impose liability on individual supervisors. Anonymous v. Legal Servs. Corp., 932 F.Supp. 49, 51 (D.P.R.1996). This is in harmony with the First Circuit's recent affirmation "... that there is no individual employee liability under Title VII." Fantini v. Salem State College, 557 F.3d 22, 30-31 (1st Cir. 2009). As such, all Title VII charges *324 against Gordils and Serrano as individuals are DISMISSED.
One of Gordils and Serrano's grounds for requesting dismissal of the Title VII claims is that they allege Plaintiff had to name them in her EEOC complaint in order to include them in this lawsuit. Plaintiff contends that they were brought in de facto for both the federal and the Commonwealth law claims, because the body of the complaint referred to them. See Docket # 14 at 13. However, given that Title VII claims for sex discrimination are against an employer, and not individuals, it is not reasonable to conclude that an EEOC charge against GSA would have also tacitly included Gordils and Serrano, even though they were identified as her supervisors. Nevertheless, this argument is moot as to Title VII, because Plaintiff's opposition admits that Gordils and Serrano bear no individual responsibility under Title VII. However, it still is applicable to Plaintiff's Commonwealth law claims, which have not been renounced.
With regards to the Commonwealth law claims, Gordils and Serrano argue that because they were not notified of the pending administrative claims, the supplemental state law claims, which have a statute of limitations of one year, were never tolled. Docket # 10 at 10; Leon-Nogueras v. University of Puerto Rico, 964 F.Supp. 585, 588-589 (D.P.R.1997). This is relevant, because there is no question Gordils and Serrano respond to possible individual liability under Law 69 and Law 100. Mejias Miranda v. BBII Acquisition Corp., 120 F.Supp.2d 157, 172 (D.P.R.2000). Furthermore, as those laws seek to penalize acts of discrimination, as does Law 3, this Court assumes there is an individual cause of action under Law 3 interpreting it in pari materia with Law 100. Martinez v. Blanco Velez Store, Inc., 393 F.Supp.2d 108,114 (D.P.R.2005).
Puerto Rico law allows for the tolling of a statute of limitations in a discrimination case through an extra judicial claim. P.R. Laws Ann. tit. 31, § 5303. However, this only tolls for identical causes of action. Valentin-Almeyda v. Municipality of Aguadilla, 447 F.3d 85, 101 (1st Cir.P.R.2006). Speaking to the issue of extrajudicial claims in Title VII cases, the First Circuit has allowed EEOC complaints to toll the statute of limitations for the applicable Commonwealth discrimination statutes. Id.; see also Rodriguez-Torres v. Caribbean Forms Mfr., Inc., 399 F.3d 52, 61 (1st Cir.2005). Moreover, claims under Law 69 and Law 100 have been given parallel treatment to general damages claims. Keyla Rosario Toledo v. Distribuidora Kikuet, 151 P.R. Dec. 634, 644-645 (2000). As such, Law 69 and Law 100 are treated as suits for enhanced damages for the discriminatory behavior, and thus, it is apodictic that Defendants should be considered jointly liable given how causes of actions for damages are treated under Commonwealth law. Id.; P.R. Laws Ann. tit. 31, § 5304 (stating that the "[interruption of prescription of actions in joint obligations equally benefits or injures all the creditors or debtors."); see, e.g., Guadalupe v. Criollas, 597 F.Supp.2d 255 (D.P.R.2008).
Under Puerto Rico law, a claim against one jointly liable party tolls the statute of limitations against the others. Tokyo Marine & Fire Ins. Co. v. Perez & Cia., De P.R., Inc., 142 F.3d 1, 4 (1st Cir.1998) (referring to Arroyo v. Hospital La Concepcion, 130 P.R. Dec. 596 (1992)). Therefore, this Court finds that the one year statute of limitations for the abovementioned Commonwealth law claims was effectively tolled against Gordils and Serrano. Defendants' motion to dismiss the individual Law 3, Law 69, and Law 100 claims against on these grounds is DENIED.
*325 Title VII Employee Threshold
To qualify as an "employer" under Tiltle VII a company must have more than 15 employees, working for twenty or more weeks in the year the discriminatory practice takes place. De Jesus v. LTT Card Servs., 474 F.3d 16, 18 (1st Cir.P.R.2007) (citing 42 U.S.C. § 2000e(b)). Furthermore, Fantini recently reaffirmed Congress' intent to "... protect small entities [with less than 15 employees] from the costs associated with litigating discrimination claims ..." Fantini, 557 F.3d at 30.
GSA alleges that its personnel roll is comprised of no more than 6 employees, but Plaintiff counters that in fact it employs an "indefinite amount of captive sales agents." See Docket #14 at 11. She further argues that Gordils and Serrano should be considered as employees for the purpose of this analysis. However, Gordils and Serrano's standing as employees is not at present relevant, because their inclusion would only bring the number of staff up to 4-8. Instead, at controversy is Plaintiff's allegation that a significant number of insurance sales agents should be counted as GSA employees. See Docket #11-2, Exh. 1. Given that a threshold jurisdictional issue is before this Court, regarding the number of people employed by GSA during the relevant period, Defendants' motion to dismiss on these grounds is DENIED without Prejudice. The parties are granted a period of 30 days to engage in discovery exclusively related to this issue, and another 10 days to file briefs regarding the results of said discovery. Certified translations of all documents in the Spanish language must be filed with the briefs. No extensions of time shall be granted.
IT IS SO ORDERED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1642237/ | 178 F.Supp. 438 (1959)
RISS & COMPANY, Inc., Plaintiff,
v.
ASSOCIATION OF AMERICAN RAILROADS et al., Defendants.
Civ. A. No. 4056-54.
United States District Court District of Columbia.
November 3, 1959.
*439 A. Alvis Layne, Jr., Lester M. Bridgeman, Robert L. Wright, Morton A. Brody, Washington, D. C., for plaintiff, Riss & Co., Inc.
William E. Miller, Stephen Ailes, Richard A. Whiting, Washington, D. C., for defendant Association of American Railroads.
Hugh B. Cox, James H. McGlothlin, Washington, D. C., for defendants Baltimore & O. R. Co. and others.
Francis M. Shea, Lawrence J. Latto, Washington, D. C., for defendants Atlantic Coast Line R. Co. and others.
Stuart S. Ball, Richard J. Flynn, Chicago, Ill., for defendants Atchison, T. & S. F. R. Co. and others.
Martin A. Meyer, Jr., Washington, D. C., for defendant Virginian Ry. Co.
Edward K. Wheeler, Robert G. Seaks, Washington, D. C., for defendants Chesapeake & O. Ry. Co. and New York Cent. R. Co.
H. Graham Morison, Newell A. Clapp, Washington, D. C., for defendant Louisville & N. R. Co.
John D. Lane, Fred S. Gilbert, Jr., Washington, D. C., for defendants Boston & Maine R. R. and New York, N. H. & H. R. Co.
J. Raymond Hoover, Washington, D. C., for defendants Grand Trunk Western R. Co. and Central Ry., Inc.
SIRICA, District Judge.
Plaintiff has moved for judgment on the pleadings, pursuant to Rule 12(c) of the Federal Rules of Civil Procedure, 28 U.S.C.A., to dismiss certain "common law" counterclaims of defendants on the ground that these counterclaims do not state a claim upon which relief can be granted, and that this Court lacks jurisdiction of the subject matter.
Sixteen of the remaining individual railroad defendants in this civil antitrust suit have filed counterclaims against plaintiff, Riss & Company, Inc., alleging violations of certain federal and state laws and regulations relating to motor carriers. [Plaintiff's original complaint in this action, filed in 1954, alleged that beginning in or about 1950, defendants, most of whom are railroad companies, had agreed and conspired in unreasonable restraint of trade and commerce to injure or destroy plaintiff's business and to acquire a monopoly of land transportation of property in the United States in violation of Sections 1 and 2 of the Sherman Act (15 U.S.C.A. §§ 1, 2). (For a detailed statement of the background of this complex case see the opinion of this Court in Riss & Company, Inc. v. Association of American Railroads, D.C.D.C.1959, 170 F.Supp. 354.)] These counterclaims, filed in 1954, fall into three categories. The first category, filed by all sixteen railroads, alleges in substance that plaintiff transported freight to and from points not covered by certificates of convenience and necessity issued by the Interstate Commerce Commission and that plaintiff aided and abetted other motor carriers in performing transportation service which had not been authorized by the Commission under the authority of the Interstate Commerce Act (49 U.S.C.A. § 1 et seq.). (See Appendix A of this opinion for paragraphs 6-11 of counterclaims of defendant (66), The Pennsylvania Railroad Company, which are substantially the same as the counterclaims of this type filed by all counterclaiming defendants.) Defendants allege that as a result of such unlawful operation by plaintiff, defendant railroads were deprived of freight transportation business which they would have obtained but for the illegal *440 operation of plaintiff. The counterclaims request damages for profits and revenues alleged to have been lost by the railroads.
The Western railroads have also filed counterclaims similar to those of the Eastern Railroads mentioned above, and have filed additional counterclaims (not filed by the Eastern railroads) falling into a second distinct category. These additional counterclaims allege that plaintiff violated federal and state laws and regulations prescribing the maximum weight of loaded vehicles, the maximum length of equipment, the speed at which motor vehicles may be driven, the traffic rules which motor vehicles must obey, the safety appliances which must be provided, the length of time which drivers may continue to operate vehicles or remain on duty, and the length of time which operators may drive vehicles without rest. The Western railroads allege that as a result of such operations, plaintiff was able to advance its competitive position by delivering freight faster than the railroads, thus obtaining business which the railroads would otherwise have received. (See Appendix B of this opinion for paragraphs 19 and 20 of the counterclaims of defendant (40), The Missouri-Kansas-Texas Railroad Company, which are substantially the same as the counterclaims of this type filed by the other Western railroads).
In the third category of counterclaims, defendant Western railroads further allege that they have suffered competitive injury as a result of plaintiff's unlawful control of another certified carrier in violation of Section 5(4) of the Interstate Commerce Act (49 U.S.C.A. § 5 (4)). (See Appendix C for paragraphs 17 and 18 of the counterclaims of Western defendant (40), The Missouri-Kansas-Texas Railroad Company, which is substantially the same as the counterclaims of this type filed by the other Western railroads.)
Plaintiff moved to dismiss these counterclaims in January, 1955. All parties filed extensive briefs on the subject and argument on the motion to dismiss was heard by Judge Schweinhaut on October 31 and November 1, 1955. In October, 1956, Judge Schweinhaut entered an order denying plaintiff's motion to dismiss without prejudice to its renewal at pretrial. Plaintiff's present motion for judgment on the pleadings is filed under the terms of Judge Schweinhaut's order of 1956 and is based in part on two recent decisions, Consolidated Freightways, Inc. v. United Truck Lines, Inc., Or.1958, 330 P.2d 522, certiorari denied, 1959, 359 U.S. 1001, 79 S.Ct. 1136, 3 L.Ed.2d 1029; and T.I.M.E. Incorporated v. United States, 1959, 359 U.S. 464, 79 S.Ct. 904, 3 L.Ed.2d 952.
Before proceeding to a consideration of the basic issue before the Court, the counterclaims of the Western railroads alleging injury as a result of plaintiff's violation of federal and state highway and safety regulations (see Appendix E of this opinion) will be discussed.
The Western railroads, in their additional counterclaims, allege that as a result of these violations, plaintiff obtained a competitive advantage in the apparent rapidity of its service and the amount of excess traffic handled, thus deriving business which the Western defendants would otherwise have obtained. To sustain their contention, the Western defendants cite a number of cases which illustrate the general rule that actions in violation of a criminal statute may be enjoined when they threaten or are causing irreparable harm to a competing business. See, e. g., Wichita Transp. Co. v. Peoples Taxicab Co., 1934, 140 Kan. 40, 34 P.2d 550, 552, 94 A.L.R. 771; New York, New Haven & Hartford R. Co. v. Deister, 1925, 253 Mass. 178, 148 N.E. 590; Northern Pac. Ry. v. Schoenfeldt, 1923, 123 Wash. 579, 213 P. 26; Princeton Power Co. v. Calloway, 1925, 99 W.Va. 157, 128 S.E. 89.
The general rule of tort law is that one claiming damages for violation of a statutory duty must show that he belongs to the particular class that the statute was designed to protect and that he has suffered the particular harm that *441 the statute was designed to prevent. See Prosser, Torts § 34 and cases cited therein (2d ed. 1955). It would appear obvious that highway speed and sleep regulations for carriers were designed to protect the public at large from highway accidents and not to protect a competing carrier from loss of business. See, e. g., Warlich v. Miller, 3 Cir., 1944, 141 F.2d 168, 170; 49 U.S.C.A. § 304(1) (2) (3); Va.Code Ann. § 46.1-390 (1958). Defendant Western railroads have not made a showing that they fall within that class of persons intended to be protected by highway safety statutes or that those statutes were designed to protect a rail carrier against competitive injury. Further, counsel for Western roads admit the difficulty of proving damages in such a situation. See Memorandum of Defendants (8), (9), (10), et seq., September 1, 1959.
Accordingly, plaintiff's motion for judgment on the pleadings with regard to the counterclaims of defendants (8), (16), (21), (22), (23), (33), (40), (41), (70), (71), (76), (78) contained in paragraphs 19 and 20 of their answers and counterclaims to plaintiff's complaint is hereby granted, since these counterclaims fail to state a claim upon which relief may be granted.
The remaining counterclaims involved in the present motion are only some of the many counterclaims filed by defendant railroads. Other counterclaims allege violations of the antitrust laws. The present motion is not directed to the antitrust counterclaims but only to those counterclaims in which the defendants have asserted a common-law cause of action for "interference with a franchise". The contentions of the parties with regard to these common-law counterclaims, in brief, are: Defendants allege that at common law the holder of a franchise was protected from unlawful interference by a competitor who was operating without, or in excess of, a franchise; that a railroad is a franchised operation and that when a transportation competitor operates in excess of its authority, this interference is actionable in damages. The plaintiff's argument is twofold. It contends that there were no common-law rights on the part of one interstate motor carrier to limit the extent of another such carrier's routes and operations, or to sue for damages based on regulatory violations by an interstate carrier, but that if such a common-law action ever existed, it was destroyed by the passage of the Motor Carrier Act of 1935 (49 U.S.C.A. § 301 et seq.). Plaintiff points to the legislative history of the Act and the Consolidated Freightways and T.I.M.E. cases, supra. The issue to be decided by the Court, therefore, is "if the defendants ever had a common law action in damages for competitive injury resulting from a competitor's unlawful operation in excess of his statutory authority, did this remedy survive the passage of the Motor Carrier Act of 1935?"
I
The contention of the defendants that a common-law right of action for damages exists in favor of the holder of a franchise for loss of profits resulting from the operation by a competitor in excess of statutory authority.
At common law, a railroad was said to be the holder of a franchise. Frost v. Corporation Commission, 1928, 278 U.S. 515, 520, 49 S.Ct. 235, 73 L.Ed. 483; People's Railroad v. Memphis Railroad, 1869, 10 Wall. 38, 77 U.S. 38, 51, 19 L.Ed. 844; McPhee & McGinnity Co. v. Union Pac. R. Co., 8 Cir., 1907, 158 F. 5, 10. Defendants cite many cases in support of their contention that an action for damages will lie when such a franchise is interfered with. However, an examination of these cases indicates that the vast majority dealt with requests for injunctive relief only and that in those few instances where damages were awarded, the situation involved competitive operations purely local in character and not approaching the vast interstate transportation of property conducted by the parties to this action. See: Town of East Hartford v. Hartford *442 Bridge Co., 1850, 10 How. 541, 51 U.S. 541, 13 L.Ed. 531 (bridge; ferry); Menzel Estate Co. v. City of Redding, 1918, 178 Cal. 475, 174 P. 48 (ferry); Carroll v. Campbell, 108 Mo. 550, 17 S. W. 884; 1891, 110 Mo. 557, 19 S.W. 809 (ferry); McInnis v. Pace, 1901, 78 Miss. 550, 29 So. 835 (ferry). The usual remedies for protection of property rights generally are available for the protection of franchise rights and privileges, including injunctions to prevent unlawful invasion of or interference with the enjoyment of franchise rights (23 Am.Jur. Franchises §§ 37, 39 (1939)).
An examination of a number of cases indicates that the remedy by way of a suit for injunction has been widely recognized and applied. However, defendants do not cite any case in the last fifty years in which damages were awarded for interference with a franchise operation interstate in scope. Defendants cite the case of Akers Motor Lines v. Malone Freight Lines, Inc., D.C.N.D. Ala.1950, 88 F.Supp. 654, for an implied holding that once the Interstate Commerce Commission had determined the rights of the parties under the Motor Carrier Act, damages might be available in a Federal Court against a motor carrier which operated in excess of its certificate of convenience and necessity. Again, this case involved a request for injunctive relief only. 88 F.Supp. at page 655. No case, prior to or in the twenty-four years since the passage of the Motor Carrier Act, has been cited by the defendants which held that a common-law action for damages of the kind asserted by the defendants would lie. In Consolidated Freightways v. United Truck Lines, 9 Cir., 1954, 216 F.2d 543, a non-diversity case brought under the Motor Carrier Act, the Ninth Circuit was confronted with the same lack of precedent for a common-law action for competitive injury brought under Part I of the Interstate Commerce Act. The Court said:
"* * * appellant does not attempt to rely upon, nor does it cite, any judicial authority indicating resort to, or the application of, orthodox common law remedies against the carriers covered by Chapter I of the Interstate Commerce Act in any instance where unfair competition between carriers in the securing of business was the basis of a demand for relief. * * * appellant makes no such showing, and we are persuaded that none can be made." 216 F.2d at page 548. (Emphasis added.)
Whether such a cause of action for the vast competitive interstate injury asserted by the defendants in this case did exist prior to the passage of the Motor Carrier Act need not be determined at this time, since the Court is convinced that in any case, such a cause of action could not and did not survive the passage of the Motor Carrier Act of 1935.
II
Plaintiff's contention that any alleged common law action for interference with a franchise did not survive the passage of the Motor Carrier Act.
The Motor Carrier Act of 1935 (49 U.S.C.A. § 301) is Part II of the Interstate Commerce Act (49 U.S.C.A. § 1 et seq.). Part I of that Act deals with rail carriers and Part III with water carriers.
The Motor Carrier Act established a comprehensive scheme of regulation which provided for the issuance of certificates of convenience and necessity to motor carriers engaged in interstate transportation (49 U.S.C.A. §§ 306-308). The Commission is authorized to revoke these certificates (49 U.S.C.A. § 312) and criminal penalties and statutory civil remedies were provided for unlawful operation (49 U.S.C.A. § 322). However, these civil remedies are in the nature of injunction suits brought by the United States or the Interstate Commerce Commission for violations of the Act. Private parties may only petition the Commission to take corrective action and intervene in Commission proceedings (49 U.S.C.A. § 304(c)).
*443 In both Part I and Part III of the Act, a private remedy is provided for those injured by violations of those parts (49 U.S.C.A. § 8; 49 U.S.C.A. § 908 (b)).[1] No such private remedy is provided for in Part II relating to Motor Carriers. One reason for this omission is stated in a letter from the Legislative Committee of the Interstate Commerce Commission to the Chairman of the Senate Committee on Foreign and Interstate Commerce in connection with hearings on a proposed amendment providing for such a private remedy for violations of the Act. It states in part as follows:
"When part II of the act was enacted as the `Motor Carrier Act, 1935', it was believed that conditions were not stabilized and that the subjection of motor carriers to liability for damages should be deferred until the difficult initial problems in connection with the new regulation of those carriers had been more clearly worked out." Hearings before Senate Committee on Interstate and Foreign Commerce on S. 1194, 80th Cong., 2d Sess. p. 12.
It was long the opinion of the Interstate Commerce Commission that certain common-law remedies existed and had not been destroyed by the Act (see: T.I.M.E. Inc. v. United States, supra, 359 U.S. at pages 483-490, 79 S.Ct. at pages 915-918, 3 L.Ed.2d 952 (dissenting opinion), Hearings before Senate Committee on Interstate and Foreign Commerce on S. 1194, 80th Cong., 2d Sess. p. 12) but any discussion of such remedies concerned only shippers' rights to collect past unreasonable rates, action for failure to furnish the common-law duty of service, action for failure to deliver goods, etc. See: Merchandise Warehouse Co. v. A.B.C. Freight For. Corp., D.C.S.D.Ind.1958, 165 F.Supp. 67; Montgomery Ward & Co. Inc. v. Northern Pacific Terminal Co., D.C.D.Or.1953, 128 F.Supp. 475.
Defendants point to the savings clause of the original Interstate Commerce Act (49 U.S.C.A. § 22), which was incorporated by reference into the Motor Carrier Act by Section 317(b) (49 U.S.C.A. § 317(b)), to sustain their contention that the Motor Carrier Act did not destroy common law remedies but rather preserved them. Section 22 states: "* * and nothing in this chapter contained shall in any way abridge or alter the remedies now existing at common law or by statute, but the provisions of this chapter are in addition to such remedies."
In Consolidated Freightways v. United Truck Lines, Or.1958, 330 P.2d 522, certiorari denied, 1959, 359 U.S. 1001, 79 S.Ct. 1136, 3 L.Ed.2d 1029, a suit for damages was brought by one motor carrier against another which had operated over the plaintiff's route without a certificate to do so. The Supreme Court of Oregon, in a well reasoned opinion, examined in detail the effect of the incorporation of Section 22 into the Motor Carrier Act pointing out that Section 22 and Section 317(b), which incorporated it into the Motor Carrier Act, relate to tariff and rate matters only, stating:
"* * * Therefore it is reasonable to argue that Section 317(b) was intended to embody only the specific permissible deviations set out in Section 22. The fact that the incorporating provision in Section 317(b) refers not only to Section 22 but to Section 1(7) which also deals with specific tariff matters, adds weight to this argument." (330 P. 2d at page 527).
The theory of the plaintiff in the Oregon case was based on Section 710 of the Restatement of Torts which would make *444 one who engages in business in violation of a legislative enactment liable to those who are engaged in the business in conformity with the enactment, if the following conditions are satisfied: (1) That the purpose of the enactment is to protect the conforming business from such unauthorized competition, and (2) the enactment does not negative such liability. The Court found that the applicable sections of the Motor Carrier Act satisfied the first requirement and then proceeded to resolve the same issue that is before this Court; i. e., did the Act destroy the kind of common-law remedy for competitive action asserted in this case? The Oregon Court found its answer in an examination of the legislative history of the Act. After indicating that an examination of the Congressional Record and the reports of the hearings before the Congressional Committees on the various bills relating to motor carrier legislation disclosed no discussion of the scope of relief under the Act (330 P.2d at page 528), the Court proceeded to a discussion of the history and setting of the Act and found that it had precluded any private relief in the federal or state courts either by way of injunction or damages. The Court said:
"* * * Considering the history of the Act, the conditions existing at the time of its enactment, the differences in the various statutes relating to transportation, and, aided by the rule of statutory construction, expressio unius exclusio alterius, it is our opinion that the Congress intended to vest in the Interstate Commerce Commission the sole authority to enforce the provisions of the Act, precluding private relief in both federal and state courts either by way of injunction or damages." 330 P.2d at page 529.
This Court, while agreeing with the Oregon Court's excellent analysis of the Act itself and its history and setting, does not agree that the Motor Carrier Act intended to destroy all common-law remedies. The Motor Carrier Act has not destroyed the right to relief by filing a common-law action against a carrier for failure to render service (Montgomery Ward & Co. v. Northern Pacific Terminal Co., supra), or a common-law action of damages for failure to deliver merchandise (Merchandise Warehouse Co. v. A.B.C. Freight For. Corp., supra). It is the teaching of Texas & Pacific R. Co. v. Abilene Cotton Oil Co., 1907, 204 U.S. 426, 27 S.Ct. 350, 51 L.Ed. 553, that only those common-law actions that are inconsistent with uniform regulation by the Interstate Commerce Commission were destroyed by the passage of the Interstate Commerce Act. This doctrine has been recently reiterated by the Supreme Court in the case of T.I.M.E., Inc. v. United States, supra, cited by the plaintiff.
In T.I.M.E., a shipper's defense of unreasonableness against a demand for a rate repayment was held to be unavailable. The Supreme Court recognized that at common law there was an action for the repayment of rates held to be unreasonable but, noting that the Interstate Commerce Commission had not been given reparations authority under the Motor Carrier Act, found that it would be inconsistent with that Act to allow the Commission to indirectly award reparations by a finding of unreasonableness in aid of a court action for damages (359 U.S. at pages 472-475, 79 S.Ct. at pages 909-910). The United States had contended that under the doctrine of primary jurisdiction, a suit for collection of unreasonable rates could be brought in a federal court which could then stay the proceedings until the I.C.C. had made a determination of unreasonableness (359 U.S. at page 472, 79 S.Ct. at page 909). The Court held that to allow this procedure would be to indirectly allow the I.C.C. to make reparation of the rate excess, something which Congress had not allowed them to do directly (359 U.S. at page 475, 79 S.Ct. at page 910). An examination of the opinion indicates that the Court's reasoning was based in large measure on the doctrine of primary jurisdiction, the Court feeling that to allow the procedure advocated by the Government, *445 in the absence of reparations authority in the I.C.C., would be "inconsistent" with the provisions of the Act. Thus it would appear that T.I.M.E. does not stand for the proposition that all common-law remedies were destroyed by the Motor Carrier Act but only those which, in accordance with the doctrine of Abilene, supra, are inconsistent with its uniform application.
Defendants here urge that to allow the action for interference with a franchise in the instant case is not inconsistent with the uniform application of the Motor Carrier Act, since there is no question (as in the T.I.M.E. case supra) of the necessity of referring the question of whether plaintiff acted in excess of its operating authority to the I.C.C., since such administrative determination has already been made. The Interstate Commerce Commission has held that the operations described in the counterclaims as unauthorized were in fact not covered by certificates of convenience and necessity or otherwise authorized. See Performance of Motor Common Carrier Service by Riss & Co., Inc., 48 M.C.C. 327 (1948); Riss & Co., Inc., Interpretation of Temporary Authority, 54 M.C.C. 531 (1952); Riss & Company, Inc. v. United States, D.C.W.D.Mo.1952, 117 F.Supp. 296, affirmed 1953, 346 U.S. 890, 74 S.Ct. 221, 98 L.Ed. 393. Therefore, defendants contend that since the plaintiff has already been held by the appropriate administrative agency to have operated in excess of its authority, there is no question of primary jurisdiction before the Court, and T.I.M.E., supra, is not governing. The Court agrees with counsel for defendant that administrative "expertise" considerations are not relevant in this case. However, the legislative history of the Motor Carrier Act itself was a factor which also influenced the Supreme Court in T.I.M.E., 359 U.S. at pages 475-480, 79 S.Ct. at pages 910-913). Though the fact that no statutory private remedy is provided for under the Motor Carrier Act does not of itself destroy the existence of a common-law remedy, it is relevant in determining the Congressional intent. Although the question of whether a common-law remedy survived the passage of the Act was not decided, the language of the 9th Circuit in the first Consolidated Freightways case (Consolidated Freightways v. United Truck Lines, 216 F.2d 543, supra.), is illuminating on the question of the existence of a common law remedy identical to the one asserted here. The Court said:
"It is obvious from the whole setting of the Motor Carrier Act that Congress pre-empted this field of control over the motor carrier type of Interstate Commerce. It is abundantly clear that Congress intended regulatory controls to be exercised by the Commission and not by or through individuals. There is absolutely no indication in this Act or in case law that private suits might be resorted to, to aid the Commission in its enforcement of the Act and the regulations thereunder." 216 F.2d at page 547.
This Court has examined in detail the legislative history of the Act and is convinced that the 9th Circuit was correct in its analysis. There is nothing in the extensive hearings before the Congressional Committees to indicate that either the Commission or the Congress ever contemplated that an action for vast interstate competitive injury would lie at common law when one motor carrier operated in excess of its authority. On at least two occasions, amendments to the Act were proposed which would have given a private remedy for violations of the Act. Each time the amendment was not adopted. Hearings before Senate Committee on Interstate and Foreign Commerce on S. 1194, 80th Cong., 2d Sess. pp. 1, 5, 11-12; Hearings before Senate Committee on Interstate and Foreign Commerce on S. 378, 85th Cong., 2d Sess., pp. 3, 12.
Though recognizing that no reference to the Interstate Commerce Commission is necessary in this case, the Court feels that to affirm the existence of the action asserted by the defendants in this action *446 would be contrary to the intent of Congress when it passed the Motor Carrier Act of 1935. To entertain this private action would detract in great measure from the uniformity which Congress sought to establish in this area. The question of competitive injury between competing carriers would depend on the common law of all the states rather than on the National Transportation Policy (54 Stat. 899 (1940)). Further, a holding that a common-law action for competitive injury lies when the Interstate Commerce Commission makes a finding of excessive operation could result in an action for damages every time the Commission determined that a carrier had violated such an I.C.C. regulation and thus lead to the multiplicity of suits which Congress sought to avoid by making the Interstate Commerce Commission the sole enforcement agency under the Act. The Interstate Commerce Commission has been given extensive regulatory power and may effectively control the relatively small number of interstate carriers subject to the Motor Carrier Act. The possibility of interference with I.C.C. policy caused by such private suits also militates against allowing this type of additional regulation.
This Court does not hold that all common-law remedies heretofore available at common law against motor carriers did not survive the Motor Carrier Act of 1935, but only that a counterclaim asserting a right to damages for interference with a franchise resulting from the interstate operation by a competitor in excess of its certificate of convenience and necessity does not state a claim upon which relief may be granted. Accordingly, plaintiff's motion for judgment on the pleadings with regard to the counterclaims of defendants (8), (16), (21), (22), (23), (33), (40), (41), (70), (71), (76) and (78) contained in paragraphs 12 to 16 of their answers and counterclaims to plaintiff's complaint, and the counterclaims of defendants (11), (12), (29) and (66) contained in paragraphs 6 to 11 of their answers and counterclaims to plaintiff's complaint, is hereby granted.
Finally, in regard to the third category of counterclaims, those filed by the Western railroads alleging that they have suffered competitive injury as a result of plaintiff's unlawful control of another certified carrier in violation of Section 5(4) of the Interstate Commerce Act (see Appendix C of this opinion), the Court holds that these counterclaims do not state a claim upon which relief may be granted. These counterclaims do not fall within the class alleged in Appendix B of this opinion, since one of the purposes of Section 5(4) was to protect free competition. However, the same considerations which applied to those counterclaims alleging injury as a result of operation in excess of authority apply to these counterclaims. Defendants cite no case in which an action for damages alleging injury as a result of a violation of Section 5(4) by a motor carrier has been brought, either under the Interstate Commerce Act or at common law. As in the case of the counterclaims alleging injury as a result of operation in excess of authority, the Court holds that to allow a common-law action for damages for violation of Section 5(4) by a Motor Carrier would be contrary to the intent of Congress.
Accordingly, plaintiff's motion for judgment on the pleadings with regard to those counterclaims of defendants (8), (16), (21), (22), (23), (33), (40), (41), (70), (71), (76) and (78), contained in paragraphs 17 and 18 of their answers and counterclaims to plaintiff's complaint, is hereby granted.
Counsel for plaintiff will submit an appropriate order in accordance with this opinion.
Appendix "A"
Answer of the Defendant Pennsylvania Railroad Company
* * * * * *
Counterclaims
* * * * * *
6. Riss for many years has transported and continues to transport property as a common carrier by motor vehicle, including manfactured articles, and especially ammunition and explosives, in *447 interstate and foreign commerce between points and over routes for which it did not and does not hold authority from the Interstate Commerce Commission.
7. The illegal operations of Riss without authority granted by the Interstate Commerce Commission have included and continue to include transportation of property by motor vehicle from points on this defendant's lines to other points served by it directly or in conjunction with connecting carriers by rail, to points on defendant's lines from other points served by this defendant directly or in conjunction with connecting carriers by rail, and transportation from one point not on this defendant's lines to another point not on this defendant's lines where a logical and direct route by rail would have included transportation over this defendant's lines.
8. By such illegal operations Riss has diverted and transported property which would have been transported by this defendant but for the illegal operations of Riss. Such illegal diversions and operations thereby wrongfully deprived this defendant of the revenues it would have received for the transportation of the freight illegally transported by Riss.
9. In addition to its own illegal operations, Riss has aided and abetted other operators of motor vehicles to transport property unlawfully to the damage of this defendant, and has combined and contracted with such other operators to conduct such illegal operations. Riss for a number of years did not directly operate motor vehicles for the transportation of property, but instead unlawfully purported to authorize other persons and organizations to transport property by motor vehicle under color of the certificates issued to Riss by the Interstate Commerce Commission. Such other persons and organizations had no lawful authority to transport property by motor vehicle in competition with this defendant, but did so because Riss aided and abetted them, and pursuant to the combination and contracts with Riss.
10. The illegal operations that Riss aided and abetted, and that were conducted pursuant to the combination and contracts with Riss, included transportation of property by motor vehicle from points on this defendant's lines to other points served by it directly or in conjunction with connecting carriers by rail, to points on this defendant's lines from other points served by this defendant directly or in conjunction with connecting carriers by rail, and transportation from one point not on this defendant's lines to another point not on this defendant's lines where a logical and direct route by rail would have included transportation over this defendant's lines.
11. By aiding and abetting such illegal operations, and by combining and contracting with other persons and organizations to conduct such operations, Riss caused property to be diverted and transported by motor carrier which would have been transported by this defendant but for the illegal actions of Riss. By such illegal actions Riss caused this defendant to be wrongfully deprived of such freight traffic and wrongfully deprived of the revenues this defendant would have received for the transportation of such freight.
Appendix "B"
Answer and Counterclaim of Defendant The Missouri-Kansas-Texas Railroad Company
* * * * * *
Counterclaim
* * * * * *
19. In addition to the illegal operations and conduct set forth in Paragraphs 12, 13, 15, and 17 above, Riss has for many years repeatedly transported freight in violation of federal and state laws and regulations prescribing the maximum weight of loaded vehicles, the maximum length of equipment, the speed at which motor vehicles may be driven, the traffic rules which motor vehicles must obey, the safety appliances which must be provided, the length of time in *448 which vehicles may be driven without rest, and the length of time in which drivers may continue to operate vehicles or remain on duty.
20. By the unlawful operations set forth in Paragraph 19, Riss has obtained competitive advantages in the apparent rapidity of its service, and the amount of excess traffic handled by its equipment and drivers. By these unlawful operations Riss has obtained and transported freight which would otherwise have been transported by counterclaimant. By diverting freight to its illegal operations, Riss has deprived counterclaimant of the revenues and profits it would have received from the transportation of such freight.
Appendix "C"
Answer and Counterclaim of Defendant The Missouri-Kansas-Texas Railroad Company
* * * * * *
Counterclaim
* * * * * *
17. In addition to the illegal operations and conduct set forth in Paragraphs 12, 13, and 15 above, Riss on or about December 12, 1951, entered into a transaction with Jarman Transportation Company, Incorporated (hereinafter called "Jarman") by which control or management in a common interest of Riss and Jarman was effectuated or accomplished in violation of Section 5(4) of the Interstate Commerce Act as amended, Title 49 U.S.C.A. § 5(4). Such violation of law continued on or about August 1, 1953.
18. As a result of the unlawful control of management in a common interest, set forth in Paragraph 17 above, Riss and Jarman caused property to be transported by motor vehicle by Riss which would otherwise have been transported by counterclaimant. Such illegal transportation of freight and conduct thereby deprived counterclaimant of the revenues and profits it would have received from the transportation of freight thus illegally transported.
NOTES
[1] 49 U.S.C.A. § 8 states: "In case any common carrier subject to the provisions of this chapter shall do * * * any act, matter, or thing in this chapter prohibited or declared to be unlawful, * * such common carrier shall be liable to the person or persons injured thereby for the full amount of damages sustained in consequence of any such violation * *." (49 U.S.C.A. § 908(b) relating to water carriers is stated in substantially the same language.) | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1639492/ | 970 F.Supp. 469 (1997)
W&R INVESTMENTS LIMITED PARTNERSHIP, Plaintiff,
v.
STAR ENTERPRISES, et al., Defendants.
Civil Action No. 97-926-A.
United States District Court, E.D. Virginia, Alexandria Division.
July 10, 1997.
Rand L. Gelber, Vienna, VA, for Plaintiff W&R Investments Ltd. Partnership.
Michael N. Haynes, Howrey and Simon, Washington, DC, for Defendants Star Enterprises, Inc., Texaco Inc., Saudi Refining, Inc., Bert Lopatin, Steuart Petroleum Co., Kenyon Oil Co.
MEMORANDUM OPINION
CACHERIS, Chief Judge.
This matter is before the Court on Defendant's Motion to Dismiss. For the reasons set forth below, Defendant's Motion is GRANTED, and the case is remanded back to the Circuit Court of Alexandria, Virginia.
Facts
Plaintiff W&R Investments Limited Partnership ("W&R") filed this suit on May 2, 1997 in the Circuit Court of Alexandria, Virginia. In its Motion for Judgment, W&R alleges negligence, trespass, private nuisance, breach of contract and violation of a state water quality statute arising out of the apparent leak of hazardous waste from Defendants' properties onto property owned by W&R. Plaintiff alleges no federal cause of action, and all of the properties are located in Alexandria, Virginia. On June 13, 1997, Defendants collectively removed the case to this Court, alleging diversity of citizenship.[1] Defendant Steuart Petroleum Co. (Steuart) now questions whether this Court has subject matter jurisdiction over this case.
*470 The material factual allegations pertaining to jurisdiction are not disputed. Steuart alleges, and the other parties do not dispute, that (1) its "nerve center" is in Maryland; (2) its principal tangible assets and principal sources of net revenue are in Virginia;[2] and (3) all six of its employees (as opposed to officers and directors, who are mostly in Maryland) and the principal source of its gross revenue are in Florida. The only question before the Court is which state is the "principal place of business" of Steuart. The parties agree that if it is Maryland, then the suit must be dismissed or remanded for lack of diversity; if it is Virginia, then the case must be remanded to the Circuit Court of Alexandria under 28 U.S.C. § 1441(b); if it is Florida, then the case may proceed in this Court.
Standard of Review
Courts employ two tests to determine the "principal place of business" and thus the citizenship of a corporation: the "nerve center" test, which seeks to discover in which state the decisionmaking authority convenes; and the "place or bulk of operations" test, "which places chief emphasis on where a corporation carries on the bulk of its operational and production activities." Arbee Mech. Contractors, Inc. v. Capital Sun Corp., 683 F.Supp. 144, 146 (E.D.Va.1988) (citations omitted). The Fourth Circuit has elected not to lead the district courts and litigants in choosing one test over the other. See Mullins v. Beatrice Pocahontas Co., 489 F.2d 260 (4th Cir.1974). Commentators seem to agree that the "bulk of operations" test most closely reflects the legislative history of section 1332, see Arbee, 683 F.Supp. at 147 (citing non-judicial authorities), and courts in this circuit have held that "[t]he `nerve center' test seems appropriate only where a corporation is engaged in multi-state activities in offices and plants in different states." See id.; Mullins v. Beatrice Pocahontas Co., 374 F.Supp. 282, 285 (W.D.Va.1974) (declining to apply the "nerve center" test because the firm in question was not a "highly diversified company dealing in varied activities in different states."), aff'd mem., 530 F.2d 969 (4th Cir.1975).
Analysis
It is undisputed that Steuart engages in petroleum marketing services in Florida, where it earns gross revenue of $80 million from selling fuel and petroleum products to maritime and industrial consumers. Steuart's Virginia holdings include two shopping malls and various unimproved properties. These comprise the "vast majority" of Steuart's tangible assets, and are the principal source of Steuart's net operating income. The Virginia and Florida operations apparently are managed out of the Chevy Chase, Maryland headquarters of Steuart Investment Company ("SIC"), the owner of Steuart. All of Steuart's officers and directors, with the exception of the officer in Florida, are direct employees of SIC.
Steuart is exactly the type of highly diversified company dealing in varied activities in different states amenable to the "nerve center" test. Accordingly, the Court finds that Steuart is a citizen of Delaware, its state of incorporation, and Maryland, the site of its nerve center. Because Plaintiff is also a citizen of Maryland, this Court lacks jurisdiction, and the case is ordered remanded to the Circuit Court of Alexandria.
NOTES
[1] Although Steuart, the movant here, joined in the Notice of Removal, it apparently did so without the advice of later-retained litigation counsel.
[2] For example, $42,343,398.82 of Steuart's $43,383,287.58 in tangible assets are in Virginia. See Def. Ex. 2. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1650255/ | 802 F.Supp. 680 (1992)
PROVIDENCE & WORCESTER RAILROAD COMPANY, Plaintiff,
v.
SARGENT & GREENLEAF, INC., Defendant.
Civ. A. No. 90-0647L.
United States District Court, D. Rhode Island.
October 7, 1992.
*681 *682 Howard E. Walker, R.M. Duffy, Hinckley, Allen, Snyder & Comen, Providence, R.I., for plaintiff.
Brad Cowgill, Wyatt, Tarrant & Combes, Lexington, Ky., Michael Civittolo, Providence, R.I., for defendant.
MEMORANDUM & ORDER
LAGUEUX, District Judge.
INTRODUCTION
This matter is presently before the court on the motion for summary judgment filed by defendant, Sargent & Greenleaf, Inc., ("Sargent & Greenleaf") pursuant to Rule 56 of the Federal Rules of Civil Procedure. Plaintiff Providence & Worcester Railroad Company ("Providence & Worcester") initiated this diversity action seeking damages for a train derailment which it alleges was proximately caused by the failure of a switchlock sold to it by Sargent & Greenleaf. The complaint includes counts based on breach of contract, breach of express and implied warranties, and negligence. Sargent & Greenleaf now moves for summary judgment on the contract and warranty claims contending that they are *683 barred by the statute of limitations and by the warranty disclaimer contained in the contract. Sargent & Greenleaf also claims that it is entitled to partial summary judgment on any counts that survive limiting its liability to replacement of the allegedly defective lock.
BACKGROUND
This action arises from the sale of certain switchlocks by Sargent & Greenleaf, based in Kentucky, to Providence & Worcester, based in Rhode Island. These locks were used to secure track switches that are part of the system for directing trains from one track to another. One such lock was used to secure a switch at a side track in Dayville, Connecticut. On November 17, 1990, a vandal picked this lock in under two minutes, and "threw" the switch secured by it. The next day, a Providence & Worcester freight train was derailed as a result of the switch having been "thrown." The derailment caused nearly $1,000,000 in property damage, but fortunately no personal injuries occurred.
Providence & Worcester's contract claims are based on statements made in various advertising materials it received from Sargent & Greenleaf. Those statements attest in various forms to the lock's endurance and resistance to vandals, and include a statement that the lock meets padlock specifications proposed by the American Society for Testing and Materials ("ASTM"). Those specifications provide, among other things, that even after 10,000 operating cycles the lock cannot be picked by an amateur in less than 4 minutes.
By a printed form purchase order dated November 1986, Providence & Worcester ordered 198 switch locks from Sargent & Greenleaf at $20.95 each. Sargent & Greenleaf sent a form acknowledgement of the purchase order to Providence & Worcester dated December 3, 1986. Sargent & Greenleaf additionally sent an invoice form dated December 15, 1986 to Providence & Worcester with the shipment of locks. The shipment was delivered to Providence & Worcester on December 22, 1986.
The front side of Sargent & Greenleaf's forms contained the printed words "acceptance subject to terms and revisions on reverse side." The reverse side of these forms were entitled "CONDITIONS GOVERNING THE ACCEPTANCE OF ALL ORDERS" and contained provisions which 1) disclaimed express and implied warranties 2) limited remedies to repair or replacement of defective goods and 3) stated that the contract would be governed by Kentucky law. In addition, two clauses stipulated that the document constituted the entire agreement between the parties, and that it was not subject to modification.
Providence & Worcester filed a five count complaint in this action on December 31, 1990. Count I alleges that Sargent and Greenleaf breached its contract with Providence & Worcester by failing to provided it with locks of the quality and characteristics promised. Count II alleges breach of express warranties contained in various oral and written representations to Providence & Worcester. Counts III and IV allege breach of the implied warranties of merchantability and fitness for a particular purpose, respectively. Count V alleges that Sargent & Greenleaf was negligent in the design, manufacture and testing of its locks, and knew or should have known that the locks were defective and did not meet the warranties. Contrary to the assertion in plaintiff's memorandum, the complaint does not contain a count based on strict products liability.
Sargent & Greenleaf has moved for summary judgment on the warranty claims, arguing that they are barred by the warranty disclaimer contained in its acknowledgement. Sargent & Greenleaf also argues that the contract and warranty actions are barred by the applicable four year statute of limitations, since the cause of action accrued at delivery, December 22, 1986, and the action was not filed until December 31, 1990. Finally, Sargent & Greenleaf argues that recovery on any theory is limited by the contract to repair or replacement of the defective lock, and Providence & Worcester is barred from *684 obtaining consequential damages.[1] Providence & Worcester argues that the provisions relied upon by Sargent & Greenleaf are not in fact part of the contract, and that its contract claims accrued after delivery.
The parties engaged in oral argument on May 21, 1992. At the conclusion of oral argument this Court took the matter under advisement. It is now in order for decision.
I. Choice of Law
A federal court sitting in a diversity case must apply the law of the forum state, Erie R.R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), including that state's choice of law rules. Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). Rhode Island's Supreme Court has held that the parties to a contract may stipulate to have their contract interpreted by the law of a specific state, if that state bears some real relationship to the contract, and if the law of the chosen state is not contrary to the public policy of the forum state. Owens v. Hagenbeck-Wallace Shows Co., 58 R.I. 162, 174, 192 A. 158 (1937). In the absence of such a stipulation, Rhode Island courts will apply the law of the state where the contract was completed. Tim Hennigan Co. v. Anthony A. Nunes, Inc., 437 A.2d 1355 (R.I.1981). Thus, this Court must determine which of the documents and acts in question created the contract as a matter of Rhode Island law.
A. Rhode Island Commercial Code
The contract in question is governed by Section 2 of the Rhode Island Commercial Code, R.I.G.L. §§ 6A-2-101 to 6A-2-725 (1985) (enacting Uniform Commercial Code Sections 2-101 to 2-725), on the sale of goods. Section 6A-2-207 applies when there is an issue involving a "battle of the forms." That section states in full:
(1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.
(2) The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless:
(a) The offer expressly limits acceptance to the terms of the offer;
(b) They materially alter it; or
(c) Notification of objection to them has already been given or is given within a reasonable time after notice of them is received.
(3) Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplemental terms incorporated under any other provisions of Title 6A.
Under section 2-207(1), a form acknowledgement is ordinarily considered an acceptance of the order, even if it states different or additional terms. Section 2-207(2) determines whether those terms become part of the contract. In this case, where both parties are merchants[2] and there has *685 been no expression of objection from the offering party, those terms would become part of the contract unless they materially alter the agreement.
However, section 2-207(1) provides an exception to the acceptance rule where "acceptance is expressly made conditional on assent to the additional or different terms." In the instant case, both parties have agreed that Sargent & Greenleaf's acknowledgement was "expressly made conditional on assent." This Court agrees with that assessment. The front side of Sargent & Greenleaf's forms contained the words "acceptance subject to terms and revisions on reverse side." The reverse side contained two provisions limiting the agreement to the terms of the acknowledgement:
7. MODIFICATION OF TERMS AND CONDITIONS
This document contains the entire agreement of Seller and Buyer and no other agreement or other understanding in any way modifying the terms and conditions set forth herein shall be binding upon Seller unless made in writing and signed by Seller's authorized agent or officer.
8. TERMS AND CONDITIONS OF ACCEPTANCE TO GOVERN
The terms and conditions of this acceptance shall apply to and govern Buyer's order, and in case of any inconsistency between said terms and conditions and the provisions of Buyer's order, the said terms and conditions of the acceptance shall prevail.
As defendant's memorandum states, "it is hard to imagine what further language could be required to show that acceptance was expressly conditional on assent to these terms." (Def.Mem. at 12).
Although the parties agree that acceptance was expressly made conditional, they disagree on the effect of that fact. Providence & Worcester argues that if Sargent & Greenleaf's acknowledgement did not constitute an acceptance, there was no contract based on the writing of the parties. This, it contends, propels this contract into the ambit of Section 2-207(3), which provides that where a contract is found based on the conduct of the parties, its terms are those on which the writings of the parties agree, and those that the U.C.C. incorporates into the agreement. Sargent & Greenleaf contends that the acknowledgement form actually was a counteroffer, which was accepted on all of its terms by Providence & Worcester when it took delivery of and paid for the goods.
The Rhode Island Supreme Court has not ruled on this issue, so it is this Court's task to predict what the decision of that Court will be when it is faced with this question. "In undertaking this forecast, the court must look to relevant, i.e. analogous, state court decisions ... and may assay sister state adjudications of the issue." Hart Engineering Co. v. FMC Corp., 593 F.Supp. 1471, 1482 (D.R.I.1984).
In Roto-Lith, Ltd. v. F.P. Bartlett & Co., 297 F.2d 497 (1st Cir.1962) the First Circuit in interpreting the Massachusetts enactment of Section 2-207 found that the acknowledgement in question was "expressly ... conditional on assent to the additional ... terms." The Court then held that by accepting the goods after receiving and signing the form in question, the buyer accepted with knowledge of the conditions specified in the acknowledgement and became bound by those terms. Id. at 500. This case has been interpreted to stand for the general proposition that "a commercial contract incorporates all terms included in an acknowledgement of a purchase order, *686 as long as the buyer does not object to the additional conditions or otherwise withdraw its order." Logan Equipment Corp. v. Simon Aerials, Inc., 736 F.Supp. 1188, 1195 (D.Mass.1990).
Although Roto-Lith is not binding precedent in Rhode Island, it has been cited with approval by the Rhode Island Supreme Court. In F.D. McKendall Lumber Co. v. Kalian, 425 A.2d 515 (R.I.1981), the Court held that a buyer was bound by the 18% interest rate provision contained in the delivery receipt. Although the Court relied on the fact that the buyer's payment on accounts over the years was a "course of conduct, dealing, or performance" within the meaning of the U.C.C., it also stated in a footnote, "by receiving the goods and paying for them without objection over a period of several years, Kalian accepted this counteroffer and all of its terms." Id. at 519 n. 6 (citing Roto-Lith).
This Court has previously found Roto-Lith to be persuasive authority on the law of Rhode Island. In Scott Brass, Inc. v. C & C Metal Products Corp., 473 F.Supp. 1124 (D.R.I.1979), Judge Pettine held that a buyer would not be bound by a pre-printed clause stating that the price might vary, where the parties had orally agreed to a firm price, and where the buyer objected to the change in price upon invoicing. He distinguished Roto-Lith, stating, "Roto-Lith does not require [that the buyer be bound by additional terms] where there has been a timely objection." Id. at 1129. In Taft-Peirce Mfg. Co. v. Seagate Technology, Inc., 789 F.Supp. 1220 (D.R.I.1992), Judge Pettine again distinguished Roto-Lith in concluding that the cancellation form in a purchase order was not a term of the contract. He stated that "unlike Roto-Lith, the cancellation clause ... was not an expressed condition to its acceptance," id. at 1225, although arguably under the standards of Roto-Lith the term should have been considered "expressly ... conditional."
This Court is aware of the criticism of the Roto-Lith decision by various courts and commentators. See Daitom, Inc. v. Pennwalt Corporation, 741 F.2d 1569, 1578 (10th Cir.1984) (criticizing Roto-Lith's construction of the term "expressly made conditional"); PolyClad Laminates Inc., v. Vits Maschinenbau GmbH, 749 F.Supp. 342, 344 (D.N.H.1990) ("Roto-Lith does not control here ... the decision has been widely criticized as an incorrect application of § 2-207; its value as precedent is therefore uncertain"); Leonard Pevar Co. v. Evans Prod. Co., 524 F.Supp. 546, 551 (D.Del. 1981) ("Roto-Lith ... does not reflect the underlying principles of the Code.... The Code disfavors any attempt to impose unilaterally conditions that would create hardship on another party."); James J. White and Robert S. Summers, Uniform Commercial Code 28 (1980) (referring to Roto-Lith as "the infamous case"). White and Summers criticize the decision for giving one party, who fortuitously sent the second document, all of his terms. White & Summers, supra, at 34. However, White and Summers also admit that they "see no way to apply 2-207 that does not in some cases give an unearned and unfair advantage to the person who happens to send the first, or in some cases the second, document." Id. at 38 (emphasis in original). Roto-Lith is not without merit. In this case, Providence & Worcester would be given an "unfair and unearned advantage" by a rule that gives no effect to Sargent & Greenleaf's terms, where Providence & Worcester made no objection and supplied no terms of its own. Section 2-207 is clearly intended to give some effect to form provisions. Even if Sargent & Greenleaf had not insisted upon acceptance of its terms as a condition of entering this contract, many of its terms would govern the agreement under Section 2-207(2). Under Providence & Worcester's analysis, the fact that Sargent & Greenleaf did insist upon acceptance of its terms should mean that none of those terms govern. This clearly defeats the reasonable expectations of the parties to this transaction.
The application of the principles embodied in the Roto-Lith decision to our case persuades this Court to conclude that Sargent & Greenleaf's acknowledgement and invoice forms conditioned its participation in the agreement on Providence & Worcester's *687 acceptance of those terms. Stated succinctly, Sargent & Greenleaf's response to Providence & Worcester's order became a counteroffer. Providence & Worcester had the opportunity to accept or reject this counteroffer or make its own counteroffer. Providence & Worcester chose to accept Sargent & Greenleaf's counteroffer by accepting the locks, paying for the locks and using the locks without objection to the additional terms. Performance of the contract became the acceptance. Thus, the warranty disclaimers, remedy limitations and choice of law provision became part of the contract between Sargent & Greenleaf and Providence & Worcester.
B. Choice of law provision
This Court has determined, under the laws of Rhode Island, that the choice of law provision contained on the reverse side of Sargent & Greenleaf's acknowledgement and invoice forms is part of the contract between Sargent & Greenleaf and Providence & Worcester. This provision states that the contract is to be governed by Kentucky law. A choice of law provision is licit in Rhode Island. According to R.I.G.L. Section 6A-1-105, "when a transaction bears a reasonable relation to this state and also to another state ... the parties may agree that the law either of this state or of such other state ... shall govern their rights or duties." There is a reasonable relationship between the transaction at issue in this case and the state of Kentucky. Kentucky is Sargent & Greenleaf's principal place of business. The locks in question were designed and manufactured in Kentucky. The locks were shipped from Sargent & Greenleaf's location in Nicholasville, Kentucky to Providence & Worcester in this area.
Accordingly, this Court must apply the law of Kentucky to determine whether the disclaimer of warranty provision and the limitation of remedy provision contained in the contract between Sargent & Greenleaf and Providence & Worcester are congruous with the Kentucky Commercial Code, Ky. Rev.Stat.Ann. Sections 355.2-101 to 2-725 (Michie/Bobbs Merrill 1987) (U.C.C. Sections 2-101 to 2-725), and the court decisions interpreting the Kentucky Commercial Code.
II. Disclaimer of Warranties
Sargent & Greenleaf sought to disclaim any express or implied warranties not provided for in their acknowledgement and invoice forms through the following provision which appeared on the reverse side of its acknowledgement and invoice forms:
2. WARRANTY
Seller warrants that goods of its manufacture shall be free from defects in material and workmanship for one year from the date said goods are shipped from its factory ...
There are no other warranties, express or implied.
U.C.C. Section 2-316 governs the seller's rights to limit and exclude warranties, allowing a seller to incorporate into the parties' contract a disclaimer clause to control the seller's liability by reducing the number of situations in which the seller can be in breach.
A. Implied Warranties
Sargent & Greenleaf can effectively limit any implied warranties if the limiting provision complies with Section 2-316(2). More specifically, Sargent & Greenleaf can disclaim the implied warranty of merchantability only if the disclaiming language "mention[s] merchantability and in case of a writing [it] must be conspicuous." Section 2-316(2) also states that Sargent & Greenleaf can disclaim the implied warranty of fitness for a particular purpose if the "exclusion is by writing and is conspicuous."
Sargent & Greenleaf's provision does not effectively disclaim the implied warranties. To begin, the provision does not mention the word "merchantability" as required by Section 2-316 to effectuate any provision disclaiming the implied warranty of merchantability. See Leland Industries, Inc., v. Suntek Industries, Inc., 184 Ga.App. 635, 362 S.E.2d 441 (1987) (a disclaimer is not effective to disclaim the warranty of merchantability unless it expressly uses the word "merchantability"). For a similar *688 result see Bazzini v. Garrant, 116 Misc.2d 119, 455 N.Y.S.2d 77 (1982).
Additionally, the language is not conspicuous.[3] In Massey-Ferguson, Inc. v. Utley, 439 S.W.2d 57 (Ky.1969) a contract for the sale of a combine attachment contained an express warranty clause with a heading in capital letters that excluded all implied warranties. The Court held that this provision was not conspicuous because it was on the back of the contract form and was referred to by words in only ordinary type on the front. Id. at 59. Compare Gooch v. Dowell, Inc., 743 S.W.2d 38 (Ky.Ct.App. 1988) (where a provision excluding warranties of merchantability and the implied warranty of fitness were considered conspicuous because the provision was in bold-face, entirely capitalized type and was twice as large as the other type on the backside of the form).
Sargent & Greenleaf's provision disclaiming any implied warranties does not meet the requirement set out in Section 2-316 and, therefore, the disclaiming language is not valid and is not binding on Providence & Worcester. The language was set out in ordinary type and did not contrast with the rest of the form in size or color. The front of the form refers to the disclaiming provision on the reverse side in small print. This reference appears inconsequential when compared to the remainder of the front side.
B. Express warranties
Count II of the Complaint alleges breach of warranties contained in various written and oral representations made to Providence & Worcester. Plaintiff's briefs reveal that these claims are primarily based on advertising and promotional materials sent to it by Sargent & Greenleaf. These materials contained representations relating to the "pick-proof" nature of the lock, its ability to thwart "the most determined vandals" and its conformance to ASTM testing procedures.
According to the U.C.C., an express warranty may be created by "[a]ny affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain." Section 2-313. It is well established that advertising may form a part of an express warranty. Transamerica Oil Corp. v. Lynes, Inc., 723 F.2d 758 (10th Cir.1983); Ferguson v. Sturm Ruger & Co., 524 F.Supp. 1042, 1046 (D.Conn.1981); Wiltshire v. A.J. Robins Co., 88 A.D.2d 1097, 453 N.Y.S.2d 72, 73 (1982). Whether such a warranty exists is ordinarily a question of fact. Economy Housing Co. v. Continental Forest Products, Inc., 757 F.2d 200, 203 (8th Cir.1985); U.C.C. § 2-313 Official Comment 3.
Sargent & Greenleaf's warranty provision purported to disclaim all express warranties. Generally a seller may not disclaim an express warranty. Section 2-316(1) states:
(1) Words or conduct relevant to the creation of an express warranty and words or conduct tending to negate or limit warranty shall be construed wherever reasonable as consistent with each other; but subject to the provisions of this chapter on parol or extrinsic evidence (§ 2-202) negation or limitation is inoperative to the extent that such construction is unreasonable.
The express warranties alleged here are clearly inconsistent with the provision stating that no express warranties were made. Thus the negation of warranties is inoperative unless the provision on parol evidence applies.
Under Section 2-202, a written contract may not be contradicted by evidence of any prior agreement on "terms with respect to which the confirmatory memoranda *689 of the parties agree or which are otherwise set forth in a writing intended by the parties as a final expression of their agreement." The question of whether the parties intended that a document will constitute the final expression of their agreement is one of fact, Transamerica at 763, but generally a form invoice is not so intended, at least not as to the preprinted, non-negotiated terms. Id. The representations made in Sargent & Greenleaf's promotional materials are therefore not excluded by the parol evidence rule, and the purported disclaimer is not effective.
III. Statute of Limitations
Defendant also argues that this action is barred by the statute of limitations. As noted in defendant's brief, it is widely agreed that the law of the forum state determines the applicable statute of limitations. Brown v. Merrow Machine Co., 411 F.Supp. 1162 (D.Conn.1976); Haeberle v. St. Paul Fire & Marine Insurance Co., 769 S.W.2d 64 (Ky.Ct.App.1989); Byron v. Great American Indemnity Co., 54 R.I. 405, 173 A. 546 (1934); Restatement (Second) of Conflict of Laws, Subsection 142. Moreover, both Kentucky and Rhode Island have adopted Section 2-725 of the U.C.C. which states
(1) an act [action] for breach of any contract for sale must be commenced within four (4) years after the cause of action has accrued. By the original agreement the parties may reduce the period of limitation to not less than one year but may not extend it;
(2) a cause of action accrues when the breach occurs, regardless of the aggrieved party's lack of knowledge of the breach. A breach of warranty occurs when tender of delivery is made, except where a warranty explicitly extends to future performance of the goods and discovery of the breach must await the time of such performance the cause of action accrues when the breach is or should have been discovered.
R.I.G.L. § 6A-2-725; Ky.Rev.Stat.An. § 355.2-725 (Michie/Bobbs Merrill 1987). Although the Rhode Island Code contains an additional provision, Section 2-725(5), which states
Notwithstanding any provision of this section, any action for breach of warranty arising out of an alleged design, inspection, testing, or manufacturing defect, or any alleged defect of whatsoever kind or nature of the product, must be commenced within ten (10) years after the date the product was first purchased for use or consumption,
this provision is properly seen as a statute of repose, rather than the "unique ... extended statute of limitations" alleged by plaintiff.
A. Breach of Contract and Implied Warranties
Plaintiff's claims for breach of contract and breach of implied warranties are barred by the statute of limitations. Count I, breach of contract, alleges that Sargent & Greenleaf delivered goods that did not conform to the characteristics promised. That cause of action clearly accrued at the time of delivery, December 22, 1986, and thus is barred by the four year limitation. See Wolverine Insurance Co. v. Tower Iron Works, Inc., 370 F.2d 700 (1st Cir. 1966) ("it is clear that a cause of action for breach of a sales contract ... accrues when delivery is made, regardless of the buyer's knowledge of the breach") (applying Massachusetts law).
Section 2-725 states that breach of warranty claims accrue at the time of delivery, unless such warranties explicitly extend to future performance. By definition, implied warranties cannot explicitly extend to the future. Clark v. DeLaval Separator Corp., 639 F.2d 1320, 1324 (5th Cir.1981); Rockstroh v. A.H. Robins Co., 602 F.Supp. 1259, 1269 (D.Md.1985). Thus, plaintiff's claims based on the implied warranties of merchantability and fitness for a particular purpose are time-barred.
B. Express Warranties
Providence & Worcester also alleges breach of express warranties contained in Sargent & Greenleaf's advertising materials, which it alleges do explicitly extend *690 to future performance. There are material issues of fact in dispute which prevent disposition of this issue on summary judgment. Whether an express warranty explicitly relates to future performance is a question of fact for the jury. Economy Housing Co. v. Continental Forest Products, Inc., 757 F.2d 200, 203 (8th Cir.1985) (whether express warranty existed, and whether it related to future performance of goods, raise a genuine issue of material fact as to whether limitations period had run warranting denial of summary judgment); In re Lone Star Industries, Inc., Concrete Railroad Cross Ties Litigation, 776 F.Supp. 206, 220 (D.Md.1991) (question whether warranty explicitly extended to future is mixed question of fact and law requiring determination by trier of fact); Continental Oil Co. v. General American Transp. Corp, 409 F.Supp. 288, 292 (S.D.Tex.1976) (summary judgment inappropriate where question exists as to whether an express warranty covering future performance was made).
IV. Limitation of Remedy
Sargent & Greenleaf argues that even if the contract claims are not time-barred, Providence & Worcester's recovery is limited by the contractual provision stating:
Seller shall not be liable for special, indirect, incidental or consequential damages. Seller's liability and Buyer's exclusive remedy is expressly limited, at Seller's option, to repair of defective goods or the replacement thereof with conforming goods ... or the repayment of the purchase price....
Section 2-719 provides that an agreement may "limit or alter the measure of damages ... as by limiting the buyer's remedies to return of the goods and repayment of the price or to repair and replacement of nonconforming goods or parts."[4] Comment 1 to Section 2-719 states "under this section parties are left free to shape their remedies to their particular requirements and reasonable agreements limiting or modifying remedies are to be given effect."
Although Providence & Worcester did not address the issue of whether the limitation of remedies comply with the Kentucky Commercial Code, there are a number of avenues that Providence & Worcester could have travelled to circumvent the effects of the limitation of remedy clause. First, Providence & Worcester could have argued that the provision limiting remedies to repair and replacement contained in Sargent & Greenleaf's acknowledgement and invoice forms is defective. Comment 2 to Section 2-719 states that subsection (1)(b) of Section 2-719 "creates a presumption that clauses prescribing remedies are cumulative rather than exclusive. If the parties intend the term to describe the sole remedy under the contract, this must be clearly expressed." However, Sargent & Greenleaf has included an operative clause, on the back of the acknowledgement form, referring to the limited remedy provision as "exclusive."
Secondly, Providence & Worcester could argue that according to Section 2-719(2) the exclusive remedy "fails of its essential purpose." In Rudd Constr. Equip. Co. v. Clark Equip. Co., 735 F.2d 974 (6th Cir. 1984), a buyer brought suit for damages arising out of a sale of a tractor shovel *691 with a defective hydraulic hose which leaked causing destruction of the entire tractor. The Sixth Circuit had to determine whether the trial judge correctly applied Kentucky law when it allowed the buyer a recovery of damages amounting to the replacement value of the tractor. Seller argued that a clause in their agreement with buyer limiting remedies to repair or replacement of any defective parts should be given effect and hence seller should only be liable for the price of the hydraulic hose. The trial judge held that this remedy limitation failed of its essential purpose because to replace the hose now on a destroyed tractor would be fruitless. In making its determination the Court adopted the analysis set out in Cox Motor Car Co. v. Castle, 402 S.W.2d 429, 431 (Ky.1966) which concluded that a failure of part of a machine which directly results in the loss of the whole machine is considered "one big defective part."
The Sixth Circuit upheld the District Court's interpretation of Kentucky law noting "to the extent the express limitations in the contract precluded the owner in these circumstances from recovering at least the purchase price of the truck such limitations were ineffective under KRS Section 355.2-719(2)." Rudd at 982. In that case the remedy limitation failed even to give the buyer what it paid for. Here the replacement remedy does not fail in that sense.
Furthermore, even if an exclusive remedy provision "fails of its essential purpose," such a failure does not necessarily invalidate a limit on consequential damages. In Carboline Co. v. Oxmoor Center, 40 U.C.C.Rep.Serv. (Callaghan) 1728 (Ky.Ct.App.1985), a buyer of a roof covering system had entered into a limited warranty agreement with a manufacturer of the system. The contract contained both an exclusive repair remedy provision and also a disclaimer of liability for consequential damages. The roof covering system proved to be defective and after repeated failures to repair the roof the Court determined that this limited repair remedy had failed of its essential purpose. The buyer sought to recover consequential damages which included money paid to the buyer's tenants for property damage they had sustained because of the defective roof. The Court held that Section 2-719(3), allowing the exclusion of consequential damages and Section 2-719(2), allowing remedy "as provided by this act" if a limited remedy failed of its essential purpose, were mutually exclusive. Furthermore, the Court found that where an agreement between buyer and seller was made in a "sophisticated commercial setting" an exclusion of liability for consequential damages was valid and enforceable "even though circumstances caused the limited remedy provided by the agreement to fail of its essential purpose." Carboline at 1733.
Accordingly, even if this Court were to 1) find that Sargent & Greenleaf had breached warranties that were made through their representations and advertisements 2) reject Sargent & Greenleaf's disclaimer of warranties provision 3) assume the lock was defective and 4) hold that the limited remedy of repair and replacement failed of its essential purpose the only way this Court could bar enforcement of the provision excluding consequential damages, contained in the agreement between Providence & Worcester and Sargent & Greenleaf, would be to regard this provision as unconscionable. Section 2-719(3) states: "Consequential damages may be limited or excluded unless the limitation or exclusion is unconscionable." The exclusion of consequential damages in a commercial transaction is not per se unconscionable. Indeed, Comment 3 to Section 2-719 explains that subsection (3) allows the parties to allocate "unknown or undeterminable risks" by excluding consequential damages. Merchants are free to allocate risks among themselves. There is absolutely no evidence of unequal bargaining power between Providence & Worcester and Sargent & Greenleaf. The transaction between Providence & Worcester and Sargent & Greenleaf involved two sophisticated businesses. In the context of this transaction such a limitation is perfectly fair and equitable. Providence & Worcester seeks to hold defendant liable for close to one million dollars in property damage based on *692 the alleged failure of a lock that cost about twenty dollars, out of a total shipment worth $4,237.67. Sargent & Greenleaf is correct in pointing out that prohibiting manufacturers from limiting their liability in this way would surely discourage them from producing products such as this.
IV. Conclusion and Order
For the reasons stated above, defendant's motion for summary judgment is granted with respect to Counts I, breach of contract, III, breach of implied warranty of merchantability, and IV, breach of implied warranty of fitness for a particular purpose. The Court also grants defendant's motion for partial summary judgment on Count II, breach of express warranty. Plaintiff's potential recovery on that Count is limited to repair, replacement, or repayment of the purchase price of the lock which failed.
It is so ordered.
NOTES
[1] This argument by its terms applies to the negligence as well as the contract and warranty claims. However, the parties have not addressed this matter sufficiently for the court to rule on this issue. In particular, the parties have not addressed the issue of what law should apply to the tort action, nor any authority supporting or attacking the theory that tort recovery should be limited by such a contractual provision. For this reason, this opinion addresses only the contract and warranty claims of the complaint, Counts I-IV.
[2] Providence & Worcester asserts that it should not be construed as a "merchant" under the Rhode Island Commercial Code. This assertion is incorrect. Comment 2 of the R.I.G.L. Section 6-A-2-104 calls for an expansive definition of "merchant:"
Sections 2-201(2), 2-205, 2-207 and 2-209 dealing with the statute of frauds, firm offers, confirmatory memoranda and modification rest on normal business practices which are or ought to be typical of and familiar to any person in business. For purposes of these sections, almost every person in business would, therefore, be deemed to be a `merchant' under the language `who ... by his occupation holds himself out as having knowledge or skill peculiar to the practices ... involved in the transaction ...' since the practices involved in the transaction are non-specialized business practices such as answering mail. In this type of provision, banks or even universities, for example, well may be `merchants.'
The plaintiff falls within this broad definition of "merchant."
[3] According to Section 1-201(10) the word "conspicuous" is defined as:
(10) `conspicuous:' A term or clause is conspicuous when it is so written that a reasonable person against whom it is to operate ought to have noticed it. A printed heading in capitals (as: NON-NEGOTIABLE BILL OF LADING) is conspicuous. Language in the body of the form is `conspicuous' if it is in larger or other contrasting type or color. But in a telegram any stated term is `conspicuous.' Whether a term or clause is conspicuous or not is for decision by the court.
[4] Section 2-719 in its entirety states:
(1) Subject to the provisions of subsections (2) and (3) of this section and of KRS 355.2-718 on liquidation and limitation of damages,
(a) the agreement may provide for remedies in addition to or in substitution for those provided in this article and may limit or alter the measure of damages recoverable under this article, as by limiting the buyer's remedies to return of the goods and repayment of the price or to repair and replacement of nonconforming goods or parts; and
(b) resort to a remedy as provided is optional unless the remedy is expressly agreed to be exclusive, in which case it is the sole remedy.
(2) Where circumstances cause an exclusive or limited remedy to fail of its essential purpose, remedy may be had as provided in this chapter.
(3) Consequential damages may be limited or excluded unless the limitation or exclusion is unconscionable. Limitation of consequential damages for injury to the person in the case of consumer goods is prima facie unconscionable but limitation of damages where the loss is commercial is not. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1647064/ | 766 F. Supp. 380 (1991)
Betty CURRY, Individually and as Administratrix for the Estate of Gerald E. Curry, Deceased, Plaintiff,
v.
CONSOLIDATED RAIL CORPORATION; Penn Central Corporation; Bendix Corporation; Celotex Corporation; Durox Equipment Company; Eagle Picher Industries, Inc.; Flintkote Company; Garlock, Inc.; Keene Corporation; Owens-Corning Fiberglass Corporation; Raymark Industries, Inc.; Studebaker-Worthington, Inc.; and Union Rubber, Inc., Defendants,
v.
ANCHOR PACKING COMPANY; Certainteed Corporation; Nicolet, Inc.; Nosroc Corporation; J.W. Roberts Ltd.; TNT Liquidating Company; Turner & Newell PLC and Turner Asbestos Fibers Ltd., Third Party Defendants.
No. C.A. 85-207.
United States District Court, W.D. Pennsylvania, C.D.
June 6, 1991.
*381 Brobyn & Forceno, Philadelphia, Pa., for plaintiff.
Frederic Orlansky, Richard G. Lewis, Jones Gregg Creehan and Gerace, Pittsburgh, Pa., for Celotex.
James S. Ehrman, Tighe, Evan and Ehrman, Pittsburgh, Pa., for John Crane Houdaille.
Rosenberg Kirschner, Pittsburgh, Pa., for Eagle Picher.
James F. Israel, Trushel, Wood and Israel, Pittsburgh, Pa., for TNT Liquidating.
G. Daniel Carney, Peter Blasier, Thorp Reed and Armstrong, Pittsburgh, Pa., and Byron Gergory and Steven Hoeft, McDermott Will and Emery, Chicago, Ill., for Union Rubber and Studebaker Worthington.
Matthew Wimer, Reale Fossee and Ferry, Pittsburgh, Pa., for Bendix Corp.
Jerry Hogenmiller, Thomson Rhodes and Cowie, Pittsburgh, Pa., for Raymark.
C. Leon Sherman, Gary Gushard and Tucker Arensberg, Pittsburgh, Pa., for GAF.
Bernard J. McAuley, Wayman, Irvin and McAuley, Pittsburgh, Pa., for Nicolet.
Jerome Iwler, Mary Dombrowski Wright, Meyer, Darragh, Buckler, Bebenek and Eck; R. Kenneth Willman, David L. Caplan, Weaver, Willman and Arnold; Patrick Riley, Vincent DeFalice; Gerald Paris, Diane Perer, Ronald Jones, Reed Smith Shaw and McClay; James Manley, Burns Manley and Little; and James Farley, and Weis and Weis, Pittsburgh, Pa., for Celotex, Eagle Picher, Keene, Certaineed, Nosroc, Turner & Newall, Flintkote and J.W. Roberts, Ltd., and Turner Asbestos.
John Repcheck and James Young, Jr., Pittsburgh, Pa., for Anchor Packing.
Michael Burns, Lisa Pupo and David Damico, Burns White and Hickton, Pittsburgh, Pa., for Consol. Rail and Penn Cent. Corp.
MEMORANDUM OPINION
LEE, District Judge.
Plaintiff, Betty Curry, instituted this asbestos action individually and as Administratrix for the Estate of Gerald E. Curry, on or about January 25, 1985, against the railroad defendants Conrail and Penn Central pursuant to the Federal Employers' Liability Act (FELA), 45 U.S.C. §§ 51-60. Plaintiff also included as defendants various asbestos manufacturer and/or supplier defendants based upon diversity jurisdiction and pursuant to the Pennsylvania Survival and Wrongful Death Acts and state law theories including negligence and strict liability. With plaintiff's consent, these *382 manufacturer/supplier defendants have since been dismissed with prejudice.[1]
Before the Court are Defendants Consolidated Rail and Penn Central's Motions for Summary Judgment in which defendants argue plaintiff's claim is time barred pursuant to Title 45 United States Code Section 56. Section 6 of the FELA provides in relevant part: "No action shall be maintained under this chapter unless commenced within three years from the day the cause of action accrued."
Defendants contend plaintiff's claim was filed well over three years from the day her cause of action accrued; that date being October of 1979 when plaintiff's decedent husband entered the hospital and was diagnosed as having lung cancer. In the alternative, defendant maintains plaintiff's claim accrued no later than March 4, 1980, plaintiff decedent's date of death.
Conversely, plaintiff maintains her Complaint was timely filed and that the statute of limitations does not automatically begin to run on the date her husband's lung cancer was diagnosed or even on the date of his death. Instead, plaintiff argues the cause of action "does not accrue until plaintiff becomes aware of the disease and its cause." (Emphasis added).
Plaintiff maintains she did not become aware that asbestos was a possible cause of her husband's lung cancer until approximately between March and May of 1983 when she discovered the same through the news media. Thereafter, upon further investigation and consultation with counsel, plaintiff instituted suit on January 25th, 1985.
LEGAL ANALYSIS
The United States Supreme Court has recognized the FELA is a broad remedial statute and has adopted a standard of liberal construction in order to accomplish the congressional objectives. See Outten v. National Railroad Passenger Corporation, a/k/a Amtrack, 928 F.2d 74 (3d Cir. 1991). The Court has further recognized the congressional purpose in enacting the FELA would be frustrated if a plaintiff were chargeable with knowledge of the slow progress of a disease "at some past moment in time, unknown and inherently unknowable even in retrospect." Urie v. Thompson, 337 U.S. 163, 169, 69 S. Ct. 1018, 1024, 93 L. Ed. 1282 (1949).
The Urie case involved a steam locomotive fireman who developed a debilitating lung disease from prolonged exposure to diesel fumes. The Court stated that plaintiff could be charged with knowledge of the gradual deterioration of his lungs "`only when the accumulated effects of the deleterious substance manifested themselves.'" Id. at 170, 69 S.Ct. at 1025, quoting Associated Indemnity Corp. v. Industrial Accident Commission, 124 Cal. App. 378, 381, 12 P.2d 1075, 1076 (1932).
The Urie Court held when an occupational illness is the basis for a claim under FELA, the statute of limitations begins to run when the employee becomes aware of his disease and its cause. This discovery rule also was applied to claims arising under the Federal Tort Claims Act which, in effect, delays the accrual of a cause of action until a plaintiff has the opportunity to discover the legal ramifications of the injury. See De Witt v. United States, 593 F.2d 276, 278 (7th Cir.1979).
In United States v. Kubrick, 444 U.S. 111, 100 S. Ct. 352, 62 L. Ed. 2d 259 (1979), the Court differentiated between knowledge of the injury and knowledge of a legal remedy whereby it stated "we are unconvinced that for statute of limitations purposes, a plaintiff's ignorance of his legal rights and his ignorance of the fact of injury or its cause should receive identical treatment. In other words, having discovered his injury, the putative plaintiff "must determine within the period of limitations *383 whether to sue or not." 444 U.S. at 124, 100 S.Ct. at 360.
In Kichline v. Consolidated Rail Corp., 800 F.2d 356 (3d Cir.1986), quoting Zeleznik v. United States, 770 F.2d 20, 23 (3d Cir.1985), the Third Circuit observed the substance of the Kubrick discovery rule to be as follows:
"[T]he statute of limitations begins to run on the first date that the injured party possesses sufficient critical facts to put him on notice that a wrong has been committed and that he need investigate to determine whether he is entitled to redress."
"Under Urie's rationale," the Kichline Court continued, "when an occupational injury is the basis for the claim under FELA, the statute of limitations begins to run when the employee becomes aware of his disease and its cause."
The Third Circuit's interpretation of the Urie and Kubrick holdings leads us to conclude that the statute of limitations begins to run once plaintiff discovers both plaintiff decedent's condition and its cause. Thus, the critical question for our purposes is when did plaintiff possess sufficient critical facts to put her on notice that a wrong had been committed?
STANDARDS FOR SUMMARY JUDGMENT
Defendants have moved this Court to grant summary judgment in their favor pursuant to Rule 56 of the Federal Rules of Civil Procedure.[2] In interpreting Rule 56, the United States Supreme Court in Celotex Corp. v. Catrett, 477 U.S. 317, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986) has ruled that:
"The plain language ... mandates entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial. In such a situation, there can be no genuine issue as to material fact, since a complete failure of proof concerning an essential element of the non-moving party's case necessarily renders all other facts immaterial." Celotex, 477 U.S. at 322 to 323, 106 S.Ct. at 2552.
An issue of material fact is genuine only if the evidence is such that a reasonable jury could return a verdict for the non-moving party. Anderson v. Liberty Lobby, Incorporated, 477 U.S. 242, 248, 106 S. Ct. 2505, 2510, 91 L. Ed. 2d 202 (1986). Furthermore, the Court must view the facts in a light most favorable to the non-moving party and the burden of establishing that no genuine issue of material fact exists rests with the movant. Pontius v. Children's Hospital, 552 F. Supp. 1352 (1982).
DISCUSSION
Plaintiff admits that plaintiff decedent was diagnosed with lung cancer in approximately October of 1979, and died from lung cancer on March 4, 1980. However, plaintiff specifically denies that she or plaintiff decedent knew or should have known the cause of this lung cancer and lung cancer death was asbestos-related prior to March or May of 1983. On the other hand, defendants maintain plaintiff's cause of action, if any, accrued at the time plaintiff decedent was diagnosed or in the alternative, no later than plaintiff decedent's date of death.
Our application of the discovery rule in this FELA action is controlled by Urie, Kubrick and Kichline; that rule being that plaintiff's cause of action accrues only when it is established that she possessed sufficient facts to put her on notice of plaintiff decedent's injury and its cause.
Viewing the evidence in a light most favorable to plaintiff, we are satisfied there remains a material issue of fact as to *384 when plaintiff possessed sufficient information or facts to indicate that plaintiff decedent's illness and death may have been asbestos-related.
In Barr v. Consolidated Rail Corporation, et al., No. 84-2650 (W.D.Pa., September 14, 1986), a case remarkably similar to the instant case, the Court concluded that plaintiff was entitled to the favorable inference that she did not know, nor should she have known, of facts supporting the likelihood that her husband's exposure to asbestos was related to his sickness and subsequent death.
The decedent in Barr retired from the railroad in 1976, developed lung cancer and died in March of 1980. Plaintiff Barr instituted suit on November 2, 1984 after learning from a friend that asbestos exposure might have caused her husband's lung cancer death. In that case, this Court held that Mrs. Barr's FELA action was timely filed and summary judgment, based upon a statute of limitations argument, was inappropriate.
We find nothing in the instant facts thus far which would cause us to stray from the reasoning of Barr, particularly in view of the fact that defendants have presented no evidence that prior to March or May of 1983, plaintiff discovered that her husband's illness and resulting death may have been caused by exposure to asbestos.
Defendants' Motion for Summary Judgment is HEREBY DENIED.
NOTES
[1] Defendants Conrail and Penn Central attempt to incorporate by reference these manufacturer's Motions for Summary Judgment which are premised upon a statute of Limitations argument under Pennsylvania's Survival and Wrongful Death Acts. Because this reference appears in defendant railroads' Briefs but not in their Motions, the Court will not address the same in that it is not properly before the Court.
[2] Fed.R.Civ.P. 56 in pertinent part reads as follows:
"[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 issues as to any material fact and that the moving party is entitled to judgment as a matter of law." | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1661120/ | 413 F. Supp. 1024 (1976)
CONSUMERS POWER COMPANY, a Michigan Corporation, Plaintiff,
v.
FEDERAL ENERGY ADMINISTRATION and Frank G. Zarb, Defendants,
and
General Motors Corporation, Intervenor-Defendant.
LOWELL LIGHT AND POWER BOARD, a Municipal Utility, Plaintiff,
v.
FEDERAL ENERGY ADMINISTRATION and Frank G. Zarb, Defendants.
The DOW CHEMICAL COMPANY, a Delaware Corporation, Plaintiff,
v.
FEDERAL ENERGY ADMINISTRATION and Frank G. Zarb, Defendants.
OWENS-ILLIONIS, INC., Plaintiff,
v.
FEDERAL ENERGY ADMINISTRATION and Frank G. Zarb, Defendants.
MICHIGAN PUBLIC SERVICE COMMISSION, Plaintiff,
v.
FEDERAL ENERGY ADMINISTRATION and Frank G. Zarb, Defendants.
CELANESE CORPORATION et al., Plaintiffs,
v.
FEDERAL ENERGY ADMINISTRATION et al., Defendants.
Civ. A. Nos. 5-72000, 5-72030, 5-72093, 5-72104, 5-72171 and 6-70499.
United States District Court, E. D. Michigan, S. D.
April 23, 1976.
*1025 *1026 James D. Tracy, Dykema, Gossett, Spencer, Goodnow & Trigg, Detroit, Mich., Terrance Murphy, Wald, Harkrader & Ross, William Bode, Batzell, Nunn & Bode, Washington, D. C., O. K. Petersen, Jackson, Mich., for Consumers Power Co.
Peter W. Steketee, Freihofer, Cook, Hecht, Oosterhouse & DeBoer, Grand Rapids, Mich., for Lowell Light and Power Bd.
*1027 P. D. Conner, Ann Arbor, Mich., Leslie F. Nute, Midland, Mich., for The Dow Chemical Co.
Philip McWeeny, Toledo, Ohio, Keith R. McCrea, Grove, Jaskiewicz, Gilliam & Cobert, Washington, D. C., Daniel G. Wyllie, Dykema, Gossett, Spencer, Goodnow & Trigg, Detroit, Mich., for Owens-Illinois, Inc.
James E. Riley, Asst. Atty. Gen., Lansing, Mich., for Michigan Public Service Commission.
Tucker Peterson, R. Gordon Gooch, Baker & Botts, Washington, D. C., for Celanese Corp.
Patricia N. Blair, U. S. Dept. of Justice, Washington, D. C., Thomas M. Woods, Asst. U. S. Atty., Detroit, Mich., Scott Lang, Federal Energy Administration, Washington, D. C., for Federal Energy Administration.
Edward J. Grenier, Jr., Ronald L. Winkler, Sutherland, Asbill & Brennan, Washington, D. C., Douglas West, Hill, Lewis, Adams, Goodrich & Tait, Detroit, Mich., for General Motors Corp.
OPINION AND ORDER
JOINER, District Judge.
Consumers Power Company seeks declaratory and injunctive relief against an order by the Federal Energy Administration (FEA) granting Consumers' request for an allocation of natural gas liquids (NGL's) as a feedstock for the production of synthetic natural gas, subject to certain conditions. The only issues now before the court are (1) whether the FEA acted in excess of its authority in allocating NGL's to Consumers as a feedstock for the production of synthetic natural gas; and (2) assuming the FEA's authority to allocate NGL's, whether it exceeded that authority by conditioning such allocations on Consumers' compliance with certain notice and data gathering requirements.
In an opinion and order dated March 5, 1976, 413 F. Supp. 1007, this court denied Consumers' motion for a preliminary injunction, but stayed the FEA's requirement that Consumers notify certain customers that their gas service might be terminated. The background for this controversy was fully set forth in that opinion, and will not be repeated here. Subsequently, a final hearing on these jurisdictional issues was held, and the parties were allowed to file additional depositions and affidavits bearing on these issues and on a question posed by the court in its March 5 opinion. Having carefully considered this additional material, the court now adopts its March 5 opinion and order as a final order on these issues, except as modified herein.
I. Commingling of Synthetic Natural Gas with Natural Gas in Consumers' Pipelines.
At the time that the March 5 opinion was issued, it was not clear how Consumers introduced the synthetic natural gas from Marysville into its pipelines and distributed it. The court indicated to the parties its uncertainty about whether the FEA's authority would be affected if only a portion of Consumers' customers receive synthetic natural gas produced from the NGL feedstocks involved in this action. The record is now clear that:
1. The Consumers pipeline system is a completely integrated system.
2. The synthetic natural gas produced from the NGL feedstocks is introduced into Consumers' integrated system.
3. Nevertheless, there are Consumers customers who do not actually receive molecules of the synthetic natural gas which is produced from the NGL feedstocks involved here.
4. The displacement of natural gas by synthetic natural gas has the same practical effect as full commingling throughout the Consumers system.
The court accordingly concludes that the reach and effect of this order is not affected by the fact that some customers of Consumers do not actually receive any molecules of synthetic natural gas. These findings and this conclusion are intended to remove from any further consideration the *1028 issues on this subject that were introduced by the court in its March 5 opinion.
II. Coverage of Natural Gas Liquids under the Emergency Petroleum Allocation Act.
The court adopts without modification this portion of its March 5 opinion and order, but comments on the additional evidence presented which indicates that at this time there is no shortage of propane. The absence of a shortage of propane at the present time does not affect the analysis of the FEA's authority to allocate propane among competing users. It is for Congress, and also for the FEA under the Energy Policy and Conservation Act, to determine when, if ever, the propane supply is so secure that it may be "decontrolled." Whether the FEA exceeded its authority in making the allocation to Consumers Power Company in this particular case is a question not now before the court.
III. The Scope of FEA's Authority over Natural Gas Liquids.
The original FEA order in this case conditioned the allocation of NGL's to Consumers on a requirement that its natural gas service was to be terminated to customers having or servicing firms with "alternate fuel capabilities on a continuing basis." The FEA's Office of Exceptions and Appeals affirmed the FEA's authority to attach such a condition to an allocation, as well as FEA's authority to condition allocations on the incremental pricing of synthetic natural gas. In a related proceeding, the FEA went a step further, asserting its authority "to supersede conflicting state regulations whenever such action is necessary for the effective formulation of a national energy policy."[1] FEA justifies the assertion of such powers by pointing to the need to allocate equitably and intelligently a limited resource (NGL's) among competing users.
The court concluded, in its March 5 opinion and order, that the FEA must have the freedom to consider such factors as the end use of the synthetic natural gas produced from the NGL feedstocks, the nature and extent of state regulation of the natural gas with which the synthetic natural gas is commingled, the adequacy of Consumers' requests to the state agency for the incremental pricing of synthetic natural gas, and Consumers' sensitivity to energy management problems in making commitments for new and additional natural gas service. The court now reaffirms these conclusions.
Paragraphs 5(a) and (b) of the FEA's December 12, 1975 order,[2] however, reflect a present determination by the FEA (1) that FEA has the authority to require termination in the future of natural gas service to customers of Consumers, and (2) that FEA has the authority to determine which customers may be terminated in the future. The latter conclusion flows inevitably from the FEA's assumption of authority to determine which customers were to receive notice of possible termination. These provisions of the December 12 order reflect the FEA's assumption that it has the authority not only to consider such factors as were set forth above, but to condition its allocations on Consumers' implementation of certain policies bearing on the distribution and pricing of natural gas within the state of Michigan. This asserted authority collides with authority heretofore exercised exclusively by the Michigan Public Service Commission, pursuant to the congressional mandate in the Natural Gas Act.[3]
Reviewing the FEA's assertion of jurisdiction in this case is more complicated than simply determining which of two competing agencies has jurisdiction over the end use, pricing, and distribution of synthetic natural gas commingled in Michigan with natural gas. It is conceded by the FEA that the Michigan Public Service Commission has that jurisdiction. Although it *1029 is not quite as clear, this case also does not involve simply a determination of how far the FEA's jurisdiction follows the NGL's. It is clear, in this latter regard, that FEA has the authority to deny allocations of NGL's on the basis of end use of the NGL's in this case, the production of synthetic natural gas. Rather, this case raises the question whether the FEA has the power to indirectly preempt the state's authority to regulate internal state use and processing of natural gas when such preemption furthers a particular energy policy of the FEA. The court holds that the FEA does not have such broad powers.
In an area that traditionally has been within the regulatory province of the states, the assumption is that the historic powers of the states are not superseded by the federal statutory scheme. Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230, 67 S. Ct. 1146, 1152, 91 L. Ed. 1447, 1459 (1947); cf. Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Ware, 414 U.S. 117, 94 S. Ct. 383, 38 L. Ed. 2d 348 (1973). And preemptive intent certainly will not be presumed when the matter on which the state asserts the right to act is not in any way regulated by the federal act. Rice, supra, 331 U.S. at 236-37, 67 S.Ct. at 1155, 91 L.Ed.2d at 1462. Each case "turns on the peculiarities and special features of the federal regulatory scheme in question." Burbank v. Lockheed Air Terminal, 411 U.S. 624, 638, 93 S. Ct. 1854, 1862, 36 L. Ed. 2d 547, 556 (1973). In this case, although the history of the law is as confused as any law ever enacted by Congress, the act itself clearly provides that the FEA does not have pricing or allocation powers over the intrastate use of natural gas:
"No provision of this Act shall permit the imposition of any price controls on, or require any allocation of, natural gas not subject to the jurisdiction of the Federal Power Commission."[4]
As indicated in the March 5 opinion and order, the FEA has a broad mandate from Congress to manage this country's energy resources. Air Transport Association of America v. FEA, 382 F. Supp. 437, 446-47 (D.D.C.1974), aff'd, 520 F.2d 1339 (T.E.C.A.1975). However, a broad mandate is not a free rein, and until Congress indicates otherwise, the FEA's jurisdiction is limited to the allocation of "crude oil, residual fuel oil, and refined petroleum products," including NGL's, and does not extend to the intrastate allocation or pricing of natural gas, a matter expressly left by Congress to the various states.[5] Therefore, in "considering" and "weighing" such factors as the end use and pricing of the synthetic natural gas to be produced from the NGL feedstocks allocated to Consumers, the FEA must be careful not to usurp the policy-making powers of the Michigan Public Service Commission. A clear line must be drawn indicating at what point the FEA's powers end and the state's powers take over.
Congress provides no guidance for determining where this jurisdictional line should be drawn, although, in the Energy Policy and Conservation Act, Congress clearly indicated that the line must be drawn.[6]
Nor is it possible to resolve this problem by relying on the principles set forth in FPC v. Transcontinental Gas Pipeline Corp., 365 U.S. 1, 81 S. Ct. 435, 5 L. Ed. 2d 377 (1961). In that case, the Court held that the Federal Power Commission could consider the end use of natural gas in a certification proceeding involving a direct sale of interstate natural gas, because in interstate *1030 gas transactions, the state agencies are not well suited to protect the national interest in conserving natural gas resources.[7] There was thus a regulatory gap that, in the "borderline case where congressional authority is not explicit," required the federal agency to assert its jurisdiction. This is not such a case. The producing and consuming states are one and the same: the gas is produced in Michigan for use in Michigan. No one questions either the competence of the Michigan Public Service Commission to regulate the production, distribution, and pricing of natural and synthetic natural gas within the state or the genuineness of its interest in conserving the state's natural gas resources. There is no regulatory gap for the FEA to fill.
The FEA claims, however, that the power to condition allocations of NGL's on termination of natural gas service to disapproved end uses of natural gas and to supersede conflicting state regulations is necessary to allocate NGL's to competing users equitably and effectively. Necessity, however, is no basis for jurisdiction that Congress failed to grant. FPC v. Louisiana Power & Light Co., 406 U.S. 621, 635-36, 92 S. Ct. 1827, 1836, 32 L. Ed. 2d 369, 382 (1972); FPC v. Hope Gas Co., 320 U.S. 591, 616-17, 64 S. Ct. 281, 294, 88 L. Ed. 333, 352 (1944). If the FEA determines that the effective allocation of NGL's also requires regulation of the end uses and pricing of synthetic natural gas presently subject to state regulation, then it must petition Congress for additional preemptive authority. Cf. Mobil Oil Corp. v. FPC, 157 U.S.App.D.C. 235, 483 F.2d 1238, 1249 (1973).
In addition, the FEA has failed to make a convincing showing that such broad preemptive powers are necessary to equitably and intelligently allocate NGL's. The FEA is free to allocate on the basis of a variety of factorse. g., the relative needs of competing users, their relative efficiency and good sense in using scarce resources, and the relative importance of their respective end uses to the nation's economy. Furthermore, the FEA has the statutory power to withhold an allocation of NGL's in order to minimize the "adverse impact" of a supply shortage.[8]
In this case, however, the FEA attempted to enforce a policy disfavoring the production of synthetic natural gas from NGL's not by denying an allocation of NGL's, but by ordering Consumers to threaten or attempt to attach penalties to the use of natural gas by certain customers. The FEA did not exceed its authority in attempting to discourage the production of synthetic natural gas from NGL's; it could have accomplished such a purpose by simply denying an allocation (assuming, of course, that such a decision did not exceed the agency's lawful authority and was supported by substantial evidence).[9] Its error was in attempting to enforce its policy disfavoring the production of synthetic natural gas by imposing conditions not on the use of NGL's, but on the use of the product manufactured from those NGL's, synthetic natural gas, which is introduced into an integrated state system for distribution and which is regulated and priced by a state agency in accordance with a congressional mandate.[10] In so doing, the FEA has impinged upon the jurisdiction of the Michigan Public Service Commission.
Paragraphs 5(a) and (b) of the FEA's December 12, 1975 order provide:
*1031 "(5)(a) Within 45 days of this Order, Consumers shall notify in writing all its customers who are in FPC categories four through nine or who would be in FPC categories four through nine if they were subject to FPC jurisdiction, that Consumers may be required to terminate service on January 1, 1977 to those customers with alternate fuel capabilities on a continuing basis or to those customers which service firms with alternate fuel capabilities on a continuing basis in order to receive SNG feedstock allocations. Such notice shall indicate that FEA may presume that Consumers' customers or their customers in FPC categories four through nine have such alternate fuel capabilities unless they certify in writing to Consumers within 90 days of this Order, that they have no such alternate fuel capabilities, that they do not reasonably anticipate that they will have such alternate fuel capabilities by January 1, 1977, and the reasons why they believe they do not now or will not by January 1, 1977 have such alternate fuel capabilities.
"(b) Within 60 days of this Order, Consumers will certify in writing to FEA that it has provided the notice required by paragraph 5(a) of this Order . .."
These provisions constitute the FEA's first step in implementing its asserted power to condition an allocation upon Consumers' compliance with demands that are preemptive of the state's powers. The FEA is therefore enjoined from enforcing them. The FEA has no authority to condition its allocations of NGL's on the termination of any natural gas service to any customers of Consumers. Therefore it has no authority to require Consumers to notify specified groups of customers that their service "may be terminated."[11]
Paragraphs 6 and 7 of the FEA's December 12, 1975 order provide:
"(6) On or before June 1, 1976, Consumers shall provide FEA with information describing in detail the nature and extent of its incremental pricing of SNG, its efforts to obtain any necessary approval from appropriate regulatory authorities for full incremental pricing of SNG, and the results of its meetings with appropriate FEA and other officials as to the nature and extent of incremental pricing which it should implement or seek to implement;
"(7) On or before June 1, 1976, Consumers will provide FEA with data concerning new customers which it accepts after December 1, 1975, increased service to customers existing on December 1, 1975 including volumes, prices and service categories, Consumers' efforts to encourage installation of alternate fuel capability on a continuing basis by its customers or their end-users and whether any new end-users could use alternate fuels on a continuing basis. . . ."
These paragraphs are within the FEA's authority under the Federal Energy Administration Act, 15 U.S.C. § 772, to gather information and data, and the FEA does not exceed its authority by considering such data in determining whether to grant or deny future allocations of NGL feedstocks to Consumers. The enforcement of these paragraphs of the December 12 FEA order will not be enjoined.
Paragraph 5(c) provides:
"(c) Within 120 days of this Order, Consumers will provide FEA with data indicating the number of firms which it or its customers service which are in FPC categories four through nine or which would be in FPC categories four through *1032 nine if they were subject to FPC jurisdiction, the volume of pipeline gas and SNG which Consumers anticipates serving each of these firms in 1976 and 1977, and the identity of those firms which have alternate fuel capability on a continuing basis or which failed to respond to the notice requesting this information. . . ."
This paragraph requires Consumers, among other matters, to indicate the identity of specific customers having "alternate fuel capability on a continuing basis." Such information is not material to the FEA's duty to allocate NGL's to Consumers as feedstocks for the production of synthetic natural gas. Accordingly, the FEA will be enjoined from requiring Consumers to reveal the identity of specific customers.
Except as modified above, the court's opinion and order of March 5, 1976 is adopted as the final order of the court on the jurisdictional issues presented by the complaint. As all parties have persistently expressed a strong desire for prompt determination of these issues, and as there is no just reason for delay, the court will direct the entry of a final judgment on the jurisdictional claims as to all parties in this case and in the cases that have been consolidated with it for purposes of these proceedings, pursuant to Rule 54(b) of the Federal Rules of Civil Procedure.
So ordered.
NOTES
[1] General Motors Corp. et al., CCH Energy Management [1975 Transfer Binder], ¶ 80,691, at 81,158.
[2] These paragraphs are quoted in full at pages 1030 and 1031 infra, this opinion.
[3] 15 U.S.C. § 717.
[4] EPCA § 529, 42 U.S.C. § 6399 (1975). There is a preemption provision in the Emergency Petroleum Allocation Act (EPAA) that provides:
"The regulation under section 753 of this title and any order issued thereunder shall preempt any provision of any program for the allocation of crude oil, residual fuel oil, or any refined petroleum product established by any State or local government if such provision is in conflict with such regulation or any such order." EPAA § 6(b), 15 U.S.C. § 755(b) (emphasis added).
This is another indication that Congress did not intend to authorize the preemption of state natural gas regulation.
[5] See note 3 supra.
[6] Energy Policy and Conservation Act (EPCA) § 529, 42 U.S.C. § 6399 (1975).
[7] 365 U.S. at 19-22, 81 S.Ct. at 445, 5 L.Ed.2d at 390. The consuming state is not the producing state and has no reason to want to conserve the petroleum resources of the producing state. The consuming state therefore has no motivation to prevent the wasteful use within its borders of another state's natural gas. The producing state, intending to market its natural gas beyond its borders, of course has no stake whatever in how the consuming state uses its natural gas.
[8] EPAA § 2(b), 15 U.S.C. § 751(b).
[9] EPAA § 5(a)(1), 15 U.S.C. § 754(a)(1); Economic Stabilization Act of 1970, § 211(d)(1), 12 U.S.C. § 1904 note.
[10] See note 3 supra.
[11] It may be noted that the categories of customers that Consumers would have been required to notify did not coincide precisely with the priority categories established by the Michigan Public Service Commission. Thus, should Consumers suffer the 20 percent shortfall of natural gas that could result from a future denial of NGL feedstocks for its Maryville plant, some of the customers that the Michigan Public Service Commission would require to be terminated would not be forewarned, while other customers that the Michigan Public Service Commission would not terminate during a natural gas shortage would have been warned that their service was imperiled. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2361416/ | 95 F. Supp. 2d 845 (2000)
FIRST HEALTH GROUP CORP., a Delaware corporation, formerly known as HealthCare Compare Corp., d/b/a The First Health AFFORDABLE Medical Networks, Plaintiff,
v.
UNITED PAYORS & UNITED PROVIDERS, INC., a Delaware corporation, etc., et al., Defendants.
No. 96 C 2518.
United States District Court, N.D. Illinois, Eastern Division.
March 21, 2000.
*846 Michael L. Childress, Christopher N. Mammel, Childress & Zdeb, Ltd., Chicago, IL, Amy L. Edwards, Potratz v. Hollander, P.C., Chicago, IL, for Plaintiff.
Robert George Krupka, David Kenneth Callahan, Ronald C. Provenzano, Pamela Anne Kilby, Matthew P. Hammatt, Paul R. Steadman, Kirkland & Ellis, Chicago, IL, for Defendants.
MEMORANDUM AND ORDER
MORAN, Senior District Judge.
The parties have filed cross-motions for summary judgment on plaintiff's Lanham Act claims. For the reasons we hereafter discuss, we grant defendant's motion and deny plaintiff's motion.
In the somewhat fluid area of health care delivery, First Health Group Corp. (First Health) has emerged as a leading intermediary between health care providers (hospitals) and health care payors, such as employee and union welfare plans. It contracts with hospitals to obtain medical services at reduced rates, on average a little less than a 40 per cent discount. It has arrangements with payors whereby the payors require the covered person to use the services of one of the hospitals under contract to receive the full benefits of the plan. Those hospitals are known as preferred providers and First Health describes itself as a preferred provider organization or PPO. First Health does not profess to grant exclusive rights to a particular hospital in an area, but it is somewhat selective. In an area from which several hospitals draw patients, it will contract with some but not all of those hospitals. The hospitals, in turn, do not normally deal with only one PPO. Since a failure to contract with a PPO may cause patients who would otherwise use that hospital to be directed elsewhere, there is an incentive for hospitals to contract with a number of PPOs. First Health contracts with approximately 2900 to 3000 of the approximately 5300 hospitals in the United States.
United Payors & United Providers, Inc. (UP & UP) operates in a considerably different fashion. It contracts with hospitals and extends to them what is in effect a continuing loan, by prepayment of services. It does not generally require its payors to direct covered persons to those hospitals. Persons who do go to one of those hospitals learn, after the services have been provided, that they have been billed for their share of the bill at a discounted rate (an average 20 per cent), which may encourage them to return to such a hospital for any additional services. UP & UP contracts with approximately 2500 hospitals.
Plaintiff claims that UP & UP violates the false advertising provisions of the Lanham Act, 15 U.S.C. § 1125(a)(1)(B), by routinely representing to hospitals that it operates a preferred provider network, that the payor clients represent a certain number of "covered lives," and that its payors use "shared savings" as a financial incentive to direct or channel or steer patients to contracting hospitals. At the core of plaintiff's claims is the contention that defendant has deceived hospitals by causing them to believe that it operates a network that directs or channels or steers patients to contracting hospitals; they argue that "preferred provider network" necessarily implies steerage by indicating that the hospital is "preferred"; that the references to "covered lives" has the same implication because it indicates that the *847 "covered lives" are encouraged to use that hospital; and that "shared savings," as a financial incentive, also implies steering, even though the patient at most is aware of a discount from his or her share of the bill after the services have been rendered. The use or "misappropriation" of such "directed PPO" terminology by defendant, according to plaintiff, has deceived and confused a significant portion of the contracting hospitals. Plaintiff contends that it has suffered reduced discounts as a result of the false advertising and has also lost the business of a major federal payor, Government Employees Hospital Association (GEHA).[1]
Defendant moves for summary judgment, contending that the representations are at most arguably ambiguous and that in those circumstances plaintiff must prove that defendant's false advertising has deceived a significant portion of the consumer population, i.e., hospitals. It argues that the opinions of experts, unsupported by market surveys or studies, and the anecdotal evidence respecting a few hospitals, is not enough to sustain that burden. Plaintiff disagrees. First Health further contends that the representations are literally false and therefore deception and confusion are presumed; and that, even if it can prove only a tendency to deceive, it still can recover UP & UP's ill-gotten profits as an equitable remedy.
We turn, first, to the legal standards. We emphasize that the parties are not before this court on a petition for a preliminary injunction. In those circumstances a tendency to deceive may win the day if the balancing against other factors so dictates. Refraining from making some statement may be of a great importance to a plaintiff and of marginal significance to a defendant while they explore the facts through discovery. But here discovery has closed and the parties need to know what monetary exposure there may be. Plaintiff is seeking over $60,000,000, a not inconsiderable sum.
Those standards, for monetary recovery, are well established:
Under the federal Lanham Act, which generally proscribes the false description of goods and their origins, the plaintiff must show that the defendant (1) made a false or misleading statement, (2) that actually deceives or is likely to deceive a substantial segment of the advertisement's audience, (3) on a subject material to the decision to purchase the goods, (4) touting goods entering interstate commerce, (5) and that results in actual or probable injury to the plaintiff. See Grove Fresh Distribs, Inc. v. New England Apple Prods. Co., 969 F.2d 552, 557 (7th Cir.1992), citing Skil Corp. v. Rockwell Int'l Corp., 375 F. Supp. 777, 783 (N.D.Ill.1974); see also Seven-Up Co. v. Coca-Cola Co., 86 F.3d 1379, 1383 n. 3 (5th Cir.1996); Ditri v. Coldwell Banker Residential Affiliates, Inc., 954 F.2d 869, 872 (3d Cir.1992); ALPO Petfoods, Inc. v. Ralston Purina Co., 913 F.2d 958, 963-64 (D.C.Cir.1990) (Thomas, J.); Cook, Perkiss & Liehe, Inc.v. Northern California Collection Serv., Inc., 911 F.2d 242, 244 (9th Cir.1990). Where the statement in question is actually false, then the plaintiff need not show that the statement either actually deceived consumers or was likely to do so. But where the statement is literally true or ambiguous, then the plaintiff is obliged to prove that the statement is "`misleading in context, as demonstrated by actual consumer confusion.'" BASF Corp. v. Old World Trading Co., 41 F.3d 1081, 1089 (7th Cir.1994), quoting Abbott Labs. v. Mead Johnson & Co., 971 F.2d 6, 13 (7th Cir.1992); see also, e.g., United Indus. Corp. v. Clorox Co., 140 F.3d 1175, 1180-81, 1182-83 (8th Cir.1998) (collecting cases).
*848 B. Sanfield, Inc. v. Finlay Fine Jewelry Corp., 168 F.3d 967, 971-972 (7th Cir.1999) (footnotes omitted).
Plaintiff advances two reasons why it need not prove actual or likely confusion of a substantial segment of the consumer audience. First, it contends that the representations are actually or literally false. That conclusion rests, ultimately, upon the supposition that a PPO necessarily includes patient-steering. Here, after all, the contracting hospital obtained the opportunity for prepayment; access to a substantial number of "covered lives" for which it could expect prompt payment; and the possibility that a patient, having become aware of his or her reduced co-payment, would choose that hospital again. While the parties may well (and do) dispute the value of those benefits, they surely have some value and the hospital is preferred to that extent. And, as we shall shortly see, the definition of "PPO" is not cast in stone compelling the conclusion that steering is invariably part of it. The representations are not literally false.
A second reason why significant actual confusion need not be proved is, according to plaintiff, because it will be entitled to equitable relief if the representations tend to confuse, and equitable relief includes recovery of the wrongdoer's profits. Otis Clapp & Son, Inc. v. Filmore Vitamin Co., 754 F.2d 738, 744 (7th Cir.1985). Profits are awarded under different rationales, including unjust enrichment, deterrence and compensation. Roulo v. Russ Berrie & Co., Inc., 886 F.2d 931 (7th Cir.1989). And we are mindful that a plaintiff need not prove actual injury to sustain a Lanham Act violation, at least for the purpose of 15 U.S.C. § 1125(a)(1)(A). Web Printing Controls Co., Inc. v. Oxy-Dry Corp., 906 F.2d 1202 (7th Cir.1990). Indeed, the inability to prove actual injury is the reason to turn to alternate remedies. We believe, however, that the availability of equitable remedies does not invoke the standard for preliminary equitable relief. It indeed would be anomalous if a plaintiff able to prove actual injury must establish deception or likely deception of a significant portion of consumers, but a plaintiff who cannot prove actual injury need only prove that ambiguous representations may have a tendency to confuse some consumers in order to appropriate the defendant's profits.
What evidence, then, does plaintiff have of actual or likely confusion of a significant portion of consumers, and what evidence must it have? Plaintiff relies primarily upon the testimony of expert witnesses, who, having reviewed the representations made, opine that almost all hospitals contracting with UP & UP must have been deceived by those representations into believing that UP & UP would be steering patients to contracting hospitals. It also relies upon the testimony or hearsay representations of a few hospital representatives who, upon learning that defendant did not steer patients, either decided not to contract with UP & UP or, in some instances, terminated their relationship with defendant. Plaintiff has no evidence that any hospital ceased doing business with it because it believed that it would receive comparable steering from defendant: some hospitals have ended their relationship with plaintiff, but they have done so because the loss of GEHA business reduced the volume of plaintiff's "covered lives." Plaintiff has no survey evidence.
Survey evidence is the customary way of proving significant actual deception, although consumer data, market research or evidence of diverted sales (none here) may sometimes be sufficient. Common sense and personal experience alone are not enough. American Council of Certified Podiatric Physicians and Surgeons v. American Board of Podiatric Surgery, Inc., 185 F.3d 606 (6th Cir.1999); AHP Subsidiary Holding Co. v. Stuart Hale Co., 1 F.3d 611 (7th Cir.1993); Johnson & Johnson*Merck Consumer Pharmaceuticals Co. v. Smithkline Beecham Corp., 960 F.2d 294 (2nd Cir.1992). A survey is not *849 critical to obtaining preliminary injunctive relief, Abbott Laboratories v. Mead Johnson & Co., 971 F.2d 6 (7th Cir.1992); International Kennel Club of Chicago, Inc. v. Mighty Star, Inc., 846 F.2d 1079 (7th Cir. 1988), but proof of actual or likely confusion of a significant portion of consumers requires a survey or at least some other persuasive means. The personal opinion of an expert as to what a consumer would understand is not enough. Johnson & Johnson-Merck Consumer Pharmaceuticals Co. v. Rhone-Poulenc Rorer Pharmaceuticals, Inc., 19 F.3d 125, 136 (3d Cir. 1994).[2] That a few hospitals may have misunderstood or did misunderstand defendant's representations as providing for steering is also not enough.[3]William H. Morris Co. v. Group W, Inc., 66 F.3d 255 (9th Cir.1995). "A `misunderstood' statement is not the same as one designed to mislead." Mead Johnson & Company v. Abbott Laboratories, 201 F.3d 883 (7th Cir. 2000).
We think those conclusions are particularly compelling when viewed from the context of this lawsuit. For the past five years or so there has been an ongoing struggle between PPOs providing steering or directing ("directed PPOs"), and organizations providing services similar or somewhat similar to those of defendant. Those who contend that a non-directed PPO is not a PPO refer to such organizations as "silent PPOs," a pejorative term. Addressing concerns expressed by the American Hospital Association and American Medical Association, a congressional committee requested a review of federal practices so as to ensure that "silent PPOs" were not obtaining discounts to which they were not entitled. The report issued February 26, 1998, by the Inspector General of the Office of Personnel Management includes the following:
... One cost control method used by fee-for-service carriers is known as a Preferred Provider Organization (PPO). A PPO is a group of medical providers who agree to provide medical services to the subscribers of an insurance carrier at a lesser cost than would have been otherwise charged. The perception is that in a traditional PPO, the PPO would employ some method of controlling benefit utilization by subscribers and would manage medical care more cost effectively. They might also establish controls to improve the quality of care. In exchange for a preferred status, lower fees, and better care, the carrier would attempt to steer its subscribers to the PPO's medical providers through such methods as financial incentives, ID cards, and preferred provider lists. Thus, significant savings could be achieved by the carrier which would reduce its premium costs.
In recent years, a new variation of the PPO concept appeared. This variation is known as a "non-directed" PPO as distinguished from the traditional PPO which has become known as a "directed" PPO. The terms "directed" and "non-directed" are references to the steerage or lack of steerage of patients. As explained above, in a traditional directed PPO arrangement, subscribers are steered to the PPO to take advantage of the lower costs. In a "non-directed" PPO, even though the medical providers have agreed to charge a lower fee, the contract[s] the PPOs enter into do not require that the carrier's subscribers be *850 steered to them. In some non-directed PPOs, the [provider] may benefit from this arrangement as a result of prompt payments or advances. In other non-directed PPO arrangements, the benefits to the provider may be less clear. In the case of both the directed and non-directed PPOs the terms of the arrangement are committed to a contract between the parties....
* * * * * *
Concurrent with the evolution of non-directed PPOs, a new term, "silent PPO" became commonplace. The term, "silent PPO," means different things to different people. Initially, the term "silent PPO" was merely a reference to a non-directed PPO where the contract was "silent" with regard to the steerage of patients to the provider's facilities. However, in more recent times, the term has acquired a more restrictive meaning. As a result, to some people, "silent PPO" describes a payment scheme used to obtain illegal discounts for payers who are not entitled to them. In discussions with interested parties and in industry literature, the terms "fraud," "illicit," "manipulation," "falsely," "unethical," and "scheme" are frequently used to describe silent PPOs. Consequently, the term "silent PPO" has come to mean an unethical and/or illegal practice, and the term has been loosely extended to inappropriately encompass non-directed PPOs. For the purpose of our review, we have differentiated between the terms "non-directed PPO" and the more restrictive term "silent PPO." Since "silent PPO" activity would be inappropriate for the [Federal Employee Health Benefits Program], we were concerned with the implication that it may exist in the FEHBP.
A "silent" PPO is distinguished from a "non-directed" PPO by the nature of the contractual relationship between the parties. As stated above, in a "non-directed" relationship, discounts are taken pursuant to contractual arrangements that can be traced from the payer (i.e., the insurance carrier) to the medical provider. In a "silent PPO," a contractual relationship cannot be traced from the payer to the medical provider from whom the discount is taken. Typically, in a silent PPO arrangement, another PPO will sell its medical provider's names and discounted fee information, often without the provider's knowledge and permission, to a secondary market of vendors. These vendors then access the information on behalf of their payer clients, recalculating the provider's fee based on the discounted fee information. It has been alleged that sometimes, the payer may claim a non-existent affiliation with the provider by inaccurately declaring that the patient is a member of a PPO to which the provider is a member.
* * * * * *
Our review disclosed that substantial savings have been and can be achieved by both directed and non-directed PPOs. We further found these savings can be achieved in an ethical manner, in that we found no evidence in the FEHBP that "silent PPOs" were a factor or that provider discounts were otherwise taken on the basis of any schemes to victimize medical providers. In addition, we found FEHBP carriers and their vendors were, except for some minor exceptions, accessing discounts in accordance with the terms of their contracts with providers.....
* * * * * *
... We conclude that substantial sums can be saved through directed and non-directed PPO arrangements. In view of the fact that directed PPOs provide for steerage of patients, as would be expected, directed PPO savings are significantly larger than non-directed PPO savings.
Office of the Inspector General, Office of Personnel Management, Rep. No. 99-00-97-054, Report on the Use of Silent PPOs *851 in the Federal Employees Health Benefits Program 20-23 (1998).
Following that report, legislation was reported out by the Senate Committee on Governmental Affairs. The Committee's report notes the following:
... The incentives may include an agreement to steer patients to the provider, in the case of so-called "directed PPOs," or they may include financial incentives such as prepayment or prompt payment in the case of so-called "non-directed PPOs." Both directed and non-directed PPOs provide legitimate and valuable benefits to health care providers, carriers, and patients.
Senate Committee on Governmental Affairs, S.Rep.No. 257, 105th Cong., 2d Sess. 3 (1998).
Those reports indicate that "PPO" does not have a fixed definition which includes a steering requirement. A survey of state laws in the health care field ("surveys," actually, because plaintiff has pointed to statutes that lend credence to its position and defendant has pointed to others that lend credence to its position) indicates the same. Those states hostile to non-directed PPOs, including plaintiff, have engaged in an educational campaign intended to alert hospitals to what they consider to be the fraud of organizations which bill themselves as PPOs but do not direct patients. It is hard to believe that even the smallest hospitals are not aware of the difference between a directed and a non-directed PPO. As we have noted, some hospitals have professed to having been misled, but they have done so in a context in which they have been repeatedly told that they were misled. Further, hospitals are not unsophisticated consumers. See American Council of Certified Podiatric Physicians and Surgeons, supra, at 616. Hospitals contracting with UP & UP have written contracts, generally reviewed by their counsel, which spell out the obligations of the parties. The UP & UP contracts of which plaintiff complains do not contain any promise by defendant to direct patients to the contracting hospital. Plaintiff's experts, in concluding that all or virtually all hospitals were misled by UP & UP, did not take into account the ongoing lobbying efforts, directed both to Congress and hospitals, nor the fact that the contracts were generally reviewed by the hospital's attorneys and by hospital personnel knowledgeable in the field. They do not explain why almost all the contracting hospitals, supposedly the victims of deception, have chosen to continue their relationships. They do not note that no federal agency, no state attorney general, no state insurance carrier and no hospital (with one possible exception) have taken any legal action complaining about the matters of which plaintiff complains here. We conclude, in short, that there just is not enough evidence of a Lanham Act false advertising claim to get to a jury.
NOTES
[1] Plaintiff does not claim that GEHA was itself deceived. Rather, it contends that GEHA contracted with UP & UP because defendant had developed a large provider network by means of its false advertising. We are advised that defendant now acts as a "directed PPO" in those states for which it has contracted with GEHA.
[2] Defendant has moved to strike one of plaintiff's expert reports, the Ottati Expert Report. That motion is denied. The expert has impressive credentials, and how language is understood is within his expertise, although his lack of consideration of some factors and the lack of empirical support for his views do raise questions. His personal opinion is, however, insufficient to support this claim for over $60,000,000, in any event, and in those circumstances we see no compelling reasons to strike the report.
[3] As one might expect, some temporary (and inactionable) consumer confusion may occur as industries realign themselves based on new products or services and as old terms acquire new meanings. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1662094/ | 650 F. Supp. 2d 207 (2009)
Billy J. RYAN, Plaintiff,
v.
Michael J. ASTRUE, Commissioner of Social Security, Defendant.
No. 5:06-CV-1134 (LEK/VEB).
United States District Court, N.D. New York.
July 1, 2009.
*209 Christopher Cadin, Legal Services of Central New York, Syracuse, NY, for Plaintiff.
DECISION AND ORDER
LAWRENCE E. KAHN, District Judge.
This matter comes before the Court following a Report-Recommendation filed on June 2, 2009 by the Honorable Victor E. Bianchini, United States Magistrate Judge, pursuant to 28 U.S.C. § 636(b) and L.R. 72.3 of the Northern District of New York. Report-Rec. (Dkt. No. 17). After ten days from the service thereof, the Clerk has sent the entire file to the undersigned, including the objections by Plaintiff, which were filed on June 16, 2009. Objections (Dkt. No. 19).
It is the duty of this Court to "make a de novo determination of those portions of the report or specified proposed findings or recommendations to which objection is made." 28 U.S.C. § 636(b). "A [district] judge . . . may accept, reject, or modify, in whole or in part, the findings or recommendations made by the magistrate judge." Id. This Court has considered the objections and has undertaken a de novo review of the record and has determined that the Report-Recommendation should be approved for the reasons stated therein.
Accordingly, it is hereby
ORDERED, that the Report-Recommendation (Dkt. No. 17) is APPROVED and ADOPTED in its ENTIRETY; and it is further
ORDERED, that Defendant's Motion for judgment on the pleadings is GRANTED and Plaintiff's Cross-Motion for judgment on the pleadings is DENIED; and it is further
ORDERED, that the Clerk serve a copy of this Order on all parties.
IT IS SO ORDERED.
BILLY J. RYAN
Plaintiff,
v.
MICHAEL J. ASTRUE,[1]
Defendant,
REPORT AND RECOMMENDATION
VICTOR E. BIANCHINI, United States Magistrate Judge.
I. Introduction
Plaintiff Billy J. Ryan brings this action pursuant to the Social Security Act ("the Act"), 42 U.S.C. §§ 405(g), 1383(c)(3), seeking review of a final decision of the Commissioner of Social Security ("Commissioner"), denying his application for disability insurance benefits ("DIB") and *210 Supplemental Security Income ("SSI").[2] Specifically, Plaintiff alleges that the decision of the Administrative Law Judge ("ALJ") denying his applications for benefits was not supported by substantial evidence and contrary to the applicable legal standards. The Commissioner argues that the decision was supported by substantial evidence and made in accordance with the correct legal standards.
For the reasons set forth below, the Court finds that the Commissioner's decision is supported by substantial evidence and free from legal error. Therefore, the Court recommends that Plaintiff's motion for judgment on the pleadings be denied and Defendant's cross-motion for judgment on the pleadings be granted.[3]
II. Background
On January 20, 2004, Plaintiff filed applications for SSI and DIB, claiming disability since August 1, 2003.[4] This onset date was later amended to October 13, 2003 (R. at 2p).[5] Plaintiff alleges disability due to Dysthymia, generalized anxiety disorder, and schizoaffective disorder. His application was denied initially on March 3, 2004 (R. at 3, 266). Plaintiff filed a timely request for a hearing on May 12, 2004 (R. at 11).
On September 13, 2005, Plaintiff appeared before the ALJ (R. at 2p). The ALJ considered the case de novo and, on October 26, 2005, issued a decision finding Plaintiff not disabled (R. at 2p-2w). The ALJ's decision became the Commissioner's final decision in this case when the Appeals Council denied Plaintiffs request for review on August 10, 2006 (R. at 2b-2d). On September 21, 2006, Plaintiff filed this action.
II. Discussion
A. Legal Standard and Scope of Review
A court reviewing a denial of disability benefits may not determine de novo whether an individual is disabled. See 42 U.S.C. §§ 405(g), 1383(c)(3); Wagner v. Sec'y of Health & Human Servs., 906 F.2d 856, 860 (2d Cir.1990). Rather, the Commissioner's determination will only be reversed if the correct legal standards were not applied, or it was not supported by substantial evidence. Johnson v. Bowen, 817 F.2d 983, 986 (2d Cir.1987) ("Where there is a reasonable basis for doubt whether the ALJ applied correct legal principles, application of the substantial evidence standard to uphold a finding of no disability creates an unacceptable risk that a claimant will be deprived of the right to have her disability determination made according to the correct legal principles."); see Grey v. Heckler, 721 F.2d 41, 46 (2d Cir.1983); Marcus v. Califano, 615 F.2d 23, 27 (2d Cir.1979). "Substantial evidence" is evidence that amounts to "more than a mere scintilla," and it has been defined as "such relevant evidence as a *211 reasonable mind might accept as adequate to support a conclusion." Richardson v. Perales, 402 U.S. 389, 401, 91 S. Ct. 1420, 28 L. Ed. 2d 842 (1971). Where evidence is deemed susceptible to more than one rational interpretation, the Commissioner's conclusion must be upheld. See Rutherford v. Schweiker, 685 F.2d 60, 62 (2d Cir.1982).
"To determine on appeal whether the ALJ's findings are supported by substantial evidence, a reviewing court considers the whole record, examining evidence from both sides, because an analysis of the substantiality of the evidence must also include that which detracts from its weight." Williams ex rel. Williams v. Bowen, 859 F.2d 255, 258 (2d Cir.1988). If supported by substantial evidence, the Commissioner's finding must be sustained "even where substantial evidence may support the plaintiffs position and despite that the court's independent analysis of the evidence may differ from the [Commissioner's]." Rosado v. Sullivan, 805 F. Supp. 147, 153 (S.D.N.Y.1992). In other words, this Court must afford the Commissioner's determination considerable deference, and may not substitute "its own judgment for that of the [Commissioner], even if it might justifiably have reached a different result upon a de novo review." Valente v. Sec'y of Health & Human Servs., 733 F.2d 1037, 1041 (2d Cir.1984).
The Commissioner has established the following five-step sequential evaluation process to determine whether an individual is disabled as defined under the Social Security Act. See 20 C.F.R. §§ 416.920, 404.1520.
First, the [Commissioner] considers whether the claimant is currently engaged in substantial gainful activity. If he is not, the [Commissioner] next considers whether the claimant has a "severe impairment" which significantly limits his physical or mental ability to do basic work activities. If the claimant has such an impairment, the third inquiry is whether, based solely on medical evidence, the claimant has an impairment which is listed in Appendix 1 of the regulations. If the claimant has such an impairment, the [Commissioner] will consider him disabled without considering vocational factors such as age, education, and work experience; the [Commissioner] presumes that a claimant who is afflicted with a "listed" impairment is unable to perform substantial gainful activity. Assuming the claimant does not have a listed impairment, the fourth inquiry is whether, despite the claimant's severe impairment, he has the residual functional capacity to perform his past work. Finally, if the claimant is unable to perform his past work, the [Commissioner] then determines whether there is other work which the claimant could perform.
Berry v. Schweiker, 675 F.2d 464, 467 (2d Cir.1982) (per curiam); see also Rosa v. Callahan, 168 F.3d 72, 77 (2d Cir.1999); 20 C.F.R. §§ 416.920, 404.1520.
B. Analysis
1. The Commissioner's Decision
In this case, the ALJ made the following findings with regard to factual information as well as the five-step process set forth above: (1) Plaintiff met the non-disability requirements for a period of disability and DIB set forth in Section 216 of the Act through December 31, 2008 (R. at 2r); (2) Plaintiff had not engaged in substantial gainful activity since his original alleged onset date of August 1, 2003 (R. at 2r); (3) Plaintiffs affective disorder and anxiety disorders were considered `severe' (R. at 2r); (4) Plaintiffs severe impairments do not, either individually or in combination, meet or equal one of the listed impairments *212 in 20 C.F.R. 404, Subpart P, Appendix 1, Regulations No. 4 (R. at 2s). (5) the ALJ found the following for Plaintiffs residual functional capacity ("RFC"): "[the ability] to perform all exertional level work but due to moderate difficulties in social functioning and in concentration, persistence, or pace, he is limited to performing simple, routine unskilled tasks involving no more than minimal stress (exclude production line work) and no more than minimal contact with the public, co-workers or supervisors" (R. at 2t); (6) Plaintiffs "statements concerning the intensity, duration and limiting effects of [his alleged] symptoms are credible only to the extent of the residual functional capacity determined" (R. at 2t); (7) Plaintiff is defined as a `younger individual' (R. at 2v); (8) Plaintiff obtained a graduate equivalency diploma ("GED") (R. at 2v).(9) Plaintiff was capable of performing his past relevant work as a wash attendant, machine operator, and a packer (R. at 2v); (10) Plaintiff was capable of performing the following positions in the national economy: grounds maintenance worker, machine operator, and document preparer (R. at 2v-2w). Ultimately, the ALJ found that Plaintiff was not under a `disability' as defined by the Act at any point from August 1, 2003, Plaintiffs initial alleged onset date, through the date of the ALJ's decision (R. at 2w).
2. The Plaintiff's Claims:
Plaintiff argues that the Commissioner's decision is not supported by substantial evidence and contrary to the applicable legal standards. Specifically Plaintiff argues that a) the ALJ erred in granting weight to the various medical opinions; b) the RFC is flawed; and c) the vocational expert's ("VE") testimony was flawed.
a. The ALJ's Analysis of Weight Offers no Basis for Remand
i. The ALJ Did Not Err in Granting Weight to Treating Nurse Practitioner Elizabeth Finn and Psychiatrist Dr. Hartshorn
Plaintiff argues that the ALJ improperly discounted the opinions of Plaintiffs treating physicians. Plaintiffs Brief, pp. 13-17. Specifically, Plaintiff argues that the ALJ erred by "pick[ing] and choos[ing]" from the physicians' opinions and accepted only those opinions which supported his finding of not disabled. Plaintiffs Brief, p. 13.
According to the "treating physician's rule,"[6] the ALJ must give controlling weight to the treating physician's opinion when that opinion is "well-supported by medically acceptable clinical and laboratory diagnostic techniques and is not inconsistent with the other substantial evidence in [the] record." 20 C.F.R. § 404.1527(d)(2); see also Green-Younger v. Barnhart, 335 F.3d 99, 105 (2d Cir. 2003); Shaw v. Chater, 221 F.3d 126, 134 (2d Cir.2000). "Failure to provide `good reasons' for not crediting the opinion of a claimant's treating physician is ground for remand." Snell v. Apfel, 177 F.3d 128, 133 (2d Cir.1999) (citing Schaal v. Apfel, 134 F.3d 496, 505 (2d Cir.1998)).
Nurse Practitioner Elizabeth Finn was one of Plaintiffs treating sources at Family Counseling Services ("FCS"). Ms. Finn saw Plaintiff regularly from November 20, 2003, to August 14, 2004, and again from March 24, 2005 to June 28, 2005 (R. at 137-146, 191-227). Although the signature is not entirely legible, it appears that psychiatrist, Dr. Hartshorn, met with *213 Plaintiff on two occasions, also at FCS, on July 16, 2004, and July 20, 2004 (R. at 209, 212).
Ms. Finn completed a psychiatric evaluation on June 7, 2005, which was also signed by Dr. Hartshorn (R. at 183-190). Ms. Finn diagnosed Plaintiff with Axis I, schizophrenia-paranoia[7] and posttraumatic stress disorder;[8] Axis IV, financial problems, mental illness, and a history of childhood abuse; and Axis V, a global assessment of functioning ("GAF") scale score of 63[9] (R. at 183). Ms. Finn stated Plaintiff was currently taking Zoloft,[10] Vistaril,[11] Haldol,[12] and Benztropine.[13]Id. Ms. Finn stated that Plaintiffs psychotic features included delusions or hallucinations, illogical thinking, blunt affect, flat affect, inappropriate affect, and emotional withdrawal and/or isolation (R. at 184). Ms. Finn found that Plaintiff presented largely with a depressive syndrome, but also noted Plaintiff presented some symptoms of a manic syndrome (R. at 185). Ms. Finn identified the following features as part of Plaintiffs mental illness: a) generalized persistent anxiety accompanied by motor tension, apprehensive expectation, and vigilance and scanning; b) a persistent or irrational fear of a specific object, activity, or situation which results in a compelling desire to avoid the dreaded object, activity, or situation; c) recurrent severe panic attacks manifested by a sudden unpredictable onset of intense apprehension, fear, terror and sense of impending doom occurring on the average of at least once a week; d) recurrent obsession or compulsions which are a source of marked distress; and e) recurrent and intrusive recollections of a traumatic experience, which are a source of marked distress (R. at 186).
In the restriction of daily living activities category, Ms. Finn found that Plaintiff exhibited marked difficulty in shopping, cooking, cleaning, paying bills, planning daily activities, and initiating and participating in activities independent of supervision and direction (R. at 187).
In the difficulties in maintaining social functioning category, Ms. Finn found that Plaintiff exhibited marked difficulty in *214 communicating clearly and effectively, getting along with family, getting along with friends, getting along with neighbors, displaying awareness of others' feelings, exhibiting social maturity, cooperating with co-workers, responding to supervisors, responding without fear to strangers, establishing interpersonal relationships, holding a job, avoiding altercations, and interacting and actively participating in group activities (R. at 187).
Ms. Finn found that Plaintiff had deficiencies in the task performance and concentration category in independent functioning (requires support and assistance), concentration, and persistence in task (R. at 188). Plaintiff's deficiency in maintaining persistence in tasks included the ability to complete tasks in a timely manner, pace, and the ability to assume increased mental demands associated with competitive work. Id.
With regard to episodes of decompensation, Ms. Finn found that Plaintiff displayed withdrawal from situations, exacerbation of signs of illness, exacerbation of symptoms of illness, deterioration from level of functioning, decompensation, poor attendance, poor decision making, inability to cope with schedules, and an inability to adapt to changes in a work environment (R. at 188).
Ms. Finn found that Plaintiff had a medically documented history of a chronic psychiatric disorder of at least two years duration (R. at 189). This disorder has caused more than a minimal limitation of ability to do basic work activities. Id. Ms. Finn found that Plaintiff had repeated episodes of decompensation, each of extended duration. Id. Ms. Finn opined that Plaintiff had a residual disease process that resulted in such a marginal adjustment that even a minimal increase in mental demands, or change in the environment, would cause. Plaintiff to decompensate. Id. Finally, Ms. Finn stated that Plaintiff's psychiatric impairment had lasted, or could be expected to last, for at least twelve months (R. at 190).
When granting weight to this assessment, the ALJ stated that
[Ms. Finn's] opinions were given little weight, because Nurse Finn is not an acceptable medical source, does not possess the expertise to make those assessments with accuracy, and her opinions are inconsistent with the record when viewed as a whole. Although Dr. Mary Hartshorn, a psychiatrist, also signed the psychiatric checklist prepared by Nurse Finn, the opinion is not supported by the progress notes and other evidence of record. There is no evidence of 12 continuous months where the claimant's medically determinable impairments caused the claimant to experience marked or extreme limitation in activities of daily living, social functioning or concentration, persistence or pace.
(R. at 2u). Even assuming that Dr. Hartshorn's very brief treatment history with Plaintiff qualified her as Plaintiff's treating physician, and thus her review and ratification of Ms. Finn's psychiatric evaluation conferred back to her the status of treating physician, the ALJ's finding that Ms. Finn's evaluation was not entitled to controlling weight is supported by substantial evidence.
The ALJ was correct in finding that the progress notes do not support Ms. Finn's very limited evaluation. Plaintiff claims an onset date of October 13, 2003, which correlates to his admittance to the psychiatric ward of Cortland Memorial Hospital for suicidal ideations (R. at 120). Plaintiff was discharged on October 15, 2003, free from any suicidal or homicidal ideations (R. at 120). Plaintiff began treatment at FCS on November 20, 2003 (R. at 146).
*215 Based on Plaintiffs treatment notes from FCS, by January 2004, two months after initiating treatment, Plaintiff began sleeping better, heard fewer voices, and noted feeling less anxious (R. at 142-143). By February of that year, Plaintiff stated in therapy that he had no nightmares, no paranoia, and did not hear any voices (R. at 139, 142). Although Plaintiffs therapists noted some relapses around this time period, these largely occurred when Plaintiff neglected to take his medications as prescribed. See (R. at 204, 207).
From June 2004, until the beginning of August 2004, Plaintiff began experiencing more paranoia, racing thoughts, and nightmares (R. at 205, 207-209, 261). However, soon after increasing Plaintiffs Lithium[14] on August 5, 2004 (R. at 212), Plaintiffs therapists noted he was doing well and was experiencing fewer nightmares (R. at 212, 206). Until November 2004, Plaintiffs licensed clinical social worker, Dwight Myers, noted Plaintiff was doing well, he was relatively stable on medications, he had low stress, and his hallucinations and paranoid behaviors had decreased (R. at 255-258).
Beginning on November 2, 2004, Mr. Myers noted Plaintiff was feeling increased stress and anxiety in anticipation of an upcoming move (R. at 254). However, by the end of December, Mr. Myers found that Plaintiff was doing much better on Haldol (R. at 146).
After the change in Plaintiffs medications to Haldol, Plaintiffs therapists continued to note improvement. For example, on March 24, 2005, Ms. Finn stated that Plaintiffs symptoms were very far and few between, if he was experiencing them at all (R. at 222). On April 21, 2005, Mr. Myers found that Plaintiff was doing much better, he was not hearing voices or seeing things, and was not experiencing any nightmares (R. at 243). He did, however, note that Plaintiffs stress level would fluctuate on occasion. Id. On May 12, 2005, Mr. Myers stated that Plaintiff had not experienced any paranoid ideations or hallucinations in months (R. at 242).
At the end of May 2005 and into June 2005, Plaintiffs stress level again began to rise, also because of moving his residence (R. at 241, 224, 227). However, by June 30, 2005, Mr. Myers noted that Plaintiffs medications had stabilized his emotions, although Plaintiff was still experiencing a high level of stress (R. at 232). Plaintiffs condition continued to improve. For example, on July 28, 2005, Mr. Myers found that Plaintiff was stable on his medications and doing well (R. at 232).
Therefore, based on the record as a whole, substantial evidence supports the ALJ's decision that the opinion proffered by Nurse Finn, and signed by Dr. Hartshorn, is not supported by Plaintiffs treatment history at FCS. With regard to the ALJ's finding that "[t]here is no evidence of 12 continuous months where the claimant's medically determinable impairments caused the claimant to experience marked or extreme limitation in activities of daily living, social functioning or concentration, persistence or pace[,]" the Court can also find no error as this conclusion is supported by substantial evidence in the record (R. at 2u).
ii. The ALJ's Analysis of Weight to Grant the Consultative Examiner Amounts to Harmless Error
Plaintiff argues that the ALJ improperly discounted the opinions of Dr. Kristen Barry, the Social Security Administration *216 ("SSA") consultative examining psychologist. Plaintiffs Brief, pp. 13-17. Again, Plaintiff argues that the ALJ erred by "pick[ing] and choosing]" from Dr. Barry's opinions and accepted only those opinions which supported his finding of not disabled. Plaintiffs Brief, p. 13.
If the ALJ does not grant Plaintiff's treating physician controlling weight, as is the case here, he must "explain in the decision the weight given to the opinions of a State agency medical or psychological consultant . . ." 20 C.F.R.
§§ 404.1527(f)(2)(ii), 416.927(f)(2)(ii).
In her medical source statement ("MSS"), Dr. Barry opined that:
The claimant, at this time is able to follow and understand simple directions and instructions but he may have difficulty remaining focused and concentrating given his level of anxiety currently. The claimant has difficulty handling stresses. He describes having a tumultuous pass [sic] including some physical abuse. He has a long history of alcohol and drug dependence. His judgment is poor.
(R. at 159).
The ALJ found the following when granting weight to Dr. Barry:
[Dr. Barry] opined that the claimant is able to follow and understand simple instructions and directions . . . . This opinion was given significant weight, because it is supported by findings on [the] mental status examination and consistent with the record when viewed as a whole.
Dr. Barry's opinion that the claimant may have difficulty remaining focused and concentrating, and he has difficulty handling stress was given little weight because it is non-specific and appears to be based on the claimant's unsubstantiated subjective complaints and along with his long history of abusing illegal drugs and alcohol.
(R. at 2t).
Plaintiff argues that "[t]he ALJ cannot pick and choose among limitations reported in a medical record." Plaintiffs Brief, p. 16. It is true that the ALJ cannot ignore evidence supporting Plaintiffs claim while at the same time accepting evidence that supports his decision. See Sutherland v. Barnhart, 322 F. Supp. 2d 282, 289 (E.D.N.Y.2004) (citing Lopez v. Sec'y of Dept. of Health & Human Servs., 728 F.2d 148, 150-151 (2d Cir.1984) ("It is not proper for the ALJ to simply pick and choose from the transcript only such evidence that supports his determination, without affording consideration to evidence supporting the plaintiffs claims."). Restated, the ALJ must consider all evidence in the record. See Armstead ex. rel. Villanueva v. Astrue, No, 1:04-CV-503, 2008 WL 4517813, at *18 (N.D.N.Y. Sept. 30, 2008) (citing 20 C.F.R. § 416.920(a)(3)).
The ALJ discounted Dr. Kristen Barry's opinions concerning Plaintiffs ability to focus, concentrate, and handle stress, because Dr. Barry's opinions were "based on the claimant's unsubstantiated subjective complaints and . . . his long history of abusing illegal drugs and alcohol" (R. at 2t). However, Dr. Barry's reliance on Plaintiffs "subjective complaints hardly undermines [her] opinion as to [Plaintiffs] functional limitations, as `[a] patient's report of complaints, or history, is an essential diagnostic tool.'" GreenYounger v. Barnhart, 335 F.3d 99, 107 (2d Cir.2003). Also, although Dr. Barry mentioned Plaintiffs history with drugs and alcohol in her report, there is no support for the ALJ's finding that she improperly relied on this history in her opinions (R. at 156-60). Thus, the ALJ's analysis was flawed.
*217 However, the ALJ included in his RFC that "due to moderate difficulties in social functioning and in concentration, persistence, or pace, he is limited to performing simple, routine unskilled tasks involving no more than minimal stress . . ." (R. at 2t). Thus, despite granting little weight to Dr. Barry's opinions, he accounted for Plaintiffs difficulties with concentration and stress in his RFC. Therefore, had the ALJ opted to grant Dr. Barry a greater weight, it would not have affected his RFC.
The Court is aware that the ALJ failed to take into account Dr. Barry's opinion that Plaintiff was limited in his ability to focus. However, according to the MerriamWebster Dictionary, one's ability to focus and one's ability to concentrate appear to encompass the same skills. `Focus' is defined, in this context, as "a center of activity, attraction, or attention" or "a point of concentration." Focus, Merriam-Webster's Online Dictionary, http://www. merriam-webster.com/dictionary/focus. `Concentrate' is defined, in this context, as "to bring or direct toward a common center or objective: focus." Concentrate, MerriamWebster's Online Dictionary, http://www.merriam-webster.com/ dictionary/concentrate. Concentrate and focus are also synonyms of one another. See Concentrate, MerriamWebster's Online Dictionary, http://www.merriam-webster.com/thesaurus/concentrate. Thus, the Court can find no error in the ALJ's application of `concentrate' and not `focus.'
Other courts have found harmless error where the ALJ failed to afford weight to a treating physician when an analysis of weight by the ALJ would not have affected the outcome. See Jones v. Barnhart, 2003 WL 941722, at *10 (S.D.N.Y. Mar. 7, 2003) (internal citations omitted) (finding harmless error in the ALJ's failure to grant weight to Plaintiffs treating physicians because "he engaged in a detailed discussion of their findings, and his decision does not conflict with them"); Walzer v. Chater, 1995 WL 791963, at *9 ("[T]he ALJ's failure to [discuss a report completed by Plaintiffs treating physician] was harmless error, since his written consideration of [the] report would not have changed the outcome of the ALJ's decision."). Following this line of precedent, it is logical to conclude that although the ALJ improperly discounted Dr. Barry's opinions, but nevertheless included those opinions in his RFC, whatever error he may have committed, the Court considers it also constitutes harmless.
b. The ALJ's RFC Finding is Supported by Substantial Evidence
Plaintiff appears to be arguing that the RFC is flawed because it fails to take into account certain limitations submitted by Nurse Finn and Dr. Hartshorn. Plaintiffs Brief, pp. 17-19. However, as the Court has already found no reason to remand based on his assessment of Plaintiffs examining physicians, and the Plaintiff does not state to which limitations he is referring, the Court can find no error in the ALJ's analysis of the RFC.
c. The Testimony of the VE is Not Flawed
Plaintiffs final argument is that the testimony of the VE is flawed because she failed to include the numbers of the relevant positions in the Dictionary of Occupational Titles ("DOT") during her testimony. Plaintiffs Brief, pp. 18-24. Plaintiff also argues that the VE's testimony was in conflict with 0*Net.[15]Id.
*218 The VE testified that based on the ALJ's hypothetical, which was an accurate representation of Plaintiffs RFC, Plaintiff could perform his past relevant work as a wash attendant, machine operator, or a packer (R. at 298). The VE also opined that Plaintiff was capable of performing other positions in the national economy, including a grounds maintenance worker, a machine operator, and document preparer (R. at 298-299). Although the VE stated that her testimony was consistent with the DOT, she failed to state the DOT codes for the positions to which she was referring (R. at 299).
The Court can find no error in the VE's failure to supply the DOT codes. The ALJ has an affirmative responsibility to ask whether the VE's testimony is in accordance with the DOT and to resolve any conflicts that may arise. SSR 00-4p, 2000 WL 1898704, at *4. The ALJ complied with this requirement by making the necessary inquiry, and the VE replied that her testimony was consistent with the codes. (R. at 299). There is no requirement that the VE testify as to which DOT codes she relied upon. Thus, the ALJ did not err.
Plaintiff argues that the VE's testimony does in fact conflict with the DOT, despite the VE's statement to the contrary. Plaintiffs Brief, pp. 19-24. Plaintiff appears to be basing this argument on his application of 0*Net. However, Plaintiffs reliance on 0*Net is misplaced. Even if the VE's testimony was in conflict with 0*Net, there is no requirement that the VE's testimony comply with that database. Instead, the VE's testimony must comply with the DOT, and if there is a conflict between the VE testimony and the DOT, then an explanation must be given. SSR 00-4p, 2000 WL 1898704, at *4. Here the Court can find no conflict. Thus, the ALJ did not err.
Conclusion
Based on the foregoing, it is recommended that Defendant's motion for judgment on the pleadings should be GRANTED and Plaintiff's cross motion for judgment on the pleadings should be DENIED.
DATED: June 2, 2009.
ORDER
Pursuant to 28 U.S.C. § 636(b)(1), it is hereby
ORDERED that this Report and Recommendation be filed with the Clerk of the Court.
ANY OBJECTIONS to this Report and Recommendation must be filed with the Clerk of the Court within ten (10) days of receipt of this Report and Recommendation in accordance with the above statute, Rules 72(b), 6(a) and 6(e) of the Federal Rules of Civil Procedure and Local Rule 72.3.
Failure to file objections within the specified time or to request an extension of such time waives the right to appeal the District Court's Order. Thomas v. Arn, 474 U.S. 140, 106 S. Ct. 466, 88 L. Ed. 2d 435 (1985); Small v. Secretary of Health and Human Services, 892 F.2d 15 (2d Cir.1989); Wesolek v. Canadair Limited, 838 F.2d 55 (2d Cir.1988).
Let the Clerk send a copy of this Report and recommendation to the attorneys for the Plaintiff and the Defendants.
SO ORDERED.
NOTES
[1] On February 12, 2007, Michael J. Astrue was sworn in as the Commissioner of the Social Security Administration. Pursuant to Federal Rules of Civil Procedure 25(d)(1), he is automatically substituted for former Commissioner Jo Anne Barnhart as the defendant in this action.
[2] This case was referred to the undersigned for Report and Recommendation, by the Honorable Norman A. Mordue, pursuant 28 U.S.C. § 636(b)(1)(B), by an Order dated February 23, 2009.
[3] Although no motion for judgment on the pleadings was filed, the moving party was excused from such filing under General Order No. 18, which states in part: "The Magistrate Judge will treat the proceeding as if both parties had accompanied their briefs with a motion for judgment on the pleadings...." General Order No. 18. (N.D.N.Y. Sept. 12, 2003).
[4] Plaintiff states in his brief that his original onset date was August 1, 2003. Plaintiff's Brief, p. 1. However, the record indicates that the original onset date was in fact August 2, 2003 (R. at 3, 78, 266). As the onset date was later amended, any error is harmless.
[5] Citations to the underlying administrative record are designated as "R."
[6] "The `treating physician's rule' is a series of regulations set forth by the Commissioner in 20 C.F.R. § 404.1527 detailing the weight to be accorded a treating physician's opinion." de Roman v. Barnhart, No.03-Civ. 0075(RCC)(AJP), 2003 WL 21511160, at *9 (S.D.N.Y. July 2, 2003).
[7] Paranoid schizophrenia is "a type of schizophrenia characterized by a history of one or more episodes of schizophrenia with prominent psychotic symptoms, current lack of such symptoms, but continuing presence of other schizophrenic symptoms, such as blunted or inappropriate affect, social withdrawal, eccentric behavior, illogical thinking, or loosening of associations." Dorland's Illustrated Medical Dictionary, 1702 (31st ed.2007).
[8] "[A]n anxiety disorder caused by exposure to an intensely traumatic event; characterized by reexperiencing the traumatic event in recurrent intrusive recollections, nightmares, or flashbacks, by avoidance of trauma-associated stimuli, by generalized numbing of emotional responsiveness, and by hyperalterness and difficulty in sleeping, remembering or concentrating." Dorland's at 559.
[9] A GAF scale score of 61-70 indicates "[s]ome mild symptoms (e.g., depressed mood and mild insomnia) OR some difficulty in social, occupational, or school functioning (e.g., occasional truancy, or theft within the household), but generally functioning pretty well, has some meaningful interpersonal relationships." Diagnostic and Statistical Manual of Mental Disorders, DSM-IV-TR, 34 (4th ed.2000) (emphasis in original).
[10] Trademark for sertraline hydrochloride, a "serotonin reuptake inhibitor." Dorland's at 2120, 1724.
[11] Trademark for hydroxyzine, has "central nervous system depressant, antispasmodic, antihistaminic, and antifibrillatory actions." Dorland's at 2095, 896.
[12] Trademark for haloperidol, an antipsychotic. Dorland's at 828.
[13] Used to treat parkinsonism, "a group of neurological disorders characterized by hypokinesia, tremor, and muscular rigidity." Dorland's at 213, 1404.
[14] Used to treat "acute manic and hypomanic states in bipolar disorder and in maintenance therapy to reduce the intensity and frequency of subsequent manic episodes;" Dorland's at 1081.
[15] Occupational Information Network. Intended to "supersede[] the ... Dictionary of Occupational Titles . . . ." United States Department of Labor, O*NETbeyond informationintelligence, http://www.doleta.gov/ programs/onet/ (emphasis in original). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1663070/ | 650 F. Supp. 793 (1986)
HELP HOBOKEN HOUSING, Plaintiff,
v.
CITY OF HOBOKEN, NEW JERSEY, Defendant,
and
Sonia Burgos, Margarita Sanabria and Campaign for Housing Justice, Defendants-Intervenors.
Civ. A. No. 86-3064.
United States District Court, D. New Jersey.
December 30, 1986.
*794 *795 Lum, Hoens, Abeles, Conant & Danzis by Roger P. Sauer, Roseland, N.J., for plaintiff.
Salvatore D'Amelio, Law Div., City of Hoboken, Hoboken, N.J. (Carl S. Bisgaier, Cherry Hill, N.J., of counsel), for defendant.
Hudson County Legal Services Corp. by Maureen C. Schweitzer, Claudette St. Romain, Jersey City, N.J., for defendants-intervenors Burgos and Sanabria.
Ira Karasick, George Aviles, Jersey City, N.J., for defendant-intervenor Campaign for Housing Justice.
STERN, District Judge.
Plaintiff is an unincorporated association of developers which own property in the City of Hoboken.[1] In this suit the association seeks a declaratory judgment that an ordinance passed by the City Council and signed by the Mayor of Hoboken violates federal constitutional and statutory rights of the association and, furthermore, that the city ordinance is preempted by legislation enacted by the State of New Jersey.
The ordinance is numbered "Ordinance V-51," and is entitled "An Ordinance Prohibiting the Withholding of Certain Residential Units from the Rental Housing Market Within the City of Hoboken." The ordinance requires owners of apartment units to notify the city's Rent Levelling Board of vacancies of over thirty days. Any owner of a unit remaining vacant for over sixty days may be punished by a fine of not more than $500 per day. The Rent Levelling Board can grant a waiver to any landlord wanting to keep a unit vacant for more than sixty days for one of three enumerated reasons. Two of these reasons *796 concern maintenance and improvements to the apartment; the third allows a landlord to keep a unit vacant for occupation by a member of his or her family.
The ordinance exempts several categories of apartments from its provisions. These include units in owner-occupied buildings of four units or fewer; units in buildings participating in "an affordable housing project approved by the Community Development Agency of Hoboken;" and units in a building whose owner has transmitted his first sixty-day notice of intent to convert the building into a condominium or cooperative "and his full plan of conversion to the City Clerk pursuant to N.J.S.A. 2A:18-61.8."
That provision of the New Jersey statutes requires rental unit owners simultaneously to give tenants and the municipal clerk notice of intent to convert to condominium or cooperative ownership. The notice must include notification of the tenants' rights under the statute, including the right "to purchase ownership in the premises at a specified price in accordance with this section." The notice itself appears to trigger this purchase right. Thus any Hoboken landlord who wishes to convert rental property to condominium or cooperative ownership may take his property out of the ordinance by complying with the state's notice requirements.
According to the preamble of the ordinance, "the elimination of a substantial portion of the existing affordable rental housing stock, and insufficient new construction of affordable rental housing ... have caused a substantial and increasing shortage of rental housing affordable by families of low and moderate income." The resulting "housing emergency" is said to be "exacerbated by reason of the withholding by owners of available affordable housing units from the rental market in order to increase the value of their property at the expense of persons desiring to rent such housing units." This warehousing of vacant units is said to cause "severe economic and physical hardships to tenants," thus necessitating the ordinance "to protect the rights of tenants during the present affordable rental housing crisis in the City of Hoboken."
The Hoboken City Council enacted the ordinance on June 18, 1986, to take effect immediately. On August 1, 1986, plaintiff filed this action, and moved for a temporary restraining order preventing the city from enforcing the ordinance.[2] On August 4, after a hearing, Judge Lechner of this court entered an order temporarily restraining the city and its agents from enforcing the ordinance. Judge Lechner granted the request for temporary restraints and set a return date of August 11 for a hearing on plaintiff's preliminary injunction motion. His order states that it was granted in part due to the representation of counsel for the city that the ordinance was "pending before the Mayor and City Council of the City of Hoboken for additional consideration."
No hearing was held on August 11. Instead, counsel for plaintiff submitted a proposed order continuing restraints until September 8, 1986, when a hearing would be had. The city did not oppose the order, which represented that "action upon Ordinance V-51 still pends before the Mayor and Council of the City of Hoboken." This Court signed the order on August 18.
Instead of a hearing on September 8, the parties submitted a consent order continuing the restraints until October 27, 1986. The order stated in part that "the Ordinance ... is still under active consideration by the Mayor and Council of the City of *797 Hoboken." This Court signed the order on September 23, 1986.[3]
Before that date arrived, a group of applicants to intervene as defendants made a motion to intervene as of right pursuant to Rule 24(a) of the Federal Rules of Civil Procedure. After a hearing, I granted the motion to intervene of three of the applicants: the Campaign for Housing Justice, an unincorporated association; Ms. Sonia Burgos; and Ms. Margarita Sanabria. In my letter-opinion of October 24, 1986, I noted that both the applicants for intervention and the plaintiff itself had provided the Court with reason to believe that the City Attorney of Hoboken sided with the plaintiff, and against its client, with regard to the key constitutional issues in this matter. I also noted that the City Attorney had made no response to these accusations or to the documents supporting them. "Under these circumstances," I held, "the position of the applicants that their interests are not adequately represented by counsel for the city is well taken."[4]
The delay occasioned by the motion to intervene, and the need to rule on a discovery motion, resulted in the rescheduling of the original motion for a preliminary injunction from November 24. The parties agreed orally to continue the restraints to that date. Also scheduled for hearing at that time was a motion brought by the intervenors to dismiss this action for failure to state a claim pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. The motion to dismiss will be granted, thus obviating the need to rule on the plaintiff's motion for a preliminary injunction.[5]
The complaint alleges that the ordinance violates six different provisions of federal law, and that the ordinance is preempted by various statutes of the State of New Jersey. As the federal claims have no merit, the Court will decline to exercise its pendant jurisdiction to hear the state law claims.
The Fifth and Fourteenth Amendment Claims
The Taking Claim
Plaintiff alleges that the ordinance violates the fifth and fourteenth amendments to the Federal Constitution in that it constitutes a taking of property without compensation.
The ordinance does not contemplate the city's physical occupation of property. Instead, it requires landlords to rent vacant apartments to paying tenants.
*798 Assuming for the moment that such regulation of rental property can be a taking of property, plaintiff's claim is at best premature. Because the ordinance has never been enforced, no property owner can point to any property whose value has been affected by this ordinance. Plaintiff's claim against the city thus amounts to what the Supreme Court has called a "facial challenge" to the ordinance. To succeed in a facial challenge, the plaintiff must show that the ordinance, on its face, effects a taking. Hodel v. Virginia Surface Mining & Reclamation Association, 452 U.S. 264, 295, 101 S. Ct. 2352, 2370, 69 L. Ed. 2d 1 (1981). That case, involving a challenge to federal strip-mining regulatory statutes pointed out that when the "mere enactment" of a law is at issue, the test to be applied is whether the law "denies an owner economically viable use of his land," Hodel, 452 U.S. at 296, 101 S.Ct. at 2370, quoting Agins v. Tiburon, 447 U.S. 255, 260, 100 S. Ct. 2138, 2141, 65 L. Ed. 2d 106 (1980).
Under this ordinance, landlords will remain free to rent their apartments to paying tenants. Moreover, if they desire to convert property to condominium or cooperative ownership, they will be able to remove their buildings from the reach of the ordinance by complying with state filing requirements. Thus Hoboken landlords have not been deprived of all "economically viable" use of their property by this ordinance.[6]
Plaintiff claims that the passage of this ordinance will interfere with the investment-backed expectations of Hoboken redevelopers. Loss of future profits has been called a "slender reed upon which to rest a taking claim." Andrus v. Allard, 444 U.S. 51, 66, 100 S. Ct. 318, 327, 62 L. Ed. 2d 210 (1979). Nonetheless, it may be that the loss of an expectation interest may be a predicate for a taking claim even in the absence of a claim of economic non-viability. Williamson County Regional Planning Commission v. Hamilton Bank, 473 U.S. 172, 105 S. Ct. 3108, 3120 n. 12, 87 L. Ed. 2d 126 (1985). Williamson makes it clear, however, that such a claim is fraught with the difficulty of determining whether the reduced expectation rises to the level of a taking. It should not be entertained until a concrete dispute, focusing on a specific instance of an enforcement of an ordinance, is before the court. Williamson, 105 S.Ct. at 3121.
Here, as the ordinance has never been enforced, no such dispute is present. Moreover, it is not possible that the ordinance by itself which merely prohibits the withholding of vacant apartments could diminish a landowner's expectation interest. Although the point is never clearly stated, what plaintiff appears to complain about is the way this ordinance will interact with the city's rent-control ordinances and with the state's landlord-tenant statutes. The allegation appears to be that the ordinance will force landlords to choose between renting these apartments at controlled rents, or triggering tenants' rights to buy their units under N.J.S.A. 2A:18-61.8. Whether such a choice will sufficiently reduce landlord's expectation interest in their investment so as to state a taking claim is completely speculative. It cannot serve to support a taking claim before any enforcement action has ever taken place.
The preceding discussion is premised on the assumption that regulation of rental housing can be a taking of property under the fifth and fourteenth amendments. In this Circuit, at least, that assumption is false. Thus there is a second, and even more compelling reason, to dismiss this claim.
In Troy Ltd. v. Renna, 727 F.2d 287 (3d Cir.1984), a New Jersey statute granting long-term protected tenancies to senior citizens and disabled persons was held not to implicate the taking clause. Relying on "the age-old distinction between regulation and public use," 727 F.2d at 301, the court *799 decided that government regulation of the landlord-tenant relationship does not implicate the constitutional prohibition against uncompensated government takings of private property for public use. Such regulation passes constitutional muster, therefore, provided it "satisfies the demands of due process and equal protection." 727 F.2d at 302. The holding in Troy leaves no doubt that the taking clause is not implicated in this case.
The Troy court held that "[s]tatutory tenancy laws protecting holdover tenants are not takings, but merely regulations of the use to which private property may be part," 727 F.2d at 302. In its brief in opposition to this motion, however, plaintiff asserts that "Troy, Ltd. did not hold that laws creating statutory tenancies are not takings, but merely regulations of the use to which private property may be part." (Emphasis in original.) The plaintiff apparently understood the court's holding to be dicta. That understanding is incorrect. The court expressly bottomed its decision on the absence of a taking, "in order to obviate the necessity to determine the factual question" of whether the state had provided just compensation by requiring the tenants to pay rent. 727 F.2d at 301. Thus the Troy decision binds this Court, and requires it to dismiss this claim.
Substantive Due Process
Plaintiff alleges in its complaint that the ordinance is an example of "excessive police power." It may be that regulation which is "`stretched as far' as to destroy property rights" violates the due process clause. Williamson, 105 S.Ct. at 3123, quoting Pennsylvania Coal Co. v. Mahon, 260 U.S. 393, 413, 43 S. Ct. 158, 159, 67 L. Ed. 322 (1922). However, the same reasons for refusing to consider an expectation-interest taking claim apply to this sort of due process claim. Williamson, 105 S.Ct. at 3124. For the same reason that the taking claim could not survive, this aspect of the due process claim must also be dismissed.
The plaintiff also asserts that the ordinance is irrational in that it will not further the purposes stated in the preamble. The preamble states that the practice of withholding housing units from the market is done "at the expense of persons desiring to rent such units;" and additionally that the ordinance is intended to "protect the rights of tenants."
The prohibition against withholding units is an obvious attempt to keep more units occupied in the short term. In addition, the interrelationship of the ordinance and the state landlord-tenant laws seems to be a rational way to protect the tenants' state-granted right to buy their units in the event of condo or co-op conversion.
The plaintiff argues, however, that in the long term the ordinance will have the effect of reducing available housing in Hoboken, by reducing the incentive to rehabilitate and renovate existing housing. This is a question of policy that should be addressed to the Mayor and City Council, and not to this Court. For instance, it may be that the city has decided to risk reduced overall housing stocks in the future in order to slow a current pattern of dispossession and dislocation of the city's poorest residents. Such a decision is completely within the province of the city. "In this sphere of economic and social regulation we `properly defer to legislative judgment as to the necessity and reasonableness'" of the ordinance. Troy, 727 F.2d at 298, quoting Energy Resources Group, Inc. v. Kansas Power and Light Co., 459 U.S. 400, 103 S. Ct. 697, 706, 74 L. Ed. 2d 569 (1983); see City of New Orleans v. Dukes, 427 U.S. 297, 96 S. Ct. 2513, 49 L. Ed. 2d 511 (1976).
Equal Protection
Plaintiff asserts that the ordinance establishes "invidious discrimination," but the class of persons discriminated against is never defined. Neither "fundamental personal rights" nor classifications based on "distinctions such as race, religion, or alienage" are at issue here. Therefore, the ordinance must merely meet the test of being "rationally related to a legitimate [governmental] interest." Dukes, 427 U.S. at 303-304, 96 S.Ct. at 2517. As discussed *800 above, this ordinance easily meets this "rational relationship" test.
Vagueness
In order to defeat a law on vagueness grounds in a facial challenge, a plaintiff must show that it is "impermissibly vague in all its applications." Village of Hoffman Estates v. The Flipside, Inc., 455 U.S. 489, 497, 102 S. Ct. 1186, 1193, 71 L. Ed. 2d 362 (1982).
A law is impermissibly vague when "a person of ordinary intelligence" does not have "a reasonable opportunity to know what is prohibited," or when it fails to "provide explicit standards" to the persons charged with enforcing it. Grayned v. City of Rockford, 408 U.S. 104, 108-109, 92 S. Ct. 2294, 2299, 33 L. Ed. 2d 222 (1972).
The terms of this ordinance are quite clear. Any landlord with a vacant apartment must notify the Rent Levelling Board within 30 days; if he does not obtain a waiver, and the apartment remains vacant for 60 days, he may be fined. As yet, there is no vagueness here. If "concrete problems of constitutional dimension" appear in the future, "it will be time enough to consider them when they arise." Joseph E. Seagram & Sons, Inc. v. Hostetler, 384 U.S. 35, 52, 86 S. Ct. 1254, 1265, 16 L. Ed. 2d 336 (1966).
The Eighth Amendment Claim
Plaintiff alleges that the penalties enacted by the ordinance violate the eighth amendment. Eighth amendment scrutiny, however, is not appropriately applied to a civil ordinance such as this. Eighth amendment protections apply only after a finding of guilt in a criminal prosecution comporting with due process. When punishment for a criminal violation is not at issue, the Due Process Clause of the fourteenth amendment is "the pertinent constitutional guarantee." Ingraham v. Wright, 430 U.S. 651, 671, 97 S. Ct. 1401, 1412, 51 L. Ed. 2d 711 (1977). As there is no allegation that the plaintiff has been subjected to a finding of guilt pursuant to due criminal process, this case presents no eighth amendment issue.
The Federal Antitrust Claim
The plaintiff claims that
The ordinance constitutes an unwarranted and unlawful intrusion into areas preemptively regulated by the Congress of the United States, in particular with regard to the Antitrust Laws, 15 U.S.C. § 1 and following.
Taken literally, this claim is incomprehensible. Congress, through the enactment of the antitrust laws, cannot be said to have brought residential land use regulation preemptively within the federal ambit.
It becomes clear upon reading plaintiff's brief, however, that plaintiff intended to allege that the ordinance violates the antitrust laws.
The only law specifically cited is section 1 of the Sherman Act, 15 U.S.C. § 1. That section prohibits combinations in restraint of trade. In Fisher v. City of Berkely, ___ U.S. ___, 106 S. Ct. 1045, 1047, 89 L. Ed. 2d 206 (1986), the Supreme Court held that municipal rent regulation, without an allegation of combination or conspiracy between two or more parties, does not violate section 1. As plaintiff alleges no combination and no co-conspirator, its complaint states no section 1 claim.
As for the other "Antitrust Laws," it is not sufficient simply to allege a violation of any or all of them. Notice pleading does not require much in the way of specificity but it does demand more than this. Northland Equities v. Gateway Construction Corporation, 441 F. Supp. 259, 264 (E.D.Pa. 1977).
The State Law Claims
The State of New Jersey has enacted a large number of laws regulating landlord-tenant relations. Plaintiff argues that these laws preempt the city's ordinance.
Municipalities are creatures of the state, and questions concerning the relative powers of the two levels of government are questions uniquely of state law.
*801 Because there are no federal questions remaining in this suit, the Court is free to decline to take pendant jurisdiction over these state law claims. United Mine Workers v. Gibbs, 383 U.S. 715, 726, 86 S. Ct. 1130, 1139, 16 L. Ed. 2d 218 (1966). Concerns of comity strongly militate against this Court's injecting itself into a disagreement over the allocation of power between state and local governments. State courts are the appropriate forum for this dispute. Under Gibbs, therefore, the state claims will be dismissed.
In accordance with this opinion, the complaint of plaintiff will be dismissed in its entirety.
NOTES
[1] The plaintiff is a somewhat mysterious organization. Its address is given in the complaint merely as "Hoboken, New Jersey." No officers, directors, or spokesmen for the organization other than its attorneys have been identified to the Court. The complaint does not identify any members of the organization by name. However, at least one owner of property in Hoboken, Edward J. Carcich, has claimed in an affidavit to be a member of the plaintiff.
The plaintiff claims to bring this suit as a class action pursuant to Rule 23 of the Federal Rules of Civil Procedure. Affidavits submitted by Mitchell Markey, who identifies himself as general partner of CoMark Properties, and Bronwyn Kay, who identifies himself or herself as general partner of M.C. Associates, assert that their respective partnerships are members of the "plaintiff class."
It has not yet been practicable, and it will not be necessary, to determine whether this action may be maintained as a class action, Fed.R. Civ.P. 23(c)(1). However, it appears that "Help Hoboken Housing," which itself does not appear to be a property owner, is not a proper class representative for a class of property owners, Black Grievance Committee v. Philadelphia Electric Co., 79 F.R.D. 98, 110 (E.D.Pa.1978).
Five days before the motion to dismiss of defendant-intervenors was argued, the defendant City of Hoboken filed a separate notice of motion to dismiss. That motion would have been returnable on December 22, 1986. Rule 12(C) of the General Rules of this District. As a result of the disposition of defendant-intervenors' motion, defendant's motion will not be heard. However, the City raises the argument that the plaintiff association lacks standing under the Federal Constitution to maintain this lawsuit. Because "standing imports justiciability," Warth v. Selden, 422 U.S. 490, 498, 95 S. Ct. 2197, 2205, 45 L. Ed. 2d 343 (1975), this Court must be satisfied that there is before it a "case or controversy" within the meaning of Article III of the Constitution sufficient to invest the Court with jurisdiction.
Under the standard set in Warth, 422 U.S. at 515, 95 S.Ct. at 2213, and reiterated in Hunt v. Washington Apple Advertising Commission, 432 U.S. 333, 343, 97 S. Ct. 2434, 2441, 53 L. Ed. 2d 383 (1977), I find that the plaintiff has the requisite "associational standing" to maintain this suit. See Fed.R.Civ.P. 17(b).
[2] It does not appear that any enforcement activity took place before August 1st. The ordinance requires landlords to notify the Rent Levelling Board of vacant units no later than 35 days after the termination of the last tenancy. Landlords of units vacant for 30 days as of the date of the ordinance are required to file the required notification within fifteen days. Presumably, therefore, steps to force compliance with the ordinance could have been initiated beginning on July 3, 1986. However, plaintiff does not allege that any such steps were taken against any landlord in Hoboken.
[3] In hindsight, it appears that these orders imposing and continuing restraints may have been signed improvidently. The fact that the Mayor and City Council may have been reconsidering this ordinance was no reason to enter a federal court order restraining the city from enforcing it. If anything, the reverse is true, for if the city were to repeal or modify the ordinance, the likelihood of irreparable harm from its enforcement would be decreased. At the time, however, it appeared from the representations of counsel for both parties that the entry and continuation of restraints would aid in the amicable resolution of the dispute before the Court.
[4] Shortly after that opinion and order was entered, the city retained the services of private counsel to serve of counsel to the city attorney; since that time the city's representation has been more than adequate.
[5] Shortly before the motions were to be heard, the plaintiff filed a motion "for an order granting leave to amend and supplement the complaint." If the new complaint were substantively different from the original, it might be necessary for the defendant-intervenors to reformulate their motion to dismiss. However, the plaintiff's amendments merely elaborate on the original claims. The only supplemental information in the new complaint is a reference to an amendment of the ordinance passed on September 3, 1986. The change narrowed an exemption from the terms of the ordinance for "units in owner-occupied buildings," replacing that exception with one for units in buildings "where there are four units or less and one of these units is owner-occupied." This amendment has no impact on the validity of plaintiff's claims. Therefore, the Court's dismissal of the original complaint applies with equal force to the amended and supplemental complaint.
Parenthetically, the Court notes that soon after the City Council passed this amendment strengthening the ordinance, counsel for the plaintiff and for the city represented to the Court that the ordinance was "still under active consideration" by the Mayor and City Council. Consent Order of September 23, 1986.
[6] If plaintiff believes that Hoboken's rent-control laws do not permit landlords to make economically viable use of their property by renting to paying tenants, it is free to attack the constitutionality of those laws. That issue is not before this Court. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1667849/ | 291 F. Supp. 786 (1968)
Robert Kenneth DEWEY, Plaintiff,
v.
REYNOLDS METALS COMPANY, Defendant.
Civ. A. No. 5889.
United States District Court W. D. Michigan, S. D.
November 5, 1968.
VanderVeen, Freihofer & Cook, Grand Rapids, Mich., Donald F. Oosterhouse, Grand Rapids, Mich., of counsel, for plaintiff.
Cross, Wrock, Miller & Vieson, Detroit, Mich., William A. Coughlin, Jr., Detroit, Mich., of counsel, Fred R. Edney, Gen. Counsel, Richmond, Va., for defendant.
OPINION DENYING DEFENDANT'S MOTION TO DISMISS
FOX, District Judge.
This is an action arising under Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq. which provides, inter alia, for relief against religious discrimination in employment.
Plaintiff, Robert Dewey, was employed by defendant from July 14, 1951, until September 12, 1966. Dewey held a number of jobs with defendant; at the time of his termination he was employed as a die repairman. Since 1962, plaintiff has been a member of the Reformed Church, and, consistent with his religious beliefs as a member of that church, he has refused to work on Sundays.
*787 In 1960, a new labor-management agreement was executed between the UAW-AFL-CIO and defendant Reynolds Metals Co. That agreement provided that the company could schedule compulsory overtime work, including Sundays. This provision was carried forward in the 1965 labor-management agreement, which was in effect at the time of the termination which is the basis of this action.
From 1960 until late 1965, the compulsory overtime provision was not exercised and the company functioned on a five-day work week schedule. Late in 1965, the defendant began scheduling Sunday overtime, and in a bulletin dated September 20, 1965, the defendant agreed to allow employees to be relieved of Sunday work if they obtained a qualified replacement.
Dewey was scheduled to work on August 7, 1966, and August 14, 1966, both Sundays. Defendant alleges that, at plaintiff's request, a fellow employee worked as his replacement under the provisions of the bulletin dated September 20, 1965. However, Dewey did not report for work on August 28, 1966, September 4, 1966, or September 11, 1966, all Sundays, having previously made it expressly known to the defendant that it was against his religious beliefs to work on Sundays and that he would not procure a substitute because it was his belief that if it was not right for him to work on Sundays, it would not be right to encourage another to work, regardless of the substitute's religious beliefs. Plaintiff said that the company should obtain a substitute so as to accommodate his religious beliefs.
The September 11 absence resulted in a third written offense and plaintiff was terminated pursuant to Company Rule 11. Believing that he had been discriminatorily discharged because of his religion, plaintiff filed a grievance to this effect, in accordance with the provisions of the 1965 collective bargaining agreement. The grievance was processed through various stages of the grievance procedure and was decided adversely to the plaintiff. An arbitration hearing was held April 27, 1967, and in an opinion and award dated June 29, 1967, arbitrator Mark L. Kahn decided against plaintiff. At the hearing, plaintiff was represented by the union in the persons of the International Representative and the chairman of the bargaining committee. He was not represented by an attorney, although the company was. A post-hearing brief was filed by the company, but no brief was filed by the union.
The arbitrator's decision was based in part on "the fact that a grievance protesting the discharge of Knight [another employee] in August 1966 for refusing Sunday work on religious grounds was later withdrawn [by the union]." (Arbitration award, at 8.)
Another reason given was the finding of the arbitrator that "the agreement does not permit a regular and continuing refusal of all Sunday work on religious grounds." (Arbitration award, at 8.)
Plaintiff thereupon filed a similar charge with the Michigan State Civil Rights Commission. The Commission found that there were insufficient grounds upon which to issue a complaint against defendant.
Plaintiff then filed a charge with the Equal Employment Opportunity Commission alleging that he had been discriminated against because of his religion. The Commission investigated the charge and determined that there was reasonable cause to believe that the employer had violated the provisions of Title VII. The Commission, unsuccessful in its attempts to obtain a conciliation agreement, notified the plaintiff of his right to bring a suit under Section 706 of the Act. This suit was instituted on May 31, 1968, and it is now before the court on a motion filed by defendant to dismiss the complaint on the ground that the plaintiff, by pursuing the grievance procedure under the collective bargaining agreement, had made a final, binding election of remedies and is therefore *788 precluded from maintaining a suit to enforce his rights under Title VII.
The relevant legal issues easily divide into two: (1) whether by pursuing the grievance procedure to a conclusion, plaintiff made an election of forums which now precludes his suit in this court; (2) whether the constitutional guarantee of freedom of religion permits this court to review the arbitrator's decision or make a decision on the merits. Each of these issues will be discussed in turn.
I.
Defendant argues that by pursuing his remedy under the grievance procedure, plaintiff made a binding election of forums. Defendant relies on Bowe v. Colgate-Palmolive Co., 272 F. Supp. 332 (S.D.Ind.1967), which granted a motion to dismiss in a case involving a discharge for alleged improper discrimination based on sex. That court said at pages 337-338:
"It is also the belief of the Court that the employee should not be permitted to proceed on the same allegedly wrongful incidents both in the court and pursuant to his contractual remedies."
The reason for this requirement of an election was that "it would be inequitable and unconscionable to subject the defendant Colgate to two series of extensive litigation, one series in this Court and then another series under the labor contract." Id. at 366-367.
The second case relied upon by defendant is Washington v. Aerojet-General Corp., 282 F. Supp. 517 (C.D.Cal. 1968). That case involved a charge of racial discrimination, and the court refused to go as far as the court in Bowe, supra. In Washington, a settlement had been reached between the union and the company prior to arbitration. The court held that once a settlement was accepted by both sides, the employee would be precluded from continuing with any court action under the Civil Rights Act.
Both these cases are distinguishable from the case at bar. The Bowe case dealt with alleged discrimination on the basis of sex, whereas this case deals with a discrimination against the freedom of religion, one of the most cherished and protected constitutional rights. Washington involved a settlement agreed to by both sides, a far different situation than is presented in this case. Both decisions are now on appeal.
In addition to being distinguishable, these cases should be critically analyzed to determine whether their reasoning is valid. The reasoning given by the Bowe court itself argues against the decision in that case:
"The Court finds a fundamental difference between a claim for the violation of a collective bargaining agreement and a claim for the violation of the Civil Rights Act of 1964. The latter is a statutory embodiment of constitutional rights that all persons are entitled to enjoy, while the former has as its primary purpose the maintenance of industrial peace between labor and management. It is the belief of the Court that an employee has the right to come before the court and assert his right under the Civil Rights Act of 1964 without regard to any contractual remedies also available to him." 272 F.Supp. at 337.
The doctrine of election of remedies has traditionally been applied in cases where the same or nearly identical issues were being pursued in two forums. See, e. g., Penn Gen. Cas. Co. v. Commonwealth of Pa. ex rel. Schnader, 294 U.S. 189, 55 S. Ct. 386, 79 L. Ed. 850 (1935). This doctrine has also been used in the labor field relative to proceedings both before an arbitrator and then before the National Labor Relations Board on the same issue. The standards set forth in Spielberg Mfg. Co., 112 N.L.R.B. 1080 (1955), and Raytheon Co., 140 N.L.R.B. 883 (1963), are instructive: (1) The factual issues before the arbitrator and the Board must be identical; (2) the hearing and evidence presented must deal adequately with all factual issues; (3) the arbitrator must have decided the factual issues involved before the Board; *789 (4) the hearing must be fair and regular in all respects; (5) the decision of the arbitrator must be in accordance with the law.
The factor to be emphasized in the instant case is whether the arbitration hearing dealt with the same issues that are present in this proceeding before this court. The issues treated by the arbitrator were wholly different from the issues raised in this Civil Rights Action. The labor contract involved, Article XI, Section 2, Step 5, stated:
"The arbitrator shall have authority to interpret this agreement for the purpose of settling the grievance, but he shall have no authority to add to or detract from, or change this agreement, or arbitrate wages for new changes, jobs, or production standards."
Under this provision of the contract, the arbitrator correctly limited himself to the contract language. At no time did the arbitrator deal with the issues present in this case, that is, the issues relevant to the Civil Rights Act and the First Amendment.
It is understandable that any union member would first proceed to raise any rights he felt were due him under the contract. Proceeding first through arbitration is in accord with federal labor law. Republic Steel Corp. v. Maddox, 379 U.S. 650, 85 S. Ct. 614, 13 L. Ed. 2d 580 (1965); United Steelworkers of America AFL-CIO v. Warrior & Gulf Nav. Co., 363 U.S. 574, 80 S. Ct. 1347, 4 L. Ed. 2d 1409 (1960). Plaintiff should not be penalized for first proceeding with his contractual remedies through the arbitration process, as preferred and indeed mandated by federal labor law. He should retain his rights to also bring a civil rights action. This reasoning is especially justified in this case, where the employee was not represented by counsel at the arbitration hearing, although the company was; and where the union did not file a brief on behalf of the employee though the company filed a brief on its behalf.
Under all these circumstances, the arbitration award should not preclude an action in this court based upon a statute rather than the collective bargaining agreement. To hold otherwise would be to require the employee to have come to this court without attempting a settlement through the contractual processes, as preferred by the national labor law. Plaintiff would also have been required to choose between two different remedies when both remedies are provided to insure that plaintiff's contractual, statutory and constitutional rights are protected. When rights of this type are involved, they outweigh the interest of the company-defendant in avoiding the inconvenience and expense of multiple actions. Thus, a trial should be held on the merits of plaintiff's claim that defendant has violated the Civil Rights Act.
II.
Defendant argues that the First Amendment does not apply to labor contracts or proceedings thereunder, because they are not actions of the government, but are rather purely private activities. Defendant further argues that even if the First Amendment could be said to apply to this situation, the decision of the arbitrator should be final and conclusive with respect to plaintiff's First Amendment rights.
Both defendant's arguments are invalid. First, the arbitration proceeding cannot be viewed as purely a private one. The National Labor Relations Act and the famous Trilogy cases[1] clearly establish a federal labor policy of arbitration as a substitute forum for the public judiciary in which to dispose of industrial disputes.
Since the arbitration tribunal or arbitration proceedings are in many instances *790 a substitute for traditional judicial remedies, it follows that the rules of due process and other constitutional protections must extend to the substitute proceedings lest the courts, through approval of arbitration agreements in arbitration proceedings, support proceedings which result in the deprivation of statutory and constitutional rights. If this grievance-arbitration system, which exists as a result of court approval, is permitted to dispose of disputes involving substantial rights without heeding constitutional protections, the courts will find themselves supporting and giving credence to decision which if rendered by the courts would be a violation of the free exercise of religion clause of the First Amendment or of some other essential constitutional protection.
The courts cannot leave to the arbitrator final decisions regarding constitutional rights. This is especially true in the instant case, where the arbitrator was limited to the contract in rendering his decision.
This court is not limited by the contract, but also has before it the Civil Rights Act and the Constitution of the United States. The constitutional issue is not one which can be passed over lightly, as was done by the arbitrator in a sentence or two. The constitutional issue is whether defendant effectively denied plaintiff the right of free exercise of his religion by conditioning plaintiff's right to work on his willingness to forego his religious beliefs or to compromise them by encouraging someone else to work on Sunday. An analogous choice of this type was found to be unconstitutional in Sherbert v. Verner, 374 U.S. 398, 83 S. Ct. 1790, 10 L. Ed. 2d 965 (1963), where a Seventh Day Adventist was forced to choose between following the precepts of her religion and forfeiting benefits on the one hand, and abandoning one of the precepts of her religion in order to accept work on the other hand.
The court at this time is not expressing an opinion as to the validity of plaintiff's claims. The court is rather refusing to allow a decision by the arbitrator to be the final one with respect to plaintiff's constitutional rights. The right in question, freedom to exercise one's religion, is too precious to require plaintiff to accept an arbitrator's decision regarding it. Again, the guiding principle is that plaintiff should not be penalized and should not be precluded from his rightful statutory and constitutional remedies because he followed the mandated practice under federal law of first submitting his dispute to the private grievance procedure.
For all these reasons the motion to dismiss is denied.
NOTES
[1] United Steelworkers of America v. American Mfg. Co. (United Steelworkers of America) Warrior & Gulf Nav. Co. v. Enterprise Wheel & Car Corp., 363 U.S. 564, 80 S. Ct. 1343, 4 L. Ed. 2d 1403 (1960). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1672929/ | 387 F. Supp. 1232 (1975)
Thomas O. MORRIS
v.
The TEXAS AND PACIFIC RAILWAY COMPANY.
Civ. A. No. 72-309.
United States District Court, M. D. Louisiana.
January 24, 1975.
*1233 Kenneth W. Kennon, Kennon, Callihan, Wilson & Duchein, Baton Rouge, La., for plaintiff.
James P. Simpson, Dallas, Tex., H. Payne Breazeale, John B. Noland, Breazeale, Sachse & Wilson, Baton Rouge, La., for defendant.
E. GORDON WEST, District Judge:
Plaintiff, Thomas O. Morris, was employed as a brakeman for The Texas and Pacific Railway Company. He chose to let his hair grow long and wear it tied in what is referred to as a "pony-tail," which hung down to or beyond his shoulder line. His employer, The Texas and Pacific Railway Company, did not approve of this and advised him on two or three occasions that he must either cut his hair to an acceptable length or he would be discharged from his employment. He was advised by his supervisor, who was acting within the authority granted him by the defendant Company, that in order to be acceptable his hair should be cut so as not to extend below the line of his shirt or coat collar, and so as not to extend below his ears. There were apparently no specific written regulations to this effect, the Company's grooming regulations being only general in character. But there is no question but that the supervisor was acting within his authority when he gave these instructions to the plaintiff. The plaintiff chose not to comply with this order and was therefore discharged from his employment. He brings this suit based entirely on the contention that his discharge constituted discrimination solely on the basis of sex in violation of Title VII of the Civil Rights Act of 1964, Title 42, U.S.C., Section 2000e et seq. At the time of the trial of this case, the defendant moved for an involuntary dismissal at the close of the plaintiff's case which was granted for the following reasons.
*1234 It was admitted by the plaintiff that his suit was based solely on alleged sex discrimination in his employment. It was admitted by the plaintiff that there were no women employed by the defendant as brakemen, and that the discharge of the plaintiff in no way involved a question of whether a male or female should be employed to do the job being done at the time by the plaintiff. His sole contention seems to be that it is sexual discrimination to say that men employed by The Texas and Pacific Railway Company must comply with grooming regulations without at the same time saying that women employed by that Company must comply with the same regulations. In other words, the plaintiff would have us hold that if women can wear long hair while employed by the defendant Railway Company, men should be able to do so too. And then, the logical extension of this contention must be that if women can come to work in a dress, or in a skirt and blouse, men should be able to do so too. But since the question of whether a male or a female was to have or was to be considered for the job sought to be held by the plaintiff was in no way involved, the Court concludes that sexual discrimination was in no way involved in this case.
In Fagan v. National Cash Register Company, 157 U.S.App.D.C. 15, 481 F.2d 1115 (1973), the Court held that "the length of one's hair is [n]either constitutionally [n]or statutorily protected", and that enforcing grooming regulations not equally applicable to both sexes is not sex discrimination within the meaning or intent of Title VII of the Civil Rights Act of 1964.
The trial court in Baker v. California Land Title Company, 349 F. Supp. 235 (D.C.Cal.1972) put it very succinctly when it said:
"The question, then, before us is simply: Can a private employer require male employees to adhere to different modes of dress and grooming than are required of females without engaging in an unfair employment practice within the meaning of section 2000e-2(a)(1)? I hold that an employer may do so." At p. 237.
In affirming this holding the Ninth Circuit Court of Appeals said:
"We are not persuaded that tolerance of a certain hair length for female employees but not for males, `discriminates' on the basis of sex within the meaning of Title VII of the Civil Rights Act of 1964. It seems clear from a reading of the Act that Congress was not prompted to add `sex' to Title VII on account of regulations by employers of dress or cosmetic or grooming practices which an employer might think his particular business required. The need which prompted this legislation was one to permit each individual to become employed and to continue in employment according to his or her job capabilities. Or, to express it another way, `The paradigm case of explicit sex discrimination is where sex itself, as a broad generic classification, is the sole basis of the action taken by the employer. Such a case occurs when an employer simply refuses to hire women for a certain position.'" 507 F.2d 895, at 896, 897.
The plaintiff urges, however, that even if the employer has the right to regulate grooming of its employees, the regulation must bear a reasonable relationship to some bona fide occupational qualifications. In support of this contention, the plaintiff points to the Fagan case, supra, wherein the Court did discuss the company regulations in relation to employer needs. But as pointed out in Baker, any uncertainty that might have existed as a result of Fagan concerning the need to show "bona fide occupational qualifications" in cases involving hair length, was clarified and made moot by the same Fagan Court in Dodge v. Giant Food, Inc., 160 U.S.App.D.C. 9, 488 F.2d 1333 (1973) when it said:
"Application of this statute requires a two-step analysis. It must first be determined that a discrimination on the basis of sex has occurred. If there is no sex discrimination, the inquiry ends. However, if the court *1235 concludes that an employer has discriminated on the basis of sex then it is the employer's burden to establish that a `bona fide occupational qualification' (BFOQ) reasonably necessary to the operation of the employer's business justifies the discriminatory practice. We conclude that Giant's hair-length regulations do not discriminate or classify within the meaning of the statute, and thus do not reach the issue whether hair length is a bona fide occupational qualification in this case." At p. 1335.
To the same effect is Bujel v. Borman's Inc., 384 F. Supp. 141 (D.C.E.D.Mich. 1974). Citing Dodge, the Court said:
"The proper approach to determine the issue under this statute is to ascertain if use of the defendant's grooming code adversely affects, as described in the statute, the employment of men or women. Only if the grooming code is used as a device to prevent or hinder employment, or the enjoyment thereof of one sex group over the other as set forth in the statute, should such a code be held to discriminate on the basis of sex as proscribed by Section 703 of Title VII of the Civil Rights Act of 1964, as amended, (42 U.S.C. § 2000e-2). It is not necessary to determine if the provisions of the grooming code are `a bona fide occupational qualification reasonably necessary to the normal operation of that particular business or enterprise' (§ 703 [e], Title VII, Civil Rights Act of 1964, as amended, [42 U.S.C. § 2000e-2]) unless and until discrimination on the basis of sex has been found as stated above." 384 F. Supp. at p. 144.
We are not unaware of the Fifth Circuit Court of Appeals holding in Willingham v. Macon Telegraph Publishing Company, 482 F.2d 535 (CA 5-1973) wherein it was concluded that a "hair-length" regulation for men was a violation of Title VII of the Civil Rights Act of 1964. But apparently, as a result of a strong dissent in that case, and in view of the contrary results reached by Courts in other Circuits, an en-banc rehearing was granted, and as of now, as far as this Court can determine, the decision of the en-banc Court has not been rendered.
Counsel for plaintiff argues that since the Willingham case has not been overruled or reversed, it is the "law of the Fifth Circuit" and that this Court is bound thereby. We do not subscribe to that theory.
While Congress apparently has the right, as they did, for example, in an indirect way in the Voting Rights Act of 1965, 42 U.S.C. § 1971 et seq., to sectionalize Federal law, the Courts have no such right when dealing with Federal law of general application. Regardless of what the Courts may have done, Congress has given no indication that it ever intended the Civil Rights Act of 1964 to be anything other than a Federal law of general application throughout the country. The right guaranteed by the Civil Rights Act of 1964 to equal employment opportunity regardless of race, color, religion, sex, or national origin was not intended by Congress to have one application in one Circuit and a different application in another. It is a right universally guaranteed to all persons in this country regardless of where they may reside. This law cannot be sectionalized by the Courts. An employment practice simply cannot be lawful under the Civil Rights Act of 1964 in one State, and at the same time and under the same circumstances be unlawful under the same Act in another State. As is often the case, however, the Appellate Courts in the various Circuits may differ both in their interpretation and in their application of the same law. Unfortunately, when this occurs, no one can be quite sure what the law really means until the differences between the Circuits have been resolved by the United States Supreme Court. When that resolution is finally made, there is no question but that all Courts, both at the district level and at the appellate level, are bound thereby. But until the ultimate resolution of the conflicting appellate decisions is made by the Supreme Court, it is the duty of the District *1236 Court to interpret and apply the law as it understands it to be after due consideration of all of the appellate decisions, from whatever Circuit they may have emanated. Prior to a final ruling by the Supreme Court, where there is conflict among the Circuits, the interpretation placed upon a Federal law of general application by one Circuit Court of Appeals is no more authoritative than that placed upon it by the Appellate Court of another Circuit. When a District Court is faced with conflicting opinions emanating from different Circuits, it is in a position not too unlike the situation it finds itself in when hearing a diversity case in which the State law involved has been interpreted differently by lower State Courts but never authoritatively interpreted by the highest Court of the State. In such a situation it is incumbent upon the Federal Court to apply the State law as it believes it would be applied by the highest Court of the State were it confronted with the same question. Similarly, where there are conflicting, but equally authoritative decisions emanating from different Federal Circuit Courts, it is incumbent upon the District Court to apply the law as it believes the United States Supreme Court would apply it were it presented with the same question for determination.
After careful consideration of Title VII of the Civil Rights Act of 1964, and of the various appellate decisions touching on the question of whether or not hair length regulations for males alone constitute sex discrimination in employment, this Court believes that the United States Supreme Court would be more apt to adopt the view expressed by the District of Columbia Circuit in Fagan v. National Cash Register Co., supra, and Dodge v. Giant Food, Inc., supra, and by the Ninth Circuit in Baker v. California Land Title Co., supra, and by the District Court in the Eastern District of Michigan in Bujel v. Borman's, Inc., supra, than the interpretation placed on the statute by the Fifth Circuit Court of Appeals in the Willingham case. Thus, we now conclude that (1) regulations of an employer pertaining to the length at which the hair of a male employee must be worn do not constitute discrimination on the basis of sex as contemplated by Title VII of the Civil Rights Act of 1964 even though the employer does not have similar regulations pertaining to its female employees, and (2) since it is concluded that there has been no discrimination based on sex in this case, the Court need not reach the question of whether or not a specific hair length for male employees is a bona fide occupational qualification in this instance.
The fact that the plaintiff does not state a claim upon which relief can be granted under the Civil Rights Act of 1964 does not necessarily leave him without a remedy if he has, in fact, been unjustly terminated by his employer. If the plaintiff, a brakeman, has a dispute with the railroad concerning his employment or termination, he may present his claim to the National Railroad Adjustment Board in accordance with the provisions of Title 45, United States Code, Section 153 et seq. Except for claims falling within the purview of the Civil Rights Act, that Board has exclusive jurisdiction over disputes between railroad employees and the railroad companies by whom they are employed. The plaintiff has the right to contest his discharge before that Board if he sees fit to do so. The fact remains that he has not presented a case to this Court which is cognizable under the Civil Rights Act of 1964.
For these reasons, judgment will be entered herein in favor of the defendant, dismissing this case at plaintiff's cost. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1674243/ | 397 F. Supp. 385 (1975)
UNITED STATES of America
v.
Benny ONG, a/k/a Benny Eng, a/k/a Hong Shew Ong, a/k/a Gai Shew Eng, a/k/a "Uncle Seven", et al., Defendants.
No. 74 Cr. 1127.
United States District Court, S. D. New York.
June 25, 1975.
*386 Paul J. Curran, U. S. Atty. by Edward J. Kuriansky, New York City, for plaintiff.
Gilbert S. Rosenthal, New York City, for defendant Young.
MEMORANDUM AND ORDER
BRIEANT, District Judge.
By notice of motion dated March 11, 1975, defendant Young moves for an order dismissing Count One of the indictment, the conspiracy count, and for a separate trial, pursuant to Rule 14, F.R.Cr.P.
The indictment charges defendants with conspiracy [18 U.S.C. § 371] and bribery [18 U.S.C. § 201(b)] of United States Immigration and Naturalization Service investigators to induce the investigators not to search for illegal aliens at defendants' illegal gambling establishments. The enterprises of the conspirators were independently owned and operated, with the exception of one on Catherine Street which was owned jointly by defendants Wah and Young.
Two Immigration investigators were approached by defendant Ong in the Fall of 1973 with an offer of regular weekly payments to be made on behalf of himself and the other defendants. The investigators pretended to accept these bribes, and for approximately eight months, received payments from defendants Ong, Wah, Young and Hom. Counts Two through Ninety-Nine are substantive bribery counts, each count representing a payment said to have been made on a particular date by one or another of the defendants.
Through defendant Ong, Young met the two investigators and began paying them directly although defendants Ong and Wah knew the payments were being made.
Numerous tape recordings were made of conversations between the defendants and the investigators. Transcripts of these conversations were made available to the defendants. Defendant Young claims the tape recordings establish that no single overall conspiracy existed. [Kotteakos v. United States, 328 U.S. 750, 66 S. Ct. 1239, 90 L. Ed. 1557 (1946)].
*387 In Kotteakos, supra, defendants were convicted of a conspiracy to violate the National Housing Act, 12 U.S.C. §§ 1702, 1703, 1715, 1731. A single defendant, one Brown, assisted other defendants in the preparation and filing of fraudulent applications for loans to be insured by the Federal Housing Administration. The Court found at least eight separate conspiracies, rather than the single conspiracy charged, since there was nothing connecting the conspiracies except that defendant Brown prepared all the applications. There was no evidence that the members of one conspiracy knew the members of any other, or knew Brown was conspiring with any other group.
Properly, the Kotteakos doctrine has been given very limited application. Conspiracy convictions have been upheld when some members did not know each other, if the evidence showed the conspirators must have known, from the nature of the illegal activity, that the scheme depended on the efforts of a large number of participants. United States v. Tramunti, 513 F.2d 1087 (2d Cir. 1975); United States v. Mallah, 503 F.2d 971 (2d Cir. 1974).
Any one of the defendants in this case might have attempted to bribe an officer of the Immigration and Naturalization Service, and the nature of that activity standing alone would not necessarily suggest a conspiracy. However, on the basis of defendant Young's interpretation of the contents of the tapes, and the Government's representations as to what the investigators' testimony will be, this case is clearly distinguishable from Kotteakos. Defendants Young and Wah were partners in the Catherine Street gambling operation. Defendant Ong's initial offer to the investigators was from a group of operators of gambling houses, including defendant Young. Young and his co-defendants knew who was paying protection money to the investigators in their behalf. Ong had introduced Young to the investigators. As was pointed out in United States v. Cogan, 266 F. Supp. 374, 377-78 (D.C.1967):
"The general rational [sic] of the concept of conspiracy it that `* * * collective action toward an antisocial end involves a greater risk to society than individual action toward the same end.' Developments Criminal Conspiracy, 72 Harv.L.Rev. 920, 923-24 (1959). Likewise, when more than two people participate in a bribery scheme, the risk to society is correspondingly increased. . . . [F]or example, if each of the eight Internal Revenue agents entered into the conspiratorial agreement and had knowledge of the participation by the others, they would probably be more confident in carrying forward their illegal acts, more likely to continue their illegal deportment and encouraged to rationalize their actions. Thus, to an increased degree their combined efforts become more emphatically inimical to the safety of the commonweal. It follows that the agreement itself carries a criminal stigma."
Defendant Young contends that because he and his co-defendants disliked and mistrusted each other, and Young insisted on dealing with the investigators without the intercession of Ong, there could have been no conspiracy. In addition, defendant argues that each defendant was interested only in protecting his own gambling business, that there was no joint enterprise in which all defendants took part and from which all of the defendants profited.
Proving there was a direct monetary reward to each defendant from the bribery conspiracy is not part of the Government's burden at trial. Nevertheless, it is obvious that constant raids by Immigration investigators of gambling houses serving the Chinatown area would be likely to interfere with the entire gambling business. All of *388 the defendants would profit from corruption of Immigration investigators, which would put a stop to the raids. For this reason, the fact that there may have been internecine struggles among the defendants does not disprove participation in an overall bribery scheme which had as its object the general welfare of their industry. The question presented is for the jury.
Defendant's motion for a severance is directed to the discretion of the Court [Opper v. United States, 348 U.S. 84, 75 S. Ct. 158, 99 L. Ed. 101 (1954)], and should not be granted unless defendant demonstrates "that he will be prejudiced by a joint trial so that it would in effect be a denial of a fair trial altogether." United States v. Wolfson, 289 F. Supp. 903 (S.D.N.Y. 1968). In the absence of such a showing, defendants in a conspiracy case should be tried together, particularly when the evidence would be substantially the same at both trials. United States v. Lebron, 222 F.2d 531 (2d Cir. 1955), cert. denied 350 U.S. 876, 76 S. Ct. 121, 100 L. Ed. 774.
Defendant Young believes his co-defendants Ong and Wong will raise an entrapment defense. He suggests they (not the Government) will introduce evidence of bribery charges presently pending in the courts of the State of New York in connection with that defense. How such evidence could become admissible on co-defendants proffer of proof is not shown. Such admissions of similar criminal behavior (which a mere arrest is not), defendant urges, will prejudice his own defense. There is no merit to this argument, nor does it, alone, entitle the defendant to a separate trial as a matter of right [United States v. Echeles, 352 F.2d 892, 897 (7th Cir. 1965)], nor may the Court assume the jury would be unable or unwilling to consider such evidence for a limited purpose.
Defendant's further objection to being tried together with his co-defendants appears to be grounded on the prejudicial nature of the evidence the Government may introduce to prove the conspiracy charge. For example, defendant states that he will:
"be prejudiced upon a trial with the co-defendants ONG and WONG by a playing of the taped conversations had between ONG and WONG . . with Federal Agents . . . in view of their many derogatory remarks concerning the defendant YOUNG . . .." (Affidavit of Gilbert S. Rosenthal, Esq., p. 6, sworn to March 10, 1975).
The tapes, the testimony of the investigators, and the statements and acts of Young's co-conspirators in furtherance of the conspiracy will all be admissible at a joint or a separate trial. A separate trial of defendant Young under this indictment would serve no purpose other than forcing the Government to try substantially the same case twice. Defendant has not shown that he will be unable to obtain a fair trial in a joint proceeding, and therefore, the defendant's "desire for a separate trial must yield to the public interest in avoiding unnecessary duplication and expense and in utilizing available facilities and personnel to best advantage toward assuring speedy trials for all of those accused." United States v. Wallace, 272 F. Supp. 838, 841 (S.D.N.Y. 1967).
Defendant's motion is in all respects denied.
So ordered. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1674795/ | 71 F. Supp. 164 (1947)
In re INTERSTATE POWER CO. et al.
Civ. No. 1003.
District Court, D. Delaware.
April 10, 1947.
*165 *166 Myron S. Isaacs, of Philadelphia, Pa., for Securities & Exchange Commission.
Clement F. Springer (of Matthews & Springer), of Chicago, Ill., for Interstate Power Co.
Douglas A. Calkins (of Simpson, Thatcher & Bartlett), of New York City, for Ogden Corporation.
Frank H. Detweiler (of Cravath, Swaine & Moore), of New York City, for Chemical Bank & Trust Co.
Paul J. Kern, of New York City, for Samuel Plotkin.
LEAHY, District Judge.
This is what the plan of reorganization does it provides that Interstate, an electric utility company which is also a registered holding company, will reduce its debt, eliminate its preferred stock, create a new common stock with an equity in assets and earnings, raise working capital and reserve the relative rights of its security holders pending the determination of the legal issues relating to the possible subordination of holdings of Interstate's parent, which is also a registered holding company. The machinery employed will be the sale of new first mortgage bonds and a number of sales of the new common stock; the outstanding common stock will be cancelled and the first mortgage bonds will be paid off without premium. There are two *167 alternatives. The first calls for the payment of other outstanding debt securities and the distribution of new common stock to preferred stockholders, together with certificates of contingent interest in later distributions to the parent company; the second calls for an escrow for those security holders junior to the first mortgage bonds by setting aside shares of new common stock not sold to realize cash for the payment of outstanding first mortgage bonds and for working capital. The choice of the alternatives to be utilized depends upon market conditions at the time of the consummation.
1. The plan provides for means of bringing about a fair and equitable distribution of voting power among the security holders. To this extent the plan is necessary to satisfy the provisions of § 11 (b) within the meaning of § 11(e) of the Act.
2. The first mortgage bondholders are receiving fair treatment. Where the retirement of debt occurs under the compulsion of § 11 the retirement is not voluntary or "at the option of the company" within the meaning of the standard redemption provision. Hence, in every case redemption premiums, as such, are not always payable. In re Consolidated Electric & Gas Co., D.C.Del., 55 F. Supp. 211; In re Standard Gas & Electric Co., D.C.Del., 59 F. Supp. 274; Id., 3 Cir., 151 F.2d 326; In re North Continent Utilities Corporation, D.C.Del., 54 F. Supp. 527; In re Central States Power & Light Corporation, D.C.Del., 58 F. Supp. 877; New York Trust Co. v. S.E.C., 2 Cir., 131 F.2d 274 (certiorari denied 318 U.S. 786, 63 S. Ct. 981, 87 L. Ed. 1153; rehearing denied 319 U.S. 781, 63 S. Ct. 1155, 87 L. Ed. 1725); City National Bank & Trust Co. v. S.E.C., 7 Cir., 134 F.2d 665. I agree with the SEC's reasoning and analysis that the investment calibre of the first mortgage bonds in the case at bar compared with their pertinent contract rights does not warrant the payment of the principal amount in excess of par.
3. A holder of both the 6% and 7% preferred stock challenges the SEC's power to institute the present proceedings since, it is argued, it lacks jurisdiction to impose a reorganization on an operating utility company. Much reference to legislative history is had to sustain the point;[3] and support for the view is directed to the third sentence of § 11(b) (2) which states: "Except for the purpose of fairly and equitably distributing voting power among the security holders of such company, nothing in this paragraph shall authorize the Commission to require any change in the corporate structure or existence of any company [in a registered holding company system] which is not a holding company, or of any company whose principal business is that of a public-utility company." (Emphasis supplied.)
It is argued that the Commission may only act with respect to a public utility operating company for the sole purpose of equitably distributing voting power. Such was not the view taken in Re Jacksonville Gas Company, D.C., 46 F. Supp. 852, or by this court in Re United Gas Corporation, D.C.Del., 58 F. Supp. 501, or in Re Laclede Gas Light Company, D.C., 57 F. Supp. 997. I think the point without merit. And it must be remembered that the instant company is, in fact, also a registered holding company.
4. There is further objection, principally from the Chemical Bank & Trust Company, as Successor Trustee under the indenture, on behalf of the debenture holders, to Alternative Two of the plan. The main objections from this source are (1), it is not fair and equitable to debenture holders since it violates the absolute priority rule and because it does not compensate them for loss of their creditor position; and (2), this court should not evaluate the fairness of the plan absent an absolute determination by the SEC as to whether the preferred stock has any present value. These arguments supporting both objections are palpably unsound. But, since these arguments have been made repetitively before this court in § 11 proceedings, I think it time to point out in some detail why I think they must be denominated as fallacious.
*168 Since one of the earliest cases for federal district court enforcement under the Act was brought to me for consideration and approval, it has been consistently conceded by all parties, including the various sets of attorneys for the SEC, in this and in all other cases brought to the enforcement court, that a § 11(e) court has the affirmative and independent duty to consider and find whether a proposed plan is fair and equitable; and consequently such a court must consider whether the senior security holders are to get the "equitable equivalent" of the rights which they are asked to surrender, i.e., is the plan fair and equitable to the security holders affected by it? The Successor Trustee argues the present plan violates the fixed principle of full and absolute priority, as established by Case v. Los Angeles Lumber Products Co., 308 U.S. 106, 60 S. Ct. 1, 84 L. Ed. 110; Northern Pacific Railway Co. v. Boyd, 228 U.S. 482, 33 S. Ct. 554, 57 L. Ed. 931; and Consolidated Rock Products Co. v. Du Bois, 312 U.S. 510, 61 S. Ct. 675, 85 L. Ed. 982; Group of Institutional Investors v. Chicago, M. St. P. & P. R. Co., 318 U.S. 523, 63 S. Ct. 727, 87 L. Ed. 959; because the plan here does not compensate debenture holders for the loss of their creditor position.
Here is the first point of examination in Group of Institutional Investors v. Chicago, M. St. P. & P. R. Co., supra [318 U.S. 523, 63 S. Ct. 749], Mr. Justice Douglas, in recognizing that phase of the financial problems facing the Court, said: "It is sufficient that each security holder in the order of his priority receives from that which is available for the satisfaction of his claim the equitable equivalent of the rights surrendered. That requires a comparison of the new securities allotted to him with the old securities which he exchanges to determine whether the new are the equitable equivalent of the old. But that determination cannot be made by the use of any mathematical formula. Whether in a given case senior creditors have been made whole or received `full compensatory treatment' rests in the informed judgment of the Commission and the District Court on consideration of all relevant facts." Resting on this, the Successor Trustee argues that the fixed rule of full priority is incorporated in § 11 of the Act by the use of the term "fair and equitable" ("words of art") in such section and points to In re United Light & Power Co., 3 Cir., 142 F.2d 411, 413, affirmed Otis & Co. v. Securities and Exchange Commission, 323 U.S. 624, 65 S. Ct. 483, 89 L. Ed. 1436, for imprimatur.
True, the Successor Trustee correctly states the language of this Circuit and the Supreme Court. I think, however, that it is and has been the constant use of that language which has caused confusion in the profession. What governmental and private litigants have overlooked is, while the principle of full priority may apply in both situations, i.e., in bankruptcy situations and in proceedings under the Public Utility Holding Company Act, the presence of the insolvency factor often results in different answers. In re United Light & Power Co., D.C., 51 F. Supp. 217, affirmed In re Securities and Exchange Commission, 3 Cir., 142 F.2d 411, 413, affirmed sub. nom. Otis & Co. v. Securities and Exchange Commission, 323 U.S. 624, 65 S. Ct. 483, 89 L. Ed. 511, is absolute proof of this statement; because it is perfectly obvious that had United Light & Power been insolvent and the claims of the senior securities had therefore matured, the common stockholders would not have participated and would have received nothing under the plan there under examination. This was conceded by the parties. It was conceded further that the possibility of the common stock acquiring value was very remote; yet, the SEC thought the common stock should have some participation even in the light of a possibility that the estimate of future earnings might prove to be erroneous. On the date of the plan the company involved and the SEC hoped that many years distant the common stock would emerge from under water. In short, it was solemnly said that it was only legal cricket that the common stockholders should be given a chance to recoup, especially where the reason for the liquidation (or, i.e., reorganization) was purely fortuitous because of forced compliance with the Act[4] and where the future condition *169 of the new enterprise was based on a surmise; no one had prescience to envisage with exact certitude what would be the value of junior securities. While the Supreme Court, reviewing the situation, did suggest that the full priority rule applies to a § 11(e) proceeding, it seems manifest that the result may vary in each particular case depending upon the presence of the insolvency or the solvency factor. Accordingly, I wish to emphasize that quotations and holdings from insolvency cases may not be apposite in all § 11(e) proceedings and, especially, of a solvent public utility holding company.[4a]
I place the pointer to the black-board to illustrate the matter further by a quotation from Consolidated Rock Products Co. v. Du Bois, 312 U.S. at pages 528, 529, 61 S.Ct. at page 686, 85 L. Ed. 982, where Mr. Justice Douglas had previously said: "The plan then comes within the judicial denunciation because it does not recognize the creditors' `equitable right to be preferred to stockholders against the full value of all property belonging to the debtor corporation'". Now, as stated before, had United Light & Power been insolvent and had the rights of the senior securities accordingly matured, it cannot be that the common stock could have participated because, one, the senior securities were not satisfied in full, and two, there was no foreseeable value this side of 15 years to the common stock.[5] I have always thought that it serves no useful purpose, but rather merely tends to confuse the issues to cite cases in the bankruptcy sense, involving the full priority rule, to support certain arguments in cases involving attempts to comply with the Public Utility Holding Company Act, where insolvency is seldom present. Where insolvency is not present the judicial techniques, at least, which should be utilized to see whether the senior securities are given their equitable equivalents *170 and whether junior securities should participate at all, are different.[6]
After consideration of all the financial factors which were presented to the SEC, including the solvency of Interstate, and the compulsion which operated on all of its security holders to comply with the impact of the Act, I conclude the plan is fair and equitable to the debenture holders vis-a-vis the preferred stockholders.
5. The other argument of the Successor Trustee, that this court cannot evaluate the fairness of the plan, absent a determination by the SEC as to whether the preferred stocks have present value, does, I think, neatly illustrate the points which I have tried to show, supra. While it may be true that such a determination is necessary where insolvency is present, it is not necessary in a § 11(e) proceeding involving a solvent public utility holding company. Again I re-emphasize this was the precise circumstance in Re United Light & Power, supra, because there it was conceded on all sides that the common had no present value and very little chance of prospective value; yet the common was given some participation in the reorganization. Again I re-emphasize that in bankruptcy situations whether of actual insolvency or in the bankruptcy sense of inability to meet debt charges as they fall due, such reorganizations are concerned first, last and at all times with strict adherence to the "absolute priority rule", which simply means you are concerned with present values of securities to insure that the senior securities receive the equitable equivalent of that which they are asked to surrender, based on their matured claims.
For specific findings I adopt the findings of the Commission. An order should be submitted which provides for approval of the plan.
NOTES
[3] Cong.Rec. 79th Cong., 1st Session pp. 10366, 10536, 10501 and 14620.
[4] Cf. In re Consolidated Electric & Gas Co., D.C.Del., 55 F. Supp. 211, 215, 216.
[4a] Although there has been some vacillation, the original position of the Commission before this court in Re United Light & Power Co. recognized the distinction of the text and that the problem was sui generis. In the findings and opinion of the Commission in Re United Light & Power Co., Application No. 14, p. 9, the Commission, for example, said: "We have found no judicial precedents which are determinative of the precise question before us. Decisions like those in the Los Angeles Lumber and Boyd cases are predicated on sets of facts fundamentally distinguishable from the situation arising here. In bankruptcy or equity reorganizations, where some financial disaster overtakes or threatens to overtake an enterprise, the courts and Congress have proceeded on the theory that it is often in the interest of creditors and other claimants that the enterprise be permitted to continue in operation, but with a new capital structure. Creditors and other claimants are prevented from foreclosing or otherwise compelling an actual liquidation, but new securities are distributed among them according to their contractual and other rights determined as though in liquidation. The historical background of this approach is so familiar as to need no elaboration here."
The same distinction seems to be recognized by the Commission in In the Matter of Engineers Public Service Company, at pp. 8 et seq. of the Commission's memorandum in that case.
[5] In this Circuit, at least, the creditor of a solvent public utility holding company may be accepted to be in an inferior position. The creditor is not considered to have an "equitable right to be preferred to stockholders against the full value of all property belonging to the debtor corporation"* because all securities of an issuing corporation are based on the same assets. I point to In re Standard Gas & Electric Co., 3 Cir., 151 F.2d 326, 332, where this Circuit said: "They are getting the cream off the milk in the Standard ice box. Nor does this distribution in kind turn them from investors to speculators. All they ever had was the corporation's promise. This promise was backed by what the corporation owned and what the corporation owned was junior equities in a number of public enterprises. Owning the junior equities is no more speculative than the promise of the corporation whose assets consist of such equities." (Emphasis supplied.)
I am required to respect this holding and, therefore, that the debenture holders are, under Alternative Two of the plan sub judice, required to exchange their creditor position for a qualified equity position and this must not necessarily defeat court approval of the plan.
* Consolidated Rock Products Co. v. Du Bois, supra, 312 U.S. at pages 528, 529, 61 S. Ct. 675, 85 L. Ed. 982.
[6] I think this problem can be most clearly illustrated by the following illustration which is based substantially on the real facts in Re United Light & Power Co., D.C.Del., 51 F. Supp. 217, affirmed In re Securities & Exchange Comm., 3 Cir., 142 F.2d 411, 413, affirmed sub nom. Otis & Co. v. S. E. C., 323 U.S. 624, 65 S. Ct. 483, 89 L. Ed. 511. In that case Class A preferred was entitled on dissolution or liquidation to receive out of the net assets of the corporation, whether capital or surplus, for each share of such stock, $100 and a sum of money equivalent to all cumulative dividends on such share, both accrued and in arrears (whether or not the same shall have been declared or earned), including the full dividend for the then current quarterly period, before any payment was to be made to the holders of any stock other than the Class A preferred stock in accordance with their rights at the time of distribution. Admittedly, preferred had a principal claim of $60,000,000 and an accumulated dividend charge of $38,700,000. The assets, let us assume, are worth $58,000,000. Now if the preferred's claim is treated as having matured, the inquiry is whether what they are receiving is the equitable equivalent of the claim of $98,700,000 plus compensation for loss of preferred status. Obviously, then, if the preferred's claim was treated as matured there could be no participation for the common. The reason the claim was not treated as matured was because the company was not insolvent and therefore it was not a liquidation, voluntary or involuntary, within the meaning of the charter. Under the Public Utility Holding Company Act, you do not start with the figure $98,700,000 to see whether the preferred or other senior security is receiving its equitable equivalent from the assets, but you evaluate the property on the basis of going concern value, and the various security holders are treated accordingly. This latter test is much less precise because it is permissible to estimate and consider the situation many years into the future and this approach was referred to by the minority in Otis & Co. v. S. E. C., 323 U.S. 624, 65 S. Ct. 483, 89 L. Ed. 511, as the Alice in Wonderland approach; yet, nevertheless, it has been working in practice. In short, in one case you would start with the figure $98,700,000 and in the other situation you do not give it such controlling weight.
This distinction has been well recognized in congressional and financial circles. See H.R.2857, 78th Cong., 1st Sess., for a Bill to make the Public Utility Holding Company Act rules apply to reorganizations under the Bankruptcy Act, and editorial in the Wall Street Journal, Wednesday, January 31, 1945, p. 5. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1678694/ | 633 F. Supp. 1340 (1986)
Tiffany L. HEATH, a minor, etc., et al., Plaintiffs,
v.
The UNITED STATES of America, Defendant.
No. CV S-82-80 EDP.
United States District Court, E.D. California.
May 5, 1986.
*1341 Starr Babcock, San Francisco, Cal., for plaintiffs.
Donald B. Ayer, U.S. Atty., E.D. California, and Colette J. Winston, Trial Atty., Torts Branch, Civil Div., Washington, D.C., for defendant.
PRICE, District Judge.
This matter came on regularly for hearing on April 14, 1986, upon the defendant's motion to dismiss. Colette Winston appeared on behalf of the government and Starr Babcock appeared for the plaintiffs. The Court, having received and read the papers submitted in connection with this motion, and having heard and considered the argument presented by counsel, hereby makes the following order. The government's motion to dismiss is granted.
Plaintiff, Tiffany Heath, was born in 1980 with severe birth defects. Her parents, plaintiffs Mary Wells Heath and Raymond Heath, were on active duty in the U.S. Air Force during Mrs. Heath's pregnancy and at the time that Tiffany was born. During her pregnancy, Mrs. Heath was treated by Air Force doctors and other Air Force medical personnel. Her doctors prescribed the drug bendectin for Mrs. Heath in an effort to treat the nausea she suffered as a result of her condition.
Since Tiffany's birth, bendectin has been linked to birth defects in children of mothers who ingested the drug during their pregnancies. The Heaths filed a Federal Tort Claim and, subsequently, this action alleging that the Air Force doctors' negligent prescription of bendectin caused their injuries.
The government now moves to dismiss on the ground that this Court lacks subject matter jurisdiction. In Feres v. United States, 340 U.S. 135, 71 S. Ct. 153, 95 L. Ed. 152 (1950), the Supreme Court held that the Federal Tort Claims Act does not provide a remedy to members of the military who are injured, "in the course of activity incident to service." 340 U.S. at 146, 71 S.Ct. at 159, 95 L.Ed. at 161. Two of the three cases consolidated for decision in Feres were actions brought by servicemen charging Army doctors with medical malpractice. The Court held that the Federal Tort Claims Act "does not charge the United States with liability in this type of case." 340 U.S. 135, 137, 71 S. Ct. 153, 155, 95 L. Ed. 152, 156.
Accordingly, the claims of Raymond Heath and Mary Wells Heath fall squarely within the Feres doctrine and must be dismissed.
The claims of Tiffany Heath are also barred. In Monaco v. United States, 661 F.2d 129 (9th Cir.1981), cert. denied, 456 U.S. 989, 102 S. Ct. 2269, 73 L. Ed. 2d 1284 (1982), the Ninth Circuit extended the *1342 Feres doctrine to include the claims of the children of military personnel whose injuries are derivative of injuries suffered by the parent and incident to his or her service. See also Scales v. United States, 685 F.2d 970 (5th Cir.1982), cert. denied, 460 U.S. 1082, 103 S. Ct. 1772, 76 L. Ed. 2d 344 (1983). Because Tiffany's claims in this action are wholly derivative of her parents' claims, she may not maintain a Federal Tort Claims Action.
The court is not insensitive to the severity of the injuries suffered by Tiffany and her parents, but must base its decision on established precedent. Some measure of relief may be available to the Heaths through an appeal to the legislative process. See Monaco, 661 F.2d 129, 134 at note 3.
For the foregoing reasons, the motion of the United States to dismiss is granted, and the complaint is hereby dismissed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1680344/ | 588 F. Supp. 674 (1984)
COMMUNITY HOSPITAL OF ROANOKE VALLEY, et al., Plaintiffs,
v.
Margaret M. HECKLER, Secretary of Health and Human Services, Defendant.
Civ. A. No. 83-0718-R.
United States District Court, W.D. Virginia, Roanoke Division.
April 24, 1984.
*675 Daniel S. Brown, T. Daniel Frith, III, Hazlegrove, Dickinson, Rea, Smeltzer & Brown, Roanoke, Va., for plaintiffs.
Karen Breeding Peters, Asst. U.S. Atty., Alexandria, Va., Beverly Dennis, III, Regional Atty., Javier Arrastia, Asst. Regional Atty., Dept. of HHS, Philadelphia, Pa., for defendant.
MEMORANDUM OPINION
TURK, Chief Judge.
This case is before the court on cross-motions for summary judgment. Plaintiffs are acute care general hospitals in the Commonwealth of Virginia. They are certified "providers" under the Medicare program, 42 U.S.C. § 1395x(u) and as such, are entitled to reimbursement by Medicare for the "reasonable cost"[1] of services provided to Medicare beneficiaries.
Plaintiffs are challenging the validity of an interpretive policy statement issued by the Deputy Administrator of the Health Care Financing Administration (HCFA), which affects the extent to which hospitals will be reimbursed under the Medicare program. They seek declaratory and injunctive relief and sums due under 42 U.S.C. § 1395 et seq.,[2] the Medicare statute and 5 U.S.C. § 706 of the Administrative Procedure Act.[3]
Medicare reimbursement is determined by apportioning a hospital's total allowable direct and indirect costs between Medicare and non-Medicare patients. The method of apportionment mandated depends on the type of services rendered and is based upon a series of "average costs" determined under regulations and guidelines issued in compliance with the Medicare statute. *676 Hospital services are segregated into three categories for purposes of determining "average costs." One category covers routine services in general care areas; the second covers routine services in special care areas, such as intensive care or coronary care units; the third covers all ancillary services, such as x-ray and lab analysis for which an additional charge is generally made. 42 C.F.R. § 405.452(d)(3)). Average costs are determined separately for each category to reflect the different cost factors associated with the treatment of patients in each of the three hospital areas. It is the calculation of general routine patient care costs which plaintiffs challenge here.
"Routine care costs" are costs incurred for providing routine services to patients in normal hospital beds, including the room, normal dietary and nursing services, minor supplies, and other services for which a separate charge is not customarily assessed. 42 C.F.R. § 405.452(d)(2) (1981). Even though labor/delivery room services are not "routine," section 2345 of the Provider Reimbursement Manual (PRM) (HIM-15) requires that patients in the labor and delivery room, or in other ancillary areas at the midnight census hour, be classified and counted as "inpatients" (that is, as patients receiving routine care) when calculating the average cost of routine care. Once the inpatient count is determined, the total allowable inpatient costs for routine services is divided by the total number of inpatient days of routine care. This formula yields the average or "per diem" cost for routine patient care. The per diem figure is then multiplied by the total number of Medicare inpatient days to determine a hospital's reimbursement for general routine services. 42 C.F.R. § 405.452(d)(2). This method of apportionment is illustrated by the following formula:
STEP 1 - TOTAL COST OF ROUTINE SERVICES = AVERAGE COST
TOTAL # OF "INPATIENT DAYS" "PER DIEM" (of
general routine
services)
STEP 2 - AVERAGE COST × NUMBER OF DAYS = AMOUNT OF
"PER DIEM" OF CARE RENDERED REIMBURSEMENT
TO MEDICARE
BENEFICIARIES
While this formula requires counting labor/delivery room patients as "inpatients" receiving routine care, it does not offset this inclusion with the costs of labor/delivery room services furnished to those same patients.[4] It is undisputed that this treatment of labor and delivery room patients reduces the amount of reimbursement plaintiffs receive.[5]
*677 Several of the hospitals excluded labor and delivery room patients from the calculation of routine care costs on their cost reports to the fiscal intermediary. This "accounting" was refused by the intermediary pursuant to the policy of HIM-15 § 2345. The remaining hospitals complied with the policy but joined with the non-complying hospitals in challenging the policy before the PRRB. The Board sustained the position of the non-complying hospitals and overturned the intermediary. (PRRB) Decision 83-056 at Adm.Rec. 82-86.) The PRRB decided, however, that it lacked jurisdiction to determine the substantive accounting issue as to the complying hospitals. (Adm.Rec. 83) The PRRB then requested and obtained agency review of its decision. The Deputy Administrator[6] of the HCFA reversed the Board on the substantive accounting issue and affirmed the Board's denial of jurisdiction over the complying hospitals.
Both complying and non-complying hospitals seek judicial review of the Deputy Administrator's decision. They claim that the reimbursement scheme mandated by HIM-15 § 2345 is "arbitrary and capricious," an "abuse of discretion" and not in accordance with the applicable law. 42 U.S.C. § 1395 oo (f)(1), 5 U.S.C. § 706. The substance of plaintiffs complaint is that the labor/delivery room policy violates the requirement that Medicare reimburse reasonable costs actually incurred, 42 U.S.C. § 1395x(v)(1)(A), 42 C.F.R. § 405.402(b)(3), and the prohibition against subsidization of Medicare costs by non-Medicare patients, 42 U.S.C. § 1395x(v)(1)(A)(i), 42 C.F.R. § 405.402(a).
Before reaching the merits of the case, the court must address the threshold question of jurisdiction over the hospitals who complied with the labor/delivery room policy and submitted cost reports which included labor and delivery room patients in their inpatient count.
The defendant claims that the jurisdictional statute, 42 U.S.C. § 1395oo (a), allows judicial review only to those hospitals who claimed disputed costs in the reports they submitted to their fiscal intermediaries. Without such a claim, according to the defendant, the Board lacked jurisdiction to hear a provider's dispute as to the amount of its Medicare reimbursement. Consequently, the defendant seeks to limit this court's review of the complying hospitals's claims to a determination of whether the PRRB was correct in deciding it lacked jurisdiction to grant a hearing on their claims. Defendant's Motion for Summary Judgment at 27, 28. The court does not agree with these contentions.
42 U.S.C. § 1395oo (a) affords a provider the right to a "hearing with respect to [its] cost report by the PRRB," if it is "dissatisfied with a final determination" of its fiscal intermediary with respect to the "amount of total program reimbursement due the provider for the items and services furnished to Medicare beneficiaries.[7]" 42 U.S.C. § 1395oo (d) provides that
the Board shall have the power to affirm, modify, or reverse a final determination
STEP 1 - $100,000 total cost of routine services = $500 Avg.
200 total # of "inpatient days" cost "per
diem"
STEP 2 - $500 Avg. cost "per diem" × 50 Medicare patient days = $25,000 reimbursement.
of the fiscal intermediary with respect to a cost report and to make any other revisions on matters covered by such cost report even though such matters were not considered by the intermediary in making such final determination. (Emphasis supplied).
Therefore, neither the act, nor the applicable regulations require a provider to violate agency policy and effect a "self-disallowance" of costs when submitting a cost report as a prerequisite to Board jurisdiction or judicial review. See 42 C.F.R. § 405.1835, § 405.1837. That is, an adjustment by the intermediary is not required for jurisdiction. In an analagous case, St. Mary of Nazareth Hospital Center v. Dept. of Health and Human Services, 698 F.2d 1337 (7th Cir.) cert. denied, ___ U.S. ___, 104 S. Ct. 107, 78 L. Ed. 2d 110 (1983) (affirming St. James Hospital v. Harris, 535 F. Supp. 751 at 760 (N.D.Ill.1981) on the jurisdictional issue) the appeals court addressed the question of district court jurisdiction to decide whether bedside telephones of hospital patients were "personal comfort" items (which are not reimbursable) within the meaning of the Medicare Act. Like the instant case, some of the hospitals in the St. Mary's group appeal had "self-disallowed" the costs of bedside telephones as required by the Secretary's interpretation of the applicable regulations when they filed their cost reports. In rejecting the Secretary's argument that the statute requires an initial presentation of disputed costs to the fiscal intermediary before a hospital is entitled to a hearing by the Board the court held:
[§ 1395oo (d)] vests broad authority in the Provider Reimbursement Review Board to review the finding of the fiscal intermediary and make any adjustment to the cost reports the Board deems necessary. As the statute itself expressly states, the Board may consider any matter even though such matters were not considered by the intermediary in making such final determination. Therefore, the statute allows the Board to consider matters outside of the cost reports ....
Id. at 1346.
Furthermore, since § 1395oo is the exclusive means of judicial review in this case, the presumption of reviewability of administrative decisions mandates jurisdiction in the absence of clear and convincing evidence that Congress intended to limit judicial review. Arlington Hospital v. Schweiker, 547 F. Supp. 670, 677 (E.D.Va. 1982) (appeal filed No. 82-1946 (4th Cir. Oct. 20, 1982) See also Dunlop v. Bachowski, 421 U.S. 560, 95 S. Ct. 1851, 44 L. Ed. 2d 377 (1975). The court believes that the defendant has not overcome this presumption.
Accordingly, the court concludes that jurisdiction is properly vested as to all the plaintiffs. The court now proceeds to consideration of the merits of the case.
The standard of review applicable to a challenge to agency policy is the "arbitrary and capricious" standard of the Administrative Procedure Act, 706(2)(A). Under this section, an agency's action is to be affirmed if it has a rational basis in the record. The court is not permitted to substitute its judgment for that of the agency. Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 91 S. Ct. 814, 28 L. Ed. 2d 136 (1971). That is, the agency's interpretation of its regulations should not be set aside just because the court believes a better interpretation exists. Psychiatric Institute of Washington D.C. Inc. v. Schweiker, 669 F.2d 812 (D.C.Cir.1981).
The Deputy Administrator maintains that the labor/delivery room policy is a reasonable interpretation of the applicable regulations, and is supported by "substantial evidence" in the record. He urges the court to defer to the agency's expertise in interpreting its own regulations. The court does not agree and, with the limited scope of review in mind, is of the opinion that it is unreasonable, irrational and inconsistent with the Medicare statute and regulations to include labor/delivery room patients *679 in the per diem count without concomitantly including the costs those patients generate. In reaching this conclusion, the court finds persuasive the reasoning of the Court of Appeals for the District of Columbia Circuit in St. Mary of Nazareth Hospital Center v. Schweiker, 718 F.2d 459 (1983). In that case, the Court reviewed the labor/delivery room policy of HIM-15 § 2345 and held that
it is irrational to apportion to labor/maternity patients costs which they have not incurred without either including the costs that they have incurred or demonstrating that the distortion is balanced by some other aspect of the accounting process. Because labor/delivery area costs are not included in the calculation of the average routine cost per diem and because there is no evidence that this imbalance is made up elsewhere, non-Medicare payors are forced to bear some of the costs of the Medicare program. This is a concrete violation of the constraints placed on the Secretary's discretion in promulgating regulations....
Id. at 473-474.
The Court of Appeals remanded the case to the district court with instructions for remand to the PRRB for the limited purpose of taking evidence on the issue of whether the use of other ancillary services by Medicare beneficiaries at the census-taking hour sufficed to compensate for the dilution of Medicare reimbursement caused by including labor/delivery patients in the calculation of average general routine costs per diem. Absent substantial evidence to support such a contention, the Secretary was directed to exclude labor/delivery room patients, who have not that day received routine services, from the inpatient count used to derive the average cost per diem for general routine services.
CONCLUSION
The court concludes that it has jurisdiction over all plaintiffs in the group appeal. The policy of HIM-15 § 2345 is not supported by substantial evidence in the record and must, therefore be remanded to the Secretary for further consideration. An appropriate Order will be entered accordingly.
NOTES
[1] Payment to qualified providers under Medicare is made either directly or through fiscal intermediaries pursuant to contract with the Secretary. 42 U.S.C. § 1395h. At the close of its fiscal year, a provider submits a "cost report" which apportions costs between Medicare and non-Medicare patients. 42 C.F.R. § 405.406(b) and § 405.453(f). The intermediary conducts an audit and issues a determination of program reimbursement. An appeal from this determination may be taken to the Provider Reimbursement Review Board (PRRB or Board). 42 U.S.C. § 1395oo. The Board is bound by the Secretary's reimbursement regulations in determining such appeals. 42 C.F.R. § 405.1867. The fiscal intermediary for plaintiffs in this case is the Blue Cross Association which subcontracted certain of its responsibilities to local Blue Cross organizations.
[2] Section 1395oo(f)(1) provides in part for judicial review of final decisions of the Provider Reimbursement Review Board or of the Secretary.
[3] 5 U.S.C. § 706 specifies in pertinent part:
The reviewing court shall
(2) hold unlawful and set aside agency action, findings, and conclusions found to be
(A) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law ...
[4] Patients in the labor/delivery room area are not deemed to occupy "routine" beds, nor do they receive "routine" services. Under the applicable regulations and the PRM these patients are treated as receiving "ancillary" services. PRM § 2202.8. Thus, it is clear that these labor/delivery room costs cannot be included in the routine costs formula under the regulations.
[5] This result can be illustrated assuming the following figures in the two step apportionment calculation:
STEP 1 - $100,000 total cost of routine services = $1000 Avg.
100 total # of "inpatient days" cost "per
diem"
STEP 2 - $1000 Avg. cost "per diem" × 50 Medicare patient days = $50,000 reimbursement.
When the number of "inpatient days" is increased to 200, however, the resulting reimbursement amount is reduced significantly:
[6] The Secretary has the authority to affirm, reverse or modify the decision of the PRRB. 42 U.S.C. § 1395oo (f)(1). That authority was delegated to the Administrator of the Health Care Financing Administration and then redelegated to the Deputy Administrator of the HCFA.
[7] Section 1395oo (a) provides in pertinent part:
Any provider of services which has filed a required cost report within the time specified in regulations may obtain a hearing with respect to such cost report by a Provider Reimbursement Review Board ... if (1) such provider
(A) is dissatisfied with a final determination of the ... fiscal intermediary ... as to the amount of total program reimbursement due the provider for the items and services furnished to individuals for which payment may be made under this title for the period covered by such cost report.... | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1681654/ | 856 F. Supp. 509 (1994)
Patricia A. BIRCK, Plaintiff,
v.
COUNTY OF WALWORTH, Walworth County Park and Planning Commission, and Carol Krauklis, Walworth County Clerk, Defendants.
No. 93-C-0932.
United States District Court, E.D. Wisconsin.
June 25, 1994.
*510 Lisle W. Blackbourn, Godfrey, Neshek, Worth & Leibsle, Elkhorn, WI, for plaintiff.
Kathryn M. West, Whyte Hirschboeck Dudek, S.C., Milwaukee, WI, for defendants.
DECISION AND ORDER
REYNOLDS, District Judge.
Plaintiff Patricia Birck ("Birck") claims, pursuant to 42 U.S.C. § 1983, that Walworth County violated her Fourteenth Amendment rights by denying her application for a conditional use permit that would enable her to land a helicopter on a farm she owns. Defendants have filed a motion for summary judgment and a motion to dismiss for failure to state a claim. For reasons set forth below, the motion for summary judgment will be granted.
I. Facts
Birck's farm consists of 72 acres, most of it zoned "A-1," or "Prime Agricultural Land District." In her application for a conditional use permit, filed April 13, 1993, with the Walworth County Park and Planning Commission ("the Commission"), Birck proposed to use ten square feet of the farm for a helicopter landing pad, the purpose of which would be to facilitate her and her husband's *511 travel to the farm from their home in Northbrook, Illinois. Use of the landing pad would constitute a conditional use under Walworth County Zoning Ordinance § 3.3(B)(12), which designates the following as among the conditional uses of A-1 land:
Airports, airstrips, landing fields and helicopters, which are related to agricultural activities, including those which are used to assist the owner or operator with a means of transportation to and from the site.
(Feb. 1994 Blackbourn Aff., Ex. 1 at 11.)
At a May 20, 1993 hearing before the Commission on Birck's application, she and her husband answered questions about their use of the helicopter, and the owners of a horse stable on land adjacent to the Birck's farm spoke in opposition to the application on the ground that noise from the helicopter would disturb their horses. At a second hearing on June 18, 1993, the Commission viewed a videotape of the helicopter's takeoff and landing, was read a letter from Birck's attorney offering to agree to various restrictions on operation of the helicopter, and was read letters in opposition to Birck's application from a user of the horse stable and from the Town of Walworth Board of Supervisors ("Town Board"). The Commission at the conclusion of the hearing voted to deny Birck's application.
In a formal notice issued the same day, the Commission set forth the following reasons for its decision, which were identical to those stated in the letter from the Town Board:
1. The farm is rented out and is not a hands-on operation operated by the Bircks, nor will they reside on the property.
2. There is opposition and concern by neighbors that the taking off and landing would disturb the tranquility of the neighborhood. In the case of an adjoining horse farm, this would be detrimental and/or dangerous to horses and riders.
3. The nuisance and possible danger to those living in the area outweighs the convenience the Conditional Use would afford the Bircks, and that they could commute to their home on Lake Geneva from an airport such as Big Foot or Lake Lawn just as well.
4. The applicant has failed to demonstrate a need for this in his [sic] farm operation.
(Compl., Ex. I.)
In May 1989, a few years before the Commission denied Birck's application, it granted a conditional use permit for use of a private helicopter pad to Big Foot Farms, Inc. ("Big Foot"), whose property, like Birck's, was located in the Town of Walworth. (Feb. 1, 1994 Birck Aff., Ex. 4.) The notice approving Big Foot's permit application does not indicate whether the Commission had considered the same factors it later considered in denying Birck's application, and no other evidence on this point has been submitted. (Id.)
Review of applications for conditional use permits is governed by Walworth County Zoning Ordinance § 4.2, which provides in pertinent part:
The County Park and Planning Commission shall review the site, existing and proposed structures, architectural plans, neighboring land and water uses, parking areas, driveway locations, highway access, traffic generation and circulation, drainage, waste disposal water supply systems, and the effects of the proposed use, structure operation and improvement upon flood damage protection, water quality, shoreland cover, natural beauty and wildlife habitat, and shall hold a public hearing after publishing ... notice thereof....
The County Park and Planning Commission may authorize the County Zoning Administrator to issue a conditional use permit after review and public hearing, provided that such conditional uses and structures are in accordance with the purpose and intent of this Ordinance and are found to be not hazardous, harmful, offensive, or otherwise adverse to the environmental quality, water quality, shoreland cover, or property values in the county and its communities.
Conditions ... may be required by the County Park and Planning Commission upon its finding that these are necessary to *512 fulfill the purpose and intent of this Ordinance.
Compliance with all other provisions of this Ordinance, such as lot width and area, yards, height, parking, loading, traffic, highway access, and performance standards shall be required of all conditional uses.
(Feb. 1994 Blackbourn Aff., Ex. 1 at 47. (emphasis in original.))
II. Analysis
The court must grant a motion for summary judgment if the pleadings, depositions, answers to interrogatories, admissions, and affidavits "show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). The party moving for summary judgment has the initial burden of asserting the absence of any dispute of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S. Ct. 2548, 2553, 91 L. Ed. 2d 265 (1986). To withstand summary judgment, however, the nonmoving party "must set forth specific facts showing that there is a genuine issue for trial." Fed. R.Civ.P. 56(e).
Birck claims the Commission discriminated against her in violation of the Equal Protection clause of the Fourteenth Amendment by basing its denial of her application on her membership in each of the following groups:
individuals who own farmland but rent it out;
individuals who own farmland but do not actively engage in farming;
individuals who own A-1 farmland located in Walworth County who desire to obtain a conditional use permit for a heliport but do not use such property as a primary residence;
affluent people who have means to have specialized transportation....
(Compl. at ¶ 21.) None of these are "suspect classifications," so the only question is whether Birck's inclusion in any of them constitutes a rational basis for the Commission's decision to deny her application. DeSalle v. Wright, 969 F.2d 273, 275 (7th Cir.1992).
Birck correctly points out that the pertinent Walworth County Ordinance does not itself establish such classifications. This fact, however, while perhaps relevant to the question of whether the ordinance was properly applied as a matter of local law, does not tend to show that use of the classifications was not rationally related to the County's interest in reviewing applications for conditional use permits. Because Birck has not made such a showing, and because it is her burden to do so, this claim must be dismissed.
Birck also claims that the Commission denied her right to equal protection by treating her differently than Big Foot, which was granted the same kind of conditional use permit later denied to Birck. In support of this claim, Birck relies upon Herro v. City of Milwaukee, 817 F. Supp. 768, 772 (E.D.Wis. 1993), where this court held that a plaintiff may state an equal protection claim by showing that factors which the state deemed conclusive in his or her case applied with equal force, and yet were disregarded, in another case. In the instant action, however, Birck has neither alleged nor shown that each of the factors deemed conclusive as to her application (e.g., inconvenience to neighbors, proximity of alternative landing site) applied with equal force to the application filed by Big Foot, and thus Herro affords no basis for concluding that the differential treatment of the two applications was irrational. This equal protection claim must therefore also be dismissed.
Birck's final federal claim is that the Commission's decision deprived her of property without due process of law. This claim is foreclosed by the Seventh Circuit's decision in River Park, Inc. v. City of Highland Park, 23 F.3d 164 (7th Cir.1994), which held that a municipality's zoning decision does not violate the due process clause as long as there was the opportunity to seek review of the decision in state court. In Wisconsin, this opportunity is available through a petition for a writ of certiorari. See, e.g., Snyder v. Waukesha County Zoning Board of Adjustment, 74 Wis. 2d 468, 247 N.W.2d 98 (1976).
*513 Because the court concludes that each of Birck's federal claims must be dismissed, it declines to exercise jurisdiction over her state claims, and therefore will dismiss these claims without prejudice. United Mine Workers v. Gibbs, 383 U.S. 715, 725, 86 S. Ct. 1130, 1138, 16 L. Ed. 2d 218 (1966).
IT IS THEREFORE ORDERED that defendants' December 29, 1993 motion for summary judgment is GRANTED with respect to Birck's federal claims and DENIED with respect to her state claims.
IT IS FURTHER ORDERED that defendants' December 29, 1993 motion to dismiss is DENIED as moot.
IT IS FURTHER ORDERED that Birck's federal claims are DISMISSED and her state claims are DISMISSED WITHOUT PREJUDICE. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1682200/ | 24 F. Supp. 695 (1938)
FIRST NAT. BANK OF BOSTON et al.
v.
WELCH, Collector.
No. 7079.
District Court, D. Massachusetts.
September 13, 1938.
George S. Fuller and Burnham, Bingham, Pillsbury, Dana & Gould, all of Boston, Mass., for plaintiffs.
Francis J. W. Ford, U. S. Atty., and Arthur L. Murray, Sp. Asst. U. S. Atty., both of Boston, Mass., James W. Morris, Asst. Atty. Gen., and Andrew D. Sharpe and Fred J. Neuland, Sp. Assts. to Atty. Gen., for defendant.
BREWSTER, District Judge.
This action is brought to recover an estate tax which, as the plaintiffs allege, was illegally exacted on the estate of Elisabeth M. Dwinnell. The action was heard without jury. From the stipulation and evidence, the following facts appear:
The decedent, Elisabeth M. Dwinnell, was the widow of Clifton H. Dwinnell who, at one time, was president of the plaintiff Bank. Her husband died March 13, 1928, and Elisabeth M. Dwinnell died May 5, 1934.
On November 9, 1927, the decedent and her husband and the First National Bank entered into a trust agreement whereby the decedent and her husband transferred to themselves and the Bank, as trustees, certain securities set forth in a list attached to the trust agreement. On December 6, 1929, the decedent transferred additional property to be held upon the same trust. No controversy arises over the value of the total securities *696 which were contributed to the trust by the decedent. The value of the property so transferred was included by the Commissioner of Internal Revenue. Claim for refund was duly made and was rejected by the Commissioner.
Under the terms of the trust agreement, the trustees were directed to pay over the net income to the decedent for her lifetime, and after her death to her husband for his life, and upon the death of the survivor of the trustors the net income was to be distributed for the benefit of the children of the trustors as, in the opinion of the trustees, their needs might demand, until the termination of the trust.
Article 3 of the agreement provided in part as follows:
"The principal of the said Trust Fund shall be distributed as follows:
"(a) To each of the three children of the trustorsMarshall, Elisabeth and Nancy Tarbellthe sum of fifteen thousand (15,000) Dollars as and when they respectively arrive at the age of twenty-one (21) years;
"(b) To the said Elisabeth M. Dwinnell and, after her decease, to the said Clifton H. Dwinnell, in the discretion of the Trustees, in such amounts and at such time as their comfort, support and/or happiness may require;
"(c) After the decease of the trustors, to their issue, in the discretion of the Trustees, in such amounts and at such times as their comfort, education and/or support may require."
Then followed provisions for the distribution of the principal after a specified time and the death of the Trustors.
The property transferred by the decedent to the trustees represented substantially all of her income-producing property owned at the time.
At the time of her death, on May 5, 1934, the decedent was 60 years of age, and the cause of her death was coronary thrombosis. On November 9, 1927, when the transfer was made, the decedent was 53 years of age, in fairly good health, with no reason to expect that she would not live for many years.
It appeared in evidence that, at the time that the decedent and her husband created these trusts, the avowed purpose was to relieve the husband, who had theretofore taken full charge of the decedent's securities, of the responsibility of managing her affairs.
I find as a fact that the purposes of the trust were not associated with the idea of death, and that the transfer was not made in contemplation of death. The applicable statute is section 302(a), (c) and (d) of the Revenue Act of 1926, 44 Stat. 70, 71. This section, so far as material, provides:
"Sec. 302. The value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated
"(a) To the extent of the interest therein of the decedent at the time of his death; * * *
"(c) To the extent of any interest therein of which the decedent has at any time made a transfer, by trust or otherwise, in contemplation of or intended to take effect in possession or enjoyment at or after his death, except in case of a bona fide sale for an adequate and full consideration in money or money's worth. * * *
"(d) To the extent of any interest therein of which the decedent has at any time made a transfer, by trust or otherwise, where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power, either by the decedent alone or in conjunction with any person, to alter, amend, or revoke, * * *."
The contention of the defendant that the property transferred came within the scope of section 302(c) cannot prevail in the face of an imposing array of authorities. Com'r of Internal Revenue v. Northern Trust Co., 7 Cir., 41 F.2d 732, affirmed 283 U.S. 782, 51 S. Ct. 342, 75 L. Ed. 1412; Com'r of Internal Revenue v. Morsman, 8 Cir., 44 F.2d 902, affirmed 283 U.S. 783, 51 S. Ct. 343, 75 L. Ed. 1412; Com'r of Internal Revenue v. McCormick, 7 Cir., 43 F.2d 277, affirmed 283 U.S. 784, 51 S. Ct. 343, 75 L. Ed. 1413; Reinecke, Coll., v. Northern Trust Co., 278 U.S. 339, 343, 49 S. Ct. 123, 73 L. Ed. 410, 66 A.L.R. 397; May v. Heiner, Coll., 281 U.S. 238, 50 S. Ct. 286, 74 L. Ed. 826, 67 A.L.R. 1244; Hassett v. Welch, 303 U.S. 303, 58 S. Ct. 559, 82 L. Ed. 858.
In all of these cases, the Court was dealing with trust provisions requiring payment *697 of income to the settlor during his or her life, and the decisions are squarely against the defendant's argument that since the decedent enjoyed the income during her lifetime and the future beneficiaries did not come into actual enjoyment of the income, or principal, until she died, it was not possible to find a purpose associated with the life of the settlor. They also preclude the defendant from successfully maintaining that the transfers were to take effect in possession or enjoyment at or after death. In the light of these decisions, further consideration of this contention would not seem to be required.
The further question presented is whether the property transferred comes within the purview of section 302(d) as a transfer by trust, where the enjoyment thereof was subject, at the date of her death, to any change through the exercise of the power, either by her alone or in conjunction with any other person to alter, amend or revoke the trust.
On this question the case of Higgins v. White, 1 Cir., 93 F.2d 357, decided in this Circuit, would seem to be decisive. Although that case involves a statute imposing a tax on income, it is not distinguishable in principle from the case at bar. The provisions of that trust were that the trustees, of whom the settlor was one, should pay to the settlor such sum or sums out of the principal as "they shall deem necessary or advisable for the comfort, maintenance, support, advancement, education or welfare of" the settlor, "and said issue * * * or they may surrender and assign said * * * trust property held hereunder to" [page 358] the settlor, in which case the trust was to cease and determine. The District Court held that these broad provisions of the trust were sufficient to bring it within section 219(g) of the Revenue Acts of 1924 and 1926, 43 Stat. 277, 44 Stat. 34, which provided for the inclusion of income of a trust where the grantor had, during the taxable year, either alone or in conjunction with any person not a beneficiary of the trust, the power to revest in himself title to any part of the corpus of the trust. The Circuit Court of Appeals, however, held that these provisions were not tantamount to a power to terminate the trust or revest the title to the property in the trustor. The Court observed that an examination of the third clause of the trust instrument disclosed that "power to dispose of the principal of the trust fund or to terminate the trust is not a broad power unconditionally given to the grantor in conjunction with any person not a beneficiary under the trust, but is a power which can only be exercised by the trustees as such." (Citations.)
In other words, the trustees must make a determination, as trustees, that they deem it necessary, or advisable, to use the principal of the trust fund for the "comfort, maintenance and support" of the trustor. See, also, White v. Poor, 296 U.S. 98, 56 S. Ct. 66, 80 L. Ed. 80.
The courts of this Commonwealth have consistently held that where the provisions of the trust permit the application of the principal to the support and maintenance of the settlor, the settlor has no right to demand a return of the corpus of the trust, the trustee being bound to exercise good faith in the use of the trust property, and his acts are to be governed with due regard to the rights of the owners of the future interest. Lovett v. Farnham, 169 Mass. 1, 47 N.E. 246; Gardiner v. Rogers, 267 Mass. 274, 166 N.E. 763; Boyden, Tr. v. Stevens, 285 Mass. 176, 188 N.E. 741.
In the light of these authorities, I am forced to agree with the plaintiff's contention that the powers conferred upon the trustees to pay over to the decedent, in their discretion, such amounts as her comfort, support, and happiness might require, did not amount to a power to alter, amend or revoke the trust; and whatever power was to be exercised in this respect was to be exercised by the decedent as a trustee and was not a power reserved, within the meaning of the statute.
Plaintiffs may have judgment according to their declaration. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1682934/ | 595 F. Supp. 976 (1984)
INTERGRAPH CORPORATION, Plaintiff,
v.
STOTTLER, STAGG & ASSOCIATES, INC., et al., Defendants.
Civ. A. CV84-L-5437-NE.
United States District Court, N.D. Alabama, Northeastern Division.
October 16, 1984.
*977 H. Harold Stephens, Lanier, Shaver & Herring, Huntsville, Ala., for plaintiff.
Jack E. Held, Sirote, Permutt, Friend, Friedman, Held & Apolinsky, Birmingham, Ala., for defendants.
MEMORANDUM
LYNNE, Senior District Judge.
Before the Court is the motion of the defendants to dismiss this action for lack of personal jurisdiction, or, in the alternative, to transfer this action to the United States District Court for the Middle District of Florida. Because the Court is convinced that this action should be transferred pursuant to 28 U.S.C. § 1404(a), there is no need to reach the jurisdictional issue.
This action arose from the sale of certain computer equipment by the plaintiff, an Alabama corporation, to the defendants (hereinafter collectively referred to as "Stottler, Stagg"), all of which are Florida corporations located in Cape Canaveral, Florida. This Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1332(a) (diversity of citizenship).
The relevant facts revealed by the pleadings and affidavits are these. In the summer of 1982, Wade Herod, director of operations for Stottler, Stagg, saw an advertisement about Intergraph Corporation ("Intergraph") and its computers in a national magazine. He called Intergraph's Huntsville headquarters and expressed an interest in purchasing an Intergraph computer. Shortly thereafter, Mr. Chet Barr, a Florida resident and local Intergraph sales representative, contacted Mr. Herod and arranged for a meeting at Stottler, Stagg's Cape Canaveral offices. Similar meetings followed, culminating in a formal sales presentation by Intergraph's Florida sales representatives to Stottler, Stagg officials in Cape Canaveral. Following this sales presentation, Intergraph's Florida sales personnel made several more visits to Stottler, Stagg's offices to negotiate and finalize a sale agreement. Ultimately an agreement was reached, and on December 29, 1982, a purchase order prepared and signed by the president of Stottler, Stagg was mailed to Intergraph in Huntsville. Subsequently, Intergraph delivered a good portion of the equipment ordered and installed and tested it at Stottler, Stagg's Cape Canaveral facility. The contract also provided for some on-site training of Stottler, Stagg personnel in the operation of the equipment, to be conducted by Intergraph personnel in Florida. Intergraph was also to service and *978 maintain the equipment following its delivery and installation.
Intergraph correctly points out, however, that not all aspects of this transaction occurred in Florida. For instance, prior to the execution of the sale contract, at least three employees of Stottler, Stagg came to Intergraph's Huntsville officesalbeit at Intergraph's requestto attend a demonstration of the computer equipment. After the contract was executed, and again at the insistence of Intergraph, various Stottler, Stagg employees came to the Huntsville facility for some of their training in the operation of the equipment. Finally, Intergraph points out that some (but not all) of the computer equipment sold was manufactured and developed by Intergraph in Alabama.
Following delivery, installation, and on-site testing of a good portion of the equipment by Intergraph employees at Stottler, Stagg's offices, the Florida buyer began complaining about the equipment and its performance. On several occasions Intergraph maintenance and service personnel in Florida attempted to correct or investigate the problems complained of. Ultimately, Stottler, Stagg refused to pay for the equipment as agreed. Intergraph then filed this suit for breach of contract. Shortly thereafter, Stottler, Stagg brought suit against Intergraph for misrepresentation of the equipment's capacities and breach of contract in the delivery of defective equipment. Stottler, Stagg's suit is currently pending in the United States District Court for the Middle District of Florida.
It is against this background that the Court must consider Stottler, Stagg's motion to transfer the suit filed by Intergraph. Title 28, U.S.C. § 1404(a) provides the controlling criteria:
For the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought.
It is clear that this action "might have been brought" in the Middle District of Florida. It is clear that Stottler, Stagg would have been amenable to suit there, and venue would, of course, be proper there since all the defendants concededly reside in that district. 28 U.S.C. §§ 1391(a), 1391(c).
The propriety of transfer, then, boils down to this: would a transfer best serve the convenience of the parties and the witnesses and the interests of justice? In deciding this question, the plaintiff's choice of forum must be given considerable weight. Howell v. Tanner, 650 F.2d 610, 616 (5th Cir.1981). However, if the plaintiff's choice is clearly outweighed by considerations of convenience, cost, judicial economy, and expedition of the discovery and trial processes, a district court has discretion to disregard the plaintiff's choice of forum and transfer the action to a forum that better promotes these interests. Id. The weighing of relative inconveniences and the determination of the forum in which judicial resources can most efficiently be utilized is a matter committed to the discretion of the trial court. Norwood v. Kirkpatrick, 349 U.S. 29, 75 S. Ct. 544, 99 L. Ed. 789 (1966). See also Howell v. Tanner, 650 F.2d at 616.
In the present case, there can be little doubt that the Middle District of Florida would be a much more convenient forum for the expeditious resolution of this controversy. To begin with, Intergraph appears to be far more capable of litigating outside its home state than is Stottler, Stagg. Intergraph admittedly sells and services computers in many states, including Florida. Although it is headquartered in Alabama, it has sales and service personnel in Florida and obviously conducts a fair amount of business there. By contrast, the defendant appears to be far more localized, and conducts no business in Alabama aside from its purchase of the equipment that is the focal point of this litigation. Stottler, Stagg would suffer substantial inconvenience if forced to defend this suit in Alabama. *979 In light of its significant presence in Florida, Intergraph would suffer little or no inconvenience if forced to prosecute this suit in Florida. Thus, when the relative convenience of the parties is put into the balance, the scales tip decidedly in favor of transferring this action to the Middle District of Florida.
When the convenience of material witnesses and the availability of evidence are considered, the result is the same. The testimony of Intergraph's Florida sales and service representatives, who not only conducted many of the sales presentations and negotiating sessions in Florida, but also installed the equipment at Stottler, Stagg's Cape Canaveral location and tested and serviced it there, will surely play a significant role in the resolution of this controversy. These Florida-based employees clearly have material testimony to provide concerning the existence and nature of the system's alleged defects; the steps, if any, taken to correct those defects; the method of installation of the equipment; the representations made by Florida sales personnel regarding the system's capabilities; and so on. Similarly, all of the Stottler, Stagg employees who have material testimony to offer in this matter reside in Florida. While a few of Intergraph's Alabama employees may also have material testimony to provide concerning the nature of the contract and the capabilities of the system, it is apparent that the predominant convenience of the witnesses favors transfer of this action to Florida.
Another significant factor warranting transfer to Florida is the fact that the equipment itself is located in the State of Florida. It cannot be doubted that the deficiencies in the performance and capacity of the equipment sold by Intergraph will ultimately be raised by Stottler, Stagg in the defense of this suit. As the defendants point out, the proof of Stottler, Stagg's case will very likely involve a demonstration of the equipment's unsuitability through a jury view of the equipment. The need for a jury view in a particular forum has been held to be a material factor warranting transfer in other cases. See, e.g., Koehring Co. v. Hyde Construction Co., 324 F.2d 295 (5th Cir.1963). See also Early & Daniel Co. v. Wedgefield, 164 F. Supp. 414 (M.D.N.C.1958) (action would be more appropriately and conveniently settled if transferred to a forum closer to site where defective goods located).
There is another very important factor favoring transfer. The defendants contend that they are not amenable to suit in Alabama, and that it would be inconsistent with notions of "fair play and substantial justice" to force them to defend this suit in Alabama. Cf. International Shoe Co. v. Washington, 326 U.S. 310, 66 S. Ct. 154, 90 L. Ed. 95 (1945). This raises a "subtle and difficult problem" of personal jurisdiction, Burger King Corp. v. MacShara, 724 F.2d 1505, 1508 (11th Cir.1984). The question of whether a state may exercise specific jurisdiction[1] over a nonresident based on the mere fact of his contractual dealings with a resident plaintiff is one that has "deeply divided the federal and state courts." Lakeside Bridge & Steel Co. v. Mountain State Construction Co., 445 U.S. 907, 909, 100 S. Ct. 1087, 1088, 63 L. Ed. 2d 325 (1980) (White, J., dissenting from denial of certiorari). Indeed, the Supreme Court recently acknowledged the ongoing controversy as to whether mere purchases by a nonresident from a forum seller could ever be a *980 sufficient basis, standing alone, for the exercise of personal jurisdictioneven with regard to litigation arising out of the purchases. See Helicopteros Nacionales de Colombia v. Hall, ___ U.S. ___, 104 S. Ct. 1868, 80 L. Ed. 2d 404, 413 n. 12 (1984). The Supreme Court's treatment of the issue in Helicopteros is ample evidence that the jurisdictional question presented in the case sub judice is an open and troubling one.[2]
In the face of such a subtle and complex question of constitutional law, the considerations warranting transfer become all the more compelling. Judicial economy would hardly be furthered by retaining the action in this district when doing so would require a decision on a close question of constitutional law, a decision which would surely require a substantial investment of judicial resources by this Court and would almost certainly generate one or more appeals. Whether those appeals came before or after a judgment on the merits, this litigation would undoubtedly be prolonged and the costs for both the parties and the judicial system would be substantially increased. The existence of other factors warranting transfer of this action to Florida, where the district court would clearly have jurisdiction to render a judgment on the merits, counsels strongly against stepping into the muddy waters of this jurisdictional morass.
Particularly since plaintiff maintains a substantial presence in Florida in the form of sales and service representatives, and since those representatives have been most intimately involved in the transactions which are at issue in this case, and since the center of gravity of this controversy is clearly in Florida rather than Alabama, this Court is convinced that it should exercise its discretion to transfer this case pursuant to 28 U.S.C. § 1404(a).
NOTES
[1] There has been no contention that Stottler, Stagg has those contacts with the forum of a "continuous and systematic" nature required to justify a court's assertion of "general" jurisdiction over a defendant in litigation unrelated to forum contacts. See Helicopteros Nacionales de Colombia v. Hall, ___ U.S. ___, 104 S. Ct. 1868, 80 L. Ed. 2d 404, 411, n. 8 (1984) (discussion of "general" versus "specific" jurisdiction). Thus, the issue here is one of specific jurisdictionare the contacts of the defendant with the forum in connection with the transaction in issue sufficient to give the Court in personam jurisdiction over the company for purposes of this particular litigation? Cf. Pepsi-Cola Bottling Co. of Ft. Lauderdale-Palm Beach, Inc. v. Buffalo Rock Co., Inc., et al., 593 F. Supp. 1559, 1562 (N.D.Ala. 1984).
[2] Although this Court recently found jurisdiction available over a nonresident who purchased goods from the forum seller in the Buffalo Rock case, supra, n. 1, that case involved a transaction more intimately connected to Alabama than the one involved here. Questions of personal jurisdiction inherently require a thorough analysis of the totality of the circumstances, and each case must be decided on its own facts. Product Promotions, Inc. v. Cousteau, 495 F.2d 483, 499 (5th Cir.1974). Because there is ample reason to transfer this case to Florida, the Court need not decide whether its decision in Buffalo Rock should be extended to uphold jurisdiction on the particular facts of this case. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/4555602/ | Nebraska Supreme Court Online Library
www.nebraska.gov/apps-courts-epub/
08/14/2020 08:07 AM CDT
- 625 -
Nebraska Supreme Court Advance Sheets
306 Nebraska Reports
HAFFKE v. SIGNAL 88
Cite as 306 Neb. 625
Nathan Haffke, appellant, v. Signal 88, LLC,
a Delaware limited liability
company, appellee.
___ N.W.2d ___
Filed July 31, 2020. No. S-19-667.
1. Jury Instructions. Whether jury instructions are correct is a question
of law.
2. Judgments: Appeal and Error. An appellate court independently
reviews questions of law decided by a lower court.
3. Directed Verdict: Appeal and Error. In reviewing a trial court’s ruling
on a motion for directed verdict, the party against whom the motion is
directed is entitled to have every controverted fact resolved in its favor
and to have the benefit of every inference which can reasonably be
deduced from the evidence.
4. Directed Verdict: Evidence. A directed verdict is proper at the close of
all the evidence only when reasonable minds cannot differ and can draw
but one conclusion from the evidence, that is, when an issue should be
decided as a matter of law.
5. Fair Employment Practices: Proof. In order to show retaliation under
the Nebraska Fair Employment Practice Act, a plaintiff must establish
(1) he or she engaged in protected conduct, (2) he or she was subjected
to an adverse employment action, and (3) there was a causal connection
between the protected conduct and the adverse action.
6. Employer and Employee: Proof. A plaintiff alleging he or she was
subjected to retaliatory action based upon opposing or refusing to par-
ticipate in an employer’s practice or action which was unlawful only has
to show a reasonable, good faith belief of the act’s unlawfulness.
7. Employer and Employee. In order for a good faith belief that an
employer’s action was unlawful to be reasonable, the act believed to
be unlawful must either in fact be unlawful or at least be of a type that
is unlawful.
- 626 -
Nebraska Supreme Court Advance Sheets
306 Nebraska Reports
HAFFKE v. SIGNAL 88
Cite as 306 Neb. 625
8. Jury Instructions. When evaluating whether a given instruction ade-
quately states the law, the instruction should not be judged in artificial
isolation but must be viewed in the context of the overall charge to the
jury considered as a whole.
9. Jury Instructions: Appeal and Error. If the instructions given, taken
as a whole, correctly state the law, are not misleading, and adequately
cover the issues submissible to a jury, there is no prejudicial error con-
cerning the instructions and necessitating a reversal.
10. ____: ____. Jury instructions are subject to the harmless error rule, and
an erroneous jury instruction requires reversal only if the error adversely
affects the substantial rights of the complaining party.
11. Courts. It is appropriate to look to federal court decisions construing
similar and parent federal legislation.
12. Employer and Employee: Discrimination: Courts. Employment dis-
crimination laws have not vested in the courts the authority to sit as
super personnel departments reviewing the wisdom or fairness of the
business judgments made by employers, except to the extent that those
judgments involve intentional discrimination.
13. Employer and Employee: Discrimination: Jury Instructions: Appeal
and Error. Instructing a jury on the business judgment rule in an
employment discrimination case is not error.
14. Employer and Employee: Discrimination: Proof. In cases involv-
ing claims of employment discrimination, Nebraska courts recognize a
burden-shifting analysis. First, the plaintiff has the burden of proving
by a preponderance of the evidence a prima facie case of discrimina-
tion. Second, if the plaintiff succeeds in proving the prima facie case,
the burden shifts to the defendant to articulate some legitimate, non-
discriminatory reason for the employee’s rejection. Third, should the
defendant carry the burden, the plaintiff must then have an opportunity
to prove by a preponderance of the evidence that the legitimate reasons
offered by the defendant were not its true reasons, but were a pretext
for discrimination.
15. Libel and Slander: Negligence. A defamation claim has four elements:
(1) a false and defamatory statement concerning the claimant, (2) an
unprivileged publication to a third party, (3) fault amounting to at least
negligence on the part of the publisher, and (4) either actionability of the
statement irrespective of special harm or the existence of special harm
caused by the publication.
16. Rules of the Supreme Court: Pleadings. Nebraska’s pleading rules
require that certain enumerated defenses and any other matter consti-
tuting an avoidance or affirmative defense must be pled in a defend
ant’s answer.
- 627 -
Nebraska Supreme Court Advance Sheets
306 Nebraska Reports
HAFFKE v. SIGNAL 88
Cite as 306 Neb. 625
17. Pleadings. An affirmative defense raises a new matter which, assuming
the allegations in the petition to be true, constitutes a defense to the
merits of a claim asserted in the petition.
18. ____. An affirmative defense generally avoids, rather than negates, the
plaintiff’s prima facie case.
19. Rules of the Supreme Court: Pleadings: Notice. The Nebraska Court
Rules of Pleading in Civil Actions, like the federal rules, have a liberal
pleading requirement for both causes of action and affirmative defenses,
but the touchstone is whether fair notice was provided.
20. Appeal and Error. In the absence of plain error, an appellate court con-
siders only claimed errors which are both assigned and discussed.
Appeal from the District Court for Douglas County: Shelly
R. Stratman, Judge. Affirmed.
Kelly K. Brandon, Aimee C. Bataillon, and Stephanie J.
Costello, of Fiedler Law Firm, P.L.C., for appellant.
Ruth A. Horvatich, Aaron A. Clark, and Cody E. Brookhouser-
Sisney, of McGrath North, P.C., L.L.O., for appellee.
Heavican, C.J., Miller-Lerman, Cassel, Stacy, Funke,
Papik, and Freudenberg, JJ.
Funke, J.
This appeal concerns Nathan Haffke’s termination of
employment by Signal 88, LLC, which led to Haffke’s claim of
retaliation under the Nebraska Fair Employment Practice Act
(NFEPA) 1 and defamation. The district court granted Signal 88
a directed verdict on Haffke’s defamation claim, and a jury
found Haffke failed to prove his retaliation claim. On appeal,
Haffke challenges a jury instruction for retaliation that required
Haffke to have opposed or refused to carry out a practice of
Signal 88 “that is unlawful.” Haffke also challenges the appli-
cability of a jury instruction on the business judgment rule
in an employment action. Finally, Haffke claims the district
1
See Neb. Rev. Stat. §§ 48-1101 to 48-1126 (Reissue 2010 & Cum. Supp.
2016).
- 628 -
Nebraska Supreme Court Advance Sheets
306 Nebraska Reports
HAFFKE v. SIGNAL 88
Cite as 306 Neb. 625
court should not have reached the issue of whether he suffi-
ciently pleaded or proved special damages on his defamation
claim when Signal 88 did not raise compliance with Neb. Rev.
Stat. § 25-840.01 (Reissue 2016) as an affirmative defense. For
the reasons set forth herein, we affirm.
BACKGROUND
Signal 88 is a security service franchisor and sells fran-
chises of mobile security services to business owners. As a
franchisor, Signal 88 is required to comply with the Federal
Trade Commission’s franchise rules, including the preparation
of a franchise disclosure document (FDD) that is provided to
prospective franchisees as part of the sale process. Under item
19 of an FDD, if a franchisor is going to provide a potential
franchisee with a financial performance representation, such
representation is generally required to be disclosed in the
FDD. Haffke testified that Signal 88’s FDD’s at issue in this
case stated:
Other than the information provided in this Item 19, we
do not furnish or provide prospective franchisees any oral
or written information concerning the actual or potential
sales, cost, income or profits of a franchise business.
Actual results vary from unit to unit. We cannot estimate
the results of any particular franchise.
Haffke began working for Signal 88 in December 2014 as
vice president of franchise development. Haffke was respon-
sible for managing a team of contractors and promoting the
sale of security services.
Signal 88 terminated Haffke’s employment in March 2016,
and the parties allege differing reasons for this termination.
Haffke claims he was terminated for alerting Signal 88 it was
engaging in unlawful transactions and refusing to participate in
those transactions. In his appellate brief, Haffke points specifi-
cally to two allegedly unlawful transactions: (1) a Signal 88
independent contractor providing a potential franchisee with
a business plan that included a profit-and-loss statement not
- 629 -
Nebraska Supreme Court Advance Sheets
306 Nebraska Reports
HAFFKE v. SIGNAL 88
Cite as 306 Neb. 625
included in item 19 of the FDD, and (2) an expansion program
in which Signal 88 engaged with members of an existing fran-
chisee company to expand with different territory and pricing
under a newly formed company and purchase the existing
franchise without providing an updated FDD. Signal 88, in
turn, alleges Haffke’s employment was terminated due to poor
performance, including his communication issues in the lead-
ing of his team, unsatisfactory sales performances, and stated
disbelief in Signal 88’s 5-year company plan.
As part of Haffke’s termination from employment, Signal 88
provided a severance agreement and an independent contractor
agreement to continue a relationship in which Haffke would
sell franchises for Signal 88. Although Haffke initially signed
both documents, he soon after revoked the severance agree-
ment, alleging the termination was wrongful. A day after
Haffke informed Signal 88 of his revocation of the severance
agreement, Signal 88 also terminated the independent contrac-
tor agreement.
Haffke filed a claim with the Nebraska Equal Opportunity
Commission in July 2016, alleging retaliation. Signal 88
amended its FDD to make the necessary disclosure of Haffke’s
employment action, and this amendment was included in a
copy of the FDD issued April 19, 2017, which stated:
Haffke v. Signal 88, LLC - Neb 1-16/17-7-48152-S.
Nathan Haffke filed a charge of retaliation with the
Nebraska Equal Opportunity Commission (NEOC) on
or around July 27, 2016. In his Charge, Haffke contends
that the Company retaliated against him after he made
protected whistleblower complaints relating to the lawful-
ness of certain alleged Company activities. Haffke was,
however, terminated from his employment due to his poor
performance. The charge is currently in the investigation
stage with the NEOC.
On July 12, 2017, Haffke sent Signal 88 a letter taking issue
with the FDD’s statement that Haffke was terminated from
- 630 -
Nebraska Supreme Court Advance Sheets
306 Nebraska Reports
HAFFKE v. SIGNAL 88
Cite as 306 Neb. 625
employment “due to his poor performance.” On August 2,
Signal 88 revised the April FDD to state:
Haffke v. Signal 88, LLC - NEB 1-16/17-7-48152-S.
Nathan Haffke filed a charge of retaliation with the
Nebraska Equal Opportunity Commission (NEOC) on or
around July 27, 2016. In his Charge, Haffke contends that
the Company retaliated against him after he made pro-
tected whistleblower complaints relating to the lawfulness
of certain alleged Company activities. It is the Company’s
position that Haffke was separated from his employment
for lawful reasons. The charge is currently in the investi-
gation stage with the NEOC. Haffke seeks compensation
for back pay and mental suffering.
Haffke filed a complaint with the district court in October
2017. Under the first count, Haffke claimed Signal 88 vio-
lated the NFEPA by retaliating against him for his whistle-
blower actions. Specifically, Haffke alleged Signal 88 imper-
missibly retaliated against him by terminating his employment
and revoking the subcontractor agreement because he alerted
Signal 88 to company actions he reasonably and in good faith
believed were unlawful “violations of federal/state franchise
law[,] Nebraska’s Uniform Deceptive Trade Practices Act[,]
and Nebraska’s Consumer Protection Acts,” as well as wiretap-
ping laws.
Under the second count, Haffke claimed defamation extend-
ing from Signal 88’s publication of the April FDD. Haffke
argued the statement that he was “terminated from his employ-
ment due to his poor performance” was untrue, unprivileged,
unlawful, and slanderous per se due to the implication that he
was a poor performer and unfit to carry out employment duties.
Haffke explained that “[u]pon learning of the defamatory dis-
closure, [Haffke] immediately sent a request to Signal 88 . . .
pursuant to [§] 25-840.01 to retract its untrue statements con-
tained within the FDD,” but that “[a]t the time of this filing,
the statement has not been retracted and Signal [88] has not
released an amended FDD.” Haffke alleged he was “damaged
- 631 -
Nebraska Supreme Court Advance Sheets
306 Nebraska Reports
HAFFKE v. SIGNAL 88
Cite as 306 Neb. 625
in lost wages and income, lost fringe benefits, damages to his
reputation, mental and emotional distress, humiliation, and
future lost income.”
Signal 88 filed an amended answer contesting Haffke’s com-
plaint. On the defamation claim, Signal 88 admitted Haffke
had “requested that Signal 88 retract the statement [in the
FDD] that he was terminated from his employment due to his
poor performance” but denied the allegation that the state-
ment had not been retracted and Signal 88 had not released an
amended FDD. Additionally, Signal 88 listed various affirm
ative defenses in its answer, including that Signal 88 “has
complied with all applicable statutes and regulations and, thus,
. . . has not defamed [Haffke]” and that Haffke “did not suf-
fer damages or harm attributable to the action or inaction of
[Signal 88] as alleged in [Haffke’s] complaint.”
A jury trial was held in June 2019. At the close of evidence,
Signal 88 moved for a directed verdict, which the district
court denied as to the retaliation claim. Regarding defama-
tion, the court determined that § 25-840.01 applied and that,
as such, Haffke was required to plead or prove special dam-
ages. Because Haffke failed to plead or prove special damages,
the court granted Signal 88 a directed verdict on the defama-
tion claim.
The district court provided a jury instruction on the remain-
ing retaliation claim. As applicable to the current appeal, jury
instruction No. 8 stated, in relevant part:
Before the Plaintiff, Nathan Haffke, can recover against
the Defendant, Signal 88, LLC, on each of his retaliation
claims. Plaintiff must prove, by the greater weight of the
evidence, each and all of the following:
1. That Plaintiff engaged in a protected activity by
opposing or refusing to carry out a practice of Defendant
that is unlawful under federal law or the laws of the State
of Nebraska[;]
2. That Plaintiff was subjected to materially adverse
action by Defendant;
- 632 -
Nebraska Supreme Court Advance Sheets
306 Nebraska Reports
HAFFKE v. SIGNAL 88
Cite as 306 Neb. 625
3. That Defendant would not have subjected Plaintiff
to the materially adverse action but for Plaintiff’s pro-
tected activity.
As to the first requirement under instruction 8, jury instruction
No. 9 further explained:
Protected activity includes reporting, complaining
about, opposing or refusing to carry out a practice of
Signal 88 that Nathan Haffke reasonably and in good faith
believed to be unlawful under federal law or the laws of
the State of Nebraska.
An employee is protected against retaliation for oppos-
ing or refusing to carry out unlawful activity even if the
conduct complained of is not unlawful.
Jury instruction No. 12 instructed the jury regarding the
business judgment rule and provided: “You may not return a
verdict for the Plaintiff just because you might disagree with
the Defendant’s decision to terminate Plaintiff’s employment
and/or deny the independent contractor agreement or believe it
to be harsh or unreasonable.”
The matter was submitted to the jury. The jury entered a
verdict in favor of Signal 88 and found that Haffke failed to
prove his retaliation claim.
ASSIGNMENTS OF ERROR
Haffke assigns, restated, that the district court erred in
(1) giving instruction No. 8, because a protected activity
in a retaliation claim only requires a reasonable and good
faith belief that the underlying company action the employee
opposed or refused to participate in was unlawful; (2) giv-
ing instruction No. 12 on the business judgment rule when
it is inapplicable to an employment discrimination case and
conflicts with the pretext standard; and (3) granting Signal 88
a directed verdict on the defamation claim and shifting the
burden to Haffke to plead or prove special damages when
Signal 88 failed to raise compliance with § 25-840.01 as
an affirmative defense.
- 633 -
Nebraska Supreme Court Advance Sheets
306 Nebraska Reports
HAFFKE v. SIGNAL 88
Cite as 306 Neb. 625
STANDARD OF REVIEW
[1,2] Whether jury instructions are correct is a question
of law. 2 An appellate court independently reviews questions
of law decided by a lower court. 3
[3,4] In reviewing a trial court’s ruling on a motion for
directed verdict, the party against whom the motion is directed
is entitled to have every controverted fact resolved in its favor
and to have the benefit of every inference which can reason-
ably be deduced from the evidence. 4 A directed verdict is
proper at the close of all the evidence only when reasonable
minds cannot differ and can draw but one conclusion from the
evidence, that is, when an issue should be decided as a matter
of law. 5
ANALYSIS
Jury Instruction No. 8
Under NFEPA, “It is the policy of [Nebraska] to foster the
employment of all employable persons in the state on the basis
of merit . . . and to safeguard their right to obtain and hold
employment without discrimination . . . .” 6 Section 48-1114
provides in relevant part that “[i]t shall be an unlawful employ-
ment practice for an employer to discriminate against any of
his or her employees . . . because he or she . . . has opposed
any practice or refused to carry out any action unlawful under
federal law or the laws of this state.”
[5] In order to show retaliation under NFEPA, a plaintiff
must establish (1) he or she engaged in protected conduct,
(2) he or she was subjected to an adverse employment action,
2
See Jacobs Engr. Group v. ConAgra Foods, 301 Neb. 38, 917 N.W.2d 435
(2018).
3
Id.
4
See id.
5
Id.
6
§ 48-1101.
- 634 -
Nebraska Supreme Court Advance Sheets
306 Nebraska Reports
HAFFKE v. SIGNAL 88
Cite as 306 Neb. 625
and (3) there was a causal connection between the protected
conduct and the adverse action. 7
[6,7] We have previously held that a plaintiff alleging he or
she was subjected to retaliatory action based upon opposing
or refusing to participate in an employer’s practice or action
which was unlawful only has to show a reasonable, good faith
belief of the act’s unlawfulness. 8 In order for such a belief to
be reasonable, the act believed to be unlawful must either in
fact be unlawful or at least be of a type that is unlawful. 9
In challenging instruction No. 8, Haffke argues that the
required element that he “engaged in a protected activity by
opposing or refusing to carry out a practice of [Signal 88]
that is unlawful” improperly stated the law. Haffke claims this
requirement failed to explain that he only needed to establish a
reasonable and good faith belief that Signal 88’s actions were
unlawful and instead imposed an additional burden on him to
show Signal 88’s actions were actually unlawful.
[8-10] When evaluating whether a given instruction ade-
quately states the law, the instruction should not be judged
in artificial isolation but must be viewed in the context of
the overall charge to the jury considered as a whole. 10 If the
instructions given, taken as a whole, correctly state the law, are
not misleading, and adequately cover the issues submissible to
a jury, there is no prejudicial error concerning the instructions
and necessitating a reversal. 11 Jury instructions are subject
to the harmless error rule, and an erroneous jury instruction
7
See McPherson v. City of Scottsbluff, 303 Neb. 765, 931 N.W.2d 451
(2019).
8
See, Oldfield v. Nebraska Mach. Co., 296 Neb. 469, 894 N.W.2d 278
(2017); Wolfe v. Becton Dickinson & Co., 266 Neb. 53, 662 N.W.2d 599
(2003).
9
Oldfield, supra note 8; Wolfe, supra note 8.
10
State v. Ely, 295 Neb. 607, 889 N.W.2d 377 (2017).
11
See Rodriguez v. Surgical Assocs., 298 Neb. 573, 905 N.W.2d 247 (2018).
- 635 -
Nebraska Supreme Court Advance Sheets
306 Nebraska Reports
HAFFKE v. SIGNAL 88
Cite as 306 Neb. 625
requires reversal only if the error adversely affects the sub
stantial rights of the complaining party. 12
Instruction No. 8 followed the wording of § 48-1114 in
requiring that Haffke prove he engaged in a “protected activity”
by opposing or refusing to carry out a practice “unlawful under
federal law or the laws of the State of Nebraska.” Instruction
No. 9 further defined “[p]rotected activity” to include “oppos-
ing or refusing to carry out a practice of Signal 88 that . . .
Haffke reasonably and in good faith believed to be unlawful
under federal law or the laws of the State of Nebraska” and
clarified that “[a]n employee is protected against retaliation for
opposing or refusing to carry out unlawful activity even if the
conduct complained of is not unlawful.”
These instructions provide the required element that Haffke
engaged in a protected activity, that such protected activity
could include opposing or refusing to carry out an unlawful
practice, and that an unlawful practice could include an act
Haffke reasonably and in good faith believed to be unlawful
without needing to actually be unlawful. We find, when read
together, instructions Nos. 8 and 9 correctly state the required
elements of the claimed retaliation under § 48-1114.
We disagree with Haffke’s contention that instruction No. 8
is misleading by requiring actual unlawfulness when instruc-
tion No. 9 only requires a reasonable and in good faith belief
of unlawfulness. Instruction No. 8 follows the wording of
§ 48-1114 and defines a protected activity to include opposing
a company’s unlawful actions. Instruction No. 9 clarifies that
unlawful actions may include actions which the employee rea-
sonably and in good faith believes to be unlawful, but which
do not actually violate the law. These instructions are not con-
tradictory nor misleading. Instead, they are accurate statements
and explanations of the law.
Because instruction No. 8, when read together with the rest
of the instructions, was a correct statement of the law and
12
Id.
- 636 -
Nebraska Supreme Court Advance Sheets
306 Nebraska Reports
HAFFKE v. SIGNAL 88
Cite as 306 Neb. 625
was not misleading, there is no prejudicial error necessitating
a reversal. The district court did not err in giving instruction
No. 8 to the jury.
Jury Instruction No. 12
Haffke next assigns that the district court erred in giving
instruction No. 12, because it instructed the jury regard-
ing the business judgment rule. More specifically, Haffke
contends that the business judgment rule does not apply to
employment discrimination cases and that instruction No. 12
conflicts with the jury’s ability to find Signal 88’s purported
reasons for Haffke’s termination from employment and denial
of the subcontractor agreement were pretext and to draw infer-
ences therefrom.
Haffke argues that the statutory basis for the business judg-
ment rule, and therefore instruction No. 12, is Neb. Rev. Stat.
§ 21-2,103 (Cum. Supp. 2016). Because § 21-2,103 directs
that “[a] director shall not be liable to the corporation or its
shareholders” for any action when made in good faith and pur-
suant to a reasonable and adequately informed belief as to the
best interests of the corporation, Haffke claims the Legislature
intended to limit the business judgment rule’s application to
corporate governance cases. Haffke therefore argues the busi-
ness judgment rule, as provided in instruction No. 12, does not
apply to employment cases.
We agree that § 21-2,103 is inapplicable to the instant action.
However, the language of instruction No. 12 does not address
the application of § 21-2,103. Instruction No. 12 does not
concern a director’s liability to its corporation or shareholders.
Additionally, instruction No. 12 does not reduce or eliminate
an employer’s liability because an employer terminated an
employee pursuant to a good faith, reasonable, and informed
belief as to the best interests of the corporation. Instead,
instruction No. 12 explains that the jury cannot grant Haffke a
verdict simply because the jury finds the termination or denial
of the subcontractor agreement harsh and unreasonable.
- 637 -
Nebraska Supreme Court Advance Sheets
306 Nebraska Reports
HAFFKE v. SIGNAL 88
Cite as 306 Neb. 625
[11] NFEPA is patterned from that part of the Civil Rights
Act of 1964 contained in 42 U.S.C. § 2000e et seq. (2012),
and it is appropriate to look to federal court decisions constru-
ing similar and parent federal legislation. 13 As such, we note
that numerous federal courts have long held that the employ-
ment discrimination laws have not vested in the federal courts
the authority to sit as super personnel departments reviewing
the wisdom or fairness of the business judgments made by
employers, except to the extent that those judgments involve
intentional discrimination. 14
The 11th Circuit has held that a “plaintiff is not allowed to
recast an employer’s proffered nondiscriminatory reasons or
substitute his business judgment for that of the employer.” 15
“Provided that the proffered reason is one that might motivate
a reasonable employer, an employee must meet that reason
head on and rebut it, and the employee cannot succeed by sim-
ply quarreling with the wisdom of that reason.” 16 Additionally,
the Seventh Circuit has held that “[i]t is not the role of the
court to determine whether an employer’s expectations were
fair, prudent, or reasonable.” 17 “So long as its management
decision was not a guise for a discriminatory purpose, we must
respect that decision.” 18 However, at least one circuit court
has recognized that an employer’s business judgment is not an
absolute defense to unlawful discrimination. 19
13
Hartley v. Metropolitan Util. Dist., 294 Neb. 870, 885 N.W.2d 675 (2016).
14
Hutson v. McDonnell Douglas Corp., 63 F.3d 771 (8th Cir. 1995). See,
Boss v. Castro, 816 F.3d 910 (7th Cir. 2016); Ya-Chen Chen v. City
University of New York, 805 F.3d 59 (2d Cir. 2015); Chapman v. AI
Transport, 229 F.3d 1012 (11th Cir. 2000); Verniero v. Air Force Academy
Sch. Dist. No. 20, 705 F.2d 388 (10th Cir. 1983).
15
Chapman, supra note 14, 229 F.3d at 1030.
16
Id.
17
Boss, supra note 14, 816 F.3d at 917.
18
Id.
19
Wexler v. White’s Furniture, Inc., 317 F.3d 564 (6th Cir. 2003).
- 638 -
Nebraska Supreme Court Advance Sheets
306 Nebraska Reports
HAFFKE v. SIGNAL 88
Cite as 306 Neb. 625
These propositions have translated into courts’ determining
that employers have the right to have juries instructed on the
business judgment rule in employment discrimination cases
and that such instructions do not prejudice the employee. 20 In
fact, the Eighth Circuit has held that in employment discrimi-
nation cases, a business judgment instruction is “‘crucial to a
fair presentation of the case.’” 21
The Nebraska Court of Appeals, in a memorandum opinion,
has also noted that employment discrimination laws have not
vested in the courts the authority “‘“to sit as super-personnel
departments reviewing the wisdom or fairness of the business
judgments made by employers, except to the extent that those
judgments involve intentional discrimintation.”’” 22
Contrary to the Civil Rights Act of 1964 as interpreted by
the described federal courts, Haffke contends that the Nebraska
Legislature limited application of the business judgment rule
in its enactment of NFEPA. In support of this argument,
Haffke compares NFEPA to the County Civil Service Act
and cites Blakely v. Lancaster County, 23 wherein we found a
county’s business judgment authority was limited by statutory
requirements and rules adopted by the county for appointing
employees.
In Blakely, a county employee contended that the county
denied him an opportunity to fairly compete for job vacancies
because the county failed to properly comply with the County
20
See, Julian v. City of Houston, Tex., 314 F.3d 721 (5th Cir. 2002); Kelley
v. Airborne Freight Corp., 140 F.3d 335 (1st Cir. 1998); Walker v. AT &
T Technologies, 995 F.2d 846 (8th Cir. 1993); Hancock v. Washington
Hospital Center, 13 F. Supp. 3d 1 (D.D.C. 2014).
21
Stemmons v. Missouri Dept. of Corrections, 82 F.3d 817, 819 (8th Cir.
1996), quoting Walker, supra note 20.
22
Stevens v. County of Lancaster, No. A-18-003, 2019 WL 2755097 at *10
(Neb. App. July 2, 2019) (selected for posting to court website), quoting
Bone v. G4S Youth Services, LLC, 686 F.3d 948 (8th Cir. 2012), quoting
Hutson, supra note 14.
23
Blakely v. Lancaster County, 284 Neb. 659, 825 N.W.2d 149 (2012).
- 639 -
Nebraska Supreme Court Advance Sheets
306 Nebraska Reports
HAFFKE v. SIGNAL 88
Cite as 306 Neb. 625
Civil Service Act. In response to the county’s argument that
no one had the authority “‘to sit as a super personnel depart-
ment reviewing the business judgments made . . . when hiring
personnel,’” this court held that by passing the County Civil
Service Act, “the Legislature has limited those ‘business judg-
ments’ [and that it was] a court’s duty to enforce those statu-
tory requirements.” 24
However, Haffke has pointed to no statutory or regulatory
requirement or limitation which would have limited Signal 88’s
business judgment authority to terminate his employment or
deny his subcontractor agreement, unlike the statutes involved
in Blakely. Contrary to Haffke’s argument, Blakely did not
stand for the proposition that employment decisions are never
subject to a business’ judgment. The statutes and rules involved
in Blakely expressly imposed procedural requirements and lim-
ited the ability of the county as to its consideration of certain
employment decisions. Because we find no such limiting stat-
utes or rules are at issue here, Blakely and its analysis of the
County Civil Service Act do not apply to Haffke’s retaliation
claim under NFEPA.
[12,13] In line with the described federal courts and the
Nebraska Court of Appeals, we too now hold that employment
discrimination laws have not vested in the Nebraska courts
the authority to sit as super personnel departments reviewing
the wisdom or fairness of the business judgments made by
employers, except to the extent that those judgments involve
intentional discrimination. We further hold that instructing
a jury on the business judgment rule in an employment dis-
crimination case is not error when the evidence warrants such
an instruction.
Haffke also claims instruction No. 12 misled the jury and
inhibited its ability to consider and make inferences that
Signal 88’s purported reasons for termination of his employ-
ment and denial of the subcontract agreement were pretexts.
24
Id. at 673, 825 N.W.2d at 161-62.
- 640 -
Nebraska Supreme Court Advance Sheets
306 Nebraska Reports
HAFFKE v. SIGNAL 88
Cite as 306 Neb. 625
Haffke argues this instruction contradicts the pretext standard
provided by instructions Nos. 10 and 11.
[14] In cases involving claims of employment discrimina-
tion, this court has recognized the burden-shifting analysis
which originated in McDonnell Douglas Corp. v. Green. 25
First, the plaintiff has the burden of proving by a prepon-
derance of the evidence a prima facie case of discrimina-
tion. 26 Second, if the plaintiff succeeds in proving the prima
facie case, the burden shifts to the defendant to articulate
some legitimate, nondiscriminatory reason for the employee’s
rejection. 27 Third, should the defendant carry the burden, the
plaintiff must then have an opportunity to prove by a prepon-
derance of the evidence that the legitimate reasons offered by
the defendant were not its true reasons, but were a pretext for
discrimination. 28
Because Haffke articulated a showing that he was dis-
charged following protected activities of which the employer
was aware, he established a prima facie case of retaliatory
dismissal. As a result, the burden shifted to Signal 88 to show
a legitimate, nondiscriminatory justification for discharging
Haffke. Signal 88 met this burden by advancing as justifica-
tion for Haffke’s discharge his work performance issues. The
record adequately substantiates these reasons. Therefore, the
presumption of discrimination disappeared, requiring Haffke
to prove that the proffered justification was merely a pretext
for discrimination.
Instructions Nos. 10 and 11 address the jury’s ability to
consider whether Signal 88’s reasoning was a pretext to hide
retaliation. Specifically, these instructions explain:
25
McDonnell Douglas Corp. v. Green, 411 U.S. 792, 93 S. Ct. 1817, 36 L.
Ed. 2d 668 (1973). See Riesen v. Irwin Indus. Tool Co., 272 Neb. 41, 717
N.W.2d 907 (2006).
26
Riesen, supra note 25; Harris v. Misty Lounge, Inc., 220 Neb. 678, 371
N.W.2d 688 (1985).
27
Id.
28
Id.
- 641 -
Nebraska Supreme Court Advance Sheets
306 Nebraska Reports
HAFFKE v. SIGNAL 88
Cite as 306 Neb. 625
You may find Defendant would not have [terminated
or denied the independent contractor agreement] “but for”
Plaintiff’s opposition to or refusal to carry out an unlaw-
ful practice of Defendant, if it has been proved that the
Defendant’s stated reasons for its decision[s] to [termi-
nate the Plaintiff’s employment or deny the independent
contractor agreement] are not the real reasons, but are a
pretext to hide retaliation.
Instruction No. 12 does not conflict with instructions Nos. 10
and 11 and does not limit the jury’s ability to find Signal 88’s
purported reasons were pretexts to hide its real retaliatory
reasons. Instruction No. 12 explains that the jury cannot find
retaliation simply because it disagrees with Signal 88’s deci-
sion or finds it harsh or unreasonable. It does not address
the possibility that the jury does not believe Signal 88’s
purported reasons were the real reasons. Instead, instructions
Nos. 10 and 11 properly instruct that should the jury deter-
mine Signal 88’s reasons were pretexts to hide retaliation, the
jury could make inferences from that finding and determine
Haffke’s opposition or refusal to carry out Signal 88’s alleg-
edly unlawful business practices was the cause of Haffke’s
termination from employment or Signal 88’s denial of the
subcontractor agreement.
We also find instruction No. 12 did not interfere with the
jury’s ability to draw inferences if it found termination or
denial of the subcontractor agreement was harsh or unreason-
able when compared to Signal 88’s purported reasoning. As
stated, the jury was properly instructed by instructions Nos. 10
and 11 that it could find Signal 88’s offered reasons were not
the real reasons but pretexts to hide retaliation. Additionally,
instructions Nos. 1 and 4 explained that the parties’ arguments
may have been drawn from legitimate deductions and infer-
ences from the evidence and that the jury had the ability to find
facts based upon logical inferences. Instruction No. 12 did not
contradict these instructions and prohibit such inferences from
being made.
- 642 -
Nebraska Supreme Court Advance Sheets
306 Nebraska Reports
HAFFKE v. SIGNAL 88
Cite as 306 Neb. 625
Instruction No. 12, when read together with the rest of the
instructions, correctly states that the jury could not find retali-
ation simply because it disagreed with Signal 88’s purported
reasons or found them harsh or unreasonable. Instruction
No. 12 did not restrict the jury’s ability to draw logical infer-
ences from evidence presented that the termination or denial
of the subcontract agreement was harsh or unreasonable and
did not restrict the jury’s ability to find the purported reasons
were not the real reasons but were pretexts for retaliation under
instructions Nos. 10 and 11. The instructions given, taken
as a whole, correctly state the law, are not misleading, and
adequately cover the submitted issues. Therefore, there is no
prejudicial error concerning instruction No. 12 and necessitat-
ing a reversal. 29
Based upon the foregoing, this assignment of error is with-
out merit.
Defamation
[15] A defamation claim has four elements: (1) a false and
defamatory statement concerning the claimant, (2) an unprivi-
leged publication to a third party, (3) fault amounting to at least
negligence on the part of the publisher, and (4) either action-
ability of the statement irrespective of special harm or the exis-
tence of special harm caused by the publication. 30
Section 25-840.01 addresses this fourth element and states,
in relevant part:
(1) In an action for damages for the publication of a
libel . . . , the plaintiff shall recover no more than special
damages unless correction was requested as herein pro-
vided and was not published. Within twenty days after
knowledge of the publication, plaintiff shall have given
each defendant a notice . . . specifying the statements
claimed to be libelous . . . and specifically requesting
29
See Rodriguez, supra note 11.
30
JB & Assocs. v. Nebraska Cancer Coalition, 303 Neb. 855, 932 N.W.2d 71
(2019).
- 643 -
Nebraska Supreme Court Advance Sheets
306 Nebraska Reports
HAFFKE v. SIGNAL 88
Cite as 306 Neb. 625
correction. Publication of a correction shall be made
within three weeks after receipt of the request. It shall
be made in substantially as conspicuous a manner as the
original publication about which complaint was made. .
. . The term special damages, as used in this section, shall
include only such damages as plaintiff alleges and proves
were suffered in respect to his or her property, business,
trade, profession, or occupation as the direct and proxi-
mate result of the defendant’s publication.
Haffke assigns the district court erred in granting Signal 88
a directed verdict on the defamation claim by shifting the bur-
den to Haffke to plead or prove § 25-840.01. Haffke argues
Signal 88 was required to raise compliance with § 25-840.01
as an affirmative defense but failed to do so. As such, Haffke
claims he was not required to plead or prove special damages
under § 25-840.01.
[16-19] Nebraska’s pleading rules require that certain enu-
merated defenses “and any other matter constituting an avoid-
ance or affirmative defense” must be pled in a defendant’s
answer. 31 An affirmative defense raises a new matter which,
assuming the allegations in the petition to be true, constitutes
a defense to the merits of a claim asserted in the petition. 32 It
generally avoids, rather than negates, the plaintiff’s prima facie
case. 33 The Nebraska Court Rules of Pleading in Civil Actions,
like the federal rules, have a liberal pleading requirement for
both causes of action and affirmative defenses, but the touch-
stone is whether fair notice was provided. 34
Here, the pleadings of the parties put the application of
§ 25-840.01 at issue and gave Haffke fair notice that Signal 88
was alleging its compliance with the statute. In his complaint,
31
Neb. Ct. R. Pldg. § 6-1108(c).
32
Armstrong v. Clarkson College, 297 Neb. 595, 901 N.W.2d 1 (2017).
33
Salem Grain Co. v. City of Falls City, 302 Neb. 548, 924 N.W.2d 678
(2019).
34
Funk v. Lincoln-Lancaster Cty. Crime Stoppers, 294 Neb. 715, 885
N.W.2d 1 (2016).
- 644 -
Nebraska Supreme Court Advance Sheets
306 Nebraska Reports
HAFFKE v. SIGNAL 88
Cite as 306 Neb. 625
Haffke explicitly claimed Signal 88 failed to comply with
§ 25-840.01. The complaint alleged that “[u]pon learning of
the defamatory disclosure, [Haffke] immediately sent a request
to Signal 88 . . . pursuant to [§] 25-840.01 to retract its
untrue statements contained within the FDD,” but that “[a]t
the time of this filing, the statement has not been retracted and
Signal [88] has not released an amended FDD.” Signal 88’s
answer admitted Haffke had “requested that Signal 88 retract
the statement [in the FDD] that he was terminated from his
employment due to his poor performance,” but denied that it
had not retracted the statement or released an amended FDD.
Moreover, Signal 88’s answer claimed it “has complied with
all applicable statutes and regulations and, thus, . . . has not
defamed [Haffke]” and that Haffke “did not suffer damages
or harm attributable to the action or inaction of [Signal 88]
as alleged in [Haffke’s] complaint.” In consideration of these
pleadings, there was a known, disputed question of fact about
whether Signal 88 issued a correction or amendment, and it
was known Signal 88’s compliance with § 25-840.01 was
at issue.
This case is distinguishable from Funk v. Lincoln-Lancaster
Cty. Crime Stoppers, 35 in which we held a “failure to request a
retraction under § 25-840.01 constitutes an affirmative defense
which must be raised prior to trial.” In Funk, the complaint
made an allegation of defamation against the city of Lincoln
but made no reference to § 25-804.01. The city’s answer raised
various affirmative defenses, but did not raise compliance with
§ 25-804.01. This court in Funk noted that the city’s argument
that the plaintiff was entitled to only special damages because
she failed to ask for a retraction was a new matter that raised
a new issue.
Here, Haffke’s complaint makes it clear that he was alleging
that he had sent a request for retraction, that Signal 88 failed
to issue a retraction, and that, as such, he was not limited to
35
Id. at 729, 885 N.W.2d at 12.
- 645 -
Nebraska Supreme Court Advance Sheets
306 Nebraska Reports
HAFFKE v. SIGNAL 88
Cite as 306 Neb. 625
seeking only special damages. Signal 88’s answer admitted that
Haffke sent a request, but it denied the allegation that it failed
to amend the statement. Unlike in Funk, supra, Signal 88’s
reliance on § 28-804.01 was not a new matter that raised a
new issue. The parties’ pleading put § 25-840.01 at issue, and
Haffke had fair notice that Signal 88 was alleging it complied
with § 25-840.01. Accordingly, the district court did not err in
considering the application of § 25-840.01.
[20] Additionally, in his appellate brief, Haffke did not
argue that Signal 88’s amended FDD failed to comply with
§ 25-840.01 and argued only that he was not required to
plead or prove special damages because Signal 88 did not
raise compliance with § 25-840.01 as an affirmative defense.
Although Haffke did raise the argument in his reply brief that
the amended statement did not comply with § 25-840.01 and
argued that this issue raised a question of fact which should
have been determined by the jury before it was determined
he needed to plead or prove special damages, Haffke failed to
assign and argue it in his initial brief. In the absence of plain
error, an appellate court considers only claimed errors which
are both assigned and discussed. 36 Finding no such plain error
here, we decline to address this issue because Haffke failed to
assign and argue it in his initial brief.
CONCLUSION
For the reasons stated above, the district court did not err
in giving instructions Nos. 8 and 12. The court also did not
err in applying § 25-840.01 and directing a verdict in favor
of Signal 88 on Haffke’s defamation claim. Accordingly, we
affirm.
Affirmed.
36
Salem Grain Co. v. Consolidated Grain and Barge Co., 297 Neb. 682, 900
N.W.2d 909 (2017). | 01-03-2023 | 08-14-2020 |
https://www.courtlistener.com/api/rest/v3/opinions/1688936/ | 742 F. Supp. 1058 (1990)
M-S-R PUBLIC POWER AGENCY, a joint powers agency of the State of California, Plaintiff,
v.
TUCSON ELECTRIC POWER COMPANY, an Arizona corporation, Defendant.
No. CIV 86-521 TUC ACM.
United States District Court, D. Arizona.
April 18, 1990.
Wallace L. Duncan, Charles F. Holum, Frederick L. Miller, Duncan, Weinberg & Miller, Washington, D.C., Hugh A. Holub, Linden, Chapa & Fields, Tucson, Ariz., for plaintiff.
James W. Colbert, Paul G. McNamara, Suzanne F. Duff, O'Melveny & Myers, Los Angeles, Cal., Leslie Kathleen Lynch, Tucson Elec. Power Co., Tucson, Ariz., for defendant.
COURT'S FINDINGS OF FACT AND CONCLUSIONS OF LAW AND ORDER
MARQUEZ, District Judge.
This matter having gone to trial before the Court, sitting without a jury, the parties having presented their evidence and the Court having considered and heard the parties' arguments with respect to damages, the Court makes the following Findings of Fact and Conclusions of Law.
FINDINGS OF FACT
The Court entered its Amended Order on liability issues on January 10, 1990, and its Second Amended Order on January 31, 1990. That Order provided, in pertinent part, that TEP had an obligation to act as *1059 agent for M-S-R in connection with M-S-R's attempt to sell energy to SCE in 1985 and that TEP breached that obligation when it advised M-S-R in January of 1985 that it would not do so. The Court also found that TEP breached its scheduling and other obligations to M-S-R, including the covenant of good faith and fair dealing, commencing in 1985 by:
1. refusing to recognize M-S-R's first right to TEP's energy;
2. refusing to permit M-S-R to schedule deliveries on an "on-peak" only basis;
3. refusing to agree to deliver energy to M-S-R above the hourly and seasonal rates in Operating Procedure No. 1 even if additional energy above those rates was available from TEP's coal-fired generators; and,
4. by generally failing to provide M-S-R with the benefits of the parties' agreements.
The Court's Orders left open the question whether M-S-R had suffered any cognizable damages as a result of TEP's breaches of its various obligations. The Court had previously refused to permit M-S-R to present evidence related to coal overcharge calculations and punitive damages, and M-S-R excepted to those rulings. M-S-R did present evidence at trial, primarily through the expert testimony of Mr. Whitfield Russell, that it had suffered various lost profits as a result of TEP's actions. TEP contested that evidence vigorously, primarily through its own expert, Russell Mitchell.
The Court finds that lost profits are a standard measure of damages for breaches of contract. A party may prove its lost profits in various ways, including, as in this case, through expert testimony.
Mr. Russell's study included six different damage claims, broken down into Exhibits A-F within trial Exhibits 195 and 279.[1] M-S-R abandoned Exhibit C after trial, since it was an alternative to the higher claim presented by Exhibit A. This leaves five Exhibits (A, B, D, E and F) in evidence and to be ruled on by the Court.
1. Exhibit A. The Court finds in favor of M-S-R on damage Exhibit A, as presented in trial Exhibit 195. This claim is for profits M-S-R lost as a result of TEP's improperly taking over the 1985-1986 energy sale to Southern California Edison Company ("SCE"). The Court has previously found that TEP had acted and was to continue to act as M-S-R's agent for purposes of the SCE sales. M-S-R had a right to make the "on-peak" sales in the amounts shown by Exhibit A. The Court finds that it is reasonably certain that M-S-R could have made those sales if TEP had acted in accordance with the parties agreement. The Court finds that M-S-R's energy rights were at least as valuable, and as available, as what TEP sold to SCE.
The Court awards M-S-R the full amount shown by Mr. Russell for Exhibit A, $2,705,358, plus interest from the filing of the complaint to the date of payment, as explained below.
2. Exhibit B. The Court finds in favor of M-S-R on damage Exhibit B, again as presented in trial Exhibit 195. This claim is for losses which M-S-R suffered by being forced by TEP to sell to El Paso Electric Company at a loss during the "offpeak" hours in the summer of 1985. M-S-R had a right to make profitable "on-peak" only sales. The Court finds it reasonably certain that M-S-R could have made an "on-peak" sale to El Paso or to some other entity at the times and prices in the amounts shown in Exhibit B of trial Exhibit 195.
The Court awards M-S-R $303,138 on the El Paso claim, together with interest from the filing of the complaint, as explained below.
3. Exhibit E. The Court also finds in favor of M-S-R on damage Exhibit E of trial Exhibit 195. This claim is based on the profits that M-S-R could have made for "on-peak" sales to Nevada Power Company *1060 in the summers of 1988 and 1989. Again, I find it reasonably certain that M-S-R could have made this kind of sale, to Nevada Power or a comparable entity; M-S-R likely could have realized these profits. M-S-R's energy was at least as valuable as what TEP sold to Nevada Power.
The Court awards M-S-R the full amount of this claim, $593,459, together with interest as explained below.
4. Interest. The Court, as noted, awards M-S-R prejudgment interest on the claims shown by damage Exhibits A, B and E. The Court has previously determined that California law applies to this case. California law allows prejudgment interest in contract actions from the date of the filing of the complaint. See Cal.Civ.Code § 3287(b). Both prejudgment interest and post-judgment interest are calculated at 7% per annum.
While the award of prejudgment interest is discretionary with the Court, a full award of interest is appropriate in this case. Without an award of interest, TEP would benefit further by having litigated this case. The claims in Exhibits A and B were essentially liquidated as of the filing of the complaint, so interest should be calculated from the filing of the complaint, or April 1, 1986, to the date of TEP's payment. The Nevada Power claim (Exhibit E) arose later. The interest on that amount should be calculated from two months after the TEP sales to Nevada Power occurred, in accordance with the parties' normal billing practices. Mr. Russell's damage exhibits in trial Exhibit 195 include the proper award of interest through October, 1989. These same interest calculations should simply be carried forward to the date of payment.
5. Exhibits D and F. M-S-R claims as a portion of its damages herein the profits that it contends that it would have earned on sales to:
a. various Southern California municipalities, known as the Edison Resale Cities, under the terms of Special Condition 12 in the tariffs governing the relationship between those municipalities and their principal outside supplier of electricity, Southern California Edison Company ("Edison"); and,
b. the Salt River Project. For each putative sale, M-S-R asserts that, if TEP had delivered energy to it in accordance with its rights under the Interconnection Agreement (as those rights have been determined by this Court), M-S-R would have been able to sell the nonfirm, coal-fired, surplus energy specified in Service Schedule B.5 to those potential purchasers in lieu of the firm power that they were, and are, buying from other sources.
6. M-S-R has no entitlement to firm power as traditionally defined, under Service Schedule B.5 of the Interconnection Agreement. The energy promised in that schedule is expressly designated to be non-firm. The nature of TEP's generating system and the load requirements of that system are such that interruptions of this non-firm energy are most likely to occur during the peak hours of the summer months which is the period when wholesale customers, such as the Edison Resale Cities and the Salt River Project typically have the greatest need for the energy. M-S-R has failed to carry its burden to sustain its claims that the attributes claimed by M-S-R to make Schedule B.5 energy "essentially firm" change the nature of Schedule B.5 energy as non-firm, surplus coal-fired energy or make that energy "essentially firm" and that these entities would have purchased M-S-R power.
7. M-S-R's "first right" is limited to coal-fired, surplus energy. The Court is not persuaded by the evidence that prospective firm power customers would have accepted M-S-R's energy, regardless of its attributes, as a substitute for traditional firm power. This is true even though TEP did have an obligation to maintain resources sufficient to deliver M-S-R's energy at least 95% of the hours each year.
8. The availability of gas turbines under Schedule B.6 does give M-S-R some ability to increase the reliability of deliveries of Schedule B.5 energy by using the turbines as a "back-up" source of energy. The use *1061 of the gas turbines for such a purpose is prohibitively expensive. To be available as a back-up resource, the gas turbines must be reserved by M-S-R at a cost of one dollar per kilowatt of capacity per day. The Court is not convinced that a firm power purchaser would have agreed to this mechanism.
9. Schedule A Emergency Energy provides no enhancement to the reliability of Schedule B.5 energy. TEP is obligated to provide such Emergency Energy only as available, and TEP is the sole judge of availability. Deliveries of Emergency Energy are at TEP's discretion.
10. The evidence was that M-S-R's experience in the marketplace was that Schedule B.5 energy was not, and would not, be perceived by prospective purchasers as competitive with firm power as traditionally defined. From the fall of 1982 until January 1985, when the dispute arose, TEP delivered energy to, or for, M-S-R in accordance with M-S-R's requests and met, or exceeded, all of M-S-R's entitlements under the Interconnection Agreement. During that time, M-S-R attempted to sell its energy to various purchasers, including certain of the Edison Resale Cities. M-S-R was never able to persuade any such prospective purchaser, except Edison, to view its Schedule B.5 energy as the equivalent of firm power, even with the availability of the gas turbines.
11. In addition to persuading the Edison Resale Cities that Schedule B.5 energy was equivalent to the firm power that they were buying from Pacific Gas & Electric Company, any sale to the Resale Cities under Special Condition 12 would require:
a. The concurrence of Edison that the outside resource being imported is a firm resource;
b. firm transmission for delivery of the energy to the Resale Cities; and,
c. timely notice to Edison of the intended importation of power from the outside resource.
The evidence does not establish that any of these conditions were, could or would have been met by an M-S-R sale of Schedule B.5 energy. M-S-R has not shown, by a preponderance of the evidence, that the Resale Cities and Edison would have purchased the energy from M-S-R.
12. All parties have conceded that Special Condition 12 requires firm transmission for the resource to be imported and that the Resale Cities did not possess the requisite transmission rights. The Court is not persuaded that the necessary transmission was available.
13. Under Special Condition 12, an Edison Resale City must give at least eighteen months notice of an intention to import power from an outside resource, which notice can only be given in odd numbered years. While there appears to be no penalty to a Resale City that gives notice and then fails to utilize the outside resource, it is unlikely that a Resale City would have given such notice respecting M-S-R's energy prior to the time that it could reasonably expect that the cost of such energy would be below the cost of power being sold by Edison itself. The evidence, including plaintiff's own computations, shows that M-S-R's cost of energy exceeded Edison's charge to the Resale Cities until January of 1988. If notice had been given at the first available date thereafter, sales could not have begun prior to January of 1991.
14. In addition to persuading the Salt River Project that Schedule B.5 energy is equivalent to the firm power that it is purchasing from TEP, any sale by M-S-R to the Salt River Project would likely require:
a. the ability to deliver the energy at the points of interconnection required by the Salt River Project; and,
b. the ability to deliver energy for the period of time required by the Salt River Project.
M-S-R has failed to carry its burden to show either requirement is, was, or would have been met by M-S-R.
15. The Salt River Project has contracted with TEP for a sale of firm power through the year 2011 with the principal delivery point being the Coronado switchyard. The evidence indicates that that *1062 power contract was intended to replace facilities that the Salt River Project had planned for construction at Coronado. The contract specifies Coronado as the principal delivery point. There is no evidence to show, and nothing from which it is reasonable to even assume, that the Salt River Project would have agreed to a shorter term sale with no deliveries at Coronado. M-S-R has no delivery rights at Coronado, and its entitlement to energy from TEP ends in April 1995.
CONCLUSIONS OF LAW
1. M-S-R must prove both the fact and the amount of damages that it claims to have suffered. See Walpole v. Prefab Manufacturing Co., 103 Cal. App. 2d 472, 230 P.2d 36 (1951). Although the parties disagree as to the standard of proof, both agree that M-S-R has the burden of proof and that, at a minimum, it must prove its claims with reasonable certainty. See Restatement (Second) of Contracts, § 352 and Comment B (1981).
2. M-S-R has met its burden with respect to the sales set forth in paragraphs 1, 2 and 3 herein (Exhibits A, B and E).
3. M-S-R has failed to meet its burden of proving that, but for TEP's contractual breaches, M-S-R would have made the sales to the Edison Resale Cities or to the Salt River Project postulated in its damage claims, or that it would have made any similar sales to prospective purchasers of firm power.
IT IS ORDERED THAT M-S-R's claims for damages for such sales are hereby denied.
IT IS FURTHER ORDERED that the parties shall each bear their own costs.
IT IS FURTHER ORDERED that judgment be entered in accordance with this Order.
NOTES
[1] The Court reserved ruling on the admissibility of Mr. Russell's studies during the course of trial. The Court now admits Exhibits 195 and 279 and rules on them in accordance with this Order. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1689123/ | 742 F. Supp. 1147 (1990)
In the Matter of the Complaint of Silvio MARTELL and Donald Proietto for Exoneration from or Limitation of Liability as to the Owners of the M/V "LA DOLCE VITA".
In the Matter of the Complaint of ROSCIOLI YACHTING CENTER, INC. and Guy Gannett Publishing Co. for Exoneration from or Limitation of Liability as the Owners Pro Hac Vice and Bareboat Charterers of the M/V DONZI Z 33 CROSSBOW VIN # FL8877EK.
In the Matter of the Complaint of DONZI MARINE CORPORATION, a Florida Corporation, for Exoneration from or Limitation of Liability as the Owner of the 1987 DONZI Z 33 CROSSBOW.
Nos. 88-1704-CIV, 88-1735-CIV and 88-6714-CIV.
United States District Court, S.D. Florida.
July 20, 1990.
*1148 Ronald Fitzgerald and Robert L. Spector, Ft. Lauderdale, Fla., for claimants.
Jonathin Fordin, Miami Beach, Fla., for defendants.
MEMORANDUM OPINION
SCOTT, District Judge.
These proceedings present various claims for an exoneration or limitation of liability pursuant to the Limitation of Liability Act.[1] 46 U.S.C.App. § 181-188 (1958) (originally enacted as Act of Mar. 3, 1851 ch. 43, sec. 3, 9 stat. 635). The Petitioners Roscioli Yachting Center, Inc. ("Roscioli") and Guy Gannett Publishing Co. ("Guy Gannett") are bareboat charterers of the M/V Donzi *1149 Z 33 Crossbow.[2] The Respondents Stephen Lamar Barrett and Linda Sue Barrett are the parents of the decedent Sean Barrett. These parties were brought together by an accident which occurred in the Intracoastal Waterway at or near the Dania Beach bridge on July 26, 1987, resulting in the tragic death of Sean.
Subsequently, Stephen and Linda Barrett filed a wrongful death action in the Broward County Circuit Court (Case no. 88-06829-CP). Petitioners responded by filing with this Court their respective applications for exoneration or limitation of liability. Following a hard fought round of pretrial motions and discovery, this case proceeded to non-jury trial on all issues except damages.[3] The Court now enters these findings of fact and conclusions of law pursuant to Federal Rule of Civil Procedure 52(a). We proceed fully cognizant of the depth of emotion that this action must naturally invoke.
I. FINDINGS OF FACT
1. The Respondents, Stephen Lamar Barrett and Linda Sue Barrett, are the duly appointed Personal Representatives of the Estate of Sean Benjamin Barrett, their deceased son.
2. The beneficiaries of the wrongful death action of Sean Benjamin Barrett include both his estate and his parents.
3. Petitioner, Guy Gannett, was a foreign corporation authorized to do and was doing business in the State of Florida at all times material to the allegations contained herein and was the owner, operator and licensee of radio station WZTA at 94.9 FM a/k/a ZETA 4.
4. Petitioner, Roscioli, was a Florida corporation doing business in the State of Florida at all times material to the allegations contained herein and was the entity which leased the Donzi Crossbow to Guy Gannett.
5. At all times material to the allegations contained herein, Donzi Marine Corporation had owned and manufactured the 1987 Donzi Z 33 Crossbow (hereinafter "Donzi Crossbow") with Hull Identification Number DMRZE098E787 and Dealer Registration Number FL 8877ED with the markings "Bud-Lite Zeta" on its sides in large painted letters.[4]
6. The Donzi Crossbow was a pleasure craft and a seagoing vessel used by Roscioli and Guy Gannett for commercial purposes. Specifically, Roscioli leased the vessel to Guy Gannett, who in turn used the vessel to promote its radio station and Bud-Lite beer.
7. Roscioli had obtained by direct charter agreement from Donzi Marine Corporation the sole, complete and exclusive right to possess and control the vessel. Having secured this position, Roscioli then subchartered the vessel to Guy Gannett while retaining no rights of possession to itself. Guy Gannett then had the exclusive right to control the Donzi vessel, including time and frequency of operation, destination, provisioning, procurement of insurance, crew selection and maintenance. The only status retained by Roscioli was ultimate responsibility for the vessel's safe return to its owner Donzi Marine Corporation.
8. On Sunday, July 26, 1987, at approximately 4:30 p.m., a tragic boating accident occurred on the Intracoastal Waterway in Broward County. This accident occurred in the vicinity between the Dania Beach Boulevard Bridge and the Dania cut-off canal.
9. The weather conditions existing at the time of the accident were good. It was sunny and clear.
10. Three vessels were players in this accident. The Barrett vessel was heading north. The Donzi Crossbow was also heading north and following the Barrett vessel. *1150 A third vessel, a Sea Ray, M/V "La Dolce Vita", was proceeding south.[5]
11. The Donzi Crossbow cleared the no wake zone at the Dania Beach Bridge and accelerated to pass the Barrett vessel on the right. As the Donzi passed the Barrett vessel, it was travelling at an excessive rate of speed for the existing conditions, producing a large wake. As a result of this wake, the Barrett vessel capsized.
12. After capsizing, the Barrett vessel immediately sank and Sean Barrett suffered death by drowning.
13. The powerful wake produced by the Donzi Crossbow was one of the proximate causes of the Barrett vessel capsizing.
14. The Donzi Crossbow was seen speeding on the day of the accident and on past occasions during the summer of 1987.
15. On the day of the accident, the operator of the Donzi Crossbow was Captain John James Huard. Captain Huard holds a 100 ton captain's license and has operated sea-going vessels for twenty years. Captain Huard clearly observed the Barrett vessel and should have been aware of the danger of capsizing, given the circumstances. Notwithstanding he proceeded to pass at an excessive rate of speed.
16. On the date of the accident Captain Huard was employed by Guy Gannett to operate the Donzi vessel. In return for his services, Guy Gannett paid Captain Huard an hourly wage of twenty ($20.00) dollars.
17. However, this was not the case with regard to the relationship Captain Huard maintained with Roscioli. On the date of the accident Captain Huard was not acting on behalf of Roscioli.[6]
18. The other occupants in the Donzi vessel were Eugene J. Machael III a/k/a Lee Gillette and Janis Estelle Levy. Gillette was an employee and representative of Guy Gannett's radio station, Zeta 4.
19. The Barrett boat, with Wellcraft decals, was rebuilt and restored by one Ron Weins who sold the vessel to Stephen Lamar Barrett. Barrett bought the vessel at an outdoor boat sale.
20. The Barrett vessel was 19' 81" in length, with a Tuna Tower 7' in width and over 10' in height. In addition, this vessel had limited seating capacity.
21. The Barrett vessel had been used without incident on several occasions prior to the time of this accident.
22. The operator of the Barrett vessel at the time of the accident was Tommy Bailey. Mr. Bailey did not have any marine license nor had he ever taken any safe boating courses.
23. Bailey undertook operation of the Barrett vessel only moments before the accident occurred. Prior to that time, Stephen Barrett had performed all of the navigational responsibilities.
24. Bailey attempted to avoid the wake produced by the Donzi vessel. However, given the amount of alcohol he had previously consumed and his limited boating experience, Bailey's options were limited and the accident was inevitable.
25. The seven other occupants on the Barrett vessel included Stephen Lamar Barrett, Linda Barrett, Sean Barrett, Karen Griffith, Charles Griffith, Dale Lewis and Carol Anderson.
26. At no time prior to the accident had there been more than four occupants aboard the Barrett vessel.
27. At the time of the accident, there were two people in the Tuna Tower with a combined weight of approximately 380 pounds. This was the first occasion that two individuals simultaneously occupied the Tuna Tower.
*1151 28. The six other occupants aboard the Barrett vessel had a combined weight of approximately 800 pounds.
29. As testified by a defense expert, the tuna tower was not stable, especially given the large number of passengers and their combined weight.
30. Considering the number of occupants aboard the Barrett vessel in conjunction with the stability tests conducted by the various experts, the Court finds that this vessel was unstable for the manner in which it was being used. This instability was one of the proximate causes of the Barrett vessel capsizing.
31. On the day of the accident there was a case of beer and two gallon jugs of wine aboard the Barrett vessel. The beer was consumed by the four men aboard.
32. Two and one half hours after the accident, Bailey's blood alcohol level was determined to be .06 by toxicologist Gene DeTuscan.
33. It was the accepted practice for Captain Huard and other employees and/or agents to use the Donzi Crossbow to promote the interests of Zeta-4 and Bud-Lite beer. In support of this promotion, the crew aboard the vessel would travel the Intracoastal Waterway making scheduled appearances at various restaurants. Once at the restaurant, the crew would distribute Zeta 4 and Bud-Lite promotional gifts to the patrons.
34. Although young Sean was not wearing a life preserver at the time of the accident, the Court finds that this was not a legal cause of the accident. In our view, a life preserver would have made no difference, given the circumstances of the accident. When the vessel capsized, Sean, like his mother, was undoubtedly thrown directly under the hull in the dark, murky waters of the Intracoastal Waterway. The mother testified that she was barely able to locate an air pocket and survive the ordeal. A baby such as Sean had no chance. While the Court does not condone Linda Barrett's failure to reposition the life preserver after leaving the restaurant, we nonetheless conclude that this failure did not contribute to his death.[7]
35. Given the foregoing factual findings (as well as any later supplement), the Court assesses the relative percentages of fault as follows:
a. Roscioli is assessed no percentage of responsibility for the occurrence of this accident.
b. Guy Gannett is assessed responsibility in the amount of 37%.
c. The Barretts are assessed responsibility in the amount of 63%.
While such an assessment can never be made with scientific certainty, we nonetheless feel comfortable in our determination, given the circumstances of this case.
II. CONCLUSIONS OF LAW
1. This action involves application of the Limitation of Liability Act. 46 U.S.C.App. 181 et seq. Specifically, it involves application of sections 46 U.S.C.App. 183 and 186.[8]*1152 Generally, if applicable, these statutory provisions allow a vessel owner or bareboat charterer to limit its liability for damages arising from an accident involving a demised vessel.
2. Before addressing the merits of this Act, a brief description of the theory and purpose behind its enactment is necessary. This Act was enacted over one hundred and thirty years ago in order to promote the employment of American vessels in seaborne commerce. American Car. & Foundry Co. v. Brassert, 289 U.S. 261, 53 S. Ct. 618, 77 L. Ed. 1162 (1933); Complaint of B.F.T. No. Two Corp., 433 F. Supp. 854 (E.D.Pa.1977). However, due to the extraordinary hazards associated with this mode of transportation, Congress felt that this objective could only be achieved by assuring that the maritime entrepreneur's risks would not exceed the amount of his capital investment. Flink v. Paladini, 279 U.S. 59, 49 S. Ct. 255, 73 L. Ed. 613 (1929); See, Note, "Shipowner's Limitation of Liability" 3 Colum. J.L. & Soc. Probs. 105 (1967). Thus, to promote America's burgeoning shipping industry Congress enacted the Limitation of Liability Act. 46 U.S. C.App. 181 et seq.
3. To seek the benefits afforded under the Limitation of Liability Act it is necessary, as a threshold, that the party establish itself as either the owner or bareboat charterer of the vessel in question. 46 U.S.C.App. 183 and 186.
4. Certainly, neither Roscioli nor Guy Gannett owned the Donzi Crossbow. Thus, the question becomes whether either entity constituted a bareboat charterer of this vessel.[9]
5. In essence, to create a bareboat charter it is necessary that possession, command and navigation of the vessel be relinquished to the charterer. Guzman v. Pichirilo, 369 U.S. 698, 82 S. Ct. 1095, 8 L. Ed. 2d 205 (1962), citing United States v. Shea, 152 U.S. 178, 14 S. Ct. 519, 38 L. Ed. 403 (1894); Gaspard v. Diamond M. Drilling Co., 593 F.2d 605 (5th Cir.1979); Irby v. Tokai Lines, No. 88-6890, 1990 WL 18880 (E.D.Pa.1990) (available on Lexis February 23, 1990). Anything short of such a complete relinquishment is considered a voyage or time charter. Interocean Shipping Co. v. M/V Lygaria, 512 F. Supp. 960 (D.Md. 1981).
6. Both the charter agreement existing between Donzi corporation and Roscioli, as well as the sub-charter agreement existing between Roscioli and Guy Gannett constitute bareboat charters in the strictest sense. In this regard, the evidence adduced at trial clearly established that the requisite degree of control was relinquished in both instances.
7. In their charter agreement with Donzi corporation it was provided that Roscioli would acquire the sole, complete and entire right to possession and control of the vessel. This in fact occurred. Having secured this position, Roscioli then subchartered the vessel to Guy Gannett while retaining no rights of control to itself. Guy Gannett thus had, during the pendency of the sub-charter agreement, the exclusive right to control the vessel. This control included, among other things, the vessel's time and frequency of operation, destination, procuring insurance, and crew selection. Accordingly, the manifest weight of the evidence requires that both Roscioli and Guy Gannett be classified as bareboat charterers of the Donzi Crossbow.
8. Having made this determination, an additional two-step analysis is necessary in deciding whether the protection afforded under the Limitation of Liability Act should be invoked in this proceeding. First, the Court must determine what acts of negligence or conditions of unseaworthiness caused the accident. Second, the Court must determine whether the bareboat charterer had knowledge or privity of those same acts of negligence or conditions of unseaworthiness. Farrell Lines, Inc. v. *1153 Jones, 530 F.2d 7 (5th Cir.1976); Keys Jet Ski, Inc. v. Kays, 893 F.2d 1225 (11th Cir. 1990).
9. Initially, the Barretts bear the burden of establishing that Roscioli and/or Guy Gannett were negligent. Coryell v. Phipps, 317 U.S. 406, 63 S. Ct. 291, 87 L. Ed. 363 (1943); Hercules Carriers, Inc. v. Claimant State of Florida, 768 F.2d 1558 (11th Cir.1985); Farrell Lines, Inc. v. Jones, 5th Cir.1976); See also, G. Gilmore & C. Black, Admiralty, section 10-25 (1957). To satisfy this burden the Barretts must establish that their losses were proximately caused by Roscioli's and/or Guy Gannett's negligence or by unseaworthy conditions aboard the Donzi vessel. To prove such causation, the Barretts must show that an act or omission was a cause which in the natural and continuous sequence, unbroken by an intervening cause, produced the results complained of. See, In the Matter of the Complaint of Moran Towing & Transportation Co., No. 86-0320, 1989 WL 167603 (D.Me.1989).
10. As evidenced by the aforementioned factual findings, the Barretts are unable to satisfy their initial burden of establishing negligence or unseaworthiness on the part of Roscioli. Accordingly, Roscioli is entitled to an exoneration of its liability pursuant to the Limitation of Liability Act. 46 U.S.C.App. 181 et seq.
11. However, as found above, Guy Gannett was indeed responsible for several contributing factors which brought about this unfortunate accident. Having made this determination of negligence and legal causation on the part of Guy Gannett, the question becomes whether Guy Gannett had privity or knowledge of this negligent conduct.
12. Having established negligence on the part of Guy Gannett, the burden of proof now shifts to this entity to prove lack of privity or knowledge of such negligence. Verdin v. C & B Boat Co., Inc., 860 F.2d 150 (5th Cir.1988); Petition of M/V Sunshine, II, 808 F.2d 762 (11th Cir.1987); Hercules Carriers, Inc. v. Claimant State of Fla., 768 F.2d 1558 (11th Cir.1985); Tittle v. Aldacosta, 544 F.2d 752 (5th Cir. 1977); Coleman v. Jahncke Service, Inc., 341 F.2d 956 (5th Cir.1965). That is, Guy Gannett is required to establish by a preponderance of the evidence that it had neither privity nor knowledge of those acts of negligence which caused the loss.
13. In the context of a corporation, privity or knowledge means the privity or knowledge of a managing agent, officer or supervising employee or those to whom the management of a vessel has been delegated or whose scope of authority includes supervision over the phase of the business out of which the loss or injury occurred. See, Coleman v. Jahncke Service, Inc., 341 F.2d 956 (5th Cir.1965); Bates v. Merritt Seafood, Inc., 663 F. Supp. 915 (D.S.C.1987).
14. In a limitation proceeding, an owner may not escape liability by giving managerial functions to an employed person acting as its agent whether the person be corporate or otherwise. The Silver Palm, 94 F.2d 776 (9th Cir.1938); Boston Towboat Co. v. Darrow-Mann Co., 276 F. 778 (1st Cir.1921); Petition of Warner-Quinlan Co., 10 F. Supp. 28 (D.N.J.) aff'd, 78 F.2d 870 (3rd Cir.1935). "The title or rank of these employees is, by itself, of limited value in determining on which side of the line a particular case falls." United States v. Standard Oil Co. of California, 495 F.2d 911 (9th Cir.1974). While this may be one factor, the real test is not as to their being officers in the strict sense, but as to the largeness of their authority. United States v. Standard Oil Co. of California, 495 F.2d at 917.
15. Given this standard, the Court concludes that Guy Gannett, through its supervisory representatives and employees, was aware or should have been aware of the nature of the activities onboard the Donzi during the period prior to the accident. Representatives of the radio station were always onboard the Donzi when it undertook these promotional ventures.[10] During *1154 these trips, the vessel engaged in conduct inconsistent with good boating practice, including speeding. Such actions were testified to by independent eye-witnesses. Since officers and representatives of the radio station were onboard the vessel and participated in the conduct, we therefore conclude that Guy Gannett should not receive the benefits of the Act. It had knowledge and privity of the negligent acts. As a result, Guy Gannett is unable to claim the benefits afforded by the Limitation of Liability Act.
III. LEGAL DETERMINATIONS
Based upon the foregoing findings of fact and conclusion of law, it is ordered as follows:
1. Guy Gannett's petition for a limitation of its liability is DENIED.
2. Roscioli's petition for an exoneration of its liability is GRANTED.
3. The injunction of the state court proceedings previously entered by the Court on September 19, 1988, is hereby lifted. The parties may proceed to a trial on the issue of damages.
4. The Court hereby retains jurisdiction of these consolidated actions for a period of thirty (30) calendar days to either confirm or enforce the terms of this Memorandum Opinion.
5. Within five (5) calendar days from entry of this Order, counsel for the Barretts' shall submit a final judgment consistent with this Memorandum Opinion.
DONE and ORDERED.
NOTES
[1] If applicable, this Act allows a bareboat charterer to either obtain an exoneration of liability or a limitation of its liability to the value of the demised vessel and her freight. 46 U.S.C.App. 181 et seq.
[2] Silvio Martell and Donald Proietto, owners of the M/V "La Dolce Vita," were also petitioners in this consolidated action, but settled with the Respondents prior to trial.
[3] This was agreed to by the parties and the Court prior to trial.
[4] Subsequent to the July 26, 1987 accident, Donzi Marine Corporation sold the Donzi Crossbow in question to Pier 75 Dry Rack of Toledo, Ohio.
[5] During the course of the trial, all parties meticulously avoided any finger-pointing at the Sea Ray nor requested any specific finding of fault on the Sea Ray by the Court. We therefore see no reason to embark on such a course. See, Ebanks v. Great Lakes Dredge & Dock Co., 688 F.2d 716 (11th Cir.1982); Drake Towing Co., Inc. v. Meisner Marine Const. Co., 765 F.2d 1060, 1068 (11th Cir.1985) ("[I]t is improper for the court to consider in the first instance the liability of a tortfeasor not represented at trial").
[6] On previous occasions Captain Huard has acted in the capacity of an independent contractor on behalf of Roscioli.
[7] Having thoroughly considered the evidence adduced at trial, the Court is convinced that the Barretts were good, decent and loving parents who erred by assuming that a short boating trip would be uneventful. The inevitable guilt borne by this decision will undoubtedly plague the Barretts for the remainder of their lives. However, the Court is cautiously optimistic that its decision regarding the absence of a life preserver will serve as some form of consolation.
[8] These statutory provisions provide in pertinent part as follows:
46 U.S.C.App. 183: Amount of Liability; loss of life or bodily injury; privity imputed to owner; "seagoing vessel":
(a) The liability of the owner of any vessel, whether American or foreign, ... for any loss, damage, or injury by collision, or for any act, matter, or thing, loss, damage, or forfeiture, done, occasioned, or incurred, without the privity or knowledge of such owner or owners, shall not ... exceed the amount or value of the interest of such owner in such vessel, and her freight then pending.
46 U.S.C.App. 186: Charterer may be deemed owner:
The charterer of any vessel, in case he shall man, victual, and navigate such vessel at his own expense, or by his own procurement, shall be deemed the owner of such vessel within the meaning of the provisions of this chapter relating to the limitation of the liability of the owners of vessels; and such vessel, when so chartered, shall be liable in the same manner as if navigated by the owner thereof.
[9] On this same date the Court has entered a Memorandum Opinion in The Matter Of The Complaint Of Anheuser-Busch, Inc., For Exoneration From Or Limitation Of Liability 742 F. Supp. 1143 which provides an extensive analysis of the requisites necessary to establish a bareboat charter.
[10] Eugene J. Machael a/k/a Lee Gillette, a disc jockey with Zeta 4, was the employee to whom management of the promotional enterprise had been delegated to both on past occasions, as well as on the day of the accident. Rather than acquiescing in and encouraging reckless operation of the Donzi vessel, Gillette, as Guy Gannett's supervisory representative, should have insured safe and proper operation. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1689199/ | 742 F. Supp. 70 (1989)
McALLISTER BROTHERS, INC., et al., Plaintiffs,
v.
OCEAN MARINE INDEMNITY CO., and Gulf Coast Marine, Inc., Defendants & Third-Party Plaintiffs,
v.
SEAHAWK INTERNATIONAL, INC., Third-Party Defendant.
No. 87 Civ. 3840 (RJW).
United States District Court, S.D. New York.
December 22, 1989.
*71 George W. Sullivan, Lilly Sullivan Purcell Barkan & Junge PC, New York City, for plaintiffs.
Douglas R. Burnett, Hill Rivkins Loesberg O'Brien Mulroy & Hayden, New York City, for defendants and third-party plaintiffs.
Leonard H. Rubin, New York City, for third-party defendant Seahawk.
MEMORANDUM DECISION
ROBERT J. WARD, District Judge.
This action concerns a contract of marine insurance which was obtained by McAllister Brothers, Inc. on its own behalf and on behalf of various insured interests (collectively "McAllister"), and which was brokered by third-party defendant Seahawk International, Inc. ("Seahawk"). Defendants and third-party plaintiffs Ocean Marine Indemnity Co. ("Ocean Marine") and Gulf Coast Marine, Inc. ("Gulf Coast") are, respectively, a five percent participant in the underwriting of the insurance policy and its parent company and managing general agent.
*72 Originally, this action was filed in the Supreme Court of the State of New York, County of New York. On June 11, 1987, Ocean Marine and Gulf Coast removed the action to this Court pursuant to 28 U.S.C. § 1441. Plaintiffs did not oppose removal. In a decision filed on January 4, 1988, the Court granted defendants' motion to implead Seahawk into this action pursuant to Rule 14, Fed.R.Civ.P.
Pursuant to Fed.R.Civ.P. 56(b), all parties have moved for summary judgment on the issue of liability under the insurance policy. Ocean Marine and Gulf Coast contend that coverage under the policy lapsed due to nonpayment of premiums, and effective notice of cancellation was given to plaintiffs. McAllister and Seahawk allege that the cancellation was ineffective, or if effective, was rescinded. Alternatively, they argue that the cancellation was a breach of the terms of the insurance policy. Ocean Marine and Gulf Coast have also moved, pursuant to Rule 12(b)(6), Fed.R. Civ.P., for dismissal of plaintiffs' claim for punitive damages.
Additionally, Seahawk has moved for (1) remand of this action to state court pursuant to 28 U.S.C. § 1447(c), (2) dismissal of the third-party claims against it due to a number of alleged jurisdictional and procedural defects, pursuant to Rules 9(b), 12(b) and 14, Fed.R.Civ.P., and (3) sanctions against third-party plaintiffs and their counsel pursuant to Rule 11, Fed.R.Civ.P. In response, Ocean Marine and Gulf Coast cross-moved to amend the third-party complaint pursuant to Rule 15, Fed.R.Civ.P. and for the imposition of Rule 11 sanctions against Seahawk and its counsel.
By order filed on June 14, 1989, this action was referred to the Honorable James C. Francis IV, United States Magistrate, to report pursuant to 28 U.S.C. § 636(b)(1) and Rule 4 of the Local Rules for Proceedings Before Magistrates. On August 30, 1989, Magistrate Francis filed his Report and Recommendation (the "Report") in which he recommended that the motions for summary judgment, the motion for remand to state court and the motion to dismiss the third-party complaint be denied, that the motion to dismiss the claim for punitive damages be granted, and that leave be granted to amend the original and third-party complaints. Report at 2.
All of the parties have made timely written objections to a portion or portions of the magistrate's Report. The Court has reviewed the Report and has considered de novo those portions to which there were objections. For the following reasons, the Court accepts, with certain modifications, the magistrate's proposed findings and recommendations.
BACKGROUND
McAllister Brothers, Inc., a shipping company with headquarters in New York, obtained insurance protection for vessels in its ownership or control through Seahawk, a New York-based broker of marine insurance. The contract of marine insurance in dispute, Marine Hull and Machinery Policy No. SI-001-86 H & M (the "Policy" or the "Contract"), was to have been in effect from March 1, 1986 to March 1, 1987, and required the payment of a $2,700,000.00 premium by McAllister. At its inception, the Contract covered 107 vessels, barges, and various other pieces of marine equipment against damage to hull and machinery. The Contract provided that each vessel was to be deemed a separate interest, individually insured in all respects, as if a separate policy had been issued for it.
The parties dispute who prepared the terms and conditions of the Policy. Magistrate Francis found that the terms of the Policy were prepared by Seahawk, and, as is customary in the marine insurance business, Seahawk then sought underwriters to cover the risks insured under the policy. Report at 3. McAllister maintains that the Policy was prepared by Atlantic Mutual Insurance Company ("Atlantic"), which subscribed to twenty-five percent of the coverage to be provided and assumed the role of lead underwriter for the Policy. According to McAllister, Seahawk only carried out the mechanical preparation of the Policy, not its substantive drafting, and then submitted the terms and conditions set forth by Atlantic to the various subscribing *73 underwriters for acceptance. Ocean Marine and Gulf Coast subscribed to a 5% participation in the coverage provided under the Policy. Neither Ocean Marine nor Gulf Coast had any role in drafting or issuing the Contract.
The terms of the Policy do not specify conditions for payment of premiums.[1] The binder for the Policy, however, provides that the total premium of $2,700,000.00 was to be "payable quarterly (premium financed)." The various underwriters did not bill McAllister directly for premiums. Instead, McAllister made payments to Seahawk which, in turn, made payments to the underwriters. On March 25, 1986, Seahawk sent McAllister four quarterly premium invoices that reflected quarterly payments due on March 1, June 1, September 1, and December 1, of that year.
During the term of the Policy, coverage for additional vessels was agreed upon and previous coverage for vessels was deleted. These changes were reflected in periodic endorsements issued by Seahawk and submitted to the underwriters. The endorsements set forth schedules which included quarterly dates for the payment of additional premiums for new coverage or for the return of premiums for deleted coverage, beginning from the date of the change in coverage. Periodically, Seahawk would send invoices to plaintiffs reflecting debits or credits for these changes. These invoices generally reflected payments due or returnable quarterly, but some reflected lump sums due or returnable within a particular quarter.
McAllister asserts that the frequent addition and deletion of insured vessels through the endorsement process required it continually to reassess and recalculate payments due to Seahawk. According to McAllister, as a matter of convenience, a net balance for endorsements, whether a debit or a credit, was to be determined as the expiration date for the Policy approached, not on a quarterly basis. Ocean Marine and Gulf Coast argue that there was no such practice in effect, and that the adjustments for the endorsements were payable or returnable quarterly.
McAllister did not make the premium payments required by the Contract on the quarterly due dates. The first two premium installments paid to Seahawk by McAllister were received on or about April 10 and July 22, 1986, respectively. Payment of the third installment to Seahawk was apparently made on October 20, 1986.[2]
Magistrate Francis found that Seahawk, after receiving McAllister's check for the third-quarter premium installment, forwarded payment to Gulf Coast for its share of the third quarter premium. Report at 5-6. Prior to receipt of this check, however, Gulf Coast sent a letter to Seahawk dated October 22, 1986, stating that "[i]n accordance with the non-payment of premium provisions of this policy, we hereby give thirty (30) days notice of cancellation."
The Seahawk check was received by Gulf Coast on October 23, 1986, and was acknowledged in a handwritten postscript to a second letter from Gulf Coast to Seahawk dated October 23, 1986, which stated:
The list of open items attached to my letter of October 22, 1986 was incorrect as it reflected open items as of August 19, 1986.
Enclosed is a corrected list showing open items as of October 21, 1986. The items shown in the attached statement for McAllister are those that need to be paid in order that we can reinstate coverage....
P.S. I acknowledge your payment of the third quarter but still need to have the endorsements paid.
The attached statement included McAllister's third-quarter premium, crossed out by *74 hand, and a number of debit and credit listings under the heading "McAllister Brothers," dated March, April and May 1986.
The October letters from Gulf Coast were not sent directly to McAllister. As the magistrate found, it is unclear from the submissions just when McAllister received actual notice of Gulf Coast's attempt at cancellation. Testimony by the president of Seahawk indicates that Seahawk immediately delivered a copy of the Gulf Coast letters to McAllister, but believed that payment of the third-quarter premium settled the issue. McAllister contends that it believed that coverage under the Policy remained intact, that the first notice it had of the alleged cancellation was received from Windward International, its claims adjuster, and that it was not until February 20, 1987 that an actual copy of the October 22, 1986 Gulf Coast letter was received from Seahawk. Gulf Coast and Ocean Marine dispute these assertions, and claim that, in addition to the notice McAllister received from Seahawk in October, McAllister received notice of the cancellation in January 1987.
The Policy contains a cancellation clause that states:
In the event of non-payment of premium when due, this policy may be cancelled by Underwriters provided 30 days written notice is provided. With the exception of premium non-payment, this policy may not be cancelled except by mutual consent. Premiums are returnable in accordance with the provisions of the American Institute Hull Clauses (6/2/77) as respects non-payment of premium, mutual agreement (sic) to cancel or termination under change of ownership clause therein.
The American Institute Hull Clauses (the "Hull Clauses") contain a non-payment of premium provision which provides, in part, that:
In event of non-payment of premium 30 days after attachment, or of any additional premium when due, this Policy may be cancelled by the Underwriters upon 10 days written or telegraphic notice sent to the Assured at his last known address or in care of the broker who negotiated this Policy.
Ocean Marine and Gulf Coast contend, in effect, that the Hull Clauses' non-payment of premium provision was a material part of the Policy, thereby providing that effective notice of cancellation could be given to either McAllister or Seahawk. On the other hand, McAllister and Seahawk assert that the Hull Clauses' non-payment provision is applicable only regarding return of premiums, not cancellation for non-payment of premiums. They maintain, therefore, that notice to McAllister was required for effective cancellation.[3]
At the time of the cancellation letters, Gulf Coast was owed $2,047.65 in premiums for endorsements, utilizing a debit and credit calculation. On the basis of later returns for vessels that were deleted prior to October 22, 1986, the net amount of endorsements was determined to be $1,029.39. Gulf Coast did not receive payments for the fourth-quarter premium or for endorsements for the entire policy period.
Gulf Coast, however, made payments to plaintiffs subsequent to its October 22, 1986 letter of cancellation. Payments of $57,979.89 and $35,420.86 were made which reflected balances on claims that had accrued prior to October 22, 1986. Gulf Coast has not paid its five percent share of claims submitted for payment arising out of casualties occurring after November 22, 1986, the date from which it claims the cancellation notice became effective. The five percent share of casualties incurred from November 22, 1986 to March 1, 1987 presently equals $382,991.66. Additional casualties were suffered by insured vessels during this period, but have not yet been *75 adjusted or submitted to the underwriters for payment.
DISCUSSION
To accept the report and recommendation of a magistrate to which no timely objection has been made, a district court need only satisfy itself that there is no clear error on the face of the record. See Rule 72, Fed.R.Civ.P., Notes of Advisory Committee on Rules (citing Campbell v. United States District Court, 501 F.2d 196, 206 (9th Cir.), cert. denied, 419 U.S. 879, 95 S. Ct. 143, 42 L. Ed. 2d 119 (1974). 28 U.S.C. § 636(b)(1) affords the district court broad latitude in considering a magistrate's recommendation, and the court is not bound by the recommendation, even if no party objects to it. Grassia v. Scully, 892 F.2d 16, 18-19 (2d Cir.1989). When timely objection has been made to a portion or portions of a magistrate's report, however, the district judge must "make a de novo determination ... of any portion of the magistrate's disposition to which specific written objection has been made." Rule 72(b), Fed.R.Civ.P.; see also 28 U.S.C. § 636(b)(1). The judge may then accept, reject, or modify in whole or in part, the magistrate's proposed findings and recommendations. 28 U.S.C. § 636(b)(1).
A district court's obligation to make a de novo determination of properly contested portions of a magistrate's report does not require that the judge conduct a de novo hearing on the matter. United States v. Raddatz, 447 U.S. 667, 676, 100 S. Ct. 2406, 2412, 65 L. Ed. 2d 424 (1980). It is sufficient that the district court "arrive at its own, independent conclusion about those portions of the magistrate's report to which objection is made." Hernandez v. Estelle, 711 F.2d 619, 620 (5th Cir.1983). To this end, the court must "exercise sound judicial discretion with respect to whether reliance should be placed on the magistrate's findings." American Express Int'l Banking Corp. v. Sabet, 512 F. Supp. 472, 473 (S.D.N.Y.1981), aff'd without opinion, 697 F.2d 287 (2d Cir.), cert. denied, 459 U.S. 858, 103 S. Ct. 129, 74 L. Ed. 2d 111 (1982).
In the instant case, all of the parties have filed timely written objections to the magistrate's Report. McAllister, Seahawk, Gulf Coast and Ocean Marine object to the magistrate's recommendation that their motions for summary judgment be denied. Seahawk objects to the magistrate's recommendation that the motion for remand to state court be denied, and to all of the magistrate's Report under the heading "Claims Against Third-Party Defendant."
A. Jurisdiction
Gulf Coast and Ocean Marine cited both diversity and admiralty as the jurisdictional basis for removal of this action to federal court. Seahawk asserts that there was no legal basis for removal based on admiralty jurisdiction and no factual basis for diversity jurisdiction. Gulf Coast, Ocean Marine and McAllister assert that removal was proper, and that any improprieties that may exist should be remedied by amendment of the complaint.
1. Admiralty Jurisdiction
District courts have exclusive jurisdiction over admiralty and maritime cases pursuant to 28 U.S.C. § 1333(1).[4] Nonetheless, under the saving to suitors clause of section 1333(1), plaintiffs with a common law claim arising from a transaction over which a federal court would have admiralty jurisdiction may either avail themselves of federal admiralty jurisdiction or sue at law in state court. E.g. 14 C. Wright, A. Miller & E. Cooper, Federal Practice and Procedure, § 3672 at 430-333 (1985) (hereinafter "Wright & Miller").
Admiralty cases fall within the district court's original jurisdiction, but are not cases "arising under" the Constitution, laws or treaties of the United States for purposes of original federal question jurisdiction under 28 U.S.C. § 1331 or 28 U.S.C. *76 § 1441(b). Romero v. International Terminal Operating Co, 358 U.S. 354, 363, 367-68, 79 S. Ct. 468, 477-78, 3 L. Ed. 2d 368 (1959). Until recently, it had been the case that actions arising solely under admiralty jurisdiction which were mistakenly filed in state court could never be removed to federal court because of the derivative nature of removal jurisdiction; a federal court could not acquire jurisdiction on removal because the state court had no jurisdiction over the case in the first instance. See Yangming Marine Transport Corp. v. Electri-Flex Co., 682 F. Supp. 368, 372 (N.D.Ill.1987); Eastern Steel & Metal Co. v. Hartford Fire Insurance Co., 376 F. Supp. 763, 764-65 (D.Conn.1974); Wright & Miller § 3674 at 460, § 3721 at 196-97. This jurisdictional limitation on the federal courts was eliminated by the Judicial Improvements Act of 1985, Pub.Law No. 99-336, § 3, 100 Stat. 633, 637 (1986) (codified at 28 U.S.C. § 1441(e)), which provides that:
The court to which [a] civil action is removed is not precluded from hearing and determining any claim in such civil action because the State court from which such civil action is removed did not have jurisdiction over that claim.
The purpose of this provision was to eliminate the judicial inefficiency created by the "arcane" concept of derivative jurisdiction. H.Report No. 99-423, 99th Cong., 2d Sess. 13, reprinted in, 1986 U.S.Code Cong. & Admin.News, 1545, 1553.
One court has held that the addition of section 1441(e) implies that actions embracing admiralty jurisdiction filed in state court may now be removable under 28 U.S.C. § 1441(a), which provides for removal of "any civil action brought in a State court of which the district courts of the United States have original jurisdiction," and 28 U.S.C. § 1441(b), which limits such removal in non-federal question actions to those situations where "none of the ... defendants is a citizen of the state in which such action is brought." See Yangming Marine Transport Corp. v. Electri-Flex Co., supra, 682 F.Supp. at 372-73. Such a broad interpretation of a defendant's ability to remove admiralty matters pursuant to section 1441 may lead to certain anomalous results, see id. at 373; Wright & Miller § 3674 at 466, and would tend to eviscerate the choice of forum guaranteed under the saving to suitors clause in section 1331. See Romero v. International Terminal Operating Co, supra, 358 U.S. at 371-72, 79 S.Ct. at 479-80. Other courts have adopted a narrower interpretation of the effect of section 1441(e), allowing removal only if the action was one exclusively within federal maritime jurisdiction, but mistakenly filed in state court. See Estate of Morales v. New Orleans Gulf Harbor Services, Inc., 703 F. Supp. 501, 502 (M.D.La. 1989).
Similarly, where plaintiffs mistakenly file an action in state court that could fall within the saving to suitors exception to exclusive admiralty jurisdiction, but actually intended to file the action as one in admiralty, removal on the basis of admiralty jurisdiction under § 1441(a), (b), and (e) may well be proper. See Queen Victoria Corp. v. Insurance Specialists of Hawaii, Inc., 694 F. Supp. 1480, 1483 n. 8 (D.C.Hawaii 1988). Such is the case here. Plaintiffs acquiesced in the removal of this action. They have consistently and forcefully maintained that their claims are admiralty claims, within the admiralty jurisdiction of this Court, not state claims filed under the saving to suitors clause. Indeed, an action on a marine insurance policy is indisputably within the original admiralty jurisdiction of the federal courts, Wilburn Boat Co. v. Fireman's Fund Insurance Co., 348 U.S. 310, 313-14, 75 S. Ct. 368, 370-71, 99 L. Ed. 337 (1955); Queen Victoria Corp. v. Insurance Specialists of Hawaii, Inc., supra, 694 F.Supp. at 1482, and Seahawk has abandoned its argument that the declaratory relief sought by plaintiffs is outside the scope of admiralty jurisdiction. Moreover, plaintiffs' own insistence that they intended their claims to be admiralty claims eliminates any threat that treating the action as one within the Court's admiralty jurisdiction will unduly restrict plaintiffs' choice of forum under section 1333(1). Cf. Romero v. International Terminal Operating Co, supra, 358 U.S. at 371-72, 79 S.Ct. at 479-80. Holding that this action is within the *77 Court's admiralty jurisdiction is fully consistent with the requirements of the removal provisions of section 1441, and gives effect to plaintiffs' clear intention to have their claims heard in admiralty, despite their initial filing in the state court.[5] Accordingly, the Court concludes that this action is properly within federal admiralty jurisdiction.
B. Summary Judgment on Liability
A court may grant the extraordinary remedy of summary judgment only when it is clear both that no genuine issue of material fact remains to be resolved at trial and that the movant is entitled to judgment as a matter of law. Rule 56, Fed.R.Civ.P. In deciding the motion, the Court is not to resolve disputed issues of fact, but rather, while resolving ambiguities and drawing reasonable inferences against the moving party, to assess whether material factual issues remain for the trier of fact. Knight v. U.S. Fire Ins. Co., 804 F.2d 9, 11 (2d Cir.1986) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-250, 106 S. Ct. 2505, 2509-2511, 91 L. Ed. 2d 202 (1986)), cert. denied, 480 U.S. 932, 107 S. Ct. 1570, 94 L. Ed. 2d 762 (1987). Only if "no reasonable trier of fact could find in favor of the nonmoving party" should summary judgment be granted. H.L. Hayden Co. of New York, Inc. v. *78 Siemens Medical Systems, Inc., 879 F.2d 1005, 1011 (2d Cir.1989). In other words, only where the entire record would inevitably lead a rational trier of fact to find for the moving party is summary judgment warranted. National Railroad Passenger Corp. v. City of New York, 882 F.2d 710, 713 (2d Cir.1989).
As noted above, the parties in the instant case have each moved for summary judgment. Cross-motions for summary judgment, however, do not warrant the granting of summary judgment unless the Court finds that "one of the moving parties is entitled to judgment as a matter of law upon facts that are not genuinely disputed." Frouge Corp. v. Chase Manhattan Bank, 426 F. Supp. 794, 796 (S.D.N.Y. 1976). See also Bank of Am. Nat'l Trust and Sav. Ass'n v. Gillaizeau, 766 F.2d 709, 716 (2d Cir.1985); Schwabenbauer v. Board of Educ., 667 F.2d 305, 313-14 (2d Cir.1981); Home Ins. Co. v. Aetna Casualty and Surety Co., 528 F.2d 1388, 1390 (2d Cir.1976).
Where the issue to be decided concerns the proper interpretation of a contract, "summary judgment is perforce improper unless the terms of the agreement are `wholly unambiguous.'" Wards Co., Inc. v. Stamford Ridgeway Associates, 761 F.2d 117, 120 (2d Cir.1985) (quoting Heyman v. Commerce & Industry Insurance Co., 524 F.2d 1317, 1320 (2d Cir.1975)). If the meaning of a contract term is not clear, or is reasonably susceptible to more than one interpretation, summary judgment is inappropriate. Record Club of America, Inc. v. United Artists Records, Inc., 890 F.2d 1264, 1270-71 (2d Cir. November 20, 1989). "[W]here one party opposes summary judgment by propounding a reasonable interpretation of a disputed matter, it may be sufficient to defeat the motion." Schering Corp. v. Home Insurance Co., 712 F.2d 4, 10 (2d Cir.1983).
The purpose of contract interpretation is to give effect to the expressed intent of the parties. Record Club of America, Inc. v. United Artists Records, supra, at 1271. "Where parties' intent cannot be conclusively determined as a matter of law from the terms of the agreement at issue, a factual question arises that must be resolved by a jury." Enercomp, Inc. v. McCorhill Publishing, Inc., 873 F.2d 536, 546 (2d Cir.1989). See also Schering Corp. v. Home Insurance Co., supra, 712 F.2d at 10 (summary judgment likely to be inappropriate when the issues concern intent).
Magistrate Francis found that genuine issues of material facts exist concerning the meaning of certain terms of the Contract, precluding summary judgment. He noted that:
the terms of the contract of insurance at issue here are ambiguous in several areas. The provisions for the timing of premium payments are somewhat cryptic, consisting only of the phrase "payable quarterly" on the binder. No due dates or explication are found in the policy itself. The status of payments for endorsements is also unclear. Such payments are premiums for insurance coverage, and could be considered to be due quarterly, if the language on the binder is construed to refer to all premiums. The endorsements are not included in the $2,700,000 total referred to on the binder, however, and might just as reasonably be treated separately from premium payments. Finally, there are several plausible interpretations of the notice provisions of the policy regarding cancellation for non-payment of premium. The policy's cancellation clause does not specify to whom notice of cancellation is to be given. The provisions of the American Institute Hull Clauses regarding nonpayment of premium may or may not apply to cancellation of coverage under the contract.
Report at 14.
The Court notes that defendants/third-party plaintiffs' acceptance of the third-quarter premium payment may imply that the Policy was not effectively cancelled, or if cancelled, that such cancellation was rescinded. The matter is not beyond doubt, however, especially because of the ambiguity in the language of the Contract noted by the magistrate and the disputed facts surrounding the practice of *79 the parties concerning payment of the Contract premium and the endorsements. Plaintiffs' assertion that rules of contract construction should be applied to eliminate any ambiguity on their motion for summary judgment is misguided, as it fails to acknowledge that such principles of contract construction are to be invoked only as a last resort, when other efforts to fathom the parties intent have proved fruitless. See Record Club of America, Inc. v. United Artists Records, supra, at 1271. Accordingly, the Court concurs with Magistrate Francis' finding that genuine issues of material fact exist rendering summary judgment inappropriate, and the motions for summary judgment are denied.
C. Punitive Damages
The magistrate concluded that plaintiffs' claim for punitive damages should be dismissed. McAllister has not objected to this aspect of the Report. To recover punitive damages, a plaintiff must allege more than a mere disagreement over the terms of a contract with a defendant, or the breach of a contract by a defendant. See Durham Industries, Inc. v. North River Insurance Co., 673 F.2d 37, 41 (2d Cir. 1982); Eccobay Sportswear v. Providence Washington Insurance Co., 585 F. Supp. 1343, 1344 (S.D.N.Y.1984). The Court has examined the record and finds no clear error in the magistrate's recommendation that this claim be dismissed. Accordingly, the Court adopts Magistrate Francis' recommendation, and the claim for punitive damages is dismissed.
D. Third-Party Complaint
1. Impleader
Seahawk argues that it was improperly impleaded into this action under Rules 14(a) and 14(c), Fed.R.Civ.P. Primarily, Seahawk contends that Rule 14(c) was inapplicable because this action was not an admiralty action, but an action under the saving to suitors clause, removed to the federal court, which consequently does not contain the necessary statement identifying it as an admiralty action for Rule 14(c) purposes. As set forth at pages 11 to 16 supra, the Court disagrees with Seahawk's interpretation of the jurisdictional basis of this lawsuit, and concludes that Rule 14(c) impleader was proper in this admiralty case.
The broad parameters for impleader under Rule 14(c) apply when "a plaintiff asserts an admiralty or maritime claim within the meaning of Rule 9(h)." Rule 9(h) states, in part, that:
A pleading or count setting forth a claim for relief within the admiralty and maritime jurisdiction that is also within the jurisdiction of the district court on some other ground may contain a statement identifying the claim as an admiralty or maritime claim for the purposes of Rule[] 14(c).... If the claim is cognizable only in admiralty, it is an admiralty or maritime claim for those purposes whether so identified or not.
Because diversity is lacking in this case, plaintiffs' claim is cognizable only in admiralty. Accordingly, the lack of an identifying statement in the complaint is irrelevant to the application of Rule 14(c). Therefore, the magistrate correctly recommended that there is no need to revisit this Court's decision of January 4, 1988, granting the motion to implead Seahawk into this action. The Court concurs, and Seahawk's motion to dismiss the third-party complaint on these grounds is denied.
2. Amending the Third-Party Complaint
Seahawk's remaining argument concerns the First Cause of Action in the third-party complaint which alleges, inter alia, that Seahawk, through acts of misrepresentation, misled defendants into believing McAllister had obtained alternative insurance coverage. Seahawk charges that the allegations in this claim fail to meet the standards of particularity required by Rule 9(b). While the allegations in this claim are minimal, Ocean Marine and Gulf Coast have moved pursuant to Rule 15(a) to amend the third-party complaint to add facts already developed by discovery to their claims. Seahawk contends that leave to amend should not be granted because *80 the motion was unduly delayed and did not have a copy of the proposed amended third-party complaint appended to it. The magistrate recommended that leave to amend the third-party complaint be granted, finding that Seahawk would not be unduly prejudiced by an amendment that only puts existing evidence, of which Seahawk is aware, into the pleadings. Report at 19.
Rule 15(a) provides that leave to amend a pleading "shall be freely given when justice so requires." Amendments are favored as a general matter, see East River Savings Bank v. Sect. of Housing and Urban Development, 702 F. Supp. 448, 459 (S.D.N.Y.1988), in order "to facilitate a proper decision on the merits." Conley v. Gibson, 355 U.S. 41, 48, 78 S. Ct. 99, 103, 2 L. Ed. 2d 80 (1957). Unless there is a good reason to deny a motion to amend, failure to grant it is an abuse of discretion. Foman v. Davis, 371 U.S. 178, 182, 83 S. Ct. 227, 230, 9 L. Ed. 2d 222 (1962); United States v. Continental Illinois National Bank and Trust Co., 889 F.2d 1248, 1255 (2d Cir.1989). Reasons sufficient to justify the denial of leave to amend include undue delay, bad faith, or undue prejudice to the opposing party. See Foman v. Davis, supra, 371 U.S. at 182, 83 S.Ct. at 230. In addition, leave to amend will not be granted when "the proposed change is clearly frivolous or advances a claim or defense that is clearly meritless." Slavin v. Benson, 493 F. Supp. 32, 33 (S.D.N.Y.1980).
The Court concurs with Magistrate Francis' finding that Seahawk will not be unduly prejudiced by allowing amendment of the third-party complaint, and adopts his recommendation that leave to file such an amendment be granted. Therefore, Seahawk's motion addressed to the sufficiency of the allegations in the complaint is denied. Ocean Marine and Gulf Coast shall serve and file an amended third-party complaint by January 5, 1990.
E. Rule 11 Sanctions
The motions for Rule 11 sanctions are without merit and are denied.
CONCLUSION
The Court has reviewed the magistrate's Report and has considered de novo those portions to which there were timely written objections. For the reasons stated above, the Court adopts, as modified, the magistrate's proposed findings and recommendations. The motions for summary judgment on liability by each party are denied. Plaintiffs' claim for punitive damages is dismissed. The cross-motion filed by Ocean Marine and Gulf Coast to amend the third-party complaint is granted, but the application for sanctions against Seahawk is denied. Seahawk's motion to remand the action to state court, dismiss the third-party complaint, and impose sanctions on Ocean Marine and Gulf Coast is denied. Ocean Marine and Gulf Coast are directed to serve and file the amended third-party complaint by January 5, 1990. The parties are directed to complete any outstanding discovery by March 14, 1990 and file a pre-trial order by April 13, 1990.
It is so ordered.
NOTES
[1] Plaintiffs' insurance policies for the previous two years, 1984-1985 and 1985-1986, also brokered by Seahawk, contain more specific language as to timing of the payment of premiums. For example, the 1984-1985 policy states that "premiums shall be paid within 60 days of each quarterly due date."
[2] Ocean Marine and Gulf Coast contest this assertion, but have not produced any tangible proof to rebut the evidence presented by McAllister that such payment was made at that time.
[3] Plaintiffs' 1984-85 and 1985-86 insurance policies contained far clearer language on this issue:
Notice of policy cancellation or material change to Seahawk shall constitute notice to McAllister Brothers, Inc. and/or any required notice to their additional Assureds and other interests.
[4] Section 1333(1) provides that:
The district courts shall have original jurisdiction, exclusive of the courts of the States, of:
(1) Any civil case of admiralty or maritime jurisdiction, saving to suitors in all other cases all other remedies to which they are otherwise entitled.
[5] McAllister, Ocean Marine and Gulf Coast also argue that if this action is deemed to be a state court action under the saving to suitors clause, diversity jurisdiction under 28 U.S.C. § 1332 provides an independent jurisdictional basis for removal to federal court. See Arno v. Costa Line, Inc., 589 F. Supp. 1576, 1578 n. 2 (E.D.N.Y. 1984). See also Wright & Miller § 3674 at 460, 466.
Presently, there is not complete diversity in this case. Gulf Coast and Ocean Marine are Louisiana corporations while one of the seventy-three plaintiffs, Offshore Express, Inc. ("Offshore"), is also a Louisiana corporation. McAllister and defendants/third-party plaintiffs have offered to dismiss Offshore from the action without prejudice. Magistrate Francis concluded that Rule 21, Fed.R.Civ.P., provided the Court with the discretion to dismiss Offshore in order to retain jurisdiction over the action, and recommended that the complaint be amended to remove the nondiverse party. Report at 12.
Seahawk objects to this recommendation. It argues that Rule 21 is inapplicable to removal actions, because 28 U.S.C. § 1447(c) leaves no room for the dismissal of nondiverse parties by the Court. In support of its argument, Seahawk relies on Iowa Public Service Co. v. Medicine Bow Coal Co., 556 F.2d 400, 402-03, (8th Cir. 1977), where the court found that it was improper to drop certain nondiverse plaintiffs from the action over their objections, because they were real parties in interest who were not fraudulently joined to defeat diversity jurisdiction. The court based its decision on the deference to be afforded a plaintiff's valid choice of forum, and remanded for lack of diversity. Id. at 406. See 3A Moore's Federal Practice ¶ 21.03[2] n. 6, at 21-13 (2d ed. 1989) (citing Iowa Public Service Co. v. Medicine Bow Coal Co., supra, 556 F.2d at 402).
Contrary to Seahawk's assertions, however, the Court does not perceive any inability on the part of plaintiffs to amend the complaint to remove the nondiverse plaintiff, thereby satisfying the requirements of diversity jurisdiction, if diversity was necessary to maintain this action in federal court. The dismissal of a nondiverse party from the action will result in removal being proper under 28 U.S.C. § 1446(b), at least when the dismissal is due to the voluntary act of the plaintiff, because such a dismissal eliminates any concern that a nondiverse defendant may manipulate the court's jurisdiction in order to frustrate the plaintiff's valid choice of a state forum. See Pepsico, Inc. v. Wendy's International, Inc., 118 F.R.D. 38, 40-41 (S.D.N.Y.1987). Cf. Iowa Public Service Co. v. Medicine Bow Coal Co., supra, 556 F.2d at 406.
Typically, dismissal of a nondiverse party will occur in the state court, thereby making removal, which had not yet occurred, appropriate. Similarly, it is the general rule that complete diversity must exist at the time an action is commenced and at the time of removal. LGP Gem Ltd. v. Cohen, 636 F. Supp. 881, 882 (S.D.N. Y.1986). Nonetheless, while the existence of jurisdiction ordinarily depends on the facts as they exist when the complaint is filed, Rule 21 provides an exception to this general rule. See Newman-Green, Inc. v. Alfonzo-Larrain, ___ U.S. ___, ___, 109 S. Ct. 2218, 2220, 104 L. Ed. 2d 893 (1989). Courts frequently employ Rule 21 to preserve diversity jurisdiction over a case by dropping a nondiverse party if his presence in the action is not required under Rule 19, Fed.R. Civ.P. See 7 Wright & Miller, § 1685 at 457 (1972).
The Court concurs with Magistrate Francis' finding that Offshore is such a dispensable nondiverse party. See Report at 12. Seahawk has indicated no reason for barring Rule 21 from removed cases, other than deference to a plaintiff's choice of forum. That rational is inapplicable in this case. Accordingly, even if this action did not fall within the Court's admiralty jurisdiction, Offshore could be dismissed from the lawsuit in order to preserve diversity jurisdiction, and remand to state court would be unnecessary. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1689853/ | 654 F. Supp. 2d 617 (2009)
Carmichael KHAN, Plaintiff,
v.
AMERICAN INTERNATIONAL GROUP, INC. Personal Accident Insurance Program, et al., Defendants.
Civil Action No. H-08-0958.
United States District Court, S.D. Texas, Houston Division.
September 8, 2009.
*618 Robert Allan Jones, Barlow Todd et al., Houston, TX, for Plaintiff.
Tynan Buthod, Baker Botts LLP, Houston, TX, for Defendants.
MEMORANDUM AND ORDER
LEE H. ROSENTHAL, District Judge.
This ERISA suit arises out of the denial of $200,000 in accidental death and dismemberment benefits claimed by the plaintiff, Carmichael Khan, after his wife, Rose Upshaw, died in a car accident. Khan was insured under a policy provided by his former employer, AIG Enterprise Services ("AES"). During his employment with AES, Khan was a voluntary participant in, and Upshaw was a covered dependent under, the American International Group, Inc. Personal Accident Insurance Program (the "Plan"), which was issued and administered by National Union First Insurance Company ("NUFIC"). Khan stopped working for AES on April 8, 2006. His wife died on April 22, 2006. NUFIC denied Khan's benefits claim on the ground that he had not timely converted from coverage under the Plan to an individual policy after his employment with AES ended. Khan sues AES, NUFIC, and the Plan, seeking the unpaid benefits under 29 U.S.C. § 1132(a)(1)(B). He also seeks equitable relief under 29 U.S.C. § 1132(a)(3)(B) based on a claim of breach of fiduciary duty and under federal common law based on a claim of ERISA-estoppel.
The defendants have moved for summary judgment, asserting that, as a matter of law, the benefits denial did not violate ERISA. (Docket Entry No. 12). Khan moved for additional discovery and a continuance under Federal Rule of Civil Procedure 56(f), arguing that NUFIC failed to *619 produce documents necessary for a full and fair review of the claim denial. (Docket Entry No. 13). The defendants responded to this motion. (Docket Entry No. 16). Khan also responded to the defendants' summary judgment motion and cross-moved for summary judgment, (Docket Entry No. 14), and the defendants replied, (Docket Entry No. 18).
Based on the pleadings; the motions, responses, and reply; the administrative record; and the applicable law, this court denies the cross-motions for summary judgment on the ERISA claim and remands this case to the Plan Administrator, NUFIC. The remand is based on the absence of evidence in the record showing that the Plan Administrator considered the conflicting statements in the Summary Plan Description as to when coverage ceases after a participating employee ends his employment. This court also grants the defendants' motion for summary judgment and denies Khan's cross-motion for summary judgment as to the claims for breach of fiduciary duty and estoppel. Khan's request for discovery and a continuance is denied as moot.
The court remands Khan's claim to the Plan Administrator, with the instruction that the claim be determined within 120 days. This case will be administratively closed pending the claim determination. It may be reinstated by a motion made by either party within 14 days after the determination is issued.
The reasons for these rulings are explained below.
I. Background
A. The Group Accident Insurance Policy
Group Accident Insurance Policy PAI 9028664 (the "Policy"), (Admin. Rec. 232-36), defined an "Insured" as:
a person: (1) who is a member of an eligible class of persons as described in the Classification of Eligible Persons section of the Master Application; (2) who has enrolled for coverage under this Policy, if required; (3) for whom premium has been paid; and (4) while covered under this Policy. However, an Insured does not include any person covered under this Policy solely as an Insured dependent as defined in the Family Coverage Rider.
(Admin. Rec. 239).
The Policy stated that an Insured's coverage ends the earliest of:
(1) the date this Policy is terminated [by AES]; (2) the premium due date if premiums are not paid when due; (3) the date the Insured requests in writing, that his or her coverage be terminated; or (4) the date the Insured ceases to be a[n Eligible Person] . . . .
(Id.). "Eligible Persons" under the Policy included AES employees and their spouses and children. (Admin. Rec. 232).
The Policy defined an "Insured Dependent" as a spouse or child: "(1) whom the Insured has elected to cover under the Policy; (2) for whom premium has been paid; and (3) while covered under the Policy." (Admin. Rec. 254). Under the Policy, an Insured Dependent's coverage ends the earliest of:
(1) the date the Insured's coverage under the Policy ends; (2) the premium due date if premiums for the Insured Dependent are not paid when due; (3) the date the Insured requests in writing, that coverage for the Insured Dependent be terminated; or (4) the date the Insured Dependent ceases to be a[n Eligible Person] . . . .
(Admin. Rec. 253).
A "Conversion Privilege Rider" in the Policy stated that "[if] an Insured Person's *620 coverage ends . . . because he or she is no longer a member of any eligible class of persons . . . coverage may be converted to an individual accidental death and dismemberment policy (herein called an Individual Policy)." (Admin. Rec. 250). The Rider required the Insured to submit "a written application and payment of the required premium within 31 days after coverage ends under the Policy." (Id.). Under the Rider, coverage under an Individual Policy takes effect on the later of: "(1) the date the application and required premium payment are received by the Company; or (2) the date that the Insured Person's coverage under the Policy ends." (Id.). No coverage is provided during any gap between when the Insured Person's coverage terminates and the conversion application is complete. "In the event that the application and required premium are not received prior to termination of coverage under the Policy, coverage is not provided from the date coverage ends under the Policy until the date coverage under the Individual Policy becomes effective." (Id.).
B. The Summary Plan Description
NUFIC, the Plan Administrator, provided a Summary Plan Description ("SPD") of the Policy for AES employees. Consistent with the Policy, one part of the SPD stated that an Insured Person's coverage ends on the earlier of:
(1) the date the Policy is terminated; (2) the premium due date if premiums are not paid when due; (3) the date you cease to be an eligible employee of American International Group, Inc.; (4) the date you request, in writing, that your coverage be terminated.
(Admin. Rec. 273) (emphasis added). The SPD also stated that an Insured Dependent's coverage ends on the earlier of:
(1) the date [the Insured Person's] coverage ends; (2) the premium due date if premiums for that covered dependent are not paid when due; (3) the date you request, in writing, that coverage for that covered dependent be terminated; or (4) the date that the covered dependent is no longer eligible for coverage as a dependent.
(Id.).
Another part of the SPD gave an inconsistent statement about when an Insured Person's coverage ends. This statement provided that coverage ends on the earlier of:
(1) the date the Policy is terminated; (2) the premium due date if premiums are not paid when due; (3) the date the Insured requests, in writing, that his or her coverage be terminated; or (4) the last day of the month in which the Insured ceases to be eligible for coverage under the Policy.
(Admin. Rec. 277) (emphasis added).
Under the first of these SPD provisions, Khan's status as an Insured Person and his wife's coverage as an Insured Dependent ended on the date Khan's employment with AES ended. Under the second of these provisions, coverage under the Plan ended on the last day of April 2006, the month in which Khan's employment ended.
The SPD described a "Conversion Privilege" that is worded the same way as the "Conversion Privilege Rider" in the Policy. (Admin. Rec. 281). Under the first of the SPD provisions, Khan and his wife had no coverage after his employment ended. Under the second, Khan and his wife were covered until the end of the month his employment ended, which included the date of his wife's accident.
The SPD also stated that "[i]n the case of any conflict between the descriptions *621 contained in the SPD and the Master Contract, the Master Contract will always govern." (Admin. Rec. 292). Under the Master Contract, coverage ended on the date Khan's employment ended.
In moving for summary judgment, Khan contendedfor the first timethat he never received a copy of the SPD. (Docket Entry No. 14, Khan Aff. ¶ 5). The defendants counter that because Khan failed to raise this issue during the administrative-review process or in his complaint in the present suit, Khan's summary judgment affidavit should be disregarded as "self-serving." (Docket Entry No. 18 at 5). The defendants also argue that "[a]t all times after the Plan's effective date, AES directed Plan participants, including Mr. Khan, to access an on-line intranet database to enroll for benefits and to review the terms of the Standard Plan Description"; that "AES mailed annual Benefit Enrollment Guides to eligible Plan participants for the purpose of providing a summary of available Plan benefits in easy-to-understand language"; and that Khan was not "excluded from AES's Plan notification protocol." (Docket Entry No. 18 at 7). The defendants, however, have not submitted evidence to support these contentions.
C. Khan's Claim for Benefits under the Plan
The defendants contend that shortly before April 7, 2006, the date Khan's employment with AES ended, Khan was provided with a document entitled "Exit Interview Benefits Information." That document stated that Khan's coverage under the various types of insurance he carried through AES would end on April 9, 2006. On the document, the date is set off separately and underlined. This statement is consistent with the SPD statements that accidental death insurance coverage under the Plan ended when employment with AES ended. The Exit Interview Benefits Information document Khan received included statements about how to convert the health insurance and life insurance provided to AES employees to individual coverage and provided conversion deadlines. For accidental death and dismemberment insurance under the Plan, however, the Exit Interview Benefits Information document did not provide such information. The document instead stated: "Effective January 1, 2003, Personal Accident Insurance (AD & D) is insured by the Ruben (sic) Warner Company. Contact Ruben (sic) Warner company at (800) 421-3005 to speak with Terry Resnick or Collette Marrapody." (Admin. Rec. 63).
Khan denies that he received the "Exit Interview Benefits Information" document. Khan also denies that he received any oral instructions at his exit interview about to how to convert coverage under the Plan after his employment ended. Khan argues that the written and oral statements made to him when his employment ended were insufficient as a matter of law to explain his conversion rights. Khan also points to the fact that AES deducted from his last paycheck the Policy premium payment through the end of the last month he worked. This deduction is consistent with the SPD statement that his coverage extended to the last day of that month. (Admin. Rec. 136).
Khan's wife, Rose Upshaw, died in a car accident on April 20, 2006. On that date, Khan had not taken steps to convert the dependent coverage under the Plan to an individual policy. Khan also had not taken steps to convert the dependent life insurance provided to him as an AES employee to an individual policy. In contrast to the treatment of Khan's claim for accidental death benefits under the Plan, his $20,000 death benefit claim under the dependent life insurance policy was paid promptly.
*622 Khan informed AES and NUFIC of Upshaw's death. On April 28, 2006, AIG Claims Services, the claims administrator for NUFIC under the Plan, wrote to Khan asking him to provide a certified copy of the death certificate and a notarized claim form. (Admin. Rec. 208, 219).[1] Khan provided the requested documentation on July 6, 2006. (Admin. Rec. 214-218). On August 4, 2006, AIG Claims Services wrote to Khan stating that they "continue[d] to research this matter to determine whether [Upshaw] was in a Classification of Eligible Persons at the time of the accident." The letter asked Khan "to advise whether you converted your group policy to an individual policy after your last day worked at [AES.]" (Admin. Rec. 196-97). Khan did not respond, but AIG Claims Services independently verified that Khan had not converted the accidental death policy under the Plan to an individual policy after his employment ended and before his wife's accident. (Admin. Rec. 166). On October 27, 2006, NUFIC informed Khan that it had completed its review and determined that no accidental death benefits were payable. NUFIC explained that "we must decline payment of this claim as at the time the accident happened, your spouse was no longer an insured person under this Policy. Coverage for yourself and your family members ended on April 8, 2006, the date you ceased to be an active full-time employee of [AES]. In addition, according to the records of Reuben Warner Associates, you did not convert your group coverage to an individual policy." NUFIC explained that Khan had 60 days to appeal and set forth the appeal procedure. (Admin. Rec. 162).
On December 19, 2006, an attorney for Khan wrote to AIG Claims Services and NUFIC requesting certain documents, including documents "reflecting payment of premiums made by Khan," such as payroll registers, payroll stubs, and documents showing the refund of Khan's Plan premiums to AIG or to Khan. (Admin. Rec. 140-41). On December 21, 2006, Khan filed his formal appeal but asked for a delay pending production of the documents requested. (Admin. Rec. 121-22). AIG Claims Services responded on January 24, 2007 by attaching a copy of the administrative record and stating that Khan should ask AES for documents reflecting premium payments. (Admin. Rec 117-19). Khan did not request these documents from AES. Instead, he renewed his appeal.
On appeal, Khan argued that because his final paycheck, dated April 7, 2006, deducted $ 8.00 for a Plan premium payment for the entire pay period, and no premium payment had been refunded, Khan was entitled to coverage through the beginning of the next pay period, which was April 21, 2006. Second, Khan argued that AES was estopped to deny coverage by the failure to advise him "of any requirement to convert the referenced policy within . . . 31 days." Khan argued that the separate dependent life insurance policy had the same coverage and conversion provisions and that he was paid the dependent life insurance benefits. The dependent life insurance policy benefits were *623 paid during the conversion period although Khan and Upshaw had not yet converted to an individual policy. Because the time for converting had not expired, it was "presumed" that the dependent would have converted within the deadline. (Admin. Rec. 94-101). Khan argued that the accidental death benefits should also be paid on the same basis.
NUFIC's ERISA Appeals Committee denied Khan's appeal on April 25, 2007. In an April, 27, 2007 letter, AIG Claims Services explained the bases for the denial: Khan had not taken steps to convert his coverage under the Plan to an individual policy before the death occurred, although the time for conversion had not yet expired; his coverage under the Plan, absent conversion, ended on the date his AES job ended; and premiums had not been paid for the previous two weeks of coverage, so "no premium refund was due and none offered." (Admin. Rec. 42-45).
This appeal followed.
D. The Summary Judgment Motions
The defendants have moved for summary judgment on all grounds. (Docket Entry No. 12). Khan has cross-moved for summary judgment that he is entitled to "appropriate equitable relief" for the defendants' breach of fiduciary duty. Khan contends that the defendants breached their fiduciary duties by failing to provide him a copy of the SPD during his employment. (Docket Entry No. 14). Khan did not raise this issue during the review process or in his complaint in this lawsuit. Instead, this issue was raised for the first time in an affidavit Khan filed in support of his cross-motion for summary judgment. (Docket Entry No. 14-3). Khan also contends that the defendants breached their fiduciary duties by failing to provide notice of his conversion rights before his wife's death. Khan seeks equitable relief in the form of the benefits he would have received had he converted to an individual policy effective when his employment ended. In the alternative, Khan argues that the defendants are estopped from denying him coverage under the Plan. Khan has also cross-moved for summary judgment on a federal common-law ERISA-estoppel theory, arguing that the defendants' failure to provide an SPD or adequate notice of conversion rights was a material misrepresentation on which he relied in not converting as soon as his employment ended, to his detriment. (Docket Entry No. 14).
Although Khan responded to the defendants' summary judgment motion and cross-moved for summary judgment, he had previously filed a motion seeking discovery and a continuance under Federal Rule of Civil Procedure 56(f). Khan sought documents about whether AES ever sent him a copy of the SPD during his employment and whether AES informed him about his conversion rights before Upshaw's death. Khan also sought discovery as to whether premiums were paid and applied in advance of coverageand, if so, if he received a refund when his employment endedor only for coverage already provided. Khan argues that if premiums were paid in advance of coverage and not refunded, the defendants should be estopped from denying coverage. (Docket Entry No. 13).
Khan asks in the alternative that this court remand to the Plan Administrator for further consideration as to: the effect of AES's failure to provide him with the SPD or with information about his conversion rights; the effect of the "inconsistent interpretation" of the conversion requirements between the life insurance and accidental death and dismemberment policies; and the effect of inconsistent SPD provisions about when coverage ends and therefore *624 when it is necessary to convert to an individual policy.
II. The Legal Standard for Summary Judgment
Summary judgment is appropriate if no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law. FED. R. CIV. P. 56(c). "The movant bears the burden of identifying those portions of the record it believes demonstrate the absence of a genuine issue of material fact." Triple Tee Golf, Inc. v. Nike, Inc., 485 F.3d 253, 261 (5th Cir. 2007) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 322-25, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986)). If the burden of proof at trial lies with the nonmoving party, the movant may satisfy its initial burden by "`showing'that is, pointing out to the district courtthat there is an absence of evidence to support the nonmoving party's case." See Celotex, 477 U.S. at 325, 106 S. Ct. 2548. While the party moving for summary judgment must demonstrate the absence of a genuine issue of material fact, it does not need to negate the elements of the nonmovant's case. Boudreaux v. Swift Transp. Co., 402 F.3d 536, 540 (5th Cir.2005) (citation omitted). "A fact is `material' if its resolution in favor of one party might affect the outcome of the lawsuit under governing law." Sossamon v. Lone Star State of Texas, 560 F.3d 316, 326 (5th Cir.2009) (quotation omitted). "If the moving party fails to meet [its] initial burden, the motion [for summary judgment] must be denied, regardless of the nonmovant's response." United States v. $92,203.00 in U.S. Currency, 537 F.3d 504, 507 (5th Cir.2008) (quoting Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994) (en banc)).
When the moving party has met its Rule 56(c) burden, the nonmoving party cannot survive a summary judgment motion by resting on the mere allegations of its pleadings. The nonmovant must identify specific evidence in the record and articulate how that evidence supports that party's claim. Baranowski v. Hart, 486 F.3d 112, 119 (5th Cir.2007). "This burden will not be satisfied by `some metaphysical doubt as to the material facts, by conclusory allegations, by unsubstantiated assertions, or by only a scintilla of evidence.'" Boudreaux, 402 F.3d at 540 (quoting Little, 37 F.3d at 1075). In deciding a summary judgment motion, the court draws all reasonable inferences in the light most favorable to the nonmoving party. Connors v. Graves, 538 F.3d 373, 376 (5th Cir.2008).
Federal Rule of Civil Procedure 56(f) authorizes a district court to order a continuance to permit additional discovery if the nonmovant shows that she "cannot for reasons stated present by affidavit facts necessary to justify the party's opposition." Adams v. Travelers Indem. Co. of Conn., 465 F.3d 156, 162 (5th Cir.2006) (citing Wichita Falls Office Assoc. v. Banc One Corp., 978 F.2d 915, 919 (5th Cir. 1992)). In requesting additional time for discovery under Rule 56(f), the nonmoving party must show why additional discovery is necessary. Id. (citing Beattie v. Madison County School Dist., 254 F.3d 595, 605 (5th Cir.2001)). The nonmoving party may not "simply rely on vague assertions that additional discovery will produce needed, but unspecified facts." Id. (citing Brown v. Miss. Valley State Univ., 311 F.3d 328, 333 n. 5 (5th Cir.2002)). If no discovery has yet taken place, "the party making the Rule 56(f) motion cannot be expected to frame its motion with great specificity as to the kind of discovery likely to turn up useful information, as the ground for such specificity has not been laid." Burlington Northern Santa Fe R.R. Co. v. Assiniboine & Sioux Tribes of Fort Peck Reservation, 323 F.3d 767, 774 (9th Cir.2003). *625 The Fifth Circuit has held it to be an abuse of discretion not to grant a Rule 56(f) motion if the discovery opportunity has clearly been inadequate. See Xerox Corp. v. Genmoora Corp., 888 F.2d 345, 355 (5th Cir.1989).
III. Analysis
A. The Breach of Fiduciary Duty Claim
Khan contends that the defendants breached their fiduciary duty by failing to provide him a copy of the SPD, in violation of 29 U.S.C. § 1022(a),[2] and by failing to give him adequate written or oral notice of his conversion rights when his employment with AES ended. Khan contends that he can recover under 29 U.S.C. § 1132(a)(3) or § 1132(a)(1)(B). The defendants dispute Khan's contention that the SPD was not provided and that the notice of conversion rights was inadequate. The defendants also contend that even if they breached their fiduciary obligations, Khan cannot pursue the breach of fiduciary duty claim because he is also pursuing a claim for benefits under the Plan. The defendants also argue that the remedies that Khan seeksall of which essentially seek payment of Plan benefitsare not "appropriate equitable relief" for the alleged breach.
1. "Appropriate Equitable Relief" under § 1132(a)(3)
Khan has moved for summary judgment that he is entitled to benefits under 29 U.S.C. § 1132(a)(3) as equitable relief for the defendants' breach of fiduciary duty. Section 1132(a)(3) permits a plan participant or beneficiary to bring a civil action "to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of this subchapter or the terms of the plan." 29 U.S.C. § 1132(a)(3). Khan seeks "equitable relief" in the form of the benefits to which he would have been entitled had he converted to an individual policy before Upshaw's accident. Khan contends in the alternative that the defendants should be estopped from denying coverage, or that he should be reinstated as an Insured Person under the Plan to receive benefits for Upshaw's death.
Khan's breach of fiduciary duty claim fails because he is also pursuing a claim for plan benefits under § 1132(a)(1)(B). "[A]n ERISA plaintiff may bring a private action for breach of fiduciary duty only when no other remedy is available under [§ 1132]." Rhorer v. Raytheon Eng'rs & Constructors, Inc., 181 F.3d 634, 639 (5th Cir.1999) (citing Varity Corp. v. Howe, 516 U.S. 489, 510-16, 116 S. Ct. 1065, 134 L. Ed. 2d 130 (1996)). If "an insured has adequate redress for denied benefits through [the] right to bring suit under section 1132(a)(1), and if [the insured] is seeking the same relief that is available for a claim for benefits under section 1132(a)(1), [the insured] has no claim for breach of fiduciary duty under section 1132(a)(3), even if her claim under section 1132(a)(1) is subsequently lost on the merits." Adams v. Prudential Ins. Co. of Am., No. 05-2041, 2005 WL 2669550, at *1 (S.D.Tex. Oct. 19, 2005) *626 (observing that courts interpreting Varity have "consistently" reached the same result). In Varity, the Supreme Court emphasized that § 1132(a)(3) is a "catchall" provision that provides relief for injuries that are not otherwise adequately addressed under ERISA. 516 U.S. at 515, 116 S. Ct. 1065. Following this guidance, the Fifth Circuit has concluded that if a plaintiff can pursue plan benefits under § 1132(a)(1), the plaintiff has an adequate remedy and may not also pursue a claim under § 1132(a)(3). See Rhorer, 181 F.3d at 639 (upholding dismissal of the plaintiff's claim that the defendants breached their fiduciary duties by inadequate disclosures in the SPD because in addition to that claim, the plaintiff was "seeking to recover plan benefits under § 1132(a)(1)(B)" and "the claim to recover plan benefits [wa]s the predominate cause of action in th[e] suit"); Tolson v. Avondale Indus., Inc., 141 F.3d 604, 610 (5th Cir.1998) ("Because [plaintiff] has adequate relief available for the alleged improper denial of benefits through his right to sue the Plans directly under section 1132(a)(1), relief through the application of [s]ection 1132(a)(3) would be inappropriate.").
Khan does not dispute that he has sued the Plan directly for recovery of benefits wrongfully denied, or that his "claim to recover plan benefits is the predominate cause of action in this suit." Rhorer, 181 F.3d at 639. Khan has adequate available relief for the alleged improper denial of benefits through his right to sue "to recover benefits due to him under the terms of his plan." 29 U.S.C. § 1132(a)(1)(B). Khan may not also sue for breach of fiduciary duty under § 1132(a)(3).
Khan's § 1132(a)(3) claim fails for the additional reason that this subsection does not permit the type of relief that Khan seeks. In the Fifth Circuit, "appropriate equitable relief" under § 1132(a)(3) does not include recovery in the form of payment of benefits that would have accrued to a plan beneficiary but for a plan fiduciary's breach of fiduciary duty. See Amschwand v. Spherion Corp., 505 F.3d 342, 348 & n. 7 (5th Cir.2007), cert. denied, ___ U.S. ___, 128 S. Ct. 2995, 171 L. Ed. 2d 911 (2008). In Amschwand, the defendant employer switched insurance companies while the plaintiff employee was on medical leave for cancer. The new policy stated that coverage would not begin until the employee returned to work for one full day. As the employee's condition deteriorated, he repeatedly contacted his employer to confirm that he was covered under the policy. Each time, he was assured that he was fully covered. Despite the employee's repeated requests for documentation of coverage terms, he never received a copy of the SPD. The parties stipulated that the employee was never informed that he would be required to return to work for at least one full day. The employee died without returning to work for one full day. His wife filed a claim under the policy, only to be informed that she was ineligible for benefits because her husband had not returned to work for one full day. She sued the employer and the plan administrator individually and on her husband's behalf under § 1132(a)(3), seeking equitable relief in the form of "monetary losses caused by the [defendant's] breach of fiduciary duty." The Fifth Circuit upheld the district court's grant of summary judgment to the defendants, reasoning:
Obtaining the lost policy proceeds, as Amschwand requests, is simply a form of make-whole damages. This demand is not equitable in derivation, but is akin to the legal remedies of extracontractual or contractual damages. In contrast to the make-whole damages sought here, equitable restitution was designed to restore *627 the trust res damaged by a trustee's breach of duty; it did not aim to compensate a beneficiary for expected gains that would have accrued absent a fiduciary's breach.
Id. at 348. The court concluded that if the defendants breached their fiduciary duty to the plaintiff, the "appropriate equitable remedy" would be limited to the "disgorgement of [the defendant's] ill-gotten profits, i.e., refund of the policy premiums." Id.
The Amschwand court cited with approval Callery v. United States Life Ins. Co., 392 F.3d 401, 405-06 (10th Cir.2004). In that case, the plaintiff sought "equitable relief providing for payment of the insurance on the life of" her ex-husband. The policy and SPD stated that an insured's right to receive spousal life insurance benefits terminated in the event of divorce, but the plaintiff had never received a copy of the policy or the SPD and had continued paying life insurance premiums for coverage for her ex-husband. The appellate court upheld the dismissal of the plaintiff's breach of fiduciary duty claim, concluding that the relief soughtthe recovery of benefits under the policywas "compensatory and not typically available in equity." Id. at 405-06.
Amschwand and Callery preclude equitable relief in the form of benefits that would have been due under an insurance policy as a remedy for breach of fiduciary duty. These cases also preclude the two other bases for relief under § 1132(a)(3) that Khan assertsestopping the defendants from denying coverage or reinstating Khan to the Plan. These remedies are "essentially indistinguishable from a demand for payment." Amschwand, 505 F.3d at 348 n. 7. The Amschwand court rejected the plaintiff's alternative characterization of her claim under § 1132(a)(3) as seeking "injunctive relief that would preclude [the defendants'] withholding payment" of benefits under the Plan, observing that "attempts to recharacterize a desired [§ 1132(a)(3)] remedy as a purely equitable form of relief, like an injunction, have consistently been rejected." 505 F.3d at 348 n. 7; see also Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 210-11, 122 S. Ct. 708, 151 L. Ed. 2d 635 (2002) (concluding that the plaintiff was not entitled to equitable relief under § 1132(a)(3) because "[a]n injunction to compel the payment of money past due under a contract, or specific performance of a past due monetary obligation, was not typically available in equity"); Mertens v. Hewitt Assocs., 508 U.S. at 255, 113 S. Ct. 2063 (concluding that the plaintiffs were not entitled to relief under § 1132(a)(3) because "[a]lthough they often dance around the word, what petitioners in fact seek is nothing other than compensatory damages-monetary relief for all losses their plan sustained as a result of the alleged breach of fiduciary duties"). In Callery, the court similarly rejected the plaintiff's request "to enjoin the defendants from not paying her the life insurance benefits" or for "an order estopping defendants from denying" the claim. The court noted that the plaintiff's claim, however worded, was essentially one for "compensatory damages""`the classic form of legal relief.'" 392 F.3d at 405 (quoting Great-West, 534 U.S. at 211 n. 1, 122 S. Ct. 708 (emphasis original)). Under Amschwand and Callery, when, as here, the essence of the estoppel relief is to compel payment under a policy, the estoppel claim is not cognizable under § 1132(a)(3).[3]*628 Fifth Circuit case law similarly "makes it clear that . . . `reinstatement' of benefits. . . does not qualify as equitable relief under" § 1132(a)(3) when, as here, the plaintiff "casts her prayer for relief as equitable, [but] in substance she is seeking damages in the form of life insurance proceeds." Hobbs v. Baker Hughes, 294 Fed. Appx. 156, 159 (5th Cir.2008) (unpublished) (citing Amschwand, 505 F.3d at 348).[4]
2. Relief under § 1132(a)(1)(B)
Khan contends that "a claim for breach of fiduciary duty can be asserted under subsection 1132(a)(1)(B) as well as subsection 1132(a)(3)." (Docket Entry No. 14 at 15). Section 1132(a)(1) (B) provides, in relevant part, that "[a] civil action may be brought by a participant or beneficiary. . . to recover benefits due to him under the terms of the plan [or] to enforce his rights under the terms of the plan." The Fifth Circuit has squarely held that claims for "entitle[ment] to benefits not because they are due . . . under the terms of the [policy] but rather because [the defendants] engaged in `inequitable conduct' and breached their fiduciary duties" are "simply not cognizable under [§ 1132(a)(1)(B)]." Chacko v. Sabre, Inc., 473 F.3d 604, 609 (5th Cir.2006).[5]
The defendants' motion for summary judgment on Khan's breach of fiduciary duty claim is granted. Khan's cross-motion for summary judgment on the breach of fiduciary claim is denied.
*629 B. The ERISA-Estoppel Claim
Khan also contends that the defendants' alleged breach of fiduciary duty is actionable on an ERISA-estoppel theory. The Fifth Circuit recently recognized an ERISA-estoppel claim under federal common law.[6] To establish an ERISA-estoppel claim, a plaintiff must prove: (1) a material misrepresentation; (2) reasonable and detrimental reliance on that representation; and (3) extraordinary circumstances. Nichols v. Alcatel, 532 F.3d 364, 374 (5th Cir.2008); Mello v. Sara Lee Corp., 431 F.3d 440, 444-45 (5th Cir.2005). Khan contends that the "defendants had a fiduciary duty to provide or make available information reasonably necessary for Khan to obtain his benefits under the Plan," and that "their failure to disclose such information was a material misrepresentation" on which he reasonably and detrimentally relied. (Docket Entry No. 14 at 16-17).
Khan cites no case holding that omitting certain disclosures, even required disclosures, particularly without an accompanying allegation that the omission was made with intent to deceive, can be a "material misrepresentation" giving rise to an ERISA-estoppel claim. Cf. Burstein v. Retirement Account Plan for Employees of Allegheny Health Educ. & Research Foundation, 334 F.3d 365, 383 (3d Cir. 2003) ("[W]e have consistently rejected estoppel claims based on simple ERISA reporting errors or disclosure violations, such as . . . an omission in the disclosure documents.").
And Khan does not argue that this case presents "extraordinary circumstances." See Nichols, 532 F.3d at 374. The case law shows that such an argument would not succeed. In High v. E-Systems Inc., 459 F.3d 573, 580 n. 3 (5th Cir.2006), the Fifth Circuit held that "extraordinary circumstances d[id] not exist" when for six years the defendants mistakenly issued the plaintiff beneficiary a $1,200 monthly disability check rather than the $50 per month to which he was entitled under the policy. The court cited with approval the Third Circuit's interpretation that "extraordinary circumstances" "generally involve acts of bad faith on the part of the employer, attempts to actively conceal a significant change in the plan, or commission of fraud." Burstein, 334 F.3d at 383 (internal citations and quotations omitted); see also Callery, 392 F.3d at 407-08 (stating that if ERISA-estoppel was a viable claim in the Tenth Circuit, it would be limited to "egregious cases" in which there is evidence of "lies, fraud or an intent to deceive"). The E-Systems court also cited with approval the Third Circuit's opinion in Gridley v. Cleveland Pneumatic Co., 924 F.2d 1310, 1319 (3d Cir.1991). In Gridley, the plaintiff, while continually and totally disabled in the hospital, increased his life insurance coverage under a plan that specifically required the employee to return to active, full-time status before the increase would take effect. The plaintiff was never provided a copy of the SPD, although the plaintiff was given an abbreviated insurance "certificate," which contained the active work requirement, and a brochure explaining the benefits, that did *630 not. The court found that extraordinary circumstances did not exist when the insurer refused to pay benefits in the increased amount, despite the fact that the employer had deducted additional amounts from the plaintiff's salary to cover the increased premium. Id. at 1319-20, 1320 n. 10.
The record in the present case does not contain allegations or evidence of the type of "extraordinary circumstances" that could support an ERISA-estoppel claim. The defendants' motion for summary judgment on Khan's ERISA-estoppel claim is granted. Khan's cross-motion for summary judgment on the ERISA-estoppel claim is denied.
C. The Motion for Discovery and a Continuance
Khan seeks additional discovery and a continuance under Rule 56(f) to confirm that the defendants never provided him a copy of the SPD or written notice of conversion rights and procedures. Because the claims for which these items would be relevantKhan's claims for breach of fiduciary duty or estoppelfail as a matter of law, Khan's request as to these documents is denied as moot.
Khan also seeks discovery and a continuance to determine whether Plan premiums were paid in "advance of coverage" or for coverage already provided under the Plan. The requested discovery includes "[d]ocumentation reflecting the date that the insurance coverage began, and the dates the insurance premiums were paid for that coverage" and "[d]ocumentation or sworn testimony that Defendants did not refund any insurance premiums to Plaintiff." (Docket Entry No. 13 at 6-7). Khan argues that if this discovery shows that premiums were paid in advance of coverage and no premiums were refunded, the defendants should be estopped from denying coverage. The defendants counter that this discovery request should be denied as moot, because even if premiums were paid in advance of coverage, the only available remedy would be the refund of any premium payments made past the date coverage terminated, not, as Khan contends, recovery of full benefits under the Plan.
Khan has not cited authority to support the argument that the payment of premiums on a policy, the terms of which do not provide coverage, can otherwise create coverage. In numerous cases, courts have upheld the denial of benefits under a policy despite the defendants' acceptance of premiums for that policy. In Callery, for example, the plan administrator failed to provide the plaintiff with a copy of the SPD, which excluded life insurance coverage for divorced spouses. Despite the exclusion, the plaintiff's employer continued to deduct premiums from her paycheck for her ex-husband's coverage. The Tenth Circuit rejected the plaintiff's argument that this could provide a basis for coverage, concluding that the proper remedy would be "the premiums paid by Ms. Callery to [her employer] . . . rather than the face amount of the policy." 392 F.3d at 406. Similarly, in Amschwand, the Fifth Circuit upheld denial of life insurance coverage, despite the fact that the plaintiff's employer had deducted numerous premium payments for this coverage, because the plaintiff had never returned to active work, as was required to activate coverage under the policy. 505 F.3d at 344. The Third Circuit's opinion in Gridley, 924 F.2d at 1319, reached the same conclusion on substantially similar facts. In McKenzie v. Advance Stores Co., 488 F. Supp. 2d 658, 671 (S.D.Ohio 2007), the court held that the plaintiff could not seek coverage under a dependent life policy for which he otherwise did not qualify based on the fact *631 that his employer had deducted $3.68 in premiums from his paycheck. The court concluded that the refund of the $3.68 mistakenly withheld from the plaintiff's paycheck was the only available remedy. Even if premiums under the Plan were paid in advance of coverage, this would not provide a basis for granting Khan benefits under the Plan if the Plan terms otherwise precluded coverage. The appropriate relief, if any, would be the refund of the $8.00 premium payment, but Khan has not requested such relief. The motion for discovery as to whether premiums were paid in advance of coverage is denied as moot.
D. The Motion to Remand
Khan alternatively asks this court for an order remanding his benefits claim to NUFIC for further consideration. Khan offers several grounds for remand. Two are unpersuasive. The first is that remand would allow NUFIC to consider Khan's contention that payroll and other records that might show whether premiums were paid in advance of coverage. (Docket Entry No. 14 at 14, 19). But even if evidence showed that premiums were paid in advance of coverage, this would not entitle Khan to coverage under the Plan. Remand is not appropriate on this basis.
The second basis Khan urges is that remand would allow NUFIC to consider the different approaches taken to the dependent life insurance policy (under which Khan recovered benefits despite not converting), and the Plan, under which Khan was denied accidental death and dismemberment benefits. The defendants clarified at the summary judgment hearing that the dependent life insurance AES made available to its employees was provided by another carrier and was not part of the Plan. The dependent life insurance policy had its own plan documents and plan administration. The interpretation of a different plan by a different plan administrator is not a sufficient basis for remand.
Khan's third basis for remand has merit. He argues that this court should remand to allow NUFIC to consider the effect of the conflicting SPD provisions about when coverage terminates. Under the SPD, an Insured Dependent's coverage ends "the date the Insured's coverage ends." (Admin. Rec. 273, 277). One part of the SPD, consistent with the Policy, provides that an Insured's coverage ends "the date [the Insured] cease[s] to be an eligible employee of [AES]." (Admin. Rec. 273). Another part of the SPD, however, states that an Insured's coverage ends "the last day of the month in which the Insured ceases to be eligible for coverage under the Policy." (Admin. Rec. 277). The defendants admitted at the summary judgment hearing that NUFIC did not consider the ambiguity in the SPD because it relied exclusively on the Policy in reaching its coverage determination. The defendants argue that NUFIC was not required to consider the ambiguity in the SPD because the SPD provides that "[i]n the case of any conflict between the descriptions contained in this SPD and the [Policy], the [Policy] will always govern." (Admin. Rec. 290). But the Fifth Circuit case law is clear that giving effect to such a disclaimer would "eviscerate" the statutory requirement that a summary plan description be provided because "if a participant has to read and understand the policy in order to make use of the summary, then the summary is of no use at all." Hansen v. Continental Ins. Co., 940 F.2d 971, 981 (5th Cir.1991). Under Fifth Circuit case law, the language in the SPD providing that the full policy governs if there is a discrepancy between the SPD and the policy "fails as a matter of law." Id. Instead, when the policy and SPD conflict, "the *632 terms of the SPD control and are binding." Washington v. Murphy Oil USA, Inc., 497 F.3d 453, 457 (5th Cir. 2007); see also Hansen, 940 F.2d at 982 ("[T]he summary plan description is binding, and [] if there is a conflict between the summary plan description and the terms of the policy, the summary plan description shall govern."). An insured need not have relied on the SPD for the terms in that document to control over inconsistent policy terms. Rhorer, 181 F.3d at 644 n. 12 ("This Court has never held that an ERISA claimant must prove reliance on a summary plan description in order to prevail on a claim to recover benefits."); see also Murphy Oil, 497 F.3d at 459 (finding that the contractual nature of the SPD cuts against a reliance requirement). The disclaimer in the SPD did not relieve NUFIC of its obligation to consider the effect of the SPD's inconsistent provisions.
In this case, the issue is complicated by the fact that the SPD is not merely inconsistent with the policy; the SPD itself contains inconsistent provisions. One provision states that coverage ends when employment ends; the other provision states that coverage extends until the last day of the month employment ends. The Plan Administrator did not consider the internal inconsistency between the two statements within the SPD and the inconsistency between one of those statements in the SPD and the policy.
Remand is appropriate when, as here "the administrator never had occasion to interpret" a provision upon which coverage may turn. Schadler v. Anthem Life Ins. Co., 147 F.3d 388, 398 (5th Cir.1998). ERISA requires a district court to review determinations made by employee benefits plans, including employee disability plans. See 29 U.S.C. § 1132(a)(1)(B); Baker v. Metro. Life Ins. Co., 364 F.3d 624, 629 (5th Cir.2004). A district court's role is to review the plan administrator's determinations as to coverage; a district court should not interpret a plan's provisions in the first instance. Schadler, 147 F.3d at 398 (remanding to the plan administrator to determine whether a policy exclusion that the plan administrator had not considered provided an alternate basis for denying coverage after the plan administrator's basis for denying coverage was overruled on review); see also Roig v. Ltd. Long-Term Disability Program, 275 F.3d 45, 2001 WL 1267475, at *4 (5th Cir. Oct. 9, 2001) (unpublished) (vacating the district court's de novo interpretation of a policy exclusion and remanding to the plan administrator, holding that "[o]nce the district court reached the long-term benefits issue, one that had not been passed upon by the plan administrator, Schadler required it to remand the case to the plan administrator").
Remand is also appropriate when, as here, the Plan Administrator's failure to consider a critical benefits issue results from a legally incorrect Plan interpretation.[7] Under clear Fifth Circuit law, NUFIC could not reconcile inconsistencies between SPD provisions and Policy provisions by relying on the disclaimer language *633 stating that, in the event of a conflict, the Policy controlled. Because NUFIC gave controlling effect to the Policy language when it was inconsistent with an SPD term critical to coverage, in reliance on the disclaimer, it relied on a legally incorrect Plan interpretation. See Rhorer, 181 F.3d at 639 (remanding to the district court after conducting an abuse-of-discretion review of the plan administrator's interpretation and concluding that the administrator's interpretation had been "legally incorrect" because it failed to construe the SPD, which contained contradictory provisions about the existence of an active-work requirement, against the drafter).
The facts of Collinsworth v. AIG Life Ins. Co., 404 F. Supp. 2d 911, 916 (N.D.Tex. 2005), are similar. In Collinsworth, as here, neither the policy nor the SPD contained language that conferred discretion on the plan administrator. The court reviewed the plan administrator's interpretation de novo and concluded that ambiguities in the SPD were properly construed against the drafter and did not support the plan administrator's interpretation. The court remanded to the plan administrator, reasoning that "[b]ecause Defendant's factual analysis was based on an erroneous interpretation of the benefit plan, additional factual determinations need to be made to determine if Plaintiff qualifies for benefits." Id. at 924; see also Saffle v. Sierra Pac. Power Co. Bargaining Unit Long Term Disability Income Plan, 85 F.3d 455, 456 (9th Cir.1996) ("[W]hen, as here, the administrator construes a plan provision erroneously, the court should not decide itself whether benefits should be awarded but rather should remand to the administrator for it to make that decision under the plan, properly construed.").
The defendants argued at the summary judgment hearing that remand is inappropriate in this case because Khan did not raise the issue of ambiguity or inconsistency in the SPD during the administrative review. Under ERISA, a plaintiff must exhaust administrative remedies before suing over benefits that were allegedly wrongfully denied. See Bourgeois, 215 F.3d at 479; Hager v. Nations-Bank N.A., 167 F.3d 245, 248 n. 3 (5th Cir.1999). But "a claimant need not exhaust issues or theories." Wasson v. Maritime Assoc. I.L.A. Pension Fund, No. H-05-4250, 2007 WL 1850861, at *9 (S.D.Tex. June 26, 2007) (citing Wolf v. Nat'l Shopmen Pension Fund, 728 F.2d 182, 186 (3d Cir.1984)); see also Jackson v. Sterling Bancshares Inc., No. Civ. A. H-03-1374, 2005 WL 2291191, at *2 (S.D.Tex. Sept. 16, 2005) (remanding to plan administrator because the plaintiff's claim was based on "evidence and argument that she did not present to the administratornamely, evidence that the SPD does not include the pre-existing condition exclusion and argument that the exclusion therefore does not apply"). Moreover, the SPD was part of the administrative record that NUFIC reviewed and considered. The fact that the SPD contained statements about when coverage ended that were internally inconsistent and inconsistent with the policy is not a new issue.
Khan's claim is remanded to NUFIC for further evaluation of Khan's claim for benefits, including the SPD provision stating that coverage extends to "the last day of the month in which the Insured ceases to be eligible for coverage under the Policy," and recognizing that under the Fifth Circuit case law, when the terms of a policy and a SPD conflict, "the terms of the SPD control and are binding," Washington v. Murphy Oil USA, Inc., 497 F.3d at 457, and the ambiguity created by conflicting provisions in an SPD and between an SPD and an insurance policy is to be resolved *634 against the drafter, Rhorer, 181 F.3d at 640-41.
E. The Declaratory Judgment Claim
Khan's claim for declaratory judgment as to entitlement to benefits is duplicative of his claim for benefits under § 1132(a)(1)(B). See Baker v. Hartford Life & Acc. Ins. Co., No. 08-cv-153, 2008 WL 2378041, at *2 (N.D.Tex. June 9, 2008) (dismissing plaintiff's declaratory judgment claim in ERISA benefits action). The defendants' motion for summary judgment dismissing Khan's declaratory judgment claim is granted.
IV. Conclusion
The defendants' motion for summary judgment is granted and Khan's cross-motion for summary judgment is denied as to the claims for breach of fiduciary duty and estoppel and for declaratory judgment. Khan's requests for discovery and a continuance are denied as moot. On the ERISA claim, the parties' cross-motions for summary judgment are denied.
The case is remanded to the Plan Administrator, with the instruction that the claim be determined within 120 days. This case will be administratively closed pending the claim determination. It may be reinstated by a motion made by either party within 14 days after the befits determination is issued.
NOTES
[1] Khan appears to have abandoned on summary judgment the allegation in his complaint that the defendants breached their fiduciary duty by failing to inform him in this letter or in other communications after Upshaw's death, that he had 31 days after his employment with AES ended to convert to an individual accidental death and dismemberment policy. (Docket Entry No. 1 ¶¶ 25, 26). The conversion provisions in the Plan provide that coverage lapses between the date employment ends and the date the ex-employee converts to an individual policy. Upshaw's death occurred during this lapse. Even if the defendants had informed Khan of his conversion right after Upshaw's death, conversion at that point would not have provided coverage for her death.
[2] Section 1022(a) provides that a "summary plan description of any employee benefit plan shall be furnished to participants and beneficiaries." The SPD is required to contain an extensive list of information, including "the plan's requirements respecting eligibility for participation and benefits" and "circumstances which may result in disqualification, by ineligibility, or denial or loss of benefits." 29 U.S.C. § 1022(b). The SPD "shall be written in a manner calculated to be understood by the average plan participant, and shall be sufficiently accurate and comprehensive to reasonably apprise such participants and beneficiaries of their rights and obligations under the plan." 29 U.S.C. § 1022(a).
[3] Khan's citation to Bourgeois v. Pension Plan for Employees of Santa Fe International Corps., 215 F.3d 475, 481-82 (5th Cir.2000), does not support a different result. In Bourgeois, the Fifth Circuit concluded that because the defendants had not provided the plaintiff with an SPD and had "engaged [him] in negotiations regarding his benefits without ever referring him to the proper channels before issuing what appeared to be a final denial," a "limited estoppel remedy" was appropriate. The Fifth Circuit remanded to the pension committee for a determination of benefits under the policy with an instruction that the defendants were estopped from arguing that the beneficiary's claims were time-barred. The relief granted in Bourgeois was narrowly limited to preventing the defendants from asserting a discrete affirmative defense. The only reason the defense would have been available was the delay resulting from defendants' conduct. The relief was not "essentially indistinguishable from a demand for payment." Amschwand, 505 F.3d at 348 n. 7.
[4] Khan cites Varity Corp. v. Howe, 516 U.S. 489, 494-94, 505-06, 116 S. Ct. 1065, 134 L. Ed. 2d 130 (1996) to support his argument that reinstatement as an insured is an available remedy for breach of fiduciary duty. But the essence of relief sought in Varity was not recovery of plan benefits that had been withheld but reinstatement as a plan insured going forward. In Varity, the defendant had deliberately tricked beneficiaries into transferring their jobs to an insolvent subsidiary and misled the beneficiaries into believing that a new set of benefits through the subsidiary would be secure. The subsidiary entered receivership and the plaintiffs lost their benefits. The Court upheld reinstatement into the employees' original plan as a remedy for the defendants' breach of fiduciary duty.
[5] Khan cites Musmeci v. Schwegmann Giant Super Markets, Inc., 332 F.3d 339, 349 & n. 5, 351-52 (5th Cir.2003). In Musmeci, the plaintiffs, retired employees of a grocery chain, brought a class-action suit to recover benefits under a program that promised retirees monthly grocery vouchers for use in the chain's stores. The defendants terminated the voucher program when they sold the grocery chain. The parties did not dispute that the program entitled the retirees to grocery vouchers. The defendants argued that relief under § 1332(a)(1)(B) should be limited to the "recover[y] of benefits . . . under the terms of [the] plan"the now-worthless grocery vouchers. The court rejected this argument, holding that the program entitled the plaintiffs to compensation and that "monetary relief in the amount of the benefit denied is the appropriate remedy." Id. at 349. The court also held that the defendants had breached their fiduciary duties and were therefore personally liable for paying this monetary remedy under 29 U.S.C. § 1109. But it was not the breach of fiduciary duty that established the entitlement to benefits. The plan terms were the basis of the benefit award. Musmeci does not support Khan's argument that he may recover the Plan benefits as a remedy for a breach of fiduciary duty from the failure to provide information.
[6] The contours of the newly recognized ERISA-estoppel remedy are "murky," but the doctrine does not appear to be tied to the equitable relief provisions of § 1132(a)(3). See Hughes v. Legion Ins. Co., No. H-03-0993, 2007 WL 781951, at **6-7 (S.D.Tex. Mar. 12, 2007) ("In this circuit, ERISA-estoppel has been applied either in the context of a claim for benefits under [§ 1132(a)(1)(B) or as a separate equitable theory of relief under § 1132(a)(3)]."); see also Mello v. Sara Lee Corp., 431 F.3d 440, 443 (5th Cir.2005) (in the context of a claim under § 1132(a)(1)(B), recognizing ERISA-estoppel as an available, federal common-law remedy).
[7] A plan administrator's interpretation of the terms of an ERISA plan is "reviewed under a de novo standard unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan." Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115, 109 S. Ct. 948, 103 L. Ed. 2d 80 (1989). See Cathey v. Dow Chem. Co. Med. Care Program, 907 F.2d 554, 558-59 (5th Cir. 1990). As Khan points out, and the defendants have not disputed, the Plan does not contain any language granting NUFIC discretion. (Docket Entry No. 14 at 12). De novo review is the appropriate standard of review for NUFIC's plan interpretation, but even under an abuse of discretion standard, NUFIC's Plan interpretation is legally incorrect. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1691775/ | 525 F. Supp. 2d 1249 (2007)
John Henry BROWNE, et al., Plaintiffs,
v.
AVVO, INC., et al., Defendants.
No. C07-0920RSL.
United States District Court, W.D. Washington, at Seattle.
December 18, 2007.
*1250 Jeniphr A.E. Breckenridge, Robert Joseph Gaudet, Jr., Steve W. Berman, Hagens Berman Sobol Shapiro LLP, Seattle, WA, for Plaintiffs.
Ambika K. Doran, Bruce E.H. Johnson, Stephen M. Rummage, Davis Wright Tremaine, Seattle, WA, for Defendants.
ORDER GRANTING DEFENDANTS' MOTION TO DISMISS
ROBERT S. LASNIK, District Judge.
This matter comes before the Court on "Defendants' Motion to Dismiss Class Action Complaint Under Fed.R.Civ.P. 12(c)." Dkt. # 6. Plaintiffs John Henry Browne and Alan J. Wenokur claim that defendants' website, on which information about attorneys and a comparative rating system appears, violates the Washington Consumer Protection Act. Plaintiffs seek injunctive relief against defendants: plaintiff Browne also has an individual claim seeking an award of monetary damages. Defendants argue that the complaint should be dismissed because: (1) the allegations of the complaint are not pled with the required specificity; (2) defendants' rating system and the republication of public records are protected by the First Amendment and cannot be the basis of a state law claim; (3) plaintiffs' Consumer Protection Act claim fails as a matter of law; and (4) the Communications Decency Act bars liability for posting third-party content.
Where, as here, a motion under Fed. R.Civ.P. 12(c) is used to raise the defense of failure to state a claim, the Court's review is the same as it would have been had the motion been filed under Fed. R.Civ.P. 12(b)(6). McGlinchy v. Shell *1251 Chem. Co., 845 F.2d 802, 810 (9th Cir. 1988). Although the Court's review is generally limited to the contents of the complaint (Campanelli v. Bockrath, 100 F.3d 1476, 1479 (9th Cir.1996)), Ninth Circuit authority allows the Court to consider documents referenced extensively in the complaint, documents that form the basis of plaintiffs' claim, and matters of judicial notice when determining whether the allegations of the complaint state a claim upon which relief can be granted (United. States v. Ritchie, 342 F.3d 903, 908-09 (9th Cir. 2003)). The archived screen shots of pages from Avvo's mid-June 2007 website and the Washington State Bar Association records submitted by the parties appear to fall within one or more of these categories. For purposes of this motion, therefore, the allegations of the complaint and the documents submitted will be accepted as true and construed in the light most favorable to plaintiffs, LSO, Ltd. v. Stroh, 205 F.3d 1146, 1150. n. 2 (9th Cir.2000).
A. PLEADING STANDARD
Defendants argue that the complaint in this matter fails to satisfy the heightened pleading standards set forth in Bell. Atlantic Corp. v. Twombly, ___ U.S. ___, 127 S. Ct. 1955, 167 L. Ed. 2d 929 (May 21, 2007), and Flowers v. Carville, 310 F.3d 1118, 1130 (9th Cir.2002). Motion at 6-7. Because defendants have made no attempt to identify any particular deficiency in plaintiffs' allegations, the Court need not divine the Supreme Court's intent in Twombly or determine whether a special pleading standard applies to a Consumer Protection Act claim based on protected speech. The complaint identifies the statements alleged to be unlawful, how and when they were made, and the type of damage caused. The factual allegations adequately state the grounds upon which plaintiffs' claim rests and provide enough information for the Court to determine whether those claims are legally sufficient. Absent some assistance from defendants in identifying a claim that is based on nothing more than "labels and conclusions" or "a formulaic recitation of the elements of a cause of action" (Twombly, 127 S.Ct. at 1964-65), the Court finds that plaintiffs' complaint satisfies the various pleading standards that may apply under Twombly and/or Flowers.
B. FIRST AMENDMENT
Plaintiffs' primary challenge is to the accuracy and validity of the numerical rating system used by Avvo to compare attorneys. Defendants assert that the opinions expressed through the rating system, (i.e., that attorney X is a 3.5 and/or that an attorney with a higher rating is better able to handle a particular case than an attorney with a lower rating), are absolutely protected by the First Amendment and cannot serve as the basis for liability under state law. The Court agrees. The key issue is whether the challenged statement could "reasonably have been interpreted as stating actual facts" about plaintiff. Hustler Magazine v. Falwell, 485 U.S. 46, 50, 108 S. Ct. 876, 99 L. Ed. 2d 41 (1988). In making this determination, the Court is to consider the work as "a whole, including the context in which the statements were made. Using the standards set forth in Milkovich v. Lorain Journal Co., 497 U.S. 1, 110 S. Ct. 2695, 111 L. Ed. 2d 1 (1990), the Ninth Circuit has developed a three-part test for determining whether a reasonable factfinder could conclude that the offending statement implies an assertion of objective fact: "(1) whether the general tenor of the entire work negates the impression that the defendant was asserting an objective fact, (2) whether the defendant used figurative or hyperbolic language that negates that impression, and (3) whether the statement in question is susceptible of being proved true or false." Partington v. Rugliosi, 56 F.3d 1147, 1153 (9th Cir.1995) (citing Unelko *1252 Corp. v. Rooney, 912 F.2d 1049, 1053 (9th Cir.1990)).
Avvo's website contains numerous reminders that the Avvo rating system is subjective. The ratings are described as an "assessment" or "judgment," two words that imply some sort of evaluative process. The underlying data is weighted based on Avvo's subjective opinions regarding the relative importance of various attributes, such as experience, disciplinary proceedings, client evaluations, and self-promotion. How an attribute is scored and how it is weighed in comparison with other attributes is not disclosed, but a reasonable person would understand that two people looking at the same underlying data could come up with vastly different ratings depending on their subjective views of what is relevant and what is important. A potential client would expect that a system designed to rate the professional abilities of attorneys would incorporate the expertise and reflect the subjective opinions of the reviewer: the website even says as much. Neither the nature of the information provided nor the language used on the website would lead a reasonable person to believe that the ratings are a statement of actual fact.
This conclusion is bolstered by the fact that the Avvo rating system is an abstraction. A certain level of experience, for example, is assigned a value which is then crunched with the values assigned to the attorney's disciplinary history, references, awards, etc. The product of this calculation is a number between one and ten, which consumers are invited to use to compare attorneys in the same field: No reasonable consumer would believe that Avvo is asserting that plaintiff Browne is a "5.5." The rating is figurative: it represents in an abstracted form some panoply of attributes and the values Avvo has assigned them. A user of the Avvo site would understand that "5.5" is not a statement of fact. To the extent the numbers are tied to fuzzy descriptive phrases like "superb," "good," and "strong caution," a reasonable reader would understand that these phrases and their application to a particular attorney are subjective and, as discussed below, not sufficiently factual to be proved or disproved.
The last part of the Partington test is "whether the statement in question is susceptible of being proved true or false." Plaintiffs challenge the accuracy of the ratings in the abstract (plaintiff Browne maintains that he is not a 5.5 or otherwise "average") as well as the implied comparison between attorneys (plaintiffs assert that Supreme Court Justice Ruth Bader Ginsburg should not have a lower rating than Avvo's Chief Executive Officer). Defendants' decision to assign plaintiff Browne a rating of 5.5 is debatable: one could argue, for example, that Browne's thirty-five years of experience raise him above the "average." Nevertheless, defendants' rating is not only defensible, it is virtually impossible to prove wrong. Defendants fairly describe the nature of the information on which Avvo's ratings are based and make it clear that (a) there may be other relevant data that the rating does not consider and (b) the conversion of the available information into a number involves judgment, interpretation, and assessment. It is apparently defendants' view that a relatively recent admonition by the state disciplinary authority weighs heavily against Browne's experience and a generic attorney endorsement. One may disagree with defendants' evaluation of the underlying objective facts, but the rating itself cannot be proved true or false.[1] The *1253 comparison of two ratings may provide additional fodder for the debate, but even surprising results like the fact that a Supreme Court Justice had a lower rating than defendant Britton do not prove that the ratings are true or false. Consumers and the attorneys profiled have access to the underlying information and, while they may disagree with a particular rating and/or the implied comparisons drawn therefrom, "Where is no objective standard by which one can measure an advocate's abilities with any certitude or determine conclusively the truth or falsity of [Avvo's] statements. . . ." Partington, 56 F.3d at 1158.[2]
Rather than seeing the Avvo ratings for what they are "that and $1.50 will get you a ride on Seattle's new South Lake Union Streetcar" plaintiffs Browne and Wenokur want to make a federal case out of the number assigned to them because (a) it could harm their, reputation, (b) it could cost them customers/fees, or (c) it could mislead the lawyer-hiring public into retaining poor lawyers or bypassing better lawyers. To the extent that their lawsuit has focused a spotlight on how ludicrous the rating of attorneys (and judges) has become, more power to them. To the extent that they seek to prevent the dissemination of opinions regarding attorneys and judges, however, the First Amendment precludes their cause of action. In apparent recognition of the fact that Avvo's rating system is protected speech under the First Amendment, plaintiffs' responsive memorandum highlights three other practices which are said to violate the Washington Consumer Protection Act. Plaintiffs challenge the truthfulness of defendants' assertion that the rating system is unbiased, the accuracy of some of the data included in the attorney profiles,[3] and defendants' overall business model because it forces attorneys to provide biographical *1254 information in order to avoid a poor rating. The merits of plaintiffs' Consumer Protection Act claim are discussed below.
C. CONSUMER PROTECTION ACT
The Washington Consumer Protection Act ("CPA") prohibits "[u]nfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce." RCW 19.86.020. A private cause of action exists under the CPA if (1) the conduct is unfair or deceptive, (2) occurs in trade or commerce, (3) affects the public interest, and (4) causes injury (5) to plaintiff's business or property. Hangman Ridge Training Stables, Inc. v. Safeco Title Ins. Co., 105 Wash.2d 778, 780, 719 P.2d 531 (1986). Defendants argue that plaintiffs are unable to satisfy the second and fourth elements of their CPA claim.
"Trade" and "commerce" are defined as "the sale of assets or services, and any commerce directly or indirectly affecting the people of the state of Washington." RCW 19.86.010(2). Avvo collects data from public sources, attorneys, and references, rates attorneys (where appropriate), and provides both the underlying data and the ratings to consumers free of charge. No assets or services are sold to people who visit the site in the hopes of finding a lawyer and no charge is levied against attorneys or references who choose to provide information. It is hard to imagine how an information clearinghouse and/or ratings service could be considered "commerce," and plaintiffs have offered no theory on this point.
Instead, plaintiffs argue that Avvo's offer to sell advertising space to attorneys transforms all of defendants' activities into trade or commerce. The advertising program is separate and distinct from the attorney profiles that are the subject of plaintiffs' complaint. Plaintiffs have not alleged any misstatements of fact or unfair methods of competition involving the advertising program and cannot simply assume that since some of defendants' actions are entrepreneurial, all of them are. In Fidelity Mortgage Corp. v. Seattle Times Co., 131 Wash.App. 462, 470, 128 P.3d 621 (2005), the court found that a newspaper's publication of mortgage rates from various lenders was not, in the absence of payment from the lenders, trade or commerce. On the other hand, the same rate chart could be considered trade or commerce if the newspaper accepted an advertising fee in exchange for including a lender in the chart. As plaintiffs' allege in their complaint and acknowledge in their response, defendants do not accept payment for the inclusion of an attorney on Avvo's website and neither attorneys nor consumers pay to access the site. Avvo's publication of information and ratings based on available data is not "trade or commerce" and cannot form the basis of a CPA claim.
In addition, most, if not all, of the damages asserted in this case are either too remote to be recoverable or are not cognizable under the CPA. Private citizens can utilize the CPA to protect the public interest if defendant, by unfair or deceptive acts or practices, has induced plaintiff to act or refrain from acting. Fidelity Mortgage, 131 Wash.App. at 468-69, 128 P.3d 621 (citing Anhold v. Daniels, 94 Wash.2d 40, 46, 614 P.2d 184 (1980)). Except as noted below, Avvo did not induce plaintiffs to act or refrain from acting. Plaintiff Browne's damage claim is based on his assertion that third-party consumers of legal services were misled by the information and ratings provided by Avvo. To the extent that some of these consumers may have refrained from hiring, or may even have fired, plaintiff Browne based on his attorney profile, he seeks damages associated with lost fees.
*1255 Despite the fact that a causal link can be alleged, a claim for damages will fail if the damages are too remote from the asserted cause. Washington courts have adopted the Ninth Circuit's test for remoteness;
(1) whether there are more direct victims of the alleged wrongful conduct who can be counted on to vindicate the law as private attorneys general; (2) whether it will be difficult to ascertain the amount of the plaintiff's damages attributable to defendant's wrongful conduct; and (3) whether the courts will have to adopt complicated rules apportioning damages to obviate the risk of multiple recoveries.
Fidelity Mortgage, 131 Wash.App. at 470-71, 128 P.3d 621 (quoting Ass'n of Wash. Pub. Hosp. Dists. v. Philip Morris, Inc., 241 F.3d 696, 701 (9th Cir.2001)). All three evaluative criteria suggest that the damages claimed by plaintiff Browne are so remote that they were not proximately caused by defendants' publication of the offending attorney profiles. Consumers who were misled by the information and ratings provided by Avvo are the direct victims of the alleged wrongdoing. If, for example, a consumer hired a disbarred (and unethical) attorney based on inaccurate information generated by Avvo, the consumer would be in the best position to seek redress for payments made to the attorney and/or any losses resulting from the attorney's inability to provide legal services. Allowing attorneys who were not hired by consumers to seek damages would add unnecessary complexities to the claim. Identifying consumers who went elsewhere, determining what, if any, role Avvo's website played in their decision to hire another attorney, and establishing that the consumer was in fact injured would be incredibly difficult. Even if one were able to identify such a consumer, calculating plaintiffs' expected revenues from the "lost" client would be speculative at best. Finally, apportioning damages between Avvo and the providers of incorrect data and/or competing attorneys who "game" the system would be very complex. The damages alleged by plaintiff Browne are simply too remote to be proximately caused by defendants' conduct.[4]
C. COMMUNICATIONS DECENCY ACT
Defendant argues that Section 230 of the Communications Decency Act bars liability for posting third-party content. Plaintiffs have disavowed any claim based on content that Avvo obtained from a third-party (Response at 23) and the Court need not consider this defense further.
For all of the foregoing reasons, defendants' motion to dismiss is GRANTED. Plaintiffs' claim that the Avvo rating system is inaccurate and misleading is barred by the First Amendment. The various challenges highlighted in plaintiffs' responsive memorandum (namely, that defendants mischaracterized the rating system, that some of the data included in the attorney profiles is inaccurate, and that defendants' overall business model is coercive) do not state a cause of action under the Consumer Protection Act. Because no amendment of the complaint could cure the deficiencies identified above, plaintiffs', request for leave to amend is DENIED.
NOTES
[1] Ratings and reviews are, by their very nature, subjective and debatable. See Aviation Charter, Inc. v. Aviation Research Group/US, 416 F.3d 864, 870 (8th Cir.2005) (noting that although defendant's critique of plaintiff "relies in part on objectively verifiable data, the interpretation of those data was ultimately a subjective assessment, not an objectively verifiable fact"). Comparisons and comparative ratings are often based as much on the biases of the reviewer as on the merits of the reviewed: they should, therefore, be relied upon with caution. For example, in 2006, a new magazine called Lawdragon purported to identify the 500 leading judges in the United States. The undersigned was chosen to be one of the privileged 500 and was described as follows: "Seattle's judicial star cites Bob Dylan in opinions while providing contraceptives and protecting orca whales." The Leading Judges in America, Lawdragon, Winter 2006, at 72. What can one say about such nonsense? As my parents would tell me when I informed them of some of my amazing achievements as a child in Staten Island, NY, "that and five cents will get you a ride on the ferry."
[2] Ironically, plaintiff Browne relies on his designation as a "Super Lawyer" by Washington Law & Politics magazine as evidence that he could not possibly deserve an "average" rating from Avvo. Why one should assume that the attorney rating system developed by Washington Law & Politics is any better than that used by Avvo is not specified, and the Court is not inclined to make such an assumption. In 2004, the undersigned imposed sanctions of almost $40,000 against another supposedly "Super Lawyer" for engaging in unreasonable and vexatious litigation tactics. In its opinion affirming the decision, the Ninth Circuit said, "[t]he record supports the district court's finding that [this Super Lawyer] knowingly pursued frivolous claims and engaged in obfuscatory litigation tactics." Athearn v. Alaska Airlines, Inc., 118 Fed.Appx. 172, 2004 WL 2726045, at *2 (2004). Notwithstanding the fact that impartial decision-makers had recently found her conduct sanctionable, this counsel was re-elected a "Super Lawyer" in 2005 for the third year in a row.
[3] Defendants' argument regarding its right to republish information obtained from state bar associations misses the mark. Plaintiffs are not challenging defendants' right to reprint public records or the disclosure of any particular disciplinary action. Rather, plaintiffs argue that some of the information disclosed does not accurately reflect the underlying bar association records and is therefore inaccurate.
[4] To the extent plaintiffs' complaint challenges defendants' overall, business model, it could be argued that defendants induced plaintiffs to act (i.e., to provide biographical information) in order to avoid a poor rating. Plaintiffs have not, however, "alleged that inputting data on, Avvo's website has in any way injured them or caused damage cognizable under the CPA: plaintiffs' claims regarding defendants' business model must, therefore, fail. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1692312/ | 525 F. Supp. 2d 1098 (2007)
Weizhu ZHU, Plaintiff,
v.
Michael CHERTOFF, Secretary of the Department of Homeland Security, et al., Defendants.
No. 07-4104-CV-C-NKL.
United States District Court, W.D. Missouri, Central Division.
December 11, 2007.
Weizhu Zhu, Columbia, MO, pro se.
Jeffrey P. Ray, Office of the United States Attorney, Kansas City, MO, for Defendants.
ORDER
NANETTE K. LAUGHREY, District Judge.
Plaintiff Weizhu Zhu, a citizen of the People's Republic of China, residing in Columbia, Missouri, seeks a writ of mandamus to compel Defendants Michael Chertoff, Secretary of the Department of Homeland Security, Emilio T Gonzales, Director of the United States Citizenship and Immigration Services (USCIS), and Robert S. Mueller, III, Director of the Federal Bureau of Investigation, to immediately adjudicate his immigration application. Both sides move for summary judgment [Does. # 19, # 20], which this Court now grants for Plaintiff. The case is remanded to USCIS.
*1099 I. Facts[1]
It has been over four years since Zhu filed a Form I-485 with the USCIS seeking to adjust his immigration status and become a lawful permanent resident. Currently, Zhu is awaiting the conclusion of the required security checks that ensure he is eligible for a change of status and does not pose a risk to public safety. As part of this process, the FBI must clear Zhu through the National Name Check Program. Since 2001, the FBI is working through a backlog of name checks that has resulted in significant delays in processing some requests. And although the FBI received the name check request for Zhu some time ago, it has not yet completed the check. Until the USCIS receives the results of the FBI's name check, it claims it is unable to proceed to a final adjudication on Zhu's immigration application.
Zhu has inquired several times into the status of his application, each time being informed that the USCIS was still waiting for the FBI to complete its name check. He also sent several letters to various people and government entities requesting help. Having no success with these other methods, Zhu filed a petition for a writ of mandamus to instruct the FBI to complete its background check within 30 days and the USCIS to adjudicate his and his family's immigration applications within 60 days of this Court's order.
II. Standard
Summary judgment is proper if the evidence, viewed in the light most favorable to the nonmoving party, indicates there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. See Castillo v. Ridge, 445 F.3d 1057, 1060 (8th Cir.2006) (citing Gipson v. I.N.S., 284 F.3d 913, 916 (8th Cir. 2002)). In the present case, the parties essentially agree to the material facts, making summary judgment appropriate. See W.S.A., Inc. v. Liberty Mut. Ins. Co., 7 F.3d 788, 790-91 (8th Cir.1993) (citing Coca-Cola Bottling Co. of St. Louis v. Teamsters Local Union No. 688, 959 F.2d 1438, 1440 (8th Cir.1992)),
III. Discussion
Federal courts are courts, of limited jurisdiction; thus, they are "presumed to be without jurisdiction until the contrary is made affirmatively to appear." Young v. Main, 72 F.2d 640, 642 (8th Cir.1934); see also Oglala Sioux Tribe v. C & W Enters., Inc., 487 F.3d 1129, 1130 (8th Cir.2007). Zhu claims jurisdiction exists under 28 U.S.C. § 1361 (Federal Mandamus Act), 28 U.S.C. § 2201 (Declaratory Judgment Act), and 5 U.S.C. §§ 555, 702 (Administrative Procedure. Act). The Declaratory Judgment Act, however, does not provide an independent basis for subject matter jurisdiction. See Takkallapalli v. Chertoff, 487 F. Supp. 2d 1094, 1097 (W.D.Mo.2007) (citing Skelly Oil. Co. v. Phillips Petroleum Co., 339 U.S. 667, 671, 70 S. Ct. 876, 94 L. Ed. 1194 (1950); Pub. Water Supply Dist. No. 10 of Cass. County, Mo. v. City of Peculiar, Mo., 345 F.3d 570, 572 (8th Cir.2003)). Further, the analysis of jurisdiction and relief under the Mandamus Act and the APA are coextensive, negating the need for separate analysis. Sun v. Chertoff, No. 07-1525, 2007 WL 2907993, at *3 r. 7 (D.Minn. Oct. 1, 2007). A writ of mandamus may be issued only in *1100 extraordinary circumstances where "(1) the petitioner can establish a clear and indisputable right to the relief sought, (2) the defendant has a nondiscretionary duty to honor that right, and (3) the petitioner has no other adequate remedy." Castillo, 445 F.3d at 1060-61; see also Kerr v. U.S. Dist. Court for N. Dist. of Cal., 426 U.S. 394, 402, 96 S. Ct. 2119, 48 L. Ed. 2d 725 (1976).
Zhu's jurisdictional arguments are completely dependent on his claim that Defendants owe him a nondiscretionary duty to adjudicate his immigration application, a matter "clearly committed to Defendants' discretion." Takkallapalli, 487 F.Supp.2d at 1097 & n. 3 (citing 6 U.S.C. §§ 271(b)(5), 557). Zhu attempts to avoid this bar, claiming that, although he concedes Defendants' ultimate decision to grant or deny his application is discretionary, Defendants still owe him a nondiscretionary duty to conduct its adjudication in a reasonable amount of time. See 8 C.F.R. § 209.2(f) (regarding adjudication of immigration applications); see also 8 U.S.C. § 1255(a) (adjustment to permanent resident status). This argument also invokes the APA, which states: "With due regard for the convenience and necessity of the parties or their representatives and within a reasonable time, each agency shall proceed to conclude the matters presented to it." 5 U.S.C. § 555(b).
Regarding Zhu's Administrative Procedure Act claim, the Court finds it has subject matter jurisdiction under 8 C.F.R. § 209.2, 8 U.S.C. § 1255(a) and 5 U.S.C. § 555(b). See Qijuan Li v. Chertoff No. 07-50, 2007 WL 2123740, at *3 (D.Neb. July 19, 2007); Haidari v. Frazier, No. 06-3215, 2006 WL 3544922, at *4 (D.Minn. Dec. 8, 2006) (citing Aboushaban v. Mueller, No. 06-1280, 2006 WL 3041086, at *1-2 (N.D.Cal. Oct. 24, 2006)); Am. Acad. of Religion v. Chertoff, 463 F. Supp. 2d 400, 421 (S.D.N.Y.2006); Dabone. v. Thornburgh, 734 F. Supp. 195, 200 (E.D.Pa.1990); see also Takkallapalli, 487 F.Supp.2d at 1098 (assuming defendants owed plaintiff nondiscretionary duty to adjudicate application in a reasonable time). Zhu has a clear, indisputable and nondiscretionary right to have the USCIS adjudicate his application within a reasonable time. See Haidari, 2006 WL 3544922, at *4 (citing Aboushaban, 2006 WL 3041086, at *2; Kim v. Ashcroft, 340 F. Supp. 2d 384, 391-92 (S.D.N.Y.2004)); see also Sawad v. Frazier, No. 07-1721, 2007 WL 2973833, at *2-*3 (D.Minn. Oct. 9, 2007) (finding clear, indisputable and nondiscretionary right and rejecting government's argument that 8 U.S.C. § 1252(a) precludes judicial review); Konchitsky v. Chertoff, No. 07-00294, 2007 WL 2070325, at *3 (N.D.Cal. July 13, 2007); Tang v. Chertoff, 493 F. Supp. 2d 148, 152-55 (D.Mass.2007) (finding clear, indisputable and nondiscretionary right and rejecting government's argument that § 1252(a) precludes judicial review); Pool v. Gonzales, No. 07-258, 2007 WL 1613272, at *2 (D.N.J. June 1, 2007); Song v. Klapakas, No. 06-05589, 2007 WL 1101283, at *3 (E.D.Pa. Apr. 12, 2007).
But determining what is a reasonable time is a more nuanced question. "In determining reasonableness [for purposes of § 555(b) of the APA], we look to the source of delay e.g., the complexity of the investigation as well as the extent to which the defendant participated in delaying the proceeding." Haidari, 2006 WL 3544922, at *5 (quoting Reddy v. Commodity Futures Trading Comm'n, 191 F.3d 109, 120 (2d Cir.1999)); see also Takkallapalli, 487 F.Supp.2d at 1098 (citing Pub. Citizen Health Research Group v. Comm'r, Food & Drug. Admin., 740 F.2d 21, 35 (D.C.Cir. 1984)). In the immigration context, unreasonableness "depends to a great extent on the facts of the particular case." Yu v. *1101 Brown, 36 F. Supp. 2d 922, 935 (D.N.M. 1999).
In the present case, Zhu filed his I-485 on September 5, 2003. Over four years later, he is still waiting for the FBI to complete its name check and for the USCIS to adjudicate application. Defendants give no reason for this delay other than that, due to increased national security, there is a backlog of immigration applications. Other courts have rejected this general argument, explaining plaintiffs, such, as Zhu and his family, are already living and working in the United States while the application is pending. See Tang, 493 F.Supp.2d at 158. "While FBI background checks are important and may sometimes require extensive amounts of time, the FBI's delay here does not negate the USCIS's duty to process the Plaintiffs' applications in a reasonable time, both upfront when receiving the forms, and later when receiving the requested information from the FBI." Haidari, 2006 WL 3544922, at *6. Although the Court understands there is a high volume of applications and scarce resources, that is not Plaintiffs burden to remedy. See Tang, 493 F.Supp.2d at 158; see also Haidari, 2006 WL 3544922, at *6 ("The [US]CIS simply does not possess unfettered discretion to relegate aliens to a state of `limbo,' leaving them to languish there indefinitely." (quoting Kim, 340 F.Supp.2d at 393)).
Several courts have found four year delays (or less) unreasonable in similar circumstances. See Konchitsky, 2007 WL 2070325, at *6 ("Under these facts, and without a particularized explanation for the delay, the court finds the more than two year delay of plaintiffs application unreasonable as a matter of law."); Tang, 493 F.Supp.2d at 157 (holding that four year delay was "far to the `unreasonable' side"); Haidari, 2006 WL 3544922, at *6 (holding that six and four year delays were unreasonable); see also Paunescu v. I.N.S., 76 F. Supp. 2d 896, 902, 903 (N.D.Ill. 1999) (holding that two years is unreasonable); Yu, 36 F.Supp.2d at 932 (holding that two and a half years is unreasonable); Agbemaple v. I.N.S., No. 97-8547, 1998 WL 292441, at *2 (N.D.Ill. May 18, 1998) (holding 20 month delay unreasonable); Galvez Howerton, 503 F. Supp. 35 (C.D.Cal.1980) (holding that six month delay is unreasonable); cf. Sawad, 2007 WL 2973833, at *5 (denying defendants' motion to dismiss because, plaintiffs properly stated claim); Salehian v. Novak, No. 06-459, 2006 WL 3041109, at *4 (D.Conn. Oct. 23, 2006) (stating, in denying defendants' motion to dismiss, that "[t]he circumstances in the instant case [of a more than two year delay] do not lead this Court to conclude beyond a doubt that Defendants' delay is reasonable"). But see Takkallapalli, 487 F.Supp.2d at 1099 (finding three year delay reasonable). Even the FBI's own Fact Sheet states that 80 percent of checks take only two weeks and less than 1 percent take longer than six months, suggesting four years is considerably beyond the norm. See also Konchitsky, 2007 WL 2070325, at *5 ("Although the average times for processing applications and, in particular, FBI security checks, are not a per se measure of reasonableness of processing time, they offer a good indicator of whether a delay is reasonable."). Congress itself recommends "that the process of an immigration benefit application should be completed not later than 180 days after the initial filing of the application. . . ." 8 U.S.C. § 1571 (stating policy).
Thus, under the facts of this particular case, the Court holds that the more than four year delay of Zhu's immigration application is unreasonable. The Court is mindful of the government's national security concerns in processing applications, but this does not give the government the right to indefinitely delay Zhu's application. *1102 See Konchitsky, 2007 WL 2070325, at *5 ("Although defendants assert that the delay results from `increased national security issues and not agency inaction,' defendants have not shown how national security concerns are a reason for the delay in plaintiff's application."); Haidari, 2006 WL 3544922, at *6 (explaining USCIS does not have "unfettered discretion to relegate aliens to a state of `limbo'"). Moreover, Zhu alleges that he has exhausted all administrative remedies and Defendants do not dispute that he has done so. Therefore, the USCIS must adjudicate Zhu's application expeditiously, or, at the latest, within 90 days.. See Qijuan Li, 2007 WL 2123740, at *3 ("However, the defendant Attorney General oversees both USCIS and the FBI, so shifting the onus to the FBI does not show timeliness."); see also Norton v. S. Utah Wilderness Alliance, 542 U.S. 55, 65, 124 S. Ct. 2373, 159 L. Ed. 2d 137 (2004) ("[W]hen an agency is compelled by law to act within a certain time period, but the manner of its action is left to the agency's discretion, a court can compel the agency to act, but has no power to specify what the action must be.").
Defendants respond that the USCIS has no power to expedite the FBI's name check and threaten that, if the Court orders adjudication, the USCIS might have to exercise its discretion and deny Zhu's application for lack of a satisfactory background check. However, this is not an acceptable excuse. See Qijuan Li, 2007 WL 2123740, at *3 (rejecting USCIS's argument that "the delay is out of their hands to the extent they rely on the FBI to conduct the name check for background clearance" because the "Attorney General oversees both USCIS and the FBI so shifting the onus to the FBI does not show timeliness"). Although the Court cannot directly compel the FBI to perform name checks in connection with adjustment of status petitions, see Konchitsky, 2007 WL 2070325, at *6, other courts addressing the issue in the naturalization context have found they may remand to USCIS with instructions that the FBI complete its name check within a certain timeframe. See Alhamedi v. Gonzales, No. 07-2541, 2007 WL 1573935, at *4 (S.D.N.Y. May 30, 2007) (citing cases). The Court has no doubt that 90 days gives the USCIS more than enough time to request that the FBI expedite and complete Zhu's name check (which has been pending for over four years) so that it can fulfill its obligations under this Order. See Tang, 493 F.Supp.2d at 158 ("Further, if the government adjusts Tang's status in error due to haste (if performing a 72-hour check within four years can be called `haste'), the INA allows it to rescind the status and initiate removal proceedings on the basis that he was inadmissible at the time of admission.") (citing 8 U.S.C. §§ 1227(a)(1)(A), 1245(0).
IV. Conclusion
Accordingly, it is hereby
ORDERED that Plaintiff Weizhu Zhu's Motion for Summary Judgment [Doc. # 19] is GRANTED and the above-captioned case REMANDED to USCIS. The USCIS is ORDERED to complete its adjudication of Plaintiffs I-485 application within 90 days of the date of this Order. Upon completion of the adjudication, the USCIS shall promptly file an affidavit demonstrating compliance. The Court retains jurisdiction over the matter in the interim to ensure that the USCIS complies with this Order. It is further
ORDERED that Defendants' Cross-Motion for Summary Judgment [Doc. # 20] is DENIED.
NOTES
[1] Defendants' Cross-Motion for Summary Judgment refers to a declaration by Michael A. Cannon for support of certain facts in Zhu's case. However, the declaration attached to Defendants' motion appears to be from a completely different case and thus does not support those facts specific to Zhu. Despite this (as well as Defendants' motion occasionally referencing a different plaintiff), Zhu and Defendants essentially state the same material facts. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1921799/ | 301 B.R. 871 (2003)
INDIANA DEPARTMENT OF REVENUE, Appellant,
v.
Chad WILLIAMS and Tisha Williams, Appellees.
No. 1:03-CV-0359 DFH.
United States District Court, S.D. Indiana, Indianapolis Division.
November 5, 2003.
*872 *873 Brian Salwowski, Office of the Attorney General, Indianapolis, IN, for Appellant.
Steven P. Taylor, Law Office of Steven P. Taylor, Indianapolis, IN, for Appellees.
ENTRY ON APPEAL FROM BANKRUPTCY COURT
HAMILTON, District Judge.
After the Indiana Department of Revenue (the "IDR") committed its second violation of the automatic stay provision of the bankruptcy code, 11 U.S.C. § 362, by sending the debtors a second demand for payment of unpaid taxes, the United States Bankruptcy Court for the Southern District of Indiana found the IDR in contempt of court and imposed a sanction of $325 in attorney fees. The IDR has appealed the finding and the sanction, arguing primarily that the Eleventh Amendment to the United States Constitution prohibits such an exercise of federal judicial power against it. The importance of the general issue to the state and others transcends the modest stakes in this particular case. As explained below, the court affirms Judge Coachys' finding and the sanction. By filing a claim against the debtors in their bankruptcy proceeding, the IDR waived any Eleventh Amendment immunity it might have enjoyed for its violation of the automatic stay provision. See Gardner v. New Jersey, 329 U.S. 565, 573, 67 S. Ct. 467, 91 L. Ed. 504 (1947).
*874 Factual Background
The automatic stay provision of the bankruptcy code provides:
(a) . . . a [bankruptcy] petition filed . . . operates as a stay, applicable to all entities, of
(1) the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title;
. . .
(6) any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case under this title;
. . .
(h) An individual injured by any willful violation of a stay provided by this section shall recover actual damages, including costs and attorneys' fees, and, in appropriate circumstances, may recover punitive damages.
11 U.S.C. § 362(a), (h).
Appellees Chad and Tisha Williams sought bankruptcy relief in early 2002. On April 2, 2002, the IDR filed a proof of claim alleging that it had not received tax returns from the Williams for the years 1998 and 2001. The Williams then filed individual tax returns for 1998 and 2001. The IDR amended its proof of claim accordingly.
In August 2002, the IDR sent the Williams a "Proposed Assessment" summarizing the amount of taxes due and payable by October 18, 2002. Feb. 27, 2003 Hearing Exhibits, Ex. C at 2. On October 15, 2002, the Williams filed a "Motion for Court Order Holding in Contempt a Person." The IDR argued that its violation of the stay had been only inadvertent. On December 12, 2002, the parties filed an Agreed Entry that recalled the August tax warrant. In accord with Section 362, the Agreed Entry also included an order from the bankruptcy court requiring the IDR to stop its post-petition efforts to collect pre-petition debts.
The IDR continued its collection efforts, however. In a tax warrant dated January 8, 2003, the Sheriff of Madison County issued a notice to the Williams that they were scheduled to appear for failure to pay taxes owed to the IDR the same taxes that had been the subject of the Agreed Entry a month earlier. On January 16, 2003, the Williams filed their "Renewed Motion for Contempt and Motion for Emergency Ex-Parte Order Staying Proceedings." The bankruptcy court issued an order staying proceedings and then held an evidentiary hearing on the contempt motion.
The bankruptcy court found that the IDR had violated the Agreed Entry by failing to cease collection efforts on the pre-petition debt and by failing to recall the tax warrant. The court further found that the IDR's attempts to collect had been halted only by the Williams' request for an emergency order staying proceedings. The IDR's actions continued for a month after the IDR had entered the Agreed Entry, which included an order by the judge requiring the IDR to cease collection efforts.
The bankruptcy court found that the IDR's second violation of 11 U.S.C. § 362 in January 2003 was willful. The judge awarded actual costs in the amount of $325 for attorney fees paid to prosecute the IDR's violation, but found that punitive damages were not warranted by the circumstances in the case. The judge *875 warned the IDR that "evidence of a pattern of similar behavior in violation of the automatic stay could result in an award of punitive damages in the future."
The IDR has appealed arguing: (1) that the Eleventh Amendment to the United States Constitution bars the bankruptcy court's exercise of jurisdiction over the IDR to find contempt and impose the sanction; (2) the bankruptcy court's finding of a willful violation of the stay was clearly erroneous; and (3) in the alternative, any sanction should be setoff against the taxes the Williams owe.
Standard of Review
When reviewing the bankruptcy judge's conclusions of law, this court applies a de novo standard. See Meyer v. Rigdon, 36 F.3d 1375, 1378 (7th Cir.1994). When reviewing the bankruptcy judge's findings of fact, this court applies a clearly erroneous standard. Fed. R. Bankr.P. 8013; Goulet v. Educ. Credit Mgmt. Corp., 284 F.3d 773, 778 (7th Cir.2002). Whether the Eleventh Amendment bars the relief against the IDR and whether that relief should have been in the form of a setoff are questions of law that the court reviews de novo. Whether the bankruptcy court erred by finding a willful violation of the stay is subject to the clearly erroneous standard. "A finding is `clearly erroneous' when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed." United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S. Ct. 525, 92 L. Ed. 746 (1948).
Discussion
I. Eleventh Amendment Sovereign Immunity
The IDR first contends that the Eleventh Amendment prohibits the bankruptcy court from finding it in contempt or awarding monetary damages to the Williams. The Eleventh Amendment states:
The judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by citizens of another state, or by citizens or subjects of any foreign state.
The bankruptcy code addresses governmental assertions of sovereign immunity in 11 U.S.C. § 106, which reads in relevant part as follows:
(a) Notwithstanding an assertion of sovereign immunity, sovereign immunity is abrogated as to a governmental unit to the extent set forth in this section . . .
(b) A governmental unit that has filed a proof of claim in the case is deemed to have waived sovereign immunity with respect to a claim against such governmental unit that is property of the estate and that arose out of the same transaction or occurrence out of which the claim of such governmental unit arose.
(c) Notwithstanding any assertion of sovereign immunity by a governmental unit, there shall be offset against a claim or interest of a governmental unit any claim against such governmental unit that is property of the estate.
A. Late Assertion of the Eleventh Amendment Defense
The Williams first argue that the IDR waived its sovereign immunity defense by not raising it prior to this appeal. This argument is understandable but not persuasive. In Higgins v. Mississippi, 217 F.3d 951, 953-54, (7th Cir.2000), the Seventh Circuit explained that the Eleventh Amendment immunity defense is not technically jurisdictional because it can be waived and because a court need not raise the issue sua sponte. However, the Eleventh Amendment defense is unusual in *876 that a court may raise the issue on its own initiative, as Higgins held in affirming dismissal based on the Eleventh Amendment when the court raised the issue before the state defendant had even appeared. The immunity defense may also be raised at any point in a case, including for the first time on appeal. DeKalb County Div. of Family & Children Servs. v. Platter, 140 F.3d 676, 679 (7th Cir.1998) (considering Eleventh Amendment issue raised for the first time in circuit court appeal of bankruptcy court ruling). Accordingly, the IDR did not waive its Eleventh Amendment defense by failing to raise it before the bankruptcy court.
B. Waiver of the Eleventh Amendment Defense by Filing Claim
In general, there are two ways to eliminate state sovereign immunity under the Eleventh Amendment. The first is by congressional abrogation. The second is by express state consent to waive immunity. College Savings Bank v. Florida Prepaid Postsecondary Educ. Expense Bd., 527 U.S. 666, 670, 119 S. Ct. 2219, 144 L. Ed. 2d 605 (1999). Congress may abrogate states' sovereign immunity only by a "valid exercise of power." Seminole Tribe v. Florida, 517 U.S. 44, 57-58, 116 S. Ct. 1114, 134 L. Ed. 2d 252 (1996).
In bankruptcy proceedings, Section 106(b) does not purport to abrogate states' immunity. Instead, the statute gives a state a choice. Either the state may pursue a claim in a bankruptcy proceeding and subject itself to the jurisdiction of the federal courts, or it may waive its claim without losing its immunity. The Supreme Court in Gardner v. New Jersey, 329 U.S. 565, 67 S. Ct. 467, 91 L. Ed. 504 (1947), held as much in a case of a state's claim for taxes filed in a bankruptcy proceeding. The Court reasoned that "he who invokes the aid of the bankruptcy court by offering a proof of claim and demanding its allowance must abide the consequences of that procedure." Id. at 573, 67 S. Ct. 467.[1]
Notwithstanding the broader controversy in recent years over the scope of congressional power to abrogate sovereign immunity, the waiver principle of Gardner remains solid. In College Savings Bank, the Court noted that Gardner stood for the "unremarkable proposition that a State waives its sovereign immunity by voluntarily invoking the jurisdiction of the federal courts." 527 U.S. at 681 n. 3, 119 S. Ct. 2219; see also DeKalb County v. Platter, 140 F.3d at 679 (after Seminole Tribe, affirming finding that state waived Eleventh Amendment defense by filing proof of claim in bankruptcy court); In re Burke, 146 F.3d 1313, 1319-20 (11th Cir.1998) (by filing claim in bankruptcy, state tax agency waived Eleventh Amendment immunity with regard to debtors' claims for actual damages resulting from alleged violation of automatic stay).
Accordingly, by filing a proof of claim against the Williams, the IDR subjected itself to the jurisdiction of the bankruptcy court in that same proceeding, which included *877 the power to enforce the automatic stay provision of 11 U.S.C. § 362.[2]
C. Same Transaction or Occurrence
Section 106(b) imposes three requirements for finding a waiver of Eleventh Amendment immunity: (1) the entity that filed the proof of claim must have been a governmental unit; (2) the claim against that governmental unit must have been property of the estate; and (3) the claim against the governmental unit must have arisen out of the same transaction or occurrence from which its own claim arose.
The IDR is of course a governmental unit, and the Williams' claim against IDR is property of the estate. The IDR contends that the third element is missing because the Williams' claim did not arise out of the same transaction or occurrence as its own claim. The court disagrees.
The requirement that both the government's claim and the debtor's claim arise out of the same transaction or occurrence means that a governmental unit's sovereign immunity is waived only as to compulsory counterclaims against its own claim. Price v. United States, 42 F.3d 1068, 1072 (7th Cir.1994); In re Friendship Medical Center, Ltd., 710 F.2d 1297, 1301 (7th Cir.1983). The transaction or occurrence requirement in the bankruptcy context is analytically identical to the transaction or occurrence requirement in the Federal Rules of Civil Procedure. Federal Rule of Civil Procedure 13(a). This approach calls for application of the "logical relationship" test. Price, 42 F.3d at 1073.
The logical relationship test is not a stringent one. It is instead flexible and adapted to the permissive nature of the federal rules. Id. The factors that a court should consider when administering the logical relationship test are: the totality of the claims, including the nature of the claims; the legal basis for recovery, the law involved; and the respective factual backgrounds. Id., quoting Burlington N.R.R. v. Strong, 907 F.2d 707, 711 (7th Cir.1990).
Price presented a nearly identical claim against the federal Internal Revenue Service for violating the provisions of the automatic stay, and the Seventh Circuit affirmed an award of attorney fees against the IRS. The Seventh Circuit in Price analyzed the case as follows:
Both claims here arise out of the debtors' tax liability. In this case, the IRS' claim arises from the Prices' failure to pay taxes owed for years 1986, 1987, and 1988. The debtors' claim arises pursuant to the attempt by the IRS to collect those taxes. The basis of both claims revolve [sic] around the same aggregate core of facts the debtors' unpaid taxes. Counsel for the government conceded at *878 trial that there would have been no stay violation had there been no tax liability.
Price, 42 F.3d at 1073. Although Price involved a claim against the federal government for violating the automatic stay, the federal government also is entitled to sovereign immunity and Section 106 also applies to limit, waive, or abrogate that immunity just as it applies to states under the Eleventh Amendment. Accord, In re Burke, 146 F.3d 1313, 1319-20 (11th Cir.1998) (by filing claim in bankruptcy, state tax agency waived Eleventh Amendment defense to debtors' claim for violating automatic stay); cf. Nelson v. La Crosse County Dist. Att'y, 301 F.3d 820, 835 (7th Cir.2002) (state's filing of claim in one bankruptcy proceeding did not waive Eleventh Amendment defense for claims against state in a different bankruptcy proceeding filed by affiliated debtor).
The reasoning of Price and Burke applies directly here to the issue of the same transaction or occurrence. Had it not been for the tax liability, the factual starting point here, there would have been no proof of claim filed by the IDR. There would have been no subsequent counterclaim filed by the Williams for the IDR's failure to comply with the automatic stay. The sole basis for the Williams' claim was that the IDR violated Section 362 by continuing to demand payment of taxes from 1998 and 2001. The IDR filed its proof of claim in the bankruptcy case for payment of those taxes due from the same years. There was a logical relationship between the Williams' and the IDR's claims. The nature of the claims, the law involved, and the factual backgrounds of each claim show a substantial and logical nexus between the claims. Price, 42 F.3d at 1074. Therefore, with respect to the Williams' claim, the IDR waived any claim to sovereign immunity.
II. Willfulness
The bankruptcy court found that the second violation of the automatic stay, after the IDR had entered into the Agreed Entry, was willful. That finding was not clearly erroneous.
The automatic stay provision of Section 362 is effective immediately upon the filing of a bankruptcy petition. 11 U.S.C. § 362(a); Price v. Rochford, 947 F.2d 829, 831 (7th Cir.1991). A creditor in violation of the stay has a duty to correct its violative behavior, whether that behavior is intentional or inadvertent. Patton v. Shade, 263 B.R. 861, 865 (C.D.Ill.2001), citing In re Hellums, 772 F.2d 379 (7th Cir.1985). A willful violation does not require a specific intent to violate the stay. Price, 42 F.3d at 1071. Failure to remedy an inadvertent violation may transform the violation into a willful one. 3 Collier on Bankruptcy ¶ 362.11 (15th ed.2002).
Judge Coachys found that only the second violation was willful, after the IDR had learned of its earlier violation, had agreed to stop, and had been ordered to stop. After the Williams filed their bankruptcy petition, the IDR issued a tax warrant in an attempt to collect pre-petition taxes from 1998 and 2001. After the first attempt to collect, which itself violated the automatic stay and which led to the Agreed Entry, the IDR had a duty to ensure that no more warrants would be issued to the Williams. Because the IDR did not fulfill this duty, the bankruptcy court did not err by classifying the second violation as willful. But for the filing of the Renewed Motion for Contempt, it is likely the harassment of the Williams for tax payment by the IDR would have continued, inadvertent though it might have been in the first instance. The IDR has a duty to design a system so that a bankruptcy stay will override warrants, notices and any other attempts to collect pre-petition *879 taxes owed that would otherwise be issued. See Price, 42 F.3d 1068 (affirming award of attorney fees as damages where IRS sent computer-generated notices after bankruptcy petition had been filed).
III. Cash Payment to Debtors or Offset Against Debt?
Pursuant to Section 106(c), the IDR argues that any damages the bankruptcy court awarded ought to have been offset against the amount of any claim it had against the Williams for unpaid taxes. Sections 106(b) and (c) are separate provisions and are to be treated as such. Consideration of offset need not occur under Section 106(b) but must occur under Section 106(c). When Section 106(b) is applied, the court may award monetary damages for a claim, filed by the party opposing the governmental unit, that arises from the same transaction or occurrence.
It is plain from the language in these provisions, quoted above, that Section 106(c) applies to a governmental unit that has not filed a proof of claim. Section 106(c) also does not require a transaction or occurrence in common between opposing claims for recovery. Recovery under Section 106(c) is limited to a setoff of the government's claim against the debtor. As the court has already stated, though, the Williams' claim arose out of the same event as the IDR's proof of claim, so Section 106(b) applies here.
As explained above, a claim for attorney fees incurred to dispute a government's violation of the automatic stay is property of the bankruptcy estate and arises out of the same transaction or occurrence as the government's action. Price, 42 F.3d at 1072-73. Further, there is no limit on the amount of such a claim. 2 Collier on Bankruptcy ¶ 106.06 (15th ed.2003), citing H.R.Rep. No. 595, 95th Cong., 1st Sess. 317 (1977), U.S.Code Cong. & Admin.News 1978, 5963, 6274, and S.Rep. No. 989, 95th Cong., 2d Sess. 29-30 (1978), U.S.Code Cong. & Admin.News 1978, 5787, 5814-16.
Because the IDR subjected itself to the jurisdiction of the bankruptcy court under Section 106(b), the court will look no further than that section. The bankruptcy court properly ordered that the IDR pay monetary sanctions in cash to cover the Williams' attorney fees incurred in enforcing the stay.
The IDR cites In re Pearson, 917 F.2d 1215 (9th Cir.1990), for its argument that monetary damages against the government are impermissible. In that case, however, the government had filed no proof of claim, so that the applicable statutory section was the offset provision in what is now Section 106(c). The court, citing Hoffman v. Connecticut Dep't of Income Maintenance, 492 U.S. 96, 109 S. Ct. 2818, 106 L. Ed. 2d 76 (1989), held that the offset provision restricted relief to injunctive and declaratory relief. However, the Bankruptcy Reform Act of 1994 overruled Hoffman and clarified that Congress did not intend for states to be immune from monetary damages. Sacred Heart Hosp. v. Department of Pub. Welfare, 133 F.3d 237, 243 (3d Cir.1998). In any case, as stated previously, this case is governed by Section 106(b), which does not require offset and does not require that relief be limited only to injunctive or declaratory relief.
Finally, the IDR cites Lapides v. Board of Regents, 535 U.S. 613, 122 S. Ct. 1640, 152 L. Ed. 2d 806 (2002), for the proposition that a state or state agency is not a "person" against whom monetary damages can be assessed. Lapides made this assertion in the context of 42 U.S.C. § 1983, which has been interpreted not to include states or state agencies. See *880 Will v. Mich. Dep't of State Police, 491 U.S. 58, 65, 109 S. Ct. 2304, 105 L. Ed. 2d 45 (1989). There is no requirement in 11 U.S.C. § 362(h) that the wrongdoer be a "person." That section is general enough to apply to governmental units as well as natural persons or corporations.
Conclusion
The bankruptcy court's decision is hereby affirmed. The IDR waived its sovereign immunity when it filed a proof of claim with the bankruptcy court. The bankruptcy court did not err by finding that the second violation of the automatic stay was willful or by awarding the modest monetary damages to compensate the Williams for attorney fees paid to enforce the stay.
So ordered.
NOTES
[1] Some circuit courts have concluded that Section 106(b) does not control the issue of waiver of the defense, which is a matter of constitutional law, but they have observed that the statute appears to state accurately the Supreme Court's holding in Gardner and that the statutory language helps put state agencies on notice of the effect of filing a proof of claim. See In re Burke, 146 F.3d 1313, 1317 n. 8 (11th Cir.1998); Wyoming Dep't of Transp. v. Straight, 143 F.3d 1387, 1390 (10th Cir.1998); Schlossberg v. Maryland Comptroller of the Treasury, 119 F.3d 1140, 1147 (4th Cir.1997) ("While 11 U.S.C. § 106(b) may correctly describe those actions that, as a matter of constitutional law, constitute a state's waiver of the Eleventh Amendment, it is nevertheless not within Congress' power to abrogate such immunity by `deeming' a waiver.").
[2] The Supreme Court has granted certiorari to consider whether Congress itself may abrogate Eleventh Amendment sovereign immunity in bankruptcy cases. See Hood v. Tennessee Student Assistance Corp., 319 F.3d 755 (6th Cir.2003), cert. granted, ___ U.S. ___, 124 S. Ct. 45, 156 L. Ed. 2d 703 (2003) (No. 02-1606). The issue in Hood is whether Congress validly exercised its Article I power in Section 106(a) to abrogate states' immunity completely in bankruptcy cases, without regard to whether the state filed a claim so as to waive immunity under the terms of Section 106(b) and Gardner. See 319 F.3d at 760-61. Hood does not appear to present any issue involving a state's voluntary waiver of sovereign immunity by filing a claim with the bankruptcy court. Thus, even if the Supreme Court disagrees with the Sixth Circuit's view of Section 106(a), this court sees no reason to expect that the Supreme Court's reasoning would overturn the holdings of Gardner, DeKalb County, or Burke based on a state's voluntary submission to the bankruptcy court's power by filing a claim. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1692508/ | 525 F. Supp. 625 (1981)
The CLARKSON COMPANY LIMITED, as Trustee in Bankruptcy, appointed by the Supreme Court of the Province of Newfoundland, of the Property of Newfoundland Refining Company Limited and Provincial Refining Company Limited, Plaintiff,
v.
John M. SHAHEEN, Roy M. Furmark, Albin W. Smith, Peter L. Caras, Paul W. Rishell, Shaheen Natural Resources Company, Inc., Newfoundland Refining Company Ltd., U.S.A., and Founders Corporation, Defendants.
The CLARKSON COMPANY LIMITED, as Trustee in Bankruptcy, appointed by the Supreme Court of the Province of Newfoundland, of the Property of Newfoundland Refining Company Limited and Provincial Refining Company Limited, Petitioner,
v.
SHAHEEN NATURAL RESOURCES COMPANY, INC., John M. Shaheen, Macmillan Ring-Free Oil Co., Inc., and Ian W. Outerbridge, Respondents.
No. 76 Civ. 1373.
United States District Court, S. D. New York.
October 27, 1981.
White & Case, New York City, for The Clarkson Company Limited; Jeffrey Barist, Edna Sussman, New York City, of counsel.
Spengler, Carlson, Gubar & Brodsky, New York City, for Ian Outerbridge; Thomas H. Sear, Cynthia M. Brill, New York City, of counsel.
Saxe, Bacon & Bolan, P.C., New York City, for John M. Shaheen and Shaheen Natural Resources Co., Inc.; Thomas A. Andrews, New York City, of counsel.
Trubin, Sillcocks, Edelman & Knapp, New York City, for Macmillan Ring Free Oil Co., Inc.; Roger Crane, Jr., New York City, of counsel.
OPINION AND ORDER
OWEN, District Judge.
On July 22, 1980, following a jury verdict, a judgment in the total amount of $50 *626 million was entered in favor of the plaintiff in Clarkson Company Limited v. John M. Shaheen, et al., No. 76 Civ. 1373 ("the main action" or "the principal action").[1] Thereafter, the Clarkson Company Limited ("Clarkson"), the judgment creditor, brought various supplementary proceedings to enforce its judgment over which this Court had and took jurisdiction.
Clarkson, a Canadian corporation, was and is acting as a Trustee in Bankruptcy in the Province of Newfoundland.
Newfoundland Refining Company, Limited and Provincial Refining Company, Limited, ("NRC" and "PRC") were engaged in the operation of an oil refinery at Come-By-Chance, Newfoundland. PRC was the wholly-owned subsidiary of NRC and owned the refinery which NRC managed. Both corporations were part of a complex of other corporations monarchically-owned or controlled by John Shaheen. They went bankrupt in 1976, and title to all the property of PRC and NRC vested in Clarkson upon its appointment as Trustee in Bankruptcy of PRC and NRC by the Supreme Court of the Province of Newfoundland.
Shaheen Natural Resources Company, Inc. ("SNR"), a respondent in these supplementary proceedings, was a principal defendant in the main action. SNR, an Illinois corporation with its principal office at 90 Park Avenue, New York City, suffered a judgment in the amount of $46,049,040 with interest from March 13, 1976. The judgment is unsatisfied.
John M. Shaheen ("Shaheen"), also a respondent in these supplementary proceedings, was also a principal defendant in that action. Clarkson's judgment against him included, inter alia, the sum of $23,151,910, together with interest from March 13, 1976. The judgment is unsatisfied.
Shaheen controls SNR, owning all of its common stock.
Respondent Outerbridge is a citizen and resident of the Province of Ontario, Canada. He is a Canadian lawyer, "Queen's Counsel," and has been Shaheen's primary counsel in Canada.
Respondent Macmillan Ring-Free Oil Co., Inc. ("Macmillan") is a Delaware corporation with its principal place of business in New York. It is a "public company" of which SNR owns 13.5% of its stock, Founders Corporation, another Shaheen company, owns 28.3%, and a handful of stock is owned by Shaheen individually. Shaheen is also Macmillan's president, a director, and, through his stock ownership of SNR (100%-owned by Shaheen) and Founders (55%-owned by Shaheen), has held the controlling block of more than 40% of the common stock of Macmillan since at least 1974.
In July, 1980, at the time of the jury's verdict and the subsequent entry of judgment, SNR was the owner and had possession of 235,175 shares of common stock of Macmillan. Two months thereafter, on September 16, 1980, SNR confirmed in an information subpoena that it still had not transferred possession of any of those shares.
However, on December 5, 1980, in responding to Clarkson's motion for a turnover order, Shaheen, by affidavit, for the first time advised counsel and this Court that on July 31, 1980, 185,723 shares of Macmillan stock owned by SNR had been transferred to Outerbridge as part of an agreement signed by Outerbridge, SNR, and Shaheen. The shares at that time had a value of some $750,000.
Following a hearing on December 5, 1980, this Court enjoined Macmillan and its transfer agents from any transfer of any of the Macmillan shares of which SNR was the record owner.
On December 8, 1980, the Court, at Clarkson's request and over the objection of counsel for Shaheen and SNR, ordered Outerbridge to retain and preserve the 185,273 shares of Macmillan, to refrain from transferring them, and to preserve the dividends *627 and proceeds thereof. The Court's order was communicated to Outerbridge on December 8, 1980.
Thereafter, by an Order to Show Cause on January 28, 1981, Clarkson commenced a supplementary proceeding against SNR, Shaheen, Macmillan, and Outerbridge seeking, inter alia, an order requiring SNR and Outerbridge to turn over to Clarkson the 185,723 shares of stock in Macmillan held by Outerbridge.
By letter dated February 4, 1981, Messrs. Spengler, Carlson, Gubar and Brodsky ("the Spengler firm") informed this Court that they were appearing for Outerbridge. Thereafter, Outerbridge submitted himself to this Court's jurisdiction.
A hearing was held on March 13, 1981, following which the Court, which at first directed that Outerbridge continue to hold the shares, but as "Trustee" for the Court, on further consideration directed that the Macmillan shares held by Outerbridge be placed within the very jurisdiction of the Court and ordered the Spengler firm to take possession of and hold them for the Court. This was done.
In his affidavit of December 5, 1980, Shaheen states under oath that the shares were transferred to Outerbridge, to quote Shaheen, "in payment of legal fees then owing from SNR to the Canadian law firm of Outerbridge, Thomas, Mueller & Betts and four other leading Canadian law firms which had rendered services over a four year period. The indebtedness to these firms was in the approximate sum of $2,000,000, ...." (emphasis supplied). In later testimony, Shaheen again stated that the shares were transferred to Outerbridge in payment of past debts.
It is clear from Shaheen's affidavit of March 11, 1981, however, that these earlier sworn statements by Shaheen to the Court were utterly false. In the March affidavit, seven and one-half months after the transfer, Shaheen swears that the transfer was both for past services rendered and future services to be rendered. Moreover, instead of $2 million being due and owing as of June 1980, Shaheen claimed that only $300,000 was due and that much of that a comparison of his and Outerbridge's affidavits reveals was incurred in the seven and one-half months after the stock had been transferred and, therefore, was for future services.
This is made clear from the Outerbridge affidavits, which had annexed to them copies of bills for past legal services which showed less than $51,000 due at the time of the July 31, 1980 transfer of the Macmillan shares. An extremely generous reading of other Outerbridge exhibits could lead to the conclusion that an additional $58,000 was at sometime due and owing to four other Canadian law firms which had been retained by Outerbridge for Shaheen. However, the evidence of this indebtedness appears in the various correspondence occurring sometime after the transfer, without any showing of whether the work was done before or after. I am inclined not to credit this correspondence for the purpose of determining Shaheen's existing debt prior to July 31, 1980.
Also significantly, the agreement itself by which the shares were transferred, and signed by both Shaheen and Outerbridge, recites that the transfer was to collateralize payment of future services. While Outerbridge now contends that the agreement and the transfer were for payment of past and future legal services, he, an experienced lawyer, has not attempted to explain why, if the agreement was for payment for past services, it makes no reference whatsoever to payment for past services.
The agreement gave Outerbridge the right to liquidate the stock as necessary to cover future defaults in payment by Shaheen and the Shaheen companies. Nearly contemporaneous letters written by Outerbridge, however, make clear that Shaheen had not surrendered control of the stock and that in Outerbridge's mind, the shares ultimately would be returned to Shaheen and SNR. Moreover, the pledge was never reflected on the transfer books of Macmillan, and, there being no restriction on voting in the agreement, SNR as record owner had the right to vote the pledged stock.
*628 Next, notwithstanding various "opinion letters" from Shaheen's later counsel and Outerbridge to the contrary, it is absolutely clear that the Court, immediately following the jury returning its verdict on July 1, 1980, had prohibited into the indefinite future any future transfers of assets and that all parties to the action understood that all transfers were thereafter prohibited. The colloquy embodying the foregoing was as follows:
MR. GOULD [Trial counsel for Shaheen and the Shaheen companies and lead counsel for all defendants]: The defendants, personal defendants, are here in court and I think that coupled with a request of this kind, there should be an undertaking by them that there will be no transfers of assets pending the entry of judgment.
I have discussed this matter with Mr. Barist in anticipation of a verdict and I understand that he acquiesces in this and I think I have authority to speak for Ms. Lea and Mr. daParma.
So that if your Honor feels that is a reasonable way to proceed, I would suggest that we have the individual defendants respond to the question or, rather, affirm to the Court that there will be no transfers of any property pending the entry of a judgment.
MR. BARIST [counsel for Clarkson]: Your Honor, I do acquiesce in what Mr. Gould suggests. I would also request that in addition to the affirmance by the individual defendants that your Honor so direct and after speaking to Mr. Gould it did not come back to my attention that Mr. Smith is not in the courtroom and I assume that Ms. Lea has not had the opportunity even to speak to Mr. Smith about this, and I would, under the circumstances, ask simply that your Honor direct that Mr. Smith so abide by this agreement and ask Ms. Lea to convey your Honor's oral direction to Mr. Smith.
Is that agreeable, Ms. Lea?
MS. LEA [counsel for individual defendants Smith, Gandert, Caras, Rishell and Sheridan]: It is.
THE COURT: Any problem with that?
MR. daPARMA [counsel for individual defendant Furmark]: No, your Honor.
THE COURT: I will make it an order of the Court that there be no transfer of assets by any defendant, individual or corporate, pending the entry of a judgment here.
MR. GOULD: Once the judgment is entered then the process takes over by itself.
THE COURT: So that is an order of the Court and I gather, Mr. Shaheen, you are agreeable to abide by that order?
MR. SHAHEEN: Yes, sir.
Thereafter, the judgment was submitted and signed by this Court and entered by the clerk on July 22, 1980, and, under Rule 62(a) of the Federal Rules of Civil Procedure, execution of the judgment was automatically stayed for 10 days. The transfer of the shares to Outerbridge allegedly occurred on July 31, 1981, the last day before the expiration of the 10-day stay provided by Rule 62(a). I reject the present contention of SNR, Shaheen, and Outerbridge that this Court's order of July 1 was effective only until July 22 and that the Rule 62 automatic stay freed SNR and Shaheen, who were then subject to a judgment for many millions of dollars, to transfer away assets, at the same time that Rule 62 prevented the judgment creditor from levying upon them.
Moreover, I find that the improbability of such a construction is further demonstrated by the absence of any statement or affidavit from Mr. Gould, Shaheen's trial counsel, on the subject. The absence of such an affidavit permits me to conclude that the Court's order was meant and understood by Shaheen's counsel to protect the judgment creditor by restraining all transfers by defendants.
Shaheen himself, in the days following the entry of judgment, expressed the same understanding. In a telex sent by Shaheen to the Trustee, dated July 28, 1980, three days before the Outerbridge transfer and during the ten-day stay of execution, Shaheen asked Clarkson to delay enforcement of its judgment, urging that a standstill *629 could not hurt Clarkson because "... all transfers of assets of the defendants are stayed in the New York suit ...." Accordingly, I find that during the period in question John M. Shaheen knew, as he had represented to the Court on July 1, (see supra), that he and the defendant corporations which he controlled, had agreed not to transfer thereafter any assets.[2]
Outerbridge concedes that he knew of this Court's restraint on transfers entered on July 1, 1980. Outerbridge also has told the Court that the said July 28, 1980 telex sent by Shaheen to Clarkson, in which Shaheen states that all transfers are stayed in this action, "embod[ies] legal advice given by me ..." to Shaheen.
The transfer records of Macmillan show that SNR is still listed as the record owner of the Macmillan shares. At this Court's direction the certificates themselves are now with the Spengler firm, having been taken from Outerbridge's possession in Canada and placed within this Court's jurisdiction and control. Whether or not Outerbridge received the shares in willful violation of this Court's order, it is clear that the transfer itself was in violation of the order.
By letter to Shaheen dated July 30, 1980 Outerbridge states that he has reviewed both the transcript of proceedings before me and the judgment entered on July 22, 1980 and renders an "opinion" that Shaheen lawfully could advance funds to Canadian counsel, namely, himself. Outerbridge is not a member of the Bar of the State of New York or any other state of the United States. He admits his ignorance of federal procedure, stating that he was unfamiliar with the automatic ten-day stay period of the Federal Rules of Civil Procedure. Shaheen and his corporations, represented on July 31, 1980 by Shea & Gould, trial counsel, and Saxe, Bacon, & Bolan, ultimately appellate counsel, could not reasonably have relied upon this "opinion" of foreign counsel as to New York law. In addition, I find that Outerbridge's purported reliance on an opinion of "New York counsel" as to the propriety of the transfer adds nothing to his attempt to demonstrate either good faith or a legal basis for his own advice about the transfer. Despite the Court's inquiry about an opinion letter of the "New York counsel" Outerbridge consulted, no letter has been produced and no such counsel has been identified. Moreover, at no time did any party to the transfer consult the Court as to whether a transfer on July 31 was permitted by the order of July 1.
I find further that Outerbridge's failure to authorize his counsel to file a Schedule 13D with the Securities Exchange Commission until December 8, 1980 is evidence of his bad faith in accepting the transfer of the shares. His counsel in Washington, D.C. advised him in very clear terms on October 6, 1980, that Rule 13d-1 of the Securities Exchange Act of 1934 required that he file such a schedule disclosing his beneficial ownership of the stock. Although he was required to file the form within ten days of the transfer, he did not authorize the filing until December 8, 1980, three days after Shaheen revealed to the Court for the first time that the transfer had occurred more than four months earlier.
Accordingly, I find that neither Shaheen, nor SNR, nor Outerbridge acted in good faith with respect to both the restraining order of July 1, 1980 and the stock transfer in general.
The value of the stock Shaheen and SNR transferred to Outerbridge was approximately $750,000 at the time of the transfer. (The stock was then trading at about $4.00 per share.) Shaheen and SNR's indebtedness to Outerbridge at that time was approximately $51,000 or, if the alleged and questionable indebtedness to other Canadian counsel is included, a maximum of $109,000. I find, therefore, that the value of the *630 pledged stock was grossly disproportionate to any antecedent debt Shaheen and SNR owed Outerbridge.
In addition, I find that the legal services, the performance of which the transfer of these shares was designed to secure, were open-ended, indefinite, of highly uncertain duration, for undefined clients, and quantitatively more significant than any services theretofore provided Shaheen and SNR.
The total amount claimed by Outerbridge as having been performed by him and the lawyers he hired on behalf of the Shaheen interests was approximately $386,000 as of January 31, 1981. The sole substantiation for that amount is a bill dated February 9, 1981. This bill was rendered after Clarkson had, on January 28, 1981, instituted suit against Outerbridge for return of the Macmillan shares. Neither hours nor hourly rates are set forth, and, claiming privilege, Outerbridge has refused to produce any time records or diaries.
Moreover, insofar as the future services represented a continuation of any legal work Outerbridge had begun for Shaheen and SNR before the time of the transfer, I find that virtually all of the services secured by the transfer were yet to be performed and were not restricted to reasonably narrow pending, or essential services.
Further, noting again that 1) on July 1, 1980, a jury in this case found that SNR was insolvent in 1974, 1975, and 1976, 2) a judgment based in part on that finding of insolvency was entered against SNR and exceeded $45 million, and 3) Shaheen himself testified that the Macmillan shares transferred to Outerbridge were among SNR's last remaining assets,[3] I find that at the time of its transfer to Outerbridge of 185,723 shares of Macmillan stock, SNR was insolvent.
Given all the foregoing, I conclude that the transfer by Shaheen and SNR to Outerbridge of SNR's holdings of shares of Macmillan was in violation of this Court's restraining order of July 1, 1980. Further, the transfer by Shaheen and SNR to Outerbridge of SNR's shares in Macmillan was a fraudulent conveyance within the meaning of Section 273 of the New York Debtor and Creditor Law, N.Y. Debt. & Cred. Law § 273 (McKinney), in that it occurred at a time when SNR was insolvent and was neither for fair consideration nor in good faith. In this connection, I note that a transfer of assets to a lawyer to secure payment for vague and extended future services in a commercial venture is not fair consideration. Compare In re Gordon, 3 N.Y.S. 589 (4th Dep't 1888) with Hay v. Duskin, 9 Ariz.App. 599, 455 P.2d 281 (Ct.App. 1969). In addition, the transfer by Shaheen and SNR to Outerbridge of the said shares of Macmillan was a fraudulent conveyance within the meaning of Section 273-a of the New York Debtor and Creditor Law, N.Y. Debt. & Cred. Law § 273-a (McKinney), in that it occurred at a time when a judgment for money damages against SNR had been docketed, was neither for fair consideration nor in good faith, and SNR has failed to satisfy the judgment. Finally, the transfer of the Macmillan shares by SNR to Outerbridge was, I conclude, in violation of Section 276 of the Debtor and Creditor Law as a conveyance made with the intent to hinder, delay, and impede Clarkson and other creditors of SNR in the collection of debts due from SNR.
It therefore follows that: 1) Clarkson is entitled to the said shares pursuant to New York C.P.L.R. § 5225(b); 2) the Spengler firm is directed to turn the certificates over to Clarkson; and 3) Macmillan is directed to effect, on its books, the transfer of said shares to Clarkson.[4]
*631 The foregoing constitutes the Court's findings of fact and conclusions of law and is so ordered.
NOTES
[1] This judgment has been affirmed on appeal. The Clarkson Company Limited, et al. v. Shaheen, et al., 660 F.2d 506 (2d Cir. 1981).
[2] I note that Shaheen's present attorneys, in an opinion letter of July 31, 1980, the very day of the transfer to Outerbridge, recognized that the entry of Clarkson's judgment operated to continue the restriction on the transfer of assets, as Mr. Gould had assured the Court it would at the time of the jury verdict. In the very words of Shaheen's counsel, the assets were "subject ... to the lien of the judgment entered in ..." the main action.
[3] I note that no other assets of substantial value are disclosed in the SNR information-subpoena return.
[4] The Court recently has been informed that restraining notices have been served on the Spengler firm restraining transfer of the said shares. Accordingly, if the Spengler firm is so minded, it may deposit with the Court the shares in issue and commence forthwith an action in the nature of interpleader in the United States District Court for the Southern District of New York. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1733634/ | 193 F. Supp. 617 (1961)
Thomas O. MARSHALL, Jr., Administrator of the Estate of Ned Marshall, Deceased, Plaintiff,
v.
MOLE CONSTRUCTORS, a corporation, The Baltimore & Ohio Railroad Company, a corporation, and John H. Gordon, Defendants.
Civ. A. No. 18216.
United States District Court W. D. Pennsylvania.
April 21, 1961.
McArdle, Harrington & McLaughlin, Pittsburgh, Pa., for plaintiff.
Pringle, Bredin & Martin, Pittsburgh, Pa., for Mole Constructors.
Mercer & Buckley, Pittsburgh, Pa., for B. & O. R. R.
Reed & Egler, Pittsburgh, Pa., for John H. Gordon.
*618 GOURLEY, Chief Judge.
In this action for damages arising under the Wrongful Death and Survival Statutes of Pennsylvania, 12 P.S. § 1601 et seq.; 20 P.S. § 320.601 et seq., in which divers defendants are named, Mole Constructors, a corporation and a party defendant, moves to dismiss the complaint directed against it for the reason that this court is without jurisdiction.
Counsel for the Baltimore and Ohio Railroad Company, a corporation, and John H. Gordon, defendants, appeared and took no position on said motion.
The sole question presented is whether a joint venture, the components of which are residents of other states, which registers to conduct business in Pennsylvania pursuant to the provisions of 54 Pa.P.S. § 81 et seq., confers citizenship on such joint venture for jurisdictional purposes.
It is not disputed that the plaintiff is a resident of Ohio, and that Mole Constructors, a corporation, is a joint venture composed of four New Jersey Corporations, one Ohio Corporation and a partnership organized in New Jersey, which registered pursuant to the Act of July 11, 1957 to do business in Pennsylvania, 54 Pa.P.S. § 81 et seq. Plaintiff asserts that the joint venture's principal place of business is Baltimore, Maryland.
It would appear that registration under the Act of 1957 to conduct business in Pennsylvania, as analogous to the operator of a motor vehicle in Pennsylvania under the provisions of the non-resident motorist statute, would confer jurisdiction upon this court where the requirements of diversity and jurisdictional amount have been met.
We are, however, confronted with the further provision of law which provides that a civil action wherein jurisdiction is founded only on diversity of citizenship may, except as otherwise provided by law, be brought only in the judicial district where all plaintiffs or all defendants reside, 28 U.S.C.A. § 1391(a).
A state cannot by legislation modify or repeal a congressional statute on the venue of federal courts. Olberding et al. v. Illinois Central Railroad Co., 346 U.S. 338, 74 S. Ct. 83, 98 L. Ed. 39; McCoy v. Siler et al., 3 Cir., 205 F.2d 498
On the other hand, it is very clear that the venue provision may be waived. Thus, the question presents itself whether defendants' privilege to be sued where either the plaintiff or defendant reside has been waived by anything they have done. Waiver, it is well established, can be by conduct as well as by expressed consent. Thus a corporation waives the venue provisions by designating a state officer to receive service of process. Neirbo Co. et al. v. Bethlehem Shipbuilding Corp., 308 U.S. 165, 60 S. Ct. 153, 84 L. Ed. 167.
As this Circuit has recognized, there is a real distinction between the cases where a party in fact gives consent to suit by appointing an officer of the state to receive process and a case where the party is drawn into court willy-nilly without any manifestation of consent on his part. McCoy v. Siler et al., supra.
An operator of a motor vehicle, by the mere act of crossing a state's boundary, has not thereby "waived" the provision of a federal statute which gives him the privilege of being sued in certain places only. Such a conclusion would be a fictitious and illogical jump.
But, on the other hand, a foreign corporation by registration evidences its intention to conduct business in a certain state, being thereby subject to service of process in said state, and consenting thereby to be sued in the courts of said state, federal as well as state, has thereby brought about a state of facts to waive venue and elevate such corporation to the stature of citizenship for jurisdictional purposes.
Motion of defendant, Mole Constructors, a corporation, to dismiss the complaint will be refused.
An appropriate Order is entered. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2450018/ | 117 F. Supp. 2d 360 (2000)
LANDSCAPE FORMS, INC., Plaintiff,
v.
COLUMBIA CASCADE COMPANY, Defendant.
No. 94 Civ.8122(JES).
United States District Court, S.D. New York.
October 6, 2000.
*361 *362 Heslin & Rothenberg, P.C., Albany, NY, Susan E. Farley, Jeffrey R. Klembczyk, of counsel, for plaintiff.
Ahmuty, Demers, & McManus, Albertson, NY, Frederick B. Simpson, of counsel, John M. Berman, Tigard, OR, for defendant.
MEMORANDUM OPINION AND ORDER
SPRIZZO, Senior District Judge.
In this action for trade dress infringement, unfair competition, and dilution of trade dress, plaintiff Landscape Forms, Inc. ("Landscape") seeks a judgment permanently enjoining defendant Columbia Cascade Company ("Columbia") from selling or advertising its Colonnade line of benches and litter receptacles. Landscape also seeks an award of damages in the amount of $2,066,025 plus attorney's fees and dismissal of Columbia's counterclaim alleging unfair competition based on malicious *363 prosecution and requesting a declaratory judgment of non-infringement. For the reasons set forth below, the Court denies Landscape's claims seeking a permanent injunction and monetary damages, dismisses Columbia's counterclaims for malicious prosecution and grants Columbia's request for a declaratory judgment of non-infringement.
BACKGROUND
Landscape and Columbia manufacture and sell site furnishings to large commercial and municipal entities in the United States. In the fall of 1989, Landscape introduced the Petoskey Collection ("Petoskey" or "the Petoskey line") of modern outdoor furniture. See Plaintiff's Post-Trial Brief dated June 26, 1998 ("Pl.PTB") at 1. The Petoskey Collection includes two different outdoor trash cans, two benches without back support, and six benches with backs. See Landscape Forms, Inc. v. Columbia Cascade Co., 113 F.3d 373, 375 (2d Cir.1997). The most notable pieces in the Collection are the benches made of three-inch metal tubing bent to form the legs and the support. The benches are shaped and curved to fit the human form and are supported by only two or three legs, giving them the appearance of being suspended in air. In early 1994, Columbia emulated the Petoskey design by introducing its own Colonnade line. See Landscape Forms, Inc. v. Columbia Cascade Co., 70 F.3d 251, 252 (2d Cir.1995).
On November 9, 1994, Landscape filed suit alleging that Columbia's Colonnade line infringed the trade dress of its Petoskey Collection in violation of section 43(a) of the Lanham Act and New York State unfair competition and anti-dilution laws. On December 30, 1994, Landscape moved for a preliminary injunction. The Court held a hearing on January 17, 1995 and, at the close of testimony, issued a temporary restraining order prohibiting Columbia from selling or advertising its Colonnade furniture.
On February 14, 1995, the Court heard summations and issued an opinion from the bench finding that Landscape had demonstrated at least substantial questions on the merits of its Lanham Act claim, i.e., that the trade dress of the Petoskey line was distinctive; that there was a likelihood of confusion between the Colonnade and Petoskey lines, see Polaroid Corp. v. Polarad Electronics Corp., 287 F.2d 492, 495 (2d Cir.1961); and that the balance of hardships tipped decidedly in favor of Landscape. See Landscape Forms, 70 F.3d at 252-53. On March 3, 1995, the Court issued a preliminary injunction prohibiting Columbia from selling or advertising its Colonnade furniture in the United States.
Columbia appealed, and, on November 13, 1995, the Second Circuit vacated the preliminary injunction and remanded for the Court to consider the affirmative defense of functionality. See Landscape Forms, 70 F.3d at 253-55. Specifically, the Second Circuit instructed the Court to consider whether the Petoskey design "`confers a significant [competitive] benefit' to Landmark [sic] `that cannot practically be duplicated by the use of alternative [furniture] designs', ... thus making the design functional and not protectible trade dress." Id. at 254 (quotations and citations omitted).[1]
On January 2, 1996, pursuant to the remand, the Court held a hearing to weigh the evidence and make additional factual findings. At the hearing, Landscape called four witnesses: Arno Yurk, an industrial designer for Landscape; William Main, Landscape's president; S. Kenneth Kirn, Columbia's President; and Leonard *364 Hopper, the chief landscape architect for the New York City Housing Authority. See Hearing Transcript dated January 2 to 4, 1996 ("1996 Tr.") at 65-66, 140, 172-73, 212. Columbia called one witness, Joseph Fasanella, the vice president of Mid-Atlantic Products, a manufacturers' representative. See 1996 Tr. at 44. The Court also reviewed post-hearing briefs together with exhibits and excerpts of deposition testimony.
By Memorandum Opinion and Order dated October 16, 1996, the Court concluded that Columbia's defense of aesthetic functionality was factually unsupported and that Landscape's trade dress was entitled to Lanham Act protection. The Court made the following findings: first, there are a large number of furniture designs available that can be utilized to compete effectively with Landscape's Petoskey Collection in terms of price, quality, and aesthetic appeal. See Landscape Forms v. Columbia Cascade Co., 940 F. Supp. 663, 665 (S.D.N.Y.1996), vacated 113 F.3d 373 (2d Cir.1997). Second, persuasive expert testimony established that several competitive designs already exist. See id. Third, Columbia failed to show that its overall business was adversely affected by the trade dress protection afforded to Landscape's site furnishings, and, in fact, the Colonnade line was a "small fraction" of Columbia's business. See id. at 666.
Columbia appealed the Court's rejection of the functionality defense, as well as the issues raised in its first appeal. On appeal, Columbia also argued that Landscape's designs do not qualify for trade dress protection because they are not "`likely to serve primarily as source designators.'" Landscape Forms, 113 F.3d at 376. On May 16, 1997, without addressing Columbia's functionality defense, the Second Circuit again vacated the injunction, holding that Landscape has yet to show that its line of furniture is protectible under the Lanham Act. See id. at 377, 382.
The instant bench trial began before the Court on April 20, 1998 and proceeded for two days. In support of its cause of action and in opposition to Columbia's counterclaim, Landscape offers four contentions. First, Landscape argues that its Petoskey Collection has attained secondary meaning and is inherently distinctive. See Pl. PTB at 3-8, 16-21. Second, Landscape contends that a likelihood of confusion as to source, sponsorship, or affiliation exists between its Petoskey Collection and Columbia's Colonnade line. See id. at 8-12, 21-28. Third, Landscape asserts that Columbia should be found in violation of the New York State unfair competition and anti-dilution laws even if the Court does not find Columbia in violation of the Lanham Act. See id. at 29-31. Finally, Landscape argues that Cascade's counterclaim alleging unfair competition based on malicious prosecution is deficient because commencement of lawsuits is not actionable as unfair competition under state or federal law since Landscape is engaging in a good faith attempt to enforce its legal rights, and because Columbia's pleading is insufficient. See id. at 33-34.
In opposition, Columbia also offers four contentions to support its case. First, Columbia argues that Landscape does not have protectible trade dress because the design of its Petoskey Collection was not intended primarily as a source identifier and because Landscape's alleged trade dress is not conceptually separable from the product itself. See Defendant's Post-Trial Brief dated June 26, 1998 ("Def.PTB") at 1-5. Second, Columbia contends that its Colonnade furniture design is significantly different from that of the Petoskey Collection and, regardless, Landscape's designs are generic and its alleged trade dress descriptions overly broad. See id. Third, Columbia asserts that testimony given by Landscape's President at the hearing substantiates its aesthetic functionality defense.[2]See id. Finally, *365 Columbia argues that Landscape has not established the requisite likelihood of confusion as to source between the two company's furniture lines. See id. Accordingly, defendant seeks dismissal of plaintiff's claims, a declaratory judgment of non-infringement and further demands relief in its counterclaim for unfair competition based on plaintiff's alleged malicious prosecution of this action.
DISCUSSION
I. Lanham Act Claim
A. Secondary Meaning
Landscape may prove a violation of section 43(a) of the Lanham Act only if it first demonstrates that its Petoskey line of furniture has acquired secondary meaning. See Wal-Mart Stores, Inc. v. Samara Bros., Inc., 529 U.S. 205, 120 S. Ct. 1339, 1344-46, 146 L. Ed. 2d 182 (2000). Previous decisions of both this Court and the Second Circuit Court of Appeals ("Second Circuit") have proceeded under the now erroneous assumption that the Petoskey trade dress is entitled to protection if Landscape demonstrates either inherent distinctiveness or secondary meaning. See Landscape Forms, 113 F.3d at 377-82. In Wal-Mart, the Supreme Court declared that product-design trade dress is only protected under the Lanham Act where the requisite product distinctiveness is proven through a showing of secondary meaning. See id. at 1345-46. Product-packaging, on the other hand, may be protected where either inherent distinctiveness or secondary meaning has been proven. See id. at 1345; Two Pesos, Inc. v. Taco Cabana, Inc., 505 U.S. 763, 774-76, 112 S. Ct. 2753, 120 L. Ed. 2d 615 (1992). The Second Circuit has made it clear that the case at bar involves "the design of a series of products, not their packaging." Landscape Forms, 113 F.3d at 379. Accordingly, Landscape must show that the product design of the Petoskey pieces[3] in question are distinctive and protectible because they have acquired secondary meaning.[4]
There are six elements that the Court uses as a guide in assessing whether a product has acquired secondary meaning.[5] These elements are: (1) advertising *366 expenditures; (2) evidence that consumers link the trade dress to a particular source; (3) unsolicited media coverage of the product; (4) the sales success of the product; (5) attempts to plagiarize the product; and (6) the length and exclusivity of use of the product. See Thompson Med. Co. v. Pfizer, Inc., 753 F.2d 208, 217 (2d Cir.1985). None of these elements is determinative and not every one of them must be proved to make a showing of secondary meaning. See id. Hence, "existence of secondary meaning ... [is] not to be determined by application of a rigid formula." Murphy v. Provident Mut. Life Ins. Co., 923 F.2d 923, 928 (2d Cir.1990). Instead, consideration of these elements provides a useful way for the Court to measure whether the plaintiff has shown "that, in the minds of [consumers], the primary significance of a product feature or term is to identify the source of the product rather than the product itself." Inwood Laboratories, Inc. v. Ives Lab., Inc., 456 U.S. 844, 851 n. 11, 102 S. Ct. 2182, 72 L. Ed. 2d 606 (1982)
Application of these factors to the accumulated evidence of this case reveals that, on balance, Landscape has made a showing of secondary meaning. Landscape indisputably made substantial efforts to advertise Petoskey in the landscape site furnishings industry. For instance, a Petoskey bench was featured on the cover of Landscape's catalog in 1991 and 1994. See Plaintiff's Exhibits ("Pl.Exh.") 55.91, 55.94. Moreover, in the years before Colonnade was introduced, full page advertisements ran in trade magazines depicting Petoskey as the image of Landscape. See Pl. Exh. 50.4, 50.9-50.14. Landscape spent substantial amounts of money, perhaps as much as 1.2 million dollars through 1994,[6] advertising Petoskey in trade journals, postcard mailings, and cut sheet distributions. See Hearing Transcript dated April 20-21, 1998 ("1998 Tr.") at 216-17, 228-33, 235-36.
Landscape's advertisements clearly bore fruit with consumers. Landscape architects, the relevant consumer group in this case, testified that they associated the Petoskey design with Landscape. See, e.g., Second Circuit Transcript ("App.Tr.") at 404a-05a, 1523a. These consumers were part of an admittedly small, insular industry and this insularity likely explains the insubstantial amount of unsolicited media coverage that Petoskey received. See, e.g., Pl. Exh. 54.1-54.3. Nevertheless, even absent widespread media coverage, the Petoskey Collection was a substantial sales success, accumulating gross sales of approximately five million dollars as of 1995. See 1998 Tr. at 257.
Apparently, these robust sales figures attracted the attention of defendant. Specifically, Columbia admits that, because of market demand, Columbia copied the Petoskey line's "overall look" when it developed Colonnade. See App. Tr. at 567a-68a. Defendant had never before copied another company's design. See id. Common sense suggests, and the law of this Circuit declares, that such plagiaristic behavior is strong evidence of secondary meaning. See 20th Century Wear, Inc. v. Sanmark-Stardust, Inc., 815 F.2d 8, 10 (2d Cir.1987) (noting that intentional copying of a product "could ... be persuasive, if not conclusive, evidence of consumer recognition and good will"). Finally, plaintiff's five year period of continuous use of the Petoskey trade dress provides additional evidence of the secondary meaning *367 that these products had obtained. Contrary to plaintiff's assertions, such a period of use is not alone sufficient to establish secondary meaning. See Pl. PTB at 17. However, when taken together with the other relevant evidence, it is clear that between 1989, when plaintiff introduced Petoskey, and 1995, when Columbia introduced Colonnade, Petoskey acquired secondary meaning. The Petoskey trade dress is therefore sufficiently distinctive to be protectible under the Lanham Act within the standards set forth in Wal-Mart, 120 S.Ct. at 1344-46.
B. Likelihood of Confusion
Although plaintiff's trade dress is entitled to protection because it has acquired secondary meaning, a trade dress infringement claim still cannot succeed without proof that "`numerous ordinary prudent purchasers are likely to be misled or confused as to the source of the product in question.'" Time, Inc. v. Petersen Publ'g. Co., 173 F.3d 113, 117 (2d Cir.1999) (quoting Gruner + Jahr USA Publ'g v. Meredith Corp., 991 F.2d 1072, 1077 (2d Cir.1993)). It is well settled in this Circuit that in evaluating the likelihood of confusion, courts consider the eight factors established by Judge Friendly in Polaroid, 287 F.2d at 495, ("the Polaroid factors"). These factors include: (1) the strength of the senior user's trademark; (2) the degree of similarity between the contested trademarks; (3) the competitive proximity of the products; (4) the likelihood that the senior user will "bridge the gap" by entering the junior user's market; (5) actual confusion; (6) the junior user's good faith in adopting its mark; (7) the quality of the junior user's product; and (8) the sophistication of relevant consumers. See id.; see also Time, 173 F.3d at 117.
In the present case, the Court finds, based upon an evaluation of these factors, that Landscape has failed to prove likelihood of confusion. This Court initially found that, for the purposes of a preliminary injunction, Landscape had presented substantial evidence indicating a likelihood of confusion. See Landscape Forms, 113 F.3d at 382. However, after consideration of additional evidence on the "marketplace realities" of the site furniture industry, this Court concludes that Landscape has failed to establish this prerequisite for relief.
Some of the Polaroid factors admittedly favor Landscape. The Petoskey trade dress was relatively strong in the landscape furniture market, as demonstrated by the secondary meaning that attached to it. Moreover, Columbia's admission that it copied the overall look of Petoskey demonstrates a close proximity between the two products. Additionally, Petoskey and Colonnade compete in the same market and hence there is a large degree of competitive proximity. There is no gap to bridge and therefore that factor is irrelevant. There is also little dispute that the two product lines are of similar qualitya factor also weighing in plaintiff's favor. However, the remaining Polaroid factors favor Columbia heavily and make confusion improbable.
Quite simply, the realities of the site furniture industry make confusion between plaintiff's Petsokey products and defendant's Colonnade products highly unlikely. These "marketplace realities" include the high level of sophistication of the relevant consumerslandscape architects and the methods these consumers use to purchase landscape site furniture. None of the parties disputes the notion that landscape architects are "very sophisticated consumers."[7] 1998 Tr. at 55 (testimony *368 of plaintiff's expert, Mr. Passman). Thus, the sophistication of consumers factor weighs heavily against plaintiff. Moreover, both parties concede that furniture of the sort involved here is typically purchased following an examination of industry catalogs, trade magazines, or other similar publications in which the manufacturer of a given product is clearly identified. Consequently, it is unlikely that a landscape architect choosing site furniture for a particular job is going to be confused regarding which floating style benches he wants to usehe will make a selection from a well marked industry catalog or trade magazine.
Bad faith is also not apparent here. "[S]imulating the design of a competitor's successful products is not bad faith, unless there is reason to draw an inference of an intention to deceive." Landscape Forms, 113 F.3d at 383. Here, there is no evidence of an intention to deceive, as plaintiff alleges. On the contrary, Columbia admitted that it developed Colonnade to capitalize on a perceived demand for a particular type of product. See App. Tr. at 567a. This is especially true since the evidence established it was not uncommon for contractors to substitute equivalent goods after a landscape architect had submitted his specifications for a particular job. See Plaintiff's PTB at 10-11. To the extent that this occurs at all, defendant's knowledge of such behavior is not evidence of an intent to deceive or confuse. It is just as reasonable to infer that defendant developed Colonnade to provide landscape architectsand contractors (arguably another relevant consumer group here) with an alternative supplier of goods of a particular style. Presumably the contractors that engage in "switching" would, for any number of reasons, choose Colonnade as a substitute. This decision to opt for a substitute would, by definition, reflect not confusion regarding which bench to use, but rather a conscious preference for alternative goods. Should the landscape architect become aware of such a switch, he might be displeased, but he certainly wouldn't be confused. Defendant's knowledge of this "switching" is, therefore, not probative of an intent to deceive or confuse. Hence, the bad faith factor favors defendant.
Finally, the evidence of actual confusion plaintiff repeatedly refers to is illusory. The survey conducted by plaintiff's expert merely proved that there were significant visual similarities between Petoskey and Colonnade. Those results showed that approximately eighty percent of the landscape architects surveyed thought the Petoskey and Colonnade products were the same or from the same source. See 1998 Tr. at 75. Defendant does not dispute the contention that the two product lines are similar in their overall look. Landscape's survey did not, however, account for the reality that plaintiff's and defendant's products are bought using catalogs that, unlike the pictures used in the survey, clearly identify the manufacturer. See 1998 Tr. at 116, 123. For the same reason, the proffered testimony of landscape architects who were supposedly confused about the manufacturer of furniture they saw installed at particular sites is unpersuasive. See Pl. PTB at 10-12. This confusion that arose after a purchase was made, has very little relevance, if any, to confusion that could or could not have occurred at the time of purchase using a catalog that clearly identified the manufacturer of the line. See Landscape Forms, 113 F.3d at 382-83. Plaintiff has not presented such evidence. Considering all of the Polaroid factors, the Court holds that plaintiff has failed to demonstrate a likelihood of confusion and has not established his Lanham Act claim.
II. State Law Claims
A. Unfair Competition
Plaintiff alleges that, even if defendant is not liable for violations of the Lanham *369 Act, it is liable under the New York State law of unfair competition. See Pl. PTB at 29-30. Putting aside the likelihood that this claim is preempted by federal intellectual property laws, see Landscape Forms, 113 F.3d at 383, in order to prevail on a claim of unfair competition in New York, a party must prove likelihood of confusion. See Bristol-Myers Squibb Co. v. McNeil-P.P.C., Inc., 973 F.2d 1033, 1048 (2d Cir.1992). Accordingly, in light of the Court's finding that there is no likelihood of confusion, plaintiff's unfair competition claim must be dismissed.
B. Anti-Dilution
Landscape also makes a claim of trademark dilution under section 360-1 (formerly 368-d) of the New York General Business Law ("the statute"). The statute provides:
Likelihood of injury to business reputation or of dilution of the distinctive quality of a mark or trade name shall be a ground for injunctive relief in cases of infringement of a mark registered or not registered or in cases of unfair competition, notwithstanding the absence of competition between the parties or the absence of confusion as to the source of goods or services.
N.Y. Gen. Bus. Law §§ 360-1 (McKinney Cum.Supp.1999).[8] In Allied Maintenance Corp. v. Allied Mechanical Trades, Inc., 42 N.Y.2d 538, 542, 399 N.Y.S.2d 628, 369 N.E.2d 1162 (1977), the New York Court of Appeals concluded that the statute was designed to prevent "the whittling away cf an established trade-mark's selling power and value through its unauthorized use by others upon dissimilar products." 42 N.Y.2d at 542, 399 N.Y.S.2d 628, 369 N.E.2d 1162. The statute applies with equal force to trade dress infringement claims. See Merriam-Webster, Inc. v. Random House, Inc., 35 F.3d 65, 73 (2d Cir.1994). To prevail on a trade dress dilution claim under the statute, a person must prove two elements: (1) ownership of a distinctive mark; and (2) likelihood of dilution in the form of either blurring or tarnishment. See Hormel Foods Corp. v. Jim Henson Prods., Inc., 73 F.3d 497, 506 (2d Cir.1996). Although the statute expressly dispenses with the requirement of likelihood of confusion, the courts have held that dilution is not possible without "some mental association between ... [the] marks." Mead Data Cent., Inc. v. Toyota Motor Sales, U.S.A., Inc., 875 F.2d 1026, 1031 (2d Cir.1989).
1. Ownership of a Distinctive Trade Dress
In Allied Maintenance, the New York Court of Appeals stated that the statute protected only those trademarks that were "truly of distinctive quality or ... [had] acquired a secondary meaning in the mind of the public." 42 N.Y.2d at 546, 399 N.Y.S.2d 628, 369 N.E.2d 1162. In the context of analyzing Landscape's Lanham Act claim, the Court has already found that Landscape's Petoskey Collection is distinctive by virtue of having acquired secondary meaning. See supra Part I.A. Landscape therefore fulfills this element of its anti-dilution claim.
2. Likelihood of DilutionBlurring
Dilution of trade dress can occur in the forms of tarnishment or blurring. See Sports Auth., Inc. v. Prime Hospitality Corp., 89 F.3d 955, 966 (2d Cir.1996). Landscape makes no specific allegations of tarnishment and instead focuses its claim on the argument that defendant's Colonnade *370 collection has blurred the Petoskey trade dress. The Court finds that the evidence does not support this contention.
Blurring occurs when the senior user's trade dress loses some of its power to serve as a unique identifier of the senior user's goods or services because consumers begin to associate the designation with another source. See Sports Auth., 89 F.3d at 966. In evaluating the likelihood of blurring, the courts in this Circuit have applied the six-factor test outlined in Judge Sweet's concurring opinion in Mead Data, 875 F.2d at 1035. These factors are: (1) similarity of the trademarks; (2) similarity of the products; (3) sophistication of consumers; (4) predatory intent; (5) renown of the senior mark; and (6) renown of the junior mark. See id. The first five factors are closely analogous to the Polaroid factors already analyzed in evaluating Landscape's Lanham Act claims.
The Court has already described the parties' arguments and evaluated the relevant evidence on these analogous factors. See supra Part I.B. First, although the trade dress of plaintiff's and defendant's products are substantially similar, industry catalogs and similar publications contain source-identifying distinctions sufficient to prevent confusion among the relevant consumers. The Court finds that these distinctions are also sufficient to preclude consumers from making the mental association between the parties' respective trade dress that is required to show blurring. Second, as already noted, the products compete in the same market. Third, the parties agree that their customers are sophisticated purchasers, and the Court has already found that this high level of sophistication and the other market realities of this industry will lead consumers to recognize that Landscape and Columbia's products emanate from two different sources. See id. Fourth, the Court has found that Columbia did not act in bad faith in developing its Colonnade collection. See id. Fifth, the secondary meaning that attached to Petoskey in the insular landscape furnishings market suggests that perhaps plaintiff's trade dress obtained at least some amount of "renown." See supra Part I.A.
However, on the final factor of the analysis, renown of the junior trade dress, the evidence tips heavily in favor of the defendant. Judge Sweet describes this factor as addressing the possibility that a junior user's trade dress may become so famous that it will overwhelm the senior user's trade dress. Dilution under this theory might occur where the senior user's advertising and marketing have established certain associations for its product among a particular consumer group, but the junior user's trade dress subsequent renown causes the senior user's consumers to draw the associations identified with the junior user's trade dress. Mead Data, 875 F.2d at 1038 (Sweet, J., concurring). In the present case, the parties did not present substantial evidence showing the degree of Colonnade's popularity. However, the relatively small amount of sales of the Colonnade lineapproximately $100,000 compared to the approximate one million dollars of Petoskey annual salessupports the inference that Columbia's trade dress is not well-known in the landscape site furnishings market. See Pl. PTB at 6, 32. Moreover, even if Colonnade's trade dress did grow in renown, blurring would still be unlikely to occur in light of the aforementioned marketplace realities. Accordingly, Landscape has failed to prove that the renown of Colonnade is likely to blur the distinctiveness of its Petoskey collection.
In summary, Landscape's claim under the statute fails because, despite the secondary meaning that attached to Petoskey, the evidence regarding the sophistication of landscape architects, the practice of buying the parties' products through well marked catalogs, and the relative lack of renown of the Colonnade trade dress make blurring unlikely.
III. Defendant's Counterclaim for Unfair Competition/Malicious Prosecution
Defendant claims that plaintiff's bringing of the instant law suit constitutes *371 unfair competition because, the suit was allegedly brought for the purpose of interfering with the sale of defendant's competing furniture products. See Defendant's Answer dated January 3, 1995 at ¶¶ 12-15. The Court flatly rejects defendant's assertions. It is hornbook law that commencement of a law suit in a good faith effort to enforce alleged intellectual property rights or any legal rights for that matter is not unfair competition, even if it is later proven that the party bringing suit was not entitled to such protection. See, e.g., Zenith Electronics Corp. v. Exzec, Inc., 182 F.3d 1340, 1353 (Fed.Cir. 1999) (quoting Kaplan v. Helenhart Novelty Corp., 182 F.2d 311, 314 (2d Cir.1950) ("it is not an actionable wrong for one in good faith to make plain to whomsoever he will that it is his purpose to insist upon what he believes to be his legal rights, even though he may misconceive what those rights are")). Defendant has made no showing whatsoever that plaintiff proceeded with this action in bad faith. On the contrary, after two remands from the Second Circuit, three opinions from this Court, and five years of legal argument on a difficult area of law only recently spoken to by the Supreme Court in its Wal-Mart decision, it is quite clear that plaintiff's claims were based on very colorable legal and factual arguments. Accordingly, the Court dismisses defendant's malicious prosecution counterclaim with prejudice.
CONCLUSION
For the foregoing reasons, plaintiff's claim for a permanent injunction and monetary damages is denied, defendant's request for a declaratory judgment of noninfringement is granted, and defendant's counterclaim for unfair competition is dismissed with prejudice.
It is SO ORDERED.
NOTES
[1] The same day that the Second Circuit remanded the instant action, it issued an opinion in Knitwaves, Inc. v. Lollytogs, Ltd., 71 F.3d 996, 1009 (2d. Cir.1995), in which it reversed a district court's judgment in favor of plaintiff's Lanham Act claim, finding that plaintiff's "designs were not primarily intended as source identification" and therefore failed to qualify for protection as trade dress.
[2] The Court declines to address the merits of Columbia's contentions regarding the aesthetic functionality defense in this opinion. Columbia has presented no evidence demonstrating the error of the Court's previous decision on this issue. Accordingly, the Court reaffirms its earlier holding and rejects Columbia's argument that Petoskey is purely aesthetically functional.
[3] The Second Circuit noted the difficulties raised by Landscape's attempt to obtain trade dress protection for an entire line of products. See Landscape Forms, 113 F.3d at 380-81. Both this Court and the Second Circuit previously considered this issue in the context of determining whether the Petoskey line was inherently distinctive. Because inherent distinctiveness is no longer a concern in this case, this issue is largely moot. Similarly, to the extent that there is a question regarding which items of the Petoskey line have achieved secondary meaning, the Court's ultimate rejection of plaintiff's Lanham Act claim makes resolution of this question academic. Thus, the Court will not make distinctions between the ten different Petoskey products subject to plaintiff's claim in its discussion of secondary meaning.
[4] Throughout this case, plaintiff has implored the Court to exercise its power of judicial estoppel and thereby preclude defendant from arguing that Colonnade does not infringe on the Petoskey trade dress because of allegedly inconsistent arguments defendant made in a prior litigation. See e.g., Pl. PTB at 14-16. The Court chooses not to exercise this discretionary power, however, particularly because the prior litigation in question terminated by way of a consent judgment and because of the substantial factual disparities between that case and the case at bar. See id. Specifically, the prior litigation involved allegations of intentional palming off that are not present here. See id. at Exh. K.
[5] The Second Circuit's statement that this Court had "concluded that Landscape had not demonstrated secondary meaning," Landscape Forms, 113 F.3d. at 382, is correct to the extent that this Court had not, at the time of that decision, reached any conclusion regarding the sufficiency of Landscape's showing on the issue of secondary meaning. This Court's remark that it did not have "enough of a record" to make a finding regarding secondary meaning was made prior to the most recent Second Circuit decision and prior to the two days of trial testimony in April of 1998 and was therefore simply an acknowledgment that additional evidence was needed to make a final decision on this issue.
[6] Defendants dispute this figure because plaintiff calculated it by pro-rating Landscape's total marketing cost by the percentage of total sales represented by Petoskey. Yet, even if the 1.2 million dollar figure is an exaggeration, Landscape undoubtedly spent, at a minimum, hundreds of thousands of dollars advertising and promoting its Petoskey line.
[7] Plaintiff cites to decisions of this Circuit which suggest that in cases where consumers are very sophisticated and the products or marks in question are nearly identical, the likelihood of confusion may actually be increased. See e.g., Centaur Communications, Ltd. v. A/S/M Communications, Inc., 830 F.2d 1217, 1228 (2d Cir.1987). However, the Centaur Court was very careful to note that the possibility of increased confusion "depended upon the circumstances of the market and the products." Id. In the instant case, such market circumstances preclude such a finding of increased likelihood of confusion.
[8] Some courts in this district have suggested that the New York anti-dilution laws may be preempted in cases such as this since the statute "does not require proof of secondary meaning in all instances [whereas] in cases of product design[] federal law always requires proof of secondary meaning." PAF S.r.l., et al. v. Lisa Lighting Co., 712 F. Supp. 394, 412 n. 19 (S.D.N.Y.1989). Other courts have announced, without explanation, that the federal intellectual property laws do not preempt the New York anti-dilution laws. See Nikon Inc. v. Ikon Corp., 987 F.2d 91, 96 (2d Cir.1993). In the interests of judicial economy, the Court declines to decide whether and in what circumstances the statute would be preempted and will therefore address the merits of plaintiff's anti-dilution claim. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1666117/ | 703 F.Supp. 573 (1988)
John and Jane DOE, Plaintiffs,
v.
CUTTER LABORATORIES, A DIVISION OF MILES LABORATORY, INC.; and Miles Laboratories, Inc.; Cutter Biological, Inc., a division of Miles Laboratory, Inc., and Miles Laboratories, Inc., Defendants.
Civ. A. No. CA-2-87-0113.
United States District Court, N.D. Texas, Amarillo Division.
February 5, 1988.
Jay Harvey, Tom Upchurch, Jr. & Associates, Amarillo, Tex., for plaintiffs.
Thomas C. Riney, Gibson, Ochsner & Adkins, Amarillo, Tex., Duncan Barr, O'Connor, Cohn, Dillon & Barr, San Francisco, Cal., for defendants.
ORDER
MARY LOU ROBINSON, District Judge.
Before the Court is Defendant's Motion To Dismiss Plaintiff's causes of action in strict liability and breach of implied warranty of fitness in the above-styled and enumerated cause. For the following reasons, the Court agrees that these causes of action should be DISMISSED.
Section 77.003 of the Tex.Civ.Prac. & Rem.Code provides as follows:
(a) A person who donates, obtains, prepares, transplants, injects, transfuses, or transfers a human body part from a living or dead human to another human or a person who assists or participates in that activity is not liable as a result of that activity.
(b) The person remains liable for the person's own negligence.[1]
Section 77.001 of the Tex.Civ.Prac. & Rem.Code defines "human body part" as any tissue, organ, blood or components thereof from a human.[2]
When these statutes [sections 77.001-77.004 Tex.Civ.Prac. & Rem.Code] were originally drafted, the legislative intent was clear that the concept of product liability was not to be applied to "human body *574 parts." 62nd Legis., p. 4122 (1971); 62nd Legis., chp. 613, p. 1985 (1971).
The cause of action for breach of the implied warranty of fitness is created in Section 2.315 of the Tex.Bus. & Comm. Code. This statute imposes an implied warranty of fitness of goods sold for a particular purpose, unless the warranty is excluded or modified under the next section. The next section, 2.316 provides as follows:
(e) The implied warranties of merchantability and fitness shall not be applicable to the furnishing of human blood, blood plasma, or other human tissues or organs from a blood bank or reservoir of such other tissues or organs. Such blood, blood plasma or tissue or organs shall not for the purpose of this Title be considered commodities subject to sale or barter, but shall be considered as medical services.
The products in dispute are known as cryoprecipitate and lyophilized plasma products. The parties do not dispute that these products are derived from human blood and plasma. Plaintiffs contend that because the statutes do not specifically exempt blood derivatives, the manufacturers of the disputed products are not exempt from liability under these statutes.
Cryoprecipitate is obtained from a single donor or handful of donors whose blood and or plasma contains blood clotting factors. The lyophilized products are derived from pooled plasma obtained from numerous donors. The lyophilized products are then freeze-dried while cryoprecipitate must be kept in a frozen state.
No Texas case addressing these particular statutes in the context of the present action have been cited.[3] However, in construing a similar Louisiana statute, the 5th Circuit held that without the sale of a marketed product, there can be no actions for breach of warranty for injuries or death resulting from blood transfusions. Heirs Of Fruge v. Blood Services, 506 F.2d 841, 846 (5th Cir.1975).[4] This reasoning applies to the Texas statute because blood or blood plasma is not to be considered a commodity for sale but rather a medical service.
In Coffee v. Cutter Biological, 809 F.2d 191 (2d Cir.1987), the Court held that the Connecticut blood shield statute was intended to preclude the assertion of product liability and implied warranty claims arising out of a contract for the sale of blood components. The Court further held that this statute applied to commercial manufacturers and distributors of blood products. It should be noted that this particular statute reads as follows, "...blood, blood plasma, and the components, derivatives or fractions thereof, or tissue or organs shall not be considered commodities but shall be considered as medical services."[5]
*575 In a case construing the Kentucky blood shield statute, the federal district court held that a manufacturer/supplier of a lyophilized plasma product was shielded from strict liability and liability for breach of warranty. McKee v. Miles Laboratories, Inc., 675 F.Supp. 1060 (E.D.Ky.1987).[6]
This Court concludes that a supplier of blood derivative products such as lyophilized plasma and cryoprecipitate is not liable under theories of strict liability and breach of the implied warranty of fitness. The legislative intent in the enactment of these statutes is clear.
It is therefore ORDERED that Plaintiff's causes of action in strict liability and breach of the implied warranty of fitness are DISMISSED.
IT IS SO ORDERED.
NOTES
[1] The Code Construction Act (V.A.C.S. Article 5429b-2) defines "person" as any legal entity; therefore the words "physician, surgeon, hospital, blood bank, tissue bank, or other person or entity" are omitted from the revised law. Revisor's Note.
[2] The source law for Section 77.002 refers to "human tissue, organs, blood and components thereof"; the source law for Section 77.003 contains a substantially identical reference. The term "human body part" is defined here for use in those sections. Revisor's Note.
[3] Prior to the enactment of the blood shield statutes, the Dallas Court of Appeals rendered a decision in which they stated that the supplying of blood for a fee is in its essence the rendition of a service, not a commercial sale of property and therefore there could be no breach of an implied warranty of fitness. Goelz v. J.K. & Susie Wadley Research Institute & Blood Bank, 350 S.W.2d 573, 577 (Tex.Civ.App. Dallas 1961, writ ref'd. n.r.e.).
This decision was apparently prompted by the opinion rendered in the Perlmutter case, being a case of first impression. In Perlmutter, the patient contracted serum hepatitis from a blood transfusion obtained at a hospital. The patient sued the hospital on the theory that supply of the blood for $60.00 a pint constituted a sale under the New York Sales Act and that warranties of fitness and merchantability attached to the transaction. The patient further alleged that these warranties were breached and the hospital was therefore strictly liable for the resulting injuries. The court held that the supply of blood was a service and not a sale and no warranties attached. The court reasoned that the patient had not bargained for the blood itself but for the availability of hospital services to provide the necessary medical treatment. Perlmutter v. Beth David Hospital, 308 N.Y. 100, 123 N.E.2d 792 (1954).
[4] Article 1764 of the Louisiana Code provided as follows:
... the implied warranties of merchantability and fitness shall not be applicable to a contract for the sale of human blood, blood plasma or other human tissue or organs from a blood bank or reservoir of such other tissues or organs. Such blood, blood plasma or tissue or organs shall not for the purposes of this article be considered commodities subject to sale or barter but shall be considered as medical services.
[5] Conn.Gen.Stat.Sec. 19a-280.
[6] This particular statute specifically exempted blood products and blood derivatives. K.R.S. 139.125. This case is reported on Westlaw at 1987 WL 24717. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1652146/ | 498 F.Supp. 1 (1978)
CHICAGO AND NORTH WESTERN TRANSPORTATION COMPANY, Plaintiff,
v.
HURST EXCAVATING, INC., Defendant.
HURST EXCAVATING, INC., Counterclaimant,
v.
CHICAGO AND NORTH WESTERN TRANSPORTATION COMPANY, Defendant to Counter-claim and Third-Party Plaintiff,
v.
IOWA STATE UNIVERSITY OF SCIENCE AND TECHNOLOGY, Iowa State Board of Regents and State of Iowa, Third-Party Defendants.
Nos. C 75-2022, C 74-2021.
United States District Court, N. D. Iowa, E. D.
May 11, 1978.
*2 C. A. Frerichs, Waterloo, Iowa, for plaintiff and counterclaimant, Hurst Excavating.
Frank W. Davis, Jr., T. Scott Bannister, David L. Charles, Des Moines, Iowa, for plaintiff and defendant to counterclaim and third party plaintiff, Chicago and North Western Transp. Co.
Richard C. Turner, Atty. Gen., Fred Haskins, Asst. Atty. Gen., Garry D. Woodward, Sp. Asst. Atty. Gen., Des Moines, Iowa, for third party defendants, Iowa State University of Science and Technology, Iowa State Board of Regents and State of Iowa.
ORDER
McMANUS, Chief Judge.
This matter is before the court upon the parties' motions for summary judgment and the State of Iowa's motion to dismiss. All motions have been resisted.
The issues presently before the court arise from a permissive counterclaim filed by Hurst Excavating, Inc. (Hurst) against the Chicago and North Western Transportation Company (Railroad) for negligent injury to Hurst's property.
Specifically, for the purposes of this motion, the parties have agreed to the following facts. On April 21, 1977 Hurst was constructing, pursuant to a contract with Iowa State University of Science and Technology (State), a steam pipeline. This pipeline was being constructed in an excavation at the end of a spur track owned by the State. The excavation was within 8½ feet of the track and the pipeline was within 15 feet of the end of the track.
At the same time the Railroad was utilizing the spur track to deliver coal for use in the heating plant owned by the State when the lead car of an 11-car train left the track damaging the pipeline being constructed by Hurst. The Railroad was negligent in this regard and said negligence caused Hurst damage.
On or about September 22, 1965, the Chicago and North Western Railway Company, predecessor to the Railroad, and State entered into an agreement binding upon both the Railroad and the State, which contains the following language in paragraph 12:
In the event any equipment, material, structure, pole, or other article or obstruction shall be placed within 15 feet of the end of said track, then the Industry (State) hereby assumes all responsibility for and agrees to indemnify the Railway Company against all liability on account of loss or damage to property (except to property of the Railway Company) and injury to or death of any person or persons whatsoever (except employees of the Railway Company), caused by engines, cars, trains or other equipment running off the end of said track, from any cause whatsoever and without regard to negligence on the part of the Railway Company.
Likewise, on or about January 17, 1975, Hurst entered into an agreement with the State Board of Regents binding upon both Hurst and the State, which includes paragraph 21 of the specifications as follows:
*3 The contractor shall indemnify and hold harmless the owner ... from any and all liability, loss, cost, damage and expense (including reasonable attorney's fees and court costs) resulting from, arising out of, or incurred by reason of any claims, actions, or suits based upon or alleging bodily injury, including death, or property damage arising out of or resulting from the contractor's operations under this Contract, whether such operations be by himself or by any subcontractor or by anyone directly or indirectly employed by either of them. The contractor shall obtain insurance for this purpose, which shall insure the interests of the owner and engineer as the same may appear, and shall file with the owner and engineer certificates of such insurance.
Under these facts, Hurst seeks damages from the Railroad. The Railroad seeks indemnity and contribution from the State under September contracts and the State seeks indemnity from Hurst under the January contract. The State has also moved to dismiss on grounds of sovereign immunity and lack of subject matter jurisdiction.
State's Motion to Dismiss
The State has moved to dismiss the claims against it on two theories. First, the State contends that the action is barred by the eleventh amendment to the United States Constitution. This court has previously rejected a similar claim in Greiner v. Olsen, 498 F.Supp. 908 (N.D.Iowa 1976) on the theory that Kersten Co., Inc. v. Department of Social Services, 207 N.W.2d 117 (Iowa 1973) constituted a waiver of the state's immunity in contract actions. The court would at this time reaffirm its prior ruling and concludes that the defense of sovereign immunity has been waived in this case.
Next, the State argues that under the principles of Aldinger v. Howard, 427 U.S. 1, 96 S.Ct. 2413, 49 L.Ed.2d 276 (1976) no subject matter jurisdiction exists. Both sides agree that no independent jurisdiction exists for the Railroad's claim against the State in this case. Hence, the concept of either ancillary or pendent jurisdiction must be relied upon to justify jurisdiction in this action. In this regard it seems equally apparent that where only private parties are involved, the circumstances of this case would justify the exercise of ancillary jurisdiction. See generally, 6 Wright & Miller, Federal Practice and Procedure: Civil § 1444. Clearly, as the Railroad points out in its brief, all claims arise from a common set of facts and consideration of the parties' convenience and overall judicial economy dictate having all claims settled in this action. The State, however, argues that the eleventh amendment presents an express or at least implied limitation on the court's power to exercise pendent or ancillary jurisdiction in this case. This argument is not well taken.
The eleventh amendment provides that the federal judicial power does not extend to suits against a state by citizens of other states. By interpretation this immunity has been interpreted to preclude suits by a citizen against his own state as well. Hans v. Louisiana, 134 U.S. 1, 10 S.Ct. 504, 33 L.Ed. 842 (1890). The amendment was passed after the decision in Chisholm v. Georgia, 2 Dall. 419, 1 L.Ed. 440 (1793), permitting such suits with the purpose of resurrecting the common law concept of sovereign immunity. This immunity is not absolute however and may be waived in which case the state is no longer protected from suit. Parden v. Terminal R. Co., 377 U.S. 184, 84 S.Ct. 1207, 12 L.Ed.2d 233 (1963). Here, as indicated above, the court has found the requisite consent to suit by the state. Since the eleventh amendment is designed to protect the state treasury, the necessary intent to negate jurisdiction would appear to be lacking where that protection has been waived by the State itself. Along these lines the court finds nothing in the history of the amendment negating jurisdiction *4 where the state has consented to suit.
Railroad's Motion for Summary Judgment
In its motion for summary judgment the Railroad seeks indemnity as a matter of law against the State under paragraph 12 of the September contract.
The core of the Railroad's argument is that under paragraph 12 of the contract, the State has accepted all responsibility for anything placed within 15 feet of the end of the track.
This appears to be the clear meaning of the language of the contract. Indeed, the State apparently does not dispute this interpretation of this clause, but claims paragraph 12 is void[1] since it violates Article VII § 1 of the Iowa Constitution which provides:
The credit of the State shall not, in any manner, be given or loaned to, or in aid of, any individual, association, or corporation; and the State shall never assume, or become responsible for, the debts or liabilities of any individual, association, or corporation, unless incurred in time of war for the benefit of the State. (emphasis added).
Section 1 of Article VII has consistently been construed by the Iowa Supreme Court as prohibiting the State from assuming secondary indebtedness or in other words the State may not become a surety for the debt of another. Edge v. Brice, 253 Iowa 710, 113 N.W.2d 755 (Iowa 1962); Merchants' Union Barb Wire Co. v. Brown, 64 Iowa 275, 20 N.W. 434 (1884); Grout v. Kendall, 195 Iowa 467, 192 N.W. 529 (Iowa 1923).
Here, the Railroad argues that the agreement should be reasonably construed to the effect that the State agrees not to place items within 15 feet of the end of the track or to assume responsibility for any items so placed. With this construction, the argument continues, there is no assumption of the Railroad's liability by the State, but rather the State creates primary liability on its part.
This strains the construction of Article VII. The second clause clearly provides that the State shall not become responsible for the liabilities of any corporation and regardless of how paragraph 12 is construed, this is exactly what it accomplishes. That is, the State is agreeing to assume responsibility for the Railroad's liabilities.
It is clear that an indemnity agreement differs from a guaranty or suretyship in several particulars. See 41 Am.Jur.2d Indemnity § 4. However, these differences do not relate to the evils to which Article VII was directed. Specifically, the State is agreeing to undertake an indefinite liability and relying on the actions of another to keep this obligation from maturing. Grout v. Kendall, supra. Accordingly, the Railroad's motion for summary judgment will be denied.
Hurst's Motion for Summary Judgment
In its motion Hurst seeks summary judgment that paragraph 21 of the contract with the State provides only that Hurst indemnify the State from harm resulting from Hurst's own negligence. Hurst's motion is well taken to the extent that paragraph 21 does not cover the State's own negligence.
Under the Iowa law while it is clear that a party may validly contract for indemnity even against its own negligence, it is equally clear that the intent to do so must be clearly manifested and that general broad and all inclusive language is insufficient for the purposes. Evans v. Howard R. Green Co., 231 N.W.2d 907 (Iowa 1975).
*5 Here that intent is lacking in paragraph 21. The paragraph specifically provides that that indemnity shall be for damages "resulting from, arising out of, or incurred by reason of ... actions, or suits based upon ... property damages arising out of or resulting from contractor's operations under this contract.... No reference is made to the State, but rather the clause refers only to actions of the contractor or his subcontractors. Under these circumstances the court cannot find the requisite intent.
There are, however, as the State points out, factual issues remaining on its right to indemnity under the contract making it inappropriate to enter summary judgment as to the entire claim.
It is therefore
ORDERED
1. State's motion to dismiss is denied.
2. Railroad's motion for summary judgment is denied.
3. Hurst's motion for summary judgment granted in part.
NOTES
[1] While the state claims paragraph 12 is void it does not claim Article VII precludes all indemnity and contribution but rather that paragraph 12 is void as a means for doing so. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1646788/ | 766 F.Supp. 623 (1991)
Julio CORTES, Plaintiff,
v.
BOARD OF GOVERNORS, et al., Defendants.
No. 89 C 3449.
United States District Court, N.D. Illinois, E.D.
June 5, 1991.
MEMORANDUM OPINION
GRADY, District Judge.
This case, arising under § 504 of the Rehabilitation Act of 1973, 29 U.S.C. § 794 *624 ("§ 504"), is before the court on defendant's motion to strike portions of plaintiff's first amended complaint ("the complaint").
FACTS
The facts of the case were stated at length in the memorandum opinion denying defendant's motion for summary judgment. Cortes v. Bd. of Governors, et al., No. 89 C 3449, 1990 WL 186425 (Mem.Op. November 14, 1990). The facts necessary for the determination of this motion are as follows.
In his complaint, plaintiff sought compensatory and punitive damages, back pay, front pay, liquidated damages, attorneys fees and costs, promotion and other equitable relief. Defendants then moved to strike portions of the complaint. Defendants' motion to strike was stayed while their motion for summary judgment was under consideration. Following this court's opinion denying defendants' summary judgment motion, leave was granted to the parties to file supplemental memoranda on defendants' motion to strike, addressing the issue of what remedies are available under § 504. Defendants argue that plaintiff's prayers for compensatory, punitive and liquidated damages, back pay, front pay and interest, and plaintiff's jury demand, should be stricken.
DISCUSSION
The Rehabilitation Act does not specify whether a plaintiff can sue for damages under § 504. The statute states, "[t]he remedies, procedures and rights set forth in Title VI of the Civil Rights Act of 1964 [42 U.S.C.A. § 2000d et seq.] shall be available to any person aggrieved by any act or failure to act by any recipient of Federal assistance or Federal provider of such assistance under section 794 of this title." 29 U.S.C. § 794a(a)(2). The Supreme Court has held that § 504 authorizes a plaintiff who alleges intentional discrimination to bring an action for back pay, but in the same opinion, it specifically refrained from determining the extent to which money damages are available. See Consol. Rail Corp. v. Darrone, 465 U.S. 624, 630, 104 S.Ct. 1248, 1252, 79 L.Ed.2d 568 (1984).
Because the remedy provision of § 504 refers to Title VI, the first step is to look at what remedies are available under Title VI. Title VI authorizes relief "consistent with the objectives of the statute ...," 42 U.S.C. § 2000d-1. In Guardians Assoc. v. Civil Serv. Comm'n, New York City, 463 U.S. 582, 103 S.Ct. 3221, 77 L.Ed.2d 866 (1983) (plurality opinion), the Supreme Court held that a plaintiff must allege intentional discrimination to get monetary relief under Title VI, but failed to define what monetary relief would be available. Guardians, 463 U.S. at 595, 103 S.Ct. at 3228-29. The Court, in a plurality opinion, noted that "make whole" remedies are not ordinarily appropriate in private actions seeking relief under statutes passed pursuant to the Spending Clause. Guardians, 463 U.S. at 596, 103 S.Ct. at 3229. However, the plurality of the Court stated that "[i]n cases where intentional discrimination has been shown, ... it may be that the victim of the intentional discrimination should be entitled to a compensatory award...." Guardians, 463 U.S. at 597, 103 S.Ct. at 3230. The Court declined to so hold because the plaintiffs in Guardians charged the defendants with disparate impact, rather than intentional, discrimination. Id.
The lower courts that have addressed the issue of the remedies available under Title VI are divided. Compare Gilliam v. City of Omaha, 388 F.Supp. 842 (D.Neb.1975), aff'd (without mention of remedies), 524 F.2d 1013 (8th Cir.1975); Flanagan v. President and Directors of Georgetown College, 417 F.Supp. 377 (D.D.C.1976) (allowing suits for damages under Title VI) with Davis v. Spanish Coalition for Jobs, 676 F.Supp. 171, 173 (N.D.Ill.1988) (citing Concerned Tenants Assoc. v. Indian Trails Apartments, 496 F.Supp. 522, 527 (N.D.Ill.1980)) (Title VI authorizes only equitable remedies); Franklin v. Gwinnett County Public Schools, 911 F.2d 617, 619-622 (11th Cir.1990) (plaintiff could not sue for compensatory damages under Title VI).
Although the courts are divided on the issue of whether compensatory damages are available under § 504, the majority of courts that have ruled on the issue have *625 held in favor of the damages remedy.[1] Illustrative of the reasoning behind that view is Miener v. State of Missouri, 673 F.2d 969 (8th Cir.), cert. denied, 459 U.S. 909, 103 S.Ct. 215, 74 L.Ed.2d 171 (1982). In Miener, the court started from the general rule enunciated by the Supreme Court in Bell v. Hood, 327 U.S. 678, 684, 66 S.Ct. 773, 777, 90 L.Ed. 939 (1946), that "where legal rights are invaded and a statute provides a right to sue for such invasion, federal courts may use any available remedy to make good the wrong." Miener, 673 F.2d at 977. The court then found that the administrative remedies provided for in the Rehabilitation Act would be inadequate to remedy plaintiff's injury. Miener, 673 F.2d at 978. Finally, the court pointed out that the House/Senate Conference Committee eliminated a provision which would have prohibited money damages when Congress amended the Rehabilitation Act in 1978, indicating that the Committee did not intend to prohibit money damages as a remedy. Miener, 673 F.2d at 978 (citing H.R.Rep. 95-1780, 95th Cong., 2d Sess., reprinted in [1978] U.S.Cong. & Admin. News 7312, 7375, 7379).
Some district courts have held that money damages are not available under § 504.[2] These courts rely principally on the similarities between § 504 and Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e-5(g), and point out that only equitable remedies are available under Title VII. See, e.g., Byers, 635 F.Supp. at 1391. However, Title VII, unlike § 504, specifically defines what relief is available under the statute, and refers only to equitable relief.[3] Thus, the remedy portions of Title VII are not analogous to § 504.
The weight of authority supports the view that plaintiff is entitled to seek compensatory damages under § 504.[4]
This court has already found that plaintiff has stated a claim for intentional discrimination,[5] so that he may bring a claim *626 for back pay and front pay. See Darrone, 465 U.S. at 630, 104 S.Ct. at 1252; Ventura v. Federal Life Ins. Co., 571 F.Supp. 48 (N.D.Ill.1983) (front pay, like back pay, is a matter of equitable relief).
Plaintiff also seeks to recover punitive damages and liquidated damages, which are punitive in nature. See Trans World Airlines v. Thurston, 469 U.S. 111, 125, 105 S.Ct. 613, 623-24, 83 L.Ed.2d 523 (1984) (Congress intended liquidated damages provision in Age Discrimination in Employment Act to be punitive in nature). In determining whether punitive damages are available under § 504, it is well to keep in mind the Supreme Court's admonition that courts must "be responsive to two powerful but countervailing considerations the need to give effect to the statutory objectives and the desire to keep § 504 within manageable bounds." Alexander v. Choate, 469 U.S. 287, 299, 105 S.Ct. 712, 719, 83 L.Ed.2d 661 (1985). Although Congress was silent on the availability of compensatory damages under § 504, such damages are arguably necessary to accomplish the statutory objectives. Punitive damages, on the other hand, are not necessary to "make good the wrong," Bell v. Hood, 327 U.S. at 684, 66 S.Ct. at 777, when plaintiff is already being allowed to seek front pay, back pay, compensatory damages and even reinstatement. There is insufficient reason to imply a punitive damage remedy when Congress has given no indication whatsoever that it intended to authorize such relief. Therefore, this court concludes that punitive damages are not available under § 504. See Gelman v. Dept. of Educ., 544 F.Supp. at 653-54 (compensatory damages, but not punitive damages, are available as a remedy under § 504).
Having found that compensatory damages are available under § 504, the next question for the court is whether plaintiff has a right to a jury trial under the statute. In Tull v. United States, 481 U.S. 412, 107 S.Ct. 1831, 95 L.Ed.2d 365 (1987), the Supreme Court established a framework for determining whether a plaintiff has a Seventh Amendment right to a jury trial under a Congressional statute. A court must evaluate the nature of the action and desired remedy to determine whether the cause of action resembles a traditional claim at common law or equity. Tull, 481 U.S. at 417-18, 107 S.Ct. at 1835-36. If the remedy sought is legal in nature, plaintiff is entitled to a jury trial. Id. "If a legal claim is joined with an equitable claim, the right to jury trial on the legal claim, including all issues common to both claims, remains intact." Tull, 481 U.S. at 425, 107 S.Ct. at 1839 (quoting Curtis v. Loether, 415 U.S. 189, 196 n. 11, 94 S.Ct. 1005, 1009 n. 11, 39 L.Ed.2d 260 (1974)). Because plaintiff is seeking the legal relief of compensatory damages as well as equitable relief, he is entitled to a jury trial. See Smith v. Barton, 914 F.2d at 1338.
CONCLUSION
Defendants' motion to strike plaintiff's demand for punitive and liquidated damages is granted. Defendants' motion to strike plaintiff's demand for compensatory damages, back pay, front pay and interest[6], and to strike plaintiff's jury demand, is denied.[7]
NOTES
[1] See, e.g., Smith v. Barton, 914 F.2d 1330, 1337 (9th Cir.1990) (compensatory damages are available as a remedy under § 504); Greater Los Angeles Council on Deafness, Inc. v. Zolin, 812 F.2d 1103, 1107 (9th Cir.1987) (same); Ciampa v. Massachusetts Rehabilitation Comm'n, 718 F.2d 1, 5 (1st Cir.1983) (a private right of action for damages may be implied from the language of § 504); Nelson v. Thornburgh, 567 F.Supp. 369 (E.D.Pa.1983), aff'd without opinion, 732 F.2d 147 (3d Cir.1984), cert. denied, 469 U.S. 1188, 105 S.Ct. 955, 83 L.Ed.2d 962 (1985) (compensatory damages are available as a remedy under § 504); Gelman v. Dept. of Educ., 544 F.Supp. 651, 653-54 (D.Colo.1982) (same); Hutchings v. Erie City and County Library Bd. of Directors, 516 F.Supp. 1265, 1268-69 (W.D.Pa. 1981) (same), Patton v. Dumpson, 498 F.Supp. 933, 939 (S.D.N.Y.1980) (same). See also Smith v. Robinson, 468 U.S. 992, 1020 n. 24, 104 S.Ct. 3457, 3472 n. 24, 82 L.Ed.2d 746 (1984) (without expressing an opinion on the matter, the Court noted that courts generally agree that damages are available under § 504). The parties have not cited, and we have not found, any circuit court cases holding that money damages are not available under § 504.
[2] See, e.g., Byers v. Rockford Mass Transit Dist., 635 F.Supp. 1387, 1391 (N.D.Ill.1986); Shuttleworth v. Broward County, 649 F.Supp. 35, 38 (S.D.Fla.1986); Du Vall v. Postmaster Gen., 585 F.Supp. 1374, 1377 (D.D.C.1984), aff'd without opinion, 774 F.2d 510 (D.C.Cir.1985); Marshburn v. Postmaster Gen., 678 F.Supp. 1182 (D.Md.1988), aff'd without opinion, 861 F.2d 265 (4th Cir.1988).
[3] Title VII states that "the court may enjoin the respondent from engaging in such unlawful employment practice, and order such affirmative action as may be appropriate, which may include, but is not limited to, reinstatement or hiring of employees, with or without back pay ... or any other equitable relief as the court deems appropriate." 42 U.S.C. § 2000e-5(g) (emphasis added).
[4] That result also promotes judicial economy in this case. A holding that plaintiff may not recover compensatory damages would require a retrial if it were determined on appeal that compensatory damages are available.
[5] In his complaint, plaintiff claimed that defendants did not promote him "because of his handicapped condition," and that the actions of defendants were "willful, intentional and/or in reckless disregard for plaintiff's statutory rights." In the memorandum opinion of November 14, 1990, this court found that plaintiff had stated a claim for discrimination under § 504, and that the facts were sufficient to deny defendant's summary judgment on that claim. Cortes v. Bd. of Governors, et al., No. 89 C 3449, 1990 WL 186425 (Mem.Op. November 14, 1990). This court found that "there is more than a modicum of evidence in support of defendants' allegedly illegal motive." Id. at 22. Contrary to defendants' assertion, therefore, plaintiff has clearly stated a claim for intentional discrimination.
[6] Plaintiff is entitled to prejudgment interest on any back pay or front pay that he may recover. See West Virginia v. United States, 479 U.S. 305, 310, 107 S.Ct. 702, 706, 93 L.Ed.2d 639 (1987) ("prejudgment interest is an element of complete compensation"); Williamson v. Handy Button Mach. Co., 817 F.2d 1290, 1297 (7th Cir. 1987) (prejudgment interest is an ordinary part of any award for back pay under § 1981); Gillespie v. First Interstate Bank of Wis. S.E., 717 F.Supp. 649 (E.D.Wisc.1989) (allowing recovery of prejudgment interest for back pay under Title VII).
[7] Defendants also moved to strike plaintiff's references in his complaint to the United States Constitution and the Civil Rights Restoration Act. Because the determination of this motion would have no bearing on the outcome of the case, we decline to address it. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1666366/ | 703 F.Supp. 766 (1988)
William TOLSON, Plaintiff,
v.
SHERIDAN SCHOOL DISTRICT, Thomas Warmack, President, Sheridan School Board, In His Official And Individual Capacities; and Donald Turney, Superintendent, Sheridan Public Schools, In His Official And Individual Capacities, Defendants.
No. PB-C-86-44.
United States District Court, E.D. Arkansas, Pine Bluff Division.
December 16, 1988.
*767 *768 Brian Wolfman, Legal Services of Arkansas, Little Rock, Ark., for plaintiff.
W. Paul Blume, G. Ross Smith & Associates, Little Rock, Ark., for defendants.
MEMORANDUM OPINION AND ORDER
GEORGE HOWARD, Jr., District Judge.
Trial was held before the Court and a jury from January 19th to the 21st, 1988. On January 21, 1988, the jury returned a verdict in favor of plaintiff and against the defendant school district on the breach of contract claim and awarding damages of $12,000.00. The remaining due process claims of his property and liberty interests were taken under advisement and a post-trial briefing schedule was set. Plaintiff thereafter submitted amended proposed findings of fact and conclusions of law along with supporting brief. Defendants, although given additional time, opted not to submit any further arguments in their behalf. In light of the evidence presented at trial, the findings by the jury and the applicable law, the Court now makes the following findings of fact and conclusions of law:
FINDINGS OF FACT
1. On July 3, 1985, plaintiff William Tolson and defendant Sheridan School District entered into a contract under which Tolson was to drive a school bus for the defendant.
2. In exchange for driving the school bus, Tolson was to be paid $2,478.00 under the contract.
3. The contract was for a definite term, September 3, 1985, through June 3, 1986. Furthermore, bus drivers were rehired each school year in the absence of a lawful termination or the driver quitting.
4. Previous to the 1985-86 school year, Tolson had driven a school bus for the defendant. He had driven a school bus as a substitute driver during the 1984-85 school year and while a student at Sheridan High School. These previous bus driving experiences were without serious incident.
5. School bus drivers in the Sheridan School District drive a morning and an afternoon route, and they did so during September, 1985.
6. On September 30, 1985, Tolson returned from his normal morning bus route and proceeded to the school bus shop. He had had some discipline problems with the students on his bus that morning.
7. He handed his "bus conduct reports", which are forms upon which drivers report unruly or improper student behavior on the buses, to Harvey Nelson, the defendants' head shop mechanic. James Zimmerman, Assistant Superintendent for Maintenance and Transportation, was also present. Among other things, Tolson said to Zimmerman that if the school district were not able to discipline the school children, they might have to find another bus driver. Neither Zimmerman nor Nelson responded to the comment.
8. Thereafter, with Zimmerman still present, Nelson instructed Tolson to take home a bus other than Tolson's regular bus since there was a mechanical problem with the tailpipe and Nelson wanted it left in the shop so that it could be fixed. Nelson told Tolson that when he came back in the afternoon, he could get his regular bus.
9. Tolson then drove the replacement bus home. It was the usual custom for school bus drivers to keep the buses at their homes overnight, and between morning and afternoon routes.
10. When Tolson arrived home with the replacement bus, he parked on the road in front of his house and left in his pick-up *769 truck to take care of some personal business in Pine Bluff.
11. Meanwhile at the shop, Zimmerman instructed Nelson to go to Tolson's home to pick up the bus. Nelson, acting under the authority of Zimmerman, went to Tolson's home with another one of defendant's employees, Karen Wilkerson.
12. Without giving notice of any kind, Wilkerson took the bus and drove it back to the bus shop, effectively terminating Tolson's employment. On January 21, 1988, the jury decided that Tolson had been discharged without cause by the defendant Sheridan School District at this point. This finding of fact is now the law of the case.
13. Later that day, after Tolson returned home, he called Nelson to see where his bus was. Nelson told Tolson that Zimmerman had instructed Nelson to pick up the bus.
14. Tolson asked Nelson if he was fired. Nelson told Tolson that he would not be needed any longer, and that he didn't know anything further. Nelson did not give Tolson any reasons for his dismissal.
15. Later that day, Tolson contacted the office of defendant Donald Turney, who was superintendent of the Sheridan School District at that time. Tolson wanted to know the reasons for his firing, and he wanted to get his job back. Tolson was informed by Turney's secretary that Turney was not in and that he should contact Turney the next day.
16. The next day, October 1, 1985, Tolson met with Turney at Turney's office. Turney said there had been some complaints about Tolson, but he would not tell Tolson the nature of the complaints or who made them. Tolson explicitly asked for the names of those parents who had allegedly made complaints. In addition, Turney would not go into any detail about the reasons for the dismissal.
17. Tolson asked Turney for permission to go in front of the school board. Turney told Tolson that he should write a formal letter and submit it to his office. The only other thing that Turney told Tolson was the date of the next school board meeting.
18. Neither Turney nor any other employee of the Sheridan School District gave Tolson notice of the specific charges against him. He was not given any notice in writing.
19. On approximately October 9, 1985, Turney sent Tolson a copy of the school board agenda for October 14, 1985. The agenda stated with regard to Tolson that "Mr. William Tolson requested a hearing regarding his dismissal as a district bus driver."
20. Tolson was not given any other notice of this hearing or the charges against him, nor the information and evidence which was being used against him, including the same information that the school board had concerning the matter.
21. On or about October 9, 1985, Turney sent the school board agenda to all six members of Sheridan School Board. In addition, he sent "support information", which was admitted at trial as plaintiff's Exhibit 8, to the school board members concerning Tolson. Tolson was never given access to this information, nor was he given a chance to rebut it. He never had access to this information until it was disclosed during discovery in the instant action.
22. This support information indicated, among other things:
a. that Tolson was a bus driver until September 30th when he was dismissed by Zimmerman;
b. that Turney had received complaints concerning poor discipline on the school bus;
c. that Zimmerman had told Nelson to get Tolson's bus on September 30, "in effect relieving him of his job;"
d. that in Turney's "personal opinion ... this driver cannot handle bus driving in a manner that is emotionally safe for children. His behavior borders on being a little `strange';"
e. Turney's belief that Tolson's dismissal was abrupt when viewed in comparison to other driver offenses;
*770 f. the reason Turney dismissed Tolson was to set an example for other drivers.
23. The support information sent to the school board by Turney indicates that the decision to dismiss Tolson was already made, was final, and could not be reversed.
24. The school board members used the support information to prepare for the meeting. They were not given reason to doubt its accuracy. Defendant Warmack admitted at trial that the other school board members present at the meeting may well have relied on the support information in forming their opinions on the Tolson situation.
25. At the school board meeting on October 14, 1985, Tolson explained to the school board the problems that he was having on his bus, detailing a few specific incidents. He explained that, although he went through the proper channels, he was not getting help from the school district in correcting discipline on the bus.
26. Tolson had specifically requested in writing that Zimmerman and Nelson be at the hearing. While Zimmerman and Nelson were present at the hearing in the back of the room, they were not up at the table where Tolson was explaining his situation. Zimmerman did not hear anything that was presented at the school board meeting. Nelson heard only some of the matters that were discussed at the portion of the meeting concerning Tolson. Tolson wanted to ask them questions, but he was explicitly denied that right. Defendant Thomas Warmack, President of the Sheridan School Board, told Tolson that it was going to be a long meeting that night and that he could not question Zimmerman.
27. Only four of the six members of the school board were present at the October 14, 1985, meeting. After the portion of the meeting concerning Tolson, which lasted twenty (20) to thirty (30) minutes, the school board members present did not confer with one another and took no action to reverse Zimmerman and Turney's decision to discharge Tolson.
28. The jury's verdict of January 21st determined that the reasons were not the kind to justify the discharge of Tolson as a driver and so the Sheridan School District did not discharge him for cause.
29. Defendants Sheridan School District and Turney took minutes on portions of the school board meeting, including the part concerning Tolson. Those minutes were published on the first page of a newspaper having general circulation in the county. The article related that Tolson had not followed all directives, the replacement driver had not had any discipline problems turned in, and that Tolson was dismissed for his inability to control students on the bus.
30. If Tolson had been apprised of the support information, he would have had the opportunity to present testimony to the effect that his discharge was wrongful. This would have included, but not have been limited to, testimony from parents indicating that children, and not Tolson, were responsible for the discipline problems on the bus, that drivers prior to and subsequent to Tolson had similar discipline problems on Tolson's bus route, that school officials did not use the proper channels in order to deal with discipline on Tolson's bus as they were required to do, and that the adverse information on the support information was false, misleading, and incomplete.
31. If Tolson had been given the opportunity to cross-examine Nelson and/or Zimmerman, he could have presented testimony to the effect that he had been a good bus driver in the past, that school officials had not given him support in dealing with the discipline problems on the bus, and that he had been willing to work with supervisors and co-workers in order to deal with any problems that may have arisen.
32. If Tolson had been given specific notice of the charges and witnesses against him, he would have been able to confront that evidence and dispel much of it. Because he was not given access to the support information sent to the school board, and because he was never given notice of the specific individuals who had allegedly complained about him and the specifics of *771 the alleged complaints, his presentation at the school board meeting was prejudiced.
33. The total compensation Tolson was to be paid under his contract with Sheridan School District was $2,475.00. He was paid only $265.20, representing his wages through the morning run on September 30, 1985. Therefore, the amount still unpaid under the contract is $2,209.80. The loss of these wages resulted directly from the deprivation of Tolson's due process rights by defendants. In addition, as a result of his loss of employment, Tolson and his family lost their utilities in the fall and winter of 1985-86 for a period of approximately five months. Tolson was forced to place in hock many of his personal possessions. He expended time and resources looking for further employment. He was unable to provide adequately for his pregnant wife and three children, two of whom are disabled. He eventually obtained a job in the spring of 1986 delivering daily newspapers between 1:00 a.m. and 3:00 a.m. o'clock. All of the above difficulties caused Tolson emotional and physical stress.
34. The value to Tolson of his utilities, and his physical and emotional well-being during the fall and winter of 1985-86 was lost as a reasonably foreseeable consequence of defendants' due process violations.
CONCLUSIONS OF LAW
1. Defendants at all times pertinent to this action were acting under color of law within the meaning of 42 U.S.C. § 1983.
2. Under the due process clause of the Fourteenth Amendment to the United States Constitution, a public employee is entitled to procedural due process if he or she "had a property right in continued employment." Cleveland Board of Education v. Loudermill, 470 U.S. 532, 105 S.Ct. 1487, 1491, 84 L.Ed.2d 494 (1985).
3. Property interests are not created by the Constitution; rather, "they are created and their dimensions are defined by existing rules or understandings that stem from an independent source such as state law ...". Board of Regents v. Roth, 408 U.S. 564, 577, 92 S.Ct. 2701, 2709, 33 L.Ed.2d 548 (1972).
4. The parties have stipulated that Tolson had a property interest in his employment contract within the meaning of the Due Process Clause of the Fourteenth Amendment. See Stipulation, ¶ 2 (filed November 3, 1987). Thus, Tolson was entitled to due process.
5. "Once it is determined that due process applies, the question remains what process is due." Morrissey v. Brewer, 408 U.S. 471, 481, 92 S.Ct. 2593, 2600, 33 L.Ed.2d 484 (1972). The "root requirement" of the Due Process Clause is "that an individual be given an opportunity for a hearing before he is deprived of any significant property interest." Boddie v. Connecticut, 401 U.S. 371, 379, 91 S.Ct. 780, 786, 28 L.Ed.2d 113 (1971) (emphasis in original), quoted in Loudermill, 105 S.Ct. at 1493.
6. In the case of a public employee such as Tolson, "something less" than a full evidentiary hearing is sufficient prior to the termination. Loudermill, 105 S.Ct. at 1495, quoting Mathews v. Eldridge, 424 U.S. 319, 343, 96 S.Ct. 893, 907, 47 L.Ed.2d 18 (1976). "[The] pretermination hearing need not definitely resolve the propriety of the discharge. It should be an initial check against mistaken decisions ...". Loudermill, 105 S.Ct. at 1495.
7. Tolson was entitled to notice and opportunity to respond prior to his termination. Specifically, he was entitled to oral or written notice of the charges against him, an explanation of the employer's evidence, and an opportunity to present his side of the story. Loudermill, 105 S.Ct. at 1495.
8. Tolson was effectively discharged by Zimmerman and/or Turney when his bus was picked up at his home on the morning of September 30, 1985. He thereafter spoke to Nelson and the discharge was confirmed. He no longer had the means by which to accomplish his job. The jury has found that Tolson was, in fact, discharged without cause. Tolson had no hearing whatsoever prior to his discharge *772 and, therefore, his due process rights were violated.
9. In addition, Tolson's subsequent meeting with Turney, although it was after Tolson's termination, also did not meet the pre-termination requirements of Loudermill, because Turney did not give Tolson oral or written notice of the specific charges against him, an explanation of the employer's evidence, nor an opportunity to present his side of the story. Loudermill, 105 S.Ct. at 1495.
10. Moreover, the total lack of pretermination procedure in the instant case is especially grevious because the post-termination procedures were also inadequate under the due process clause. In such a case, the pre-termination procedures must be more in-depth and meaningful than would otherwise be required. Loudermill, 105 S.Ct. at 1496 and n. 12.
11. Regardless of whether pre-termination proceedings are adequate, the equivalent of a full evidentiary hearing is necessary either pre or post-termination in order to meet the demands of due process. Loudermill, 105 S.Ct. at 1496.
12. At a minimum, to support the termination of a governmental employee who possesses a property interest, the employer must provide to the employee (a) clear and actual notice of the reasons for termination in sufficient detail to enable the employee to present evidence relating to those reasons; (b) notice of both the names of those who have made allegations and the specific nature and factual basis for the charges; (c) a reasonable time and opportunity to present testimony in his or her defense; and (d) a hearing before an impartial board of tribunal. Agarwal v. Regents of University of Minnesota, 788 F.2d 504, 508 (8th Cir.1986).
13. The notice and opportunity to be heard afforded Tolson does not meet these minimal standards of due process. Tolson was not given the names of parents or others whose evidence upon which Zimmerman and/or Turney allegedly relied in terminating Tolson and upon which Turney allegedly relied in drafting the support information he sent to the school board. None of this information, let alone the details of it, was given to Tolson and, thus, his rights to due process were violated.
14. Apart from the names of those individuals allegedly making charges against Tolson, Tolson was not given any detailed notice of the school board's charges against him and so was also not given a reasonable opportunity to present testimony through his own witnesses in his defense.
15. A governmental employer has the obligation to make these procedures available, including an opportunity to confront and cross-examine adverse witnesses. Parks v. Goff, 483 F.Supp. 502, 505-06 (E.D.Ark.1980). Because Tolson was explicitly denied the right to cross-examine witnesses which he himself requested be present, his due process rights were violated. In addition, because much of the allegedly adverse information against Tolson was not specified in any notice nor was it given to Tolson in any other way, he was unable to cross-examine and confront those anonymous witnesses. Thus, his due process rights were violated.
16. It is also a crucial element of due process that the tribunal or hearing officer acting as decisionmaker be impartial. Agarwal v. Regents of the University of Minnesota, 788 F.2d at 508. There is no question that the decisionmakers in the instant case, the Sheridan School Board, lacked impartiality because they had had ex parte contact with Turney concerning the specifics of this case. Turney gave the Board detailed and, Tolson maintains, largely false, incomplete and misleading information concerning the decision to terminate Tolson in the support information. Because the jury has found that Tolson was discharged without cause, it follows that the adverse information held by the defendants was false, incomplete, or misleading.
17. Not only did this violate Tolson's due process right of confrontation because he was not given this information, but the ex parte contact itself and the prejudice to Tolson's case flowing therefrom, also violated *773 due process. It is improper for the decisionmaker to have access to information which the aggrieved party did not have. Davis v. Alabama State University, 613 F.Supp. 134, 138 (M.D.Ala.1985). Likewise, the impartiality of the Sheridan School Board was impermissibly tainted because of Turney's ex parte communication with it. Therefore, due process was violated.
18. No liberty interest was involved here. The statements contained in the minutes which were published in the newspaper are the same kind as the statement at issue in Robinson v. City of Montgomery City, 809 F.2d 1355, 1356 (8th Cir. 1987) which was found to not be "... sufficiently stigmatizing to give plaintiff a liberty-interest right to a name-clearing hearing. No imputation of dishonesty, moral turpitude, or the like is involved."
19. The defendant Sheridan School District can unquestionably be held liable for the due process violations in this case, Monell v. Department of Social Services, 436 U.S. 658, 98 S.Ct. 2018, 56 L.Ed.2d 611 (1978), and can be held accountable for any money judgment rendered against it. Owen v. City of Independence, 445 U.S. 622, 100 S.Ct. 1398, 63 L.Ed.2d 673 (1980).
20. Defendants Turney and Warmack should be held liable in their individual capacities because "their conduct ... [v]iolated clearly established ... constitutional rights of which a reasonable person would have known." Harlow v. Fitzgerald, 457 U.S. 800, 818, 102 S.Ct. 2727, 2738, 73 L.Ed.2d 396 (1982). The pre-termination hearing rights of public employees, Board of Regents v. Roth, 408 U.S. 564, 92 S.Ct. 2701, 33 L.Ed.2d 548 (1972), and all other due process rights violated in this case, have been clearly established for well over a decade.
21. Because Loudermill requires some kind of hearing prior to the discharge of an employee who has a constitutionally protected property interest, 105 S.Ct. at 1493, the appropriate remedy in this case is reinstatement and back pay until such time that Tolson is afforded a proper due process hearing. Petrella v. Siegel, 843 F.2d 87 (2nd Cir.1988). Compare, Peery v. Brakke, 826 F.2d 740 (8th Cir.1987).
22. Tolson is also entitled to other compensatory damages for violations of his due process rights. Carey v. Piphus, 435 U.S. 247, 98 S.Ct. 1042, 55 L.Ed.2d 252 (1978). He is entitled to damages for such subjective consequences as mental anguish and suffering. See, Memphis Community School District v. Stachura, 477 U.S. 299, 106 S.Ct. 2537, 91 L.Ed.2d 249 (1986); Rogers v. Kelly, 674 F.Supp. 1372 (E.D.Ark. 1987). The evidence of emotional and physical distress was amply set out at trial by Tolson and his wife, Jeanette, and justifies an appropriate and reasonable compensatory damage award of $1,500.00.
Accordingly, the Court finds that plaintiff's due process rights were violated by his termination without the proper hearings. He is entitled to reinstatement as a bus driver and his back pay to the date of reinstatement, offset by any amounts that he has earned or could have earned with the exercise of due diligence, until such time that he is afforded a proper due process hearing. If the parties are unable to agree upon the sum due plaintiff, the Court will schedule an immediate hearing on request to make this determination. Furthermore, he is entitled to compensatory damages as a result of the due process violations in the sum of $1,500.00.
IT IS SO ORDERED.
JUDGMENT
In accordance with the separate Memorandum Opinion and Order filed this date, judgment is hereby entered in favor of plaintiff and against defendants on his claim that defendants violated his constitutional right to procedural due process in his termination, but judgment is entered in favor of defendants and against plaintiff on his claim that he was deprived of his liberty interest. Plaintiff is ordered reinstated with backpay awarded from the date of his termination to the date he is reinstated, less any sums earned or which could have been earned with the exercise of due diligence, *774 until such time as he is afforded a proper due process hearing. If the parties are unable to agree upon the sum due plaintiff, the Court will schedule an immediate hearing on the request in order to make this determination. Furthermore, plaintiff is awarded $1,500.00 for compensatory damages for the procedural due process violation. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/8569576/ | TEXTO COMPLETO DE LA RESOLUCION
ACE Insurance Company (en adelante la peticionaria) recurre ante nos, solicitándonos que revisemos y *153dejemos sin efecto una determinación del Tribunal de Primera Instancia» Sala Superior de Ponce (Hon. Eduardo Estrella Morales, Juez), que declaró No Ha Lugar una "Moción de Sentencia Sumaria", presentada por ésta.
Los hechos relevantes al asunto ante nos son los siguientes.
I
Los demandantes aquí recurridos radicaron demanda sobre daños y perjuicios contra el municipio de Ponce y otros, entre éstos, la aquí peticionaria. La demanda plantea, en esencia, que la menor Kimberly Marie Borrero Batiz, hija de los recurridos, cursaba estudios en el Centro Preescolar Head Start Chavier I, ubicado en Ponce. El codemandado Orlando Cosme Santiago fue maestro de la menor éntre agosto de 2000 y mayo de 2001, alegándose, además, que éste era empleado del Municipio de Ponce.
Se alega en la demanda original que la señora Jessica Batiz González, madre de la menor, advino en conocimiento de que el señor Cosme había alegadamente cometido actos lascivos o impúdicos contra varias menores, incluyendo su hija. De igual manera, se alegó en la demanqa que desde septiembre de 2002 hasta marzo de 2001, el codemandado Orlando Cosme Santiago, amparado en sus funciones magisteriales, cometió actos lascivos e impúdicos en repetidas ocasiones contra la menor Borrero Ortiz.
Según surge de la demanda, el señor Cosme Santiago fue denuncia|do, acusado y procesado criminalmente por esos hechos y éste se declaró culpable por el delito grave de acfos lascivos e impúdicos. La demanda expresa que como consecuencia de dichos actos, la menor y sus padres y demás demandantes sufrieron daños y perjuicios físicos y mentales.
En el pleito se incluye como demandado al Municipio de PonceJ alegándose que los daños sufridos se debieron a los actos culposos del señor Cosme y a la negligencia del Municipio, al no ser diligentes eligiendo a sus empleados, ya que el señor Cosme Santiago había incurrido con antprioridad en la misma conducta. Al ésto ser así, se alega que se incumplió con el reglamento del centro preescolar que prohíbe que un ayudante de maestro se quede solo con los niños, por lo que el Municipio no descargó la responsabilidad de supervisar adecuadamente a sus empleados.
Posteriormente, se enmendó la demanda y se incluyó a ACE insurance Company, aquí peticionaria, alegándose que era la compañía aseguradora que para la fecha de los hechos tenía expedida una póliza de seguros a favor del Municipio de Ponce, que cubre todos los actos culposos y negligentes que el Municipio llevó a cabo a través de sus agentes y empleados para la fecha en que ocúrrieron los hechos.
La aquí peticionaria, en su contestación a la demanda, expresó cjomo defensa afirmativa que no existe responsabilidad de la compañía aseguradora, conforme a las cláusulas, i términos y condiciones de la póliza de seguros, quéTos hechos alegados en la demanda están expresamente excluidos de cubierta por parte de la aquí peticionaria, a favor del Municipio de Ponce.
El 24 de marzo de 2003, la peticionaria presentó "Moción de Senteñcia Sumaria", por no existir cubierta de póliza, solicitándole al Tribunal de Primera Instancia que desestimara la demanda en cuanto a ellos, alegando que en la póliza en cuestión se excluye expresamente de su cubierta los áctos por los que se demanda.
El Tribunal a quo citó para vista el 29 de abril de 2003, y para'esa fecha ninguna de las partes había presentado escrito en oposición a la "Moción de Sentencia SumariaPor lo tanto, el Tribunal ordenó a las partes a presentar un memorando de derecho, sustentando su posici4n con relación a la sentencia sumaria solicitada. A pesar de la orden del Tribunal, sólo la parte peticionaria radicó memorando de derecho y se reiteró en su "Moción de Sentencia SumariaLas demás partes nada presentaran.
*154El 5 de mayo de 2003, el Municipio de Ponce presentó "Moqión de Desestimación", alegando básicamente que a tenor con la Ley de Municipios Autónomos, la demanda por esos hechos no procedía contra el Municipio. A dicha "Moción de Desestimación", la peticionaria radicó moción allanándose a lo solicitado por el Municipio de Ponce.
Los demandantes aquí recurridos presentaron moción en oppsición a la desestimación, fundamentando la misma en que la responsabilidad que se le imputa al Municipio dé Ponce es una basada en sus propios actos por falta de supervisión adecuada y negligencia en el procedimiento de selección de sus empleados, en este caso del señor Cosme Santiago.
Luego de otros incidentes procesales, el Tribunal de Primera ¡Instancia declaró No Ha Lugar la "Moción de Sentencia Sumaria", presentada por la aquí peticionaria. No obstante, en el "Acta" donde se hace constar la determinación del Tribunal de Primera Instancia, el Juez Eduardo Estrella Morales señaló que en relación a la mocion de sentencia sumaria, radicada por la compañía de> seguros, ACE Insurance Company, existe controversia real sustancial en cuanto al contenido del contrato dé seguro. En específico señaló que la copia del contrato de seguro que se sometió al tribunal no contiene la cláusula de exclusión en la que se fundamenta la moción de sentencia sumaria y que no es hasta que dicho foro teñga la póliza completa que podrá disponer del asunto.
Inconforme con dicha determinación, la aquí peticionaria coStnparece ante nos y señala que el Tribunal de Primera Instancia erró al denegarse a desestimar sumariamente la demanda presentada en este caso en lo concerniente a ACE Insurance Company, a pesar de que tenía ante sí los elementos necesarios para determinar que los hechos alegados en la demanda están expresamente excluidos de cubierta por parte de ACE Insurance Company, conforme al contrato de póliza suscrito entre dicha corfipañía aseguradora y los Municipios de Puerto Rico.
Esbozados los hechos pertinentes a la controversia ante neis, procederemos a discutir la norma jurídica aplicable.
II
A. Sentencia Sumaria
La sentencia sumaria es un mecanismo procesal que procede cuando la parte promovente le demuestra al tribunal que no existe necesidad de que se celebre una vista evidenciaría del caso en su fondo. Mgmt. Ad. Serv. Corp. v. E.L.A.; Opinión de 29 de noviembre de 2000, 2000 J.T.S. 189; Medina v. M.S. & D. Química P.R., Inc., 135 D.P.R. 716, 726 (1994). Solamente debe ser dictada una:sentencia sumaria "en casos claros, cuando el Tribunal tenga ante sí la verdad sobre todos los hechos pertinentes". Rosario Ortiz v. Nationwide Mutual Insurance, Co., Opinión de 4 de marzo de 2003, 2003 J.T.S. 34? a la pág. 641; Benítez Esquilín v. Johnson & Johnson, Op. de 30 de septiembre de 2002, 2002 J.T.S. 137; PFZ Properties, Inc. v. General Accident Insurance Co., 136 D.P.R. 881, 911-912 (1994); Corp. Presiding Bishop C.J.C. of L.D.S. v. Purcell, 117 D.P.R. 714, 720-721 (1986).
Reiteradamente, el Tribunal Supremo ha resuelto que la sentencia sumaria sólo debe concederse cuando no hay una genuina controversia sobre hechos materiales y el tribunal se convence que tiene ante sí la verdad de todos los hechos pertinentes. Mgmt. Ad. Serv. Corp. v. E.L.A., supra; Audiovisual Lang. v. Sist. Est. Natal Hnos., 144 D.P.R. 563 (1997); Corp. Presiding Bishop CJC of LDS v. Purcell, supra. Esto es, cuando de los documentos no controvertidos que se acompañan con la moción surge que no existe una legítima disputa de hecho que dirimir y tan sólo resta aplicar el derecho. Id.
El propósito de la moción de sentencia sumaria es "propiciar la resolución justa, rápida y económica de *155litigios que no presentan controversias genuinas de hechos materiales y, por lo tanto, no ameritan la celebración de un juicio en su fondo". Santiago Rivera v. Ríos Alonso, supra; Pilot Life Ins. Co. v. Crespo Martinez, 136 D.P.R. 624, 632 (1994). Además, se ha señalado que el fin de la sentencia sumaria es aligerar la tramitación de un caso, permitiendo que se dicte sentencia sin celebrar una vista en los méritos, cuando de documentos no controvertidos surge que no existen controversias de he'chos, sino que lo que resta es aplicar el derecho. PFZ Properties, Inc. v. General Accident Insurance Co., supra; Caquías v. Asoc. Res. Mansiones Río Piedras, 134 D.P.R. 181 (1993); Corp. Presiding Bishop C.J.C. of L.D.S. v. Purcell, supra, a la pág. 720
La Regla 36.3 de la Reglas de Procedimiento Civil, 32 L.P.R.A. Ap. m, R. 36.3, establece que se podrá dictar sentencia sumaria "si las alegaciones,... [deposiciones], contestaciones a interrogatorios y admisiones ofrecidas, en unión a las declaraciones juradas, si las hubiere, demostrasen que no hay controversia real sustancial en cuanto a ningún hecho material y que como cuestióh de derecho debe dictarse sentencia sumaria ... Dicha sentencia podrá dictarse a favor o en contra de cualquier parte en el pleito". PFZ Properties, Inc. v. General Accident Insurance Co., supra; Corp. Presiding Bishop C.J.C. of L.D.S. v. Purcell, supra.
Mediante dicho mecanismo procesal se pretende obtener un remedio rápido y eficaz en casos en que queda demostrado que no existe una controversia sobre hechos materiales del litigio. Véase: Revlon Realistic, Inc. v. Las Américas Trust Company, 135 D.P.R. 363 (1994); Rivera et. al. v. Superior Pkg., Inc. et. al., 132 D.P.R. 115 (1992); Tello, Rivera v. Eastern Airlines, 119 D.P.R. 83 (1987). Pero el objetivo de aligerar la tramitación de un caso no puede derrotar el principio fundamental de todo procesolante un tribunal: alcanzar una solución justa. Santiago Rivera v. Ríos Alonso, supra; PFZ Properties, Inc. v. General Accident Insurance Co., supra; Cuadrado Lugo v. Santiago Rodríguez, 126 D.P.R. 272 (1990).
En cuanto a la evaluación de la prueba pertinente, cualquier duda isobre la existencia de una controversia sobre los hechos materiales debe resolverse contra la parte promovent¡e. Rosario Ortiz v. Nationwide Mutual Insurance Co., supra. Así pues, "el sabio discernimiento es el principio rector para su uso porque, mal utilizada [la sentencia sumaria], puede prestarse para despojar a un \litigante de ’su día en corte', principio elemental del debido proceso de ley". Id.; Roig Comm. Bank v. Rosario Cirino, 126 D.P.R. 613, 617 (1990). De hecho, se ha expresado que la privación a un litigante de su "día en corte" es una medida procedente sólo en casos extremos, a usarse solamente en casos claros. Rosario Ortiz v. Nationwide Mutual Insurance Co., supra; Metropolitana de Préstamos v. López de Victoria, 141 D.P.R. 844 (1996).
Al dictar sentencia sumaria, el tribunal: (1) analizará los documentas que acompañan la moción solicitando la sentencia sumaria y los documentos incluidos con la moción en aposición y aquéllos que obran en el expediente del Tribunal; (2) determinará si el oponente controvirtió algún hecho material o si hay alegaciones de la demanda que no han sido controvertidas o refutadas en forma alguna por los documentos. PFZ Properties, Inc. v. General Accident Insurance Co., supra.
Un tribunal no deberá dictar sentencia sumaria cuando: (1) existen hechos materiales controvertidos; (2) hay alegaciones afirmativas en la demanda que no han sido refutadas; (3) surge de los propios documentos que se acompañan con la moción una controversia real sobre algún hecho material; o (4) como cuestión de derecho no procede, Rivera Báez v. Jaime Andujar, Opinión de 28 de junio de 2002, 2002 J.T.S. 107; PFZ Properties, Inc. v. General Accident Insurance Co., supra, a las págs. 913-914; Corp. Presiding Bishop C.J.C. of L.D.S. v. Purcell, supra, págs. 722-723; Cuadrado Lugo v. Santiago Rodríguez, 126 D.P.R. 272, 280 (1990).
Recientemente, el Tribunal Supremo ha señalado en Jaime Benítez Ésquilín v. Johnson & Johnson, Opinión de 30 de septiembre de 2002, 2002 J.T.S. 37, que la sentencia sumaria es un remedio extraordinario que sólo debe concederse cuando el promovente ha establecido su derecho con claridad y ha demostrado que la otra parte no tiene derecho a recobrar bajo cualquier circunstancia que resulte discernible de las alegaciones y los documentos que obren en el expediente. Corp. of Presiding Bishop v. Purcell, 117 D.P.R. 714 (1987). Procede *156dictar sentencia sumaria solamente cuando no existe una disputa¡ legítima de hecho a ser dirimid^ y sólo resta aplicar el derecho. Pardo v. Sucn. Stella, 145 D.P.R. 816 (1998).
B. El contrato de seguro
El seguro es un contrato mediante el cual una persona se! obliga a indemnizar a otra o a pagarle o a proveerle un beneficio específico o determinable al producirse un¡ suceso incierto previsto en el mismo. Artículo I.020 del Código de Seguro, 26 L.P.R.A. see. 102; Díaz Ayala v. E.L.A., Opinión de 30 de marzo de 2001, 2001 J.T.S. 49, a la pág. 1066; Fatach v. Seguros Triple S, Inc., Opinión de 25 de marzo de 1999, 99 J.T.S. 46, a la pág. 806.
Nuestro ordenamiento jurídico considera los contratos de ¡seguros como unos de adhesión, porque los mismos son preparados por la aseguradora, sin la participación; del asegurado. Quiñones López v. Manzano Pozas, 141 D.P.R. 139, 155 (1996). El contrato de seguro es el contrato de adhesión por excelencia, ya que éste es redactado íntegramente por el asegurador en todo su contenido; esto es, el convenio de seguro, las exclusiones, y las condiciones, sin que el asegurado haya tenido la oportunidad de negociar el contenido con el asegurador. Rolando Cmz, Derecho de Seguros, San Juan, Publicaciones JTS, 1999, pág. 12.
Nos dice al respecto el tratadista Puig Brutau que: el seguro "i[es] un contrato de adhesión, no en el sentido de que una de las partes tenga plena libertad para imponer sus\condiciones a la otra, pero sí en el de que el asegurado no puede alterar con el juego normal de la previa negociación las condiciones que en esta clase de contratos median con carácter general". Puig Bmtau, José, Fundamentos de Derecho Civil, Barcelona, Bosch, 1956, Tomo II, Vol. H, pág. 486.
Por lo general, los contratos de seguros de responsabilidad civil tienen como fin el garantizar al asegurado de la responsabilidad civil que pueda incurrir frente a tercetos por actos de los cuales sea legalmente responsable. Quiñones López v. Manzano Pozas, supra, a la pág. 153; Meléndez Piñero v. Levitt & Sons of P.R., 129 D.P.R. 521, 537 (1991). En este tipo de póliza, el asegurado Se obliga, dentro de los límites establecidos en el contrato, a cubrir la obligación de indemnizar á un tercero' por. los daños y perjuicios causados por el asegurado. Id.
Un contrato de seguros, al igual que todo otro contrato, constituye la ley entre las partes siempre que concurran las tres (3) condiciones esenciales para su validez. Quiñones López v. Manzano Pozas, supra, a la pág. 154; Artículo 1230 del Código Civil de Puerto Rico, 31 L.P.R.A. see. 3451. Estos requisitos son: el consentimiento de los contratantes, objeto cierto que sea materia del contrato, y causa de la obligación que se establezca. Id.
C. Lá Interpretación de las clausulas del contrato de seguro
Nuestro Código de Seguros dispone que: " [tjodo contrato de seguro deberá interpretarse globalmente, a base del conjunto total de sus términos y condiciones, según se expresen en la póliza y según se hayan ampliado, extendido, o modificado por aditamento, endoso o solicitud adherido a la póliza y que forme parte de ésta . Artículo 11.025 del Código de Seguro, 26 L.P.R.A. see. 1125; Díaz Ayala v. E.L.A., supra; Quiñones López v. Manzano Pozas, supra; PFZ Props., Inc. v. Gen. Acc. Ins. Co., 136 D.P.R. 881, 902 (1994).
En caso de dudas en la interpretación de una póliza, ésta debe resolverse de modo que se realice el propósito de la misma, que es proveer protección al asegurado. Quiñones López v. Manzano Pozas, supra, a la pág. 155. Es por eso que no se favorecerán las interpretaciones sutiles que le permitan a las compañías aseguradoras evadir su responsabilidad. Id.
*157Es a los tribunales los que les corresponde buscar el sentido y significado que a las palabras de la póliza en controversia le daría una persona normal de inteligencia promedio que fuese a comprar la misma. Quiñones López v. Manzano Pozas, supra; PFZ Props., Inc. v. Gen. Acc. Ins. Co., 136 D.P.R. 881, 902 (1994); Barreras v. Santana, 87 D.P.R. 227, 235 (1963).
De tener la póliza cláusulas ambigüas u oscuras, las mismas se dében interpretar a favor del asegurado. Pagán Caraballo v. Silva, Ortiz, 122 D.P.R. 105, 111 (1988). Esto surge de lo dispuesto en el Artículo 1240 del Código Civil, 31 L.P.R.A. see. 3478, el que establece que: la interpretación de las cláusulas obscuras de un contrato no deberá favorecer a la parte que hubiese ocasionado la oscuridad. Por esto, los contratos de seguro se interpretan liberalmente a favor del asegurado y de la forma menos favórable al asegurador. Véase: PFZ Prop., Inc. v. Gen. Acc. Ins. Co., supra; Rosario v. Insurance Co. Of P.R., 103 D.P.R. 91, 93 (1974); Rosario v. Atl. Southern Ins. Co. of P.R., 95 D.P.R. 759, 765 (1968).
Al respecto, el Tribunal Supremo, en el caso de Quiñones López v. Manzano Pozas, supra, se expresó de la siguiente manera:
“[...] cuando los términos, condiciones y exclusiones de un contrato de seguros -que es ley entre las partes-, son claros, específicos y no dan margen a ambigüedades o diferentes interpretaciones, debe hacerse valer los mismos de conformidad con la voluntad de las partes. En ausencia de ambigüedad, las cláusulas del contrato son obligatorias para las partes. ”
También en relación con la interpretación de los contratos de sejguros se ha dispuesto que el lenguaje utilizado en éstos debe ser interpretado de ordinario en su significado corriente y común, sin ceñirse demasiado al rigor gramatical, sino al uso general y popular de las voces. Guerrido García v. U.C.B., 143 D.P.R. 337, 348 (1997); Marín v. American Int'l Ins. Co. of P.R., 137 D.P.R. 356, 361 (1994); Pagan Caraballo v. Silva, Ortiz, supra, a la pág. 110; Morales Garay v. Roldan Coss, 110 D.P.R. 701, 706 (1981).
Por otro lado, las cláusulas de exclusión en una póliza limitan las cúbiertas que a grandes rasgos describe la cláusula de convenio de seguro o acuerdos principales. Rolando Cruz, supra, a la pág. 167. En otras palabras, mientras la cláusula de convenio se seguro define las cubiertas en términos generales, la cláusula de exclusión, por otro lado, limita estas cubiertas excluyendo a, por ejemplo alguna persona, pérdida, peligros, propiedades, clases de responsabilidades, lugares, o ciertos días o períodos de tiempo. Id. La cláusula de exclusión ha de interpretarse restrictivamente, de forma tal que se cumpla el propósito de la póliza de proveer protección al asegurado. Guerrido García v. U.C.B., supra; Quiñones López v. Manzano Pozas, supra, a la pág. 156 (1996).
Si una cláusula de exclusión aplica claramente a determinada situación, la póliza, en general, no cubre los daños en cuestión, a pesar de las inferencias que parezcan surgir de las demás cláusulas. Meléndez Piñero v. Levitt & Son of P.R., supra, a la pág. 548 (1991). Hay que recordar qúe cada exclusión se lee en función del “acuerdo general de cubierta” e independientemente de las restantes. /<¡i, a las págs. 547-548. Si una exclusión no aplica, no existe cubierta, a pesar de las inferencias o clasificaciones que puedan estar presentes en las demás. Id.
Esbozados la norma jurídica y luego de evaluados todos los documentos ante nos, estamos en posición de resolver. Veamos. \
III
El Tribunal de Primera Instancia, en su determinación, expresó |claramente no haber tenido ante sí la totalidad de la póliza expedida por la peticionaria. Aun cuando la peticionaria, en su "Moción de Sentencia Sumaria", "transcribió" las partes de la póliza que a su entender probaban que los actos alegados en la demanda estaban excluidos de ésta, lo cierto es que el Tribunal de Primera Instandia no tuvo ante sí la póliza expedida.
*158El Tribunal Supremo de Puerto Rico ha expresado que el tribunal apelativo utilizará los mismos criterios que el Tribunal de Primera Instancia al determinar si procede u]na sentencia sumaria. Myriam Vera Morales, Benny García García y Yaritza García Vera v. Dn. Alfredo Bravó Colón, 2004 J.T.S. 40.
Al revisar la determinación de primera instancia, el Tribunal ele Apelaciones está limitando de dos maneras: primero, sólo puede considerar los documentos que se presentaron ante el foro de primera instancia. Las partes no pueden añadir en apelación exhibits, deposiciones o affidávits que no fueron presentados oportunamente en el foro de primera instancia, ni pueden esbozar teorías nuevas o esgrimir asuntos nuevos por primera vez en el foro apelativo. Segundo, el tribunal apelativo sólo puede determinar si existe o no alguna controversia genuina de hechos materiales y esenciales, y si el derecho se aplicó de fprma correcta. No puede adjudicar los hechos materiales y esenciales en disputa. Esa tarea le corresponde al foro de primera instancia. Myriam Vera Morales y otros v. Dr. Alfredo Bravo Colón, supra.
La parte peticionaria alega en sus escritos que en la póliza del Municipio de Ponce existen unas exclusiones de responsabilidad; es decir, riesgos no cubiertos entre los qúe se encuentran las acciones alegadas en la demanda. No obstante, el 'Acta" y el contenido de ésta, emitida por el Tribunal de Primera Instancia, tenemos que presumirla correcta. Entonces, es forzoso concluir que ante eí Tribunal de Primera Instancia no se presentó la póliza en cuestión, tal y como se adjuntó en el Apéndice del caso ante nos.
Entendemos que no se puso en condición al Tribunal de Primera Instancia para que éste pudiera determinar que no había controversia en cuanto a ningún hecho material jy que como cuestión de derecho procedía la sentencia sumaria. No podemos olvidar que cualquier duda sobre la existencia de una controversia sobre los hechos materiales, debe resolverse contra la parte promoventeiy eso fue precisamente lo que determinó el Tribunal de Primera Instancia.
IV
Por los fundamentos anteriormente expresados, denegamos la, expedición del auto de certiorari.
Lo acordó y ordena el Tribunal y lo certifica la Secretaria General.
Aida Ileana Oquendo Graulau
Secretaria General | 01-03-2023 | 11-23-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/1669052/ | 665 F.Supp. 460 (1987)
Virginia DELGADO, Plaintiff,
v.
John F. LEHMAN, Secretary of the Navy, Defendant.
Civ. A. No. 86-0596-A.
United States District Court, E.D. Virginia, Alexandria Division.
March 24, 1987.
*461 Jonathan M. Smith, Victor M. Glasberg, Alexandria, Va., Joseph M. Sellers, Washington Lawyers' Committee for Civ. Rights Under Law, Barry Reingold, Washington, D.C., for plaintiff.
David Ranowsky, Office of the Gen. Counsel, Naval Facilities Engineering Command, Dennis Szybala, Asst. U.S. Atty., Alexandria, Va., for defendant.
MEMORANDUM OPINION
CACHERIS, District Judge.
Plaintiff Virginia Delgado filed a Complaint against the Navy alleging that she had been subjected to a continuing course of sexual harassment that resulted in a denial of her within grade increase in salary and in her discharge from the Naval Facilities Engineering Command in violation of Title VII of the Civil Rights Act of 1964, 42 U.S.C. 2000e-2 (1981), as amended. Defendant John F. Lehman, Secretary of the Navy, denied any sexual harassment and claimed that plaintiff's within grade pay raise was denied and her employment terminated because of her inability to perform critical elements of her Basic Performance Appraisal Program. For the reasons *462 set forth below, judgment is entered in favor of the plaintiff and against the defendant.
I
Findings of Fact
After reviewing the pleadings, evidence and authorities, the court makes the following findings of fact:
Plaintiff Virginia Delgado ("Delgado") is a female citizen of the United States. At all times pertinent to this action she was employed by the Naval Facilities Engineering Command ("NAVFAC") in Alexandria, Virginia. Plaintiff commenced her government service in January, 1948, and in 1972 began performing Equal Employment Opportunity ("EEO") duties. In 1973, she began working for the Naval Material Support Activity as Hispanic Program Coordinator. Her duties there included EEO work. She has accumulated 236 hours of college credits, which are the equivalent of three years of college.
On January 20, 1983, Delgado was removed from her position as GS-11 EEO Specialist in the EEO Office of NAVFAC. The stated grounds for her removal were nonperformance of the critical elements of her Basic Performance Appraisal Program. (Testimony of Plaintiff, Defendant's Exhibit 24).
Defendant John F. Lehman is Secretary of the Department of the Navy. As Secretary, he supervises NAVFAC and is responsible for all official actions taken by the agency. Lehman is being sued here only in his official capacity.
At all times relevant to this action the discriminating official was John Joseph ("Joseph"), a black male. Joseph was employed by NAVFAC as the Command Deputy EEO Officer and head of the NAVFAC EEO office.
In 1979, the position of EEO Specialist in the NAVFAC EEO office became available when David McKellar resigned. The job description sought an assistant to Joseph on overall EEO matters with primary responsibility in the area of the Hispanic Employment Program. Joseph had advertised the position at the GS-11 full performance level but received no applications. He then readvertised the position at the GS-9/11 level. (Defendant's Exhibit 172). The plaintiff was the only applicant for the position, and was selected in December, 1979, as a GS-9 Equal Employment Opportunity Specialist.
In February, 1980, Delgado received a within-grade salary increase from GS-9, Step 02 to GS-9, Step 03. (Stipulations).
In February, 1981, Delgado received a within-grade salary increase from GS-9, Step 03 to GS-9, Step 04. (Stipulations).
In June, 1981, Delgado was promoted from a GS-9 EEO Specialist to a GS-11 EEO Specialist. (Stipulations).
In October, 1981, the Navy instituted its Basic Performance Appraisal Program ("BPAP") for professional employees. Plaintiff was assigned particular tasks (designated as critical elements) to perform under her BPAP. (Stipulations.)
In June 1982, NAVFAC denied plaintiff's within-grade salary increase from GS-11, Step 01 to GS-11, Step 02. (Stipulations.)
The EEO office headed by Joseph had a hostile working environment. (Oral Trial Stipulation).
Joseph has an Associate Degree and has attended two additional years of college. Since June, 1983, Joseph acted as the Deputy EEO Officer. During that time, he kept up with employment discrimination law and gave courses on case analysis.
In June, 1980, and in May, 1981, Joseph gave the plaintiff satisfactory performance appraisals. (Plaintiff's Exhibits 4 and 5).
While Delgado was employed in the NAVFAC EEO office, Joseph had three subordinates, namely Ms. Delgado, EEO Specialist Lena Salazar, and EEO Office Assistant and Secretary Joan Goldberg. All three of these women were hired by Joseph. There were no male employees in the office during the time relevant to this action.
During her tenure in the EEO office, Delgado received recognition in the EEO community. For example, in March, 1980, *463 she was invited to participate in the preparation of an EEO module for the Navy Automated Civilian Management Information System. (Plaintiff's Exhibit 12). Joseph denied her permission to attend on the grounds that it was inappropriate for an employee of her status to participate.
Also in 1980, the Governor of Puerto Rico personally invited Delgado by name to attend a conference to plan efforts to recruit Hispanics for federal employment. Joseph denied her permission to attend on the grounds that as a subordinate EEO official it was inappropriate for her to participate.
In April, 1980, Delgado was eligible for a promotion to the GS-11 level, however, Joseph refused to promote her at that time. He promoted her fourteen months later and only after the agency's personnel office advised him that he could not justify further delay of her promotion absent a finding of unsatisfactory performance.
Upon becoming a GS-11, Delgado assumed greater responsibilities in the EEO office. Plaintiff was assigned the following BPAP critical elements:
(1) Obtain and coordinate the administration of an attitude survey questionnaire for headquarters personnel;
(2) Prepare and conduct information update/exchange sessions for headquarters EEO counselors, concerning discrimination complaint processing;
(3) Develop and submit in writing a method for evaluating the Hispanic Employment Program aspect of the EEO program;
(4) Prepare a written analysis of Command discrimination complaints in process during fiscal year 1982;
(5) Develop and implement a system for continuous monitoring of discrimination complaints Commandwide;
(6) Prepare and deliver periodic EEO Program progress reports/presentations to Deputy/Assistant Commanders. (Plaintiff's Exhibit 7).
Joseph deliberately interfered with Delgado's performance of her duties under the BPAP critical elements.
Joseph locked his office containing EEO materials that Delgado needed to perform her tasks. She was refused access to these materials without the consent of Mr. Joseph's secretary.
Joseph held mail addressed to the EEO Office on his desk and would not allow it to be distributed to his staff until he was present.
Joseph lost materials, such as reports turned in by his subordinates.
When Delgado would ask Joseph for guidance in the performance of her tasks, he would tell her "you are a GS-11 and should know how to do it." He then would criticize Delgado for seeking outside help and tell her to reread the instructions.
Joseph yelled, screamed and threatened the plaintiff for leaving the office on occasion. He said to her such things as "Okay babe" and "Listen here woman." He used loud and abusive language, and on one occasion said to her, "I'll fix you."
On one occasion, Joseph kicked open the plaintiff's door and on another occasion, he physically prevented her from leaving the room. On yet another occasion, Joseph smoked a cigar and blew the smoke in plaintiff's face, fully knowing that she did not like it.
Joseph harassed and criticized Salazar and Goldberg, as well as Delgado.
Salazar complained to NAVFAC management about Joseph's practice of shouting at her and subjecting her to insults in the presence of others. (Plaintiff's Exhibits 14 and 16). Joseph publicly berated Salazar.
Joseph refused to give Salazar adequate guidance with respect to her work. (Plaintiff's Exhibits 15 and 16).
Joseph agreed that Salazar was a dedicated hard working employee, yet he berated her in office meetings and called her stupid.
Joseph yelled at and berated Goldberg, the EEO office assistant and secretary, and made comments about her slim figure. On one occasion, Goldberg would not acknowledge his "Good morning", and he yelled *464 and screamed at her "Good morning" several times.
Goldberg was finally successful in transferring out of Joseph's office. Two days before she was transferred, however, Joseph, in violation of regulations, mentioned her by name, as an example of how people could be transferred, during a meeting on employment discrimination law. Goldberg was so upset by Joseph mentioning her transfer that she ran from the office crying hysterically. To calm her, Captain Wells had her assigned some duties in his office for her last two days.
Joseph had also yelled and screamed at and criticized Tina Porter, who worked for Joseph as an EEO Specialist from 1976 through 1978 in San Diego, California. When Porter complained about his abusive treatment, he stated that since she and her female coworkers "behaved like children, [they] would be treated like children." (Porter deposition at Plaintiff's Exhibit 18).
On several occasions, Joseph complained to Jean Lauziere, a Navy manager, that he had "dumb females working for him who couldn't read or write." Obviously he was speaking about Delgado and Goldberg, who were his only subordinates at that time. (Testimony of Lauziere).
Joseph also had problems with women who were not part of his department. For example, in 1982, Claudia Abbott, Assistant to the NAVFAC Inspector General, was talking to Salazar in the hallway when Joseph tried to stick paper down Abbott's blouse. Abbott was offended by this action and Joseph did not apologize.
In 1986, Abbott spoke to Joseph and complained about job harassment. Joseph told her that as long as the person harassing her was not her supervisor, it was not a case of discrimination. He also insinuated that Abbott provoked the harassment. He then told her that to file a discrimination complaint she needed "equal numbers of men and women in the office to prove that an individual [was] discriminating against [her], to prove that he would treat [her] any different, say, than he would a man." (Testimony of Abbott).
Phenton B. Moss, who worked for NAVFAC from 1954 until 1975 as a supply specialist, is a handicapped person. From 1980 to 1984 she was the only black female professional working for her supervisor, Captain Malzahan. She eventually spoke to Joseph about filing a sexual harassment claim against Malzahan. She told Joseph that Malzahan complained about her leaving the office door open because she did not like smoke, and her walking slowly because she had a lung disease.
Moss was also aware that Malzahan had refused to promote her from GS-11 to GS-12. Moss had seen a note from Malzahan indicating that she had been reclassified as a GS-12. The note also stated: "Don't do anything about the position until Moss is gone." Moss testified that she "had never told him that [she] intended to leave or when [she] intended to leave." (Testimony of Moss).
Joseph told Moss that she had no sexual harassment case and could not win because she had petty complaints. Joseph's statements discouraged her from trying to see Admiral Zobel when the harassment worsened. Joseph also told her that "Women think they are being discriminated against and they don't know what discrimination is." Moss's case was subsequently settled by her receiving a retroactive promotion. (Testimony of Moss).
Joseph similarly discouraged Sybil Bittenbring, a NAVFAC employee, from bringing a complaint against her manager by physically touching her and by making lewd remarks to her. Joseph insisted that Bittenbring be more specific in her allegations when she brought the matter to his attention. He asked her to show him exactly where she alleged she was touched by her supervisor and to tell him the comments that her supervisor made. Bittenbring was embarrassed by Joseph's questions. When Bittenbring left the office, Joseph mentioned to Delgado that Bittenbring must have liked the situation because it had been going on for a long time.
The problems in Joseph's office escalated to the point where a meeting was held on December 11, 1981, in Captain Well's office. *465 Captain James Wells was the Executive Assistant to the Commander of NAVFAC (Admirable Zobel) and Joseph's administrative supervisor. Attending the meeting was Carole Higgins, Navy Employee Relations Specialist responsible for NAVMAT and its subordinate commands. Joseph, Delgado, Salazar and Goldberg also attended. Wells used the meeting to try and clear the air and suggested that everyone have lunch following the meeting. (Testimony of Wells and Delgado).
Wells did not do any follow-up to find out whether the meeting was successful in resolving the problems in the EEO office.
Wells also told Delgado that if she submitted work to Joseph and received no feedback, she had completed her duties. (Tape of Conversation).
Constance Price, who worked in the Strategic Program Office, noticed Joseph use a short and impatient voice with Salazar. She also heard Joseph speak sharply to Goldberg. (Testimony of Price).
Price observed that Joseph treated female deputy EEO personnel as if they were not there. He ignored and interrupted women, but did not interrupt men. Price also noticed Joseph using the terms "babe" and "woman" in a derogatory tone of voice. On December 19, 1979, Price heard Joseph, who was talking to a group, insult Delgado. (Testimony of Price).
In 1981, Price conducted an Inspector General inspection of the EEO office. Five or six women asked to see her to complain about sexual harassment, and told her that they had been discouraged by Joseph from bringing complaints. Joseph sometimes acted in judgment on the claim's merits and suggested that they not file a claim. It is inappropriate for an EEO Officer to pass judgment on the merits of an employee's claim. Price accordingly spoke to Joseph about his discouragement of complaints. (Testimony of Price).
David McKellar was an EEO Specialist who worked for Joseph in 1978. McKellar also felt that he was unprofessionally treated. But unlike the women, he was never threatened, never had cigar smoke blown in his face, and never had paper thrown at him. On one occasion, Joseph demeaned McKellar because he perceived him as a rival and on another occasion he said "There is a method to my madness."
In September, 1982, Delgado was given notice of unacceptable performance. She was given until November 1, 1982, to meet the specific performance standards. (Defendant's Exhibit 14).
On October 22, 1982, Joseph gave Delgado a memo noting her uncooperative attitude and reminding her of a November 1 deadline. (Defendant's Exhibit 21).
On November 10, 1982, Joseph sent Wells a memo telling him that Delgado had failed to perform critical elements of her BPAP and recommending removal. (Defendant's Exhibit 23).
On November 16, 1982, Wells informed Delgado by memo that he had proposed her removal because of her failure to meet the performance standards of critical elements 3, 4, and 5 of her BPAP. Wells had little contact with Delgado and based his decision to remove her on Joseph's recommendation. (Defendant's Exhibit 24).
On December 13, 1982, Delgado presented an oral and written response to the November 16, 1982 memo proposing removal. (Defendant's Exhibits 28 and 29).
On January 20, 1983, Delgado received Admiral Zobel's Decision Notice on Proposed Removal. Her removal was effective January 21, 1983. (Defendant's Exhibit 31).
Delgado timely filed a discrimination complaint with the agency EEO office. A hearing was held before the EEO examiner on May 6 and 7, 1986, and no decision has been reached.
Delgado filed a timely Complaint in this court.
As to critical element # 3 of the BPAP, Joseph gave plaintiff an "ok" on her methodology. He saw the final work product.
As to critical element # 4, the plaintiff complied in that a board was posted in her office. Joseph, however, had it removed. Joseph never defined the analysis that was required for critical element # 4 and told *466 Delgado that as a GS-11 she should know what to do.
As to critical element # 5, Joseph would not give plaintiff the mail and materials needed to complete the task.
Joseph intentionally discriminated against women.
II
Discussion
A. Disparate Treatment Claim Discrimination on the Basis of Sex:
Section 703 of the Civil Rights Act of 1964 (the "Act"), 42 U.S.C. § 2000e-2, prohibits discrimination in employment on the basis of race, color, religion, sex or national origin. The Act specifies that it is unlawful
to fail or refuse to hire or to discharge any individual, or otherwise to discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual's race, color, religion, sex or national origin.
42 U.S.C. § 2000e-2(a)(1).
In Texas Department of Community Affairs v. Burdine, 450 U.S. 248, 101 S.Ct. 1089, 67 L.Ed.2d 207 (1981) and McDonnell Douglas Corp. v. Green, 411 U.S. 792, 93 S.Ct. 1817, 36 L.Ed.2d 668 (1973), the United States Supreme Court established the burden of production and proof analysis required for Title VII actions under a disparate treatment claim. Such a claim requires proof of discriminatory intent, Washington v. Davis, 426 U.S. 229, 253-254, 96 S.Ct. 2040, 2047, 48 L.Ed.2d 597 (1976), and plaintiff must first prove a prima facie case by a preponderance of the evidence. A prima facie case may be established through a legally mandatory, rebuttable presumption, however, rather than by presentation of enough evidence to permit the trier of fact to reach a conclusion. Burdine, 450 U.S. at 256, 101 S.Ct. at 1094, n. 7.
A plaintiff establishes a prima facie case in a Title VII disparate treatment action by showing by a preponderance of the evidence: (1) her membership within a protected class; (2) her discharge and/or denial of promotion; (3) her replacement with or promotion of a person outside the protected group; and (4) her ability to do the job or her qualification for the promotion. McDonnell Douglas, 411 U.S. at 802, 93 S.Ct. at 1824-1825. See Burdine, 450 U.S. at 256, 101 S.Ct. at 1094 and Anderson v. City of Bessemer City, 717 F.2d 149 (4th Cir.1983), reversed on other grounds, 470 U.S. 564, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985).
In the case at bar, plaintiff has established that she is a member of a protected class by virtue of her sex, that she was discharged from her job at NAVFAC, and that she was qualified to perform the job. There is no evidence, however, of her replacement with a person outside the protected group. A prima facie case will nonetheless be established whenever the plaintiff has presented evidence which creates an inference that she was terminated for reasons prohibited by Title VII. International Brotherhood of Teamsters v. United States, 431 U.S. 324, 358, 97 S.Ct. 1843, 1866, 52 L.Ed.2d 396 (1977) ("The importance of McDonnell Douglas lies, not in its specification of the discrete elements of proof there required, but in its recognition of the general principle that any Title VII plaintiff must carry the initial burden of offering evidence adequate to create an inference that an employment decision was based on a discriminatory criterion illegal under the Act."). Plaintiff has met her initial burden in this case because she has shown that Joseph treated men and women differently.
Once plaintiff establishes her prima facie case, the burden shifts to the defendant "to articulate some legitimate, nondiscriminatory reason for the employee's rejection." McDonnell Douglas, 411 U.S. at 802, 93 S.Ct. at 1824-1825. The defendant's burden is one of production and is met if the evidence "raises a genuine issue of fact as to whether it discriminated against the plaintiff." Burdine, 450 U.S. at 256, 101 S.Ct. at 1094-1095; Board of Trustees v. Sweeney, 439 U.S. 24, 25 and n. *467 2, 99 S.Ct. 295, 297 and n. 2, 58 L.Ed.2d 216 (1978); and Ambush v. Montgomery County Gov't. Dept. of Finance Div. of Revenue, 620 F.2d 1048, 1054 (4th Cir.1980).
In this case, defendant argues that it had a legitimate, nondiscriminatory reason for discharging plaintiff, namely that Delgado failed to satisfy the minimum requirements of Critical Element numbers 3, 4, and 5 of her BPAP. The court, however, finds that plaintiff did comply with the Critical Elements of her BPAP to the extent Joseph permitted her to complete her tasks.
The parties stipulated that the EEO office suffered from a hostile working environment, and the court finds that Joseph was the cause of such hostility. Having created a hostile working environment, defendant cannot complain that Delgado failed to perform. "An employer cannot use an employee's diminished work performance as a legitimate basis for removal where the diminution is the direct result of the employer's discriminatory behavior." Henson v. City of Dundee, 682 F.2d 897, 910 (11th Cir.1982) and Weiss v. United States, 595 F.Supp. 1050, 1057 (E.D.Va. 1984). The court finds that any inability of Delgado to adequately perform the Critical Elements of her BPAP was due to Joseph's discrimination against women. Joseph deliberately interfered with Delgado's execution of her duties by refusing her access to necessary mail and materials, by refusing to give her supervisory guidance on completion of various tasks, and by undermining what progress Delgado managed to make. The court found Joseph's testimony regarding Delgado's abilities less than credible.
Accordingly, defendant has not articulated either a legitimate or a nondiscriminatory reason for plaintiff's treatment. The ultimate burden of persuasion, of course, remains with the plaintiff at all times. Burdine, 450 U.S. at 253, 101 S.Ct. at 1093. In this case, the court finds that plaintiff has met her burden of persuasion. She made out a prima facie case of discrimination, which defendant failed to rebut with evidence of legitimate nondiscriminatory reasons for her termination. Joseph intentionally discriminated against women, and that discrimination resulted in a hostile working environment which prevented plaintiff from fully completing her assigned tasks. Any allegation by defendant that plaintiff failed to perform is at best pretextual.
B. Sexual Harassment Claim:
Title VII of the Civil Rights Act of 1964 also prohibits sexual harassment. A plaintiff may establish a violation of the Act by proving that discrimination based on sex has created a hostile or abusive work environment. Meritor Savings Bank, F.S.B. v. Vinson, 477 U.S. 57, 106 S.Ct. 2399, 2405, 91 L.Ed.2d 49 (1986).
The Supreme Court held that, for sexual harassment to be actionable, "it must be sufficiently severe or pervasive to alter the conditions of [the victim's] employment and create an abusive working environment." Vinson, 106 S.Ct. at 2406. The Court emphasized that:
Sexual harassment which creates a hostile or offensive environment for members of one sex is every bit the arbitrary barrier to sexual equality at the workplace that racial harassment is to racial equality. Surely, a requirement that a man or woman run a gauntlet of sexual abuse in return for the privilege of being allowed to work and make a living can be as demeaning and disconcerting as the harshest of racial epithets.
Vinson, 106 S.Ct. at 2406.
In order to prove such sexual harassment, plaintiff must establish the following:
First, the plaintiff must make a prima facie showing that sexually harassing actions took place, and if this is done, the employer may rebut the showing either directly, by proving that the events did not take place, or indirectly by showing that they were isolated or genuinely trivial.
Second, the plaintiff must show that the employer knew or should have known of the harassment, and took no effectual action to correct the situation. This showing can also be rebutted by the employer *468 directly, or by pointing to prompt remedial action reasonably calculated to end the harassment....
Katz v. Dole, 709 F.2d 251, 256 (4th Cir. 1983). The burden of proof on a sexual harassment claim ultimately rests upon the plaintiff. Katz, 709 F.2d at 256, n. 7.
Plaintiff has easily proved in this case that sexually harassing actions took place. Sexual harassment need not take the form of overt sexual advances or suggestions, but may consist of such things as verbal abuse of women if it is sufficiently patterned to comprise a condition and is apparently caused by the sex of the harassed employee. McKinney v. Dole, 765 F.2d 1129, 1138 (D.C.Cir.1985).
In this case, both sides are in agreement that there was a hostile working environment. It is quite obvious to the court that the hostile environment was created by Joseph, who was trying to protect his turf and who viewed women as threats. He was consistently abusive towards women, called them "babes," and used the term "woman" in a derogatory manner. On many occasions he told the plaintiff that she was a GS-11 and should know how to do her job. He gave her very little guidance and instead went out of his way to demean her. Moreover, he treated men and women differently. On occasions, as indicated by Price, he was not as polite to women in conversations as he was to men. He would act as if women were not present, whereas he would allow men to speak without interrupting them. Generally, his treatment of women was unprofessional and discriminatory. (Testimony of Price).
Plaintiff has also established that Joseph's harassment of her was not "isolated or genuinely trivial." Katz v. Dole, 709 F.2d at 256. Joseph's abusive treatment extended to other subordinates as well as Delgado. He harassed Salazar and Goldberg, to the point where Goldberg was forced to transfer out of the office, by publicly berating and demeaning them. His discriminatory conduct began as early as 1976, when Tina Porter experienced similar problems to those of the plaintiff. The testimony of Joseph's subordinates, Delgado, Salazar and Goldberg, was more believable than Joseph's, and was supported by the credible testimony of Price, Abbott and Moss.
Moreover, the record is replete with his derogatory attitude toward and remarks about other women. Joseph, in violation of EEO regulations, discouraged five or six women from bringing discrimination complaints. He passed judgment on the merits of their complaints, gave them little guidance on how to prevent harassment or sexual discrimination, and insinuated that they provoked the harassment.
Additionally, Claudia Abbott testified to a more overt incident of sexual harassment. Joseph stuffed a piece of paper down Abbott's blouse while she was standing in the office hallway, and never apologized. Later, when Abbott brought a discrimination complaint to Joseph's attention, he implied that Abbott brought the harassment on herself and he discouraged her claim. Taken together, these incidents establish a continuing pattern of discrimination against women by Joseph.
It is ironic that the harassment that took place was by Joseph, the head of the EEO office whose assignment was to prevent harassment and violations of Title VII. However, this court feels that the record shows his intentional discrimination against women. Having created the hostile working environment adverse to women, defendant cannot complain about plaintiff's diminished job performance. Joseph's harassment was the cause of plaintiff's inability to work. See Weiss, 595 F.Supp. at 1057.
Plaintiff has also established the necessary knowledge by her employer. The NAVFAC management was aware of the harassment that had taken place and refused to take appropriate action. On December 11, 1981, there was a meeting in Captain Wells' office to discuss the hostile working environment in the EEO office. No follow-up was conducted by Wells or any other supervisor to determine whether the hostile environment had dissipated.
*469 The employer must do more than merely "indicate the existence of an official policy against such harassment. When the employer's supervisory personnel acquiesced and participated in such harassment, the burden on an employer seeking to avoid Title VII liability is especially heavy." Katz v. Dole, 709 F.2d 251, cited in Weiss, 595 F.Supp. at 1057. Here, Captain Wells was clearly aware of the problems created by Joseph, and the only action taken was a meeting of the department. Wells never checked to determine if his suggestions made at that meeting were followed.
Accordingly, the court finds that plaintiff has met her burden and established that defendant discriminated against plaintiff concerning the conditions of her employment because of her sex, in violation of Title VII.
III
Conclusions of Law
The court has jurisdiction to decide this case pursuant to 42 U.S.C. § 2000e-16, Title VII of the Civil Rights Act of 1964, as amended.
The plaintiff has proven that she was subjected to a pervasive pattern of sexual harassment and intentional discrimination directed at her because of her female gender and that this action significantly impaired her ability to perform satisfactorily as an EEO Specialist.
An appropriate order shall issue.
ORDER
In accordance with the accompanying Memorandum Opinion, it is accordingly
ORDERED:
(1) that Judgment be, and it hereby is, ENTERED in favor of the plaintiff and against the defendant on plaintiff's Complaint of Unlawful Discrimination in Employment;
(2) that, as this Order decides only liability, the plaintiff shall file a brief in support of remedies, and counsel fees and costs by April 9, 1987, and the defendant shall file a brief in opposition by April 24, 1987;
(3) that the clerk shall forward copies of this Order together with the accompanying Memorandum Opinion to all counsel of record. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1667214/ | 891 F.Supp. 478 (1995)
Hayes BARKER, Petitioner,
v.
UNITED STATES of America, Respondent.
No. 95-C-181, [90-CR-22].
United States District Court, E.D. Wisconsin.
June 20, 1995.
*479 Hayes Barker, Florence, CO, pro se.
Paul L. Kanter, Asst. U.S. Atty., Milwaukee, WI, for respondent.
ORDER
WARREN, District Judge.
On April 17, 1990, petitioner Hayes Barker pled guilty to one count of conspiracy to possess with intent to distribute cocaine in violation of 18 U.S.C. § 2 and 21 U.S.C. § 846. On July 31, 1990, he was sentenced to a term of incarceration of 360 months. Although he initially appealed his sentence to the Seventh Circuit, he later stipulated to dismissal of the appeal. Since then, Barker has relentlessly pursued collateral relief through a series of post-conviction motions brought under 28 U.S.C. § 2255.
On November 22, 1994, this Court dismissed Barker's fifth such motion; in doing so, we cited the following language from our May 26, 1993 Order denying Barker post-conviction relief:
"Mr. Barker's dogged pursuit of post-conviction relief aptly defines the term `abuse of the writ.' Therefore, any future petitions will be summarily dismissed without legal commentary unless Mr. Barker can explain away his failure to address those issues previously."
On February 17, 1995, Barker filed this, his sixth, § 2255 motion, along with a petition to proceed in forma pauperis; in it, he argues *480 that (1) "the seizure of his property was excessive in relation to his crime," and therefore constituted an "excessive fine" in violation of the Eighth Amendment, and (2) "the imposition of a criminal sentence following the civil forfeiture of Barker's property constituted a second punishment for the same offense in violation of the double jeopardy clause of the fifth amendment." He states that his "failure to raise a double jeopardy defense in the District Court was based on the fact that the 7th Cir. law [] in effect at the time he was before the Court precluded an argument under double jeopardy or excessive fines," and that the law only changed after the Supreme Court decided Austin v. United States, ___ U.S. ___, 113 S.Ct. 2801, 125 L.Ed.2d 488 (1993).
Post-conviction relief under § 2255 is an exceptional remedy which, while designed as a "bulwark against convictions that violate fundamental fairness," entails significant costs. Engle v. Isaac, 456 U.S. 107, 126, 102 S.Ct. 1558, 1571, 71 L.Ed.2d 783 (1982). The most important of these costs is the uncertainty of criminal convictions. Coleman v. Thompson, 501 U.S. 722, 748-50, 111 S.Ct. 2546, 2564, 115 L.Ed.2d 640 (1991). As noted by the Supreme Court, "both the individual criminal defendant and society have an interest in insuring that there will at some point be the certainty that comes with an end to litigation and that attention will ultimately be focused not on whether the conviction was free from error but rather on whether the prisoner can be restored to a useful place in the community." Engle, 456 U.S. at 127, 102 S.Ct. at 1571.
Given the importance of finality, a § 2255 petition, which may be brought years after conviction, does not serve as a substitute for a direct appeal. Belford v. United States, 975 F.2d 310, 313 (7th Cir.1992); Bontkowski v. United States, 850 F.2d 306, 312 (7th Cir.1988). As a result, when possible, all issues raised in a habeas petition must first be raised on direct appeal. Theodorou v. United States, 887 F.2d 1336, 1339 (7th Cir.1989); Williams v. United States, 805 F.2d 1301, 1304 (7th Cir.1986), cert. denied, 481 U.S. 1039, 107 S.Ct. 1978, 95 L.Ed.2d 818 (1987).
When a party fails to properly raise a constitutional objection on direct appeal, he or she may not proceed in a federal habeas petition unless showing both (1) good cause[1] for failing to pursue the issue on direct appeal, and (2) actual prejudice[2] stemming from a constitutional violation. Wainwright v. Sykes, 433 U.S. 72, 87, 97 S.Ct. 2497, 2506, 53 L.Ed.2d 594 (1977); Belford, 975 F.2d at 313; Williams, 805 F.2d at 1306-07. A party is barred, without regard to "cause and prejudice," from raising non-constitutional challenges in § 2255 proceedings that could have been raised on direct appeal. Bontkowski, 850 F.2d at 313. The "cause and prejudice" test applies both to procedural defaults committed at trial and those made on appeal. Murray v. Carrier, 477 U.S. 478, 491, 106 S.Ct. 2639, 2647, 91 L.Ed.2d 397 (1986).
None of Barker's claims may be brought in this, his sixth, § 2255 proceeding, or in any subsequent post-conviction petition. "Abuse of the writ" applies when a prisoner utilizes a post-conviction petition to raise grounds that were available, but not relied upon, in a prior petition. Kuhlmann v. Wilson, 477 U.S. 436, 445, 106 S.Ct. 2616, 2622, 91 L.Ed.2d 364 (1986) (citing Sanders v. United States, 373 U.S. 1, 15-19, 83 S.Ct. 1068, 1077-79, 10 L.Ed.2d 148 (1963)). Rule *481 9(b) of the Rules Governing § 2255 Proceedings authorizes a district court judge to dismiss a second or successive § 2255 motion upon finding "that it fails to allege new or different grounds for relief and the prior determination was on the merits or, if new and different grounds are alleged, the judge finds that the failure of the movant to assert those grounds in a prior motion constituted an abuse of the procedure governed by these rules." In such circumstances, the movant bears the burden of disproving abuse of the writ; "to excuse his failure to raise the claim earlier, he must show cause for failing to raise it and prejudice therefrom as those concepts have been defined in" Wainwright and its progeny. McCleskey v. Zant, 499 U.S. 467, 493-95, 111 S.Ct. 1454, 1470, 113 L.Ed.2d 517 (1991).[3]
As previously indicated, Barker has continually abused the privilege of seeking a post-conviction writ by repeatedly filing baseless § 2255 petitions, including his fifth such petition filed on May 31, 1994. Ironically, as a result of this behavior, Barker cannot now show good cause for failing to raise the above-referenced claims in any of his previous § 2255 petitions as required under McCleskey. He purports to base his double jeopardy and excessive fine claims on Austin; however, that opinion was issued on June 28, 1993, or nearly one year prior to the date on which he filed his fifth § 2255 petition. As a result, he could, in fact, have brought the instant claims at that time; he offers no explanation for his failure to do so. Whether out of oversight or inadvertence, his failure (without good cause) to bring these claims in his prior petition precludes him from doing so now.
Nor will Barker suffer actual prejudice if we refuse to hear his claims. In Austin, the Supreme Court held that the Eighth Amendment's excessive fines clause applies to in rem civil forfeiture proceedings; it did not address any Fifth Amendment issues. This effectively reversed the Seventh Circuit's prior position that "the Eighth Amendment does not apply to civil in rem actions." United States v. Certain Real Property, 943 F.2d 721, 727 (7th Cir.1991); United States v. On Leong Chinese Merchants Assoc. Building, 918 F.2d 1289, 1296 (7th Cir.1990), cert. denied, 502 U.S. 809, 112 S.Ct. 52, 116 L.Ed.2d 29 (1991). The issue of whether or not his civil forfeiture was an "excessive fine" under the Eighth Amendment, however, has nothing to do with the "fairness" of his criminal trial; as a result, it is not cognizable under § 2255, which provides a remedy for constitutional errors made during a criminal trial. Barker's Fifth Amendment claim, in turn, is actually based on United States v. Halper, 490 U.S. 435, 446-49, 109 S.Ct. 1892, 1900-02, 104 L.Ed.2d 487 (1989), in which the Supreme Court held that the Double Jeopardy clause prohibits post-conviction civil forfeiture proceedings where the forfeiture cannot be fairly characterized as remedial. Accord Montana Dept. of Revenue v. Kurth Ranch, ___ U.S. ___, 114 S.Ct. 1937, 128 L.Ed.2d 767 (1994).[4] Barker, then, could have raised his double jeopardy claim on direct appeal (or, indeed, in any of his five previous § 2255 petitions). His failure to do so without good cause precludes him from seeking post-conviction relief pursuant to Wainwright; as a result, and because this claim does not implicate actual innocence, he *482 again cannot be prejudiced by our refusal to recognize the instant petition.
The Supreme Court noted in McCleskey that:
"The doctrines of procedural default and abuse of the writ implicate nearly identical concerns flowing from the significant costs of federal habeas corpus review. To begin with, the writ strikes at finality ...
Habeas review extracts further costs. Federal collateral litigation places a heavy burden on scarce federal judicial resources, and threatens the capacity of the system to resolve primary disputes. Finally, habeas corpus review may give litigants incentives to withhold claims for manipulative purposes and may establish disincentives to present claims when evidence is fresh.
Far more severe are the disruptions when a claim is presented for the first time in a second or subsequent federal habeas petition ... Perpetual disrespect for the finality of convictions disparages the entire criminal justice system ... If re-examination of a conviction in the first round of federal habeas stretches resources, examination of new claims raised in a second or subsequent petition spreads them thinner still."
McCleskey, 499 U.S. at 492, 111 S.Ct. at 1468-69. Were this Barker's first § 2255 petition, he would be allowed to attempt to show cause and prejudice for his failure to raise his double jeopardy claim on direct appeal. Because he has abused the writ, however, he cannot be afforded this opportunity; in effect, Barker's repeated and ill-considered attempts to seek collateral review of his conviction based on frivolous claims has precluded him from raising his Double Jeopardy (or any other) claim, whether meritorious or not, unless truly based on an intervening change in the law. See, e.g., Sanders, 373 U.S. at 17, 83 S.Ct. at 1078. Given his litigious past, the Court will continue viewing Barker's future submissions with heightened scrutiny; if he files any further § 2255 petitions which are not clearly based on an intervening change in law, or any other frivolous submissions, he risks being sanctioned accordingly, including monetary penalties and/or restrictions on the amount or frequency of filings.
For the foregoing reasons, Barker's sixth § 2255 motion is summarily DISMISSED as an abuse of the writ; his in forma pauperis petition is DENIED, and his May 30, 1995 Motion for Writ of Mandamus is DENIED as moot.
SO ORDERED.
NOTES
[1] "Good cause" exists when some external factor impedes a defendant's ability to comply with a procedural rule. Murray v. Carrier, 477 U.S. 478, 488, 106 S.Ct. 2639, 2645-46, 91 L.Ed.2d 397 (1986). Ineffective assistance of counsel in violation of the Sixth Amendment may constitute "cause" under Wainwright for a procedural default. Id. When assessing whether a party has established cause, the Court may only examine that party's proffered reasons for not appealing and not speculate about other possible explanations. Williams, 805 F.2d at 1309; Qualls v. United States, 774 F.2d 850, 851 (7th Cir.1985).
[2] To prove "prejudice" under Wainwright, a party must show "not merely that the errors ... created a possibility of prejudice, but that they worked to his actual and substantial disadvantage, infecting his entire trial [or appeal] with error of constitutional dimensions." United States v. Frady, 456 U.S. 152, 170, 102 S.Ct. 1584, 1596, 71 L.Ed.2d 816 (1982). This requires "a showing that the prisoner was denied `fundamental fairness' at trial." Murray, 477 U.S. at 491, 106 S.Ct. at 2647.
[3] We recognize that, pursuant to McCleskey, the government typically bears the burden of pleading abuse of the writ, which it satisfies by noting "with clarity and particularity" the movant's prior writ history and the claims that appear for the first time. McCleskey, 499 U.S. at 494, 111 S.Ct. at 1470. However, we do not read McCleskey as precluding a district court, in appropriate circumstances, from raising abuse of the writ sua sponte for purposes of Rule 9(b) analysis. A contrary understanding would impose unnecessary and purposeless burdens on the government, as well as require us to ignore our previous orders; both these results would be inimical to the policies underlying Rule 9(b). See, e.g., Liss v. United States, 915 F.2d 287, 290 (7th Cir.1990) (noting that summary dismissal of § 2255 motions under Rule 4(b) is encouraged where it will enhance "the chief virtues of the justice systemspeed, economy and finality"). Accord Delgado v. United States, 936 F.2d 303, 309 (7th Cir.1991).
[4] In United States v. Torres, 28 F.3d 1463, 1465 (7th Cir.1994), the Seventh Circuit recognized that, depending on the circumstances, parallel administrative and criminal drug proceedings may, in some circumstances, violate the Double Jeopardy clause. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1668025/ | 291 F.Supp. 79 (1968)
Robert LAWSON, Petitioner,
v.
Ira M. COINER, Warden of the West Virginia State Penitentiary, Respondent.
Civ. A. No. C-68-3-E.
United States District Court N. D. West Virginia.
October 15, 1968.
*80 No appearance for petitioner.
C. Donald Robertson, Atty. Gen. of West Virginia, Morton I. Taber, Asst. Atty. Gen., Charleston, W. Va., for respondent.
MAXWELL, Chief Judge.
In October, 1963, Petitioner, Robert Lawson, pleaded guilty to the offense of forgery and was sentenced to 1-10 years in the West Virginia State Penitentiary. He was paroled on June 24, 1965. Petitioner absconded supervision and on November 1, 1965, he left the state without permission, in violation of his parole. In Illinois he stole a truck, and he was arrested in Ohio on November 29, 1965, while driving this truck. Both West Virginia and Illinois authorities were notified of Petitioner's custody and both states indicated a desire to proceed *81 against him, West Virginia parole authorities requesting the Ohio authorities to hold him until available for return to West Virginia. On December 2, 1965, Petitioner waived extradition proceedings to the Illinois authorities. Petitioner now claims that he desired to waive extradition to West Virginia, but, on being advised that West Virginia did not desire to extradite, he waived extradition to Illinois. The waiver to Illinois contains the statement that it was made and signed without promise or inducement. In Illinois, Petitioner served a sentence for auto larceny, and was released on August 29, 1967. West Virginia had filed a warrant of arrest and hold order with the state of Illinois, and on these Petitioner was held for extradition.
On October 2, 1967, counsel was appointed to represent Petitioner in Illinois. This counsel requested time to file habeas corpus proceedings in Illinois. This habeas corpus petition was subsequently withdrawn, and the Petitioner executed a waiver of extradition to West Virginia. Petitioner was then delivered to the West Virginia authorities on November 4, 1967. On November 8, 1967, Petitioner received notice of his parole revocation hearing, informing him of his right to employ an attorney to represent his interests. This hearing was held November 13, 1967, at which time he was again advised that he had a right to be represented by an attorney. Petitioner appeared without an attorney, claiming at the hearing and by a prior submitted petition that West Virginia lost jurisdiction over his person by failing to extradite him from Ohio, at the time Illinois extradited him. The Parole Board, considering his testimony and his submitted petition, found Petitioner guilty of parole violation, and Petitioner has since been incarcerated to complete his prison sentence.
Petitioner now seeks a federal writ of habeas corpus, pursuant to Title 28, § 2254, United States Code, in which he offers two basic contentions: (1) that West Virginia impliedly waived and released all jurisdiction over Petitioner by relinquishing him to the Illinois authorities, and (2) that he was denied his right to appointed counsel at the parole revocation hearing in violation of the Sixth Amendment as applied through the Due Process Clause of the Fourteenth Amendment.
Having considered all the matters presented, the Court is of the opinion that the petition fails to raise or fairly to suggest any ground cognizable under federal habeas corpus.
Petitioner does not attack his prior conviction but challenges the decision of the Parole Board to revoke his parole. He contends that West Virginia relinquished jurisdiction by failing to extradite him from Ohio, and therefore cannot now constitutionally order him to complete his sentence.
A recent memorandum decision handed down by the Fourth Circuit Court of Appeals renders this contention devoid of merit. In Turner v. Boles (4th Cir. #11,692, April 3, 1968), a parolee from West Virginia was surrendered to Virginia where he was tried, convicted and placed on probation. Subsequently, West Virginia revoked his parole and returned him to prison. Petitioner there claimed the same relinquishment of jurisdiction as does the Petitioner in the case at bar. In dismissing the claim, the Court cited Banks v. O'Grady, 113 F.2d 926, 927 (8th Cir. 1940), saying "when a person has violated the criminal statutes of two different sovereigns, it is for the sovereigns and not the criminal to settle which shall first inflict punishment * * *. The power and right to punish the violator of its laws is not lost by a state because it consents to waive the infliction of punishment pending punishment by another state of the same criminal for violation of its laws * * *." This Court applied the rule in Dean v. State of Ohio, 107 F.Supp. 937 (N.D.W.Va.1952), stating at page 940 that "the separate sovereigns may voluntarily surrender a prisoner to each other without the consent of the prisoner, *82 and in such circumstances the question of jurisdiction and custody is purely one of comity between the sovereigns, not a personal right of the prisoner." Accord, United States ex rel. Hunke v. Ragen, 158 F.2d 644 (7th Cir. 1947); Strand v. Schmittroth, 251 F.2d 590 (9th Cir. 1957). Perhaps the clearest statement of this principle is contained in Ponzi v. Fessenden, 258 U.S. 254 at page 260, 42 S.Ct. 309, at page 310, 66 L.Ed. 607 (1922):
One accused of crime has a right to a full and fair trial according to the law of the government whose sovereignty he is alleged to have offended, but he has no more than that. He should not be permitted to use the machinery of one sovereignty to obstruct his trial in the courts of the other, unless the necessary operation of such machinery prevents his having a fair trial. He may not complain if one sovereignty waives its strict right to exclusive custody of him for vindication of its laws in order that the other may also subject him to conviction of crime against it. (Citations omitted). Such a waiver is a matter that addresses itself solely to the discretion of the sovereignty making it and of its representatives with power to grant it.
The holding in the Turner and Dean cases above evolve from one jurisdiction knowingly and intentionally delivering a parolee by extradition to a second state for the purpose of prosecution, and later, reclaiming jurisdiction of the prisoner for violation of parole. A fortiori, in the principle case, West Virginia, by passively acquiescing to Illinois' extradition proceedings, in no way conclusively gave up their right to prosecute Petitioner for parole violation, but only postponed this right until Illinois had completed its jurisdiction of the Illinois offense.
Petitioner's second contention is that he was not afforded appointed counsel in his parol revocation hearing. It would serve well to examine the concepts behind parole. "Freedom, on parole from confinement in a penal institution prior to serving all of an imposed sentence, is a matter of legislative grace it is neither a constitutionally guaranteed nor a God-given right." Jones v. Rivers, 338 F.2d 862, 874 (4th Cir. 1964). Formal litigation having long been completed, a parole revocation hearing is not, as such, an adversary proceeding. Its sole purpose is to determine whether the parolee, in the judgment of the Parole Board, is still a good parole risk. The problem is one of rehabilitation and not of conviction and punishment. Jones v. Rivers, supra; Washington v. Hagan, 287 F.2d 332 (3rd Cir. 1960).
The necessity for an attorney seems thus abrogated. Indeed, it is the well-settled rule that due process does not require that indigent parolees be provided with counsel when they appear at a parole revocation hearing. Jones v. Rivers, supra; Boddie v. Weakley, 356 F.2d 242 (4th Cir. 1966). Cf. Hyser v. Reed, 115 U.S.App.D.C. 254, 318 F.2d 225 (1963). However, Section 62-12-19, West Virginia Code (Michie 1968), concerning violation of parole, provides that "[w]hen a parolee is under arrest for violation of the conditions of his parole, he shall be given a prompt and summary hearing, at which the parolee and his counsel shall be given an opportunity to attend." Petitioner was duly informed of this statutory right to employ counsel in the notice of the parole revocation hearing, and, at the hearing itself.
By statutory authority, this Petitioner had the right to hire counsel, and this Court now holds that under the circumstances presented here, Petitioner had no right, statutory or otherwise, to have counsel appointed to aid him at his parole revocation hearing. Failure to have counsel appointed did not violate Petitioner's constitutional guarantee to due process of law. The rationale behind *83 this decision is contained in Jones v. Rivers, supra, 338 F.2d at 873:
Certainly, a Board of Parole is not a judicial body. It has no right, statutory or otherwise, to appoint an attorney to represent a parolee at a revocation hearing and we reject the thought or suggestion that the Board should ever be clothed with any such power or authority. Nor should any court be empowered to require one of its attorney officers to undertake such representation before this administrative agency.
Thus it is apparent that where provision is made for hired counsel in the applicable West Virginia Code, there is no constitutional right to appointed counsel at this administrative hearing.
The determination is made notwithstanding Mempa v. Rhay, 389 U.S. 128, 88 S.Ct. 254, 19 L.Ed.2d 336 (1967) holding that the Sixth Amendment as applied through the Fourteenth Amendment requires that counsel be afforded to an indigent felony defendant in a proceeding for revocation of his probation, a judicial, not administrative, proceeding in West Virginia, and for the imposition of deferred sentence. Mempa can be readily distinguished from the case at bar. Gideon v. Wainwright, 372 U.S. 335, 83 S.Ct. 792, 9 L.Ed.2d 799 (1963) requires appointed counsel to be present at all stages of a criminal proceeding where substantial rights of the accused may be affected. In Mempa the effective date of sentence in a case where the defendant is placed on probation is the date of revocation of the probation, i. e., the final sentence is deferred to the date of the revoking of the probation, if and when such happening occurs. At this point recommendations of the sentencing judge and prosecutor are considered in setting the actual sentence. To assure correct marshalling of the facts before the court, the aid of counsel is necessary. But such considerations requiring aid of counsel never arise in a case involving parole as the sentence has already been imposed and fixed.
Likewise, and even more important, an attorney need be present to protect valid and important personal legal rights of the prisoner whose probation is ceasing, whereas, these same legal rights do not extend to a parolee. For example, Mempa discusses the right of appeal, in a case involving a plea of guilty with resulting probation, being available only after sentence is imposed at a revocation of probation, such appeal rights possibly being lost without the advice of counsel. In essence Mempa established that the time of sentencing at a proceeding for revocation of probation is a "critical stage" in a criminal case, while the same reasoning is patently inapplicable to a parole revocation hearing, since sentencing has already occurred.
Notwithstanding Petitioner's grounds being devoid of merit, his petition should be dismissed for failure to exhaust available state remedies. One detained under the judgment of a state court must show he has exhausted the remedies available to him in the state judicial system, or that there was an absence of state corrective processes, or the existence of circumstances rendering such processes ineffective to protect his rights, before applying to a federal court for release by writ of habeas corpus. 28 U.S.C.A. § 2254. Petitioner's contention that this Court is the proper authority having jurisdiction because of its power of seizure over interstate records herein involved is groundless. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1739407/ | 54 F.Supp. 676 (1943)
EARLE et al.
v.
BRINK'S INC.
YOUNG et al.
v.
UNITED STATES TRUCKING CORPORATION.
District Court, S. D. New York.
July 8, 1943.
*677 Archibald Bromsen, of New York City (Herman Rosenfeld, of New York City, of counsel), for plaintiffs.
Burns, Currie & Walker, of New York City (Albert E. Rice, of New York City, of counsel), for defendant Brink's Inc.
John Ross Lauer, of New York City (S. Arnold Witte, of New York City, on the brief), for defendant U. S. Trucking Corporation.
CONGER, District Judge.
Defendants moved for a dismissal of each of the above-entitled actions for failure of the complaints to state claims upon which relief can be granted. So far as pertinent the complaints are identical in all essential respects. The briefs submitted by both sides contain statements of fact which do not appear on the faces of the complaints. These will be ignored and consideration will be given only to such facts as have been pleaded or of which this court may take judicial notice.
The actions were commenced under the provisions of the Fair Labor Standards Act, 29 U.S.C.A. §§ 201-219, to recover unpaid overtime wages, liquidated damages and counsel fees. The complaints allege that the defendants were engaged in transporting money, currency, securities and other valuables from and to banks, trust companies, stock exchange houses, companies, firms, corporations and individuals engaged in interstate commerce and in the production of goods for interstate commerce; that the valuables thus transported are employed in interstate commerce and in the production of goods for interstate commerce; that the plaintiffs were employed by the defendants as chauffeurs, custodians and armed guards in the operation of automobile trucks used in such transportation; that the functions performed by them were an essential part of the business of transporting valuables to and from banks, trust companies, firms, corporations, and individuals engaged in interstate commerce and in the production of goods for interstate commerce; that these functions were necessary for interstate commerce and for the production of goods for interstate commerce; and that for the period from October 24, 1939 (amended to October 24, 1940) to and including April 10, 1943 they were employed for work weeks in excess of 40 hours without having been fully compensated in accordance with the provisions of Section 7 of the Fair Labor Standards Act, 29 U.S. C.A. § 207.
The defendants contend that it is apparent from the foregoing allegations of the complaint that the plaintiffs are covered by the provisions of Section 204, of Part II of the Interstate Commerce Commission Act, 49 U.S.C.A. § 304, familiarly known as the Motor Carrier Act, and are, therefore, exempt from the overtime provisions of Section 7 of the Fair Labor Standards Act. In this respect Section 13, subd. (b) of the Fair Labor Standards Act, 29 U.S.C.A. § 213, subd. (b), provides that *678 "the provisions of section 7 shall not apply with respect to (1) any employee with respect to whom the Interstate Commerce Commission has power to establish qualifications and maximum hours of service pursuant to the provisions of section 204 of the Motor Carrier Act, 1935."
Section 204 of the Motor Carrier Act, 49 U.S.C.A. § 304, provides in subdivision (a) that it shall be the duty of the Interstate Commerce Commission to regulate common carriers and contract carriers by motor vehicle "and to that end the Commission may establish reasonable requirements with respect to * * * qualifications and maximum hours of service of employees, and safety of operation and equipment." A common carrier by motor vehicle is defined in Section 203, 49 U.S.C.A. § 303, as "any person which holds itself out to the general public to engage in the transportation by motor vehicle in interstate or foreign commerce of passengers or property of any class or classes thereof for compensation, * * *." And a contract carrier by motor vehicle is defined as "any person which, under individual contracts or agreements, engages in the transportation * * * by motor vehicle of passengers or property in interstate or foreign commerce for compensation." Interstate commerce is defined as "commerce between any place in a State and any place in another State or between places in the same State through another State, whether such commerce moves wholly by motor vehicle or partly by motor vehicle and partly by rail, express, or water."
Nowhere in the complaint is there any allegation that the defendants are engaged in transporting either persons or property between "any place in a State and any place in another State or between places in the same State through another State." Nor are there any allegations to the effect that the money, currency, securities and other valuables transported in the trucks operated by the plaintiffs were shipped from "any place in a State and any place in another State or between places in the same State through another State." True it is not necessary under the statute that the motor vehicles operated by the plaintiffs must actually cross State lines in order to confer jurisdiction on the Interstate Commerce Commission. It is necessary, however, that the property transported in such trucks be interstate shipments. Most of the cases relied upon by the defendants are in this category. On the other hand if the transportation is purely intrastate, originating and terminating in the same State without ever crossing State lines, the Interstate Commerce Commission is without jurisdiction. See, Moses Contract Carrier Application, 4 M. C.C. 425; Surles Contract Carrier Application, 4 M.C.C. 488.
The fact that the complaint contains allegations to the effect that the plaintiffs were employed to transport property from and to third parties who were engaged in interstate commerce or in the production of goods for interstate commerce and allegations to the effect that the property thus transported was employed in interstate commerce and in the production of goods for interstate commerce are not sufficient upon which to conclude that the transportation was in interstate commerce within the meaning of the Motor Carrier Act. The defendants assert that the Interstate Commerce Commission has already ruled that the defendants are engaged in the transportation of property in interstate commerce and subject to its jurisdiction. See, United States Trucking Corporation Contract Carrier Application, 30 M.C.C. 41; Brink's, Incorporated Contract Carrier Application No. MC-87857. Assuming that we may take judicial notice of such rulings, the defendants fail to show that they were intended to apply to all the activities engaged in by the defendants and particularly to the activities in which the plaintiffs were employed.
It may very well be that on the trial or after defendants have had an examination before trial of the plaintiffs and others, it will be found that the nature of defendants' business and the work performed by plaintiffs for them is such as to except these plaintiffs from the overtime provisions of the Fair Labor Standards Act. It does not conclusively appear from the complaint that the plaintiffs have stated claims for which no recovery may be had. Consequently, I do not feel justified in dismissing the complaint.
Motions denied. Settle orders on notice. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1734446/ | 601 F. Supp. 345 (1984)
OHIO CASUALTY INSURANCE COMPANY, Plaintiff,
v.
STATE FARM AUTOMOBILE INSURANCE COMPANY, Defendant.
Civ.A. No. 84-1076.
United States District Court, D. Kansas.
November 27, 1984.
Craig Kennedy, Wichita, Kan., for plaintiff.
Darrell L. Warta, Foulston, Siefkin, Powers & Eberhardt, Stephen M. Kerwick, Wichita, Kan., for defendant.
OPINION AND ORDER
THEIS, District Judge.
This is an action brought pursuant to 28 U.S.C. § 2201 for a declaration of the rights and obligations of the parties under separate insurance policies. Plaintiff, Ohio Casualty Insurance Company, and defendant, State Farm Mutual Automobile Insurance Company, have jointly moved the Court to decide the present case based upon stipulated facts. For the purposes of the parties' joint motion for judgment on stipulated facts, the parties agree to the following facts:
First, Ohio Casualty is incorporated under the laws of the State of Ohio and is *346 authorized to engage in the insurance business in the State of Kansas. State Farm is incorporated under the laws of the State of Illinois and is authorized to engage in the insurance business in the State of Kansas. The subject matter of this controversy exceeds the sum of $10,000.00. Because of the diversity of citizenship and the amount in controversy, this Court has jurisdiction over the parties and the subject matter of the litigation. Venue is properly laid in the District of Kansas.
Second, on or about August 21, 1981, Gayla Gill took her automobile to McDonald Motors, Inc., to have repair work done. McDonald Motors is an automobile dealership dealing in new and used automobiles and has a service shop for automobile repairs. While her car was at McDonald Motors, McDonald Motors allowed Gill to use and operate a 1976 Chevrolet Vega automobile that was owned by McDonald Motors.
Third, on August 28, 1981, Gill, while driving the 1976 Chevrolet Vega, was involved in an automobile accident in Wichita, Kansas. As a result of that accident, a lawsuit was filed in Sedgwick County district court by Emily Gamer against Gill, seeking recovery of damages for personal injuries which Gamer claims were caused by the automobile accident and Gill's negligence.
Fourth, plaintiff, Ohio Casualty, had in effect on August 28, 1981, a garage policy of liability insurance issued to McDonald Motors. The 1976 Chevrolet Vega was listed as a covered automobile under Ohio Casualty's policy, and there was no other policy of automobile insurance issued on that car.
Fifth, defendant, State Farm, had in effect on August 28, 1981, a policy of motor vehicle liability insurance issued to Gerald Gill, the father of Gayla Gill. Gayla Gill was an insured as defined in the insurance policy issued by State Farm to Gerald Gill, since Gayla was an unmarried and unemancipated child away at school.
Each of the insurance companies has demanded that the other insurance company assume the defense of Gayla Gill and pay any damages which Emily Gamer might recover against Gayla Gill arising out of the automobile accident on August 28, 1981. Each party's policy provides that the other's should cover the underlying accident and that its own provisions exclude such coverage. The Court finds the relevant provisions are as follows:
The State Farm policy contains the following general provisions on coverage for vehicles:
Coverage for the Use of Other Cars
The liability coverage extends to the use, by an insured, of a newly-acquired car, a temporary substitute or a non-owned car.
Dk. no. 7, Exhibit B at 5.
Temporary Substitute Car means a car not owned by you or your spouse, if it replaces your car for a short time. Its use has to be with the consent of the owner. Your car has to be out of use due to its breakdown, repair, servicing, damage or loss. A temporary substitute car is not considered a non-owned car.
Dk. no. 7, Exhibit B at 2.
These general provisions are limited by the following exclusion:
IF THERE IS OTHER LIABILITY COVERAGE
. . . . .
3. Temporary Substitute Car, Non-Owned Car, Trailer.
If a temporary substitute car, a non-owned car or a trailer designed for use with a private passenger car has other vehicle liability coverages on it, then this coverage is excess. THIS COVERAGE SHALL NOT APPLY:
a. IF THE VEHICLE IS OWNED BY ANY PERSON OR ORGANIZATION IN A CAR BUSINESS: AND
b. IF THE INSURED OR THE OWNER HAS OTHER PRIMARY, EXCESS OR CONTINGENT LIABILITY COVERAGE APPLICABLE IN WHOLE OR IN PART.
Dk. no. 7, Exhibit B at 6.
Car Business means a business or job where the purpose is to sell, lease, repair, *347 service, transport, store or park land motor vehicles or trailers.
Dk. no. 7, Exhibit B at 2.
The policy issued by plaintiff Ohio Casualty provides as follows:
PART IVLIABILITY INSURANCE
A. We Will Pay
1. We will pay all sums the insured legally must pay as damages because of bodily injury or property damage to which this insurance applies caused by an accident and resulting from garage operations.
. . . . .
"Garage operations" means the ownership, maintenance or use of locations for garage business and that portion of the roads or other accesses that adjoin these locations. Garage operations includes the ownership, maintenance or use of the autos indicated in PART II as covered autos. Garage operations also includes all operations necessary or incidental to a garage business.
"Insured" means any person or organization qualifying as an insured in the WHO IS INSURED section of the applicable insurance.
Dk. no. 7, Exhibit A at 1.
The provisions that plaintiff relies on to eliminate its coverage state:
D. Who Is An Insured
1. For Covered Autos
. . . . .
b. Anyone else is an insured while using with your permission a covered auto except:
. . . . .
(3) Your Customers, if your business is shown in ITEM ONE of the declarations as an auto dealership. However, if a customer of yours:
(a) Has no other available insurance (whether primary, excess or contingent), he or she is an insured but only up to the compulsory or financial responsibility law limits where the covered auto is principally garaged.
(b) Has other available insurance (whether primary, excess or contingent) less than the compulsory or financial responsibility law limits where the covered auto is principally garaged, he or she is insured only for the amount by which the compulsory or financial responsibility law limits exceed the limits of his or her other insurance.
Dk. no. 7, Exhibit A at 2.
This Court must determine which of the policies' limitations is valid and enforceable and which of the insurance companies has a duty to defend Gayla Gill. In other words, the question is whether the vehicle's policy or the driver's policy covers the underlying accident. State Farm notes that its policy provides that there is no coverage for an insured when operating a temporary substitute car that was owned by an organization in a car business if the owner had other primary, excess or contingent liability coverage applicable in whole or in part. Ohio Casualty states that its policy does not extend coverage to customers of the insured's business unless they lack insurance of their own. The dilemma appears to be the classic situation, "After you, Alphonse; no you, Gaston."
State Farm claims that if Ohio Casualty's exclusion were allowed to operate, it would fall short of the statutory requirement of coverage for permissive users of vehicles, established in the Kansas Automobile Injury Reparations Act (KAIRA), K.S.A. §§ 40-3104(a) and 40-3107(b). Defendant further argues that its exclusion of coverage for temporary substitute cars owned by an organization in a car business is valid because the KAIRA does not mandate such coverage. Ohio Casualty suggests that case law from other jurisdictions indicates that the liability insurance covering the driver should be primary and further argues that its exclusion is justified by virtue of section 40-3107(h)(2) of the KAIRA.
This opinion first examines whether section 40-3107(h)(2) allows Ohio Casualty to exclude liability coverage to customers of the insured's business. Section 40-3107(h)(2) allows insurers to exclude coverage *348 while an insured vehicle is "being repaired, serviced or used by any person employed or engaged in any way in the automobile business." Ohio Casualty concludes that this exclusion covers the instant situation and claims that since there is a specific statutory exclusion for its policy, State Farm is automatically the primary carrier.
The section in question, however, was enacted by the Kansas legislature during its 1981 session and took effect on January 1, 1982. 1981 Kan.Sess.Laws 836, 840. Thus, the provision relied upon by Ohio Casualty to justify its exclusion was not in force when the plaintiff's policy was issued, nor was it in force on August 28, 1981, the date of the underlying accident.
In Kansas, the general rule of statutory construction is that a statute will operate prospectively only unless the legislature clearly expresses the intent that it operate retrospectively. Chamberlain v. Schmutz Manufacturing Co., 532 F. Supp. 588, 589 (D.Kan.1982). No language in section 40-3107(h)(2) indicates a legislative intent that the statute operate retroactively. It is particularly important to apply the above rule of statutory construction when a new statute may alter the substantive rights of the parties. Nitchals v. Williams, 225 Kan. 285, 290, 590 P.2d 582 (1979). Ohio Casualty's position is that the statute changes the rights of the parties.
The Court does not need to reach the issue of whether the language of section 40-3107(h)(2) encompasses the present situation, although defendant strongly contends that it does not. Since the statute relied upon by Ohio Casualty was not in effect until four months after the accident, the section provides no haven for plaintiff's exclusion. The predecessor to the present section 40-3107 did not authorize such exclusions. 1974 Kan.Sess.Laws 640. Before analyzing how the law in effect at the time of the accident affects the present case, the Court first turns to Ohio Casualty's contention that cases from other jurisdictions compel a holding that the driver's policy applies.
Ohio Casualty's argument is that since the provision in section 40-3107(h)(2) applies, the exclusion in its insurance policy is valid and must be interpreted by general principles of insurance contract construction, citing Tilley v. Truck Insurance Exchange, 148 Cal. Rptr. 520, 84 Cal. App. 3d 263 (1978), and Dairyland Insurance Co. v. Implement Dealers Insurance Co., 294 Minn. 236, 199 N.W.2d 806 (1972). Not only did this Court just hold that section 40-3107(h)(2) is not applicable in the present case, but in addition the cases cited by plaintiff are inapposite. In both Tilley and Dairyland the courts were involved in the internal construction of single insurance policies according to principles of insurance contract construction. Neither case involved a state statute. The cases cited have no relevance to the interpretation of the Kansas Automobile Injury Reparations Act.
State Farm contends that Ohio Casualty's exclusion of permissive users of the insured vehicle who are customers of the named insured is void as an attempt to dilute statutorily mandated coverage. Section 40-3104(a) of the KAIRA requires owners to maintain motor vehicle liability insurance coverage for every motor vehicle owned by such person. The provisions regarding the persons required to be covered and the circumstances under which they must be covered are stated in K.S.A. § 40-3107(b):
Every policy of motor vehicle liability insurance issued by an insurer to an owner residing in this state shall:
. . . . .
(b) insure the person named therein and any other person, as insured, using any such vehicle with the expressed or implied consent of such named insured, against loss from the liability imposed by law for damages arising out of the ownership, maintenance or use of any such vehicle within the United States of American or the Dominion of Canada, subject to the limits stated in such policy; ...
K.S.A. § 40-3107(b) (emphasis added).
Plaintiff's policy, which conditions coverage for permissive users on whether *349 the permissive user is a customer, falls short of the statutory requirement of coverage for permissive users. The above statute allows no exception for customers. Ohio Casualty's policy regarding loaned vehicles, by purporting not to extend coverage to customers of the insured's business unless they lack insurance of their own, is in contravention of the mandate of section 40-3107(b) that insurers must insure permissive users.
In DeWitt v. Young, 229 Kan. 474, 478, 625 P.2d 478 (1981), the Kansas Supreme Court held that attempts to dilute, condition or limit the statutorily mandated liability coverages were invalid and specifically disregarded a garage shop exclusion. A number of other cases have also acknowledged that provisions which dilute statutorily required insurance coverage are unenforceable. See, e.g., Hillhouse v. Farmers Insurance Co., 226 Kan. 68, 69, 595 P.2d 1102 (1979); Simpson v. Farmers Insurance Co., 225 Kan. 508, 511-12, 592 P.2d 445 (1979).
Section 40-3107(g) of the KAIRA directs that notwithstanding any inconsistent language in the policy, an insurance policy "shall be construed to obligate the insurer to meet all the mandatory requirements and obligations of this act." Construing Ohio Casualty's policy in light of this statutory provision, the Court finds that the purported exclusion of permissive users must be deemed inoperative.
The next question is whether defendant's exclusion of coverage for temporary substitute cars owned by an organization in a car business is valid under the KAIRA. Unlike Ohio Casualty's policy with McDonald Motors, State Farm's policy was not issued on the vehicle involved in the underlying accident. The State Farm policy covered Gerald Gill as the named insured and his daughter, Gayla Gill, who was operating the vehicle owned by McDonald Motors.
Defendant is correct in its assertion that the KAIRA contains no requirement mandating liability coverage for relatives of the named insured when they use a vehicle owned by another person with that other person's permission. State Farm's policy could even specifically exclude all liability coverage for a relative except as a permissive user of the insured vehicle and still meet the statutory requirements of the KAIRA. The Kansas Supreme Court has held that exclusions in excess of statutorily required limits are permissible. DeWitt, 229 Kan. at 480, 625 P.2d 478. If insurers extend supplemental coverage, they may make restrictions on that extra coverage. Simpson v. KFB Insurance Co., 209 Kan. 620, 627, 498 P.2d 71 (1972). Therefore, State Farm's restriction on statutorily surplus coverage by excluding coverage for temporary substitute cars does not dilute or limit the insurance coverage mandated by the KAIRA.
Since defendant's exclusion is enforceable, this Court shall construe State Farm's policy as providing that there is no coverage for an insured when operating a temporary substitute car that was owned by an organization in a car business if the owner had other primary, excess or contingent liability coverage. At the time of her accident, Gayla Gill had such coverage under the Ohio Casualty policy with McDonald Motors, since Gill was a permissive user. The Court further finds that Ohio Casualty's attempt to avoid statutorily mandated coverage is unenforceable. Thus, plaintiff's exclusion of permissive users who are customers is ineffective and Gill is covered by Ohio Casualty's policy.
IT IS THEREFORE ORDERED that State Farm has no duty to defend Gayla Gill in any action arising from the above mentioned accident on August 28, 1981, nor does it have a duty to pay any judgment or part thereof that may be entered in that litigation.
IT IS FURTHER ORDERED that Ohio Casualty has the duty to defend Gayla Gill in the above mentioned action between Emily Gamer and Gayla Gill and that Ohio Casualty has a duty under the remaining terms of its policy to pay any judgment or part thereof that may be entered in that litigation. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1748462/ | 163 F. Supp. 645 (1958)
Walter W. PORT and Alice A. Port
v.
UNITED STATES.
No. 526-57.
United States Court of Claims.
July 16, 1958.
Valentine Brookes, San Francisco, Cal., Arthur H. Kent, Paul E. Anderson and Kent & Brookes, San Francisco, Cal., on the brief, for plaintiffs.
Robert Livingston, Washington, D. C., with whom was Charles K. Rice, Asst. Atty. Gen., James P. Garland, Washington, D. C., on the brief, for defendant.
JONES, Chief Judge.
The question is whether certain expenditures for legal services incurred *646 by plaintiff Walter Port[1] are deductible as ordinary and necessary business expenses under § 23(a) (1) or as nontrade or nonbusiness expenses under § 23(a) (2) of the Internal Revenue Code of 1939, 26 U.S.C. § 23(a) (1, 2)[2]. The Government resists the deduction primarily on the basis of § 24(a) (1) of the Code, 26 U.S.C. § 24(a) (1)[3]. The facts are not in dispute.
Plaintiff is a duly licensed medical doctor in the State of California. In 1952, he was indicted under 26 U.S.C. § 145 (b)[4] for willful evasion of the Federal income tax laws, a felony, it being alleged that his professional earnings had been understated. In November 1952, he was tried, but the jury was unable to agree upon a verdict. At a second trial, in January 1953, plaintiff was convicted. His defense in both trials was absence of willfulness. Plaintiff was sentenced to serve a term of six months in a Federal prison and to pay a fine of $10,000. Both parts of the sentence were carried out. Plaintiff expended $20,750 in attorney's fees for his defense in these proceedings and it is the deduction of this sum which is here in controversy.
Under California law, conviction of a felony, or of any offense involving moral turpitude, constitutes unprofessional conduct for which a medical doctor's license may be suspended or revoked. Subsequent to the conviction, the Board of Medical Examiners of the State of California took action which amounted to the suspension of plaintiff's license for thirty days and his being placed on probation for three years. Plaintiff has now resumed his medical practice.
Plaintiff argues that since conviction of the crime with which he was charged could result in the revocation of his medical license, thereby destroying his "business" entirely, amounts spent in resisting such conviction should be considered ordinary and necessary business expenses. Of course, the difficulty is that the taxpayer could make the same argument with respect to almost any criminal charge that might be brought against him, even such obviously "personal" charges as murder or robbery. It has never been understood that it is the effect of a transaction upon one's business or income-producing property that governs deductibility under §§ 23(a) (1) or 23(a) (2). Kornhauser v. United States, 1928, 276 U.S. 145, 48 S. Ct. 219, 72 L. Ed. 505; Lykes v. United States, 1952, 343 U.S. 118, 72 S. Ct. 585, 588, 96 L. Ed. 791. Rather, deductibility of expenses under these sections is governed by a determination *647 of their cause and "turns wholly upon the nature of the activities to which they relate." Lykes v. United States, supra, 343 U.S. at page 123, 72 S.Ct. at page 588.
The rule governing the present case is simply stated:
"* * * where a suit or action against a taxpayer is directly connected with, or, as otherwise stated * * *, [has] proximately resulted from, his business, the expense incurred is a business expense * * *. [Kornhauser v. United States, supra, 276 U.S. at page 153, 48 S.Ct. at page 220.]"
Proximate cause governs, as well, the deductibility of expenses under § 23(a) (2). Bingham's Trust v. Commissioner, 1945, 325 U.S. 365, 65 S. Ct. 1232, 89 L. Ed. 1670.
Deduction of legal expenses incurred in a criminal proceeding which resulted in the conviction of the taxpayer has been uniformly denied. Norvin R. Lindheim, 2 B.T.A. 229 (1925); Estate of John W. Thompson, 21 B.T.A. 568 (1930); Burroughs Building Material Co. v. Commissioner, 2 Cir., 1931, 47 F.2d 178; C. W. Thomas, 1951, 16 T.C. 1417; Thomas A. Joseph, 1956, 26 T.C. 562. Plaintiff has not referred us to, nor have we been able to find, any case to the contrary. Plaintiff does, however, rely heavily upon Commissioner of Internal Revenue v. Heininger, 1943, 320 U.S. 467, 64 S. Ct. 249, 88 L. Ed. 171, as being contrary in spirit to the lower court decisions.
In Heininger, the taxpayer was a dentist who conducted his business almost entirely by mail. The postmaster, pursuant to 39 U.S.C.A. §§ 259 and 732, issued civil fraud orders under which taxpayer's mail was stamped "fraudulent" and returned to him. The taxpayer contested the validity of the postmaster's action in the courts. Ultimately the postmaster's action was sustained. The question before the Supreme Court was whether the legal expenses incurred by the taxpayer in contesting the postmaster's action were deductible as ordinary and necessary business expenses.
The Government did not deny that the litigation expenses would have been ordinary and necessary business expenses had the taxpayer been successful in attacking the postmaster's action. The only question was whether there was any public policy which required that deduction of such expenses be denied since the taxpayer had in fact been found "guilty" of fraudulent conduct in his business. The Supreme Court held that there was no such public policy and allowed the deduction. Cf. Tank Truck Rentals, Inc., v. Commissioner, 1958, 356 U.S. 30, 78 S. Ct. 507, 2 L. Ed. 2d 562.
The concession which the Government made in Heininger is precisely the concession that it refuses to make here, that is, that the present plaintiff's legal expenses proximately resulted from, and were directly related to, his "business" or the "management, conservation, or maintenance of property held for the production of income." Nor do we believe that such a finding by us would be justified.
The proceedings in the present case did not constitute an attack upon plaintiff's business, neither did they seek necessarily to destroy his business nor did they arise from a criminal characterization of his business practices. The expenses incurred were not made necessary by the nature of the taxpayer's business. Cf. Commissioner of Internal Revenue v. People's-Pittsburgh Trust Co., 3 Cir., 1932, 60 F.2d 187.
The business of the plaintiff was the practice of medicine. The expenses which he seeks to deduct were incurred in defense of a criminal action brought against him as an individual to impose personal punishment for his wrongdoing. We may concede that conviction of this charge, as in the case of any serious criminal charge, could effectively deprive the accused of his trade or business for a long period of time, perhaps permanently. Indirectly, conviction of these charges could, if the punishment were *648 sufficiently severe, deprive the accused of all, or a substantial part of his income or income-producing property. But, obviously we cannot for these reasons say that the expenses were proximately caused by the taxpayer's business or his management of property. On the contrary, they were most directly related to, and were proximately caused by, his personal misconduct and wrongdoing. They cannot, therefore, be characterized as "business" expenses within the meaning of § 23(a) (1) or as expenses for the management of property within the meaning of § 23(a) (2).
Accordingly, defendant's motion for summary judgment will be granted and plaintiffs' similar motion denied. Plaintiffs' petition will be dismissed.
It is so ordered.
LARAMORE, MADDEN, WHITAKER and LITTLETON, Judges, concur.
NOTES
[1] Plaintiff Walter Port's wife is co-plaintiff since a joint return was filed. For convenience we refer to Mr. Port as the plaintiff.
[2] "§ 23. Deductions from gross income.
"In computing net income there shall be allowed as deductions:
"(a) Expenses.
"(1) Trade or business expenses.
"(A) In general. All the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, * * *
* * * * *
"(2) Non-trade or non-business expenses. In the case of an individual, all the ordinary and necessary expenses paid or incurred during the taxable year for the production or collection of income, or for the management, conservation, or maintenance of property held for the production of income."
[3] "§ 24. Items not deductible (a) General rule.
"In computing net income no deduction shall in any case be allowed in respect of
"(1) Personal, living, or family expenses, except extraordinary medical expenses deductible under section 23(x)."
[4] "Failure to collect and pay over tax, or attempt to defeat or evade tax. Any person required under this chapter to collect, account for, and pay over any tax imposed by this chapter, who willfully fails to collect or truthfully account for and pay over such tax, and any person who willfully attempts in any manner to evade or defeat any tax imposed by this chapter or the payment thereof, shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, be fined not more than $10,000, or imprisoned for not more than five years, or both, together with the costs of prosecution." | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1749033/ | 232 F. Supp. 620 (1964)
MARYLAND CASUALTY COMPANY, a Maryland Corporation, Baltimore, Maryland, Plaintiff,
v.
AMERICAN GENERAL INSURANCE COMPANY, a Texas Corporation, Washington, D. C., American General Life Insurance Company of Delaware, a Delaware Corporation, Washington, D. C., and American General Life Insurance Company, a Texas Corporation, Washington, D. C., Defendants.
Civ. A. No. 1604-64.
United States District Court District of Columbia.
July 27, 1964.
*621 Hogan & Hartson, Edmund L. Jones, Joseph J. Smith, Jr., Washington, D. C., Piper & Marbury, William L. Marbury, Robert B. Barnhouse, Baltimore, Md., Whiteford, Hart, Carmody & Wilson, John J. Wilson, Charles J. Steele, Washington, D. C., for plaintiff; Carrington, Johnson & Stephens, Dallas, Tex., of counsel.
Covington & Burling, Hugh B. Cox, Paul F. McArdle, Washington, D. C., Vinson, Elkins, Weems & Searls, David T. Searls, Houston, Tex., for defendants.
McGARRAGHY, District Judge.
The case is before the Court on plaintiff's motion for a preliminary injunction enjoining the defendants, their officers, agents, servants, employees, attorneys and successors, pending final determination of this action, from proceeding further with any exchange of stock of defendant American General for the stock of the plaintiff.
After a full hearing when numerous witnesses testified and many exhibits were received in evidence, the motion was taken under advisement, the Court, with the consent of all parties, having continued in effect until July 27, 1964 the temporary restraining order theretofore issued.
Upon consideration of all of the evidence, I have concluded that the preliminary injunction sought by the plaintiff should not issue and that the defendant should be permitted to proceed with its proposed Offer of Exchange subject to an Order of this Court under which the present status of Maryland management, policies, personnel and assets will be maintained, and the stock proposed to be acquired by the defendants will not thereafter be transferred except pursuant to an Order of the Court, until the entry of an Order at final hearing on the merits, at which time, if the Court should determine that the proposed merger is in violation of law, it can then order a divestiture of the Maryland stock acquired by the defendants.
I have reached this conclusion for several reasons;
FIRST, the plaintiff has not carried the burden of showing that there is a reasonable probability or reasonable certainty that it will prevail on the merits at final hearing;
SECOND, the plaintiff has not established that it will be irreparably injured pending trial on the merits if the injunction is not granted;
THIRD, on the issue of irreparable injury, the principal officers of the plaintiff who engaged in negotiations with representatives of the defendant looking *622 to a stock acquisition such as is now contemplated, were entirely willing to agree to such a proposed transfer provided the terms were acceptable to them. It seems unlikely to me that these officers would have participated in such negotiations and, indeed, made their own proposal of terms if, in fact, the stock acquisition by defendants would cause the damage to plaintiff such as the officers now say would result;
FOURTH, also on the issue of irreparable injury, while the plaintiff introduced evidence which it contends establishes a threatened disturbance in its relationships with its agents throughout the country, much of this evidence is the result of activities by the plaintiff following the breakdown of negotiations when the plaintiff by communications to its stockholders and agents undertook an active campaign of resistance against the proposed stock acquisition by the defendants;
FIFTH, should a preliminary injunction issue at this stage, such action would cause irreparable loss to the defendants and to the stockholders of the plaintiff;
SIXTH, with respect to the defendants, under the circumstances of this case, the issuance of a preliminary injunction would amount to a final determination on the merits for the plaintiff, without trial, would frustrate the merger, and the defendants would suffer the loss of large sums expended preliminary and incident to the proposed stock acquisition;
SEVENTH, with respect to the stockholders of Maryland, issuance of a preliminary injunction by the terms of which they would be deprived of the right of transferring their stock in Maryland for the preferred and common stock of American General would result in serious damage to the Maryland stockholders.
I am filing with this Memorandum detailed Findings of Fact and Conclusions of Law, and the Court will enter an Order denying the preliminary injunction sought by the plaintiff and permitting the defendants to proceed according to plans in process when the temporary restraining order was issued, but restraining and enjoining the defendants, their officers, directors and employees, pending final determination of this action, from:
1. Transferring to any other person, firm or corporation any shares of the common stock of Maryland Casualty Company acquired by any of the defendants through the proposed exchange offer or otherwise, except pursuant to an order of this Court;
2. Merging or consolidating the Maryland Casualty Company or any of its subsidiaries or affiliates into or with American General Insurance Company, or any of its subsidiaries or affiliates, or with any other concern, and from merging or commingling the assets of Maryland Casualty Company with those of American General Insurance Company, or of any of its subsidiaries or affiliates or with the assets of any other company;
3. Voting any or all of the common stock of Maryland Casualty Company acquired by the defendants or any of them by or through the proposed exchange offer or otherwise for the election of any persons as directors of Maryland Casualty Company except such persons as may be designated or recommended by the President and Chief Executive Officer of Maryland Casualty Company; and
4. Using or voting any stock of Maryland Casualty Company acquired by any of the defendants by or through the proposed exchange offer or otherwise to prevent or to interfere with Maryland Casualty Company entering into the life insurance business;
5. Using or voting any stock of Maryland Casualty Company acquired by any of the defendants by or through the proposed exchange offer or otherwise to change or interfere with the operations, practices, policies, customs, field and agency personnel and home office personnel of Maryland Casualty Company. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1749444/ | 646 F. Supp. 118 (1986)
SATELLITE FINANCIAL PLANNING CORPORATION, et al., Plaintiffs,
v.
FIRST NATIONAL BANK OF WILMINGTON, et al., Defendants.
Civ. A. No. 85-463 CMW.
United States District Court, D. Delaware.
October 6, 1986.
*119 James F. Harker of Herlihy & Wier, Wilmington, Del., for plaintiffs; Robert W. Steele, Roger C. Simmons, James R. Myers and W. James McKay of Steele, Simmons & Fornaciari, Washington, D.C., and William F. Jones of Jones & Mack, Annapolis, Md., and Edward J. Glusing, Jr., Baltimore, Md., of counsel.
Walter L. Pepperman, II, William H. Sudell, Jr. and David A. Jenkins of Morris, Nichols, Arsht & Tunnell, Wilmington, Del., for defendant First Nat. Bank of Wilmington.
E. Norman Veasey and Robert W. Whetzel of Richards, Layton & Finger, Wilmington, Del., for defendants, Commercial Credit Corp. and Control Data Corp.; James R. Eyler, Jefferson V. Wright and J. Steven Lovejoy of Miles & Stockbridge, Baltimore, Md., of counsel.
CALEB M. WRIGHT, Senior District Judge.
Plaintiffs Satellite Financial Planning Corporation ("Satellite Financial") and Satellite Earth Station Protection Company move, pursuant to Rule 15(a) of the Federal Rules of Civil Procedure, to amend their complaint. Plaintiffs seek to restate their claims for relief under their theories of breach of fiduciary relationship, tortious interference with actual and prospective business relations, fraud, and the Racketeering Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq. (1985). This Court dismissed these claims in Satellite Financial Planning v. First National Bank, 633 F. Supp. 386 (D.Del.1986).
Defendants First National Bank, Commercial Credit Corporation, and Control Data Corporation contest the motion to amend the RICO count.[1] The parties differ on whether or not defendants' alleged acts constituted the pattern of racketeering activity necessary to state a cause of action under RICO. The Court holds that the proposed amended complaint still fails to state a viable RICO claim. Accordingly, *120 the plaintiffs may amend in the manner set out in the proposed amended complaint except for the proposed amendments to the RICO count. Plaintiffs are denied leave to amend the RICO count.
On a motion to amend, a court can deny the motion if the proposed amendment is futile. In determining whether a proposed amendment is futile, the Court should apply the same standards as are applied to Rule 12(b)(6) motions to dismiss. Halliburton & Assoc. v. Henderson, Few & Co., 774 F.2d 441, 444 (11th Cir.1985); Vibrant Sales, Inc. v. New Body Boutique, Inc., 105 F.R.D. 553, 555 (S.D.N.Y. 1985). Accepting all the well-pleaded facts of the proposed amended complaint as true, the Court must decide whether the facts state a claim upon which relief can be granted.
In order to state a claim under RICO, a plaintiff must, inter alia, allege a pattern of racketeering activity. Sedima S.P.R.L. v. Imrex Co., Inc., ___ U.S. ___, 105 S. Ct. 3275, 3285, 87 L. Ed. 2d 346 (1985); Mullin v. Bassett, 632 F. Supp. 532 (D.Del. 1986). In Sedima, the Supreme Court elaborated on what "pattern of racketeering activity" should mean:
The definition of a "pattern of racketeering activity" differs from the other provisions in § 1961 in that it states that a pattern "requires at least two acts of racketeering activity," § 1961(5) (emphasis added), not that it "means" two such acts. The implication is that while two acts are necessary, they may not be sufficient. Indeed, in common practice, two of anything do not generally form a "pattern".
Sedima, 105 S.Ct. at 3285 n. 12. Although this comment was dicta, lower federal courts have read Sedima as providing a clear signal that it was time to re-evaluate the construction given to the term "pattern of racketeering activity." See, e.g., Allington v. Carpenter, 619 F. Supp. 474, 478 (C.D.Cal.1985); Northern Trust Bank/O'Hare, N.A. v. Inryco, Inc., 615 F. Supp. 828 (N.D.Ill.1985). This Court has discussed the pattern issue in Mullin v. Basset, 632 F.Supp. at 540 and Hill v. Equitable Bank, 642 F. Supp. 1013 (D.Del. 1986). Applying those decisions to Satellite Financial's proposed amended complaint, the Court finds that no pattern exists.
One of the prime considerations in finding a pattern is whether the predicate acts alleged are both related and sufficiently differentiated. Mullin, 632 F.Supp. at 541. If the acts are too similar, then no ongoing design or continuity can be found. Id. In Kredietbank, N. V. v. Joyce Morris, Inc., No. 84-1903 (D.N.J. January 9, 1986) [Available on WESTLAW, DCTU database], the court noted that "the repetition of an act taken against a single victim or set of victims following closely on the heels of the original wrong, in some circumscribed circumstances ... suggests no expansion, no ongoing design, no continuity, such as was the target of Congress in RICO."
The RICO count of the proposed amended complaint realleges the state common law fraud claims and supplements these claims with some specific examples of mail and wire fraud. The set of fraudulent misrepresentations that constitute the common law fraud claim should, for RICO purposes, be viewed as one act. Each allegation is an example of the defendants misrepresenting facts with respect to their relationship with plaintiffs. The statements were made to plaintiffs for the purpose of defrauding plaintiffs. The various misrepesentations closely followed each other, were repetitive, and were aimed at a single victim.
Plaintiffs' additional allegations in the RICO count that go beyond the state common law fraud claim are insufficient to create a pattern of racketeering activity. Satellite Financial first alleges that First National Bank caused a trade publication to publish some of the fraudulent representations enumerated earlier. Yet, plaintiffs also allege that the discussion with the trade publication was for the purpose of defrauding plaintiffs, not other victims. The discussion with the publication is in *121 reality one more example of the frauds alleged between plaintiffs and defendants. Therefore, these discussions do not help create a pattern.
The remaining acts alleged in the RICO count concern the communications through the wires and mails by defendants. The wire fraud alleged included "pretended good faith receipt of [credit applications] from plaintiffs, follow-up calls to consumers, credit checking calls to defendants' varied credit sources, calls to and from plaintiffs' various dealers, and factual misstatements to plaintiffs, on a regular and routine basis." Proposed Amended Complaint at ¶ 102(b). The mail fraud alleged concerned the mailing of checks to consumers, dealers and the plaintiffs. Id. at ¶ 102(c). It is noteworthy that the only factual misstatements alleged as going through the mails or wires were those made to plaintiffs. This is significant because all the other acts alleged were part of defendants' obligations under the plaintiffs' agreement with defendants. In other words, plaintiffs seem to be saying that any acts defendants took that were in accordance with the contract were actually part of a pattern of racketeering activity. It makes little sense to find a pattern of racketeering activity through a combination of misrepresentations made concerning an agreement and acts done in conformity with that same agreement.
Another consideration in RICO pattern cases is the continuity of the activity. In Temporaries, Inc. v. Maryland National Bank, 638 F. Supp. 118 (D.Md.1986), the court held that there was no pattern of racketeering activity because the acts alleged took place in a definite period of time and did not have the potential to continue indefinitely. In the instant case, First National Bank's acts took place in a one year period. The alleged goal was to steal Satellite Financial's business. The value First National Bank would receive from the alleged fraud was necessarily brief; once they had access to Satellite Financial's dealer network, there was no need to continue the relationship with Satellite Financial. Second, First National Bank ended the relationship between plaintiffs and defendants after only a year. Defendants, therefore were not trying to perpetrate an ongoing fraud. Plaintiffs cannot allege that the alleged scheme was to be ongoing. See Torwest DBC v. Dick, 628 F. Supp. 163 (D.Col.1986).[2]
On two different levels of analysis, then, plaintiffs have failed to allege a pattern of racketeering activity. First, the activities undertaken were not sufficiently unconnected in time or substance to constitute separate criminal episodes. Allington v. Carpenter, 619 F. Supp. 474, 478 (C.D. Cal.1985). Second, the acts are not sufficiently continuous and ongoing to create a pattern. Temporaries, supra.
With respect to plaintiffs' allegation of the RICO count against First National Bank, there is another ground for denying the motion to amend. A RICO claim must allege an enterprise through which the person subject to liability acted. Sedima, 105 S.Ct. at 3285. Plaintiffs allege that First National Bank was the enterprise through which Commercial Credit and Control Data Corporation effected their goals. The person subject to liability under RICO cannot also be the enterprise for that RICO count. B.J. Hirsch v. Enright Refining Co., 751 F.2d 628 (3d Cir. 1984). Because plaintiffs have not alleged a RICO violation where First National Bank was the person working through another enterprise, the RICO claim, as against First National Bank, should be dismissed.
Plaintiffs have attempted to transform what appears to be a case of state law fraud into a federal RICO cause of action. On close examination of the facts alleged, this effort must fail. The acts alleged are *122 not sufficiently different, nor are they sufficiently ongoing, to allow the RICO claim.
An Order will enter in conformity with this Opinion.
NOTES
[1] The defendants did not argue against the plaintiffs' motion to amend with respect to the state law claims but reserved the right to do so if this Court retained jurisdiction over the case. Because the futility standard applied to motions to amend is identical to that applied on a 12(b)(6) dismissal motion, the Court sees nothing wrong with permitting the plaintiffs to amend with respect to the state law claims. Defendants also presented arguments, primarily on a summary judgment standard, for the dismissal of the plaintiffs' Bank Holding Company Act count. Consideration of that motion will wait until plaintiffs can complete the discovery needed for them to file a response to that motion. In the interests of judicial economy, the Court will allow the plaintiffs to amend with respect to Count I and decide all the issues pertaining to that Count when the summary judgment motion is ready to be decided. The Court notes that defendants renewed their summary judgment motion in their brief pertaining to the instant motion.
[2] The fact that First National Bank ended the relationship with Satellite distinguishes the instant case from Hill v. Equitable Bank, supra. In Hill, defendants allegedly attempted to cover up the fraudulent acts, thus indicating an attempt to make the racketeering activity ongoing. Here, the racketeering activity had a finite lifetime. | 01-03-2023 | 10-30-2013 |
Subsets and Splits