Datasets:

AbstractPerspective

/

court_cases7

like 0

https://www.courtlistener.com/api/rest/v3/opinions/1751018/

165 F. Supp. 418 (1958) The MERRITT CORPORATION, Plaintiff, v. Marion B. FOLSOM, Secretary of U. S. Department of Health, Education, and Welfare, George P. Larrick, Commissioner, Food and Drug Administration, Department of Health, Education, and Welfare, William P. Rogers, Attorney General of the United States, Defendants. Civ. No. 338-58. United States District Court District of Columbia. May 21, 1958. *419 *420 Oliver Gasch, U. S. Atty., Robert J. Asman, Asst. U. S. Atty., William W. Goodrich, Asst. Gen. Counsel, Dept. of Health, Education and Welfare, Washington, D. C., for U. S. Harry M. Edelstein, Washington, D. C., Milton A. Bass, New York City, for plaintiff. CURRAN, District Judge. Findings of Fact 1. On February 11, 1958, the plaintiff, Merritt Corp., filed a complaint for injunction seeking to restrain the defendant government officials from instituting further seizure actions against plaintiff's drug product, "Clarimycin Anti-Biotic Acne Lotion." 2. Pursuant to Section 304 of the Federal Food, Drug, and Cosmetic Act [21 U.S.C.A. § 334] the defendants have caused to be instituted six seizure actions in various parts of the country against "Clarimycin." There was no Section 304 determination of probable cause. 3. Each of the seizure actions instituted allege that "Clarimycin" is a new drug which may not be introduced into interstate commerce under the provisions of Section 505(a) [21 U.S.C.A. § 355(a)], since an application filed pursuant to Section 505(b) [21 U.S.C.A. § 355(b)] is not effective with respect to the drug. 4. The active ingredient of "Clarimycin" is the antibiotic neomycin sulfate. 5. From 1949 to 1955 all neomycin sulfate preparations were deemed to be new drugs requiring the filing of an application pursuant to Section 505 [21 U.S.C.A. § 355] before the drug could be marketed in interstate commerce. 6. In 1955 certain types of neomycin sulfate preparations were declared by the United States Food and Drug Administration no longer to be new drugs when labeled for use only for the prevention of infections in the temporary self-limiting conditions of minor cuts, burns and abrasions. 7. Plaintiff markets its neomycin sulfate lotion preparation in interstate commerce for sale to the layman with labeling recommending use of the product for the treatment of acne. 8. Acne vulgaris is a chronic, recurring disease condition of the skin which may last for years and which therefore requires treatment for a prolonged period of time. 9. When viewed in the light most favorable to it, plaintiff's medical affidavits assert that topical neomycin sulfate is generally recognized by experts as safe in the treatment of acne, even when used over prolonged periods of time. 10. Defendant's medical affidavits assert that topical neomycin sulfate is not generally recognized as safe by experts in the treatment of acne, because it has been shown to produce sensitization and cross-sensitization to streptomycin, an antibiotic valuable in the treatment of serious disease conditions. In addition, that use of neomycin sulfate for the treatment of acne is a new use for neomycin sulfate both because it has not been generally used for such a disease before and also because prolonged administration, which is required in an acne treatment, is a new method of utilizing the drug. *421 Conclusions of Law The Federal Food, Drug, and Cosmetic Act, 21 U.S.C.A. § 334, imposes no limitations upon the number of seizure actions which may be instituted under a "New Drug" charge, i.e. that the drug is one which may not, under the provisions of Section 505 [21 U.S.C.A. § 355] be introduced into interstate commerce. 2. Multiple seizures based on a "New Drug" charge may be instituted without the making of any probable cause determination under Section 304 [21 U.S.C.A. § 334]. 3. The newness of a drug, within the meaning of the Federal Food, Drug, and Cosmetic Act may arise by reason of, among others, a new or different recommended use for the drug, or a new or different duration of administration, even though the same drug may not be a new drug when used in another disease or other duration of administration. 4. From the affidavits submitted it appears that a difference of medical opinion exists among the experts on whether topical neomycin sulfate is generally recognized as safe for the treatment of acne. 5. Where there is a genuine difference of medical opinion among the experts on the question of whether a drug is generally recognized as safe for the treatment of a particular disease, it must be concluded that the drug is not generally recognized as safe for use in the treatment of that disease. 6. It cannot be said therefore, that the defendant government officials have acted unreasonably or arbitrarily. The medical affidavits submitted by the defendants leave no doubt as to the good faith of the officials. 7. The institution of lawsuits alleging violation of the Federal Food, Drug, and Cosmetic Act is a matter of discretion vested in the defendant officials. 8. Where discretion is vested in a government official and he acts in good faith in the light of the facts he ascertains and the judgment he forms, a Court cannot restrain him from acting, on the ground that he has exceeded his jurisdiction, even if his conclusion might have been induced by an error of fact or law. 9. The defendant officials here were properly exercising the powers of the sovereign and the Court may not enjoin that action. 10. The Court is without jurisdiction to enjoin the defendants. 11. Plaintiff's motion for a temporary injunction will be denied. 12. There exists no genuine issue as to any material fact and defendants are entitled to judgment as a matter of law on their motion to dismiss and for summary judgment. 13. Defendant's motion to dismiss and for summary judgment will be granted. Let judgment be entered accordingly.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1734548/

601 F. Supp. 874 (1985) David L. O'NEAL and Connie L. O'Neal, Petitioners, v. UNITED STATES of America, Steven Weida and Phillip Clelland, Agents, Internal Revenue Service, and Internal Revenue Service, Respondents. Civ. No. F 84-191. United States District Court, N.D. Indiana, Fort Wayne Division. January 30, 1985. *875 David L. O'Neal, petitioner, pro se. Peter Sklarew, Trial Atty., Tax Div., U.S. Dept. of Justice, Washington, D.C., David H. Miller, Asst. U.S. Atty., Fort Wayne, Ind., for respondents. ORDER WILLIAM C. LEE, District Judge. This matter is before the court on respondents' motion to dismiss the petition to quash an Internal Revenue Service ("IRS") summons issued to the General Telephone Company ("GTE"). For the following reasons, the motion to dismiss will be granted. Petitioners are proceeding pro se. Pro se pleadings are to be liberally construed. Haines v. Kerner, 404 U.S. 519, 92 S. Ct. 594, 30 L. Ed. 2d 652 (1972). The district court's role is to ensure that the claims of pro se litigants are given "fair and meaningful consideration." Matzker v. Herr, 748 F.2d 1142 at 1146 (7th Cir. 1984); Caruth v. Pinkney, 683 F.2d 1044, 1050 (7th Cir.1982). This court also recognizes that federal courts have historically exercised great tolerance to ensure that an impartial forum remains available to plaintiffs invoking the jurisdiction of the court without the guidance of trained counsel. Pro se motions and petitions such as the petitioners' are held to less stringent pleading requirements; rigor in the examination of such motions, petitions and pleadings is inappropriate. The facts of this case appear to be as follows. On May 11, 1984, the IRS issued a summons to GTE requesting the production of All books and records, which include information relative to the installation, subscriber credit reports, payment records, location and number of telephones and toll records for all telephone service at 506 North Posey Street, Windfall, Indiana 46076 (317) 945-7698. The toll records are requested for the six month period prior to the service of this summons. It is also requested that the telephone numbers on the toll records be *876 identified as to the name and address of the subscriber. The address and phone number listed in the summons belong to the petitioners ("O'Neals"). The O'Neals claim that they are members of the Constitutional Rights Protection Association ("CRPA") which is a group of "like-minded individuals [who] have been outspoken, but legal critics of the tyranny, abuse and infringement of the First Amendment Rights of Individuals commonly practiced by agents of [the] Internal Revenue Service." Complaint, ¶ 6.3 (emphasis in the original). The O'Neals believe that the summons was issued "for the sole and improper purpose of obtaining a list or partial list of `possible' members of the [CRPA], so that the I.R.S. can then selectively harass and intimidate individual members or people they suspect may be members of the [CRPA]," id. at ¶ 6.5, as the phone at the number listed in the summons has been used for CRPA purposes. Disclosure of the members' names would have a chilling effect on the first amendment rights of the CRPA members. The O'Neals therefore seek to quash the summons. The respondents have moved to dismiss the petition to quash, contending that the O'Neals have failed to allege the necessary elements of a first amendment claim. It is this motion to dismiss which the court now addresses. Although the respondents have characterized their motion as a motion to dismiss, it is clear that the issues presented by this motion are best addressed after reference is made to the exhibits and other pleadings in this case. When matters outside the pleadings are presented to and not excluded by the court, a motion to dismiss will be converted into a motion for summary judgment under Rule 56 of the Federal Rules of Civil Procedure. See F.R.Civ.P. 12(b). Under Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment may only be granted if "the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). Thus, summary judgment serves as a vehicle with which the court "can determine whether further exploration of the facts is necessary." Hahn v. Sargent, 523 F.2d 461, 464 (1st Cir.1975). In making this determination, the court must keep in mind that the entry of summary judgment terminates the litigation, or an aspect thereof, and must draw all inferences from the established or asserted facts in favor of the non-moving party. Peoples Outfitting Co. v. General Electric Credit Corp., 549 F.2d 42 (7th Cir.1977). A party may not rest on the mere allegations of his pleadings or the bare contention that an issue of fact exists. Posey v. Skyline Corp., 702 F.2d 102, 105 (7th Cir.), cert. denied, ___ U.S. ___, 104 S. Ct. 392, 78 L. Ed. 2d 336 (1983). See Adickes v. S.H. Kress & Co., 398 U.S. 144, 90 S. Ct. 1598, 26 L. Ed. 2d 142 (1970). See also Atchison, Topeka & Santa Fe Railway Co. v. United Transportation Union, 734 F.2d 317 (7th Cir.1984); Korf v. Ball State University, 726 F.2d 1222 (7th Cir.1983). See generally C. Wright, Law of Federal Courts, § 99 (4th ed. 1983); 6 Moore's Federal Practice, § 56.15 (2d ed. 1984). Thus, the moving party must demonstrate the absence of a genuine issue of material fact. The court views all evidence submitted in favor of the non-moving party. Even if there are some disputed facts, where the undisputed facts are the material facts involved and those facts show one party is entitled to judgment as a matter of law, summary judgment is appropriate. Egger v. Phillips, 710 F.2d 292, 296-97 (7th Cir.1983); Collins v. American Optometric Assn., 693 F.2d 636, 639 (7th Cir.1982). Further, if the court resolves all factual disputes in favor of the non-moving party and still finds summary judgment in favor of the moving party is correct as a matter of law, then the moving party is entitled to summary judgment in his favor. Egger, 710 F.2d at 297. See also Bishop v. Wood, *877 426 U.S. 341, 348, 348 n. 11, 96 S. Ct. 2074, 2079, 2079 n. 11, 48 L. Ed. 2d 684 (1976). With these principles in mind, the court turns to the question of whether the O'Neals' assertion of a chilling of CRPA members' first amendment rights can withstand the motion for summary judgment in light of the facts presented. The power to issue IRS summonses is governed by chapter 78 of the Internal Revenue Code of 1954, 26 U.S.C. §§ 7601-7609. In 26 U.S.C. § 7601, the Code imposes a duty on the Secretary of the Treasury to "inquire after and concerning all persons ... who may be liable to pay any internal revenue tax." Pursuant to that duty, § 7602 provides that For the purpose of ascertaining the correctness of any return, making a return where none is made, determining the liability of any person for any internal revenue tax ... or collecting any such liability, the Secretary or his delegate is authorized— (1) To examine any books, papers, records, or other data which may be relevant to such inquiry; (2) To summon ... any ... person the Secretary or his delegate may deem proper, to appear before the Secretary or his delegate at a time and place named in the summons and to produce such books, papers, records, or other data ... as may be relevant or material to such inquiry.... According to the respondents' memoranda, GTE stands ready and willing to comply with the summons, pending this court's determination of the validity of the petition to quash. Thus, the court does not perceive the issue in this case to be whether the statutory provisions for issuance of an IRS summons have been followed.[1] The O'Neals do not seriously contest the ability of the IRS to subpoena telephone records in most cases. Rather, the issue here is whether a properly issued IRS summons may be quashed when it is alleged to chill the first amendment associational rights of CRPA members. The first amendment right to freedom of association has been recognized in a long line of Supreme Court cases beginning with NAACP v. Alabama, 357 U.S. 449, 78 S. Ct. 1163, 2 L. Ed. 2d 1488 (1958). Since that seminal case, the Court has "repeatedly found that compelled disclosure [of membership lists], in itself, can seriously infringe on privacy of association and belief guaranteed by the First Amendment." Buckley v. Valeo, 424 U.S. 1, 64, 96 S. Ct. 612, 656, 46 L. Ed. 2d 659 (1976). Thus, in order to justify a compelled disclosure, the interests of the state in seeking such disclosure must bear a "relevant correlation," Bates v. City of Little Rock, 361 U.S. 516, 525, 80 S. Ct. 412, 417, 4 L. Ed. 2d 480 (1960), or a "substantial relation," Gibson v. Florida Legislative Comm., 372 U.S. 539, 546, 83 S. Ct. 889, 893, 9 L. Ed. 2d 929 (1963), to the information required to be disclosed. Despite this strict test, "we have acknowledged that there are governmental interests sufficiently important to outweigh the *878 possibility of infringement, particularly when the `free functioning of our national institutions' is involved." Buckley, 424 U.S. at 66, 96 S.Ct. at 657, quoting Communist Party v. Subversive Activities Control Board, 367 U.S. 1, 97, 81 S. Ct. 1357, 1411, 61 L. Ed. 2d 625 (1961). However, this strict test is not to be applied in every case of alleged infringement of associational rights. Rather, a plaintiff must make a showing of a demonstrable injury. In NAACP v. Alabama, for example, the NAACP "made an uncontroverted showing that on past occasions revelation of the identity of its rank-and-file members [had] exposed these members to economic reprisals, loss of employment, threat of physical coercion, and other manifestations of public hostility." 357 U.S. at 462, 78 S.Ct. at 1172. In Bates v. City of Little Rock, 361 U.S. 516, 80 S. Ct. 412, 4 L. Ed. 2d 480 (1960), the Court cited to "substantial uncontroverted evidence that public identification of persons in the community as members of the organization had been followed by harassment and threats of bodily harm. There was also evidence that fear of community hostility and economic reprisals that would follow public disclosure of the membership lists had discouraged new members from joining the organizations and induced former members to withdraw." Id. at 524, 80 S.Ct. at 417. These uncontroverted findings of harassment and withdrawal or discouragement of membership supported freedom of association claims, while "highly speculative" claims of infringement would not. Buckley, 424 U.S. at 69-70, 96 S.Ct. at 659. Thus, the elements of a first amendment freedom of association claim are twofold: plaintiff must show (1) a compelled disclosure of the association's membership list;[2] and (2) a factual showing of harassment, membership withdrawal or discouragement of new members, or other consequences which objectively suggest an impact (or "chilling") on the members' associational rights. This is often called "the prima facie case for an arguable first amendment claim." The government may then attempt to point out the substantial relationship between the government interest in seeking the information and the information sought. If such a relationship is proven, the court must then balance between the government's and plaintiff's interests. Compelled Disclosure The court finds that the O'Neals have failed to prove the element of a compelled disclosure. The summons at issue is not a request for a list of all CRPA members; it simply requests the names and addresses of the people called from the O'Neal residence. While the names of some CRPA members may be revealed incidentally, there is no suggestion that all of the members' names will be revealed. Further, the summons involved here seeks the names of people who are not members, as the O'Neals have never contended that their phone is used exclusively for CRPA business. The summons seeks to discover all persons who may have information pertaining to the O'Neals' tax liability. The indirect disclosure of members which such a neutral request may occasion is a far cry from the laws mandating the revelation of membership lists or names which were struck down in NAACP v. Alabama and Bates v. Little Rock. A second distinction which mitigates against a finding of compelled disclosure is that the summons is directed to GTE in order to obtain records about two individuals — the O'Neals — and not about the CRPA. The summons does not contain a request for a membership list, nor can the neutral nature of the summons be construed *879 as such a request. This distinction is crucial, for the cases seem uniform in holding that, while an IRS summons of a tax reform organization's records might produce a "readily apparent" chilling effect, see United States v. Grayson County State Bank, 656 F.2d 1070, 1074 (5th Cir. 1981), cert. denied, 455 U.S. 920, 102 S. Ct. 1276, 71 L. Ed. 2d 460 (1982), a summons directed to records of individual taxpayers do not directly implicate the associational rights of the organization's members absent a factual showing of infringement. See Kroll v. United States, 573 F. Supp. 982, 987 (N.D.Ind.1983) (tax organization); Voss v. United States, 573 F. Supp. 957, 961-62 (D.Colo.1983) (tax organization); United States v. Meininger, 101 F.R.D. 700, 703, 703 n. 7 (D.Neb.1984) (tax organization). Cf. United States v. Manufacturers Bank of Southfield, 518 F. Supp. 495, 498 (E.D.Mich.1981), remanded, 709 F.2d 1511 (6th Cir.1983) (church). The O'Neals argue that the investigation of their liability is merely an IRS guise for obtaining the names of other CRPA members so that the IRS can then begin harassing them. However, such an argument was specifically rejected in Voss. Nor does the admission by Special Agent Weida, in his declaration filed in David L. O'Neal v. United States of America, No. IP-83-1845 C (S.D.Ind.), prove this intent to harass. That case involves a similar petition to quash an IRS summons directed to the Union State Bank to produce records of a bank account maintained by David O'Neal in the name of CRPA. Agent Weida declared that the bank records "will disclose the names of various members or other persons affiliated with the CRPA who may be able to provide testimony and further information on the relationship between [O'Neal] and the CRPA ... and specifically whether [O'Neal] derived any income directly or indirectly from or through the CRPA during these periods." That declaration does not indicate an intent to harass the members as to their own tax liabilities, but simply to seek out sources of information concerning the O'Neals' income. The summons to GTE is similarly designed to discover information about the O'Neals, which is completely consistent with the purposes of 26 U.S.C. § 7602. The fact that some CRPA members' names may be revealed by such discovery does not constitute compelled disclosure of the CRPA's membership list. Requisite Factual Showing Even if the incidental revelation of some CRPA members could constitute a compelled disclosure of CRPA's membership list so as to satisfy the first element of a first amendment claim, petitioners completely fail to show the factual basis for a fear of a chilling of CRPA members' rights. As was noted earlier, the NAACP v. Alabama and Bates cases involved uncontroverted factual assertions of harassment, threats, withdrawal from the organization, and reductions in new membership or fund-raising activities. The case law involving first amendment claims against IRS summonses is unanimous in requiring factual assertions detailing the adverse effects of the summons in order to constitute a prima facie showing of arguable first amendment infringement. See In re First National Bank, Englewood, Colo., 701 F.2d 115 (10th Cir.1983); United States v. Citizens State Bank, 612 F.2d 1091, 1094 (8th Cir.1980); United States v. The Freedom Church, 613 F.2d 316, 320 (1st Cir. 1979); Voss v. United States, 573 F.Supp. at 961-62; United States v. Manufacturers Bank of Southfield, 518 F.Supp. at 498. The proof offered must be "objective" — an allegation of "apprehension," Manufacturers Bank, 518 F.Supp. at 498, or subjective deterrence of membership or contribution, id.; see also Buckley v. Valeo, 424 U.S. at 71-72, 96 S.Ct. at 659-60, is not sufficient to meet this burden. Further, "the mere possibility of an IRS investigation or audit is not the sort of harm which would preclude disclosure of membership lists." Manufacturers Bank, 518 F.Supp. at 498. However, affidavits from members detailing adverse effects of the summons on the organization's activities may be enough. See In re First National *880 Bank, 701 F.2d at 118; Citizens State Bank, 612 F.2d at 1094. Here, the O'Neals have failed to present sufficient objective facts to justify a finding that an infringement of CRPA member associational rights might arguably occur if the summoned information is provided to the IRS. The sum total of the allegations is an affidavit signed by the O'Neals stating that "the summons directed to General Telephone Company will destroy the free exchange of ideas by and between the members of the CRPA," and the various statements in the complaint and in the memorandum in opposition to the motion to dismiss.[3] These allegations are insufficient for at least two reasons. First, they are conclusory and do not detail in any way how the summons has actually impacted (or threatens to impact) on CRPA activities. These claims lack the specificity of the claims in Bates and NAACP v. Alabama. Second, the allegations were made exclusively by the O'Neals, who cannot possibly have personal knowledge of what other members of CRPA or potential members might feel or think in light of the summons. Thus, the O'Neals have failed to prove the requisite factual basis necessary for establishing a prima facie first amendment violation. In summary, then, the O'Neals have failed to show either of the elements of a first amendment claim. They have failed to establish that the IRS summons constitutes a compelled disclosure of the CRPA membership list, and have failed to show that disclosure of the information requested will in fact result in a chilling of first amendment associational rights. Having failed to establish their prima facie burden of proof, the O'Neals cannot demand that the government establish a compelling need for the information requested.[4] The first amendment grounds for the petition to quash fail. The O'Neals make two other allegations in their memorandum in opposition which need only brief discussion. The first involves a claim that this summons violates the fourth amendment's prohibitions against unreasonable searches and seizures because it is merely a "fishing expedition" into the papers of the O'Neals and CRPA. First, the court finds that the government has a legitimate interest in seeking the information requested, as it will help to determine the O'Neals' tax liability. Thus, it is not a "fishing expedition." Second, the case law cited by the O'Neals, involving four very old cases of the Supreme Court,[5]*881 is inapplicable and unpersuasive. Congress has specifically authorized the issuance of IRS summons in 26 U.S.C. § 7602, and the issuance of this summons was consistent with relevant statutory and constitutional provisions.[6] The second claim is that this summons was not issued in accordance with administrative procedure required by the Code (the fourth part of the Powell test). The rationale behind this argument is that, because the real purpose behind the summons is to obtain the names of CRPA members, the IRS should have issued a "John Doe" summons pursuant to 26 U.S.C. § 7609(f). The court notes that this summons does not appear to fall under § 7609(f), as it specifically identifies David L. O'Neal as the person who is being investigated, and thus is not a summons which "does not identify the person with respect to whose liability the summons is issued." 26 U.S.C. § 7609(f). At least two courts agree that a summons in connection with the investigation of a named taxpayer does not need to follow the "John Doe" summons procedures of § 7609(f), even if the summons has the further effect of discovering information that would aid in identifying unnamed taxpayers and investigating their tax liabilities. See United States v. Tiffany Fine Arts, Inc., 718 F.2d 7, 12-14 (2d Cir.1983), affd., ___ U.S. ___, 105 S. Ct. 725, 83 L.Ed.3d 678 (1985); United States v. Barter Systems, Inc., 694 F.2d 163 (8th Cir.1982). A similar position was adopted by the Eleventh Circuit in United States v. Gottlieb, 712 F.2d 1363, 1369 (11th Cir.1983). In light of this precedent, the court is not persuaded by, and specifically rejects, the rationale of United States v. Thompson, 701 F.2d 1175 (6th Cir.1983), cited by the O'Neals. Thus, the O'Neals have failed to present a petition to quash which has any merit. The motion to dismiss will be converted into a motion for summary judgment, and will be granted in its entirety. Conclusion For the reasons stated above, the converted motion to dismiss is hereby GRANTED. NOTES [1] The O'Neals, in their memorandum opposing the motion to dismiss, allege that the four-part test of United States v. Powell, 379 U.S. 48, 85 S. Ct. 248, 13 L. Ed. 2d 112 (1964), has not been met. However, Powell established the four-part standard (that the investigation will be conducted pursuant to a legitimate purpose; that the inquiry may be relevant to that purpose; that the information sought is not already in the Commissioner's possession; and that the administrative steps required by the Code have been followed) as the prima facie case the government must prove in a summons enforcement proceeding under 26 U.S.C. § 7604. As this case involves a challenge to the issuance of a summons under 26 U.S.C. § 7602, Powell is not directly applicable, although some courts have stated that the IRS must exhibit good faith throughout the summons process. See United States v. LaSalle Bank, 437 U.S. 298, 318, 98 S. Ct. 2357, 2368, 57 L. Ed. 2d 221 (1978); United States v. Grayson County State Bank, 656 F.2d 1070, 1073 (5th Cir.1981), cert. denied, 455 U.S. 920, 102 S. Ct. 1276, 71 L. Ed. 2d 460 (1982). However, the O'Neals' argument suggesting a lack of good faith is simply the first amendment claim; thus, the analysis of whether the summons was issued in good faith pursuant to Powell and LaSalle Bank centers on whether the summons was issued to obtain the CRPA membership list in violation of the first amendment. The court therefore implicitly answers the question of good faith under Powell by examining the merit of the first amendment claim. [2] Although no court has specifically cited compelled disclosure as an element of a first amendment claim, as freedom of association may be violated in ways other than compelled disclosure of membership lists, the court nevertheless separates out this aspect of Bates and NAACP v. Alabama because of the peculiar nature of this case. The O'Neals contend that the IRS summons will expose the names of CRPA's members. It seems logical in this instance to require the O'Neals to show that in fact the CRPA membership list will be disclosed. [3] Some of these statements are: "Compelled disclosure of the names and addresses of all toll records (which the summons seeks) will have a chilling effect on the rights of [CRPA] members," Complaint, ¶ 7.2; "exposing these telephone callers to IRS scrutiny will chill the members cherished First Amendment rights," Memorandum, p. 2; "compelled disclosure ... would expose [CRPA] members to harassment by government officials ... and similar reprisals from private persons who might disapprove of or actively oppose [CRPA] purposes," Memorandum, p. 6; "[CRPA] will not be able to attract new members, much less retain existing ones, if the price is unwanted, unwelcome, and unjustified exposure," Memorandum, p. 7. [4] Because the O'Neals have failed to prove their prima facie case, this court need not require the government to point out the substantial relationship between its interest and the information sought. However, the compelling interest of the government is readily apparent. As the Supreme Court stated in Bull v. United States, 295 U.S. 247, 259, 55 S. Ct. 695, 699, 55 L. Ed. 2d 695 (1935), "taxes are the lifeblood of government." The collection of taxes is an essential part of the process of keeping that lifeblood flowing, and is thus a governmental interest "sufficiently important to outweigh the possibility of infringement [of first amendment rights], particularly when the `free function of our natural institution' is involved." Buckley, 424 U.S. at 66, 96 S.Ct. at 657, quoting Communist Party v. Subversive Activities Control Board, 367 U.S. 1, 97, 81 S. Ct. 1357, 1411, 61 L. Ed. 2d 625 (1961). Seeking information on the O'Neals' tax liability via a summons to GTE is substantially and directly related to the compelling government interest in collecting taxes. Weighed against the lack of any factual showing of a chilling effect, the government interest would clearly prevail. [5] The O'Neals cite United States v. Louisville and Nashville R. Co., 236 U.S. 318, 35 S. Ct. 363, 59 L. Ed. 598 (1915); Harriman v. I.C.C., 211 U.S. 407, 29 S. Ct. 115, 53 L. Ed. 253 (1908); I.C.C. v. Brimson, 154 U.S. 447, 14 S. Ct. 1125, 38 L. Ed. 1047 (1894); United States v. Lee, 106 U.S. 196, 1 S. Ct. 240, 27 L. Ed. 171 (1882). [6] The respondents cite to United States v. Miller, 425 U.S. 435, 96 S. Ct. 1619, 48 L. Ed. 2d 71 (1976), where the Court held that a bank depositor had no fourth amendment interest in bank records relating to his account. There the Court stated that "this Court has repeatedly held that the Fourth Amendment does not prohibit the obtaining of information revealed to a third party and conveyed by him to Government authorities," so that "the issuance of a subpoena to a third party does not violate the rights" of the subject to the records (in Miller, the bank depositor). Id. at 433-34, 96 S.Ct. at 1624. The court finds this authority persuasive and applicable here by analogy.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1735863/

14 F. Supp. 739 (1935) In re McCRORY STORES CORPORATION. No. 56239. District Court, S. D. New York. November 12, 1935. PATTERSON, District Judge. A prior plan of reorganization was rejected as discriminating unfairly in favor *740 of United Stores Corporation. It was held that the landlords' claims purchased by the United could not be valued for purposes of reorganization at more than the amount paid for them by the United, plus the reasonable cost of acquisition. Since the plan then under consideration gave to the United more than that figure, it was disapproved. The opinion on that plan contains an outline of the claims against the company and of its capital structure. Two plans have since been submitted, each of them modified after submission. Both conform to the limitation already placed by the court on the allowable value of the claims acquired by the United. The Harris plan. The Harris plan is backed by a committee acting for holders of about one-half the common stock. The debentures and the merchandise claims are to be paid off in cash, in full with interest. The claims of Green and Coppedge are to be paid in cash to the extent of $24,000, the balance in new common stock. The United is to be paid off in cash at its cost of acquisition, together with reasonable expenses not to exceed $150,000. All other landlords' claims are to be paid in cash, to the extent that such claims may be allowed or settled. The holders of preferred stock are to get new preferred, share for share, and cash to cover all accrued and unpaid dividends. The holders of common will receive new common, share for share (this requiring 443,000 shares), and the right to subscribe for 499,000 shares of new common at $10.75 a share. The money necessary to carry out the plan is to be raised by the sale of new debentures in the amount of $4,552,000, and by the disposal of the new shares of common stock. The Harris committee estimates that by sale of such new securities enough cash will be forthcoming to pay off all claims and reorganization expenses and to leave working capital of $6,000,000 for the company. There is presented an underwriting agreement by F. S. Mosely & Co. and Lehman Bros. By this agreement the underwriters agree to purchase the debentures at 97½ and to underwrite the offer of new common to the stockholders at $10.75 a share. As compensation for the underwriting, the provision originally was that the underwriters would receive $.75 a share on the 499,000 shares offered to stockholders for subscription, and also a five-year option to purchase 99,000 shares of new common at $10.75 a share. This has since been modified to eliminate the five-year option and to provide that the underwriting fee will be $.75 a share on the 499,000 shares, together with the following additional sums: $.50 a share for each share actually taken up by the underwriters in excess of 50,000 up to 100,000; $.75 a share for each share taken up in excess of 100,000 up to 200,000; and $1 a share for each share taken up in excess of 200,000. The underwriting is conditional. The underwriters' commitment is subject to the following conditions: (1) That on consummation of the plan the net current assets of the company will be at least $5,000,000; (2) that the leases, executory contracts, and employment agreements of the company shall be satisfactory to the underwriters, the right to withdraw for dissatisfaction on this ground to be exercised not later than twenty days after court approval of the plan; (3) that the plan be finally consummated before February 1, 1936; (4) that the operations and condition of the company shall be as favorable at the time the new securities are delivered as at present; (5) that at the time when the new securities shall be delivered a war or political or economic change shall not have occurred which in the underwriters' judgment will materially and adversely affect the marketability of the securities to be purchased or underwritten; (6) that the shares of new common underwritten shall not be offered to stockholders until after the plan has been finally confirmed by order of court from which no appeal can be taken or as to which the time to appeal has expired. Finally, it is provided that if the underwriters shall discover, at any time prior to the offering of the new stock to common stockholders, that any of the above conditions (except the second) have not been or will not be fulfilled or that any material assumption on which the plan is based does not or will not exist, they shall be under no obligation to proceed. The Merrill plan. This plan is presented by a committee representing holders of about one-third of the common stock. Just as under the Harris plan, the debentures and merchandise claims are to be paid in cash, in full with interest; the Green and Coppedge claims are to be paid, partly in new common stock and *741 partly in cash; the landlords' claims not acquired by the United are to be paid in cash at the allowed or settled amounts; the holders of present preferred shares are to receive new preferred, share for share, with all back dividends paid in cash. From this point on, the Merrill plan differs in several respects from the Harris plan. The landlords' claims acquired by the United (taken at the aggregate figure paid by the United to the landlords, plus such interest as the court may allow, plus also $150,000 or such other figure as the court may allow for reasonable expenses of acquisition) are to be discharged by the issuance to the United of not more than 280,531 shares of new common stock at $10.75 a share and by payment of any balance in cash. The holders of common stock will get new common, share for share. They will also have the right to subscribe at $10.75 a share to such number of new shares as may be required to bring the net current assets of the company up to $6,000,000. The estimated total of new common shares is 942,000, the same figure as with the Harris plan. It is provided that in case the actual number shall fall below that figure, the price of $10.75 for the new shares will be increased in due proportion, the increased price to apply both to the shares to be issued to the United in satisfaction of its claims and to the shares to be offered for subscription to present stockholders and to be underwritten. The new money under the Merrill plan is to come from the sale of $4,552,000 new debentures and from the offer of the new common shares to stockholders. The sale of the debentures is unconditionally underwritten by the United at 97½ without deduction of any commission; and the United agrees that if the debentures are sold by it at a price better than 101, it will turn over one-half the excess to the company. The offer of the new shares to common stockholders at $10.75 is unconditionally underwritten by the United for a commission of $.75 a share, no commission to be paid, however, on such shares as may be actually taken up by stockholders. The Harris plan is backed by a group of common stockholders. The Merrill plan is backed by another group of common stockholders; it has also the support of the bulk of the creditors and preferred stockholders, as well as the support of the United. The record made at the hearings on the prior plan shows the need of a prompt reorganization. The company has been under court control for nearly three years. Long-continued administration of the business by a trustee under court supervision does not promote the best interests of either creditors or stockholders. There is appreciable risk that unless the company is lifted out of reorganization valuable business sites and other advantages may be lost to competitors. These and other considerations move the court toward approving a fair and feasible plan presently proposed, as against the possibility that a better plan might be submitted at some indefinite time in the future. The statute under which this proceeding is brought contains provisions indicative of a purpose on the part of Congress that reorganizations be effected with reasonable celerity. I am of opinion that the Merrill plan with its underwriting is preferable to the Harris plan with its underwriting, both on the score of feasibility and on the score of fairness to all parties interested in the company, and that the Merrill plan deserves approval by the court. 1. The debenture holders and general creditors have been held off for nearly three years. Their claims are liquidated and with accrued interest come to nearly $9,000,000. They want their money without further delay and are entitled to the best assurance possible that if a plan is approved and later confirmed, their claims will actually be paid. Under the Merrill plan, they have definite assurance. The plan is unconditionally underwritten by the United, and on confirmation the United will be held firmly bound to put up the necessary money. Its financial responsibility has not been questioned. Under the Harris plan the creditors get nothing like the same assurance. The underwriting accompanying that plan, while offered in good faith, is fettered with conditions, several of them sweeping and of a duration that cannot be forecast. The underwriters, months after approval and confirmation, may withdraw in case the outlook is not to their liking when the time comes to carry out the plan, and with their withdrawal the plan collapses. Even after confirmation, risks are left with *742 the creditors and stockholders rather than with the underwriters. Again, the underwriting calls for final consummation of the plan by February 1, 1936, but at the same time requires that consummation be suspended until after confirmation of the plan "by a court order from which no appeal can be taken or as to which the time to appeal has expired." As it is virtually certain that the United, if not others, would appeal from any order confirming the Harris plan, the time limit of February 1, 1936, for final consummation destroys the efficacy of the underwriting and will have the practical effect of making performance optional with the underwriters. From the viewpoint of creditors, therefore, the Merrill plan has advantages definitely outweighing anything offered by the Harris plan, and the creditors' vigorous support of the Merrill plan is no more than natural. 2. There is proof in the record that a concern doing the gross business now being done by the company ought to have working capital of at least $6,000,000. Under the Merrill plan, working capital at that figure is guaranteed by the United. Under the Harris plan, it is by no means certain that the company will start off with $6,000,000 in working capital; it may well be that working capital will be nearer $5,000,000. While the point is of no interest to creditors, it is matter of concern to preferred stockholders and common stockholders. 3. The cost of the new money required to carry out reorganization is also a matter of concern to common stockholders, since this expense is one ultimately to be borne by them. Under the Merrill plan, the underwriter's commission will be from zero up to $200,000, depending on how many shares offered for subscription to stockholders are taken up by them. Under the Harris plan, the underwriters' fee will be from a minimum of $374,000 up to a maximum of $800,000, depending again on how many shares are taken up by stockholders, and the company must also pay the underwriters' legal expenses. The saving in underwriting charges under the Merrill plan will range from $400,000 to $600,000. 4. An important advantage presented by the Merrill plan is that adoption of that plan will foreclose further litigation by the United relative to the amount allowable for landlords' claims acquired by it. It has already been held that those claims cannot be taken at more than the expenses of acquisition, which is something under $3,000,000. Approval and confirmation of the Harris plan, on the other hand, would leave the way open to the United to press its position that the claims held by it have an allowable value far in excess of its cost of acquisition. In this court it would be defeated, as indicated by the opinion on the prior plan; but the result in appellate courts could not be predicted with certainty. If the United were to succeed in such litigation and eventually establish a value of $6,000,000 or $7,000,000, the blow would be a heavy one to stockholders. The mere existence of such litigation would postpone reorganization for an indefinite time; its continuance beyond February 1, 1936, would of itself result in withdrawal of the Harris underwriting. It may further be noted that acceptance of the Harris plan would also dissolve the settlement made by the United with Goldberg and Chain Store Products Corporation, leaving the latter free to litigate their claims against the company. Those claims were filed for amounts far larger than their cost to the United, and one cannot say offhand what their allowable value might be. The Merrill plan is more advantageous in holding the United down to bare cost of acquisition and eliminating litigation with the United and these other claimants in respect of the value of their claims. 5. By the Merrill plan, the United's claims are taken at cost of acquisition, plus reasonable expenses, and are to be paid in common stock at $10.75 a share. By the Harris plan the amount of the claims is the same, but the payment is to be in cash. The objection of the Harris committee to payment in stock is twofold: First, that the price of $10.75 is too cheap; second, that payment in stock at any price violates the pre-emptive right of the present holders of common stock. First, as to the price. There is every indication that the price of $10.75 a share for the new common stock is a fair and reasonable price. The current earnings of the company do not support a higher figure. Moreover, the stock is the same stock for which the underwriters produced by the Harris committee are willing (conditionally) to pay a net figure of only $9 or $10 a share. It is difficult to follow *743 the reasoning which maintains that $10, or even $9, is a fair price for the Harris underwriters to pay, but that $10.75 is too little for the United to pay. Second, as to the pre-emptive right. It may be that if the company were a concern in ordinary course of business and not in default with its creditors, the matter of pre-emptive right of stockholders in any new issue of stock would be of prime importance. The ordinary rule is that the right of stockholders to subscribe proportionately to an issue of new shares is inherent in ownership of stock, and it is of no moment that a better cash price for the new shares might be paid by outsiders. But it is plain that where a company is unable to pay its obligations and is in course of reorganization under section 77B, Bankr.Act (11 U.S. C.A. § 207), the pre-emptive right of stockholders in an issue of new stock must be dispensed with where that course is necessary to do justice to creditors whose unpaid claims are paramount to the preemptive right or any other right of stockholders. The act is explicit enough on the point. It provides, in subsection (b), 11 U.S.C.A. § 207 (b), that a plan "may include provisions modifying or altering the rights of stockholders generally, or of any class of them, either through the issuance of new securities of any character or otherwise"; further, that it "shall provide adequate means for the execution of the plan, which may include * * * the issuance of securities of the * * * debtor * * * for cash, or in exchange for existing securities, or in satisfaction of claims or rights, or for other appropriate purposes." A fair answer to the Harris argument respecting pre-emptive right is that the Harris plan itself is an infringement on the pre-emptive right of stockholders. It now calls for issuance of new shares of common stock in satisfaction of the claims of Green and Coppedge, without any prior offer of such stock for subscription to existing stockholders. And the Harris plan formerly provided that 99,000 shares of new stock be placed under option to the underwriters for five years, without prior offer of the stock to stockholders. On the oral argument that feature of the Harris plan was defended as fair and proper, although it is manifest that the pre-emptive right of stockholders would have been seriously impaired by the issuance of any such option. But these things aside, the insistence by a group of common stockholders on the unimpairment of their right to purchase all new shares cannot be countenanced in the face of demands by creditors that no plan be approved which does not assure them of prompt payment of their claims. If the stockholders insist on the right to subscribe to all new shares of stock, they are bound either themselves to deposit the money required to pay creditors or to tender a firm underwriting by others that on confirmation the money will be put up. As already pointed out, the Harris plan with underwriting does not meet these requirements. An order may be submitted approving of the Merrill plan.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1736312/

852 F. Supp. 659 (1994) MCI TELECOMMUNICATIONS CORPORATION, Plaintiff, v. AMERI-TEL, INC., Defendant. No. 91 C 4277. United States District Court, N.D. Illinois, Eastern Division. May 10, 1994. *660 Eddie M. Pope, Dallas, TX, for plaintiff. Lauren Tashma, John C. Benz, Brian W. Lewis, Wildman, Harrold, Allen & Dixon, Chicago, IL, for defendant. MEMORANDUM OPINION AND ORDER MAROVICH, District Judge. Pursuant to Fed.R.Civ.P. 56, Plaintiff MCI Telecommunications Corporation ("MCI") moves this court for summary judgment against Defendant Ameri-Tel, Inc. ("Ameri-Tel") on its claim that Ameri-Tel owes $124,064.84 for certain long-distance telephone services provided by MCI. Pursuant to the primary jurisdiction doctrine, Ameri-Tel contends that the Federal Communications Commission ("FCC") should have the first opportunity to review the issues presented by this suit. Ameri-Tel also argues that *661 genuine issues of material fact exist that preclude summary judgment for MCI. For the following reasons, we will grant Plaintiff's motion for summary judgment. BACKGROUND AND SUMMARY JUDGMENT STANDARD Under the Federal Rules of Civil Procedure, summary judgment is appropriate if "there is no genuine issue as to any material fact and ... the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). In ruling on a motion for summary judgment, we must view the record and all inferences to be drawn in the light most favorable to the non-movant. Holland v. Jefferson Nat'l. Life Ins. Co., 883 F.2d 1307, 1312 (7th Cir.1989); Beard v. Whitley County REMC, 840 F.2d 405, 409-410 (7th Cir.1988). The movant bears the initial burden of showing with the "pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any" the absence of a genuine issue of material fact. Fed.R.Civ.P. 56(c). When faced with a motion for summary judgment, the non-movant may not rest upon the mere allegations or denials of its pleadings; instead, it must respond by setting forth specific facts showing that there is a genuine issue for trial. Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S. Ct. 2548, 2553, 91 L. Ed. 2d 265 (1986); McCarthy v. Kemper Life Ins. Cos., 924 F.2d 683, 687 (7th Cir.1991); Skagen v. Sears Roebuck & Co., 910 F.2d 1498, 1500 (7th Cir.1990); Schroeder v. Lufthansa German Airlines, 875 F.2d 613, 620 (7th Cir.1989). The non-movant can only satisfy its burden by "affirmatively demonstrat[ing] that there is a genuine issue of material fact which requires trial." Anderson v. Liberty Lobby, 477 U.S. 242, 247, 106 S. Ct. 2505, 2510, 91 L. Ed. 2d 202 (1986); Beard, 840 F.2d at 410. In this district, both the movant and non-movant are governed by strict rules concerning the setting forth of material facts. Local Rule 12(M) requires the movant to articulate precisely the "material facts as to which [it] contends there is no genuine issue ... including ... specific reference to the affidavits, parts of the record, and other supporting materials relied upon to support the facts set forth...." The non-movant must then file a concise response to the movant's statement ... including in the case of any disagreement, specific references to the affidavits, parts of the record, and other supporting materials relied upon, and ... a statement ... of any additional facts which require the denial of summary judgment, including reference to the affidavits, parts of the record, and other supporting materials relied upon. All material facts set forth in the statement required of the moving party will be deemed admitted unless controverted by the statement of the opposing party. Local Rule 12(N) (emphasis added). MCI has complied with Local Rule 12(M); however, Ameri-Tel has not submitted a response pursuant to Local Rule 12(N). The consequences of that failure are clear and we follow the long line of precedent that holds parties to the mandate of Local Rule 12.[1] As dictated by Local Rule 12(N), all of the properly supported facts set forth by MCI in its Rule 12(M) statement are deemed admitted by Ameri-Tel. The Court will not consider the additional facts offered by Ameri-Tel in its briefs or as exhibits to its briefs because it failed to file a Local Rule 12(N) statement. MCI, a Delaware corporation, is a provider of interstate telecommunications services to individual and corporate users. One of its corporate users was Ameri-Tel, an Illinois corporation owning and operating coin-operated pay telephones. Between December 1989 and January 26, 1991, MCI provided long-distance telephone service to Ameri-Tel pursuant to MCI F.C.C. Tariff No. 1 ("Tariff"), which was filed with the FCC in accordance with the Communications Act of 1934, *662 47 U.S.C. § 151 et seq. (1982) (the "Act"). On January 26, 1991, MCI discontinued servicing Ameri-Tel when it refused to pay for international calls placed on Ameri-Tel-operated telephones using MCI long-distance service. In August 1991, MCI filed an amended complaint, seeking collection under 47 U.S.C. § 203 (1982) of $38,622.71 for telecommunications services it provided for certain Ameri-Tel telephones, plus reasonable attorneys' fees and costs. On July 10, 1992, MCI filed a second amended complaint, demanding payment by Ameri-Tel of $128,923.84 for the long-distance services in question. In its Answer to MCI's second amended complaint, Ameri-Tel listed six accounts charged by MCI that it maintained were not operated under any agreement or contract with MCI. The charges attributable to those accounts totaled $4,859.00. For the purposes of this motion, MCI does not dispute these charges and has deleted the amount from its claim, leaving the total claim for unpaid services at $124,064.84 plus attorneys' fees and costs. Ameri-Tel defends its refusal to pay by relying on an arrangement it allegedly reached with Illinois Bell, MCI's billing agent, to block certain international direct dialed calls after June 1, 1990. Ameri-Tel claims to have taken advantage of call-blocking provided through a revision of an Illinois Bell tariff. Mervyn Dukatt, President and sole Executive Officer of Ameri-Tel, admits that he never discussed any international call-blocking arrangements with any MCI representative. Dukatt further admitted he was unaware of any factual basis for Ameri-Tel's affirmative defense that MCI should have blocked the calls in question by virtue of "transmission agreements" with Illinois Bell. DISCUSSION Our analysis of MCI's motion for summary judgment is two-fold. Initially, the Court must determine whether there are issues which should first be decided by the FCC under the doctrine of primary jurisdiction. Only if this threshold inquiry suggests the inapplicability of primary jurisdiction to this case can this Court then decide MCI's motion on its merits. Primary Jurisdiction The Supreme Court cogently explained the doctrine of primary jurisdiction in U.S. v. Western Pac. R.R. Co., 352 U.S. 59, 63-64, 77 S. Ct. 161, 164-165, 1 L. Ed. 2d 126 (1956): The doctrine of primary jurisdiction ... is concerned with promoting proper relationships between the courts and administrative agencies charged with particular regulatory duties.... Primary jurisdiction ... applies where a claim is originally cognizable in the courts, and comes into play whenever enforcement of the claim requires the resolution of issues which, under a regulatory scheme, have been placed within the special competence of an administrative body; in such a case the judicial process is suspended pending referral of such issues to the administrative body for its views. Because of the nature of the doctrine and the variety of situations in which it might apply, there is no fixed standard or formula for its application. Id. at 64, 77 S.Ct. at 165. Instead, a court should consider whether application of the doctrine would promote uniformity in statutory or regulatory construction and involve the use of the agency's special expertise and procedural flexibility and whether complex policy determinations are at issue. Id. at 64-67, 77 S.Ct. at 165-167. As the Court explained, "in cases raising issues of fact not within the conventional experience of judges or cases requiring the exercise of administrative discretion, agencies created by Congress for regulating the subject matter should not be passed over." Id. at 64, 77 S.Ct. at 165; see also Ryan v. Chemlawn Corp., 935 F.2d 129, 131 (7th Cir.1991). Finally, we note that "primary jurisdiction serves judicial economy because the dispute may be decided within the agency, thus obviating the need for the courts to intervene." Id. (citing Christian v. New York State Dept. of Labor, 414 U.S. 614, 622, 94 S. Ct. 747, 751, 39 L. Ed. 2d 38 (1974)). Several courts have gone a step further in distilling the primary jurisdiction doctrine. While continuing to recognize that no set *663 formula exists for applying it, they list four factors generally considered by the courts when determining if application of the doctrine is appropriate. These are: 1. Whether the question at issue is one within the conventional experience of the judges; 2. Whether the question at issue lies peculiarly within the agency's discretion or requires the exercise of agency expertise; 3. Whether there exists a danger of inconsistent rulings disruptive of a statutory scheme; and 4. Whether a prior application to the agency has been made. See, e.g., Oasis Petroleum Corp. v. U.S. Dept. of Energy, 718 F.2d 1558, 1564 (Temp.Ct.Emer.App.1983) (citations omitted). Courts have been reluctant to invoke primary jurisdiction "where the nature of the action deems application of the doctrine inappropriate." U.S. v. McDonnell Douglas Corp., 751 F.2d 220, 224 (8th Cir. 1984) (quoting Mississippi Power & Light Co. v. United Gas Pipeline Co., 532 F.2d 412, 419 (5th Cir.1976), cert. denied, 429 U.S. 1094, 97 S. Ct. 1109, 51 L. Ed. 2d 541 (1977)). The court in Mississippi Power & Light Co. was especially concerned with the potential for added expense and delay to the parties caused by a stay of district court proceedings pending administrative action. 532 F.2d at 419. In general, courts "must always balance the benefits of seeking the agency's aid with the need to resolve disputes fairly yet as expeditiously as possible." Local 189, Amalgamated Meat Cutters v. Jewel Tea Co., 381 U.S. 676, 686, 85 S. Ct. 1596, 1600, 14 L. Ed. 2d 640 (1965). With these considerations in mind, we now analyze whether application of the doctrine is appropriate in this case. According to MCI, this is a simple collection case involving a common application of the filed rate doctrine. In contrast, Ameri-Tel views the case as one involving complicated issues of federal telecommunications policy, intricate details of telecommunications technology, and the growing problem of toll fraud. Ameri-Tel engages in an extensive discussion to support its view of the importance of FCC action in this case. We begin our discussion with some observations. In its argument, Ameri-Tel neglects to consider the impact of its failure to raise any issues with respect to MCI's Tariff or its practices by way of counterclaim or affirmative defenses. Furthermore, Ameri-Tel has admitted, among other things, that MCI provided service to Ameri-Tel under the terms of MCI FCC Tariff No. 1. The combination of these defects in Ameri-Tel's argument severely limit the scope of the potential dispute. First, Ameri-Tel contends that the FCC is currently reviewing information in connection with potential rulemaking on the complicated issue of the liability of pay telephone providers for toll fraud charges. See, e.g., Florida Public Service Commission Petition for Review of Tariff Provisions Relating to Liability for Toll Fraud Charges, 8 F.C.C.R. 2562 (April 5, 1993); Policies and Rules Concerning Operator Service Access and Pay Telephone Compensation, Order on Further Reconsideration and Further Notice of Proposed Rulemaking, 8 F.C.C.R. 2863 (April 9, 1993). Ameri-Tel argues that these proceedings indicate both the complexity of the issues present here and the need for referral to the FCC to take advantage of the agency's expertise and avoid conflicting decisions. MCI, however, correctly notes that rulemaking can only apply prospectively. American Tel. & Tel. Co. v. FCC, 978 F.2d 727, 732 (D.C.Cir.), cert. denied, ___ U.S. ___, 113 S. Ct. 3020, 125 L. Ed. 2d 709 (1993); see also Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 208, 109 S. Ct. 468, 471, 102 L. Ed. 2d 493 (1988). Thus, to the extent the FCC may eventually issue rules governing the allocation of liability for toll fraud on pay telephones, those rules cannot govern that allocation in this case. On the other hand, the pending proceedings before the FCC are allowing the agency to develop a greater familiarity with the nature and scope of toll fraud than any court. Ameri-Tel cites numerous specific cases before the FCC, one of which it notes settled before a decision, others it fails to note have been decided, and others that involve factual *664 and procedural settings different from that present here. Having reviewed the cases, it is apparent that although some are similar, the FCC has expressed its view that each case is decided on its individual record in light of the language of the applicable statutes and tariff provisions. As detailed below, the FCC has expressly disclaimed any effort to make broad policy statements in these cases and instead has noted that the resolution of these cases need not await completion of its pending rulemaking efforts. We find little or no potential for real conflict with FCC policy if this Court decides the issues in this case.[2] Ameri-Tel also suggests that Illinois Bell's alleged representations that it would take care of some of the charges and subsequent alteration of bills renders its unreasonable, unfair and unjust to allow MCI now to collect for those charges. At the very least, Ameri-Tel suggests the FCC should have the opportunity to decide whether MCI's conduct is unreasonable. Even assuming that Illinois Bell acted as MCI's agent, representations made by a carrier or its agent relating to charges in contravention of the filed tariff cannot stand as a valid defense. The carrier must collect the filed rate and it is a basic application of the filed rate doctrine that misquotes by the carrier or agreements contrary to the filed tariff will not absolve the customer from paying the filed rate. See Maislin Industries, U.S., Inc. v. Primary Steel, Inc., 497 U.S. 116, 127-28, 110 S. Ct. 2759, 2766, 111 L. Ed. 2d 94 (1990). As the Court recently reiterated, "[t]he filed rate doctrine embodies the principle that a [customer] cannot avoid payment of the tariff rate by invoking common-law claims and defenses such as ignorance, estoppel, or prior agreement to a different rate." Reiter v. Cooper, ___ U.S. ___, ___, 113 S. Ct. 1213, 1219, 122 L. Ed. 2d 604 (1993). Ameri-Tel is simply seeking to estop MCI from asserting the terms of its Tariff because of its reliance on Illinois Bell's representations. That kind of argument is foreclosed by the filed rate doctrine, despite Ameri-Tel's attempt to characterize it as an attack on the "reasonableness" of MCI's conduct. Furthermore, the FCC has already indicated its view that a carrier's attempt to collect unauthorized charges in a PBX fraud case is not unreasonable if consistent with the terms of its tariff. In Chartways Technologies, Inc. v. AT & T Communications, the FCC held firmly that it was not unreasonable for AT & T to collect from its customers for unauthorized use under its tariff. FCC File No. E-88-72 (August 19, 1993). Ameri-Tel contends that, since Chartways did not allege negligence on the part of AT & T, the FCC's holding should not apply in this case, where the possibility of negligence on the part of MCI and Illinois Bell exists. See Ameri-Tel's Response at 17. However, Chartways explicitly alleged that AT & T had complete control over its systems and negligently failed to warn Chartways of the potential for toll fraud. See Chartways, 8 F.C.C.R. 5601, at ¶¶ 14-16. Furthermore, the FCC in its decision stated at the outset that AT & T's alleged negligence with regard to the disputed calls was one of three primary issues. Id. ¶ 16. The FCC affirmed the finding of the Common Carrier Board that Chartways had failed to provide any authority that supported imposition of a duty on carriers to warn about toll fraud and that no persuasive evidence supported a finding of negligence on AT & T's part. Thus, Ameri-Tel's attempt to distinguish Chartways falls on its face. The FCC has also considered a case involving a carrier's attempt to collect charges from a payphone operator for unauthorized interstate and international calls placed from the company's payphones. In In the Matter of United Artists Payphone Corp. v. New York Telephone Co., 8 F.C.C.R. 5563 (August 18, 1993), the United Artists ("UA") contended that New York Telephone and AT & T *665 were acting unlawfully in attempting to collect for unauthorized usage on its phones. UA raised a threshold question as to whether it was AT & T's "customer" as the tariff imposed liability for charges only on the "customer" who ordered service.[3] Because the FCC found that UA was not AT & T's customer, the FCC found that UA was not liable for the charges that AT & T sought to collect. The FCC's implicit holding is that if UA qualified as the actual or constructive customer, then the language of the tariff controls and imposes liability on the customer in the absence of an exception in the tariff. Though it has been careful to limit its decisions to the record made in specific cases, the FCC has not held that it is an unreasonable practice for a carrier to seek recovery of unauthorized charges from a customer. In fact, its current decisions appear to indicate the opposite is true, at least under current law and regulations. Under such circumstances, referral is unnecessary. "[W]here resort to the agency would plainly be unavailing in light of its manifest opposition or because it has already evinced its `special competence' in a manner hostile to [the party seeking referral], courts need not bow to the primary jurisdiction of the administrative body." Bd. of Educ. of City School Dist. of City of New York v. Harris, 622 F.2d 599, 606 (2d Cir.1979), cert. denied, 449 U.S. 1124, 101 S. Ct. 940, 67 L. Ed. 2d 110 (1981). While the FCC's decisions are not entirely hostile to Ameri-Tel's position, we do not believe the FCC has any greater expertise than this Court in reviewing and applying the terms of tariffs in light of the filed rate doctrine. Another district court reached the same conclusion in MCI Telecommunications Corp. v. Gorman, Wells, Wilder & Assoc., 761 F. Supp. 124, 126 (S.D.Fla.1991). Ameri-Tel cites this case as support for its view that the filed-rate doctrine is not an absolute bar to all defenses that it has raised but suggests in a footnote that we ought not follow its holding that referral is unnecessary where a Defendant challenges the application of the filed rate doctrine in a particular case. Ameri-Tel then states that this case differs from Gorman because it "believes the only way in which the reasonable rate under that doctrine can be established is by reference to the FCC." Aside from Ameri-Tel's mingling of the terms "unreasonable rates" and "unreasonable practices," this Court does not consider an unsupported statement in a footnote suggesting that MCI's Tariff rates are unreasonable sufficient to warrant referral to the FCC. In accord with the Gorman court, we find that this case involves application of the filed rate doctrine and the terms of a tariff. Such tasks are well within the competence of this Court. Were the case to turn on a determination of the reasonableness of MCI's Tariff rates or its practices, it is settled that referral would be appropriate since the administrative agency is best suited to make that determination. See, e.g., Nader v. Allegheny Airlines, Inc., 426 U.S. 290, 305, 96 S. Ct. 1978, 1987, 48 L. Ed. 2d 643 (1976); Western Pac. R.R. Co., 352 U.S. at 63, 77 S.Ct. at 164; Texas & Pac. Ry. Co. v. Abilene Cotton Oil Co., 204 U.S. 426, 439-43, 27 S. Ct. 350, 354-56, 51 L. Ed. 553 (1907). The reasonableness of a regulated carrier's tariff is certainly an issue that could affect the entire industry; thus, the need for uniformity in the regulation of business dictates that an agency specifically empowered by Congress to undertake that regulation should make the expert determination of reasonableness. Reasonableness, however, is not the issue here. The Court also concludes that there is no need for us to delve deep into the world of information indicators, automatic number identifiers, operator line screening, billed number screening, and all the other acronyms Ameri-Tel believes are at the heart of this case. The FCC is better suited than this Court to decide issues turning on the operation of these technical mechanisms. However, as we stated above, Ameri-Tel has overstated the nature of this case. *666 After careful consideration of the relevant factors, we conclude that the facts and issues of this case do not suggest the need for referral to the FCC. At bottom, this case involves a suit to collect $124,064.84 allegedly owed MCI under its Tariff filed with the FCC. This case is not about technical or economic issues in the telecommunications industry, as Ameri-Tel argues. It is likewise not about the reasonableness of MCI's Tariff. Rather, it is a collection case requiring application of the filed-rate doctrine and construction of the terms of the MCI Tariff. Finally, there is no danger of this Court contradicting a prior application to the FCC in this case (since none was made) or issuing a ruling inconsistent with the FCC's overall regulatory scheme. For these reasons, we find that it would be inappropriate to refer any issues in this case to the FCC under the doctrine of primary jurisdiction. MCI's Summary Judgment Motion[4] As stated at the outset, we must grant summary judgment if the pleadings and supporting documents show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law. This Court will not deviate from the established practice in this district of upholding Local Rules 12(M) and 12(N). Ameri-Tel did not file a response to MCI's statement of undisputed facts as required by Local Rule 12(N). In neglecting to do so, it admitted the properly supported facts contained in MCI's 12(M) statement. The question remains whether those admitted facts entitle MCI to summary judgment in its favor. MCI correctly points out that, on June 16, 1993, this Court denied Ameri-Tel leave to amend its Answer to MCI's Second Amended Complaint. Furthermore, the Federal Rules of Civil Procedure require Ameri-Tel to plead affirmative defenses such as estoppel[5] and illegality in a response to a preceding pleading. See Fed.R.Civ.P. 8(c). Thus, we need not consider the affirmative defenses raised for the first time in Ameri-Tel's Response. See, e.g., Computer Network Corp. v. Compmail Systems, Inc., No. 84 C 6813, slip op., 1985 WL 2218 (N.D.Ill. July 10, 1985) (failure to plead affirmative defense until responding to summary judgment motion constitutes waiver of that defense). The Seventh Circuit has treated the failure to raise affirmative defenses in a responsive pleading as a waiver of those defenses. See, e.g., Bank Leumi Le-Israel, B.M. v. Lee, 928 F.2d 232, 235 (7th Cir.1991); Pinto Trucking Serv., Inc. v. Motor Dispatch, Inc., 649 F.2d 530, 534 (7th Cir.1981). In addition, we find that Ameri-Tel has waived any counterclaims, such as willful misconduct, by failing to file any counterclaim. We will not consider claims and defenses raised for the first time in a brief in response to a summary judgment motion. Call-Blocking Agreements The record is devoid of any facts to support Ameri-Tel's claim that MCI had any agreements with Illinois Bell to block calls. It also is undisputed that Ameri-Tel never spoke to MCI about entering into any agreement to block any type of call from Ameri-Tel's payphones. Illinois Bell has admitted that Ameri-Tel subscribed to a blocking service for International Direct Distance Dialed ("IDDD") calls. That service, however, was offered by Illinois Bell as part of its tariff and no evidence indicates that MCI provided such a service or was responsible for blocking such calls. Though it is not entirely clear, it appears that the charges sought by MCI involve operator-assisted calls, not direct-dialed calls. *667 Ameri-Tel alleges fraud in international operator-assisted calls made from its payphones. See Ameri-Tel's Response at 2. MCI also points out that the alleged fraud came from operator-assisted calls. Thus, even if Illinois Bell was supposed to block IDDD calls, this does not cover the calls for which MCI seeks payment from Ameri-Tel. If MCI does seek payment for IDDD calls, then Illinois Bell acknowledges those calls should have been blocked. Nonetheless, pursuant to its Tariff, MCI is entitled to recover since it is not bound by Illinois Bell's tariff. Illinois Bell's liability to Ameri-Tel is the subject of a claim filed by Ameri-Tel that is not the subject of this motion. MCI's Tariff and the Filed Rate Doctrine Ameri-Tel admits that MCI Tariff F.C.C. No. 1 governs the liabilities of the parties. As noted above, the filed rate doctrine governs MCI's right to collect from Ameri-Tel for the unpaid service under the Tariff. Recently, this same Tariff was deemed controlling in another case heard in this district where the non-movant failed to file a 12(N) statement in response to MCI's motion for summary judgment. MCI Telecommunications, Inc. v. Premium Mktg. Sys., No. 91 C 4048, 1992 WL 6693, at *1-2, 1992 U.S. Dist. LEXIS 304, at *4 (N.D.Ill. Jan. 15, 1992). We find no reason to consider this same critical failure by Ameri-Tel any differently. The Supreme Court has upheld the filed rate doctrine[6] as a bar to all equitable defenses against liability for charges incurred under properly filed tariffs. Such defenses include the estoppel and illegality defenses raised by Ameri-Tel in this case. See, e.g., Reiter v. Cooper, ___ U.S. ___, ___, 113 S. Ct. 1213, 1219, 122 L. Ed. 2d 604 (1993); Maislin Indus., U.S., Inc. v. Primary Steel, Inc., 497 U.S. 116, 120-21, 110 S. Ct. 2759, 2762-63, 111 L. Ed. 2d 94 (1990); Southern Pac. Transp. Co. v. Commercial Metals, Inc., 456 U.S. 336, 352, 102 S. Ct. 1815, 1825, 72 L. Ed. 2d 114 (1982). The Seventh Circuit has also upheld the filed rate doctrine as a strict bar to equitable defenses. See, e.g., Western Transp. Co. v. Wilson & Co., 682 F.2d 1227, 1229 (7th Cir.1982). The filed rate doctrine is contained in the very language of the Act: "[n]o carrier shall ... collect, or receive ... less or different compensation ... than the charges specified in the schedule." 47 U.S.C. § 203(c). We first will set out the relevant Tariff language and then will examine the language of the Tariff in light of the filed rate doctrine. MCI's Tariff, F.C.C. No. 1, specifies that: The customer is responsible for payment of all charges for services furnished to the customer or its joint or authorized users. This responsibility is not changed by virtue of any use, misuse, or abuse of the customer's service, which use, misuse, or abuse may be occasioned by third parties, including without limitation, the customer's employees or other members of the public. Tariff § B-7.01. The Tariff, § A, defines "customer," in pertinent part, as follows: The person, firm, corporation or other entity which orders service ... and which is responsible for the payment of charges and for compliance with MCI tariff regulations. The Tariff, § A, defines "authorized user" as "[a] person, firm, corporation, or other entity that either is authorized by the customer to receive or send communications or is placed in a position by the customer to send or receive communications." As we noted above, the FCC's decision in In the Matter of United Artists Payphone Corp. v. New York Telephone Co., 8 F.C.C.R. 5563 (August 18, 1993), requires that we analyze whether Ameri-Tel qualifies as MCI's customer according to the language of the Tariff and the record in this case. In United Artists, the FCC found that a payphone operator cannot be held to be the customer for operator-assisted calls under ordinary circumstances. The FCC still reasoned, however, that "[i]f [a payphone operator] *668 had failed to take steps to control unauthorized operator-assisted and direct-dialed calling and had, instead, installed its phones in such a way as to allow callers to charge such calls to [its] payphone lines, [the payphone operator] could reasonably be held to have constructively `ordered' service from [the carrier], thus establishing an inadvertent carrier-customer relationship." Id. at ¶ 13. Thus, we will examine the steps taken by Ameri-Tel in this case to prevent unauthorized usage. The similarities between this case and United Artists are few. Ameri-Tel did order IDDD blocking from Illinois Bell. Ameri-Tel did contact Illinois Bell about alleged fraud. Unlike UA, there is no evidence before the Court that Ameri-Tel declined to presubscribe its phones or purchased screening for operator-assisted calls, or purchased originating line or billed number screening. The only evidence indicates it had contracted with MCI for service on the accounts in question. In further contrast, UA had programmed its phones to block operator-assisted and direct-dialed calling outside of the local area. No evidence shows that Ameri-Tel took this precaution. Under these circumstances, we do not find any genuine dispute that Ameri-Tel constructively ordered service from MCI for the fraudulent or unauthorized charges at issue here. We find that Ameri-Tel was MCI's customer. Our conclusion is fully consistent with the Tariff language which extends the liability of a customer to cover abuse or misuse by third parties. Moreover, the customer is also responsible for charges incurred by "authorized users" including those put in a position by the customer to send communications. When a payphone operator fails to take adequate available steps to prevent fraud, one can conclude that the operator/customer has placed even those intending to defraud the company in a position to send communications. The pending FCC rulemaking proceedings may indeed alter the liabilities of carrier and customer for toll fraud, but until that time, the clear language of a filed tariff will control. MCI's Tariff places responsibility for the charges at issue on Ameri-Tel. This Court will not rewrite the Tariff to alter that result. Amount Owed to MCI Finally, there is no issue as to the amount of money owed MCI under the Tariff. MCI's 12(M) statement clearly sets forth the amount in controversy at $128,923.84. MCI's 12(M) Statement at para. 5. MCI subsequently agreed to drop its claim for the six accounts Ameri-Tel insists do not cover telephones with MCI long-distance service, leaving the final amount due MCI at $124,064.84, plus reasonable attorneys' fees and costs as provided for in the Tariff.[7] Ameri-Tel failed to file a 12(N) statement disputing this or any amount owed MCI in this case. Its pleadings merely reflect a lack of knowledge as to how MCI arrived at its figures. We do not consider the arguments or affidavits tendered by Ameri-Tel in an attempt to create an issue as to the amounts owed to MCI. MCI is thus entitled to collect $124,064.84 under the terms of its Tariff. CONCLUSION For the foregoing reasons, we grant MCI's motion for summary judgment and award MCI $124,064.84, plus attorneys' fees and costs, as required by the Tariff. NOTES [1] "Judges in the Northern District of Illinois have strictly applied Local Rule 12(n) and its predecessors ... for a number of years." Schulz v. Serfilco, Ltd., 965 F.2d 516, 518 (7th Cir. 1992). The Seventh Circuit repeatedly has upheld the strict application of Rule 12(M) and 12(N). See, e.g., Appley v. West, 929 F.2d 1176, 1179-80 (7th Cir.1991); Bell, Boyd & Lloyd v. Tapy, 896 F.2d 1101 (7th Cir.1990); Skagen, 910 F.2d at 1500. [2] We likewise dispose of Ameri-Tel's arguments regarding the long-running battle between AT & T and MCI regarding MCI's failure to file a tariff encompassing all its rates and practices. AT & T's successful challenge to MCI's practice of charging some rates outside its tariff is not a challenge to the lawfulness or the application of rates found within MCI's filed tariffs. American Tel. & Tel. Co. v. FCC, 978 F.2d 727, 732 (D.C.Cir.), cert. denied, ___ U.S. ___, 113 S. Ct. 3020, 125 L. Ed. 2d 709 (1993). [3] Though not raised by either party, the United Artist decision points to an important issue that we must resolve if MCI is to obtain summary judgment. As more fully discussed below, we must determine on the evidence presented whether there is a genuine dispute that Ameri-Tel is MCI's customer and thus liable under the tariff. [4] The Court finds no merit to Ameri-Tel's objections to the supporting material and affidavits offered by MCI. [5] We also add that Ameri-Tel apparently sought relief from the unauthorized charges by phoning Illinois Bell who then allegedly assured Ameri-Tel that it would take care of the unauthorized charges that should have been blocked. According to the MCI tariff, however, written notice is required to dispute charges. Tariff § B-7.05. There is no evidence that Ameri-Tel provided any written notice to either MCI or Illinois Bell. In the absence of such a notice, the invoice is deemed to be correct and binding on the customer. [6] The filed rate doctrine "forbids a regulated entity from charging rates for its services other those properly filed with the appropriate federal regulatory agency." Arkansas Louisiana Gas Co. v. Hall, 453 U.S. 571, 577, 101 S. Ct. 2925, 2930, 69 L. Ed. 2d 856 (1981). The purpose of the filed rate doctrine is to: (1) preserve the regulating agency's authority to determine the reasonableness of rates; and (2) insure that the regulated entities charge only those rates that the agency has approved or been made aware of as the law may require. Id. at 577-78, 101 S.Ct. at 2930. [7] Section B-7.09 of the Tariff provides that "In the event the Company incurs fees or expenses, including attorney's fees, in collecting, or attempting to collect, any charges owed the Company, the customer will be liable to the Company for the payment of all such fees and expenses reasonably incurred."

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1737181/

535 F. Supp. 2d 1173 (2007) WESTERN WATERSHEDS PROJECT, Plaintiff, v. FISH AND WILDLIFE SERVICE, Defendant. No. CV-06-277-E-BLW. United States District Court, D. Idaho. December 4, 2007. *1174 *1175 Laurence J. Lucas, Law Office of Laurence J. Lucas, Todd C. Tucci, Advocates for the West, Boise, ID, for Plaintiff. Robert Pendleton Williams, U.S. Department of Justice, Washington, DC, Deborah A. Ferguson, U.S. Attorney's Office, Boise, ID, for Defendant. MEMORANDUM DECISION B. LYNN WINMILL, Chief Judge. INTRODUCTION The Court has before it cross-motions for summary judgment. The Court has heard oral argument and fully reviewed the extensive Administrative Record.[1] For the reasons expressed below, the Court Will grant the motion of plaintiff Western Watersheds Project and deny the other motions. SUMMARY Plaintiff WWP seeks review of a decision by the Fish and Wildlife Service (FWS) rejecting petitions to list the greater sage-grouse under the Endangered Species Act (ESA). Sage-grouse populations have been in significant decline for decades. While the rate of decline has recently slowed, the sage-grouse's habitat is being subjected to accelerating threats from invasive weeds, fires, energy development, and livestock grazing. About one-half of the original area occupied by the sage-grouse is no longer capable of supporting sage-grouse on a year-round basis. For these reasons, the Bureau of Land Management and the Forest Service have both listed the sage-grouse as a "sensitive *1176 species" across its entire range in the United States. These circumstances prompted various groups to file petitions with the FWS seeking listing of the sage-grouse under the ESA. That law required the FWS to use the "best science" to determine whether the sage-grouse is an endangered or threatened species. The FWS determined that a listing was not warranted. After reviewing the FWS's decision, the Court finds three flaws with the FWS decision-making process: (1) While the FWS consulted with experts, the agency excluded them from the listing decision; (2) The FWS created no detailed record of the experts' opinions; and (3) The FWS ignored that portion of the experts' opinions that were preserved on the record. This process violates the statutory requirement that the "best science" be applied. By improperly insulating the decision-makers from scientific input, it creates opacity when transparency is required. The Court has serious reservations about whether such a process may be used again in any reevaluation of the sage-grouse or, for that matter, in any other listing decisions in the future. Furthermore, the FWS decision lacked a coherent analysis of the deterioration of habitat and the regulatory mechanisms designed to protect the sage-grouse. Finally, the FWS decision was tainted by the inexcusable conduct of one of its own executives. Julie MacDonald, a Deputy Assistant Secretary who was neither a scientist nor a sage-grouse expert, had a well-documented history of intervening in the listing process to ensure that the "best science" supported a decision not to list the species. Her tactics included everything from editing scientific conclusions to intimidating FWS staffers. Her extensive involvement in the sage-grouse listing decision process taints the FWS's decision and requires a reconsideration without her involvement. ANALYSIS 1. The ESA Congress enacted the ESA in 1973 "to provide a means whereby the ecosystems upon which endangered species and threatened species depend may be conserved, [and] to provide a program for the conservation of such endangered species and threatened species." 16 U.S.C. § 1531(b). Section 4 of the ESA directs the Secretary to determine which species should be listed as endangered or threatened. Id. at § 1533(a)(1). The Secretary has delegated this duty to the FWS. An endangered species is "any species which is in danger of extinction throughout all or a significant portion of its range" and a threatened species is one "which is likely to become an endangered species within the foreseeable future throughout all or a significant portion of its range." Id. at §§ 1532(6), (20). In deciding whether or not a species qualifies as endangered or threatened, the FWS is required to consider the following five factors: (1) the present or threatened destruction, modification, or curtailment of its habitat or range; (2) overutilization for commercial, recreational, scientific, or educational purposes; (3) disease or predation; (4) the inadequacy of existing regulatory mechanisms; and (5) other natural or manmade factors affecting its continued existence. Id. at § 1533(a)(1). The Director of the FWS must make listing determinations "solely on the basis of the best scientific and Commercial data available to him [or her] after conducting a review of the status of the species and after taking into account those efforts, if any, being made by any State or foreign nation . . . to protect such species." Id. at § 1533(b)(1)(a). A species may be "listed" as endangered or threatened under the ESA in one of two ways, either on the initiative of the Secretary through the *1177 "candidate process," or as a result of a petition submitted by an "interested parson." Id. at § 1533(b)(3)(A). In this case it was a series of petitions filed with the FWS that initiated the process. Once it receives a petition to list a species, the FWS must, within 90 days, determine whether the petition presents "substantial scientific or commercial information indicating that the petitioned action may be warranted." Id. This is commonly referred to as the "90-day finding." The ESA's implementing regulations define "substantial information" as the "amount of information that would lead "a reasonable person to believe that the measure proposed in the petition may be warranted." 50 C.F.R. § 424.14(b)(1). The 90-day finding is based solely on the petition; the FWS does not conduct independent research to confirm the petition's assertions. See 69 Fed.Reg. at 21485. If the FWS makes a "positive" 90-day finding, it begins a "review of the status of the species concerned" and, Within one year of the receipt of the petition, must make a second finding (commonly referred to as the "12-month finding") that either: (a) the petitioned action is not warranted; (b) the petitioned action is warranted; or (c) the petitioned action is warranted but precluded by higher priority pending proposals and expeditious progress is being made to list, delist, or reclassify. See 16 U.S.C. § 1533(b)(3)(B); 50 C.F.R. § 424.14. 2. Sage-Grouse 90-Day Finding Between 2002 and 2003, the FWS received three petitions to list the greater sage-grouse (Centrocercus Urophasianus) as an endangered species under the Endangered Species Act (ESA). On April 21, 2004, the FWS filed its 90-day finding, concluded that the petitions present "substantial information indicating that listing the greater sage-grouse may be warranted." See 69 Fed.Reg. at 21484-94. The FWS's analysis began with a description of sage-grouse, their habitat, and their current status. The greater sagegrouse is the largest species of grouse in North America. Id. at p. 21485. It was described in the journal entry of Meriwether Lewis for June 5, 1805, while he was in the territory that would become Montana. See Conservation Assessment at p. 3-1. At that time, there may have been 1.1 million of the birds ranging over an area now comprising 16 western states and 3 Canadian provinces. 69 Fed.Reg. at 21486. Today, population estimates range from 100,000 to 500,000, and the range has been reduced to 11 western states and 2 Canadian provinces. Id. Their population numbers "may have declined between 69 and 99 percent from historic to recent times." Id. The "primary explanation" given by the FWS for this population decline was "[h]abitat alteration, through loss and degradation. . . ." Id. at p. 21490. Sagegrouse habitat is tied to several species of sagebrush. Throughout much of the year adult sage-grouse rely on sagebrush to provide roosting cover and food. During the winter they depend almost exclusively on sagebrush for food. 69 Fed.Reg. at p. 21486. The habitat loss was "due in large part to human actions rather than natural events." Id. at 21492. The FWS identified a number of causes for this habitat loss, including (1) agriculture ("millions of hectares of native sagebrush habitat have been cultivated for [agricultural] production"), (2) herbicides ("[c]hemical control of sagebrush has resulted in major declines of sage-grouse breeding populations through the loss of sagebrush cover"), (3) grazing ("grazing by livestock could reduce breeding habitat"), (4) fire ("[w]ildfires *1178 have destroyed extensive areas of sagebrush habitat in recent years," and these fires allowed invasion of cheatgrass, "an exotic species that is unsuitable as sagegrouse habitat"), and (5) development ("sage-grouse habitats also are fragmented by fences, powerlines, roads and other facilities associated with grazing, energy development, urban/suburban development [etc.]. . . ."). Id. at 21488-90. The FWS also expressed concern that federal and state agencies had no plans in place to protect habitat. For example, the FWS concluded that it "is not aware of any State regulations that conserve greater sage-grouse habitat or encourage habitat conservation efforts on private lands." Id. at 21492. The FWS also found that although a large portion of habitat occurs on BLM lands — and the BLM has designated the sage-grouse as a special status species in 5 of 11 states — there were no regulations requiring that BLM land use plans specifically address the conservation needs of special status species. Id. With regard to habitat on lands managed by other federal agencies, the FWS concluded that with the exception of one program, "we are unaware of any other agency efforts to protect and conserve sage-grouse on these Federal lands." Id. The FWS observed that sage-grouse were susceptible to the West Nile Virus, which was spreading into the birds' range, and "warrants further investigation." Id. at p. 21491. In conclusion, the FWS found that although the petitions contained "minor errors," they did "contain accurate information, which we have confirmed through our review of the scientific, peer-reviewed literature and direct communications with species experts." Id. at p. 21494. The FWS found that there was substantial information in the petitions to indicate that listing of the greater sagegrouse may be warranted. That finding was based "primarily on the historic and current destruction, modification, or curtailment of greater sage-grouse habitat or range, and the inadequacy of existing regulatory mechanisms in protecting greater sage-grouse habitats throughout the species' range." Id. 3. Conservation Assessment About two months after the FWS found that listing may be' warranted, and was seeking public comments, a report called the Conservation Assessment (CA) was issued by a group of State agency wildlife biologists who were experts on the sagegrouse. The CA was peer-reviewed by an independent group of scientists selected by the Ecological Society of America. See 70 Fed.Reg. at p. 2249. The CA analyzed sage-grouse population trends from 1965 to 2003, first for states and then range-wide. The state-wide assessment showed that (1) 11 of 13 states and provinces showed "significant longterm declines in size of active leks"; (2) 8 of 10 states showed "population declines over the same time frame"; and (3) 2 of 10 states "appeared to be stable or slightly increasing.", Conservation Assessment at p. ES-4. Only California had an increase in both the population index and lek size. Id. The range-wide assessment showed that "[s]age-grouse populations declined at an overall rate of 2.0% per year from 1965 to 2003." Id. at ES-5. The population drop was more pronounced from 1965 to 1985, a decline of 3.5%. Id. From 1986 to 2003, the population declined at a lower rate of .4%. Id. Despite the lower rate of decline, the CA concluded that "we are not optimistic about the, future of sage-grouse because of long-term population declines coupled with continued loss and degradation of habitat and other factors (including West Nile Virus)." Id. The CA discussed in detail the continued loss of habitat. For example, it observed *1179 that a non-native annual grass known as cheatgrass was spreading rapidly and "replacing sagebrush." Id. at 7-14. With regard to the Great Basin, "[n]early 80% of the land area . . . is susceptible to displacement by cheatgrass." Id. at p. 7-17. The "increased flammability" of cheatgrass causes "increased fire intensity and frequency." Id. at 7-14. Both the number of fires and the total area burned have increased dramatically in the last decade when compared with the past 100 years. Id. at 7-70 (Fig.7.1). The CA warned that periods of drought and global climate change could further facilitate cheatgrass invasion or exacerbate the fire regime, and thus "accelerate the loss of sagebrush habitats." Id. at p. 7-18. The long-term result is that "the increased areas burned each year coupled with decreased total area of sagebrush habitats can further accelerate the trajectory of habitat loss for sage-grouse." Id. at p. 7-7. Additional long-term problems were expected to be caused by increased oil and gas development. Existing development "influenced 28% of the sagebrush habitats within the [Assessment] study area," and caused a "direct loss of habitat." Id. at 7-40, 7-42. Increases in demand for oil and gas have led to increased demand for drilling permits. For example, in the Powder River Basin (extending through sagegrouse range in Montana and Wyoming), while 15,811 wells have been approved, an additional 65,635 "are being considered. . . ." Id. at 7-42; Fig. 7-30, This was no isolated instance: "[T]he [BLM] anticipates receiving large numbers of applications for permits to drill." Id. at 13-7. The CA noted that because 96% of all drilling permit applications are approved, "the, frequency and extent of oil and gas development on sagebrush ecosystems are likely to increase. . . ." Id. In summary, "the western landscape has been subjected to a new suite of intense, frequent, or continuous disturbances." Id. at p. 13-6. It is the "cumulative impacts of the disturbances, rather than any single source, [that] may be the most significant influence on the trajectory of sagebrush ecosystems." Id. at p. 13-8. And that "trajectory," in the opinion of the experts who drafted the Assessment, is headed in a negative direction: "Me are not optimistic about the future of sage-grouse because of long-term' population declines coupled with continued loss and degradation of habitat and other factors (including West Nile Virus)." Id. at p. ES-5. 4. 12-Month Finding Process — PECE To begin the process of drafting its 12-month finding, the FWS began by evaluating information on individual planned conservation efforts. Their evaluation was conducted under the FWS's Policy for Evaluation of Conservation Efforts When Making Listing Decisions ("PECE"). See 68 Fed.Reg. 15100, 15115 (Mar. 28, 2003). Recognizing that conservation efforts might vary in effectiveness, PECE dictates that "conservation efforts that are not sufficiently certain to be implemented and effective cannot contribute to a determination that listing is unnecessary or a determination to list as threatened rather than endangered." Id. at 15115. Evaluating over 300 plans from state and federal agencies, among others, the FWS determined that 20 of them met PECE standards and should be included in the information used for the extinction risk evaluation. See 70 Fed.Reg. at 2251. 5. 12-Month Finding Process — Expert Panel The FWS then moved to the risk analysis stage, where the FWS considered "how great a danger the greater sage grouse faces of becoming extinct." See GSG Emails 13378. To identify this danger, the *1180 FWS convened a panel of seven outside scientists with expertise in sage-grouse biology and ecology, sagebrush community ecology, and range ecology and management. See 70 Fed.Reg. at 2249-51; AR at pp. 11072-11168 (setting forth qualifications of each of the expert panelists). Over the course of two days, the panel of experts discussed the threats to sagegrouse across its range. Id. at 2279. The FWS purposefully did not ask the expert panel to consider or discuss WWP's petition or whether, as a matter of regulatory policy, the sage-grouse should be listed as endangered or threatened. Id. Instead, the panel was asked when the sage-grouse would become extinct. Id. at 10930. The expert panel did not issue any written report. Instead, they discussed extinction risks in the presence of a management team that would make the ultimate listing decision. In addition, each expert panelist (1) ranked the threats to the sage-grouse, and (2) voted on "how far in the future you anticipate that greater sage-grouse will become extinct." The votes and rankings are part of the Administrative Record, but there is no written analysis from any member of the expert panel explaining either the votes or rankings. With regard to the threat rankings, the expert panelists found that the top rangewide threats to the sage-grouse were, in order, (1) invasive species, (2) infrastructure, (3) wildfire, (4) agriculture, (5) grazing, (6) energy development, (7) urbanization, (8) strip/coal mining, (9) weather, and (10) pinyon-juniper expansion (followed by eight other threats). Id. at 2280; AR at p. 10921. In the eastern portion of the sage grouse's range, the top two threats were energy development and infrastructure, while in the west, the top two threats were invasive species and wildfire. See AR at pp. 10922-10923. Each expert panelist was then given 100 points, and asked to assign them over seven time intervals representing the likelihood that the greater sage-grouse would become extinct in that time-frame (1-20 years, 21-40, 41-60, 61-80, 81-100, 101-200 and 200+ years). See AR at pp. 10930-10950. The experts were asked to conduct three scorings for each geographical region. The first scoring was done after the FWS's presentations on the life history, intrinsic and extrinsic factors, and population trends of sage-grouse. See GSG Emails 13378-13385. The second scoring was conducted after the expert panel had reviewed the individual first scores (anonymously) and engaged in a facilitated discussion of the results. See GSG Emails 13380-13381. The purpose of having a second scoring was to provide each of the experts the opportunity to change his/her answer following the discussion of the first risk projection amongst his/her peers and to make sure that each expert had "understood the question and scored correctly." See AR 10930-10950; GSG Emails 13380-13381. In the second vote, panelists cast 250 votes for extinction within 100 years, and 450 votes for extinction at various intervals after 100 years. Thus, 36% of the votes cast were for extinction within 100 years. Three of the seven panelists cast the majority of their votes for extinction within 100 years. Following the second scoring, the expert panel heard a FWS presentation on PECE projects. See AR at p. 13381. After the presentation, the experts were asked if they wished to revise their extinction risk estimates. See AR at pp. XXXX-XXXXX. Only one panelist opted to change his/her assessment in the third scoring. See AR at pp. 10957-10963. Thus, after the third round of voting, and the PECE presentation, only two of the seven panelists voted the majority of their votes for extinction *1181 within 100 years. Of the 700 votes Cast in this third round, 28% were cast in favor of extinction within 100 years. 6. 12-Month Finding Process — Decision Support Team The FWS did not ask the expert panel to discuss, or express an opinion on, whether the sage-grouse met the definition of "endangered" or "threatened" under the ESA. That decision would ultimately be made by the FWS's Director, after reviewing a recommendation from a team of FWS managers who observed the discussions of the expert panel. This team — known as the Decision Support Team — consisted of seven senior FWS biologists and managers. Their specific task was to evaluate whether the threats to the sage-grouse met the ESA's definition of a threatened or endangered species. Id. In determining whether the sage-grouse met the definition of "threatened" — that is, was likely to become extinct within the foreseeable future — the Team chose 100 years as the outer boundary of the "foreseeable future" because it represented ten generations of sage-grouse or two generations of sagebrush. The Team used a point system similar to that used by the expert panel. Each member of the Team was given 100 points to be allocated among three possible regulatory actions on WWP's petition: not warranted, threatened, or endangered. As with the expert panel, the Team was given the opportunity to, conduct a second assessment following discussion of the initial assessment. The Team's point allocations were based on consideration of the background materials compiled, the two-day discussions of the expert panelists, and the Team's own discussions about the application of the ESA's definitions of the threatened and endangered categories. 70 Fed. Reg. at 2280. In the second scoring, 520 points were cast for a "not Warranted" finding while 180 points were cast for a "threatened" finding. No, points were cast for a "endangered" finding. Five of the seven Team members "believed that the sage-grouse would not face extinction for at least 100 years." Id. According to the Director's 12-Month Finding, the Team recommended a "not warranted" finding. There is no recommendation from the Team as a whole in the Administrative Record. Apparently, however, the Director met with the Team on November 9, 2004, and received their verbal "recommendation." GSG E-Mail 4657. Pat Deibert, a FWS biologist who prepared the 12-Month Finding, states in an e-mail that "[t]he Director seemed impressed with the work done, and accepted the recommendation of the [Team]." Id. Each member of the Team also provided hand-written comments explaining their votes. For example, one Team member Who cast 80 votes for "Not Warranted" and 20 votes for "Threatened," wrote that "[s]pecies is not at threat of imminent extinction due to wide distribution, relative stability of core population areas, and rate of impact of the threats." AR at 11039 (emphasis in original). After making other comments, this member concluded that "species doesn't meet statutory definition of [Threatened] or [Endangered] at this time." Id. at 11040. The Director apparently used these hand-written comments — and his in-person meeting with the Team — to discern their analysis and conclusions. According to the Director, the Team concluded that while there are real threats to sage-grouse, two factors counseled against finding that a listing is warranted: (1) the population is now stable; and (2) there is great uncertainty about the habitat threats. *1182 With regard to population numbers, the Director summarized the Team consensus as follows: It is clear that the number of greater sage-grouse range-wide has declined from historically high levels, with well documented declines between 1960 and 1985. However, the most recent data reflect that overall declines have slowed, stabilized or populations have increased. These data and the fact that 92% of the known active leks occur in 10 core populations across 8 western states, and that 5 of these populations were so large and expansive that they were subdivided into 24 sub-populations . . . was cited by managers on the [Team] as part of the reason for their not warranted recommendation. Id. at 2281. With regard to the uncertainty over the effects of various threats, the Director summarized the Team consensus as follows: The higher ranking threats, while rangewide and regional in scale, are to a large degree prospective in nature (e.g., invasive species, infrastructure, wildfire, oil and gas development and conifer invasion). Neither the [Team] nor the expert panelists could predict how these threats will develop over time or interact with each other or with different less important threats to accelerate habitat loss or other impacts to the grouse. This uncertainty was explicitly noted by several of the [Team] biologists and managers as part of the reason for a not-warranted recommendation. Id. The final recommendation of the Team was forwarded to the Director and summarized by him as follows: [B]ecause of the relatively long projected risk of extinction, in many cases greater than 200 years . . . combined with considering the variety of sources of information generated for and during the risk analysis phase, including the expert panel deliberations and the Conservation Assessment . . . the [Team] found that the levels of these existing threats, although very real, when considered against the status, trends, and distribution of the current population, were not sufficient to result in the greater sage-grouse becoming an endangered species in the next 40 to 100 years. 7. 12-Month Finding On January 6, 2005, the then Director of the FWS, Steven Williams, adopting the Team's recommendations set forth above, decided that a listing was not warranted, "after considering the compiled information, the risk assessment [by the expert panel], the applicable conservation actions, and the assessment of the [Team]." Id. at 2282. ANALYSIS 1. Standard of Review Because the ESA has no specific provision for judicial review of final agency actions, the scope of review is governed by the APA, 5 U.S.C. § 701 et. seq. Under the APA, an agency action must be upheld unless it is found to be arbitrary or capricious. 5 U.S.C. § 706(2)(A). To decide if an agency action is arbitrary and capricious, the court must determine whether the agency considered the relevant factors and articulated a rational connection between the facts found and the choices made. Pacific Coast Federation of Fishermen's Ass'ns, Inc. v. NMFS, 265 F.3d 1028, 1034 (9th Cir.2001). The agency's decision need not be a model of clarity so long as "the agency's path may reasonably be discerned." National Ass'n of Home Builders v. Defenders of Wildlife, ___ U.S. ___, 127 S. Ct. 2518, 168 L. Ed. 2d 467 (2007) *1183 "Deference to an agency's technical expertise and experience is particularly warranted with, respect to questions involving . . . scientific matters." United States v. Alpine Land and Reservoir Co., 887 F.2d 207, 213 (9th Cir.1989). Nevertheless, the "presumption of agency expertise may be rebutted if the decisions, even though based on scientific expertise, are not reasoned." Greenpeace NMFS, 80 F. Supp. 2d 1137, 1147 (W.D.Wash.2000), Judicial review under this standard is to be "searching and careful," but remains "narrow," and a court should not substitute its judgment, for that of the agency. Mt. Graham Red Squirrel v. Espy, 986 F.2d 1568, 1571 (9th Cir.1993). 2. Jurisdiction The FWS alleges that WWP failed to give the 60-day notice required by the ESA before bringing suit. See 16 U.S.C. § 1540(g)(2)(c). This requirement is. jurisdictional, Save the Yaak Comm. v. Block, 840 F.2d 714, 721 (9th Cir.1988). WWP does not need to comply with the ESA notice provisions for an APA claim challenging the FWS's failure to perform a discretionary duty under the ESA. See Bennett v. Spear, 520 U.S. 164, 176-178, 117 S. Ct. 1154, 137 L. Ed. 2d 281 (1997). The FWS describes its listing decision as discretionary. See FWS Brief at p. 24 (stating that "the [FWS] exercised its expert discretion and determined that listing greater sage-grouse was not warranted"). That decision — like all ESA listing decisions — will be reviewed under the APA's arbitrary and capricious standard. See Center for Biological Diversity v. Badgley, 335 F.3d 1097, 1100 (9th Cir. 2003). Because this suit is brought under the APA, to review a discretionary decision of the FWS, Bennett dictates that the ESA notice requirement does not apply.[2] The FWS also challenges WWP's standing. However, WWP was one of the petitioning parties, before the FWS, and also submitted numerous public comments. This is sufficient to confer standing. See Idaho Farm Bureau Fed'n v. Babbitt, 58 F.3d 1392 (9th Cir.1995). 3. Best Science The FWS is required to base its listing decision "solely on the basis of the best scientific and commercial data available. . . ." 16, U.S.C. § 1533(b)(1)(a). Of the three entities that played a role in the FWS's listing process — expert panel, Decision Support. Team, and Director — it was the expert panel that had the extensive knowledge of the sage grouse and its habitat. Accordingly, the "best science" was represented by the expert panel. What does the record reveal about the "best science" coming out of the expert panel? The panel prepared no written report, and the FWS made no transcript of their two days of verbal discussions. We do have their vote totals, specifically the results of the second round of voting. If you count heads, three of the seven experts concluded that the sage grouse would be extinct within 100 years. If you count votes, the probability that the sage grouse will be extinct in 100 years is, after the second round of voting, (1) 36% rangewide; (2) 52% in the eastern portion of their range; and (3) 40% in the western portion of their range. None of this voting analysis was discussed in the 12-Month Finding. "The Director completely ignored the secondround percentage figures, and counted *1184 heads inaccurately: He concluded that only two of the seven experts voted for extinction. See 70 Fed.Reg. at p. 2280. To get that result, the Director had to rely on the third round of voting, where one expert changed his/her vote after hearing a presentation on conservation efforts that met the PECE criteria. However, earlier in his decision, the Director stated that he had not "evaluate[d] whether the planned conservation efforts that met PECE reduced the threats to the species." Id. at 2245. If the Director failed to evaluate those conservation efforts, he cannot rely on a vote tally that appears so clearly to depend on those efforts. See generally, Federation of Fly Fishers v. Daley, 131 F. Supp. 2d 1158 (N.D.Cal.2000)(holding that in making listing decision, agency cannot rely on unproven conservation measures). With regard to the percentage figures, they were not evaluated either by the Director in his 12-Month. Finding, see 70 Fed.Reg. 2244 et. seq., or by the Decision Support Team, see AR at 11031 to 11043. Was that failure arbitrary and capricious? To be a "threatened" species under the ESA, the sage-grouse must be "likely" to "be in danger of extinction" within 100 years. Here, the FWS defined "likely" as meaning "more likely than not," which is a probability of 50% or greater. See AR at 9059.[3] The phrase "in danger of was defined to "imply a risk sufficiently high to warrant immediate action." Id. at 9058. Putting all these terms together, the sage grouse is threatened if there is at least a 50% probability that it will be "in danger of' extinction within 100 years. The experts here found that range-wide, there is a 36% chance that the sage grouse will be extinct in 100 years, not merely that it will be in danger of extinction. Is that akin to a 50% chance that it will be in danger of extinction? It certainly is close enough"to warrant a full discussion. The need for a full discussion becomes even more compelling when considering the east/west figures of 52% and 40% respectively. Once again, those are risk assessments that the sage grouse will be extinct, not merely that it will be in danger of extinction, within 100 years. These figures clearly put the extinction danger close enough to the FWS definitions quoted earlier to merit a full evaluation. Because the FWS did not preserve for the record any explanation by the experts of these percentages, the Court is forced to look elsewhere for their significance. In considering whether to list the Queen Charlotte goshawk, the FWS modified criteria set by the International Union for the Conservation of Nature (IUCN) to determine that the goshawk would be "threatened" "if at any point in the next 100 years there is a 20 percent chance that the species would become extinct." Southwest Center for Biological Diversity v. Norton, 2002 WL 1733618 (D.D.C.2002). The same 20% risk was used by the FWS in deciding whether to list the Alexander Archipelago wolf. AR at 11750. While the FWS is not bound in this case by either the IUCN criteria or the 20% figure used in other cases, these guidelines signal that the even-higher risk assessments here are significant enough to at least warrant discussion. As mentioned, the record contains no transcript or detailed account of the experts' two days of discussion in the presence of members of the Decision Support Team. In other words, the FWS failed to adequately preserve for the record the "best science." This makes it impossible *1185 for the Court to review whether the Team and the Director accurately applied the "best science" represented by the expert panel. The Court is forced to rely on their recollections of the experts' discussions with no way to verify whether those recollections are accurate. The consequences of this failure were compounded when the FWS excluded the experts from the listing determination. It was the Team who would make the recommendation to the Director, but they were not sage grouse experts. In the absence of the experts, it was imperative that the Team recall accurately what the experts had said. What an odd process. Right at the moment where the "best science" was most needed, it was locked out of the room The FWS argues that it cannot be compelled to cede control of a listing decision to experts. But the argument misses the mark. By excluding the experts from making even a recommendation, and then failing to document the experts' discussions (beyond their votes), the FWS cannot demonstrate that is applied the "best science." The FWS points out that the Director specifically found that "it was decided by consensus that there was not a significant portion of the range in which threats to sage-grouse are greater than range-wide threats." See 70 Fed.Reg. at 2281. It is not clear whether the "consensus" was that of the experts, the Team, or both. Whatever the grouping, the "consensus" does not square with the experts' voting results. While the experts found a 35% range-wide risk of extinction, the risk jumped to 52% in the eastern region. The only way to explain the Director's conclusion that 52% is not greater than 36% is to assume that the eastern region is not a "significant portion of the range." But that assumption is nowhere explained. The FWS cannot demonstrate that the Director's account of the "consensus" is accurate. The FWS used this same flawed process in deciding not to list the slickspot peppergrass. See WWP v. Foss, 2005 WL 2002473 (D.Idaho 2005). There, a court in this District reversed the FWS's decision, expressing concern that the FWS was asking the court to assume "that FWS's managers had a special insight into slickspot peppergrass, which its panel of experts did not possess," and that there was no "means of reviewing its decision." Id. at *17. While Foss is not directly on point, its deep concerns about the FWS's decision-making process are shared by this Court. For all these reasons, the Court cannot find that FWS used the "best science" as required by 16 U.S.C. § 1533(b)(1)(a). Accordingly, the Court finds that the FWS 12-Month Finding is arbitrary and capricious under § 706 of the APA. 4. Habitat The Director's 12-Month Finding concluded that "[s]ervice biologists determined that the principal habitat-related threats are not proceeding at a rate that will threaten the continued existence of the species within the foreseeable future." See 70 Fed.Reg. at 2267. By "service biologists" the Director is referring to the Decision Support Team. The Administrative Record contains no findings by the Team as a whole on habitat. There are the notes of individual team members and the results of their voting. It appears the Director cobbled these together — along with his off-the-record in-person meeting — to reach his conclusion about the Team's "determination." This process is flawed for a number of reasons. First, the Team was not comprised of experts on sage-grouse habitat — that was the province of the expert panelists *1186 and the experts who prepared the Conservation Assessment (CA). What did the expert panelists say specifically about sage-grouse habitat and its "rate" of decline? We don't know because their discussions were off-the-record. The Director says that "the majority of the expert panel did not believe that these threats were occurring at such a rate to cause the extinction of the greater sagegrouse within the next 60 to 100 years." Id. at 2267. Yet we know that three of the experts did so believe, judging from their voting. Why were their views not even discussed? The experts who compiled the CA certainly had a gloomy outlook for sagegrouse habitat. As discussed' above, the CA concluded that habitat threats like invasive weeds, fire, and energy development were all on the increase. The Director acknowledged these threats by citing to various examples that confirmed the CA's analysis: (1) "[w]ildfires have removed extensive areas of sagebrush habitat in recent years," Id. at 2265; (2) "the rapidity of [energy] development and the persistent demand for petroleum products," is the primary threat in the east region, and the current Administration has taken action to "expedite projects that will increase the production, transmission, or conservation of energy," id. at 2273; and (3) "cheatgrass has invaded extensive areas in western parts of greater sage-grouse range, supplanting sagebrush plants upon which sage-grouse depend," id. Nowhere is sage-grouse habitat described as stable. By all accounts, it is deteriorating, and that deterioration is caused by factors that are on the increase. However, the Director concludes that the "rate" of this deterioration is not fast enough to cause alarm. While that finding has no support in the CA, the Director states that he is relying on determinations made by both the Team and the expert panelists. Id. at 2267. Once again, however, the Team is not comprised of habitat experts; the "best science" comes from the expert panelists who made no specific "determinations" on the record concerning habitat. Another example of the Director's failure to make a rational connection between the "best science" and his decision is his discussion of the destruction of habitat by conversion to agricultural use. He acknowledges that this conversion has destroyed "many square miles of sagebrush habitat" over time, but concludes that "this conversion occurs at such relatively low levels today that we do not consider it a threat to the greater sage-grouse on a range-wide basis." Id. at 2255. That conclusion comes out-of-the-blue with no support in the discussion that precedes it. Moreover, it is directly contradicted by the CA, which concludes that "[l]ands continue to be converted to agriculture because technological advances in irrigation methods now permit expansion into steeper terrains further from river flood plains." See CA at p. 13-6. The Director himself recognized that the CA was authoritative and objective, see 70 Fed.Reg. at 2249, yet failed to explain why he departed from its conclusions on habitat. The ESA requires the Director to consider the "present or threatened" destruction of habitat. 16 U.S.C. § 1533(a)(1). The FWS must make a rational connection between the facts found and the choices made. Pacific Coast Federation of Fishermen's Ass'ns, Inc. v. NMFS, 265 F.3d 1028, 1034 (9th Cir.2001). That rational connection cannot be discerned here. Thus, the Court finds that the Director's 12-Month Finding is arbitrary and capricious. *1187 5. Existing Regulatory Mechanisms The FWS is required to determine whether the "inadequacy of existing regulatory mechanisms" warrants listing the sage-grouse. See 16 U.S.C. § 1533(a)(1)(D). Accordingly, the FWS reviewed the regulatory mechanisms on state and private lands that accounted for about 32% of sage-grouse habitat. The FWS concluded that it "does not have complete information" about state endowment lands, and was "not aware of any county or city ordinances that provide protection specifically for the greater sagegrouse or its habitats, on private land," See 70 Fed.Reg. at 2271, 2272. With regard to federal regulations, about 46% of sage-grouse habitat is on BLM administered land. Id. at 2272. The principal threat in the eastern region was energy development, and so the FWS, reviewed how the BLM was protecting sagegrouse from energy development The FWS concluded that it had no information on (1) how many "older" oil and gas leases had stipulations that addressed sagegrouse protections; (2) how many morerecent leases were granted exceptions, modifications, or waivers of stipulations pertaining to sage-grouse protections; and (3) the results of Best Management Practices that were designed by the BLM to improve sage-grouse habitat. Despite these gaps of information for 78%[4] of the sage-grouse's habitat, the Director was "encouraged that sage-grouse and sagebrush conservation efforts will moderate the rate and extent of habitat loss for the species in the future." Id. at 2279. He never explained why the information gap, did not matter. And he never explained what had changed since his 90-day finding, which concluded that habitat degradation and population declines indicated that existing regulatory mechanisms, particularly at the federal level, "may be inadequate with regard to addressing threats to the species." See 69 Fed.Reg. At 21492. And finally, he never explained how he could be "encouraged" by conservation efforts while at the same time finding that "it was not necessary to rely on the contributions of any of the local, State, or other planned conservation efforts that met the standard in PECE." See 70 Fed. Reg. At 2244. While an agency may reach different conclusions than those signaled in the. 90-day finding, it must explain why. See Northwest Ecosystem Alliance v. USFWS, 475 F.3d 1136 (9th Cir.2007). Lacking data on existing programs, and deciding not to review the PECE conservation programs, the Director must have been relying on his assumptions about future conservation efforts; assumptions that "cannot, be relied upon in an agency's decision not to list." See Trout Unlimited v. Lohn, 2007 WL 2973568 at *25 (D.Or. July 13, 2007). The FWS's failure to coherently consider the adequacy of existing regulatory mechanisms renders its decision arbitrary and capricious. 6. Julie MacDonald Julie MacDonald was a Deputy Assistant Secretary with responsibility for overseeing FWS operations, including its ESA reviews. She participated in the sagegrouse review at issue here. In 2006, the Office of Inspector General (OIG) received an anonymous complaint that MacDonald had "persistently harassed, bullied, and insulted FWS employees to change documents and ignore good *1188 science related to the Endangered Species Program." See OIG Report at p. 4. The former Director of the FWS Endangered Species Program told OIG investigators "that many of the scientific reports his office has issued have been edited extensively by MacDonald, who has no background in biology, and cited the Sage Grouse Risk Analysis as an example." Id. He explained that MacDonald "bypassed managers to speak directly with field staff, often intimidating and bullying them into producing documents that had the desired effect she and the former Assistant Secretary wanted." Id. MacDonald's goal, this source stated, was that she "did not want to accept petitions to list species as endangered." Id. The OIG Report is filled with instances of MacDonald's attempts to improperly alter the "best science" findings. Specifically with regard to the sage-grouse review at issue here, the Portland Assistant Regional Solicitor for the FWS said that MacDonald's conduct in the sage-grouse review was "`the most brazen case of political meddling' he had seen." Id. at p. 12. The Administrative Record in this case contains e-mails that confirm the OIG Report accounts. One example deals with the evaluation of existing regulatory mechanisms to protect the sage-grouse. The Court noted above that there was a singular lack of data on measures taken by the BLM to protect the sage grouse from energy development, the single largest risk in the eastern region. The e-mails show that the FWS staff was repeatedly frustrated in their attempts to obtain the data from the BLM. See GSG Emails 4385. Accordingly, an early draft of the staff's analysis — designed to be presented to the expert panel and Decision Support Team — stated as follows: "While the BLM has regulatory mechanisms to manage conserve [sic] greater sage-grouse habitat on the lands they manage, we have no specific data regarding specific implementation of the above regulations for this species, or the monitored results. Therefore we are unable to evaluate the effectiveness of these regulations for the protection of sage-grouse and their habitats on BLM lands." Id. MacDonald responded to this e-mail two days later, stating that she and others would "help you [the staff] do the assessment of existing regulatory protections for the sage-grouse." See GSG Email 13074. The revised version deleted the language quoted above. This is just one of many examples in the record. MacDonald had extensive involvement in the sage-grouse listing decision, used her intimidation tactics in this case, and altered the "best science" to fit a notwarranted decision. This Court is not the first court to notice MacDonald's tactics. In Center for Biological Diversity v. FWS, 2005 WL 2000928 (N.D.Cal.2005), the court set aside a FWS decision under the ESA due to an "irregularity" in the FWS process. Specifically, the court cited pressure from MacDonald to reach an "ordained outcome" regardless of the best science. Id. at *15. MacDonald's principal tactic is to steer the "best science" to a pre-ordained outcome. That may explain why so much of the "best science" in this case was verbally communicated and never reduced to writing in any analytical or rigorous manner. This process allows the ultimate decisionmakers to subjectively bend the "best science" to their own ends, while obscuring any inconsistencies. In other words, MacDonald's principal tactic dovetails precisely with the principal weakness in this case. For that reason, MacDonald's extensive involvement in the sage-grouse listing decision is an independent reason for the Court's finding that the Director's 12-Month *1189 Finding is arbitrary and capricious under the APA. 7. Conclusion For the reasons expressed above, the Court finds that the 12-Month Finding contained in 70 Fed.Reg. 2244 et. seq. is arbitrary and capricious under the APA. Accordingly, the Court will grant WWP's motion for summary judgment, reverse "the FWS's decision, and remand the case to the agency for, further consideration. The Court will deny the other motions, and will issue a separate Judgment as required by Rule 58(a)(1). JUDGMENT In accordance with the Memorandum Decision accompanying this Judgment, NOW THEREFORE IT SI HEREBY ORDERED, ADJUDGED, AND DECREED, that the motion for summary judgment filed by plaintiffs (docket no. 80) is GRANTED, and the decision of the Fish and Wildlife Service set forth at 70 Federal Register 2244 et seq. is REVERSED, and the matter REMANDED to the Fish and Wildlife Service for further consideration. IT IS FURTHER ORDERED, ADJUDGED, AND DECREED, that the motions for summary judgment (docket nos. 95, 97 & 100) are DENIED. IT IS FURTHER ORDERED, ADJUDGED AND DECREED, that the Clerk of the Court shall close this case. NOTES [1] The Administrative Record in this case was contained in 8 CDs (including the e-mails). The information on the CDs was not set forth in an easy-to-find format. Consequently, the Court had a very difficult time locating documents. In the future, Government counsel should work together with the agency to ensure that the Administrative Record can be easily accessed. [2] WWP's counsel stipulated at oral argument that he would not seek attorney fees under the ESA. [3] One court in this Circuit has approved this definition of "likely." Trout Unlimited v. Lohn, 2007 WL 2973568 (D.Or. July 13, 2007). This definition has not been challenged here, and thus the Court expresses no opinion on that definition. [4] The 78% is computed by adding the BLM land (46%) with the state and private land (32%).

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1738273/

335 F. Supp. 146 (1971) COMMITTEE FOR NEW MANAGEMENT OF BUTLER AVIATION, Plaintiffs, v. G. Norman WIDMARK et al., Defendants. Civ. A. No. 71 C 1528. United States District Court, E. D. New York. December 13, 1971. *147 *148 Arnold I. Roth and Joel W. Sternman, Rosenman, Colin, Kaye, Petschek, French & Emil, New York City, for plaintiffs. Louis Nizer and Myron Saland, Phillips, Nizer, Benjamin, Krim & Ballon, New York City, for defendants. NEAHER, District Judge. This civil action for injunctive relief arises out of an ongoing proxy contest for the election of directors of defendant Butler Aviation International, Inc. ("Butler") at the annual meeting of stockholders presently set for December 14, 1971.[1] Plaintiffs commenced the action by filing their complaint on the afternoon of November 24, 1971, and simultaneously presenting ex parte an order to show cause application to bring on an accelerated motion for a preliminary injunction. The complaint alleged that defendants were soliciting proxies for the stockholders' meeting by the use of false and misleading proxy solicitation material, and also obtaining post-dated proxies, in violation of Section 14(a) of the Securities Exchange Act of 1934, 15 U.S.C. § 78n(a), and the Security and Exchange Commission's Proxy Rules 14a-9 and 10, 17 C.F.R. 240.14a-9, 14c-10. Voluminous affidavit and exhibit material was presented in support of the motion. The imminence of the stockholders' meeting and assurances of plaintiffs' counsel that the defendants would be served as speedily as possible over the Thanksgiving holiday prompted the court to direct a preliminary response by defendants on November 29, 1971. On that date defendants appeared specially to contest jurisdiction over them on the ground of claimed defective service. They withdrew that motion, however, on plaintiffs' agreement that the motion for a preliminary injunction and cross-motions to be made by defendants be heard on answering and replying affidavits and documentary exhibits — liberally supplied by both sides. Following submission of these papers a lengthy oral argument was held December 6th, supplemented by submission of additional papers and memoranda, the last arriving December 9th. As a result the court must determine under great pressure of time (1) plaintiffs' motion for a preliminary injunction for the claimed Section 14(a) violations *149 by defendants and post-dated proxies; (2) defendants' cross-motion for the same relief for claimed similar violations by plaintiffs; and (3) defendants' cross-motion challenging the legality of plaintiffs' committee and the validity of proxies obtained by it as a result of plaintiff Dopp's admitted non-compliance with Section 13(d) of the Act, 15 U.S.C. § 78m (d). The court has been aided in this task by the parties' agreement that the documents described in the Appendix hereto, marked Court's Exhibits 1 to 11, inclusive, comprise, broadly speaking, all the respective proxy solicitation material which did or could have come to the attention of Butler's stockholders or some of them. By far the larger bulk of the voluminous documentation submitted consists of papers in other litigation involving one or more of the parties, excerpts from depositions, corporate memoranda and copies of correspondence — all offered to support the contending claims that the other side's proxy solicitation material (Court Exhs. 1-11) requires immediate injunctive correction and rejection of proxies already obtained thereby. Some background facts require mention at the outset for purposes of perspective. Butler is a Delaware corporation having its principal office in Englewood Cliffs, New Jersey. Its principal business is aviation sales and service operations at major airports throughout the United States and motor carrier transportation. Butler has 1,068,022 voting shares outstanding, of which 898,022 are shares of common stock. The shares are traded on the American Stock Exchange. Butler's two principal stockholders are plaintiff Paul S. Dopp (see n. 1, supra) and American Electronic Laboratories, Inc. (AEL), one of whose two controlling stockholders is defendant Leon Riebman, who became a director of Butler in 1971. Dopp claims to own beneficially 196,100 shares (18% of outstanding voting securities) and AEL owns beneficially 143,900 shares (14% of outstanding voting securities). Aside from AEL's ownership, the individual defendants (excluding C. Robert Schaeffer), as a management group, own beneficially an aggregate of 18,600 shares, less than 2% of outstanding voting securities. The election of a board of six directors is the only question before Butler's stockholders at the December 14th meeting. It is also clear that plaintiff Dopp is the spearhead and muscle of the plaintiff "Committee for New Management of Butler Aviation" ("Committee"), composed of Dopp and the other named plaintiffs, which is seeking to unseat the defendant directors. Dopp was the moving party in bringing about the December 14th meeting (Exh. 8, Appendix). The Committee's proxy statement also acknowledges "It is presently contemplated that Mr. Dopp will pay all of the expenses of the Committee's solicitation" — estimated to amount to approximately $70,000 — for which reimbursement from Butler will be sought if the Committee elects its candidates. (Id.) It is not surprising, therefore, that management's proxy solicitation material describes in considerable detail and comments strongly about a series of corporate transactions management asserts Dopp initated without authorization when he was board chairman, president and chief executive officer of Butler, and for which he is being sued by Butler in the New Jersey Superior Court to recover some $600,000 of corporate funds claimed to have been wasted or misused for his own personal purposes. (Exh. 6, Appendix.) Plaintiff Committee's proxy statement also describes extensively various lawsuits brought by or against Mr. Dopp relating to Butler, including the aforementioned New Jersey Superior Court action, from which it is clear that Mr. Dopp has entered denials of liability against Butler's claims (Exh. 8, Appendix). If, as both sides contend, material omissions of fact or false or misleading statements have been made in the proxy solicitation material of either side in violation *150 of S.E.C. Proxy Rule 14a-9(a),[2] there is standing to maintain a private action for curative injunctive relief upon a proper showing. General Time Corporation v. Talley Industries, Inc., 403 F.2d 159, 161 (2 Cir. 1968). The focus of inquiry in a case such as this is on the materiality of the claimed omission or false or misleading statements. Although, as pointed out in General Time, supra, "[t]he standard of materiality is somewhat more elusive in relation to statements issued in a contested election . . . . issuers of such statements should be held to fair accuracy even in the hurly-burly of election contests." 403 F.2d at 162. The same authority defines the test in these terms: The test [of materiality], we suppose, is whether, taking a properly realistic view, there is a substantial likelihood that the misstatement or omission may have led a stockholder to grant a proxy to the solicitor or to withhold one from the other side, whereas in the absence of this he would have taken a contrary course. Id. With these principles in mind we turn to the respective motions of the parties. Rule 14a-9(a) Violations Claimed by Plaintiffs Plaintiffs' complaint, as supplemented, specifies 15 instances of failures to disclose or false or misleading statements in defendants' proxy solicitation material. On the oral argument, however, plaintiffs' counsel agreed, without conceding total abandonment of the other specifications, that the principal claimed violations were: 1. Defendants' failure to disclose in Butler's proxy statement (Exh. 6, Appendix) that Mr. Dopp, as defendant, had interposed an answer in the New Jersey Superior Court action containing denials and defenses. 2. Defendants' description in Butler's proxy statement (Exh. 6, Appendix) is misleading in making it appear that the series of corporate transactions involved in the New Jersey action are multiple actions rather than a single action. 3. Defendants misrepresented in a press release of November 10, 1971 (Exh. 1, Appendix) the reasons why settlement conferences between management and Mr. Dopp broke off and in fact violated an agreement to hold those discussions in confidence. 4. Defendants incorrectly overstated Butler's 1970 loss from continuing operations by over 100% in a letter to stockholders of November 13, 1971 (Exh. 3, Appendix) with resulting detrimental impact on stockholders regarding Mr. Dopp's management. 5. Defendants misstated in the addendum to Butler's 1970 annual report (Exh. 4, Appendix) that a payment of $100,000 was made to the Community Savings and Loan Association of Fredericksburg, Texas, on account of principal and interest on an overdue note of a Butler subsidiary, whereas in fact $25,000 of that $100,000 went to pay attorneys' fees of the creditor bank because of legal services in connection with the default. Plaintiffs conceded on the argument that the other specifications of violation itemized in their complaint were of lesser importance than those listed above. In the court's opinion none of the principal objections demonstrates a statement in defendants' proxy material which is false or misleading with respect to a *151 material fact or the omission of a material fact as called for by the proxy rule. Considering these objections seriatim: 1. Defendants' proxy statement (Exh. 6, Appendix) states with reference to the New Jersey Superior Court action against Mr. Dopp that "This action is now pending." Nothing else is said or implied that Mr. Dopp is not contesting the action or has admitted the claims made. The very language quoted clearly implies that the action remains undetermined. While it is customary in disclosing litigation in a corporation's annual report to state that an action is being prosecuted or defended by management,[3] nothing has come to the court's attention to support plaintiffs' contention that omitting to state expressly that Mr. Dopp is defending Butler's action is a material non-disclosure in these circumstances. Indeed, if defendants had made any affirmative statement regarding Dopp's defense, they would have risked a charge that it was not accurate or complete and hence misleading. In view also of plaintiffs' counter-proxy statement (Exh. 8, Appendix), issued two days after Butler's, which does state that Dopp has denied lack of authorization and liability for the transactions sued on in New Jersey, the test of a "material" omission has not been met.[4] 2. Undeniably Butler's proxy statement (Exh. 6, Appendix) in the section entitled "Transactions With Management and Others" repeats five times that Butler has instituted a legal action against Mr. Dopp in the Superior Court of New Jersey, Chancery Division, Bergen County. The statement occurs a sixth time in connection with a claim against Dopp & Company. In each instance there follows the sentence "This action is now pending." Plaintiffs contend this is misleading because it makes it appear that Butler is suing Dopp not once but five or six times. Such a contention is captious. The repetition was dictated by the need for lengthy explanation of each of the six separate and unrelated corporate transactions for which Dopp and Dopp & Company are being sued. There is no claim of exaggeration of damages and no reason is apparent for believing that stockholders would reach a different conclusion regarding Mr. Dopp if they were expressly informed that all six claims were embraced in a single lawsuit. Indeed, plaintiffs' reference to these claims in their proxy statement (Exh. 8, Appendix) parallels that of defendants and concludes with repeated denials of liability on Dopp's part. 3. Plaintiffs' claim of unfairness and violation of confidence regarding the breaking off of settlement discussions relates not to formal proxy solicitation material but to a Butler press release of November 10, 1971 (Exh. 1, Appendix). Plaintiffs complain chiefly of the last two sentences in this paragraph of the release: "Negotiations to recover company funds have taken place with Mr. Dopp ever since late 1970 when the Butler Aviation Board of Directors first learned of his unauthorized expenditures," a company spokesman said. "Mr. Dopp, however, has not returned any of the Company funds. Instead he has started a number of lawsuits involving the Company and has now threatened a proxy fight by filing a slate of nominees for directors, and negotiations have broken off." Defendants deny that press releases as such reach the eyes of Butler stockholders (of which there are about 1600) but only as interested newspapers edit them. *152 On November 11, 1971, presumably as a result of defendants' release, the Wall Street Journal reported its version thereof. With respect to settlement negotiations, the article stated: A Butler spokesman said the company had avoided announcing the suit until the present because it was trying to work out a settlement with Mr. Dopp. The spokesman said Butler decided to announce the suit because of Mr. Dopp's recent actions against the company. (Exh. 3, Appendix.)[5] 4. Admittedly defendants' November 13, 1971 letter to stockholders (Exh. 3, Appendix) accompanying their proxy statement states: For the same period last year when Mr. Dopp was Chief Executive Officer, the Company suffered a loss of $1,605,000 of which $899,000 or 51 cents loss per share was from continuing operations and $1,157,000, net of taxes, or $1.31 loss per share was from discontinued operations for a total net loss of $1.82 per share. (Emphasis as in original.) Plaintiffs correctly complain that the figure "$899,000" is erroneous and should read "$448,000", pointing to Butler's unaudited Consolidated Statement of Operations for the nine months ending September 30, 1971 (Exh. 4, Appendix). While admitting that the 51 cents loss per share in the above quotation is correct as based on a $448,000 rather than an $899,000 loss, plaintiffs nevertheless contend that stockholders are still being misled because Butler's correction is "buried" on the last page of defendants' latest hortatory letter to stockholders of November 26, 1971 (Exh. 11, Appendix). The court is persuaded that defendants' original statement was inadvertently incorrect; that stockholders would be more inclined to note the loss per share, which was correct; that the correct dollar loss could be found in the nine-months statement forming part of Butler's proxy material; and that the correction made in defendants' later letter is adequate. 5. The court is likewise persuaded that plaintiffs' criticism of the mention given Butler's payment to the Texas bank lacks substance (Exh. 4, Appendix). It accepts the representation of defendants' counsel that under Texas law incorporated in the unpaid note obligation of Butler's subsidiary, counsel fees arising out of the default are included as part of principal indebtedness. Plaintiffs make no claim that the entire $100,000 was not in fact paid or that Butler did not avoid imminent foreclosure and gain time to negotiate a refinancing of the note. Certainly this objection is hardly in need of the strong medicine of injunctive relief. After careful scrutiny of the voluminous affidavits and documents submitted by plaintiffs the court is not persuaded they have made a sufficient showing by clear and convincing facts that defendants' proxy solicitation material warrants the preliminary injunctive relief plaintiffs seek. The court cannot overlook the fact that virtually all proxy material of both sides had reached the stockholders and the election was imminent when the matter was heard. While the court believes its views regarding plaintiffs' objections are sound, it is also aware that injunctive relief now — on the very eve of the election — would undoubtedly come to the stockholders' attention and be viewed by them as a final determination of wrongdoing on the part of management. See Kauder v. United Board & Carton Corp., 199 F. Supp. 420 (S.D.N.Y.1969). In Judge Feinberg's words in Kauder, ". . . I find that the harm which is likely to result to defendant[s] if the injunction is issued and is ultimately proved unwarranted outweighs the possible harm to plaintiff[s] if the preliminary injunction is erroneously denied at this time." 199 F.Supp. at 424. *153 Before turning to defendants' cross-claim that plaintiffs' proxy material is in violation of Rule 14a-9(a), consideration must be given to plaintiffs' further claim that defendants have been soliciting post-dated proxies in violation of Rule 14a-10.[6] Plaintiffs produced an affidavit of Laverne Troutt, Fort Lauderdale, Florida, a Butler stockholder owning 500 common shares. Mr. Troutt states he was called from New Jersey by a Mr. Howard, who said he was working for incumbent management. In response to Howard's inquiry, Troutt stated he had received the white proxy being solicited by the plaintiffs' Committee but not the blue management proxy. Howard sent him one and at Howard's request he signed and dated it December 14, 1971, and returned it. Defendant Widmark, Butler's board chairman, states in an affidavit that plaintiffs' charge had been submitted to the S.E.C., which had requested Butler's secretary to review all proxies received by management as of November 30, 1971. Six proxies dated December 14, 1971 were found. Four are proxies of Butler executives who are actively soliciting for management, the fifth is that of a Butler executive apparently not soliciting proxies, and the sixth is that of a stockholder not involved in management. Defendants state that none of these proxies will be voted unless properly substituted with currently dated proxies and instructions to all solicitors not to accept post-dated proxies have been reinforced. In view of this assurance no injunctive relief is required. Rule 14a-9(a) Violations Claimed by Defendants Just as strenuously as plaintiffs, defendants claim that the Committee's proxy material is riddled with omissions of fact and false or misleading statements which violate Rule 14a-9(a). In sum, defendants' principal objections assert essentially that plaintiff Dopp has not accurately set forth the true facts of the corporate transactions which are involved in the New Jersey lawsuit between Butler and Dopp. The difficulty with defendants' contentions is that these very issues are already in litigation in the New Jersey Superior Court, the forum chosen by defendants for a plenary trial on the merits. It would be presumptuous for this court to attempt to unravel the complicated facts on largely conflicting affidavits after the New Jersey court has rendered a decision holding that "It is clear that the affidavits and depositions do raise sharp issues of fact which the Court conceives can be determined only on a plenary hearing."[7] For this reason and the other considerations already noted, it would be inappropriate to grant defendants injunctive relief in these circumstances. Defendants' Cross-Motion for Relief Based on Violation of Section 13(d) of the Act Plaintiffs concede that between February 1970 and August 1971 plaintiff Dopp was subject to the filing requirements of Section 13(d) of the Act, 15 U.S.C. § 78m(d), and that he failed to comply with those requirements.[8]*154 That statute, commonly known as the Williams Act, provides in substance that a person acquiring beneficial ownership of more than 5% of a class of registered securities shall within ten days thereafter inform the S.E.C., the issuing corporation, and each stock exchange where the security is traded, of that fact by written statement containing such additional information as the S.E.C. regulations require. Plaintiffs regard this violation as "technical" and contend that defendants can establish no irreparable harm justifying their request for a preliminary injunction. They argue that Butler cannot claim it was unaware of Dopp's stock acquisitions while he was part of its management, and that after his resignation in January 1971 they were known from various other sources available to Butler, including his Schedule 14B filings. Defendants contend most persuasively that the very purpose of the Williams Act was to prevent the attempted takeover of publicly-owned corporations by means of surprise tactics such as the suddenly announced cash tender offer or other secret acquisitions of large blocks of voting stock.[9] Plaintiffs' moving papers admit that after his resignation from management in January, plaintiff Paul S. Dopp acquired a total of 59,700 shares of Butler voting stock, as follows: April 8, 1971 40,000 shares June 22, " 200 " June 29, " 15,000 " August 12, " 2,000 " August 16, " 2,500 " Prior to any of the foregoing acquisitions, Dopp admittedly already owned well in excess of 10% of Butler's voting stock. As of June 29, 1971, he had acquired an additional 55,200 shares, in itself more than the 5% acquisition which triggers the prompt information filing required by Section 13(d). Had he complied with the filing requirement he would have had to disclose information generally similar to that required of one proposing to make a tender offer; e. g., the background and identity of the purchaser, the source of his funds, the number of shares acquired, any contracts or arrangements with respect to the securities of Butler, and any plans he had to make major changes in Butler's business or corporate structure. Defendants point out with some force that prompt filing by Dopp would have obliged him to immediately disclose not only the purchase but the source of the funds utilized to make the purchase. It would have allowed management to appropriately comment to the corporation's stockholders in the manner the statute was designed to permit, as soon as the *155 purchase was made. Stockholders and management would have been alerted at once to Dopp's move to regain control, as mandated by Section 13(d). Such a disclosure would also have prevented Dopp from concealing his purchases through the use of nominees so that his ownership would not appear on Butler's stock transfer records. His Schedule 14B filing made on October 18, 1971, can hardly be considered a substantial compliance with or an adequate substitute for the information required by Section 13(d). The court cannot accept plaintiffs' contention that taking Section 13(d) seriously in this case would hinder the ability of shareholders even to speak to each other with respect to corporate affairs or to criticize an inefficient management. Rather it agrees with the salutary and meaningful analysis of the Williams Act stated in Bath Industries, Inc. v. Blot, supra: The purpose of the filing and notification provisions is to give investors and stockholders the opportunity to assess the insurgents' plans before selling or buying stock in the corporation. It additionally gives them the opportunity to hear from incumbent management on the merit or lack of merit of the insurgents' proposals. If the defendant-appellant's late filing is sufficient, then no insurgent group will ever file until news of their existence and plan leaks out and prompts a law suit. By that time it will be too late to avoid the evils which the Williams Act is designed to eliminate. (427 F.2d at 113). (Emphasis the Court's.) Here we are not faced with subtle problems which have seemingly resulted in divergent views regarding application of Section 13(d) to group action. Here we are only concerned with admitted statutory violation by a large stockholder, once part of the management of a corporation, who determined on his own to launch a campaign to regain control. In doing so he has clearly plunged the corporation into a costly proxy contest it can ill afford — one which might have been avoided had early disclosure of his plans been made. If Section 13(d) means anything, plaintiff Dopp should not be permitted to gain advantage from a course of action pursued in clear violation of law. At the very least, considerations of equity demand that Dopp be disenfranchised from voting at the December 14th meeting those shares he acquired after January 4, 1971, in excess of the 2% exemption provided by the Williams Act. See Ozark Air Lines, Inc. v. Cox, 326 F. Supp. 1113 (E.D.Mo.1971).[10] More sweeping relief, which defendants urge, would be punishment, not equity, since it would deprive Dopp of previously acquired voting rights on a retroactive basis without good reason. Moreover, it is reasonably clear that the plaintiff Committee was formed after Dopp acquired the additional 5% of Butler stock he failed to report under Section 13(d). Hence there is no reason to grant the relief sought by defendants, which would enjoin the much less than 2% of Butler shares acquired by plaintiffs Anstatt, Cohen and Hickey, on the theory that they are charged with the 5% previously acquired by Dopp. For this same reason there is also no need to consider further plaintiffs' contention that they should be entitled to relief against defendants as a management group because their stock and stock options aggregate more than 5%, and they have not complied with Section 13(d). Accordingly, it is ordered that (1) plaintiffs' motion for a preliminary injunction be denied in all respects, and *156 (2) defendants' cross-motion for a preliminary injunction be granted only to the extent of enjoining plaintiff Paul S. Dopp from voting those shares of Butler's stock he acquired after January 4, 1971 in excess of 2% of the total of each class of security outstanding. Settle order on notice. APPENDIX Court Exhibit No. Description 1 Butler press release dated November 10, 1971, captioned "Butler Aviation Sues Former Chief Executive for Misuse of Corporate Funds; Seeks $600,000 plus Damages; Annual Stockholders Meeting Set for December 14" 2 Wall Street Journal article dated November 11, 1971 captioned "Butler Aviation Suing its Former Chairman, Who's Challenging Firm"; and New York Times article dated November 11, 1971 captioned "Butler Aviation Charges Ex-Chief Misused Funds" 3 Butler letter to stockholders dated November 13, 1971 4 Butler Annual Report, 1970 5 Butler proxy 6 Butler Notice of Annual Meeting of Stockholders, dated November 13, 1971, and Proxy Statement 7 Butler press release dated November 14, 1971, captioned "Butler Aviation Notifies Shareholders that `Monumental Conflict of Interest' is Involved in Proxy Contest by Dissident Former President" 8 Proxy Statement of Committee for New Management of Butler Aviation, dated November 15, 1971 9 New York Times article dated November 16, 1971 captioned "Butler Aviation Sees Conflict of Interest in Proxy Battle" 10 Committee for New Management of Butler Aviation letter to Butler stockholders dated November 22, 1971 11 Butler letter to stockholders dated November 26, 1971 NOTES [1] The meeting was set by order of the Delaware Chancery Court on application of plaintiff Paul S. Dopp, a large stockholder and former board chairman, president and chief executive officer of Butler, who resigned those posts on January 4, 1971, apparently at the request of defendants, Butler's present management. Butler, although a publicly-owned corporation, has not had a stockholders' meeting since May 1969. [2] Rule 14a-9. False or Misleading Statements. (a) No solicitation subject to this regulation shall be made by means of any proxy statement, form of proxy, notice of meeting, or other communication, written or oral, containing any statement which, at the time and in the light of the circumstances under which it is made, is false or misleading with respect to any material fact, or which omits to state any material fact necessary in order to make the statements therein not false or misleading or necessary to correct any statement in any earlier communication with respect to the solicitation of a proxy for the same meeting or subject matter which has become false or misleading. (17 C.F.R. 240.14a-9.) [3] As defendants have done here in Butler's annual report (Exh. 4, Appendix). [4] The court reaches this conclusion mindful of the admonition that stockholder disputes should not be viewed as "political contests, with each side free to hurl charges with comparative unrestraint, the assumption being that the opposing side is then at liberty to refute and thus effectively deflate the `campaign oratory' of its adversary." Securities and Exchange Commission v. May, 229 F.2d 123, 124 (2 Cir. 1956). [5] The New York Times, in a brief article the same day, did not mention settlement. [6] Rule 14a-10. Prohibition of Certain Solicitations No person making a solicitation which is subject to §§ 240.14a-1 to 240.14a-10 shall solicit: (a) any undated or post-dated proxy, or (b) any proxy which provides that it shall be deemed to be dated as of any date subsequent to the date on which it is signed by the security holder. (17 C.F.R. 240.14a-10.) [7] Butler Aviation International Inc., et al. v. Paul S. Dopp, et al., Superior Court of New Jersey, Chancery Division, Bergen County, Docket No. C-3356-70, Steno. Tr. of Decision of Hon. Eugene L. Lora, J.S.C., November 9, 1971, p. 61. (Order to Show Cause herein, Exh. 20, p. 61.) [8] Section 78m(d) provides: (1) Any person who, after acquiring directly or indirectly the beneficial ownership of any equity security of a class which is registered . . ., is directly or indirectly the beneficial owner of more than 5 per centum of such class shall, within ten days after such acquisition, send to the issuer of the security at its principal executive office, by registered or certified mail, send to each exchange where the security is traded, and file with the Commission, a statement containing such of the following information, and such additional information, as the Commission may by rules and regulations prescribe as necessary or appropriate in the public interest or for the protection of investors . . . . . The statute also provides that a group of two or more who act "for the purpose of acquiring, holding, or disposing of securities . . . shall be deemed a `person'" (15 U.S.C. § 78m(d) (3)), and that it does not apply to acquisitions not exceeding 2% of the security class during the preceding twelve months. (Subsection (6) (B).) [9] Plaintiffs do not question defendants' standing to sue for a violation of Section 13(d). Defendants point out that standing has been sustained in a case involving counterparts of 13(d), namely, Section 14 (d), (e) and (f) of the Act, which were enacted at the same time. Electronic Specialty Co. v. International Controls Corp., 295 F. Supp. 1063 (S.D.N.Y.1968), aff'd in part, 409 F.2d 937 (2 Cir. 1969). See also Bath Industries, Inc. v. Blot, 427 F.2d 97 (7 Cir. 1970), aff'g 305 F. Supp. 526 (E.D.Wis.1969). [10] In the Ozark case, supra, where a group acquisition did not exceed the 2% limit for non-reporting, the court expressly stated: Had there been no 13(d) filing before this litigation commenced, and had there been evidence of acquisitions in excess of the 2% exemption, this Court might have considered as an appropriate remedy disenfranchising all shares acquired by the Group in excess of the 2% exemption in violation of the Williams Act.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1739301/

420 F. Supp. 1 (1976) Ralph S. ABERNATHY, Administrator of the Estate of Eural Frank Abernathy, Plaintiff, v. SCHENLEY INDUSTRIES, INC., et al., Defendants. No. C-C-75-387. United States District Court, W. D. North Carolina, Charlotte Division. July 31, 1976 and September 27, 1976. Ronald Williams, Charlotte, N.C., for plaintiff. Hunter M. Jones, Jones, Hewson & Woolard, Charlotte, N.C., for Schenley defendants. John G. Golding, Golding, Crews, Meekins, Gordon & Gray, Charlotte, N.C., for defendant Mecklenburg Board of ABC. James Wallace, Jr., Associate Atty. Gen. of N.C., Raleigh, N.C., for defendant North Carolina Board of Alcoholic Beverage Control and State of North Carolina. ORDER McMILLAN, District Judge. Plaintiff's decedent allegedly drank too much of defendants' good whiskey, too fast, and died of acute ethanol poisoning. Plaintiff's complaint, as it now stands, alleges violation of 15 U.S.C. § 2068 (Consumer Product Safety Act), 21 U.S.C. § 331 (Adulterated or Misbranded Food and Drugs), and 27 U.S.C. § 205(e) (Alcohol Labeling), as well as a products liability action under North Carolina law. Plaintiff says that defendants breached these statutes, and sold a defective product, because they failed to place a label on the whiskey bottle plaintiff's decedent purchased, that warned him of the risk of acute ethanol poisoning. All defendants have moved for dismissal. The grounds urged are failure to state a claim, lack of personal and subject matter jurisdiction, the Eleventh Amendment, and sovereign immunity. Plaintiff has made *2 more motions to amend, and a motion to reconsider the previous dismissal of the State of North Carolina. The court held hearings on all then pending motions, ruled on several discovery motions, and took the dismissal motions under advisement. The court has concluded that suit against defendant North Carolina Board of Alcohol Control is barred by the Eleventh Amendment because this, in effect, is a suit against the state. Edelman v. Jordan, 415 U.S. 651, 94 S. Ct. 1347, 39 L. Ed. 2d 662 (1974); North Carolina General Statutes § 18A-14. Defendant Mecklenburg Board of Alcoholic Beverage Control is not entitled to the same immunity, however. Counties, and other political subdivisions, derive no protection from the Eleventh Amendment. Hopkins v. Clemson Agricultural College, 221 U.S. 636, 31 S. Ct. 654, 55 L. Ed. 890 (1911). Moreover, the Board is not immune from the state cause of action. North Carolina General Statutes § 153A-435. The complaint does state a claim under North Carolina law, and it apparently does state a claim under 15 U.S.C. § 2068, and 27 U.S.C. § 205(e), because of 27 C.F.R. § 5.42(a)(1). It does not state a claim under 21 U.S.C. § 331, because the whiskey was neither misbranded, within the meaning of § 343, nor adulterated, within the meaning of § 351. I have made the decision about 15 U.S.C. § 2068, and 27 U.S.C. § 205(e), in the absence of legislative history, but under the guidelines announced in Cort v. Ash, 422 U.S. 66, 95 S. Ct. 2080, 45 L. Ed. 2d 26 (1975). If any defendant is able to supply any legislative history that tends to show Congress did not intend to allow a private right of action under the statutes, I will reconsider the motions. The defeated bills which would have required warnings are no help, however, because they supply no insight into whether Congress intended to allow private actions, and they were aimed at chronic poisoning, not acute poisoning. Because I have concluded that the complaint states a federal claim, there is subject matter jurisdiction, and there is pendent jurisdiction over the state claims, as to the Board, and diversity jurisdiction as to the Schenley defendants. Plaintiff has filed motions to amend on May 3, 1976 (two motions), May 28, 1976, June 4, 1976, June 11, 1976, and June 28, 1976. No defendant has objected to these motions, except the motions of May 28, June 11 and June 28, 1976, which seek to bring in additional defendants, on a new theory of liability. I want to have a hearing on the question of new parties and theories, before deciding that question. IT IS THEREFORE ORDERED: 1. That defendant North Carolina Board of Alcohol Control's motion to dismiss is allowed. 2. That defendant Mecklenburg Board of Alcohol Beverage Control's motion to dismiss is denied. 3. That the motions of the Schenley defendants to dismiss are denied. 4. That plaintiff's motions to amend of May 3, and June 4, 1976, are allowed. 5. That plaintiff's motion to reconsider the dismissal of the State of North Carolina, is denied. ORDER On July 31, 1976, an order was entered denying motions of various defendants for dismissal. Defendants filed motions for reconsideration of the order; a hearing has been conducted; upon reconsideration the court is of the opinion that the original order was in error; the motions of the Schenley defendants and of the Mecklenburg County Board of Alcoholic Beverage Control to dismiss are allowed for reasons hereinafter stated; this leaves a state claim only as to which there is no diversity; the other questions addressed to discovery, class action and evidence are therefore moot; and the entire action as to all defendants is hereby dismissed. A brief review may be in order. *3 Plaintiff alleges that his intestate, Eural Frank Abernathy, died because of drinking too much good whiskey. The whiskey was alleged to be Ancient Age Bourbon, manufactured by the Schenley defendants and sold by the State ABC Board defendants. Plaintiff says that the decedent drank a substantial though not excessive amount (a pint or so) of Ancient Age Bourbon throughout one evening. He died as a result from "acute ethanol poisoning." Plaintiff says that decedent did not know that drinking too much alcohol can be fatal; that people who sell whiskey should be required to label the bottles with a warning that whiskey can cause acute ethanol poisoning and death; that failure to label violates North Carolina statutes and federal statutes; that a civil right of action therefore arises and that defendants are responsible for the decedent's wrongful death. The federal portion of the claims rests upon two grounds: The first is the Consumer Products Safety Act, 15 U.S.C. §§ 2051 et seq. This act sets up a Consumer Products Safety Commission; authorizes issuance of regulations for the labeling of consumer products and for other safety standards; and authorizes suits in equity and suits for damages against manufacturers violating the contemplated regulations. The trouble with reliance upon the Consumer Products Safety Act is that it does not apply to food; and beverage alcohol is a food within the meaning of the pertinent statutes. 15 U.S.C.A. § 2052 provides, in part: "(a) For purposes of this chapter: (1) The term `consumer product' means any article, or component part thereof, produced or distributed (i) for sale to a consumer . . ., or (ii) for the personal use, consumption or enjoyment of a consumer . . .; but such term does not include— (I) food. The term `food', as used in this subparagraph means all `food', as defined in section 321(f) of Title 21, including . . . [other products as defined in various sections of Title 21]." 21 U.S.C.A. § 321(f) defining "food" for the purposes of that act, provides: "(f) The term `food' means (1) articles used for food or drink for man or other animals, (2) chewing gum, and (3) articles used for components of any such article." Bourbon whiskey is obviously included among "articles used for food or drink for man" within the above definition; and I conclude that the Consumer Products Safety Act gives rise to no cause of action. The second statute alleged to give rise to a federal claim is 27 U.S.C. § 205(e) and its accompanying regulation, 27 C.F.R. § 5.42(a)(1). 27 U.S.C. § 205(e) provides, in part, that it is unlawful to sell, ship, deliver, or to introduce in or to receive from interstate commerce, bottled alcoholic beverages unless they are labeled in conformity with such regulations prescribed by the Secretary of the Treasury as will prevent deception of the consumer as to the nature and quality of the products and as will provide the consumer with adequate information as to the identity and quality of the products. The regulations with respect to labeling are contained in 27 C.F.R. §§ 5.1 through 5.56. § 5.55 requires that a bottler of distilled spirits secure a certificate of label approval from the Director, Alcohol, Tobacco and Firearm Division, Internal Revenue Service. The whiskey involved in this action was bottled and sold with a label previously approved by the Director, as shown below: *4 The Board contends that the prior approval of the Ancient Age label by the Director would preclude a determination that the label contained any statement prohibited by § 5.42, and that in the clear absence of any violation of 27 U.S.C. § 205(e) and 27 C.F.R. § 5.42, an inquiry into the legislative intent with respect to private rights of action is unnecessary. 27 C.F.R. § 5.42(a)(1) provides, in part: "(a) Bottles containing distilled spirits, or any labels on such bottles, . . . shall not contain: (1) Any statement that is false or untrue in any particular or that, . . . tends to create a misleading impression." (Emphasis added.) If the statute, 27 U.S.C. § 205(e), were a direct requirement as to labeling of merchandise, the plaintiff would have a reasonably strong case; and the absence of a legislative history showing a direct intent to confer private right of action upon injured persons would not be controlling. If the Secretary of the Treasury, pursuant to § 205(e), had issued a regulation requiring that packaged intoxicants bear a warning of the dangers of ethanol poisoning, it might fairly be inferred through such regulation pursuant to the statute that a private right of action naturally arose. The trouble is that the labeling provisions of § 205(e) are not self-executing; they only come into effect when prescribed and only to the extent prescribed "by the Secretary of the Treasury with respect to packaging, marking, branding and labeling . . .." *5 The Secretary of the Treasury has made no ruling which requires that the danger of drinking too much good whiskey be published on the bottles and packages; and in the absence of a statutory requirement or administrative regulation, it is this court's conclusion that Chapter 27 does not give rise to the private right of action asserted. There is no evidence that the labeling was misleading except by the use of the word "mellowness" in the label's description of the contents. While it may be getting a little too deep into the facts, it appears fair to note that the plaintiff's intestate is not alleged to have been a neophyte in the drinking business, and that to anyone who has tasted bourbon whiskey of any stripe the word "mellowness" is a term totally meaningless except in the context of whiskies generally. I am unable to conclude that the use of this frequently used word in describing Kentucky bourbon is the type of representation which could amount to a violation of the pertinent statutes or regulations. In short, it does not appear that a private right of action arises under 27 U.S.C. § 205(e). All other pending questions and motions being hereby rendered moot, therefore, despite the fact that as a matter of public policy it could well be that legislatures should require more specific labeling concerning the dangers of beverage alcohol, I do not believe it is the business of this court to enact such legislation, and so IT IS ORDERED, ADJUDGED AND DECREED, that this action be and it is hereby dismissed.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1740397/

726 F. Supp. 156 (1989) UNITED STATES of America, Plaintiff, v. Michael J. FISH, Defendant. No. 89-CV-80439-DT. United States District Court, E.D. Michigan, S.D. November 27, 1989. *157 Amy B. Hartmann, Asst. U.S. Atty., Detroit, Mich., for plaintiff. Jill Leslie Price, Federal Defender, Federal Defender Office, Detroit, Mich., for defendant. MEMORANDUM OPINION AND ORDER ZATKOFF, District Judge. This matter is before the Court on the government's motion for application of the enhanced sentencing provisions of the Armed Career Criminal Act, 18 U.S.C. § 924(e). FACTS The defendant, Michael J. Fish was convicted on September 20, 1989, following a jury trial, of unlawful possession of a firearm in violation of 18 U.S.C. § 922(g)(1). Prior to trial, the government filed its notice of intent to classify the defendant as an "Armed Career Criminal" within the meaning of 18 U.S.C. § 924(e). This section is entitled the Armed Career Criminal Act (hereafter ACCA). On November 16, 1989, the Court conducted a hearing on the government's motion. After hearing argument and considering the briefs of the parties, the Court now makes its ruling. LAW The ACCA requires that a mandatory minimum 15-year term of imprisonment without the possibility of parole be imposed for a defendant who violates 18 U.S.C. § 922(g) and has been convicted three or more times of a violent felony or drug offense as defined in the ACCA. The ACCA has defined a violent felony as: ... any crime punishable by imprisonment for a term exceeding one year or any act of juvenile delinquency involving the use or carrying of a firearm, knife, or destructive devise that would be punishable by imprisonment for such term if committed by an adult, that— (i) has as an element the use, attempted use, or threatened use of physical force against the person of another; or (ii) is burglary, arson, or extortion, involves use of explosives, or otherwise involves conduct that presents a serious potential risk of physical injury to another. 18 U.S.C. § 924(e)(2)(B). Before applying the enhanced sentencing provisions to defendant Fish, the Court must determine whether or not the defendant's prior criminal record contains at least three violent felonies in order to satisfy the requirements of the ACCA. United States v. Taylor, 882 F.2d 1018 (6th Cir. 1989). Defendant's prior felony convictions include: breaking and entering an occupied dwelling (1982), breaking and entering an unoccupied dwelling (1975), attempted breaking and entering a business place (1978), and attempted breaking and entering an occupied dwelling (1972). The government submits that each of these prior convictions is a violent felony within the meaning of section 924(e). Therefore, the government contends that defendant's prior convictions satisfy the requirements of the ACCA, thus imposing the need for a 15-year mandatory minimum sentence. In determining whether or not these prior convictions are violent felonies, the Court will first discuss the two burglary *158 convictions and then the two attempt convictions. BURGLARY CONVICTIONS Both the government and defendant Fish have acknowledged that burglary convictions are violent acts for purposes of the ACCA. However, defendant Fish claims that there is a split among the circuits as to whether or not common law burglary should be the only type of burglary considered violent under the ACCA. According to the defendant, the Fourth and Ninth Circuits have held that only common law burglary should be considered a violent felony for purposes of applying the ACCA. (Memorandum in Opposition to Specification of Defendant As An Armed Career Criminal, pg. 3). This Court, however, is bound by the law of the Sixth Circuit. The Sixth Circuit has ruled that when determining whether an act is a violent act, for purposes of section 924(e), the ACCA does not limit burglary to its common law definition. Taylor, 882 F.2d at 1023. As a result, burglary entails more than the act of breaking and entering a dwelling during the nightime with the intent to commit a crime therein. Id. The Taylor court broadened the definition of what could be considered a violent act so as to include burglary convictions that would not necessarily have been common law burglaries. In doing so, the Taylor court ruled that breaking and entering an occupied dwelling and breaking and entering an unoccupied business place were crimes which constituted violent felonies under the ACCA. Taylor, 882 F.2d at 1018. Therefore, this Court may consider two of defendant's breaking and entering convictions as predicate acts or violent felonies for purposes of applying the sentencing enhancement guidelines. According to the defendant, this split among the circuits will inevitably need to be resolved by the Supreme Court. Therefore, defendant has only raised this issue to preserve it for appeal. (Memorandum in Opposition to Specification of Defendant As An Armed Career Criminal, pg. 3). ATTEMPT CONVICTIONS The defendant has challenged the use of two of his attempted breaking and entering convictions for purposes of sentence enhancement. According to defendant, the language of the statute does not specifically include the use of convictions for attempted burglary. The "catch all" language of § 924(e)(2)(B)(ii) indicates that actions which present a serious potential risk of physical injury to another are considered violent acts. Defendant claims that attempted burglary does not present this risk of injury to others. According to the defendant, an attempt is an uncompleted offense often resulting in a conviction even though the offender never arrived at the site of the attempted crime. (Memorandum In Opposition to Specification of Defendant As An Armed Career Criminal, pg. 3). The defendant submits that not all attempted burglaries present the same risk of harm to individuals as would be present had the offense been completed. Therefore, defendant has concluded that his attempt convictions do not pose the level of risk required by § 924(e)(2)(B)(ii) and should not be used for purposes of sentence enhancement. The Court is not persuaded by defendant's argument. The Sixth Circuit has held that when determining whether or not a defendant's prior conviction was a violent felony, for purposes of § 924(e), reference is not made to the actual conduct involved, but rather to the statute under which [the conviction] was obtained. Taylor, 882 F.2d at 1023. Therefore, this Court need not concern itself with how close defendant may have been to actually completing the burglary offense. Likewise, the Court need not consider what risks or dangers the defendant actually created. Instead, this Court must consider whether or not defendant's attempt to commit burglary created a potential risk of injury to others. In Michigan, an attempted burglary conviction requires the prosecution to prove beyond a reasonable doubt that the defendant intended to commit the crime of burglary. The prosecution must also prove that the defendant performed an act toward *159 committing the crime. This act must go beyond mere preparation such that the crime could have been completed without an interruption by independent and outside circumstances. (Michigan Criminal Jury Instructions, 9:1:01). Even though the defendant may not have completed the burglary offense, his attempt conviction represents an intention to commit the crime. In Michigan, any attempt to commit an offense is a specific intent crime. People v. Langworthy, 416 Mich. 630, 644, 331 N.W.2d 171 (1982). In addition, courts have previously addressed the issue of attempted felonies as predicate acts for the purposes of the ACCA. In United States v. Sanders, 705 F. Supp. 396, 399 (N.D.Ill.1988), the court held that attempted burglaries constitute violent felonies under the ACCA. According to the Sanders court, an attempt involves substantially the same risk of injury as does the actual burglary. Id. Even though the burglary was not completed, the attempt involves the risk that the property owner may return, a neighbor may become involved, or a law enforcement officer may respond. Id. This Court concludes that an attempted burglary conviction is a "violent felony" within the meaning of 18 U.S.C. § 924(e)(2)(B)(ii). An attempt to commit burglary is a specific intent crime requiring that the defendant intend to commit the crime and take a substantial step toward furthering the crime. Regardless of whether or not the burglary was accomplished, the defendant's mental state was the same. The defendant did intend to commit burglary. The fact that the defendant was unsuccessful does not lessen the potential danger of the crime. Section 924(e)(2)(B)(ii) does not require the defendant's action to have actually been dangerous when committed. Instead, the statute deals with actions which present a serious potential risk of injury to another. On any given occasion, an attempted burglary may in fact not be dangerous. However, an attempt does create a serious risk of harm to others. The attempt may be discovered while in progress. The property owner or a neighbor may intervene and confront the intruder. Police officers may investigate or pursue. In these instances, the persons involved will face a serious risk of physical injury. Congress clearly intended to include this type of potential risk when it drafted the ACCA. Therefore, this Court finds that attempted burglaries present substantially the same risks of injury as do burglaries. As a result, attempted burglary is a violent felony for purposes of the ACCA. CONCLUSION The Court, therefore, finds that the defendant's convictions for attempted burglary and burglary constitute the predicate violent felonies required for application of the enhanced sentencing provisions. The government's motion for application of enhanced sentencing provisions under the Armed Career Criminal Act is hereby GRANTED. IT IS SO ORDERED.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1752784/

587 F. Supp. 267 (1984) TUNIS BROTHERS COMPANY, INC., Richard N. de la Rigaudiere, and David C. Smith v. FORD MOTOR COMPANY, Ford Motor Credit Company, Wenner Ford Tractor, Inc., John S. Wenner, John Watson, Douglas N. Crawford, Eugene W. Fraher, E.S. Hasel, Hugh Nickel, and Kenneth E. Harris. Civ. A. No. 82-5557. United States District Court, E.D. Pennsylvania. May 7, 1984. *268 Arnold R. Ginsburg, Haverford, Pa., for plaintiffs. Robert C. Heim, Jeffrey G. Weil, Linda J. Wharton, Philadelphia, Pa., for Ford Motor Co., Ford Motor Credit, Watson, Crawford, Fraher, Hasel, Nickel and Harris. Steven T. Stern, Philadelphia, Pa., for Wenner Ford Tractor, Inc. and John S. Wenner. MEMORANDUM AND ORDER BECHTLE, District Judge. This action involves federal antitrust claims and pendent state law claims. Presently before the court are defendants' two motions for summary judgment.[1] For the reasons stated herein, the motions for summary judgment will be granted on the antitrust claims and the remaining state law claims will be dismissed without prejudice. I. FACTS In order that there be a better understanding of this case, a brief review of the facts and relationships of the parties is necessary. In 1959, plaintiff Tunis Brothers Company, Inc. ("Tunis Brothers"), located in Kennett Square, Pennsylvania, became a Ford Motor Company ("Ford") franchised *269 dealership selling tractors.[2] The dealership was owned and operated by Richard and Isabelle Tunis.[3] In March 1980, Richard Tunis was approached by plaintiffs Richard N. de la Rigaudiere ("de la Rigaudiere") and David C. Smith ("Smith") in their attempt to buy the business. Eventually, sometime in late 1980, Richard and Isabelle Tunis agreed to sell the business to de la Rigaudiere and Smith. In May 1981, prior to the sale of the business, de la Rigaudiere and Smith met with defendant John Watson ("Watson"), a zone manager for Ford, for the purpose of discussing the transfer of the Ford franchise to them once Richard and Isabelle Tunis sold the business. The parties met at Wenner Ford Tractor, Inc. ("Wenner Ford"). Wenner Ford is the Ford tractor dealership nearest to Tunis Brothers and has as its president and chief executive, defendant John S. Wenner ("Wenner").[4] During the meeting, which included lunch at the Concordville Inn, Watson indicated that Ford did not intend to have a franchised dealership selling tractors in Kennett Square after Tunis Brothers was sold but rather, was interested in having a franchised dealership in the Cochranville/Oxford area 15 miles west of Kennett Square. Later, in June 1980, plaintiffs de la Rigaudiere and Smith met with Watson's supervisors, defendant Eugene W. Fraher ("Fraher") and his associate, Edward Poole, in Cohoes, New York. At that time Fraher was District Manager for the Northeastern District of Ford Tractor Division. At the meeting Fraher confirmed what plaintiffs had been told regarding Ford's plan to eliminate its Kennett Square franchise once Tunis Brothers was sold. Despite this, plaintiffs were asked to submit financial information and a business plan containing their proposals for operating a franchised dealership. On December 16, 1980, Richard and Isabelle Tunis and de la Rigaudiere and Smith signed an Agreement of Sale for Tunis Brothers. Performance of the agreement was not conditioned on plaintiffs obtaining Ford's approval to continue the Tunis Brothers dealership as a Ford franchised dealership. In early 1981 plaintiffs sent to Ford the plan requested by Fraher during the June 1980 meeting. On March 3, 1981, defendants Hugh Nickel ("Nickel") and Douglas N. Crawford ("Crawford"), both employees of Ford, met with de la Rigaudiere and Smith in Kennett Square to obtain more application information for: 1) a franchised dealership; and 2) credit from defendant Ford Motor Credit Company ("Ford Credit"). The closing of the sale of Tunis Brothers took place on March 13, 1981. By letter dated March 17, 1981, Richard Tunis sent Ford his letter of resignation. Defendant Kenneth E. Harris ("Harris"), Market Representative Manager of the Northern Region of Ford Motor Company's Tractor Division, did not process the resignation letter, but rather, held the resignation pending a decision on plaintiffs' applications. In May 1981, de la Rigaudiere and Smith were informed that their credit application had not been approved by Ford Credit. However, since the decision had been based *270 on erroneous financial information, plaintiffs were permitted to submit a new credit application to Ford Credit. By letter dated August 7, 1981, defendant E.S. Hasel ("Hasel"), Regional Manager of the Northern Region of Ford Motor Company's Tractor Division, advised de la Rigaudiere and Smith that Ford would not approve their application for a franchised dealership in Kennett Square. Subsequently, plaintiffs became, and still are, an Allis-Chalmers dealership selling Allis-Chalmers tractors at Tunis Brothers. On December 2, 1982, plaintiffs Tunis Brothers, de la Rigaudiere and Smith filed a complaint in this court. The plaintiffs' claims, as discussed below, are based on section 1 of the Sherman Act and state law. Counts I through IV are based on the federal antitrust laws. More specifically, Counts I, III and IV are based on an alleged conspiracy under section 1 of the Sherman Act. In these counts plaintiffs allege that all the defendants conspired for the purposes of terminating Tunis Brothers as a Ford franchised dealership and preventing plaintiffs de la Rigaudiere and Smith, as new owners of Tunis Brothers, from operating their dealership as a Ford franchised dealership (hereinafter referred to as the "conspiracy").[5] The conspiracy, plaintiffs claim, was formed with the intent to eliminate or substantially decrease competition with defendant Wenner Ford. Count II is also based on section 1 of the Sherman Act. In this count, however, plaintiffs do not allege the existence of a conspiracy but rather contend that a 1974 franchise agreement between Ford and Tunis Brothers which governed the parties' relationship after 1974 was a contract in unreasonable restraint of trade or commerce. Count V and VI are state law claims over which this court has pendent jurisdiction. In Count V plaintiffs allege a number of different theories upon which they claim defendants are liable. As plaintiffs have stated, Count V of the complaint is "based upon fraud and other tortious conduct."[6] Count VI is a contract claim in which plaintiffs allege that Ford breached the franchise agreement and that all the other defendants aided or abetted Ford in breaching the franchise agreement. II. SUMMARY JUDGMENT In ruling on defendants' motions for summary judgment, this court is aware that summary judgment is appropriate only when there is no genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law. Fed.R.Civ.P. 56. Additionally, this court is aware that due to the complexity of many antitrust cases summary judgment is used sparingly in such cases. See Poller v. Columbia Broadcasting System, Inc., 368 U.S. 464, 82 S. Ct. 486, 7 L. Ed. 2d 458 (1962). Nevertheless, summary judgment, if otherwise justified, is clearly appropriate in antitrust cases. See International Salt Co. v. United States, 332 U.S. 392, 68 S. Ct. 12, 92 L. Ed. 20 (1947). A) Counts I, III and IV Counts I, III and IV of the complaint are based on alleged violations of section 1 of the Sherman Act. The basic principles which guide this court in determining whether a violation of section 1 of the Sherman Act has occurred have been articulated by the Third Circuit Court of Appeals. In order to sustain a cause of action under § 1 of the Sherman Act, the plaintiff *271 must prove: (1) that the defendants contracted, combined or conspired among each other; (2) that the combination or conspiracy produced adverse, anti-competitive effects within relevant product and geographic markets; (3) that the objects of and the conduct pursuant to that contract or conspiracy were illegal; and (4) that the plaintiff was injured as a proximate result of that conspiracy. Unless the particular restraint falls within a category that has been judicially determined to be illegal per se, the legality of a restraint challenged under § 1 of the Sherman Act must be assessed under the rule of reason. Under the rule of reason standard, only those restraints upon interstate commerce which are unreasonable are proscribed by § 1 of the Sherman Act. Martin B. Glauser Dodge Co. v. Chrysler Corp., 570 F.2d 72, 81-82 (3d Cir.1977), cert. denied, 436 U.S. 913, 98 S. Ct. 2253, 56 L. Ed. 2d 413 (1978) (citations omitted). Since Counts I, III and IV are all premised on the existence of a conspiracy, despite any differences among these counts,[7] in order to succeed on any of these three counts plaintiffs must show that a conspiracy within the meaning of section 1 occurred. In determining whether plaintiffs have satisfied the burden of producing sufficient evidence of a section 1 conspiracy, it is not required that plaintiffs present direct proof of the conspiracy. On the contrary, plaintiffs may rely on inferences drawn from circumstantial evidence. See Edward J. Sweeney & Sons, Inc. v. Texaco, 637 F.2d 105, 111 (3d Cir.1980). The latitude with respect to what inferences are permissible from the circumstances is broad, see, e.g. Interstate Circuit, Inc. v. United States, 306 U.S. 208, 223-28, 59 S. Ct. 467, 472-75, 83 L. Ed. 610 (1939), but not limitless. There are limits beyond which reasonable inference-drawing degenerates into groundless speculation. In re Japanese Electronic Products Antitrust Litigation, 723 F.2d 238, 304 (3d Cir.1983). Additionally, in examining the proposed evidence of an antitrust conspiracy, courts have been warned against fragmentizing or compartmentalizing the evidence. See Continental Ore Co. v. Union Carbide & Carbon Corp., 370 U.S. 690, 698-699, 82 S. Ct. 1404, 1409-1410, 8 L. Ed. 2d 777 (1962); American Motor Inns, Inc. v. Holiday Inns, Inc., 521 F.2d 1230, 1253 (3d Cir.1975). With these guidelines in mind, the court examines plaintiffs' allegations of a conspiracy to determine if there is evidence of a "meeting of the minds," see American Tobacco Co. v. United States, 328 U.S. 781, 810, 66 S. Ct. 1125, 1139, 90 L. Ed. 1575 (1946), and if so, to whom the minds belong. The defendants who allegedly conspired are Ford, Ford Credit, John Wenner, Wenner Ford, and a number of individuals who are or were employees of Ford.[8] At the outset it should be noted that both John Wenner and the individual Ford employees are incapable of conspiring with their respective corporations and that the Ford employees are incapable of conspiring among themselves to the extent they are acting on Ford's behalf. See, e.g., Tose v. First Pennsylvania Bank, N.A., 648 F.2d 879, 894 (3d Cir.), cert. denied, 454 U.S. 893, 102 S. Ct. 390, 70 L. Ed. 2d 208 (1981); Nelson Radio & Supply Co. v. Motorola, Inc., 200 F.2d 911, 914 (5th Cir.1952), cert. denied, 345 U.S. 925, 73 S. Ct. 783, 97 L. Ed. 1356 (1953); II E. Kintner Federal Antitrust Law § 9.8 (1980). Thus, any acts between Ford and its employees or between John Wenner and Wenner Ford cannot be used to show that two or more persons or entities conspired, within the meaning of section 1 of the Sherman Act, to terminate Tunis Brothers or deny the *272 transfer of the Ford franchise to de la Rigaudiere and Smith.[9] (i) Ford Credit There is no evidence whatsoever from which this court could infer that Ford Credit conspired with John Wenner or Wenner Ford. Therefore, in their attempt to show that Ford Credit was a party to the overall conspiracy plaintiffs attempt to show a conspiracy between Ford and Ford Credit. They attempt to do so by producing evidence of a conversation between defendant Nickel, a Ford employee, and Howard Stonebeck, Branch Manager of Ford Credit's Philadelphia branch office.[10] The evidence of the conversation is a written entry in a chronology of events covering the first credit application submitted to Ford Credit. The relevant entry refers to a phone conversation between Stonebeck and Nickel during which they discussed certain financial information on plaintiffs' application, specifically, the amount of capital de la Rigaudiere and Smith were intending to invest in the dealership. The entry indicates that as a result of the conversation Stonebeck had the impression that Ford did not want the application approved.[11] While such evidence may be probative of Ford's intention to deny the franchise application of plaintiffs, it is not probative of Ford Credit's participation in any type of agreement. Neither this evidence, the fact that Ford Credit did not approve plaintiffs' first credit application,[12] nor any permissible inference which could be drawn from this evidence, warrants a finding that Ford Credit and Ford "had a unity of purpose or a common design and understanding...." See Coleman Motor Co. v. Chrysler Corp., 525 F.2d 1338, 1345 (3d Cir.1975) (citations omitted). Since there is no evidence that Ford Credit conspired with either John Wenner or Wenner Ford and since this court has determined that the facts do not justifiably permit an inference of a conspiracy between Ford Credit and Ford,[13] Ford Credit cannot be liable as a co-conspirator under section 1 of the Sherman Act. (ii) John Wenner Plaintiffs claim that John Wenner was a member of the conspiracy "from the very beginning ... through a tacit agreement."[14] However, the evidence plaintiffs rely upon in opposing defendants' motions for summary judgment, taken as a whole, fails to show that John Wenner was ever a party to a conspiracy to terminate Tunis Brothers or deny de la Rigaudiere and Smith a Ford franchise.[15] *273 The facts upon which plaintiffs base their claim that John Wenner tacitly agreed to be a co-conspirator are as follows: (1) a memorandum written in August 1981 by Ford employees in which there is a reference to an attempt to find out if any commitment regarding the Kennett Square area had been made to Wenner;[16] (2) John Wenner was present in the same restaurant when de la Rigaudiere and Smith met with defendant Watson to discuss the possibility of acquiring the Kennett Square Ford franchise after the sale of Tunis Brothers; (3) John Wenner, as expressed by plaintiffs' counsel, "seemed to know" before plaintiffs that plaintiffs' franchise application was going to be rejected;[17] (4) John Wenner is a friend of many of the Ford employee defendants; (5) Tunis Brothers was the only Ford tractor dealership in the Kennett Square area other than Wenner Ford and thus was John Wenner's only competition.[18] Viewed together and in a light most favorable to plaintiffs, these facts do not permit a reasonable inference to be drawn which would place John Wenner in an agreement with any other defendant to terminate Tunis Brothers or deny the transfer of the Ford franchise to de la Rigaudiere and Smith. The facts presented do not warrant a finding that John Wenner was a member of a conspiracy since they do not show, directly or indirectly, a "meeting of the minds" between John Wenner and any of the other defendants. To hold differently would permit a party to use speculation as evidence of participation in an antitrust conspiracy. See In re Japanese Electronic Products Antitrust Litigation, 723 F.2d at 304 (3d Cir.1983). Because there is simply no evidence, direct or circumstantial, which indicates that John Wenner was a party to the alleged conspiracy, John Wenner cannot be liable under Counts I, III and IV. (iii) Wenner Ford Due to the fact that a corporation has no way of acting except through officers and employees, in order for Wenner Ford to be a member of the alleged conspiracy, the facts must indicate or permit a reasonable inference that an employee or officer of Wenner Ford, on behalf of Wenner Ford, agreed with at least one other person or entity to commit the acts complained of by plaintiffs. As seen above, plaintiffs have failed to present sufficient evidence from which this court could infer that John Wenner was a party to the alleged conspiracy. Based on this failure, and on the fact that plaintiffs have not presented any evidence that any other employee of Wenner Ford was a party to the conspiracy, it would normally follow that Wenner Ford could not be a member of the alleged conspiracy. However, in this case, two Ford employees, defendants Fraher and Hasel, have also served, at some time, as directors and officers of Wenner Ford.[19] Because of Fraher's and Hasel's dual employment capacities it is necessary to examine the possibility as to whether Wenner Ford was party to the alleged conspiracy through the acts of Fraher and Hasel. *274 While it is true that a conspiracy between corporations might arise if directors, officers, representatives or other employees are working for two or more entities, see Timken Roller Bearing Co. v. United States, 341 U.S. 593, 71 S. Ct. 971, 95 L. Ed. 1199 (1951); Tamaron Distrib. Corp. v. Weiner, 418 F.2d 137 (7th Cir. 1969); America's Best Cinema Corp. v. Fort Wayne Newspapers, Inc., 347 F. Supp. 328 (N.D.Ind.1972), such reasoning is based on the premise that the employees are working on behalf of those corporations. In this case the facts plaintiffs have presented in support of their position that Fraher and Hasel were members of the conspiracy relate solely to activities Fraher and Hasel performed as Ford employees, not as employees of Wenner Ford. There are no facts which indicate that Fraher and Hasel, while working on behalf of Wenner Ford, attempted to terminate Tunis Brothers or prevent the transfer of the Ford franchise to de la Rigaudiere and Smith. Additionally, it would be improper to impute activities performed by Fraher and Hasel in their capacities as Ford employees to Wenner Ford on the sole basis that, at some time, Fraher and Hasel had also served as directors and officers of Wenner Ford. Ford employees routinely act as directors and officers of all Dealer Development dealerships into which Ford has contributed capital. Thus, since there are no facts indicating that a person acting on behalf of Wenner Ford was a co-conspirator for purposes of terminating Tunis Brothers or denying the transfer of the Ford franchise, all counts against Wenner Ford which are based on a section 1 conspiracy under the Sherman Act must be dismissed. (iv) Ford and the Ford Employees Having determined that the facts fail to show or give rise to a reasonable inference which shows that Ford Credit, John Wenner and Wenner Ford were parties to a conspiracy, the only remaining defendants that could have been parties to the alleged conspiracy are Ford and the individual Ford employees. However, as noted previously, for purposes of section 1 of the Sherman Act a corporation and its employees, or the employees themselves on behalf of their corporation, cannot conspire. Therefore, since there is no evidence of a conspiracy under section 1 of the Sherman Act, there is no genuine issue of material fact and all defendants are entitled to judgment as a matter of law on Counts I, III and IV. See Kaiser v. General Motors Corp., 396 F. Supp. 33, 38-39 (E.D.Pa.1975), aff'd 530 F.2d 964 (3rd Cir.1976). B) Count II In Count II of their complaint plaintiffs allege that the 1974 franchise agreement between Ford and Tunis Brothers was a contract in unreasonable restraint of trade due to the existence of unlawful provisions in the agreement. Plaintiffs contend that the contractual provisions made the franchise agreement illegal both per se and under the rule of reason in violation of section 1 of the Sherman Act. Plaintiffs also contend that the defendants other than Ford are liable under this count since they "... aided and abetted Ford and conspired with Ford in exercising its rights under said provisions of the agreement ... and in utilizing said contractual provisions in furtherance of illegal objectives...."[20] Generally, the provisions in the franchise agreement which plaintiffs claim are unlawful are: 1) a provision which prevented the franchisee, i.e. Tunis Brothers, from transferring the franchise without approval of Ford; and 2) a provision which gave Ford the right to terminate the agreement. Additionally, under the franchise agreement Ford had the right to deny an application for a Ford franchise from any purchaser of the Tunis Brothers business.[21] *275 It is settled law that a manufacturer is free to choose with whom he will deal absent any agreement restraining trade. United States v. Arnold Schwinn & Co., 388 U.S. 365, 87 S. Ct. 1856, 18 L. Ed. 2d 1249 (1967); United States v. Colgate & Co., 250 U.S. 300, 39 S. Ct. 465, 63 L. Ed. 992 (1919); Cernuto, Inc. v. United Cabinet Corp., 595 F.2d 164 (3d Cir.1979). A refusal to deal, whether it be a dealership termination or a rejection of an application for a dealership, is not a violation of section 1 of the Sherman Act unless the refusal is a result of collusive action between two or more distinct entities. See Albrecht v. Herald Co., 390 U.S. 145, 88 S. Ct. 869, 19 L. Ed. 2d 998 (1968); Zoslaw v. MCA Distributing Corp., 693 F.2d 870 (9th Cir.1982); Bushie v. Stenocord Corp., 460 F.2d 116 (9th Cir.1972); Ark Dental Supply Co. v. Cavitron Corp., 461 F.2d 1093 (3d Cir.1972). Application of these principles to the franchise agreement and the provisions contained therein requires this court to find that the franchise agreement, on its face, does not violate section 1 of the Sherman Act. See Kaiser v. General Motors Corp., 396 F. Supp. 33, 39 (E.D.Pa. 1975), aff'd, 530 F.2d 964 (3d Cir.1976). The court also determines that there are no facts which show that Ford improperly used the franchise agreement to deny transfer of the Ford franchise to plaintiffs de la Rigaudiere and Smith. See Salco Corp. v. General Motors Corp., Buick Motor Div., 517 F.2d 567, 576 (10th Cir.1975). Accordingly, defendants' motions for summary judgment as to Count II will be granted. C) Counts V and VI Counts V and VI are state law claims over which this court has pendent jurisdiction. In situations where a court dismisses all federal claims before trial, as in this case, it is discretionary with the court to proceed with the pendent claims. See United Mine Workers of America v. Gibbs, 383 U.S. 715, 86 S. Ct. 1130, 16 L. Ed. 2d 218 (1966); Rogers v. Valentine, 426 F.2d 1361 (2nd Cir.1970). The court will dismiss the pendent claims, Counts V and VI, without prejudice. See Broderick v. Associated Hosp. Serv. of Philadelphia, 536 F.2d 1, 8 n. 25 (3d Cir.1976); Daley v. St. Agnes Hospital, Inc., 490 F. Supp. 1309, 1320 (E.D.Pa.1980). III. CONCLUSION Since there is no genuine issue as to a material fact in Counts I, II, III and IV, and defendants are entitled to a judgment as a matter of law on those counts, defendants' motions for summary judgment will be granted with respect to Counts I, II, III and IV. The remaining pendent claims, Counts V and VI, will be dismissed without prejudice. An appropriate Order will be entered. NOTES [1] One of the two motions for summary judgment has been filed by all defendants except Wenner Ford Tractor, Inc. and John S. Wenner. The other motion for summary judgment has been filed by defendants Wenner Ford Tractor, Inc. and John S. Wenner. [2] In addition to selling Ford tractors, Tunis Brothers sold Ford accessories and non-Ford products. For the period of time from 1977 to 1981, Tunis Brothers' sales of Ford products as compared with its total sales ranged from a high of 65.8% in 1979 to a low of 46.2% in 1981. See Plaintiffs' Amended Answers to Defendant Ford Motor Company's Interrogatories; Plaintiffs' Trial Exhibit P-102. [3] A 1974 franchise agreement between Ford and Richard and Isabelle Tunis remained in effect, without interruption, and governed the parties' relationship after 1974. [4] Wenner Ford is a participant in Ford's Dealer Development program. This program permits Ford and another party to invest in a dealership with the understanding that the other party will buy out Ford's investment within a reasonable time and thus become a privately capitalized dealer. The terms of the Dealer Development Agreement in this case included, inter alia, that Ford would be the sole preferred stock shareholder of Wenner Ford and that John Wenner would be the sole common stock shareholder. Only the preferred shares are capable of being voted under terms of the Agreement. See Plaintiffs' Trial Exhibits P-163, 164. [5] A fair reading of Counts I, III and IV reveals the following distinctions among these counts. Count I sets forth a per se violation of section 1 of the Sherman Act and is based on the alleged conspiratorial conduct of defendants. Count III of the complaint is the same as Count I except for the additional allegation that defendants' conspiracy included "dirty business tricks and unfair business dealings." Count IV is the same as Count I with the exception that in Count IV plaintiffs do not allege a per se violation of section 1 of the Sherman Act but rather, allege that defendants' conspiratorial conduct violated the rule of reason. [6] Plaintiffs' response to defendants' motions for summary judgment p. 13; Transcript of February 8, 1984 hearing on motions for summary judgment, Tr. 45-46. [7] See note 5 supra. [8] By Order dated June 22, 1983, this court dismissed all claims against another named defendant, C.W. Wenzel, for lack of personal jurisdiction. Tunis Brothers Co., Inc. v. Ford Motor Co.,No. 82-5557 (E.D.Pa. June 22, 1983). [9] This rule prohibiting a conspiracy from being based on acts between a corporation and its employees does not, of course, preclude a conspiracy predicated on acts by the employees and some non-employee or entity other than their own corporation. Thus, for example, it is possible that a conspiracy could be formed between John Wenner and a Ford employee. [10] Plaintiffs contend that this conversation is their principal evidence of Ford Credit's conspiratorial behavior (Tr. 49). The court determines that this is the only evidence which purportedly shows Ford Credit's participation in the alleged conspiracy. [11] Saxton Deposition, pp. 23-24; Plaintiffs' Trial Exhibit P-73. [12] Although the first credit application submitted by de la Rigaudiere and Smith was denied, plaintiffs were permitted to submit a second application when it was determined that the first credit application had contained erroneous financial information. This second credit application was still pending with Ford Credit when Ford, through defendant Hasel, notified de la Rigaudiere and Smith that they would not be given a Ford tractor franchise in Kennett Square. [13] The court also finds that there is no evidence which would support a finding that a Ford employee, but not acting on behalf of Ford, conspired with Ford Credit. [14] See Tr. 28. [15] In determining whether a section 1 conspiracy exists between Ford and John Wenner or Wenner Ford, the court is guided by the recent Supreme Court decision Monsanto Company v. Spray-Rite Service Corporation, ___ U.S. ___, 104 S. Ct. 1464, 79 L. Ed. 2d 775 (1984). In that distributor-termination case, the court held that in order to submit a section 1 claim to the jury, more than evidence of complaints from other distributors is needed. Id. 104 S.Ct. at 1470. The evidence presented must tend to exclude the possibility that the manufacturer and non-terminated distributors were acting independently. Id. [16] See Tr. 28-29; Plaintiffs' Trial Exhibit P-62. [17] Tr. 31. [18] In addition to these facts that are virtually all subjective, intangible or ambiguous, plaintiffs also cite the unambiguous fact that one of Wenner Ford's trucks was used in an attempt to repossess a Ford tractor from plaintiffs' dealership. However, even plaintiffs apparently concede that this incident is of little value in implicating Wenner in the alleged conspiracy. See Tr. 28-33. [19] Although plaintiffs repeatedly note in the papers filed with the court that a number of Ford employees have simultaneously served as employees of Wenner Ford and Ford, plaintiffs only specifically refer to defendants Fraher and Hasel. Therefore, the court will examine the activities of only these two defendants as they relate to the alleged participation by Wenner Ford in the conspiracy. Fraher's and Hasel's involvement as directors and officers of Wenner Ford arises out of the terms of the Dealer Development Agreement in which Wenner Ford was a participant. See note 3 supra. [20] Complaint, ¶ 95. [21] More specifically, the actual wording of the subject provisions gave Ford the right to terminate the arrangement between it and Tunis Brothers without notice if there was a transfer or an attempt to transfer any ownership interest in the dealership. Ford could terminate the arrangement at will provided the dealer was given at least sixty (60) days prior written notice. The franchise agreement also provided that any change in an ownership interest would be ineffective against Ford and that Ford could decline to appoint as an authorized dealer any purchaser or prospective purchaser of the dealership upon termination or non-renewal of the agreement.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1753005/

587 F. Supp. 893 (1984) PRUITT ELECTRIC COMPANY, Plaintiff, v. UNITED STATES DEPARTMENT OF LABOR, et al., Defendants. Civ. A. No. CA 3-81-0970-G. United States District Court, N.D. Texas, Dallas Division. June 13, 1984. *894 John V. Jansonius, Hershell L. Barnes, Jr., Kathryn C. Mallory, Haynes & Boone, Dallas, Tex., for plaintiff. John Mitchell Nevins, Asst. U.S. Atty., Dallas, Tex., Sofia P. Petters, Patricia Duryee, U.S. Dept. of Labor, Washington, D.C., for defendants. MEMORANDUM ORDER FISH, District Judge. Factual Backround Sometime prior to November 21, 1980, the Wage and Hour Division of the United States Department of Labor ("the Department") conducted an investigation of work performed by Pruitt Electric Company ("Pruitt") as an electrical subcontractor on the Fashion Distribution Center at the Army-Air Force Exchange ("the Exchange") in Dallas, Texas. As a result of the investigation, the Department charged Pruitt with misclassifying several employees and failing to pay proper overtime rates. A back wage liability of $21,452.14 was assessed against Pruitt under the Davis-Bacon Act, 40 U.S.C. § 276a, et seq., in addition to $325.81 under the Contract Work Hours and Safety Standards Act for failure to pay proper overtime wages and $120 in liquidated damages as a result of the overtime violations. On November 21, 1980, the Department directed the contracting officer for the Exchange to withhold monies, otherwise payable to Pruitt's prime contractor, in the amount of Pruitt's total liability. On January 2, 1981, pursuant to 29 C.F.R. § 5.11(b), Pruitt requested an administrative hearing on the Department's withholding of the assessments against Pruitt. The matter was then referred to an administrative law judge for hearing, though a hearing has not yet been held. After the matter was set for hearing, Pruitt sought certain documents relating to the hearing under the Freedom of Information Act ("FOIA"), 5 U.S.C. § 552. Pruitt's request for these documents was denied by the Department's assistant regional administator on the basis of exemption 7(A) of the FOIA. Pruitt appealed this decision to the Solicitor of Labor, but its appeal was denied, also on the basis of exemption 7(A) of the FOIA. Pruitt then filed suit in this court seeking to compel disclosure of the documents. The Department subsequently filed its motion to dismiss or, in the alternative, for summary judgment, which is now before the court and which asserts that the documents in question are exempt from disclosure under FOIA exemptions 7(A), 7(C), 7(D) or 5. After Pruitt responded to the motion, this court ordered the documents in question submitted for in camera review. The documents submitted by the Department for in camera review fall into three categories: (1) Employee Interview Statements and Questionnaires; (2) Intra-Agency Memoranda Prepared by the Wage-Hour Investigator and Other Intra and Inter-Agency Correspondence Generated Within the Wage and Hour Division; and (3) Reference Material Consulted by Wage-Hour Investigator. The FOIA generally requires that an agency make available to any person, upon request, any records it possesses. This broad right of access and disclosure is, however, subject to nine exemptions set out in subsection (b) of the FOIA, 5 U.S.C. *895 § 552(b) (1976). This case primarily concerns exemption 7(A).[1] Witness Statements and Agency Memoranda The Department has the burden of showing that the documents in question were properly withheld under some exemption. Stephenson v. Internal Revenue Service, 629 F.2d 1140, 1144 (5th Cir.1980). The Department satisfies this burden as to exemption 7(A) if it establishes that (1) the documents were investigatory records compiled for law enforcement purposes and (2) production of the documents would interfere with pending enforcement proceedings. Barney v. I.R.S., 618 F.2d 1268, 1272-73 (8th Cir.1980). The first two categories of documents in this case fall within the ambit of exemption 7(A). In the seminal case of NLRB v. Robbins Tire & Rubber Co., 437 U.S. 214, 98 S. Ct. 2311, 57 L. Ed. 2d 159 (1978), the Supreme Court held that federal courts may make generic determinations that, with respect to certain kinds of enforcement proceedings, disclosure of particular kinds of investigatory records while a case is pending would generally interfere with enforcement proceedings. Id., at 236, 98 S.Ct. at 2323. The court also held that witnesses' statements given in the course of an investigation by a governmental agency fall within the protections of exemption 7(A). In the subsequent decision of Barney, the Eighth Circuit specifically applied the holding and rationale of NLRB to "documentary evidence, agent's work papers and internal agency memoranda...." 618 F.2d at 1273. The Fourth Circuit has recently reached the same conclusion as the Eighth Circuit in J.P. Stevens & Co., Inc. v. Perry, 710 F.2d 136, 143 (1983). In J.P. Stevens, the court held that the following are exempt from disclosure under exemption 7(A): witnesses's statements; affidavits and interviews of charging parties, fellow employees and witnesses; correspondence with attorneys and charging parties; and internal memoranda concerning the charge. The rationale for non-disclosure of these type of documents was as follows: Premature disclosure of these documents would (1) create a "chilling effect" on potential witnesses and dry up sources of information, particularly those of charging parties and their attorneys; (2) hamper the free flow of ideas between Commission employees and supervisors or with other governmental agencies; (3) hinder its ability to shape and control investigations; and (4) make more difficult the future investigation of charges and enforcement thereof. Id. The rationales and holdings of NLRB, Barney and J.P. Stevens are equally applicable to witnesses's statements and agency memoranda generated as a result of an investigation by the Wage-Hour Division of the Department. On the basis of these three cases, the court concludes that the first two categories of documents in this case are exempt from disclosure under exemption 7(A) of the FOIA. Reference Material The third category of documents in dispute is "Reference Material Consulted by Wage-Hour Investigator." The Department maintains that this third category of documents is exempt from disclosure only under exemption 7(A). The Department concedes that the specific document in question is not, on its face, concerned with the merits of the Pruitt investigation, but maintains instead that "its release could provide valuable assistance to those seeking to escape detection or prosecution of their wrongful employment practices by furnishing them with insight into the investigator's theory of the case and the manner in which he is attempting to establish culpability." The court has reviewed the document in question. While its disclosure may *896 somehow aid some unspecified target of a Department investigation in some unspecified manner, the likelihood that the aid would be of sufficient significance so as to interfere in any pending investigation is slight. The court concludes, then, that the Department has not satisfied its burden of establishing the document in question to be exempt from disclosure under exemption 7(A). Individual Defendants Pruitt's complaint in this court seeks relief against Timothy Ryan, Solicitor of the Department of Labor, and A.A. Ramsey, Disclosure Officer for the Employment Standards Administration, Wage-Hour Division, in their individual capacity. The FOIA authorizes relief only against an agency and not against an individual. Pruitt does not dispute this proposition. Conclusion The motion to dismiss the individual claims against defendants Ryan and Ramsey is GRANTED. The Department's motion for summary judgment is GRANTED as to the first two categories of documents sought by Pruitt. As to the third category of documents sought by Pruitt, the Department's motion for summary judgment is DENIED. While the issue of whether the third category of documents is subject to disclosure under the FOIA is a question of law, and therefore a proper subject for a motion for summary judgment, and while the court has already stated its view that the third category documents should be disclosed under the FOIA, Pruitt has not moved for summary judgment on this issue and the court cannot, therefore, order the third category of documents disclosed. Therefore, Pruitt is ORDERED to move for summary judgment and submit a proposed order granting summary judgment on the issue of disclosure of the third category of documents within 10 days of the date of this order. Pruitt's failure to so move shall result in dismissal of this cause. NOTES [1] The Department argued that the first two categories of documents were also exempt under exemptions 5, 7(C) and 7(D). Given the court's holding that these two categories of documents fall within exemption 7(A), the court need not address the applicability of other exemptions.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1799914/

681 F.Supp.2d 41 (2010) THE URBAN INSTITUTE, Plaintiff, v. FINCON SERVICES, et al., Defendants. Civil Action No. 09-00572 (HHK). United States District Court, District of Columbia. February 1, 2010. *42 Bruce Alexander McDonald, Schnader, Harrison, Segal & Lewis, L.L.P., Washington, DC, for Plaintiff. Michael H. Selter, Manelli Denison & Selter, PLLC, Washington, DC, for Defendants. MEMORANDUM OPINION HENRY H. KENNEDY, JR., District Judge. The Urban Institute ("Institute") brings this action against FINCON Services, Shahid Yusaf, and Global Investment Advisors d/b/a FINCON Service Inc. (collectively "defendants"). The case arises out of FINCON's accusation, made in a suit brought in Pakistan, that the Institute infringed on FINCON's copyright in creating its Financial Management Information System ("FMIS") software. The Institute seeks a declaration that it owns all right, title, and interest in the FMIS copyright and brings claims of violation of the Federal Trademark Act, 15 U.S.C. § 1125(a) ("Lanham Act"), tortious interference with contractual relations, abuse of process, trade libel, and unfair competition. Before the Court is defendants' motion to dismiss [# 5], in which defendants primarily argue that this Court does not have personal jurisdiction over them. Upon consideration of the motion, the opposition thereto, and the record of this case, the Court concludes that the motion shall be granted. *43 I. BACKGROUND FINCON Services ("FINCON") is a corporation that does business in several countries, including the United States, Canada, and Pakistan. FINCON's office in the United States is located in California. Shahid Yusaf is the President of FINCON. According to defendants, Global Investment Advisors, Inc. ("GIA") is a "capital markets advisory firm" with its headquarters in California, and its President is Roger Nye. Defs.' Mot. to Dismiss at 5-6. The Institute's complaint alleges that "the acts and omissions forming the basis of this Complaint have . . . been committed, authorized, directed, and/or approved by each of the Defendants, acting as agents, alter egos and proxies of one another." Compl. ¶ 18.[1] The Institute is a nonprofit research organization headquartered in Washington, D.C. In 2006, the U.S. Agency for International Development ("USAID") awarded a contract to the Institute for a project called "Districts That Work" ("DTW project"). This project involved "the development of skills and tools for effective governance in thirty selected districts in Pakistan." Id. ¶ 30. In order to complete the DTW project, it was necessary to develop "management information software" that is "used to facilitate the collection, processing, storage, and dissemination of data." Id. ¶ 22. According to the complaint, the Institute engaged in discussion with defendants about the possibility of contracting with them for the creation of management information software for the DTW project. On May 5, 2008, however, the Institute instead hired an individual, Ghulam Mustafa Kahn, to develop software for the DTW project as an independent consultant. Kahn, an expert in management information systems, had previously worked for FINCON and was again employed by FINCON just before agreeing to assist the Institute with the DTW project. Kahn and two assistants, working in Pakistan, created software for the Institute referred to by the parties as the Financial Management Information System ("FMIS"). The Institute registered FMIS with the U.S. Copyright Office as United States Copyright Registration No. TX6-907-252.[2] In February 2009, FINCON sent a letter to the Institute maintaining that Khan copied features of its software in creating FMIS, demanding that the Institute stop using FMIS, and seeking five million dollars in damages for "contravention of the Intellectual Property Rights" of defendants. Id. ¶ 50. Later that month, FINCON filed a copyright infringement lawsuit against the Institute and Kahn in the District Court of Islamabad, Pakistan. The Institute asserts that FMIS "contains new and original features developed independently and exclusively by Kahn" and his two assistants. Id. ¶ 41. The Institute contends that FINCON's allegations are "fabricated, frivolous and, on information and belief, leveled against [the Institute] for the ulterior purpose of coercing [the Institute] and USAID into contractual relationships with Defendants, damaging the reputation of [the Institute] and USAID, and harming the image of USAID in the United States and Pakistan." Id. ¶ 53. The Institute also alleges that defendants anonymously provided false information regarding the alleged copyright infringement to a Pakistani newspaper and *44 that they "instigated a baseless criminal investigation against Khan for the purpose of punishing Khan" for working for the Institute. Id. ¶ 64.[3] The Institute's complaint seeks a declaration that it is the "sole and exclusive owner of U.S. Copyright Registration No. TX 6-907-252" (Count I). Id. ¶ 70. It also brings claims of false representation and false designation of origin under the Lanham Act (Count II), tortious interference with contractual relations (Count III), abuse of process (Count IV), trade libel (Count V), and common law unfair competition (Count VI). II. ANALYSIS Defendants seek dismissal of this action because, they argue, the Court may not exercise personal jurisdiction over them.[4] Rule 12(b)(2) of the Federal Rules of Civil Procedure provides that a court may dismiss a complaint on this ground. A. Law of Personal Jurisdiction The plaintiff bears the burden of making a prima facie showing that a court has personal jurisdiction over the defendant. Naegele v. Albers, 355 F.Supp.2d 129, 136 (D.D.C.2005) (citing Second Amendment Found v. U.S. Conference of Mayors, 274 F.3d 521, 524 (D.C.Cir.2001)). To make such a showing, the plaintiff is not required to adduce evidence that meets the standards of admissibility reserved for summary judgment and trial; rather, she may rest her arguments on the pleadings, "bolstered by such affidavits and other written materials as [she] can otherwise obtain." Mwani v. bin Laden, 417 F.3d 1, 7 (D.C.Cir.2005).[5] In determining whether personal jurisdiction exists, the court should resolve factual disputes in the plaintiff's favor, Helmer v. Doletskaya, 393 F.3d 201, 209 (D.C.Cir.2004) (citing Reuber v. United States, 750 F.2d 1039, 1052 (D.C.Cir.1984)), but a plaintiff's "conclusory statements . . . are not enough" to meet her burden. GTE New Media Servs. Inc. v. BellSouth Corp., 199 F.3d 1343, 1349 (D.C.Cir.2000). The jurisdictional reach of a federal court is the same as that of a state or local court of general jurisdiction in the forum where the federal court sits. See Fed. R.Civ.P. 4(k)(1)(A); Crane v. Carr, 814 F.2d 758, 762 (D.C.Cir.1987). Therefore, the Court may exercise general or specific personal jurisdiction over a defendant. Pursuant to D.C.Code § 13-334(a), the Court may exercise general personal jurisdiction over a defendant who is "doing business in the District." D.C.Code § 13-334(a).[6] The Court may exercise specific *45 personal jurisdiction over a non-resident if jurisdiction is in accordance with the District of Columbia's long-arm statute. D.C.Code § 13-423; United States v. Ferrara, 54 F.3d 825, 828 (D.C.Cir.1995). Relevant here is the provision of that statute permitting the Court to exercise jurisdiction over a person who "cause[s] tortious injury in the District of Columbia by an act or omission outside the District of Columbia if [s]he regularly does or solicits business, engages in any other persistent course of conduct, or derives substantial revenue from goods used or consumed, or services rendered, in the District of Columbia." D.C.Code § 13-423(a)(4). In addition, a plaintiff asserting that the Court has personal jurisdiction over the named defendants must make a prima facie showing that the Court's exercise of jurisdiction satisfies the constitutional requirements of due process. See U.S. CONST. amends. V. & XIV; Int'l Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 90 L.Ed. 95 (1945). Due process is satisfied where a plaintiff shows "minimum contacts" between the defendant and the forum, ensuring that "the maintenance of the suit does not offend `traditional notions of fair play and substantial justice.'" Int'l Shoe Co., 326 U.S. at 316, 66 S.Ct. 154. Under this standard, "the defendant's conduct and connection with the forum state [must be] such that [s]he should reasonably anticipate being haled into court there." World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297, 100 S.Ct. 559, 62 L.Ed.2d 490 (1980). B. This Court May Not Exercise Personal Jurisdiction Over These Defendants 1. General jurisdiction In its opposition to defendants' motion to dismiss, the Institute alleges for the first time that this Court has general jurisdiction over defendants under D.C.Code § 13-334.[7] In support of the proposition that defendants were "doing business" in the District, the Institute points to FINCON's website, which lists the World Bank as a FINCON customer. The Institute apparently infers that because the World Bank is an important client to FINCON and because the World Bank has its headquarters in Washington, D.C., FINCON must do business in the District. In addition, the Institute asserts that "Fincon's Executive Director, Roger Nye, appeared at the offices of [the Institute]'s representative on February 26, 2008, to solicit a business relationship with [the Institute]." Pl.'s Opp'n to Defs.' Mot. to Dismiss ("Pl.'s Opp'n") at 17 (citing Decl. of Charles Cadwell, Director of the Center on International Development and Governance at the Urban Institute ¶¶ 7-8 ("Cadwell Decl.")). Because Nye, the "principal officer" of GIA, "held himself out as the Executive Director of Fincon," the Institute argues that defendants collectively had a presence in the District. Id. (citing Cadwell Decl. ¶¶ 7-8). Based on these allegations, the Institute contends that defendants have the "continuous and systemic general business contacts" necessary to support the exercise of general jurisdiction. Id. (quoting Helicopteros Nacionales de Colom., S.A. v. Hall, 466 U.S. 408, 416, 104 S.Ct. 1868, 80 L.Ed.2d 404 (1984)). In response, defendants argue that FINCON[8] was not "doing business" in the *46 District. As to the Institute's reliance on FINCON's listing the World Bank as a client, defendants assert that "FINCON did not have dealings in Washington, D.C. with the World Bank." Defs.' Reply to Pl.'s Opp'n ("Defs.' Reply") at 3 (citing Supplemental Decl. of Shahid Yusaf ¶ 8 ("Supp. Yusaf Decl.")). Specifically, defendants have submitted a declaration from Yusaf stating that FINCON has "been a contractor on only three contracts financed by the World Bank," of which two were based in Pakistan and the third in Bosnia and Herzegovina. Id. at 3 (citing Supp. Yusaf Decl. at ¶ 8). Defendants contend that the only contacts with the District relevant for assessing whether this Court has general jurisdiction over them are three trips Nye made on FINCON's behalf in 2008, none of which resulted in any business deals and which do not constitute "continuous and systematic" contacts. Defendants have the better argument. The reach of section 13-334(a) "is co-extensive with the reach of constitutional due process." FC Inv. Group LC v. IFX Markets, Ltd., 529 F.3d 1087, 1092 (D.C.Cir.2008) (quoting Gorman v. Ameritrade Holding Corp., 293 F.3d 506, 510 (D.C.Cir.2002)) (internal quotation marks omitted). Consequently, for the Court to exercise general jurisdiction over a defendant, the defendant's "business contacts with the forum" must be "continuous and systematic," a requirement that imposes a "high bar" as compared to that necessary for the exercise of specific jurisdiction. Exponential Biotherapies, Inc. v. Houthoff Buruma N.V., 638 F.Supp.2d 1, 12 (D.D.C. 2009) (quoting FC Inv. Group, 529 F.3d at 1091-92; D'Onofrio v. SFX Sports Group, Inc., 534 F.Supp.2d 86, 90 (D.D.C.2008)). The Court finds that the reference to the World Bank on FINCON's website has no bearing on this analysis; Yusaf's declaration demonstrates that FINCON's work for the World Bank does not reflect contacts with Washington, D.C. The contacts of which there is evidence—three unsuccessful trips to solicit business—are not sufficient to support the exercise of general jurisdiction. Cf. Allen v. Russian Fed'n, 522 F.Supp.2d 167, 196-98 (D.D.C. 2007) (noting that "sporadic contacts" and "brief presence" in a forum do not suffice to support general jurisdiction (citing Helicopteros Nacionales de Colom., 466 U.S. at 417-18, 104 S.Ct. 1868)); AGS Int'l Servs. S.A. v. Newmont USA Ltd., 346 F.Supp.2d 64, 76-77 (D.D.C.2004) (holding that fourteen trips to the District of Columbia over two years for meetings with a part owner of the defendant company regarding funding the company's mines do not constitute "continuous and systematic" contacts). Therefore, the Court concludes that it does not have general jurisdiction over any of the named defendants. 2. Specific jurisdiction under the D.C. long-arm statute The Institute asserts in the alternative that the Court has personal jurisdiction over all defendants pursuant to the District's long-arm statute, D.C.Code § 13-423(a)(4),[9] "because Defendants solicit business in the District of Columbia and have caused tortious injury against [the Institute] in the District of Columbia." Compl. ¶ 6. Defendants argue that the requirements of section 13-423(a)(4)—that a party have "cause[d] tortious injury in the District of Columbia by an act or omission outside the District of Columbia if [s]he regularly does or solicits business, [or] engages in any other persistent course of conduct . . . in the District of Columbia," *47 D.C.Code § 13-423(a)(4)—are not met as to any of them.[10] i. Act or omission outside the District of Columbia Defendants argue that because GIA was not involved in any of the activities that give rise to the Institute's claims, the "act or omission" requirement of the long-arm statute is not met as to GIA. Defendants assert, contrary to the "information and belief" cited in the Institute's complaint, that "FINCON and GIA are not agents, alter egos and proxies of one another." Defs.' Mot. to Dismiss at 19. Instead, defendants maintain that the relationship between these entities consisted of a one-year agreement between them under which GIA assisted FINCON in securing contracts with USAID in Pakistan. This assistance, defendants argue, did not include any involvement with the copyright infringement action in Pakistan or any publicity regarding that suit. The Institute does not refute these assertions. The Institute's confusion prior to filing its complaint is understandable; GIA's agreement with FINCON used the title "Executive Director" to describe GIA's relationship with FINCON from December 2007 to December 2008. Defs.' Mot. to Dismiss, Ex. 3 ¶ 11 ("Nye Decl."). In fact, however, according to a declaration defendants have submitted to the Court, Nye "was an unsalaried marketing advisor of FINCON, not an employee," and he took no actions on behalf of FINCON other than to attempt to solicit business for the company. Nye Decl. ¶ 11-12, 16. The Court must weigh the statements in this declaration against unsupported allegations in the complaint that GIA was involved in the actions that give rise to the Institute's claims, see Exponential Biotherapies, 638 F.Supp.2d at 6, and can only conclude that the allegations on which the Institute relies as a basis for jurisdiction over GIA are incorrect. Because GIA has committed no act or omission causing injury to the Institute, the Court does not have personal jurisdiction over GIA. ii. Regularly does or solicits business Next, defendants argue that they do not meet the requirement in D.C.Code § 13-423(a)(4) that the party over which jurisdiction is asserted "regularly does or solicits business" in the District. They assert that GIA's three trips to the District to solicit business for FINCON, which are the only contacts FINCON has had with the District, "do not constitute the persistent course of conduct required to satisfy" D.C.Code § 13-423(a)(4). Defs.' Mot. to Dismiss at 20.[11] The Institute responds that under the long-arm statute, a defendant's tortious conduct targeted at a resident of the District need not be related to the defendant's soliciting or conducting business in the District. Therefore, the Institute argues, this requirement is met for the reasons the Institute asserts the Court could exercise general jurisdiction: FINCON's web site lists the World Bank, located in the District, as a principal customer and Nye, "acting as the executive director of Fincon," met with the Institute in the District in February 2008. Pl.'s Opp'n at 19. The Court is unpersuaded by the Institute's arguments. The "business done or *48 persistent course of conduct" requirement of D.C.Code § 13-423(a)(4), often referred to as the "plus factor," "is satisfied by connections considerably less substantial than those it takes to establish general, all-purpose `doing business.'" Crane v. Carr, 814 F.2d 758, 763 (D.C.Cir.1987). And the Institute is correct that such conduct need not be related to the actions comprising the basis of the suit. Etchebarne-Bourdin v. Radice, 982 A.2d 752, 763 (D.C.2009). As explained above, however, the Court will not credit the Institute's unsupported allegations about inferences to be made from FINCON's website; the question, then, is whether three trips to the District of Columbia are sufficient to support the exercise of jurisdiction under this provision. Although there is a "notable lack" of authority regarding what level of contact with the District suffices for purposes of this analysis, Burman v. Phoenix Worldwide Industries, Inc., 437 F.Supp.2d 142, 153 (D.D.C.2006), the Court can only conclude that three trips for meetings at which no business was successfully conducted do not rise to the requisite level. Cf. id. at 153-54 (declining to exercise jurisdiction under D.C.Code § 13-423(a)(4) where defendant had several clients in the District and had received revenue from those clients); see also Crane, 814 F.2d at 763 (explaining that section 13-423(a)(4) is meant to "filter out cases in which the inforum impact is an isolated event and the defendant otherwise has no, or scant, affiliations with the forum" and quoting Steinberg v. International Criminal Police Org., 672 F.2d 927, 931 (D.C.Cir.1981), in which the court held that a "reasonable connection" between the defendant and the forum was required). Therefore, the Court concludes that there is no basis for personal jurisdiction over the remaining defendants, FINCON and Yusaf.[12] C. Jurisdictional Discovery is Not Warranted The Institute argues that if the Court concludes that the allegations in its complaint and `opposition to defendants' motion are insufficient to support the exercise of personal jurisdiction, the Court should order discovery regarding this issue rather than dismiss the case. Defendants respond that such discovery is appropriate only if a plaintiff "demonstrates that it can supplement its jurisdictional allegations through discovery," and here, defendants have already submitted detailed declarations that provide the relevant facts. Defs.' Reply at 6-7. The Court agrees with defendants. Although discovery is generally to be "freely permitted," jurisdictional discovery "is justified only if the plaintiff reasonably `demonstrates that it can supplement its jurisdictional allegations through discovery.'" Exponential Biotherapies, 638 F.Supp.2d at 11 (quoting Kopff v. Battaglia, 425 F.Supp.2d 76, 89 (D.D.C.2006)). The Institute has not explained what information it seeks or why the declarations of Yusaf and Nye are insufficient to conduct *49 the personal jurisdiction analysis here. At oral argument on this motion, counsel for the Institute reiterated this request for jurisdictional discovery but again did not specify what information the Institute seeks that would in any way impact the Court's analysis of the jurisdictional issues. The only specific discovery counsel sought was a deposition of Yusaf. But Yusaf's declarations are already in the record, and their veracity is not contested. Therefore, the Court declines to permit discovery on this matter. III. CONCLUSION For the foregoing reasons, the Court concludes that defendants' motion to dismiss [# 5] shall be granted. An appropriate order accompanies this memorandum opinion. NOTES [1] All citations herein to the Complaint refer to the Institute's First Amended Complaint. [2] Kahn's contract with the Institute included a clause stating that Kahn "transfers all rights, title and interest worldwide to any . . . written product, data, or any other information or materials [collected or generated in performing work under the contract] to the Urban Institute." Compl. ¶¶ 38-39. [3] Defendants offer a different version of events, but the disputed facts are relevant to the merits of the Institute's claims rather than the jurisdictional questions at issue here. [4] In the alternative, defendants assert that the case should be dismissed based on the doctrine of forum non conveniens; they also argue that if the Court retains the action, certain counts should nonetheless be dismissed on substantive grounds. Because the Court dismisses the case for lack of personal jurisdiction over defendants, this opinion does not address these alternative arguments. [5] Relatedly, it is appropriate for the Court to take evidence from outside the pleadings into consideration in considering a motion to dismiss for lack of jurisdiction. See Exponential Biotherapies, Inc. v. Houthoff Buruma N.V., 638 F.Supp.2d 1, 6 (D.D.C.2009) ("When considering personal jurisdiction . . . the court `may receive and weigh affidavits and other relevant matter to assist in determining the jurisdictional facts.'") (quoting D'Onofrio v. SFX Sports Group, Inc., 534 F.Supp.2d 86, 90 (D.D.C.2008)). [6] On its face, this statutory provision appears to involve only service of process. It has been construed, however, to confer general jurisdiction under the long-arm statute. See El-Fadl v. Cent. Bank of Jordan, 75 F.3d 668, 673 n. 7 (D.C.Cir.1996) (noting that the D.C. Court of Appeals has so construed section 13-334(a)). [7] The Institute asserts that its failure to cite D.C.Code § 13-334 in its complaint is not significant because the allegations in the complaint establish the applicability of that statute and neither defendants nor the Court has been "misled" by the omission. Pl.'s Opp'n to Defs.' Mot. to Dismiss at 16 (quoting El-Fadl v. Cent. Bank of Jordan, 75 F.3d 668, 673 (D.C.Cir.1996)). Defendants do not contest this point. [8] Defendants note that D.C.Code § 13-334 applies only to corporations and thus cannot be the basis for jurisdiction over Yusaf. [9] The complaint mistakenly cites D.C.Code § 13-423(a)(5), but it is clear that the Institute intended to cite D.C.Code § 13-423(a)(4). [10] The parties first dispute whether the Institute suffered an injury inside the District of Columbia. Because the Court rules that other essential requirements for jurisdiction pursuant to D.C.Code § 13-423(a)(4) are not satisfied, this opinion does not reach this issue. [11] Defendants also make arguments regarding GIA's contacts to the District other than on behalf of FINCON. Because the Court has already determined that it cannot exercise jurisdiction over GIA, those contacts are not relevant to this analysis and the Court need not resolve those arguments. [12] The Court further notes that even were FINCON's contacts sufficient to satisfy the "plus factor" requirement, they are not sufficient to meet the burden imposed by the Due Process Clause. Three unsuccessful business trips do not support a conclusion that "the defendant [has] purposefully avail[ed] itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws," Asahi Metal Indus. Co., Ltd. v. Super. Ct. of Cal., Solano County, 480 U.S. 102, 109, 107 S.Ct. 1026, 94 L.Ed.2d 92 (1987) (quoting Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475, 105 S.Ct. 2174, 85 L.Ed.2d 528 (1985) (internal quotation mark omitted)), or that "the defendant's conduct and connection with the forum State are such that [it] should reasonably anticipate being haled into court there," World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297, 100 S.Ct. 559, 62 L.Ed.2d 490 (1980).

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/4555604/

Nebraska Supreme Court Online Library www.nebraska.gov/apps-courts-epub/ 08/14/2020 08:07 AM CDT - 591 - Nebraska Supreme Court Advance Sheets 306 Nebraska Reports STATE v. THEISEN Cite as 306 Neb. 591 State of Nebraska, appellee, v. Christine A. Theisen, appellant. ___ N.W.2d ___ Filed July 24, 2020. No. S-19-911. 1. Pleas: Appeal and Error. A trial court is afforded discretion in deciding whether to accept guilty pleas, and an appellate court will reverse the trial court’s determination only in case of an abuse of discretion. 2. Judges: Appeal and Error. An abuse of discretion exists if the reasons or rulings of a trial judge are clearly untenable, unfairly depriving a liti- gant of a substantial right and denying just results in matters submitted for disposition. 3. Effectiveness of Counsel: Constitutional Law: Statutes: Records: Appeal and Error. Whether a claim of ineffective assistance of trial counsel can be determined on direct appeal presents a question of law, which turns upon the sufficiency of the record to address the claim without an evidentiary hearing or whether the claim rests solely on the interpretation of a statute or constitutional requirement. 4. Effectiveness of Counsel: Appeal and Error. In reviewing a claim of ineffective assistance of trial counsel on direct appeal, an appellate court determines as a matter of law whether the record conclusively shows that (1) a defense counsel’s performance was deficient or (2) a defend­ ant was or was not prejudiced by a defense counsel’s alleged deficient performance. 5. Indictments and Informations. An information must inform the accused with reasonable certainty of the crime charged so that the accused may prepare a defense to the prosecution and, if convicted, be able to plead the judgment of conviction on such charge as a bar to a later prosecution for the same offense. 6. ____. An information must allege each statutorily essential element of the crime charged, expressed in the words of the statute which prohibits the conduct charged as a crime or in language equivalent to the statutory terms defining the crime charged. - 592 - Nebraska Supreme Court Advance Sheets 306 Nebraska Reports STATE v. THEISEN Cite as 306 Neb. 591 7. ____. Where an information alleges the commission of a crime using language of the statute defining that crime or terms equivalent to such statutory definition, the charge is sufficient. 8. Indictments and Informations: Due Process. When the charging of a crime in the language of the statute leaves the information insufficient to reasonably inform the defendant as to the nature of the crime charged, additional averments must be included to meet the requirements of due process. 9. Indictments and Informations: Appeal and Error. An information first questioned on appeal must be held sufficient unless it is so defec- tive that by no construction can it be said to charge the offense for which the accused was convicted. 10. Indictments and Informations. A complaint or information is fatally defective only if its allegations can be true and still not charge a crime. 11. ____. No information shall be deemed invalid for any defect or imper- fection which does not prejudice the substantial rights of the defendant upon the merits. 12. Conspiracy. Expressly alleging an overt act in furtherance of a con- spiracy cannot simply be stating that the parties committed an overt act. 13. ____. The expressed overt act in furtherance of a conspiracy cannot be the act of conspiring. 14. Indictments and Informations: Conspiracy. A proper information charging conspiracy should indicate the offense which is the object of the conspiracy and expressly allege an overt act conducted in further- ance thereof. 15. Pleas. To support a plea of guilty or no contest, the record must establish that (1) there is a factual basis for the plea and (2) the defendant knew the range of penalties for the crime with which he or she is charged. 16. Criminal Law: Proof. A sufficient factual basis requires that the State present sufficient facts to support the elements of the crime charged. 17. Conspiracy. Wharton’s Rule, applied when evaluating conspiracy charges, stands for the principle that an agreement by two persons to commit a particular crime cannot be prosecuted as a conspiracy when the crime is of such a nature as to necessarily require the participation of two persons for its commission. 18. ____. The application of Wharton’s Rule is limited to instances where the number and identity of persons involved in the conspiracy are the same as the number and identity of persons required to commit the underlying substantive offense. 19. ____. There is an exception to Wharton’s Rule that provides a con- spiracy charge may be filed if more or different people participate in the conspiracy than are necessary to commit the substantive offense. - 593 - Nebraska Supreme Court Advance Sheets 306 Nebraska Reports STATE v. THEISEN Cite as 306 Neb. 591 20. Effectiveness of Counsel: Records: Appeal and Error. Whether a claim of ineffective assistance of trial counsel can be determined on direct appeal depends upon the sufficiency of the record to address the claim to determine whether a defense counsel’s performance was deficient and whether the defendant was prejudiced by the alleged defi- cient performance. 21. ____: ____: ____. The record on direct appeal is sufficient if it estab- lishes either that trial counsel’s performance was not deficient, that the appellant will not be able to establish prejudice, or that trial counsel’s actions could not be justified as a part of any plausible trial strategy. 22. Effectiveness of Counsel: Appeal and Error. The fact that an inef- fective assistance of counsel claim is raised on direct appeal does not necessarily mean that it can be resolved. 23. Effectiveness of Counsel: Records: Appeal and Error. The deter- mining factor in deciding whether an ineffective assistance claim can be resolved on direct appeal is whether the record is sufficient to adequately review the question. Appeal from the District Court for Madison County: Mark A. Johnson, Judge. Affirmed. Mark E. Rappl for appellant. Douglas J. Peterson, Attorney General, and Austin N. Relph for appellee. Heavican, C.J., Miller-Lerman, Cassel, Stacy, Funke, Papik, and Freudenberg, JJ. Funke, J. Christine A. Theisen appeals her plea-based convictions of conspiracy to distribute or deliver a controlled substance (hydrocodone), conspiracy to distribute or deliver a controlled substance (tramadol), and child abuse. Theisen assigns the district court erred in accepting her guilty pleas, because the charging information contained insufficient allegations of overt acts and the factual basis was insufficient under Wharton’s Rule to support the conspiracy offenses. Theisen also claims she was denied the right to effective assistance of trial counsel, based upon a failure to properly inform her of the insufficient - 594 - Nebraska Supreme Court Advance Sheets 306 Nebraska Reports STATE v. THEISEN Cite as 306 Neb. 591 factual basis and application of Wharton’s Rule and upon trial counsel’s conflict of interest with a material witness for the State. For the reasons set forth herein, we affirm. BACKGROUND Theisen was charged by an amended information with seven charges, including: conspiracy to distribute or deliver a con- trolled substance (hydrocodone), conspiracy to distribute or deliver a controlled substance (oxycodone), conspiracy to dis- tribute or deliver a controlled substance (tramadol), tampering with evidence, felony child abuse, and two counts of misde- meanor child abuse. Theisen and the State entered into a plea agreement whereby Theisen would plead guilty to conspiracy to distribute or deliver hydrocodone and tramadol and to felony child abuse and the State would dismiss the remaining charges. This dismissal was noted by an interlineated copy of the amended information which contained the following remaining allegations: [Conspiracy to Distribute or Deliver Hydrocodone:] Theisen, on or about the 1st day of June, 2016, through the 23rd day of August, 2018, in Madison County, Nebraska, with intent to promote or facilitate the commission of a felony offense, did agree with another person or persons that they or one or more of them shall engage in or solicit the conduct or shall cause or solicit the result specified by the definition of the offense of delivery or distribution of the controlled substance hydrocodone. Complainant further states that [Theisen] or another with whom [she] conspired with committed an overt act in furtherance of the conspiracy, to wit: [Theisen] was buying and/or sell- ing hydrocodone. .... [Conspiracy to Distribute or Deliver Tramadol:] Theisen, on or about the 1st day of June, 2016 through the 23rd day of August, 2018, in Madison County, Nebraska, with the intent to promote or facilitate the commission of a felony, did agree with another person or persons that - 595 - Nebraska Supreme Court Advance Sheets 306 Nebraska Reports STATE v. THEISEN Cite as 306 Neb. 591 they or one or more of them shall engage in or solicit the conduct or shall cause or solicit the result specified by the definition of the offense of the delivery or the distribution of the controlled substance tramadol. Complainant further alleges that [Theisen] or another person with whom [she] conspired with committed an overt act in furtherance of the conspiracy, to wit: [Theisen] was buying and/or sell- ing tramadol. .... [Child Abuse:] Theisen, on or about the 1st day of June, 2016 through the 23rd day of August, 2018, in Madison County, Nebraska, did knowingly and intentionally cause or permit a minor child, or minor children, specifically K.S. to be a) placed in a situation that endangered the minor child’s or minor children’s life or physical or men- tal health; and/or b) cruelly confined or cruelly punished; and/or c) deprived of necessary food, clothing, shelter, or care; and/or d) placed in a situation to be sexually exploited by allowing, encouraging, or forcing such minor child to solicit for or engage in prostitution, debauchery, public indecency, or obscene or pornographic photog- raphy, films, or depictions; and/or e) placed in a situa- tion to be sexually abused as defined in Section 28-319, 28-319.01, or 28-302.01; and/or f) placed in a situation to be a trafficking victim as defined in Section 28-830[.] The district court was informed of this agreement at a pre- trial conference, and the court rearraigned Theisen on the three remaining counts, to which Theisen pled guilty. Following an advisement of Theisen’s rights, the court asked Theisen to explain what gave rise to these charges, to which Theisen answered: Last year in August, Department of Health and Human Services became involved in my life, and my children were removed because I admitted everything. I — I guess the painkillers stemmed from a back injury and I became addicted to them, and I was buying and selling - 596 - Nebraska Supreme Court Advance Sheets 306 Nebraska Reports STATE v. THEISEN Cite as 306 Neb. 591 them to support my habit. There is so much information, it’s hard to explain. In response to the court’s questioning regarding whether Theisen was selling hydrocodone and tramadol between the dates of June 1, 2016, and August 23, 2018, in Madison County, Nebraska, Theisen responded, “Yes.” The court then asked the State to provide the balance of the factual basis for the charges, and the State explained: In terms of the child abuse, law enforcement officers interviewed both the victim, [Theisen’s] mother, as well as [Theisen’s] other daughter. I think, approximately, vic- tim was age 17, the other daughter was approximately age 15, I believe, at the time. They all confirmed that [Theisen] physically and psy- chologically abused one daughter in particular over an extended period of time. Would hit her, slap her, essen- tially force her to do, you know, menial tasks around the home. Giving her deadlines to get things done rather than doing those tasks herself, those type of things. .... [As to the conspiracy to distribute or deliver hydroco- done and tramadol charges, Theisen] would, as she sort of said, she would buy and get painkillers and then sell them as well. Additionally, according to her daughter, she would actually have them text potential buyers ahead of time that the sales would be taking place. They reported — the daughters reported actually receiving threats back from some of those drug dealers and purchasers about the sales going on. Additionally, she would work with others involved in this ring to buy and sell the drugs. The court found there was a sufficient factual basis and accepted Theisen’s guilty pleas. Theisen was sentenced to con- secutive terms of 6 to 12 years’ imprisonment for conspiracy to distribute or deliver hydrocodone, 1 to 3 years’ imprisonment - 597 - Nebraska Supreme Court Advance Sheets 306 Nebraska Reports STATE v. THEISEN Cite as 306 Neb. 591 for conspiracy to distribute or deliver tramadol, and 1 to 3 years’ imprisonment for child abuse. ASSIGNMENTS OF ERROR Theisen assigns that the district court erred in accepting her guilty pleas to the conspiracy charges, because (1) the charging information was insufficient to establish overt acts in furtherance of the conspiracy and (2) the factual basis was insufficient under Wharton’s Rule to establish participation of two or more persons beyond those actions which are neces- sary for the commission of the underlying offenses. Theisen also assigns she received ineffective assistance, because trial counsel failed to advise her that under Wharton’s Rule, she could not be convicted of conspiracy, and trial counsel had a conflict of interest from previous representation of a State’s material witness. STANDARD OF REVIEW [1,2] A trial court is afforded discretion in deciding whether to accept guilty pleas, and an appellate court will reverse the trial court’s determination only in case of an abuse of discre- tion. 1 An abuse of discretion exists if the reasons or rulings of a trial judge are clearly untenable, unfairly depriving a litigant of a substantial right and denying just results in matters sub- mitted for disposition. 2 [3,4] Whether a claim of ineffective assistance of trial counsel can be determined on direct appeal presents a ques- tion of law, which turns upon the sufficiency of the record to address the claim without an evidentiary hearing or whether the claim rests solely on the interpretation of a statute or constitutional requirement. 3 We determine as a matter of law whether the record conclusively shows that (1) a defense counsel’s performance was deficient or (2) a defendant was 1 State v. Manjikian, 303 Neb. 100, 927 N.W.2d 48 (2019). 2 State v. Tyler P., 299 Neb. 959, 911 N.W.2d 260 (2018). 3 State v. Hood, 301 Neb. 207, 917 N.W.2d 880 (2018). - 598 - Nebraska Supreme Court Advance Sheets 306 Nebraska Reports STATE v. THEISEN Cite as 306 Neb. 591 or was not prejudiced by a defense counsel’s alleged defi- cient performance. 4 ANALYSIS Sufficiency of Amended Information Theisen was charged, by the amended information, with conspiracy to distribute or deliver hydrocodone and tramadol. Under Neb. Rev. Stat. § 28-202(1) (Cum. Supp. 2018), a per- son is guilty of criminal conspiracy if, with intent to promote or facilitate the commission of a felony: (a) He [or she] agrees with one or more persons that they or one or more of them shall engage in or solicit the conduct or shall cause or solicit the result specified by the definition of the offense; and (b) He [or she] or another person with whom he [or she] conspired commits an overt act in pursuance of the conspiracy. Neb. Rev. Stat. § 29-2014 (Reissue 2016) specifies that the State must allege overt acts in charging conspiracy, by stating: In trials for conspiracy, in cases where an overt act is required by law to consummate the offense, no conviction shall be had unless one or more overt acts be expressly alleged in the indictment, nor unless one or more of the acts so alleged be proved on trial; but other overt acts not alleged in the indictment may be given in evidence on the part of the prosecution. Theisen assigns the amended information failed to suffi- ciently allege conspiracy to distribute or deliver hydrocodone and tramadol. Specifically, Theisen claims the amended infor- mation failed to allege overt acts conducted in furtherance of the alleged conspiracy. [5-8] An information must inform the accused with rea- sonable certainty of the crime charged so that the accused may 4 Id. - 599 - Nebraska Supreme Court Advance Sheets 306 Nebraska Reports STATE v. THEISEN Cite as 306 Neb. 591 prepare a defense to the prosecution and, if convicted, be able to plead the judgment of conviction on such charge as a bar to a later prosecution for the same offense. 5 As such, an informa- tion must allege each statutorily essential element of the crime charged, expressed in the words of the statute which prohibits the conduct charged as a crime or in language equivalent to the statutory terms defining the crime charged. 6 Where an information alleges the commission of a crime using language of the statute defining that crime or terms equivalent to such statutory definition, the charge is sufficient. 7 However, when the charging of a crime in the language of the statute leaves the information insufficient to reasonably inform the defendant as to the nature of the crime charged, additional averments must be included to meet the requirements of due process. 8 [9-11] We have held that an “‘information first questioned on appeal must be held sufficient unless it is so defective that by no construction can it be said to charge the offense for which the accused was convicted.’” 9 And “‘a complaint or information is fatally defective only if its allegations can be true and still not charge a crime.’” 10 In addition, “‘[n]o infor- mation shall be deemed invalid for any defect or imperfection which does not prejudice the substantial rights of the defendant upon the merits.’” 11 Under each conspiracy charge, the amended informa- tion alleged Theisen “did agree with another person or per- sons” to “engage in or solicit the conduct or shall cause or solicit the result specified by the definition of the offense of [delivery or distribution of hydrocodone and tramadol].” The 5 In re Interest of Jordan B., 300 Neb. 355, 913 N.W.2d 477 (2018). 6 Id. 7 Id. 8 Id. 9 Peterson v. Houston, 284 Neb. 861, 868, 824 N.W.2d 26, 33 (2012). 10 Id. 11 Id. - 600 - Nebraska Supreme Court Advance Sheets 306 Nebraska Reports STATE v. THEISEN Cite as 306 Neb. 591 information further alleged Theisen “or another [person] with whom [Theisen] conspired with committed an overt act in fur- therance of the conspiracy, to wit: [Theisen] was buying and/ or selling [hydrocodone and tramadol].” The language used in the charging information modeled the statutory language of § 28-202(1)(a) in alleging Theisen “did agree” with another person or persons to “engage in or solicit the conduct or shall cause or solicit the result specified by the definition of the offense.” The information continued by naming distribution or delivery of hydrocodone and tra- madol as each count’s underlying offense. The information likewise modeled the language of § 28-202(1)(b) in alleging Theisen “or another [person] with whom [Theisen] conspired” committed “an overt act in furtherance of the conspiracy.” Accordingly, the information was sufficient to inform Theisen that the State was charging her with conspiracy under § 28-202 and alleging she engaged with others for the distribution or delivery of hydrocodone and tramadol. Theisen further argues that the information was insufficient to reasonably inform her as to the nature of the crime by operation of § 29-2014. As quoted above, § 29-2014 requires a charging document “expressly” allege one or more overt acts in furtherance of a conspiracy. Theisen contends that § 29-2014 required the State to allege an overt action other than the underlying offense of distribution or delivery of a controlled substance. In support of this proposition, Theisen cites State v. Marco 12 and State v. McKay, 13 a Nebraska Court of Appeals unpublished opinion. [12] Contrary to this argument, neither of these opinions held § 29-2014 requires that the expressed overt acts cannot be allegations of the underlying crime for which the parties conspired. Instead, Marco held that an allegation the defend­ ant “‘or another person with whom he conspired did commit 12 State v. Marco, 230 Neb. 355, 432 N.W.2d 1 (1988). 13 State v. McKay, No. A-92-057, 1993 WL 13458 (Neb. App. Jan. 26, 1993) (not approved for permanent publication). - 601 - Nebraska Supreme Court Advance Sheets 306 Nebraska Reports STATE v. THEISEN Cite as 306 Neb. 591 an overt act,’” without more, failed to expressly allege an overt act. 14 The case explained that “expressly” alleging an overt act cannot simply be stating that the parties committed an overt act. 15 [13,14] Similarly, in McKay, the defendant was charged with criminal conspiracy. The State’s information alleged that the defendant “‘agree[d] with one or more persons that they or one or more of them would harvest more than one pound of mar- ijuana and he or another person with whom he conspired did commit an overt act in pursuance of the conspiracy, to-wit: Defendant along with [another person] conspired together to harvest and possess more than one pound of marijuana.’” 16 The Court of Appeals explained that “[i]t is axiomatic that the open, manifest, and apparent conduct or overt act of a conspir- acy which tends to show a preexisting conspiracy . . . cannot be [the defendant’s and conspirator’s] conspiring together.” 17 Stated another way, the expressed overt act in furtherance of the conspiracy cannot be the act of conspiring. 18 Instead, a proper information charging conspiracy should indicate the offense which is the object of the conspiracy and expressly allege an overt act conducted in furtherance thereof. 19 Here, the information explicitly alleged overt acts. In addi- tion to its language mirroring § 28-202(1)(a) and (b) and alleging Theisen agreed with others to engage in the underly- ing offenses, the information also alleged “overt act[s] in fur- therance of the conspiracy, to wit: [Theisen] was buying and/ or selling [hydrocodone and tramadol].” These allegations are 14 Marco, supra note 12, 230 Neb. at 357, 432 N.W.2d at 3. 15 Id. 16 McKay, supra note 13, 1993 WL 13458 at *1. 17 Id. at *2. 18 See id. 19 Id. - 602 - Nebraska Supreme Court Advance Sheets 306 Nebraska Reports STATE v. THEISEN Cite as 306 Neb. 591 sufficient to satisfy the requirement under § 29-2014 that the charging document expressly allege an overt act in furtherance of the conspiracy. Because the information sufficiently alleged conspiracy under § 28-202 and expressly alleged overt acts pursuant to § 29-2014, the information was sufficient to reasonably inform Theisen as to the nature of the crime charged and the district court did not err in accepting Theisen’s pleas. Sufficiency of Factual Basis Theisen challenges the sufficiency of the factual basis to support her convictions of conspiracy to distribute or deliver hydrocodone and tramadol. On this assignment, Theisen argues the State failed to establish conspiracy under Wharton’s Rule by failing to allege participation of two or more persons beyond those necessary for the commission of the underly- ing crimes. [15,16] To support a plea of guilty or no contest, the record must establish that (1) there is a factual basis for the plea and (2) the defendant knew the range of penalties for the crime with which he or she is charged. 20 A sufficient factual basis requires that the State present sufficient facts to support the elements of the crime charged. 21 One criminal statute regarding controlled substances explains that “it shall be unlawful for any person knowingly or inten- tionally: (a) To manufacture, distribute, deliver, dispense, or possess with intent to manufacture, distribute, deliver, or dis- pense a controlled substance.” 22 Under Neb. Rev. Stat. § 28-401 (Supp. 2019), subsection (9) currently defines “[d]istribute” as “to deliver other than by administering or dispensing a con- trolled substance” and subsection (12) defines “[d]eliver” as “the actual, constructive, or attempted transfer from one person 20 State v. Jenkins, 303 Neb. 676, 931 N.W.2d 851 (2019). 21 See id. 22 See Neb. Rev. Stat. § 28-416(1)(a) (Cum. Supp. 2018). - 603 - Nebraska Supreme Court Advance Sheets 306 Nebraska Reports STATE v. THEISEN Cite as 306 Neb. 591 to another of a controlled substance, whether or not there is an agency relationship.” Under § 28-202(1), all that is required for a conviction is proof that the agreement was entered into and an overt act in furtherance of the conspiracy was committed. 23 The criminal act is the agreement itself, and the ultimate act agreed to by the conspirators need never take place. 24 [17] In evaluating conspiracy charges, we have applied Wharton’s Rule as an exception to conspirator liability. 25 This exception stands for the principle that an agreement by two persons to commit a particular crime cannot be prosecuted as a conspiracy when the crime is of such a nature as to necessarily require the participation of two persons for its commission. 26 [18,19] The application of Wharton’s Rule is limited to instances where the number and identity of persons involved in the conspiracy are the same as the number and identity of per- sons required to commit the underlying substantive offense. 27 As such, there is an exception to Wharton’s Rule that provides a conspiracy charge may be filed if more or different people participate in the conspiracy than are necessary to commit the substantive offense. 28 Theisen contends that distributing and delivering controlled substances necessarily involves multiple people, including the sellers and buyers of the product. Because of that necessary involvement, Theisen suggests that she could not be convicted 23 See §§ 28-202 and 29-2014. 24 See id. 25 State v. Utterback, 240 Neb. 981, 485 N.W.2d 760 (1992), disapproved on other grounds, State v. Johnson, 256 Neb. 133, 589 N.W.2d 108 (1999). 26 Id. See Iannelli v. United States, 420 U.S. 770, 95 S. Ct. 1284, 43 L. Ed. 2d 616 (1975). 27 See Utterback, supra note 25. See, also, State v. Clason, 3 Neb. Ct. App. 339, 526 N.W.2d 673 (1994). 28 See Utterback, supra note 25. See, also, Clason, supra note 27, citing Baker v. United States, 393 F.2d 604 (9th Cir. 1968), and People v. Incerto, 180 Colo. 366, 505 P.2d 1309 (1973). - 604 - Nebraska Supreme Court Advance Sheets 306 Nebraska Reports STATE v. THEISEN Cite as 306 Neb. 591 of conspiracy. In support of her contention, Theisen directs us to our holding in State v. Utterback. 29 In Utterback, the issue on appeal concerned the reliability of an informant and analyzed whether an admission by the informant that he bought marijuana from a specific individual was against his penal interests. Since purchasing marijuana was not a statutorily proscribed act in Nebraska, the court looked at whether such admission could be used to pros- ecute for conspiracy to distribute or deliver a controlled sub- stance. Applying Wharton’s Rule, we found that the informant could not be charged with conspiracy to distribute or deliver, because he was the buyer, a necessary party to the underly- ing crime. The instant case is distinguishable from Utterback. Here, the factual basis provided by the State sets forth sufficient facts to find the participation of conspirators beyond the specific sell- ers and buyers of the drugs. In the court’s receipt of Theisen’s pleas, Theisen confirmed that she had sold hydrocodone and tramadol between June 1, 2016, and August 23, 2018. The State then explained that Theisen “would actually have [her daughters] text potential buyers ahead of time that the sales would be taking place,” that “the daughters reported actually receiving threats back from some of those drug dealers and purchasers about the sales,” and that Theisen “would work with others involved in this ring to buy and sell the drugs.” We note as well that the police reports contained within the presentence investigation report further detail the participation of Theisen’s daughters in the overt act of purchasing controlled substances. Such participation involved more and different people than necessary for the delivery and distribution of hydrocodone and tramadol. Accordingly, Wharton’s Rule does not prohibit Theisen’s conviction for the con­spiracy counts and the district court did not err in accepting Theisen’s pleas. 29 Utterback, supra note 25. - 605 - Nebraska Supreme Court Advance Sheets 306 Nebraska Reports STATE v. THEISEN Cite as 306 Neb. 591 Failure to Advise Theisen of Wharton’s Rule Theisen assigns her trial counsel was ineffective for failing to properly advise her that Wharton’s Rule prohibited her con- victions on the conspiracy charges. [20,21] Whether a claim of ineffective assistance of trial counsel can be determined on direct appeal depends upon the sufficiency of the record to address the claim to determine whether a defense counsel’s performance was deficient and whether the defendant was prejudiced by the alleged deficient performance. 30 We have said the record is sufficient if it estab- lishes either that trial counsel’s performance was not deficient, that the appellant will not be able to establish prejudice, or that trial counsel’s actions could not be justified as a part of any plausible trial strategy. 31 For the reasons stated above, Wharton’s Rule did not restrict Theisen from being charged and convicted of conspiracy to distribute or deliver hydrocodone and tramadol. Therefore, Theisen cannot show prejudice from trial counsel’s alleged failure to properly advise her on the application of Wharton’s Rule and this assignment is without merit. Conflict of Interest Theisen assigns she received ineffective assistance due to her trial counsel’s representation of a material witness for the State. Under this assignment, Theisen claims her counsel “pre- viously represented Brooks Boyer who was a defendant against [Theisen] in a divorce action which was filed by [Theisen].” 32 Theisen alleges Brooks Boyer “played a very large role in the criminal investigation being initiated against [her], includ- ing providing statements and documentary evidence against 30 See Hood, supra note 3. 31 State v. Stelly, 304 Neb. 33, 932 N.W.2d 857 (2019). 32 Brief for appellant at 24. - 606 - Nebraska Supreme Court Advance Sheets 306 Nebraska Reports STATE v. THEISEN Cite as 306 Neb. 591 [Theisen].” 33 Citing a long-term attorney-client relationship between trial counsel and Boyer, Theisen argues there existed an actual conflict of interest which compromised trial counsel’s ability to adequately and properly represent Theisen. [22,23] The fact that an ineffective assistance of counsel claim is raised on direct appeal does not necessarily mean that it can be resolved. 34 The determining factor is whether the record is sufficient to adequately review the question. 35 The record on appeal contains no information as to trial counsel’s alleged representation of Boyer or how that previous relationship could have affected the representation of Theisen. Thus, the record is insufficient to review this assignment on direct appeal. CONCLUSION The information expressly alleged overt acts in further- ance of the charged conspiracy to distribute and deliver hydrocodone and tramadol, and the factual basis was suffi- cient to satisfy Wharton’s Rule and support Theisen’s guilty pleas. Accordingly, we affirm Theisen’s convictions and find Theisen’s assignment of ineffective assistance of trial coun- sel for failure to advise her of Wharton’s Rule to be without merit. However, we conclude the record is insufficient to reach Theisen’s claim of ineffective assistance due to her trial coun- sel’s alleged conflict of interest. Affirmed. 33 Id. 34 State v. Burries, 297 Neb. 367, 900 N.W.2d 483 (2017). 35 Id.

01-03-2023

08-14-2020

https://www.courtlistener.com/api/rest/v3/opinions/1925814/

198 B.R. 63 (1996) In re MAXWELL COMMUNICATION CORPORATION, plc, Debtor. Robert MIRANDA, Plaintiff-Appellant, v. MAXWELL COMMUNICATION CORPORATION, plc, Defendant-Appellee. Nos. 91 B 15741 (TLB), 95 Civ. 5323 (JGK). United States District Court, S.D. New York. July 19, 1996. *64 *65 Leonard Benowich, Zivyak, Klein and Liss, New York City, for Appellant. George Brandon, Milbank, Tweed, Hadley and McCloy, New York City, for Appellee. OPINION AND ORDER KOELTL, District Judge: The appellant, Robert Miranda, a former chief operating officer of Pergamon Press, Inc. ("Pergamon"), a subsidiary of the appellee, Maxwell Communication Corporation ("MCC"), appeals pursuant to 28 U.S.C. § 158 from the order of the Bankruptcy Court (Brozman, J.) granting MCC's motion for summary judgment and denying his motion for summary judgment. On December 16, 1991, MCC filed a voluntary petition for bankruptcy under Chapter 11 of the Bankruptcy Code. The appellant timely filed a proof of claim for $200,000 as a "premium bonus." Appellant alleges that he was promised the "premium bonus" for his work in the sale of Pergamon to Elsevier Acquisition Corporation ("Elsevier") and that MCC is contractually bound to pay it. The Bankruptcy Court granted MCC's motion for summary judgment, denied Miranda's motion for summary judgment, and ordered Miranda's claim based on the "premium bonus" to be disallowed and expunged. The Bankruptcy Court found that there was no enforceable agreement to pay the premium bonus. Miranda now appeals from that order. For the reasons explained below, the order of the Bankruptcy Court is affirmed. I. The sale of Pergamon to Elsevier was announced on March 28, 1991, approved by *66 the shareholders of MCC on May 10, 1991, and completed on May 16, 1991. (D-106.)[1] At the time of the sale's completion, appellant was the associate publisher and chief operating officer of Pergamon. Before the sale of Pergamon to Elsevier, appellant alleges that at a February 15, 1991, meeting with Kevin Maxwell, the Joint Managing Director of MCC and an officer and director of Pergamon, and Sheldon Aboff, an employee of MCC, Maxwell stated that he had "committed . . . a bonus pool of $1 million . . . established by MCC to pay premium bonuses for those people whose services and cooperation would be essential to the efficient sale and smooth transition of Pergamon." (D-93 ¶ 4.) It is disputed by the parties whether Maxwell did or did not specifically identify Miranda and Aboff as future recipients of bonuses, but it is not disputed that the amounts of the bonuses were not discussed. Appellee claims that those persons who were to receive premium bonuses from the pool were first tentatively identified in a Memorandum dated May 9, 1991 (the "Pergamon Memorandum"). The appellant drafted the Pergamon Memorandum on the letterhead of Pergamon, dated it May 9, 1991, and addressed it to Kevin Maxwell. The subject of the Pergamon Memorandum described in the "re" line is as follows: Discussion held with Shelly Aboff and myself concerning individuals in the long term affiliation with the company, as well as those people involved in the sale aspects of the Tokyo project [codename for the acquisition of Pergamon]. (D-31.) The body of the Pergamon Memorandum reads: The amount of money allocated for premium bonuses during our conversation is $1.M. The people that should be in a position to receive a major portion of this money would be: Shelly Aboff Robert Miranda . . . (D-31.) The Pergamon Memorandum lists four people and then another five after the notation "and in lesser amounts." It is alleged that after a conversation with Maxwell, Sheldon Aboff wrote in a series of figures next to the names listed in the Pergamon Memorandum, including $500,000 for himself and $200,000 for the appellant, in all totalling $845,000, and that Maxwell thereafter signed the document with those additions. Appellant alleges that following the Pergamon Memorandum, he performed his part of the bargain by entering into the "Tri-Party Agreement" with MCC and Elsevier, under which he became Elsevier's "general manager" of Pergamon through the end of 1991. (D-64-66.) Both MCC and Elsevier were to compensate Miranda for his work to ensure a smooth transition of ownership. The Tri-Party Agreement is silent with regard to the premium bonus discussed in the Pergamon Memorandum. On May 20, 1991, Miranda also entered into an employee agreement with Macmillan, an MCC controlled entity, providing for his future employment with that company. (D-107.) This employment agreement is also silent as to the premium bonus. In the fall of 1991, David Shaffer, an MCC director and president of Macmillan at the time, had a conversation with Kevin Maxwell in which Maxwell stated that he had not paid and would not pay any of the bonuses contained in the Pergamon Memorandum. (See D-112 ¶ 8.) In June, 1992, Miranda's employment with Macmillan was terminated and he was given a severance agreement. (D-20.) The June, 1992 severance agreement provided that Miranda would release all claims "arising out of or which are in any way related to [his] employment or the termination of [his] employment. . . ." (D-71.) The agreement provides, however, that ". . . the release provided herein shall be without prejudice to any claim that you [Miranda] may have, solely against Maxwell Communication Corporation, plc, arising out of the *67 memorandum dated May 9, 1991 from you to Kevin Maxwell." (D-72.) II. This Court reviews de novo the Bankruptcy Court's decision on a motion for summary judgement. In re Sentinel Products Corp., PI, 192 B.R. 41, 44 (N.D.N.Y.1996); In re Finley, Kumble, Wagner, Heine, Underberg, Manley, Myerson, & Casey, 194 B.R. 728, 731 (S.D.N.Y.1995). Summary judgment may not be granted unless "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S. Ct. 2548, 2552, 91 L. Ed. 2d 265 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-248, 106 S. Ct. 2505, 2509-10, 91 L. Ed. 2d 202 (1986); Gallo v. Prudential Residential Servs. Ltd. Partnership, 22 F.3d 1219, 1223 (2d Cir.1994). "[T]he trial court's task at the summary judgment motion stage of the litigation is carefully limited to discerning whether there are any genuine issues of material fact to be tried, not to deciding them. Its duty, in short, is confined at this point to issue-finding; it does not extend to issue resolution." Gallo, 22 F.3d at 1224. The moving party bears the initial burden of "informing the district court of the basis for its motion" and identifying the matter that "it believes demonstrate[s] the absence of a genuine issue of material fact." Celotex, 477 U.S. at 323, 106 S. Ct. at 2553. The substantive law governing the case will identify those facts which are material and "[o]nly 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. In determining whether summary judgment is appropriate, a court must resolve all ambiguities against the moving party. See Matsushita Elec. Indus. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S. Ct. 1348, 1356, 89 L. Ed. 2d 538 (1986) (citing United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S. Ct. 993, 994, 8 L. Ed. 2d 176 (1962)); see also Gallo, 22 F.3d at 1223. If the moving party meets its burden, the burden shifts to the nonmoving party to come forward with "specific facts showing that there is a genuine issue for trial." Fed. R.Civ.P. 56(e). With respect to the issues on which summary judgment is sought, if there is any evidence in the record from any source from which a reasonable inference could be drawn in favor of the nonmoving party, summary judgment is improper. See Chambers v. TRM Corp., 43 F.3d 29, 37 (2d Cir.1994). If the moving party has met its burden, the opposing party "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus., 475 U.S. at 586, 106 S. Ct. at 1356. The nonmoving party must set forth specific facts showing that there is a genuine issue for trial. The nonmoving party may not rest upon mere allegations or denials of the moving party's pleadings. Anderson, 477 U.S. at 248-249, 106 S. Ct. at 2510-11. Speculative and conclusory allegations are insufficient to meet this burden. Allen v. Coughlin, 64 F.3d 77, 80 (2d Cir.1995); Meiri v. Dacon, 759 F.2d 989, 998 (2d Cir.1985). III. The first issue is whether there was a binding oral agreement requiring MCC to pay the appellant a premium bonus. Appellant alleges on appeal that Kevin Maxwell orally made an "offer" in February, 1991, which was accepted by Miranda's subsequent performance. (See Appellant's Br. at 3-4). Maxwell's purported oral "offer" in February, 1991 was to establish a bonus pool of $1 million . . . by MCC to pay premium bonuses for those people whose services and cooperation would be essential to the efficient sale and smooth transition of Pergamon. (D-93 ¶ 4.) This alleged oral agreement is unenforceable because it is undisputed that it did not contain the most basic essential term — the amount of the bonus to be paid to Miranda. Before an offer can be accepted, *68 its terms must be definite and certain. S.S.I. Investors, Ltd. v. Korea Tungsten Mining Co., 80 A.D.2d 155, 161, 438 N.Y.S.2d 96, 101 (1st Dep't 1981), aff'd, 55 N.Y.2d 934, 449 N.Y.S.2d 173, 434 N.E.2d 242 (1982). "As price is an essential ingredient of every contract for the rendering of services, an agreement must be definite as to compensation." Cooper Square Realty, Inc. v. A.R.S. Management, Ltd., 181 A.D.2d 551, 581 N.Y.S.2d 50, 51 (1st Dep't 1992). Without an agreement as to the amount of compensation, such an agreement is unenforceable. 181 A.D.2d at 551-552, 581 N.Y.S.2d at 51. In this case, there was no agreement regarding compensation because the appellant did not include the amounts of the premium bonuses to be paid to the various employees. In general, preliminary manifestations of assent that require further negotiation do not ordinarily create binding obligations. Shann v. Dunk, 84 F.3d 73, 77 (2d Cir.1996). However, the Court of Appeals for the Second Circuit has recognized that in certain rare circumstances, "if a preliminary agreement clearly manifests such intention, it can create binding obligations." Shann, 84 F.3d at 77. There are two types of preliminary agreements: Type I is where all the essential terms have been agreed upon in the preliminary contract, no disputed issues are perceived to remain, and a further contract is envisioned primarily to satisfy formalities. Type II is where the parties recognize the existence of open terms, even major ones, but, having agreed on certain important terms, agree to bind themselves to negotiate in good faith to work out the terms remaining open. In Type II agreements, the parties do not bind themselves to conclude the deal but only to negotiate in good faith toward the conclusion within the agreed framework. Shann, 84 F.3d at 77. Since compensation is an essential term in a services contract, the alleged February 9 agreement could not be a Type I agreement. Similarly, it could not be a Type II agreement because of the importance of the term that had concededly not been decided — the amount of the bonus. In Shann itself, the Court of Appeals recognized that there are terms so important that preliminary agreements are not binding. New York law acknowledges that the absence of the amount of compensation is such a term. Similarly, applying the four factors traditionally applied to determine the binding nature of a preliminary agreement in examining whether there was a binding preliminary agreement in this case, the Bankruptcy Court concluded there was no agreement. The Bankruptcy Court was correct. The Court of Appeals for the Second Circuit has articulated several factors to aid in determining whether parties intended to be bound in the absence of a document executed by both sides. A court is to consider: (1) whether there has been an express reservation of the right not to be bound in the absence of a writing; (2) whether there has been partial performance of the contract; (3) whether all of the terms of the alleged contract have been agreed upon; and (4) whether the agreement at issue is the type of contract that is usually committed to writing. Winston v. Mediafare Entertainment Corp., 777 F.2d 78, 80 (2d Cir.1985); see R.G. Group, Inc. v. Horn & Hardart Co., 751 F.2d 69 (2d Cir.1984); see Reprosystem B.V. v. SCM Corp., 727 F.2d 257 (2d Cir.1984). The first factor is not applicable in this case because the negotiations, if the discussions between the appellant and Maxwell could be termed as such, had not risen to the level where either party had concluded that there would be an express reservation of the right not to be bound in the absence of a writing. The second factor has not been satisfied in this case. "Partial performance is an unmistakable signal that one party believes there is a contract; and the party who accepts performance signals, by that act, that it also understands a contract to be in effect." R.G. Group, 751 F.2d at 75. An examination of the partial performance factor does not aid in establishing the existence of an oral agreement *69 with the appellant's employer. Any work that was performed by the appellant was compelled by his contracts with the different employers, and thus does not indicate that he was performing in order to obtain a bonus not contemplated by those agreements. The third factor has not been satisfied. As discussed above, the parties had not settled all of the terms on which there was to be agreement. An essential term in a service contract is the amount of compensation, which had not been determined. There was no agreement between MCC and the appellant regarding the amount of compensation, if any, he was to receive for his work in the sale of Pergamon. Finally, the agreement concerned the sort of complex business matters that are normally subject to a written contract. Miranda's employment and compensation agreements were in fact reduced to writing with the exception of the alleged premium bonus agreement. (Appellee's Br. at 20.) It would be atypical for Miranda to receive compensation in a manner that had not been concluded in writing. Based on the four factor test of Winston and the analysis above, this Court agrees with the conclusion of the Bankruptcy Court that there was no binding oral contract to pay the appellant a $200,000 premium bonus. IV. The second issue is whether the May 9, 1991, Pergamon Memorandum was an enforceable contract. By its terms, the Memorandum does not purport to be a contract between the parties, nor does it reflect an intent by the parties to be bound. The expressed words of the parties are phrased in the conditional, "the people that should be in a position . . . would be . . ." (D-31, emphasis added.) Thus, the Pergamon Memorandum does not reflect a definite agreement between the parties, but rather tentative statements regarding the possibility of a bonus. Moreover, there was no consideration for the alleged premium bonus. Appellant contends that the consideration for the bonus payment was "render[ing] all services required for the preparation for sale of Pergamon Press to Elsevier." (D-1 ¶ 3.) The appellant began working on the Pergamon sale in February, 1991, and it was publicly announced on March 28, 1991, conditioned upon shareholder approval. Shareholder approval was given on May 10, 1991, and the sale was completed on May 16, 1991. Since appellant's performance occurred before the Pergamon Memorandum, there was no consideration for the bonus. On appeal, appellant contends that his work for Elsevier after the sale of Pergamon also serves as consideration for the bonus. (Appellant's Br. at 4.) Any work that was performed by the appellant for Elsevier after the sale was required by the Tri-Party Agreement in which Miranda was employed by Elsevier. The Tri-Party Agreement continued his previous salary and awarded him a bonus for service to Elsevier (D-64 ¶ 2), but does not make any reference to the Pergamon Memorandum or any other premium bonus. New York's General Obligations Law § 5-1105 ("§ 5-1105") does not save the Pergamon Memorandum from being unenforceable because of the lack of consideration.[2] "To be enforceable pursuant to § 5-1105 of the General Obligations Law, the writing must contain an unequivocal promise to pay a sum certain, at a date certain, and must express consideration for the promise." Umscheid v. Simnacher, 106 A.D.2d 380, 381, 482 N.Y.S.2d 295, 297 (2d Dep't 1984) (citations omitted). The Pergamon Memorandum does not fulfill the requirements of § 5-1105, because there is no unequivocal promise to pay a certain sum of money at a certain date. The "re" line of the Pergamon Memorandum *70 is filled with conditional statements, and no date at all is alluded to as the date for payment. Accordingly, for all of the reasons stated above, this Court agrees with the decision of the Bankruptcy Court that the appellant has failed to establish the existence of a contract between MCC and the appellant requiring the payment of a $200,000 premium bonus. V. CONCLUSION For all of the reasons stated above, the order of the Bankruptcy Court granting summary judgment in favor of the appellee, MCC, and denying summary judgment for the appellant, Robert Miranda, is affirmed. SO ORDERED. NOTES [1] References to "D-__" are to the page numbers of the record on Appeal as prepared by the plaintiff, Robert Miranda. [2] § 5-1105. Written promise expressing past consideration. A promise in writing and signed by the promisor or his agent shall not be denied effect as a valid contractual obligation on the ground that consideration for the promise is past or executed, if the consideration is expressed in the writing and is proved to have been given or performed and would be a valid consideration but for the time when it was given or performed.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1924869/

234 B.R. 21 (1999) In re MARVEL ENTERTAINMENT GROUP, INC.; The Asher Candy Company; Fleer Corp.; Frank H. Fleer Corp.; Heroes World Distribution, Inc.; Malibu Comics Entertainment, Inc.; Marvel Characters, Inc.; Marvel Direct Marketing Inc.; and Skybox International, Inc., Debtors. No. Civ.A. 97-638-RRM. United States District Court, D. Delaware. May 13, 1999. *22 Collins J. Seitz, Jr., and Karen C. Bifferato, Connolly, Bove, Lodge & Hutz, Wilmington, Delaware; Michael R. Griffinger, Frank J. Vecchione, and Karen A. Giannelli, Gibbons, Del Deo, Dolan, Griffinger & Vecchione, Newark, New Jersey, for John J. Gibbons, Chapter 11 Trustee. David B. Stratton, Pepper Hamilton LLP, Wilmington, Delaware; Lawrence C. Ashby, Ashby & Geddes, Wilmington, Delaware; Douglas L. Furth, and David Fleischer, Battle Fowler LLP, New York, for Debtors, Marvel Enterprises, Inc. Michael B. Joseph, and Theodore J. Tacconelli, Ferry & Joseph, Wilmington, Delaware; Tonny K. Ho, Francis J. Menton, Jr., Elvin Esteves, and Catherine E. Larocca, Willkie Farr & Gallagher, New York, for the Official Committee of Unsecured Creditors. Stephen W. Spence, Phillips, Goldman & Spence, Wilmington, Delaware; Edward S. Weisfelner, and Bari J. Mattes, Berlack, Israels & Liberman LLP, New York, for Standby Purchasers. Thomas L. Ambro, Mark D. Collins, Daniel J. DeFranceschi, and Margaret H. Morgan, Richards, Layton & Finger, Wilmington, Delaware; Chaim J. Fortgang, Douglas S. Liebhafsky, Amy R. Wolf, Douglas K. Mayer, and David C. Bryan, Wachtell, Lipton, Rosen & Katz, New York, for the Secured Lenders. Jeffrey C. Wisler, Williams, Hershman & Wisler, P.A., Wilmington, Delaware; Richard S. Toder, and Andrew D. Gottfried, Zalkin, Rodin & Goodman LLP, New York, for The Chase Manhattan Bank, as DIP Agent. Teresa Currier, and Adam G. Landis, Duane, Morris & Heckscher, LLP, Wilmington, Delaware; Leon R. Barson, Gary M. Schildhorn, Steven D. Usdin, and Gary *23 D. Bressler, Adelman Lavine Gold and Levin, Philadelphia, Pennsylvania, for the Official Committee of Equity Security Holders. Norman L. Pernick, Saul, Ewing, Remick & Saul, Wilmington, Delaware, for Marvel Holdings. Joanne Wills, and David S. Eagle, Klehr, Harrison, Harvey, Branzburg & Ellers LLP, Wilmington, Delaware; James E. Spiotto, Ann Acker, Franklin H. Top, III, and Timothy T. Finley, Chapman & Cutler, Chicago, Illinois, for LaSalle National Bank as Indenture Trustee. Patricia A. Staiano, Frederick J. Baker, and John D. McLaughlin, Jr., Office of the U.S. Trustee, Philadelphia, Pennsylvania, United States Trustee. OPINION MCKELVIE, District Judge. This is a bankruptcy case. On December 27, 1996, Marvel Entertainment Group, Inc. and certain of its subsidiaries filed voluntary petitions for relief pursuant to Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. On November 17, 1997, this court withdrew the reference to the bankruptcy court and, thereafter, entered an order authorizing appointment of a Chapter 11 trustee. The United States Trustee selected former Chief Judge of the United States Court of Appeals for the Third Circuit John J. Gibbons to serve as trustee. This court entered an order on December 22, 1997 approving that appointment. On July 31, 1998, the court entered a consent order approving a plan of reorganization for the companies. Gibbons has been discharged from his duties as trustee and has applied for $2,095,760.38 in compensation for the nine months he served as trustee. Marvel Enterprises and the Official Committee of Unsecured Creditors object to his application. This is the court's decision on the application. I. FACTUAL BACKGROUND The following facts are drawn from the record of the proceedings in this matter and from the testimony and documents offered into evidence at the December 17, 1998 and January 7, 1999 hearings on the application. A. December 1996: Marvel Files Chapter 11 Petitions and a Proposed Plan of Reorganization On December 27, 1996, Marvel Entertainment Group, Inc. and certain of its subsidiaries (hereinafter "Marvel") filed separate petitions in the Bankruptcy Court for relief under Chapter 11. The court consolidated the petitions. On that same day, Marvel's parent corporations, Marvel Holdings, Inc., Marvel (Parent) Holdings, Inc., and Marvel III Holdings, Inc. (collectively referred to as "the Marvel Holding Companies"), also filed Chapter 11 petitions in the Bankruptcy Court. The court has consolidated and separately administered those cases. At the time of filing of the petitions, Ronald O. Perelman controlled Marvel through the Holding Companies, which owned 80% of Marvel's common stock. Perelman had, however, pledged that stock to an indenture trustee as security for the repayment of bonds Marvel Holdings had issued in 1993 and 1994 in a face amount of $894 million. Separately, Marvel owed certain banks (the "Secured Lenders"), including Chase Manhattan Bank, approximately $625 million. Marvel had approximately 1,400 employees. Its assets included the rights to a number of popular comic book and entertainment characters, such as Spiderman and The Incredible Hulk. Another asset was Toy Biz, Inc. common stock. In 1993, Perelman joined with two individuals, Avid Arad and Isaac Perlmutter, to form Toy Biz. Marvel granted Toy Biz certain licenses for its characters in exchange for 44% of Toy Biz's common stock. Under a shareholders' agreement, Marvel controlled *24 78% of Toy Biz's voting stock so long as Perelman controlled Marvel. On the filing of the petitions, Marvel filed a proposed plan of reorganization by which a Perelman affiliate would contribute $365 million to Marvel in exchange for an 80% stake in the company, which would then be merged with Toy Biz and reorganized. Under the plan, all unsecured creditors would be paid in full, and the existing obligations to the Secured Lenders would be restructured. Chase agreed with a syndicate of banks to provide Marvel $100 million in senior secured debtor-in-possession financing for a period of up to 120 days, extendable to 180 days. In addition, the syndicate agreed to provide Marvel another $160 million in exit financing. B. June 1997: The Bondholders Take Control of Marvel's Board of Directors What apparently started as a relatively friendly bankruptcy managed by Perelman and Marvel's Secured Lenders led by Chase, turned into a full scale commercial rumble after the bondholders, led at times by the indenture trustee for the bonds, LaSalle National Bank, and by Carl C. Icahn and affiliated entities, including High River Limited Partnership, Westgate International L.P. and Vincent J. Intrieri (hereinafter sometimes collectively referred to as "the Icahn Interests"), took control of the Marvel Holding Companies and on June 20, 1997 voted the pledged shares to replace Marvel's board of directors. See In re Marvel Entertainment Group, Inc., 209 B.R. 832 (D.Del.1997). With Perelman's removal from the Marvel board, his designees on the Toy Biz board resigned. On June 22, 1997, the new Marvel board sought to add Icahn and seven others to the Toy Biz board. The next day, Perlmutter, Arad and the rest of the incumbent Toy Biz board chose different individuals to fill the vacant directorships. That same day, Toy Biz, Arad and Perlmutter filed an adversary proceeding in the bankruptcy court seeking an order declaring the incumbent Toy Biz board of directors, and the directors it selected on June 23 to be the duly elected board. Following the change in control of Marvel, Chase and the Secured Lenders argued Marvel was insolvent and moved for the appointment of a trustee. At this point, Bankruptcy Court Judge Helen Balick told counsel to stop litigating and directed them to reach a settlement. In an apparent effort to back up her admonitions, Judge Balick issued an order sua sponte vacating her December 27, 1996 Administrative Order Establishing Procedures for Interim Compensation and Reimbursement of Expenses of Professionals. Unfortunately, her swat may have only aggravated the tensions, as it did not hit the principal players (Chase or Icahn), but did punish bystanders, as it stopped interim payment of fees to counsel for the Official Committee of Unsecured Creditors and for the Official Committee of Equity Security Holders and to their financial advisors. By August 1997, Chase and Icahn were close to agreeing on a settlement by which the Icahn Interests would purchase most of the Secured Lenders' claims and liens. That deal fell through, perhaps in part because another player had joined the table. Mark Dickstein had filed a Schedule 13D with the Securities and Exchange Commission disclosing that over the summer he had acquired 5.5% of Toy Biz's Class A shares as an "investment." On October 16, Dickstein filed an amended Schedule 13D, disclosing that he had entered into a contract with Toy Biz and holders of Marvel debt in connection with a proposed reorganization plan that contemplated a "hostile" merger of the Marvel and Toy Biz entities. On October 30, 1997, Marvel's new board of directors caused Marvel to file an 82 page, 19 count complaint against 33 defendants, including Perelman, Chase and the other secured lenders (this complaint and related claims are sometimes hereinafter *25 referred to as "the Perelman Litigation"). In the complaint, Marvel alleged Chase had a long-standing and far-reaching relationship with Perelman and that Chase and others had aided and abetted Perelman in systematically stripping Marvel of its most valuable assets, encumbering it with debt, wrongfully filing the bankruptcy proceedings and then, when their bankruptcy plan failed, embarking on a deliberate campaign designed to drive Marvel to the brink of liquidation. Marvel alleged Perlmutter, Arad and Dickstein had joined Perelman and Chase in efforts to cripple Marvel and had wrongfully proposed to merge Marvel and Toy Biz in a transaction that would destroy Marvel and the interests of the bondholders and Marvel's shareholders. That same day, Marvel moved for a temporary restraining order. In its motion, Marvel alleged Toy Biz was attempting to sabotage Marvel's efforts to reorganize and sought an order replacing Toy Biz's board with Marvel's nominees. Three days later, Marvel moved this court to enter an order withdrawing the order that had referred this matter to the bankruptcy court. By the end of November, and after a few additional twists and turns, the court had withdrawn the reference. The new board had caused Marvel to file a proposed plan of reorganization. Under the Marvel plan, that is to say the Icahn Interests' plan, the assets of the company would be transferred to a new corporation free and clear of all liens and claims. The new corporation would be owned by a trust. The trust would receive 100% of the corporation's common stock, $135 million in cash, and Marvel's litigation claims, including its claims in the Perelman litigation. Toy Biz and certain secured lenders filed an alternative plan by which Marvel and Toy Biz would be merged. Under this plan, the Secured Lenders would receive cash and a combination of common and convertible preferred stock. Unsecured creditors would receive warrants to purchase common stock. Marvel's stockholders would receive subscription rights to purchase common stock. Any claims Marvel had against the Secured Lenders and Toy Biz, including claims set out in the Perelman litigation, would be released. Other claims Marvel might have, including claims against Perelman and claims to avoid prior payments made by Marvel, would be transferred to a litigation trust, with the unsecured creditors receiving 5% of the avoidance action recoveries and 10% of any amounts recovered in the Perelman litigation. The Secured Lenders agreed to support the plan (and not sell their claims to the Icahn Interests) so long as certain milestones were met. One agreed upon milestone was that the court approve the plan disclosure statement by February 15, 1998. C. December 1997: The Court Enters an Order for the Appointment of a Trustee In December 1997, the court invited the Secured Lenders to renew their motion for appointment of a trustee. The Icahn Interests then moved for the appointment of an examiner, rather than a trustee. In opposing appointment of a trustee, the Official Committee of Bondholders argued the Secured Lenders did not want a neutral trustee. Rather, the Committee alleged the Secured Lenders expected to control the trustee and force the liquidation of Marvel. They argued that Chase could no longer speak for the Secured Lenders, as it had a separate agenda, including an interest in obtaining a broad release from claims asserted in the Perelman litigation as well as an interest in preserving its commercial relationship with Perelman. LaSalle National Bank, as indenture trustee for the bondholders, also opposed the motion, arguing: Chase has claimed that its motion seeks the appointment of a "neutral" and "independent" party to mediate the dispute *26 between the parties. These statements do not accurately describe the Lenders' actual purpose behind the motion, which is the ouster of the New Board in favor of a pre-selected agent who will carry out their demands. The Official Committee of Equity Security Holders opposed the motion for a trustee, arguing: The Trustee Application is nothing more than another skirmish in the same war. The fight over control should not be viewed in a vacuum. If the pre-petition lenders win, they expect to gain, and what they expect to gain is control over corporate governance through an agent they will control by their vote or by their control over the purse strings. The Official Committee of Unsecured Creditors supported the motion for appointment of an examiner, rather than a trustee. The Committee argued that appointing an examiner would have the advantage of obtaining an independent and neutral evaluation of the Perelman litigation, while avoiding the disadvantages that would flow from appointing a trustee, including the probable disruption to the business by another change in senior management, the significant additional administrative costs associated with the trustee's appointment, and the further delays the appointment would cause before this case could be brought to resolution. In supporting their motion for appointment of a trustee, the Secured Lenders accused Icahn of planning an elaborate scheme to take over Marvel by buying the bonds at a discount and then reducing the value of the Lenders' claims. They contended the Perelman litigation was part of that scheme, and was brought, at least in part, as a weapon to punish the Secured Lenders for not reaching a settlement. In addition, Chase argued that if the court did not appoint a trustee, Chase would not be inclined to continue providing interim financing to Marvel, which was then in default under agreements relating to $92 million in debtor-in-possession loans. The U.S. Trustee, Patricia Staiano, joined in the motion for the appointment of a trustee, reporting that the Secured Lenders and Bondholders had demonstrated an "apparent inability . . . to reach consensus." At a December 12, 1997 oral argument on the motions, Chase's counsel reported that the Secured Lenders had no particular candidate for trustee. They had submitted a list of approximately 70 candidates to the U.S. Trustee and would accept anyone on that list or a candidate of comparable stature. Counsel also reported they would not seek an election to run another candidate, provided the individual selected did not have ties to any of the parties in interest "because that's the whole point, is to get somebody neutral." Counsel for the U.S. Trustee offered the following description of the selection process: We have a short form application. What we do is once we have identified an individual who says he or she is ready to do it, then we send them basically a verified statement asking are you related to anybody, do you have any conflicts. . . . It's basically, a form. They fax that back to us. Once they have averred in an affidavit to us that they are not conflicted, then we would prepare a very short application to the Court indicating that the U.S. Trustee pursuant to 1104 and 2007.1, which is the rule, ha[s] selected Sally Smith as the trustee and we ask the Court to approve that application. Then that would be presented to you at your first available opportunity. Again, of course we would provide copies to parties in interest, but it's not something that goes out on notice and hearing. Then if you accept that nominee, then you would sign the order and that would be it. Counsel for Icahn commented: What I didn't hear was anything about a focus on qualifications. And we have read the listing of the alternative dispute *27 resolution individuals. We're part of the same organization. All of them have excellent credentials as neutrals. They serve in capacities where they resolve disputes. They mediate disputes. They arbitrate disputes. They mock trial disputes. I don't know what that there is anyone on that list, as qualified as they are for the jobs they do, that have run a media enterprise, a licensing business, know anything about movies or television production or the business of Marvel. I just raise that as an observation and a concern about what it is that a trustee will do with regard to the best interest of the estate, which is the . . . standard. D. December 1997: The Court Schedules a Hearing on Toy Biz and the Secured Lenders' Plan of Reorganization and Enters an Order for the Appointment of a Trustee By an Order dated December 12, 1997 and an Opinion dated December 16, 1997, the court found the proceedings and papers filed to date demonstrated there was a deep-seated conflict and animosity between the Secured Lenders and Marvel, as controlled by the Icahn Interests, and that there was no reasonable likelihood the parties would be able to bring this matter to an amicable resolution. The court found the best way to proceed would be to do two things: First, the court set a schedule for a prompt resolution of the matters in dispute. To that end, the court scheduled a hearing for January 30, 1998 on Toy Biz and the Secured Lenders' proposed plan of reorganization, and a jury trial on October 1, 1998 for the Perelman litigation. Second, the court entered an order for the appointment of a trustee pursuant to 11 U.S.C. § 1104(a)(2). In doing so, the court expected a trustee would be able to offer a neutral assessment of the value of the Perelman litigation and the two proposed plans, and would be able to invite different plans if necessary. Marvel moved for a stay of the order for the appointment of a trustee and filed an appeal in the United States Court of Appeals for the Third Circuit. E. December 1997: The U.S. Trustee Selects John J. Gibbons as the Candidate for Trustee At the close of a hearing on Monday, December 22, where counsel for some but not all of the parties were in attendance, counsel for the U.S. Trustee announced she had selected a trustee, identified the former Chief Judge of the United States Court of Appeals for the Third Circuit John J. Gibbons as the candidate, and submitted a form of order to the court approving the appointment. In submitting the paper, counsel for the U.S. Trustee reported: MR. McLAUGHLIN: You Honor, if I may. I have with me the original application of the United States Trustee to appoint John J. Gibbons as the Chapter 11 trustee. If I may Bench-file this and ask for the Court's consideration at this time. THE COURT: Anybody want to comment on this motion? Or at least application for relief? He has been screened for conflicts? MR. McLAUGHLIN: Yes, Your Honor. The application has attached to it his verified statement, which is akin to a verified statement pursuant to Rule 2014, setting forth his connections with the U.S. Trustee, with the Court, with principal parties-in-interest, and the disclosures he has made. The U.S. Trustee has examined — we are satisfied there are no disqualifying conflicts of interest, and so on and so forth. And we would ask that the Court approve the application pursuant to Rule 2007.1. THE COURT: He has told you he is going to roll up his sleeves? MR. McLAUGHLIN: Yes, Your Honor. And he has that reputation. That is one reason why the U.S. Trustee was favorably disposed to his candidacy, because *28 he has a track record of being an on-site manager. THE COURT: Is his professional rate in here, fees he will be charging? MR. McLAUGHLIN: No, Your Honor. Trustees are not paid hourly. They are paid based upon disbursements made from the estate. So arguably he is not entitled to any money until he pays money out to creditors. It is a percentage compensation pursuant to Section 326 of the Bankruptcy Code. Now, to the extent that he will be seeking — he may come in here and seek some sort of interim compensation, which is provided for in the Code. But that would have to be determined upon what activity he has generated in the estate, and arguably what disbursements he has made. He is not entitled to an hourly rate on a lodestar calculation, like lawyers and accountants would be. THE COURT: What is his expectation for what he will make? What has he been told what the potential for compensation is? MR. McLAUGHLIN: I think they recognize that this case could be worth billions of dollars. I don't know that we ever directly approached him, because we weren't looking for somebody who was out to use this as a springboard to fame and success. We were looking for someone essentially who had the gravity of demeanor that was above worrying about how much he was going to get paid. I don't think it's any secret that this is a several-hundred-million-dollar company. And again, a trustee pursuant to the statute is paid a commission based upon disbursements. So I think there is an expectation on the part of the trustee that his commission will be a reasonable amount, and of course he will have his professionals, who will be paid in a lodestar amount. But there really wasn't — I was there during the interview. There was really no discussion about what he was going to be paid. THE COURT: Anybody want to comment on this? MR. BRYAN: Your Honor, on behalf of the secured lenders. There is a statutory percentage fee which is applicable in the ordinary case. In a case like this, where you are talking about hundreds and hundreds of millions of dollars, a percentage fee is not generally the appropriate — I don't think I am disagreeing with Mr. McLaughlin. MR. McLAUGHLIN: It is a cap. MR. BRYAN: There does need to be a negotiation between the parties in the case with the trustee. I haven't seen the, personally seen the application or the form of order. But to the extent it addresses that, I think that is something that the parties in the case and the trustee need to address as a negotiation point. I would ask that, with respect to his compensation, that not be — MR. McLAUGHLIN: The compensation is not addressed in this application, Your Honor. Respectfully, this does not turn on compensation. This is merely to get him on board. If the banks want to negotiate — clearly, the trustee is going to have to negotiate because the banks are secured, presumably, on all the assets of the estate. Again, the statutory compensation is a max. Counsel is correct. There is no guarantee he gets the whole amount. It's three percent. THE COURT: Three percent. What is to prevent him from getting the whole? MR. McLAUGHLIN: You. THE COURT: He makes the application for up to three percent and I determine what is reasonable. MR. McLAUGHLIN: That's right. When the case is commenced, like any other fiduciary, he submits a final report on account of his administration. Therein, he would say, I have disbursed *29 80 million dollars, and I want — it's like five percent of the first thousand dollars, a sliding scale. But basically, for anything over like $5,000, it's three percent. So presumably he would come in and ask for the whole amount. The parties-at-interest could comment as they see appropriate. The Court could award him such compensation. THE COURT: That is all I want to know. I don't want to give up a percentage of a large estate, if the matter gets settled next week, I don't want him walking away with 30 million. MR. McLAUGHLIN: No, Your Honor. Under 326, you control the purse strings and you compensate the trustee as you deem to be appropriate in accordance with the law. THE COURT: I will enter an order that reads: The Court, having considered the U.S. Trustee's application to appoint John J. Gibbons, Esq., as Trustee of the above-captioned administered cases, it is hereby ordered his appointment is approved. I will sign that order dated today. Look forward to him coming in. MR. STRATTON: I wanted to put on the record that Toy Biz as a plan proponent has an interest in the trustee's compensation, and we reserve our rights to argue this with respect to the application of 326 to his compensation and the limit of reasonableness. Thank you. THE COURT: All right. MR. McLAUGHLIN: Your Honor, the U.S. Trustee is not seeking any determination of compensation at all. That is a battle for another day. I would ask, if the Court is inclined to enter the order, if I may, at the conclusion of the hearing, get a copy so I can fax it back to my office and put it in the stream of commerce, as it were, because numerous people have to be notified and the trustee will have to contact the bonding company to get a bond and all that sort of thing. THE COURT: There you are. On December 23, 1997, the court entered an order denying Marvel's motion for a stay of the order providing for the appointment of a trustee. F. January 1998: The Court Denies Gibbons's Motion to Retain Gibbons Del Deo On January 2, 1998, Gibbons moved for an order authorizing him to employ as his legal counsel his partners, Gibbons, Del Deo, Dolan, Griffinger & Vecchione, of Newark, New Jersey, and Collins J. Seitz, Jr., Esq. and the Wilmington, Delaware firm of Connolly, Bove, Lodge & Hutz. On January 12, the Indenture Trustee filed a paper titled "Preliminary Statement" reporting it had learned that Gibbons Del Deo represented Chase Manhattan Bank. Apparently, Gibbons disclosed this representation to the U.S. Trustee prior to his appointment, but the U.S. Trustee failed to disclose this information to certain parties until after the court had entered the order approving Gibbons's appointment. In the paper, the Indenture Trustee suggested the court consider whether Gibbons and Gibbons Del Deo were disinterested and, if not, whether Gibbons's motion to retain Gibbons Del Deo should be denied and Gibbons disqualified as trustee. The Icahn Interests were more direct. They filed a paper objecting to Gibbons's application to retain his partners and stated: As this Court well knows, Chase's pre- and post-petition activities have been the subject of intense scrutiny and recent litigation in these cases. The Trustee will be required to investigate such matters so as to determine whether or not to continue to prosecute this litigation on behalf of the Debtors. It is inconceivable that Chase's position as a past and continuing client of [Gibbons Del Deo] will not either influence [Gibbon Del Deo's] analysis of the claims against Chase or imperil the public's perception *30 regarding the integrity of such analysis. Given its relationship with Chase, [Gibbons Del Deo] is not a disinterested person and cannot be retained pursuant to Section 3279(a) of the Bankruptcy Code. On January 13, Gibbons filed a paper reporting that on December 19, 1997, Chase had waived any potential or actual conflict arising from Gibbons's appointment as trustee and that on January 12, Chase and Gibbons Del Deo had terminated any Gibbons Del Deo representation of Chase. The court heard argument on Gibbons's motion on January 15. On that day, in response to Gibbons's request, the court rescheduled the hearing on the Toy Biz and Secured Lenders' Plan from January 30 to February 13, and reset to February 6 the date by which the Trustee would serve objections, if any, to the plan. On January 27, 1998, the court denied Gibbons's motion for an order approving his employment of Gibbons Del Deo. In the Opinion, the court noted that while no party had raised the issue, there is some question about the propriety of a trustee employing his own firm as counsel. In addition, the court wrote: [T]his focus on a possible conflict with Chase misses the point. Despite the language of section 327(c), courts have consistently found that the test for assessing the appointment of counsel has two prongs. Counsel must not only have no interests "materially adverse" to the estate, but must also be "disinterested." * * * * * * [T]he key issue raised by the present motion is not whether there exists a conflict of interest, or whether there exists an "appearance of impropriety." It is whether Gibbons Del Deo, in light of its prior representation of Chase, can fairly be said to be disinterested. In this case, this court specifically authorized the appointment of a trustee to provide a neutral party who would resolve the conflicts that were dominating the case and preventing the confirmation of a reorganization plan. The court noted in its opinion that a major component of the trustee's task would be an assessment of the Perelman litigation. Chase is a named defendant in that litigation. Yet the person who has been placed in this "neutral party" role is a named partner at a firm that has represented Chase, and he now seeks to hire that same firm as his counsel. * * * * * * Gibbons Del Deo's representation of Chase taints the image of objectivity that the trustee and his counsel should possess. In re Marvel Entertainment Group, Inc., 1998 WL 181084, at *6-*7, (D.Del. Jan. 27, 1998). G. February 1998: Gibbons Appeals and the Secured Lenders and Toy Biz File a First Amended Plan On February 2, Gibbons wrote to this court to report the January 27 decision was "contrary to the law in this circuit" and "will cause the Marvel estate significant harm." He noted he had filed a notice of appeal with the Third Circuit and had requested that it hear the matter immediately. In his letter, he asked the court to delay the presentation of Toy Biz and the Lenders' Plan by postponing the time for the hearing on the disclosure statement to March 30. On February 12, Toy Biz and the Secured Lenders filed an Amended Plan that addressed a number of objections to their initial plan. At a February 13 hearing, the court scheduled a hearing on the proposed confirmation of the Amended Plan for May 4. At that hearing the court also scheduled oral argument on Toy Biz's motion for summary judgment seeking a declaration that its incumbent board of directors was duly elected and that, with Perelman's loss of control of Marvel, under the Toy Biz *31 shareholders' agreement Marvel lost the control of the Toy Biz board. By a letter to the court dated March 12, 1998, counsel for Toy Biz reported that the Official Committee of Unsecured Creditors had agreed to support an amended Toy Biz and Secured Lenders' plan. The Second Amended Plan increased the cash, warrants and percentage of potential litigation proceeds that would be paid to the unsecured creditors. On March 16, the Secured Lenders moved to postpone resolution of the dispute on the corporate governance of Toy Biz until the confirmation hearing and reported in the motion that Toy Biz and the Trustee supported their motion. Counsel for the Official Committee of Equity Security Holders and counsel for the Bondholders opposed the motion. On March 20, the Equity Committee moved to restore the debtor as debtor-in-possession, arguing that Gibbons's appointment had become embroiled in controversy, that he had not been actively managing and operating the debtors' business, and had not undertaken investigations aimed at protecting the interests of the various creditor and shareholder constituencies. They wrote: "[T]he appointment of the Chapter 11 Trustee has merely created a vacuum at the center of the Debtors' management. . . ." H. March 1998: The Court of Appeals Affirms the Order to Appoint a Trustee and Reverses the Order Denying Gibbons's Motion to Hire Gibbons Del Deo By a decision dated March 25, 1998, the United States Court of Appeals for the Third Circuit affirmed this court's order providing for the appointment of a trustee, but reversed this court's order denying Gibbons's motion to retain his law firm, finding the court's decision was an abuse of discretion. Senior Judge Ruggerio Aldisert wrote for the panel: The Firm's conflict here is not potential or actual. . . . The district court's exercise of its discretion is further called into question by the anomalous situation in which it approved Gibbons's appointment as the trustee in this case, and then disapproved the employment of the Firm, in which he is the first named partner, as trustee's counsel. Sauce for the goose, then is not sauce for the gander. The disclosures in reference to both Gibbons's appointment and the Firm's employment are the same. They revealed the Firm's representation of Chase and that Chase had granted the Firm an unconditional waiver of conflicts. Also, unlike when the court approved Gibbons's appointment as trustee, while the motion for approval of the Firm's employment as counsel was pending, Chase and the Firm terminated their attorney-client relationship. Given these facts, a logical basis for this inconsistency is evanescent, if not infinitesimal. There is an irreconcilable conflict with dictates of good reason in the notion that Gibbons, as the head of the Firm, is eligible to serve as trustee, but the Firm is ineligible to serve as his counsel. This anomaly is particularly troubling and augments the primary reason why we reverse the district court's denial of the trustee's motion. We reverse the district court because it utilized a faulty premise in reaching its conclusion. It applied the incorrect legal standard and thus strayed beyond an appropriate exercise of discretion by disqualifying the firm under § 327(a) based solely on the appearance of conflict. The trustee was within his rights and prerogative to select the Firm as his counsel. To deny the trustee's choice was to commit reversible error. In re Marvel Entertainment Group, Inc., 140 F.3d 463, 477-78 (3d Cir.1998). By an opinion dated March 30, this court granted Toy Biz's motion for summary judgment that under Toy Biz's March 2, *32 1995 Stockholders Agreement, Marvel's right to control Toy Biz's board of directors was terminated on June 20, 1997, when the bondholders replaced Perelman and the rest of the Marvel board. On April 1, the Equity Security Holders withdrew their motion to restore the debtor as debtor-in-possession. On April 3, Gibbons, the Equity Committee and the Icahn Interests filed appeals with the Third Circuit from the court's March 30 summary judgment order, and the Equity Committee moved this court to enter an order staying that Order pending the appeal. Gibbons, Toy Biz and the Secured Lenders opposed the stay. The court heard and denied the motion to stay on April 7. On April 15, the court entered orders granting Gibbons's motions to approve employment agreements with nine Marvel executives and a license agreement between Marvel's subsidiary Fleer and the Major League Baseball Players Association. I. April 1998: The Third Circuit Stays Proceedings in the District Court On April 13, the Third Circuit apparently sua sponte entered the following order: Until further order of this court the effectiveness of the summary judgment order of March 30, 1998, is stayed, as is the confirmation hearing scheduled on May 4 and May 5 to consider the Toy Biz plan of reorganization. The next day Toy Biz filed a motion to lift the stay. In response to an inquiry from the Third Circuit on his position on the stay, Gibbons changed his position and wrote to the Court to report he now took no position on the stay. Subsequently, the Third Circuit denied Toy Biz's motion to vacate the stay order. On April 17, Gibbons, the Equity Committee, the indenture trustee LaSalle National Bank, and the Icahn Interests filed papers objecting to Toy Biz and the Secured Lenders' amended plan of reorganization. Gibbons objected to the plan on the ground that it improperly sought to release or exculpate non-debtor third parties, including the plan proponents, from claims of the Debtor's creditors. He also objected that he had not completed an analysis of the Perelman litigation or of the liquidation value of the estate. The Equity Committee, LaSalle and Icahn objected that the plan was engineered by Toy Biz and the Secured Lenders solely for their own benefit, identified a number of specific objections to the plan, and moved for a postponement of the May 4 confirmation hearing. On April 23, the court held a pretrial conference with counsel in preparation for the May 4 confirmation hearing. During that conference, counsel for the Equity Committee reported that the Icahn Interests had proposed an alternative plan of reorganization to Gibbons. Under that plan, if the Third Circuit reversed the summary judgment and determined that control of Toy Biz remained with Marvel, the Icahn Interests would pay off the debtor-in-possession financing, pay $100 million to retire senior liens, and contribute $158 million in equity to Marvel. Icahn expected he would not need the banks' consent to the plan as their debt and pre-petition collateral would be reinstated. Counsel reported that under this plan, if the Court of Appeals affirmed the summary judgment that Marvel had lost the right to control Toy Biz, the Icahn Interests and the Equity Committee would consent to the confirmation of Toy Biz's plan with certain modifications, which were not set out on the record, but which counsel reported the Trustee believes "are doable." At the conclusion of the conference, the court scheduled a further pre-trial conference for May 1. The court canceled that conference, however, on April 28, as the Court of Appeals had failed to lift its stay order. J. May 1998: Trustee Settles with Toy Biz and the Secured Lenders On May 12, Gibbons filed a motion for an order approving a settlement agreement *33 he had reached with Toy Biz, Chase, other Secured Lenders, Dickstein and others. Under the settlement agreement, Gibbons agreed to settle Marvel's claims against the settling parties that had been asserted in the Perelman litigation and to support Toy Biz and the Secured Lenders' Plan in consideration for an increase in recoveries under their Plan for the holders of Marvel equity interests, including additional warrants and a share of the proceeds from a litigation trust. Under this settlement agreement, the Secured Lenders renewed their agreement to support the Plan and agreed not to sell their debt to Icahn or others if the Plan were approved by June 30, 1998. The Trustee's motion noted that, upon the approval of the agreement, the Trustee would move the Court of Appeals to enter an order vacating the stay and deferring consideration of the summary judgment decision on Marvel's claim that it had the right to control the selection of Toy Biz's board. With his motion, Gibbons filed a report on his analysis of the nature and strength of Marvel's claims against the settling parties in the Perelman litigation. In the report, he noted that while some of the claims may have a chance of success on the merits, they carried with them varying deficiencies in legal or factual support. Gibbons concluded that given these deficiencies and the expense and delay that would be incurred in litigating the claims, the settlement would be fair and reasonable and in the best interests of the various constituencies. That same day the Unsecured Creditors wrote to the court to report they believed the settlement and its provision for additional warrants breached an agreement they had with Toy Biz and the Secured Lenders that there would be no changes to the Second Amended Plan that would dilute the unsecured creditors' warrants or their share of the recovery out of the litigation trust. On May 15, 1998, Gibbons filed a motion for an order approving the sale of the Fleer's confections division. Under the transaction, Marvel would receive net proceeds of approximately $13 million. Gibbons presented his motion on the settlement agreement on May 15. The court tentatively set a hearing on the settlement for June 12 and a confirmation hearing on the plan for June 26. Both dates were subject to the Third Circuit's lifting the stay. K. May 1998: The Third Circuit Lifts the Stay and the Court Approves the Trustee's Settlement and the Third Amended Plan On May 29, the Court of Appeals entered an order lifting the stay to the extent necessary to permit the district court to conduct a hearing on the trustee's motion for approval of the settlement and to consider and resolve the application for confirmation of the plan of reorganization. At a June 12 hearing, Gibbons presented the motion for approval of the settlement and offered testimony on his investigation and evaluation of the claims in the Perelman litigation. By a decision dated June 25, the Court found the terms of the settlement fair and reasonable and entered an order on that date approving it. That same day, the Secured Lenders and Toy Biz filed the Third Amended Plan that incorporated the terms of the settlement agreement. The Unsecured Creditors, the Equity Committee, the Icahn Interests, and LaSalle objected to that Third Amended Plan. Toy Biz and the Secured Lenders presented their motion for confirmation of the plan at a hearing on June 30 and July 1. At the conclusion of the hearing, the court reserved decision on whether to grant the motion to confirm the plan. During the first week in July, the Equity Committee, LaSalle and the Icahn Interests filed appeals to the Third Circuit from the court's order approving the settlement *34 between the Trustee and Toy Biz, the Secured Lenders and others. L. July 1998: The Court Confirms the Third Amended Plan and the Parties Reach a Global Settlement By a decision dated July 13, 1998, the court found the Third Amended Plan met all of the requirements of 11 U.S.C. § 1129 and entered an order confirming it. The Unsecured Creditors, the Equity Committee, LaSalle and the Icahn Interests filed appeals to the Third Circuit from the court's order confirming the Plan and moved this court to enter an order staying consummation of the Plan. On July 31, the parties, including the Unsecured Creditors, the Equity Committee, LaSalle, the Icahn Interests, Toy Biz, the Secured Lenders and the Trustee, filed a paper confirming they had reached a settlement agreement and had consented to an amendment of the Plan. The Fourth Amended Plan included a payment of $3,500,000 to the Icahn Interests, a distribution of warrants to LaSalle for the benefit of the bondholders, and an increase in the warrants to be distributed to the unsecured creditors and the equity security holders. That day the court entered an order approving the settlement. By that order, the court discharged Gibbons as Trustee as of the Consummation Date of the Plan. M. November 1998: Gibbons Applies for a Fee of $4,336,910.00 On November 16, Gibbons Del Deo filed an application for compensation and reimbursement of expenses incurred in representing the Trustee. It sought $2,372,077 in compensation for the firm's professionals' services calculated by multiplying their billable hours by their standard hourly rates. Connolly, Bove, Lodge & Hutz applied for $279,360.75 in fees and costs. Gibbons' financial advisors, Houlihan Lokey Howard & Zukin Capital, Inc., applied for $622,971 in fees and costs. His accountants, PricewaterhouseCoopers LLP, applied for $943,669 in fees and costs. In his application, also filed on November 16, Gibbons describes the work he had done as trustee. His work with Marvel management on the operation of the business included reviewing, evaluating and negotiating new employment agreements and improving cash management and management decisions. For example, he negotiated the sale of Fleer's confections division for $13 million in cash and the assumption of $3.5 million in debt. He arranged for the payment of $4.5 million on account of professional fees and expenses, and for a payment of $11.4 million to the National Basketball Association in connection with a settlement of their claims under a license agreement. In addition, Gibbons reports that Marvel had in excess of $6 million in cash at the time of the consummation of the Plan. Gibbons describes how he managed Marvel's legal affairs, which he reports were in a "catastrophic state" when he took on his duties as trustee. He negotiated settlements of disputes that had arisen under licensing agreements. He evaluated and managed litigation, including litigation relating to Marvel's rights to Spiderman, litigation with licensors such as the National Basketball Association, and litigation relating to Marvel's assets, such as the Toy Biz governance issues. Gibbons also describes his efforts to value Marvel's assets and to solicit potential bidders for them. While he retained a financial advisor and provided information on Marvel to a number of potential bidders, the only bid he received was for the purchase of Fleer's confectionary business. In his application, Gibbons also describes his efforts to negotiate a settlement and a confirmable plan of reorganization including reviewing and evaluating the claims in the Perelman litigation. Gibbons describes negotiations with the Icahn Interests beginning in mid-April 1998, during which the Icahn Interests made clear through a series of offers that they would *35 not come forward with a plan of reorganization but were interested, instead, in having the Secured Lenders opt for an asset sale. Over the course of these months, Gibbons apparently decided to block proposals that would lead to an asset sale. Gibbons reports that Toy Biz's March settlement with the Unsecured Creditors resolved a major obstacle to settlement, but left three problems unresolved. First, it did not address the Toy Biz governance issue. Second, it did not remove the threat that the Icahn Interests would persuade the Secured Lenders to agree to an asset sale. And third, the settlement might not have been confirmable, as it provided for a release of claims against third persons, such as Dickstein. Gibbons reports he resolved these problems and brought the matter to a resolution by concluding that Marvel's claims in the Perelman litigation should be settled, by implementing that settlement with the Secured Lenders and Toy Biz, and by settling with the Icahn Interests so that they would abandon their appeal from the Toy Biz governance decision. Thus he writes: I firmly believe that achievement of the global settlement was possible only as a result of my decision to concentrate on the earlier settlement of the Toy Biz Governance Litigation, thereby removing the final two obstacles raised by the Icahn-Intrieri Interest and their allies at LaSalle and the Official Equity Committee, and opening the door to a confirmable plan of reorganization. The first such obstacle was whether the Toy Biz Board was lawfully constituted. The other was whether the plan, providing for third-party releases, was legally confirmable. Utilizing those issues to achieve benefits for the unsecured creditors and equity interests reinforced my ability to act as a mediator between the plan proponents and the Icahn-Intrieri camp who were interested primarily in an asset purchase that would have resulted in a liquidation rather than a reorganization. Gibbons reports that during the period from January 1, 1998 through September 30, 1998, Marvel's disbursements totaled $143,743,695.13 and that pursuant to 11 U.S.C. § 326(a) the maximum compensation allowable to him would be $4,336,910.00. I believe the services I have rendered in these proceedings justify such a payment, and thus I am requesting the maximum allowable statutory compensation, plus disbursements of $16,938.87. Gibbons kept a contemporaneous record of the work he did as trustee, noting the nature of the work and the time spent on that work recorded in six minute increments. In his application, he reports he and others worked a total of 1,274.3 hours on the matter from December 17, 1997 to September 30, 1998. The total dollar value of the services if billed at the law firms' standard hourly rates would be in the range of $382,174.50. In his application, Gibbons notes: I certify under penalty of perjury that no agreement or understanding exists between me and any other person for a division of compensation for services rendered in, or in connection with, this case, and no division of compensation as prohibited by section 504 of the Bankruptcy Code will be made by me. My compensation will only be shared among members of my firm. N. December 1998 and January 1999: Hearings on Gibbons's Fee Application Marvel, the reorganized debtor, and the Unsecured Creditors Committee objected to Gibbons's application. On December 15, Gibbons reported to the court that, in light of the objections, he had advised the United States Trustee that he would not seek an award of fees in excess of the amount she would support, and that she supports an award of a commission at a *36 rate of 1½%. Gibbons also reported that Marvel's total disbursements were actually $137,167,358.48, rather than $143,743,695.13 he had originally reported. Consequently, Gibbons reduced his application to $2,095,760.38. The court heard testimony and argument on the application on December 17, 1998 and January 7, 1999. At the hearing, Gibbons testified to the following. He had met with Icahn, Intrieri and their counsel on January 27, 1997, and had concluded based on their discussions that Icahn's strategy was to delay the reorganization effort through litigation, with the intention of encouraging the secured lenders to agree to an asset sale. Gibbons understood Icahn's strategy would result in no payment to the unsecured creditors, no payment to equity, and would leave no money for administrative expenses. Beginning in mid-March, after Toy Biz and the Secured Lenders filed their Second Amended Plan, Gibbons actively negotiated with each one of the major constituencies in an effort to resolve the disputes between the parties. With regard to the Third Circuit's stay order, he used the stay of any confirmation hearing as leverage in negotiating with Toy Biz to work out the settlement. In mid-May, he reached an agreement with Toy Biz, the Secured Lenders and others, releasing them from claims asserted in the Perelman litigation in exchange for additional consideration for constituents under the plan. Gibbons offered into evidence a summary showing $44 million as the total savings or benefits to the estate from various transactions that took place during the time he served as trustee, including a savings of $12,437,500 in fees and payments that would otherwise have been made to the DIP lenders, $7,750,000 in proceeds from the Fleer sale over and above earlier offers, and an $11,000,000 savings on the NBA's $22,000,000 administrative claim. He also offered into evidence a table showing estimated values for the Toy Biz plans, with the November 21, 1997 plan having an estimated value to unsecured creditors and shareholders in the range of $4,000,000. The table also shows the Fourth Amended Plan having an estimated value of $11,500,000 in cash and an estimated value of securities in the range of $14,050,000 to $31,910,000. On cross-examination, Gibbons testified he had taken on the role of trustee after Patricia Staiano, the U.S. Trustee, called his law firm to see if he would be interested in the position. During the nine months from December 1997 to September 1998, Gibbons billed a total of approximately 2,114 hours on all matters, 880 of which were attributable to Marvel. Gibbons confirmed that in 1998, Marvel's President and Chief Executive Officer was paid an annual salary of $400,000, the Chief Financial Officer was paid $250,000 a year, and the General Counsel was paid $200,000 a year. (The Debtor's Chapter 11 Monthly Operating Report for the Month Ended September 30, 1998 was filed on April 27, 1999. It shows Marvel's President and Chief Executive Officer was paid a $100,000 bonus. Consequently, his annual compensation for 1998 was at the rate of $500,000 a year.) Fleer's Chief Executive Officer was paid at the rate of $700,000 a year. Its Chief Financial Officer was paid at the rate of $175,000 a year. With regard to the sale of the Fleer confectionary business, Gibbons agreed that the buyer had been identified before he was appointed. Furthermore, Gibbons conceded he had no direct involvement in the negotiations. With regard to the series of settlement agreements that were reached up to and including the July 1998 global settlement agreement, the parties offered testimony showing the following. The first steps towards progress on the global settlement that were eventually incorporated in the Fourth Amended Plan can be traced to the efforts of Jeffrey A. Schultz, Ph.D., a professor of finance at Christian Brothers University in Memphis, Tennessee. *37 Schultz had been a member of the Official Bondholders Committee and had owned or controlled substantial amounts of both bonds and bank debt. The court does not recall being aware that Schultz was a player in the litigation or in the resolution of the commercial disputes until his name was mentioned at the December, 1998 hearing on Gibbons's fee application. At the hearing, counsel offered into evidence copies of a number of facsimile memoranda Schultz had sent to representatives of various constituencies in an effort to bring about a settlement. It appears from these documents and from Gibbons's testimony, that Schultz was the driving force behind the negotiations that led to the March 1998 Second Amended Plan incorporating the agreement Toy Biz and the Secured Lenders reached with the Unsecured Creditors Committee. It also appears Schultz was the driving force behind the negotiations that led to the April, 1998 Third Amended Plan that incorporated the agreement Toy Biz and the Secured Lenders reached with the Equity Security Holders Committee. Lawrence Mittman, Toy Biz's counsel, testified that the July 1998 global settlement that led to the Fourth Amended Plan could be traced to a meeting Dickstein had with Icahn in Las Vegas in May 1998. Apparently, Icahn moved forward towards a settlement after learning on May 29 that the Third Circuit had lifted the sua sponte stay order. Following the hearing, Gibbons Del Deo filed a supplemental application for fees of $221,629.00 and costs of $11,104.47, with $48,150.22 of those fees attributable to preparation of Gibbons's fee application, and $154,645.01 attributable to a defense of his and the firm's applications. On April 30, 1999, Gibbons filed a Final Report and Account. It shows the Debtors' total disbursements for the nine months from January 1998 through September 1998, excluding intercompany transfers, was $134,302,526.50. The Report includes a calculation showing that the maximum commission at the rates set out in 11 U.S.C. § 326 is $4,052,325.80. II. DISCUSSION Gibbons has submitted his application pursuant to 11 U.S.C. § 330, which provides that the court may award a Chapter 11 trustee "reasonable compensation for actual, necessary services rendered." Section 330(a)(3)(A) provides that in determining the amount of reasonable compensation to be awarded, the court shall consider the nature, the extent and the value of such services, taking into account all relevant factors, including: (A) the time spent on such services; (B) the rates charged for such services; (C) whether the services were necessary to the administration of, or beneficial at the time at which the service was rendered toward the completion of, a case under this title; (D) whether the services were performed within a reasonable amount of time commensurate with the complexity, importance, and nature of the problem, issue or task addressed; and (E) whether the compensation is reasonable based on the customary compensation charged by comparably skilled practitioners in cases other than cases under this title. In his application, Gibbons argues that the court should look to 11 U.S.C. § 326(a) for the purposes of determining what would be reasonable as compensation for his services. It reads: 11 U.S.C. § 326. Limitation on compensation of trustee (a) In a case under chapter 7 or 11, the court may allow reasonable compensation under section 330 of this title of the trustee for the trustee's services, payable after the trustee renders such services, not to exceed 25 percent on the first $5,000 or less, 10 percent on any amount in excess of $5,000 but not in excess of $50,000, 5 percent on any amount in excess of $50,000 but not in excess of $1,000,000, and reasonable compensation not to exceed 3 percent of *38 such moneys in excess of $1,000,000, upon all moneys disbursed or turned over in the case by the trustee to parties in interest, excluding the debtor, but including holders of secured claims. Gibbons cites In re Guyana Development Corp., 201 B.R. 462 (Bankr.S.D.Tex. 1996), for the proposition that § 326(a) is intended to provide a percentage compensation scheme for trustees. Gibbons notes that under his reading of this statute, with Marvel having disbursed $143,743,695.13 over the course of the nine months he served as trustee, his compensation should be $4,336,910.00. In his application, he wrote: While each case stands on its own factual circumstances, the cited authorities amply support an award of maximum compensation in this case based upon the novelty and complexity of the issues I faced during my tenure as trustee, my special skills and experience, the quality of the representation provided by me and the professionals retained by me, and the results obtained in this rare and exceptional case. As noted above, Gibbons has agreed to accept an award of half that amount, which is $2,095,760.38. In Guyana, the court appointed an attorney as trustee to collect and liquidate the assets of an oil and gas company that the court described as a complex web of domestic and offshore business structures tied together by insiders who committed pervasive fraud. Over the course of three years, the trustee apparently collected and disbursed approximately $79,938,954.41. The largest creditor, the Internal Revenue Service, had settled litigation with the trustee on its claim of $31,778,014.01, by agreeing to subordinate its lien to the administrative expenses of the trustee. When the trustee filed for compensation of $2,398,348.63, the maximum compensation under section 330 as limited by section 326(a) (and at a rate of $1,600 per hour for his time), the I.R.S. objected. The court saw the issue as "whether the compensation limits of section 326 are designed as an incentive scheme to encourage maximum asset collection and distribution to creditors by the trustee or are restricted to an hourly capped fee unrelated to the trustee's collection efforts to be set by the Court after the work is done." In awarding the maximum fee as sought by the trustee, the court concluded: The compensation scheme enacted by Congress for trustee's fees, however, resolves these issues with a results-oriented sliding-scale percentage of the fund method of compensation for trustees. By incorporating both percentage-based compensation and a reasonableness analysis, Congress creates an incentive to trustees to search for all assets to maximize distribution to creditors as well as promotes a rational relationship between the effort expended and results obtained. Moreover, by using a sliding percentage scale for trustee commissions, Congress has ensured that the greater proportional effort required at the beginning of a case is commensurately rewarded and that the diminishing effort required as a case proceeds results in a reduced percentage commission. Furthermore, the very small percentage caps set by Congress on the largest amounts disbursed obviates the reasonableness criticisms applicable to class action percentage of the fund compensation. There are a number of problems with this court's analysis. The first is the statute. Section 330 provides that the court may award a trustee reasonable compensation and sets out a number of the factors courts have traditionally looked to in fixing compensation for professional services. These factors include time spent, the complexity, importance and nature of the work done, and amounts customarily paid to comparably skilled practitioners. Section 326 is titled "Limitation on compensation of trustee" and provides that the compensation allowable under section 330 *39 is "not to exceed" certain percentages of the moneys disbursed or turned over by the trustee in the case. Those words in section 326 are not complicated. They do not vary the approach a court should take under section 330 to establish reasonable compensation. They do not establish that a trustee should be paid a commission or percentage of amounts disbursed from the estate. The words in the statute are straight forward: they set a cap or limitation on compensation that might otherwise be paid under section 330. See In re Greenley Energy Holdings of Pa., Inc., 102 B.R. 400, 403 (E.D.Pa.1989) ("[T]rustee fees are subject to two separate limitations. First, section 330(a) allows a trustee `reasonable compensation' based on the nature, extent, and value of such services including necessary fees for person employed by the trustee. Second, section 326(a) works to put a cap on trustee compensation in excess of a specified amount determined by a formula in that section."). See also In the Matter of Gulph Woods Corporation, 150 B.R. 603 (E.D.Pa.1993); In re Lan Associates XI, L.P., No. CIV. A. 98-2286(JEI), 1998 WL 467100 (D.N.J. Aug. 12, 1998). A second problem with the court's analysis in Guyana, is that the reasons the court cites for why the statute should be read to establish a sliding-scale commission do not seem to apply in this or similar cases, in which the trustee is appointed for the purpose of facilitating a reorganization plan. For example, in Guyana, the court found in supporting its conclusion: "Congress creates an incentive to trustees to search for all assets to maximize distribution to creditors. . . . Congress has ensured that the greater proportional effort required at the beginning of a case is commensurately rewarded." In this case, those incentives would not apply, as the trustee did not need to search for assets and he has not argued he should be awarded a higher level of compensation because he made a greater proportional effort at the beginning of the case. Actually, under the percentage compensation scheme, Gibbons would receive his highest level of monthly compensation for his final month of service, September 1998. Marvel's disbursements during that month were $27,402,562.07 and Gibbons's compensation would be $1,370,128.10 for that month. (As Gibbons recorded approximately 25 hours work in September 1998, his compensation for the month under this scheme would be in the range of $55,000 an hour.) A third problem with the court's analysis is that there does not seem to be any principled relationship between the amounts disbursed by a debtor corporation and what would be reasonable compensation for a trustee appointed to represent the estate. In this case, for example, Gibbons had sought a fee of $4,128,055.00 based on Marvel's disbursements of $143,743,695.13 during the time he served as trustee. Counsel have not discussed where that number comes from. It appears it is based on disbursements identified in the debtors' monthly operating reports; that is, $143,743,695.13 is the total of the amounts paid out by the debtors over nine months for items such as payroll, rent, interest, advertising, professional fees in the bankruptcy proceeding (including fees paid to Gibbons and Gibbons Del Deo), 401K contributions, travel and entertainment expenses, federal, state and local taxes and monthly bank charges. That number of $143,743,695.13 reveals very little about the nature of the work Gibbons took on as trustee. In this context it is little more than a number. And the $4,128,055.00 Gibbons had sought as a fee is little more than a product of a mathematical formula, where the total disbursements are multiplied by section 326's percentage caps. Actually, Gibbons's agreement to cut his application in half is no more principled: it just adds the fraction ½ to the formula and leads to a number that is apparently acceptable to the U.S. Trustee in that she will not oppose it. Gibbons's Final Report demonstrates this again, as it corrects the total number *40 for Marvel's disbursements for the nine months, down from $143,743,695.13 to $137,167,358.48 to $134,302,526.50. Those corrections, in turn, reduce the trustee's maximum commission from $4,128,055.00 to $4,052,325.80. This $75,729.20 reduction may not seem like much when one is presented with an application requesting millions of dollars. But if one examines this from the perspective of billable hours, with Gibbons's having worked 880 billable hours, the corrections lead to an increase (or reduction) in compensation of $85 dollars an hour for each hour Gibbons worked as trustee. That would be a 20% premium at Gibbons's standard hourly rate of $400, but something less than 2% off the $4,690 an hour rate he had initially sought. In his reply brief, Gibbons highlights the lack of integrity in this argument by suggesting as an alternative route to this number the court consider looking at this as a common-fund case and award him the $2,095,760.38 as a percentage of the value of the benefit he participated in procuring for Marvel's creditors and equity participants. He fails to cite any cases in support of this proposition which appears to be presented merely to support his proposed number. The court expects there are none. A fourth problem with this approach of awarding a commission to a trustee based on a percentage of the debtor's disbursements is that it would create a substantial risk of abuse in the selection and appointment of trustees, where a U.S. Trustee may be tempted to steer lucrative appointments to friends or cronies who may or may not otherwise be qualified for the position. In this case, for example, we know that at the time of the petition for a trustee, Marvel's disbursement were in the range of $15,000,000.00 a month. Under the percentage commission approach, in December 1997, when the U.S. Trustee was considering candidates to select, she and the candidate would have known the appointment would pay something in the range of $500,000.00 a month. In this case, the selection process went fairly quickly, and while we know the U.S. Trustee, Patricia Staiano, called Gibbons and offered him the position, the court does not know what was said when she offered him the job, as the U.S. Trustee has claimed privilege as to communications she may have had with Gibbons about what he could expect to be paid. Steering away from the percentage commission approach will reduce the potential for embarrassment to the Judiciary, the U.S. Trustees, and the trustees they select, by criticism that these positions are being doled out for reasons other than the merits of the candidate. A fifth problem with fixing compensation based on what is in effect the size of the company and the length of time served, is that contrary to what the court suggested in Guyana, it gives a trustee quite an incentive to stay in place. That could lead to what one might call the Bull Riding Effect, where a trustee, like a cowboy in the rodeo event, would be compensated based on a combination of the size of the company he draws and his time in the saddle. Sixth, because this percentage commission approach could lead to extraordinarily high levels of compensation that bear no reasonable relation to the value of the services provided, courts might be discouraged from appointing a trustee when it might otherwise be appropriate. In this case, the Unsecured Creditors Committee identified this issue early on and argued against appointing a trustee, because such an appointment would add administrative expenses and drain money that would otherwise go to creditors, but this court and the Third Circuit rejected their argument. In his application, Gibbons quotes the Third Circuit's comments on this issue as support for his argument that in a case of this size and complexity the full amount of the statutory permitted commission should be awarded. He writes: As both this Court and the Third Circuit Court of Appeals have recognized, this *41 was a case of immense "financial magnitude." See In re Marvel Entertainment Group, Inc., 140 F.3d 463, 475 (3d Cir. 1998). In affirming this Court's decision appointing a trustee, the Court of Appeals observed: We also reject the Icahn interests' arguments that the district court must apply a strict cost-benefit analysis when deciding to appoint a trustee. This is a case of profound financial magnitude, involving approximately $1 billion in claims against the estate. See In re Sharon Steel Corp., 86 B.R. 455, 466 (Bankr.W.D.Pa.1988) ("In a case of this magnitude, the cost of having a trustee in place is insignificant when compared with the other costs of administration and when compared with the enormous benefit to be achieved by the establishment of trust and confidence in . . . management.") Id. (emphasis supplied). I believe that, in large part, my efforts have conferred the enormous benefit anticipated by the Court of Appeals. At the time this court entered the order providing for the appointment of a trustee, the court had not expected a trustee would seek $500,000.00 (or even $250,000.00) a month in compensation. We can expect the same is probably true for the judges on the Court of Appeals panel. If they had, they probably would not have described a fee of $500,000 a month for a trustee (and former colleague) as insignificant. Once we recognize that section 326(a) sets a cap on Gibbons's compensation, then we can turn back to the factors in section 330 in an effort to identify what would be reasonable compensation for his services. The Third Circuit's decision in In re Busy Beaver Building Centers, Inc., 19 F.3d 833 (3d Cir.1994) offers helpful guidance on a more appropriate approach to this issue. In that case, Kirkpatrick & Lockhart, counsel for the debtor, submitted an application for interim fees pursuant to section 331 that included a request for compensation for services rendered by certain of the firm's paralegals. The bankruptcy court disallowed that portion of the claim, finding it was not compensable, as it was for clerical services. The district court affirmed that decision. The Court of Appeals, looking to the legislative history of section 330, found that the principal purpose of the 1978 amendments to the statute was to insure that professionals and paraprofessionals in bankruptcy cases should earn the same income as their non-bankruptcy counterparts. The court found that the clearest path to that goal is to rely on the market, subject to the modification that the court in reviewing applications will act as a surrogate for the estate by reviewing the fee applications much as a sophisticated non-bankruptcy client would review a legal bill. In reversing the District Court's order, the Court wrote: We think that although each factor enumerated by § 330(a) retains independent significance, the cost of comparable services factor has an overarching role to act as a guide to the value of the services rendered given their nature and extent. 19 F.3d at 849. The court finds the approach adopted by the Court of Appeals in Busy Beaver of looking to an objective market place standard for determining compensation, is the approach the court should follow in determining reasonable compensation for a Chapter 11 trustee under section 330(a). In Busy Beaver, the court looked to the non-bankruptcy legal market to determine the compensability and reasonableness of compensation for paralegals. In this case, the court finds the appropriate market for determining reasonable fees for the trustee will depend on the nature of the specific services he provided. A. What Services was Gibbons Expected to Provide as Trustee? Under the Bankruptcy Code, a Chapter 11 trustee is the representative of *42 the estate and is authorized to operate the business. 11 U.S.C. §§ 323(a) and 1108. In this case, the court identified three principal tasks for the trustee. First, the court appointed a trustee to put a neutral person in control of the business until the litigation and disputes were resolved. In this sense, the trustee was appointed to provide services similar to those that would be provided by a corporate executive, such as a chairman of the board and chief executive officer in that it called for him to oversee the management of the business. Second, the court appointed a trustee to evaluate the merits of the Perelman litigation and determine whether it would be in Marvel's interests to pursue some, all, or none of the claims asserted in that action. This task required the trustee to provide services similar to those that would be provided by a director of a corporation, in that it called for him to oversee an investigation, to review a legal analysis of claims, and then to make a judgment (and recommendation to the court) as to the merit and value of the claims, including whether Marvel should pursue or settle them. Third, the court appointed a trustee to evaluate and advise the court on the proposed reorganization plans. This task called for the trustee to provide services similar to those that would be provided by a consultant, in that he and professionals he hired would analyze and advise the court on the adequacy of any proposed plans. In addition, in the course of providing these services, the trustee could solicit alternative plans. It is this task and the leverage he may have had from his position as trustee, that opened for the trustee the opportunity to work with the parties to try to settle their disputes. B. What Would Be Reasonable Compensation for the Management Services Gibbons Rendered as Trustee? 1. What was the nature of the work Gibbons did in managing Marvel? Perhaps the most important role Gibbons took on as trustee was to step into the shoes of the board of directors and hold the business of the company together while the battles over its future were fought among the lawyers, bankers, creditors, shareholders, bondholders, competitors, arbitragers, and other interested stakeholders. While the parties have not emphasized it in their presentations, with all of the push and pull from the bankruptcy proceedings, this must have been difficult work. Gibbons inherited a company that had taken a financial beating and was locked in litigation with competitors and clients seeking to pick off its valuable assets. He was replacing a board of directors that had itself only been in place for six months, and his goal was to hold the company and its employees in place until it was either taken over or liquidated. It appears he did a good, competent job. That is, it appears he used sound judgment and invested the time and energy that was necessary to protect the value of the company until the parties were able to resolve their disputes. His success no doubt was due in part to his reliance on experienced professionals including Marvel's management team, and the attorneys, investment bankers and accountants he hired to assist him in his work. Gibbons has testified about a number of the problems he faced in running the business and the decisions he implemented to deal with them. For example, he reached an agreement on interim financing with the Secured Lenders. He negotiated employment agreements with nine Marvel executives. He worked with lawyers in his law firm in negotiating a license agreement between Fleer and the Major League Baseball Players Association. He worked with lawyers in his firm and with other firms to manage a number of pending cases, including between Marvel and the National Basketball Association, and between Marvel and a number of companies over movie rights to Spiderman. He followed through on the sale of Fleer's confections division. *43 2. What would be reasonable compensation for these management services? If we assume for the moment that Gibbons spent 100% of the time he worked as trustee managing the company, his application for $2,095,760.38 for nine months service would translate to an annual salary in the range of $2,800,000 a year. That would be roughly 6 times the annual salary paid to Marvel's president. Actually, as Gibbons only worked at this part time, the $2,095,760.50 he seeks would convert to the equivalent of an annual salary in the range of $6,600,000. That annual salary is roughly 13 times the president's salary and appears to be unreasonably high. A second source of information we can look to for the purpose of determining reasonable compensation for Gibbons's services as a corporate executive, is his background, training and prior employment to see what salary he might command if Marvel or others had sought to hire him for this position. Gibbons has spent his professional life working as a lawyer, a judge and a law professor. While he notes in his application that prior to 1970 he had "served as a director of two major business corporations — one in the air service industry and the other in the insurance industry," he has no specific background or experience as a corporate executive. He cannot point to any prior employment or history of compensation as an executive as evidence of the value in the market place of his services as a businessman. This suggests his request for the equivalent of a $6,600,000 annual salary for services as an executive is unreasonably high. A third factor relevant to this analysis is the work he did and the results he achieved in managing Marvel while he served as trustee. In his application, Gibbons cites to a number of transactions as evidence of what he describes as his "outstanding" and "significant accomplishments" and "the `enormous benefit' anticipated by the Court of Appeals." These transactions include a renegotiation of the DIP financing, the sale of Fleer's confections business, and the settlement with the NBA. As to the savings in the costs of DIP financing, it is not so clear this was a significant accomplishment or that it can be attributed to Gibbons. The banks had petitioned for a trustee. In the process of presenting their motion, they had assured the court they would work with the trustee and resolve disputes relating to defaults, fees and adequate protection payments. In appointing a trustee, the court had expected the banks would make these or similar concessions. With regard to Fleer, as Marvel has pointed out, the buyer had been identified prior to Gibbons's appointment. Further, Gibbons conceded on cross-examination at the December 17, 1998 hearing that he did not play a direct role in the negotiations. The court cannot attribute any substantial accomplishment in this transaction to Gibbons. It is a little more difficult to assess the significance and value of the work on the NBA settlement. Two factors suggest it may not reflect any extraordinary achievement. First, the NBA never did set out a particularly strong argument in support of its contention that it was entitled to an administrative claim of $22,000,000 and an unsecured claim of $38,000,000. Second, it is not clear Gibbons played a direct and substantial role in the negotiations. It appears this matter was handled by professionals, including lawyers, who reported to Gibbons. A fourth factor relevant to an evaluation of the reasonableness of Gibbons's application, is what he typically charges for his services. Normally, it would not necessarily be all that helpful to look to a lawyer's income or billing rate for the purposes of valuing his or her services as an executive, but in this case what he normally charges does give us some sense of the value he and others place on his services. Gibbons *44 Del Deo bills $400 an hour for Gibbons's services as a senior partner. No one has argued that rate is unreasonable. Moreover, it appears to be in line with the market rate for similar legal services (see the attached table). In this context, 2,114 billable hours for the period from December 17, 1997 through September 30, 1998, suggests Gibbons would bill something in the range of 2,681 hours a year. At $400 an hour, his gross billings would be in the range of $1,072,400 a year, and approximately $334,589 for the time he served as trustee. By this standard, Gibbons is seeking compensation at roughly six times the value he and his partners have set for his time. Each of these factors suggests that the compensation Gibbons seeks is unreasonably high. For the purposes of determining reasonable compensation for these services, we can turn back to the information we have on the salaries at Marvel. The salaries increased incrementally with the higher status and greater responsibilities of each executive. Marvel's General Counsel was paid $200,000. Marvel's Chief Financial Officer was paid $250,000 a year. Marvel's President was paid $500,000. Consequently, under this incremental scale, and using the $250,000 step increase from Chief Financial Officer to President as a guide, the next step from President to trustee suggests the salary would be something in the range of $750,000 a year. Three quarters of that amount for nine months service would be $562,500 a year. If we reduce that amount to take into consideration that the trustee only worked part time, then the compensation would be in the range of $234,000. There is nothing in Gibbons's background or employment experience to suggest he would command a salary higher than $750,000 as a corporate executive. On the other hand, we know that as a lawyer he would have billed substantially more for his time. Gibbons should not be penalized for having taken on this work in running Marvel. Consequently, these factors suggest reasonable compensation for Gibbons's services in running the business should be in the range of $334,589. One other factor that may be relevant to this analysis is that Gibbons did not give up his practice to become a full time executive at Marvel. This suggests a couple of things. First, he apparently found he did not need to be on the job full-time and was able to rely on Marvel's management team to take responsibility for the day-to-day operation of the business. Second, he put in place a team of professionals on whom he relied to assist him in this work, including his partners at Gibbons Del Deo. Those professionals have filed applications for substantial compensation for work on matters Gibbons relied on in reviewing his performance as a trustee. Third, by taking the approach he did, in working part-time and in calling on the law firm to help run the business, Gibbons was able to spend more than half his time working for and billing other clients. For these reasons, the court finds that reasonable compensation for Gibbons for stepping in as the equivalent of a chairman and chief executive officer of Marvel on a part time basis for the first nine months of 1998, should be in the range of $334,589. C. What Would be Reasonable Compensation for Gibbons's Work in Evaluating the Merits of the Perelman Litigation? 1. What was the nature of the work Gibbons did in evaluating the claims? The court appointed Gibbons as trustee in December 1997. By May 1998, he completed his investigation and review of the claims in the Perelman litigation and, with the assistance of his firm, had filed a report setting out his analysis of the strengths and weaknesses of those claims. He presented that report at a June 12 hearing in connection with his recommendation that the court approve an agreement *45 he had negotiated settling those claims. Gibbons's report and testimony show that he acted promptly to evaluate the claims and provided the assistance the court had sought in appointing a trustee: he made an informed judgment on whether the claims should be pursued and in doing so he had removed a potential roadblock to approving a reorganization plan. 2. What would be reasonable compensation for these services? Gibbons was an excellent choice to do this work. He has the appropriate education, training and background to do the job and to do it well. He has the background and training to investigate the factual basis for the claims. He has the skills and experience to analyze the basis for the claims. He has the experience to make critical judgments on the value of the claims. As this work falls within the type of work Gibbons has done and does at his firm, the starting point for a determination under section 330 of reasonable compensation for this work should be the time he spent on this work and the rate he normally charges for his services. The time records Gibbons attached to his application show a number of entries where he recorded time spent on matters relating to the Perelman litigation, including an initial review of documents on January 14, study of issues on January 16, review of correspondence on January 21, arrangements to speed discovery on March 27, review of papers on March 31 and April 1, a conference on April 2, analyzing the claims on April 3 and 4, and meetings with counsel and preparation on April 22 and 23. Most of these time entries were lumped together with work on other matters. The total time for all items where Gibbons referred to work on the Perelman litigation is approximately 57 hours. This suggests that a rough estimate for the time he spent in reviewing and evaluating the claims in the Perelman litigation is probably somewhere in the range of 25 to 30 hours. At 30 hours, billed at $400 an hour, Gibbons Del Deo would normally bill $12,000 for this work. (Again, this amount would not include compensation for the time spent by his partners at Gibbons Del Deo on this matter.) During these 30 hours that Gibbons worked on the claims in the Perelman litigation, he may have rendered his most valuable service to Marvel, to the court and to the parties in the dispute. Reasonable compensation for this work should recognize the skill he brought to this aspect of his work and the complexity, importance and nature of task. The court expects that in light of the issues he was called on to review and his unique background and skills, the market would value Gibbons's services in reviewing and evaluating the claims in the Perelman litigation at his standard billing rate of $400 an hour, and that reasonable compensation for these services would be in the range of $12,000. D. What Would be Reasonable Compensation for Gibbons's Work in Evaluating Proposed Plans and Working to Achieve a Settlement? 1. What was the nature of the work Gibbons did in evaluating the plans and working to achieve a settlement? The third aspect of Gibbons's work was to evaluate the competing plans, advise the court on the strengths of the alternative plans and, to the extent he could, to work to achieve a settlement. This was clearly the most difficult aspect of Gibbons's work as trustee. One of the problems Gibbons discovered early on was there really were no competing plans. Toy Biz and the Secured Lenders had a plan and demonstrated they were willing to make adjustments to get it done. But the Icahn Interests had no plan; that is, they had no plan other than to use the court procedures to delay and obstruct Toy Biz and the Secured Lenders. It must be they expected *46 delay and obstruction was to their economic advantage. Not having had much experience as a participant in this type of an event, the court can only speculate that the advantage of delay to the Icahn Interests is that it would create uncertainty, add expense, weaken their opponents' resolve, and increase the likelihood of some further compromise. While Gibbons could analyze and offer comments on the strengths and weaknesses of Toy Biz and the Secured Lenders's plan, as the litigation progressed, it became clear he was not having much success in influencing the parties and the positions they were taking. When he did find leverage, it was either through taking a position that lacked merit (opposing Toy Biz on the corporate governance issue) or by following Icahn's lead and taking advantage of delays that appeared suspect (the sua sponte stay). Gibbons and Gibbons Del Deo are sophisticated legal professionals. No doubt they would have found leverage if it had been there. That they did not, suggests it may have been unrealistic for the court to expect Gibbons would find and be able to exercise leverage in what was in essence a commercial dispute being fought under bankruptcy court rules. As it turns out, it was Schultz who took on the role of mediator. And it was the combination of his pushing, prodding and suggestions on compromises that, when combined with the pressure of litigation deadlines, brought this matter to a resolution. 2. What would be reasonable compensation for these services? In light of the position he was put in, Gibbons should not be penalized because he lacked the leverage to get this case resolved. Nor should he be penalized for holding on to the leverage he did find, including the leverage of delay. There is little basis, however, for adopting Gibbons's view that the authorities "amply support an award of maximum compensation . . . based upon the novelty and complexity of the issues I faced during my tenure as trustee, my special skills and experience, the quality of the representation provided by me and the professionals retained by me, and the result obtained in this rare and exceptional case." It is difficult to tell what percentage of his time Gibbons spent on this aspect of his work. A review of his billing records suggests it was probably in the range of up to half of his total of 880 hours, as it involved not only his getting up to speed on what was going on, but also his meetings with the parties and their counsel, his communications with his investment bankers, and communications with his counsel to review and agree on litigation decisions. The court starts with Gibbons's billable rate as a baseline for determining what would be reasonable compensation for these services and finds little reason to vary from it. Furthermore, the court finds Gibbons made no major or unique contribution to bringing this case to a resolution. Accordingly, the court finds reasonable compensation to Gibbons for his work in evaluating the Toy Biz and Secured Lenders' plan and in working to try to bring the parties to a settlement, would be compensation for this time at his normal hourly rate; that is, $400 an hour for that portion of the 880 hours he performed these services. If one half is a reasonable estimate of the time he spend on this aspect of his work, the value of those services at his $400 hourly rate would be in the range of $176,000. E. What Would Be Reasonable Compensation for Gibbons's Other Work as Trustee? 1. What was the nature of the other work Gibbons did as trustee? There is one aspect of Gibbons's work as trustee that the court had not anticipated prior to entering an order for the appointment of a trustee: his work before the Court of Appeals defending his decision to *47 hire his partners to serve as his lawyers. The time records Gibbons attached to his application show a number of entries in which he recorded time spent working on that appeal, including a conference with members of his firm on January 27, and work on papers for the appeal on January 28, January 29, January 30, January 31, February 1, February 2, February 5, February 6, February 7, February 9, February 10, February 11, February 13, February 14, February 16, and February 18, and work in preparation for the oral argument on March 2, March 3, March 5, March 6, March 9, and March 10. Most of these time entries were lumped together with work on other matters. The total time for all items where Gibbons referred to work on the appeal is approximately 128 hours. Using the approach we took on the hours Gibbons worked on the Perelman litigation and estimating that roughly half of the recorded time would be attributable to this work (for Perelman it was 25 to 30 out of a total of 57 hours), we can estimate that Gibbons probably spent something in the range of 60 to 65 hours working on the appeal. 2. What would be reasonable compensation for these services? At $400 an hour, Gibbons would normally bill this work at something in the range of $24,000. The court finds that to be a reasonable amount for these services. III. SUMMARY AND CONCLUSION In summary, the court entered an order in December 1997 directing that a trustee be appointed to represent the debtor in this case, manage the business, evaluate litigation that had been filed on its behalf, and review and comment on competing plans for reorganization. The U.S. Trustee selected as trustee John J. Gibbons, a former judge, who has outstanding credentials for one aspect of the job (evaluating the litigation), no background for another (managing the business), and who came in and got knocked around in the third (trying to mediate a settlement). After six months of delays and stays, the lawyers, principals and a finance professor were able to work it out pretty much without him and in some ways despite him. Now, with the settlement behind us, the trustee has applied for fees. Ironically, Gibbons has shown poor judgment in applying for compensation. Just stating the amounts sought should have been sufficient to suggest that what he was seeking was unreasonable: $4,336,910.00 for half-time work for nine months; $4,336,910.00 for 880 hours of work; $4,928 an hour. As set out above, the court finds the factors in 11 U.S.C. § 330 suggest reasonable compensation for John J. Gibbons for his service as Trustee for Marvel Entertainment Group, Inc. is the market rate for compensation for these services. To the extent Gibbons provided services that are in the nature of work as a corporate executive or director, the market rate would be slightly less than what he charges for his work as a lawyer. To the extent he provided services that are similar to the work he has done as a judge and now does as a lawyer, the market rate is the rate he charges for his time, which is $400 an hour. This suggests that reasonable compensation for his services is $400 an hour for the 880 hours he recorded for this work, for a total of $352,000. The court will enter an order in accordance with this decision. *48 APPENDIX Summary of certain billing rates for bankruptcy attorneys based on information submitted in connection with fee applications submitted to the District Court in 1998. The summary identifies the firm, the debtor, the civil action number, the billable rate per hour, and the year admitted to practice law. ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | Law Firm | Case | CA No | Sum Assoc | 1998 | 1993 | 1990 | 1989 | 1988 | 1987 | 1986 | 1985 | 1984 | 1983 | 1982 | 1981 | 1980 | 1979 | 1978 | 1977 | 1976 | 1975 | 1974 | Before 1973 | |-------------------------|-------------------|------------|------------|-------|-------|--------|--------|--------|-------|--------|--------|--------|--------|-------|---------|--------|--------|--------|-------|------|--------|-------|---------------| | Adelman Lavine Gold | Phoenix | 97-2498 | | | | | | | | | | 260 | | | 275 | | | | 295 | | | 275 | | | & Levin | Information | | | | | | | | | | | | | | | | | | | | | | | | | Systems | | | | | | | | | | | | | | | | | | | | | | | |-------------------------|-------------------|------------|------------|-------|-------|--------|--------|--------|-------|--------|--------|--------|--------|-------|---------|--------|--------|--------|-------|------|--------|-------|---------------| | Alschuler Grossman & | Marvel | 97-638 | | | | | | | | | | | | | | | | | | | | | 375/500 | | Pines | Entertainment | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |-------------------------|-------------------|------------|------------|-------|-------|--------|--------|--------|-------|--------|--------|--------|--------|-------|---------|--------|--------|--------|-------|------|--------|-------|---------------| | Duane Morris & | Marvel | 97-638 | | | | | 270 | | | | | | | | | | | | | | | | | | Heckscher | Entertainment | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |-------------------------|-------------------|------------|------------|-------|-------|--------|--------|--------|-------|--------|--------|--------|--------|-------|---------|--------|--------|--------|-------|------|--------|-------|---------------| | Gibbons, Del Deo, | Marvel | 97-638 | 90 | 125 | 309 | 200 | 250 | | 208 | 225 | | | 290 | 250 | 235 | 225 | 275 | 325 | 273 | | | | 230/350/400 | | Dolan, Griffinger & | Entertainment | | | | | | | | | | | | | | | | | | | | | | | | Vecchione | | | | | | | | | | | | | | | | | | | | | | | | |-------------------------|-------------------|------------|------------|-------|-------|--------|--------|--------|-------|--------|--------|--------|--------|-------|---------|--------|--------|--------|-------|------|--------|-------|---------------| | Greensfelder, Hemker | Venture Stores | 98-101 | | | | | | 175 | | | 170 | | 175 | | | | | | 200 | | | 195 | 260 | | & Gale, P.C. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |-------------------------|-------------------|------------|------------|-------|-------|--------|--------|--------|-------|--------|--------|--------|--------|-------|---------|--------|--------|--------|-------|------|--------|-------|---------------| | Hoyle, Morris & Kerr | Marvel | 97-638 | | | | 200 | | | | 275 | 275 | | | | | | | | | | | | | | | Entertainment | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |-------------------------|-------------------|------------|------------|-------|-------|--------|--------|--------|-------|--------|--------|--------|--------|-------|---------|--------|--------|--------|-------|------|--------|-------|---------------| | Kaye Scholer Kireman | Marvel | 97-638 | 130 | | | 300 | 305 | | | | | | | | | 450 | | | | | 385 | | 415 | | Hays & Handler | Entertainment | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |-------------------------|-------------------|------------|------------|-------|-------|--------|--------|--------|-------|--------|--------|--------|--------|-------|---------|--------|--------|--------|-------|------|--------|-------|---------------| | LeBoeuf, Lamb, | Phoenix | 97-2498 | | 190 | 265 | 325 | | | 325 | | | 475 | | | | | | | | | | | 425/475 | | Greene, MacRae | Information | | | | | | | | | | | | | | | | | | | | | | | | | Systems | | | | | | | | | | | | | | | | | | | | | | | |-------------------------|-------------------|------------|------------|-------|-------|--------|--------|--------|-------|--------|--------|--------|--------|-------|---------|--------|--------|--------|-------|------|--------|-------|---------------| | Morris James | Phoenix | 97-2498 | 60 | 105 | | 250 | | | | 225 | | | | 250 | | | | | | 250 | | | 352 | | Hitchens & Williams | Information | | | | | | | | | | | | | | | | | | | | | | | | | Systems | | | | | | | | | | | | | | | | | | | | | | | |-------------------------|-------------------|------------|------------|-------|-------|--------|--------|--------|-------|--------|--------|--------|--------|-------|---------|--------|--------|--------|-------|------|--------|-------|---------------| | Moses & Singer | Phoenix | 97-2498 | | | | | | | | | | | 325 | | | 330 | | | | | | 425 | 325 | | | Information | | | | | | | | | | | | | | | | | | | | | | | | | Systems | | | | | | | | | | | | | | | | | | | | | | | |-------------------------|-------------------|------------|------------|-------|-------|--------|--------|--------|-------|--------|--------|--------|--------|-------|---------|--------|--------|--------|-------|------|--------|-------|---------------| | Otterbourg, Steindler, | Venture Stores | 98-101 | | 150 | | | | | | | | | | | 410 | | | | 410 | | | 440 | 440 | | Houston & Rosen | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |-------------------------|-------------------|------------|------------|-------|-------|--------|--------|--------|-------|--------|--------|--------|--------|-------|---------|--------|--------|--------|-------|------|--------|-------|---------------| | Pepper Hamilton & | Venture Stores | 98-101 | | | | 215 | | | | 220 | | | | | | | 300 | 290 | | | 315 | 340 | 280/345/340 | | Scheetz | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |-------------------------|-------------------|------------|------------|-------|-------|--------|--------|--------|-------|--------|--------|--------|--------|-------|---------|--------|--------|--------|-------|------|--------|-------|---------------| | Weil Gotshal & | Marvel | 97-638 | 120 | 190 | | 320 | 325 | | 400 | | 420 | | | | | | | | | 500 | | | 550 | | Manges | Entertainment | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |-------------------------|-------------------|------------|------------|-------|-------|--------|--------|--------|-------|--------|--------|--------|--------|-------|---------|--------|--------|--------|-------|------|--------|-------|---------------| | White & Case | Marvel | 97-638 | | | | | 385 | 385 | | 450 | 435 | | | | | | | | | | | | 505 | | | Entertainment | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |-------------------------|-------------------|------------|------------|-------|-------|--------|--------|--------|-------|--------|--------|--------|--------|-------|---------|--------|--------|--------|-------|------|--------|-------|---------------| | Wilkie Farr & Gallagher | Marvel | 97-638 | 150 | 240 | 295 | | 295 | | | | | | | | 465 | | | | | 510 | | | 510 | | | Entertainment | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |-------------------------|-------------------|------------|------------|-------|-------|--------|--------|--------|-------|--------|--------|--------|--------|-------|---------|--------|--------|--------|-------|------|--------|-------|---------------| | Young Conaway | Strawberries | 97-309 | | | | 260 | | | | 325 | | | | | | | | | | | | | | | Stargatt & Taylor | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/2498477/

45 F. Supp. 2d 296 (1999) Jeanette C. McNULTY, Plaintiff, v. THE NEW YORK CITY DEPARTMENT OF FINANCE, Office of the New York City Sheriff, Office of the New York City Mayor, the City of New York, New York City Department of Personnel, Randy Mastro and Kerry J. Katsorhis, Defendants. No. 96 Civ. 2160 (LBS). United States District Court, S.D. New York. April 5, 1999. *297 Bruce E. Menken, Beranbaum Menken Ben-Asher & Fishel LLP, New York City, for Plaintiff. Memorandum and Order SAND, District Judge. Plaintiff, Jeanette McNulty, brings this employment discrimination action against New York City and two City officials pursuant to Title VII of the Civil Rights Act of 1964 ("Title VII"), codified at 42 U.S.C. §§ 2000e to 2000e-17, the Age Discrimination in Employment Act of 1967 ("ADEA"), codified at 29 U.S.C. §§ 621-634, the New York State Human Rights Law ("SHRL"), codified at N.Y. Exec. Law §§ 290-301, and the New York City Human Rights Law ("CHRL"), codified at N.Y.C. Admin. Code §§ 8-101 to -131. Presently before the Court is the Defendants' Motion for Summary Judgment pursuant to Federal Rule of Civil Procedure 56. For the reasons set forth below, Defendants' Motion is granted in part and denied in part. *298 BACKGROUND[1] Plaintiff is a New York City resident who worked for the City in various capacities from December 1978 until February 1995. In July 1990, during the tenure of David Dinkins as Mayor of New York City, Plaintiff began working for the City Sheriff, Philip Crimaldi. Because Plaintiff was a provisional employee, her employment was "at will" and could be terminated summarily. In November 1993, Rudolph Giuliani was elected Mayor of the City of New York and appointed Randy Mastro as his Chief of Staff and Robert Avaltroni as Acting Sheriff. After several weeks, the Mayor appointed Kerry Katsorhis to serve as the City Sheriff on a permanent basis and Avaltroni continued working for the City as First Deputy Commissioner. In February 1995, Mayor's Office officials furnished Katsorhis with a list of seven members of the Sheriff's Office to terminate. Plaintiff, who was then fifty-nine years old, was among those employees fired. Three of these individuals were immediately rehired upon reconsideration and all of the remaining individuals, other than Plaintiff, have since accepted other employment with the City. Plaintiff's replacement in the Sheriff's Office was a forty-seven year old woman named Ellen Poliski. In April 1995, Plaintiff interviewed for and was orally offered the position of Director of Administration with the New York City Conflicts of Interest Board (COIB). Plaintiff accepted the position but the offer was later withdrawn after staff-members in the Mayor's Office told COIB officials that the Vacancy Control Board would not approve her appointment. In August 1995, COIB hired a fifty-three year old woman, Ute O'Malley, to fill the position. On or about August 1, 1995, Plaintiff filed a charge of employment discrimination based on age and gender with the Equal Employment Opportunity Commission ("EEOC") and the New York State Division of Human Rights. On January 18, 1996, she received a "right to sue letter" from the EEOC and commenced this action within ninety days. Subject matter jurisdiction over the Title VII and ADEA claims is premised on 28 U.S.C. § 1331 and any jurisdiction the Court may have over Plaintiff's state law claims depends on 28 U.S.C. § 1367, the statute governing supplemental jurisdiction. In an Opinion dated October 24, 1996, the Court granted the Defendants' Motion to dismiss Plaintiff's claims against the Office of the Sheriff, the Office of the Mayor, and the Department of Personnel, on the ground that those entities were not suable. See McNulty v. New York City Department of Finance, 941 F. Supp. 452, 461 (S.D.N.Y.1996). In all other respects, the Court denied the Defendants' Motion and left Plaintiff's claims intact. Id. at 457-62. On December 16, 1998, after discovery was completed, the Defendants filed this Motion for Summary Judgment. The Court heard oral argument on January 14, 1999, and reserved decision. LEGAL STANDARD The Court may grant summary judgment only where the moving papers and affidavits submitted by the parties 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. See Fed. R. Civ. Pro. 56(c); see also Brown v. City of Oneonta, 106 F.3d 1125, 1130 (2d Cir.1997). In ruling on a motion for summary judgment, a court "is not to weigh the evidence but is instead required to view the evidence in the light most favorable to the party opposing summary *299 judgment, to draw all reasonable inferences in favor of that party, and to eschew credibility assessments." Weyant v. Okst, 101 F.3d 845, 854 (2d Cir.1996). Summary judgment is a "drastic procedural weapon because `its prophylactic function, when exercised, cuts off a party's right to present his case to the jury.'" Garza v. Marine Transp. Lines, Inc., 861 F.2d 23, 26 (2d Cir.1988) (quoting Donnelly v. Guion, 467 F.2d 290, 291 (2d Cir.1972)). DISCUSSION Plaintiff's Title VII and ADEA Claims Against the City (1) Introduction The Second Circuit has explained the framework for considering claims of pretextual employment discrimination in light of the familiar three-part burden-shifting analysis of McDonnell Douglas Corp. v. Green, 411 U.S. 792, 802, 93 S. Ct. 1817, 36 L. Ed. 2d 668 (1973). Claims under the ADEA receive the same analysis as those brought pursuant to Title VII. See Raskin v. Wyatt Co., 125 F.3d 55, 60 (2d Cir.1997). In order to establish a prima facie case of unlawful employment discrimination under either statutory scheme, "a plaintiff must show (1) that [s]he belongs to a protected class, (2) that [s]he was performing h[er] duties satisfactorily," (3) that she suffered an adverse employment action, such as discharge, and (4) that this adverse employment action "occurred in circumstances giving rise to an inference of discrimination on the basis of h[er] membership in that class." McLee v. Chrysler Corp., 109 F.3d 130, 134 (2d Cir.1997); accord Grady v. Affiliated Cent., Inc., 130 F.3d 553, 559 (2d Cir.1997). The Supreme Court has rejected the argument that to succeed in establishing a prima facie case of discrimination, a plaintiff must show that her replacement was outside of the statute's protected class. See O'Connor v. Consolidated Coin Caterers Corp., 517 U.S. 308, 312, 116 S. Ct. 1307, 134 L. Ed. 2d 433 (1996) (rejecting argument in ADEA action that plaintiff could not prove prima facie case where replacement was more than forty years old).[2] In considering ADEA claims, however, courts may consider whether the age difference between the plaintiff and the replacement is "substantial." See id. at 312-13, 116 S. Ct. 1307.[3] "The burden that an employment discrimination plaintiff must meet in order to defeat summary judgment at the prima facie stage is de minimis." McLee, 109 F.3d at 134. A plaintiff need not come forward with direct evidence to prove a prima facie case and may "rely on the cumulative weight of circumstantial evidence." Luciano v. Olsten Corp., 110 F.3d 210, 215 (2d Cir.1997) (citing Rosen v. Thornburgh, 928 F.2d 528, 533 (2d Cir. 1991)). Once the plaintiff presents a prima facie case, the defendant must "articulate a legitimate, non-discriminatory reason for the adverse employment decision." Raskin, 125 F.3d at 64; accord Grady, 130 F.3d at 559. If the defendant succeeds in meeting this burden of production, the presumption of discrimination created by the prima facie case drops from the analysis "and the plaintiff, in order to defeat summary judgment, *300 must present evidence sufficient to allow a rational factfinder to infer that the employer was actually motivated in whole or in part by" impermissible criteria. Grady, 130 F.3d at 559-60; accord Stern v. Trustees of Columbia Univ., 131 F.3d 305, 312 (2d Cir.1997). At this stage, "a plaintiff may rely on the evidence constituting the prima facie case, together with supportable inferences to be drawn from the false or erroneous character of the employer's proffered reason for the adverse action." Fisher v. Vassar College, 114 F.3d 1332, 1333 (2d Cir.1997) (en banc), cert. denied, ___ U.S. ___, 118 S. Ct. 851, 139 L. Ed. 2d 752 (1998). (2) The Prima Facie Case Plaintiff is a member of a protected class for purposes of both Title VII and the ADEA, because of her gender and the fact that she was terminated after her fortieth birthday. See 42 U.S.C.A. § 2000e-2(m) (West 1999) (Title VII); 29 U.S.C.A. § 631 (West 1999) (ADEA). The Defendants do not dispute that Plaintiff was performing her duties satisfactorily or that she was discharged and not rehired. Defendants contend, however, that the circumstances of Plaintiff's termination and subsequent treatment, including during the period of the COIB application process, do not give rise to an inference of discrimination based on age or gender. Viewing all of the evidence in the light most favorable to the Plaintiff, as we are required to do for purposes of considering this Motion, we may draw the following conclusions. Between December 1994 and March 1995, Sheriffs Office revenues increased and the Office hired additional non-uniform staff. Seven individuals were hired during this period, all of whom were male and six of whom were at least fifteen years younger than Plaintiff. In hiring these men, the Defendants may not have adhered to standard City employment practices, such as those requiring the City to maintain a log of certain EEO statistics regarding all applicants. In February 1995, the Sheriff's Office fired Plaintiff and five others who Plaintiff asserts were similarly situated, four of whom were men. Two men and the woman other than Plaintiff were rehired immediately on reconsideration, and the remaining two men were rehired within the year. Plaintiff, the oldest of the six individuals fired, is the only individual from that group not to have been rehired. Two male provisional managers who were substantially younger than Plaintiff and who had also been appointed during the Dinkins Administration were not fired during this time. The firing decisions were made by Anthony Carbonetti, then a twenty-six year old Mayor's Office official responsible for appointments, and John George, then a thirty-year old Sheriff's Office official, without input from Plaintiff's supervisor, who was thoroughly satisfied with Plaintiff's performance. Carbonetti claimed that he created charts and other documents detailing the reason behind all firing decisions but subsequently discarded all of them when he changed offices. None of the other individuals involved in the decision-making process retained any of the documents, notes, records, charts, or memoranda that they used. The Defendants replaced Plaintiff several weeks later with Ms. Poliski, an individual twelve years younger than she who was to perform the same tasks. As with the seven men hired during late 1994 and early 1995, the City may have failed to follow normal procedures in hiring Ms. Poliski. She had never before worked for New York City or in the public sector but received the same salary as had Plaintiff. Plaintiff then interviewed for, and was offered, a job with the COIB. For reasons that the Defendants are still unable to explain, this job offer was withdrawn after COIB officials were informed that the Vacancy Control Board would not approve her appointment. In August 1995, COIB *301 hired a fifty-three year old woman, Ute O'Malley, to fill the position. According to Plaintiff, Defendants hired O'Malley only after receiving notice of Plaintiff's discrimination claim. We believe that the above facts, taken together, satisfy the de minimis burden required to establish an inference of discrimination for purposes of both Title VII and the ADEA. Plaintiff has raised a host of questions surrounding her termination, as well as the eleventh hour decision to withdraw the COIB job-offer. We recognize that many of these circumstances, taken independently of one another, may not give rise to an inference of illegal discrimination, especially as to Plaintiff's claim of gender discrimination under Title VII, the weaker of her two claims. After examining the totality of the circumstances, however, we believe that Plaintiff has offered sufficient evidence of both gender- and age-based discrimination to trigger an obligation on the part of the Defendants to explain their behavior. Accordingly, Plaintiff has succeeded in stating a prima facie case under both Title VII and the ADEA. (3) The Defendants' Explanations The Defendants have proffered non-discriminatory explanations for Plaintiff's termination and for their failure to rehire her immediately.[4] As to Plaintiff's termination, the Defendants state that Plaintiff was among a class of individuals "in high level or sensitive positions" who were fired "in order to have the opportunity to bring in new people with a fresh perspective to City government and to help the Mayor achieve an acceleration of advancing his agenda for change." (Def's Br. at 9.)[5] The Defendants compiled the proposed lists by considering certain factors, such as whether the given employee was provisional, a member of high-level management, or had received his/her latest promotion or pay raise during the prior administration, under Mayor Dinkins. As to why Defendant Katsorhis did not advocate for Plaintiff, and Plaintiff did not receive reconsideration of her termination —unlike three of her colleagues — the Defendants assert that she was not indispensable to the Sheriff's Office operations and that they felt her duties could be handled by other individuals. The Defendants fail to offer a satisfactory explanation as to why the COIB job offer was retracted. Defendants have argued that the offer was withdrawn because the Vacancy Control Board would not have approved her. Without some hint as to why the Vacancy Control Board reached this decision, the Defendants' answer provides no information whatsoever from which we could conclude that their behavior was non-discriminatory. It is simply no defense to an allegation of employment discrimination to state that a plaintiff was refused a job because another department of the very entity charged with the discrimination directed that result. The question remains why the Vacancy Control Board directed that result, and that is a question the Defendants have not answered. (See, e.g., Tr. Oral Arg. at 11-12.) Accordingly, Defendants have offered a nondiscriminatory explanation for certain, but not all, of the adverse employment actions Plaintiff suffered. *302 (4) The Plaintiff's Ultimate Burden Plaintiff offers five credible reasons for disbelieving the Defendants' explanation that she was fired in a move designed to bring "fresh" perspective to the Sheriff's Office by sweeping out Dinkins' Administration appointees. First, and most importantly, the Defendants rehired the five individuals similarly situated to Plaintiff who were fired along with Plaintiff during the February 1995 sweep, all of whom were younger than Plaintiff and four of whom were male. Second, Plaintiff was a registered Republican who never said or did anything on the job that caused Katsorhis to believe that she was not committed to the Giuliani agenda. Third, Plaintiff was the lowest level provisional manager fired from the Sheriff's Office, and was therefore not in a sensitive policy-making position. Fourth, other individuals who were more closely associated with Sheriff Crimaldi and the Dinkins Administration were not removed. Fifth, certain young, male provisional managers hired during the Dinkins administration were not fired during the February 1995 "purge," including at least one who received his most recent promotion at the end of the Dinkins Administration. Plaintiff also offers reasons to dispute the Defendants' explanation for why she was not immediately rehired along with three of her colleagues and why Defendant Katsorhis did not advocate for her immediate rehire, as he did for five of her colleagues, four of whom were male. Plaintiff has adduced evidence indicating that her job was important to the functioning of the Sheriff's Office and that her supervisor's opinion was not sought before the termination. That Plaintiff's job was important and could not be handled by existing staffers is buttressed by the Defendants' decision to hire a replacement soon after her termination, and Plaintiff's sound work performance is further established by the COIB's decision to extend her a job offer on the day of her interview due in part to strong Sheriff's Office references. A jury could reject the Defendant's proffered explanations in light of these factors and, when combined with the evidence set forth in Plaintiff's ADEA prima facie case, conclude that the real reason for her termination and subsequent treatment was age-based discrimination. The argument with respect to Plaintiff's Title VII claim presents a closer question, for her Title VII prima facie case was not particularly strong and the Second Circuit has made clear that "[i]f the plaintiff's evidence was barely sufficient to make out a prima facie case, it may not be sufficient to establish discrimination after the defendant has proffered a neutral rationale." Stern v. Trustees of Columbia Univ., 131 F.3d 305, 312 (2d Cir.1997). Nonetheless, we conclude that it would be inappropriate to grant the Defendants' Motion on the Title VII count in the light of the fact that six men were hired just before her termination, four of these men filled positions similar to Plaintiffs, all men fired along with Plaintiff were subsequently rehired, all of the relevant decisions were apparently made by men, and because the Defendants' explanations for the treatment Plaintiff received appear inconsistent with available facts. We are aided in this conclusion by Defendant Katsorhis's post-termination statement to Plaintiff indicating that the she was fired due to budgetary reasons, an explanation the Defendants now explicitly disavow. See supra note 4. Why Katsorhis felt compelled to offer Plaintiff a false justification for her termination only hours after she expressed concern that she was being treated differently from her male colleagues is a question properly left to a jury. (5) Conclusion The presence of disputed material facts regarding the circumstances of Plaintiff's termination, and the subsequent decisions not to rehire her, preclude summary judgment. Accordingly, we deny Defendants' *303 Motion as to Plaintiff's Title VII and ADEA claims. Plaintiff's SHRL and CHRL Claims Against the Individual Defendants Defendants argue that the Court lacks subject matter jurisdiction over Plaintiff's state law claims against the individual defendants under the election of remedies provisions that govern SHRL and CHRL claims. The relevant SHRL section reads as follows: Any person claiming to be aggrieved by an unlawful discriminatory practice shall have a cause of action in any court of appropriate jurisdiction for damages and such other remedies as may be appropriate, unless such person had filed a complaint hereunder or with any local commission on human rights, ... provided that, where the division has dismissed such complaint on the grounds of administrative convenience, on the grounds of untimeliness, or on the grounds that the election of remedies is annulled, such person shall maintain all rights to bring suit as if no complaint had been filed with the division. N.Y. Exec. Law § 297 (McKinney's 1999). The CHRL contains essentially identical language and allows a plaintiff to file suit "in any court of competent jurisdiction ... unless such person has filed a complaint with the city commission on human rights or with the state division of human rights with respect to such alleged unlawful discriminatory practice or act of discriminatory harassment or violence." N.Y.C. Admin. Code § 8-502(a). Defendant points out that prior to commencing the instant action, Plaintiff filed a charge of employment discrimination with the New York State Division of Human Rights. Plaintiff concedes that because she filed a claim with the New York State Division of Human Rights, her SHRL claims are barred. (See Pl's Br. at 27 n. 13.) Plaintiff contends, however, that her CHRL claims remain properly before the Court because she did not raise them before the New York State agency. Plaintiff's approach distorts the plain meaning of the election of remedies provisions, which operate to foreclose access to courts regarding any "discriminatory practice" or act of harassment for which a claim is made "with the city commission on human rights or with the state division of human rights." N.Y.C. Admin. Code § 8-502(a) (emphasis added). Plaintiff attempts to circumvent this clear statement by noting the different remedies available under the City and State provisions and the more expansive conception of discrimination used in the CHRL, apparently arguing that the remedy sought — rather than the discriminatory act complained of — lies at the heart of the election of remedies analysis. Plaintiff therefore asserts that "[b]y invoking the weaker protections of the State Human Rights Law in an administrative forum, plaintiff was hardly making a choice to forego a judicial action under the more potent City law." (Pl's Br. at 27.) That Plaintiff may not have intended to forego her right to initiate judicial action pursuant to the CHRL by asserting an SHRL claim before the State agency does not alter the terms of the election of remedies provisions. The SHRL claims previously asserted and the CHRL claims now raised arise from the exact same discriminatory practices. Having elected to pursue redress for those grievances before the SHRL, Plaintiff is now foreclosed from bringing either CHRL or SHRL claims before this Court. This result is in accord with the great weight of the authority from within this District. See DiPalto v. New York City Off Track Betting Corp., 94 Civ. 5773(KMW), 1998 WL 276180, at *3 (S.D.N.Y. May 28, 1998); Branker v. Pfizer, Inc., 981 F. Supp. 862, 865 (S.D.N.Y. 1997); Lyman v. City of New York, 96 Civ. 2382(PKL), 1997 WL 473976, at *4 (S.D.N.Y. Aug. 20, 1997); Del Valle Hernandez v. New York City Law Dept. Corp. Counsel, 94 Civ. 9042(AJP)(SS), 1997 WL *304 27047, at *11 (S.D.N.Y. Jan. 23, 1997); Hourahan v. Ecuadorian Line, Inc., 95 Civ. 10698(AGS), 1997 WL 2518, at *6 (S.D.N.Y. Jan. 3, 1997); Koster v. Chase Manhattan Bank, 609 F. Supp. 1191, 1196 (S.D.N.Y.1985); Collins v. Manufacturers Hanover Trust Co., 542 F. Supp. 663, 672-73 & nn. 4-5 (S.D.N.Y.1982). CONCLUSION For the foregoing reasons, Defendant's Motion is denied as to Plaintiff's Title VII and ADEA claims and granted as to Plaintiff's SHRL and CHRL claims. Upon receipt of this Memorandum and Order, the parties are to contact the Court to request a pretrial conference during the week of April 12, 1999, at which time the Court will set a trial date and a date for submission of a joint pretrial order. SO ORDERED. NOTES [1] The underlying facts that precipitated the filing of the present suit are set forth in greater detail in the Court's previous Opinion in this case. See McNulty v. New York City Dep't of Finance, 941 F. Supp. 452 (S.D.N.Y.1996). Familiarity with that Opinion is assumed. [2] A post-O'Connor decision from within this Circuit made reference in dicta to the requirement "that the position was ultimately filled by a person not of the protected class." Raskin, 125 F.3d at 64-64. We of course follow the Supreme Court's holding. [3] While there is no bright line for determining when an age difference is "substantial" under O'Connor, Courts in this District have found gaps of more than ten years to be sufficient and those of fewer than five years to be insufficient. Compare, e.g., Curley v. St. John's Univ., 19 F. Supp. 2d 181, 183-84, 192 (S.D.N.Y.1998) (finding significance in twelve- to fourteen-year age differences); with Jensen v. Garlock, 4 F. Supp. 2d 219, 223 (S.D.N.Y.1998) (three-year difference insignificant), Tanzini v. Marine Midland Bank, 978 F. Supp. 70, 76 n. 3 (N.D.N.Y.1997) (four-and-one-half-year difference insignificant). [4] On the date Plaintiff learned of her termination, and only hours after Plaintiff complained to Defendant Katsorhis and others that she was being treated differently from her male counterparts, Defendant Katsorhis informed Plaintiff and three of her colleagues that they had been terminated for budgetary reasons. Defendants now state that this explanation was false and that it was given in order to "soften the blow" to those who had been fired. We take up the import of this admittedly false explanation infra. [5] We note that the Defendants do not argue that Plaintiff was among the category of high-level, policy-making officials excluded from the definition of "employee" by Title VII, see 42 U.S.C.A. § 2000e(f) (West 1999), and the ADEA, see 29 U.S.C. § 629(f) (West 1999).

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1794667/

893 F. Supp. 137 (1995) David L. SHUMATE, Petitioner, v. UNITED STATES of America, Respondent. No. 95-CV-884. United States District Court, N.D. New York. July 6, 1995. *138 John P. Miller, Albany, NY, for petitioner. Thomas J. Maroney, U.S. Atty., Albany, NY, for respondent U.S. (Bernard J. Malone, Jr., Asst. U.S. Atty., of counsel). MEMORANDUM DECISION & ORDER McAVOY, Chief Judge. Comes now petitioner Shumate seeking an order from this Court clarifying his sentence and ordering the United States Bureau of Prisons to comply with the terms of the plea agreements under which he was sentenced. In particular, petitioner Shumate seeks an order from this Court directing that the United States Bureau of Prisons remove him from the New York State corrections facility where he is presently incarcerated and maintain him in federal custody, in a federal facility, for the duration of his federal sentence. In this regard the Court also notes that the New York State Supreme Court, Schenectady County, by its initial sentencing, has already expressed its view that petitioner should serve his sentence in a federal institution, and that the New York State Department of Corrections (hereinafter DOCS) has been and remains willing to cooperate in providing petitioner the relief he seeks. In short then, it is only the United States Bureau of Prisons (hereinafter BOP) which has determined that it is unable to comply with the sentencing scheme agreed to by all the parties and mutually relied upon by the Court's of both sovereigns. The Court has determined that petitioner's Motion is best treated as an application for relief under 28 U.S.C. § 2241 et seq., docketed herein as 95-CV-884. The Court also finds that in light of BOP's administrative determination that it may not take custody of petitioner in spite of the judgments from two courts directing that they do so, circumstances exist such as to dispense with any further requirement of exhaustion of remedies by petitioner. If the relief petitioner seeks is available to him, it may appropriately issue from this the federal sentencing Court. I. BACKGROUND Petitioner was indicted on New York State charges on August 13, 1993, in Schenectady County, New York. On that same date he was arrested by the multi-jurisdictional Drug Enforcement Task Force on a warrant which issued under the state indictment. On August 20, 1993, petitioner was indicted by a federal grand jury on charges related to those underlying the state indictment. On August 28, 1993 he was produced in federal court on a writ of habeas corpus ad prosequendum for arraignment on the federal indictment. Petitioner was thereafter maintained continuously in federal custody until he pled guilty to the federal charges before this *139 Court on April 11, 1994. On April 12, 1994, petitioner was produced in the Schenectady County court where he pled guilty to the state charges and was thereafter returned to the custody of the United States Marshal. On August 10, 1994, petitioner was sentenced by this Court to 204 months incarceration and remanded to the United States Marshal for delivery to a federal facility. Thereafter, on August 22, 1994, petitioner was sentenced in Schenectady County state court to an indeterminate term with a minimum of fifteen years and a maximum of life. As is discussed in greater detail below, both the federal and state pleas were negotiated in coordination with each other and both the federal and state courts sentenced petitioner mindful of the sentences imposed or to be imposed by the other sovereign. To this date, however, the terms of the plea agreements, which both courts and all the concerned parties agreed to and which both sentencing courts relied on and incorporated into their respective sentencing schemes, have yet to be implemented. Before the petitioner pled in either court, the United States Attorney, the Schenectady County District Attorney and defendant's attorney entered into intensive plea bargain negotiations. Those negotiations yielded agreement in principle as to the sentences that were later approved by both Courts and imposed as described infra. It was also agreed by all the concerned parties that if petitioner entered pleas of guilty to felonies in both Schenectady County Court and in the United States District Court for the Northern District of New York, that the state and federal sentences imposed should, with the permission of both courts, run concurrently. Finally, the place these lengthy sentences were to be served was apparently an important factor in petitioner's decision to accept the plea offers from the state and the federal prosecutors. Place of incarceration was one of the terms discussed during plea negotiations and the parties agreed that petitioner should first serve his federal sentence, in a federal facility, and upon satisfaction of the federal sentence petitioner would then be transferred to a New York State facility to serve the remainder, if any, of his concurrent New York State sentence. The United States Attorney and the Schenectady County District Attorney, as the executive representatives negotiating on behalf of their respective sovereigns, fully appreciated that difficulties could arise later as to their agreement in principle that petitioner should first serve his federal sentence in a federal facility. These difficulties were anticipated because New York State, as the sovereign which first arrested petitioner, had therefore asserted primary jurisdiction over him. See Ponzi v. Fessenden, 258 U.S. 254, 260-61, 42 S. Ct. 309, 310-11, 66 L. Ed. 607 (1922); In re Liberatore, 574 F.2d 78 (2d Cir.1978). The general rule as to place of incarceration is that regardless of the order in which sentences are imposed, the sentence of the sovereign which has primary jurisdiction over the defendant is served first. Liberatore, 574 F.2d at 89-90. From that general principle the Federal BOP has promulgated its perfectly reasonable general policy that the sovereign with primary jurisdiction is responsible for custody of a defendant serving concurrent federal and state sentences, until primary jurisdiction is relinquished. (Govt. Response, BOP Attachment at 4). On July 5th, 1994, the United States Attorney, the Schenectady County District Attorney and defendant's attorney met specifically to resolve the primary jurisdiction issue. As a result of that meeting Robert M. Carney, the Schenectady County District Attorney, executed a written Waiver of Primary Jurisdiction to Assistant United States Attorney Bernard J. Malone, which reads in pertinent part as follows: After intensive negotiating involving all parties in the above-captioned case which is currently pending in the federal system and in Schenectady County Court, please be advised that it is our determination that we will relinquish any priority of jurisdiction in the person of David L. Shumate to federal authorities. It is our understanding that Mr. Shumate will be sentenced federally upon his conviction on your indictment 93-CR-293. After he is sentenced on that conviction, he will be sentenced as a persistent felon in *140 the Schenectady County Court upon his conviction for a Criminal Sale of a Controlled Substance in the Third Degree to a concurrent term of 15 years to life. The purpose of this letter is also to confirm our understanding that based upon our relinquishment of priority of jurisdiction, Mr. Shumate will serve his sentence federally. If there is any time to be served on the state sentence, it would be served after the conclusion of the federal sentence. (Carney Waiver, Pet. Notice of Motion, Ex. C). By its plain terms the waiver fully and unconditionally yields New York State's primacy of jurisdiction to the United States. Secure in the belief that a waiver of primary jurisdiction had been effected, petitioner proceeded to enter the coordinated guilty pleas. On August 10, 1994, petitioner was sentenced by this Court to 204 months incarceration, which this Court intended that petitioner serve at a federal facility concurrently with his forthcoming state sentence. Thereafter, on August 22, 1994 the Schenectady County Court sentenced petitioner to a minimum of fifteen years and a maximum of life. It was likewise represented to Judge Harrigan of that Court that the state had waived its primary jurisdiction, that it was the belief of all concerned that petitioner would serve his federal sentence first, and that the federal court had agreed to the concurrent aspect of the negotiated pleas (State Sntcng. Tr. at 2-4). Judge Harrigan expressly imposed his sentence to run concurrent with the earlier imposed federal sentence and remanded petitioner to the custody of the federal authorities (State Sntcng. Tr. at 7). After that sentencing, however, petitioner was committed to New York State DOCS custody where he has languished since. Notwithstanding DOCS offer to transfer petitioner to federal custody and the ongoing efforts of petitioner's attorney, the United States Attorney and the Court, BOP has refused to take custody of petitioner under the apparent belief that it may not do so because it views New York State's express waiver of its primary jurisdiction as insufficient to invest this Court with primary jurisdiction over the petitioner. BOP's rejection of the State's waiver and its consequent refusal to accept petitioner worked two fundamental alterations in the sentencing scheme contemplated by both courts, both prosecutors and the defendant: 1) petitioner's federal sentence no longer ran concurrent with his state sentence; and 2) petitioner was unable to serve his federal sentence in a federal facility. II. ANALYSIS: a. The Concurrence Problem: At the time of petitioner's federal sentencing it was this Court's intention that the federal sentence be served concurrent with petitioner's forthcoming state sentence. The Court was informed at sentencing, however, that the state had expressly relinquished its priority of jurisdiction and that the forthcoming state sentence would be (and in fact was) expressly made concurrent with the federal sentence. Since the Court believed (and continues to believe) that the district attorney's relinquishment was sufficient for the federal court to obtain primary jurisdiction, the Court did not indicate in its sentencing judgment that the federal sentence would be concurrent with the forthcoming state sentence. Rather, it was the belief of all the parties that the natural outcome of the state's relinquishment would be that petitioner would serve his federal sentence first, in a federal facility, and that by its own terms the state sentence would run concurrent to that. Once the BOP dishonored the waiver of primary jurisdiction, however, petitioner was faced with the prospect of serving his full state sentence and upon completion, being transferred to a federal facility to consecutively serve his full federal sentence, as a result of this Court's failure to expressly denominate its sentence as concurrent with the yet to be imposed state sentence. After several months of unsuccessful attempts to resolve petitioner's dilemma with the assistance of the United States Attorney, petitioner's attorney sought the assistance of the Court which in turn contacted BOP in the person of Hank Sadowski, BOP's Deputy Regional Counsel. Mr. Sadowski has from *141 first to last been more than cooperative in untangling the complex sentencing issues petitioner presents. It is the Court's understanding that on the strength of a letter from the Court clarifying its intention that Mr. Shumate serve his sentences concurrently, Mr. Sadowski has directed BOP to nunc pro tunc designate the state facility as the place of service for petitioner's federal sentence and to commence petitioner's federal sentence as of the August 10, 1994 date of sentencing. See Barden v. Keohane, 921 F.2d 476 (3d Cir.1990). Mr. Sadowski has also made inquiry into New York State's unwillingness to grant petitioner credit for time spent in custody under the federal writ, from September 28, 1993 through August 9, 1994. Mr. Sadowski now informs the Court that he has directed BOP to credit this time towards petitioner's federal sentence and that petitioner's federal sentence computation reflects this credit. These prongs of petitioner's motion are therefore resolved and to the extent that petitioner's papers seek relief on these issues his motion is moot. b. The Primary Jurisdiction Problem: Notwithstanding Mr. Sadowski's commendable and much appreciated efforts towards restoring to petitioner that which was intended to be achieved by the sentencing scheme imposed by both Courts, BOP informs the Court that it is unable to redress petitioner's primary complaint concerning his place of incarceration because to do so would violate BOP's policies. It is BOP's position that where a defendant is first arrested by state authorities, absent relinquishment of primary jurisdiction by the state, the defendant must serve his state sentence in state custody. The Court is in full agreement with this proposition. BOP further maintains, however, that primary jurisdiction may only be relinquished by the state's granting a defendant parole, granting a defendant bail, or by the state's dismissal of its charges against the defendant. Therefore, BOP maintains, the Schenectady County District Attorney's express relinquishment of primary jurisdiction was insufficient to invest this Court with primary jurisdiction. If that proposition were true it would follow that this Court could not order delivery of petitioner for service of sentence in a federal institution because such an order would be in excess of this Court's jurisdiction. This Court has found no authority, however, for the proposition that the rule of primary jurisdiction is so narrow as to either preclude the Court, on these facts, from implementing the sentencing scheme previously negotiated between the prosecuting sovereigns and coordinated between the sentencing courts, or to unjustly preclude petitioner from receiving the benefits contemplated by his acceptance of the respective plea bargains. While exhaustive research has yielded little case law on the issue of the efficacy of a sovereign's express written waiver of priority of jurisdiction, the general parameters of the doctrine of primary jurisdiction are clear: Determination of priority of custody and service of sentence between state and federal sovereigns is a matter of comity to be resolved by the executive branches of the two sovereigns. Normally, the sovereign which first arrests an individual acquires priority of jurisdiction for purposes of trial, sentencing, and incarceration. However, the sovereign with priority of jurisdiction ... may elect under the doctrine of comity to relinquish it to another sovereign. This discretionary election is an executive, and not a judicial, function. United States v. Warren, 610 F.2d 680, 684 (9th Cir.1980). BOP does not object that either sentencing court has usurped the election reserved to the executive branches, which was the Ninth Circuit's concern in Warren; nor did such a usurpation occur here. Both Court's clearly relied upon the express waiver negotiated between petitioner and the two sovereigns. BOP simply refuses to give effect to New York State's relinquishment, pointing only to Warren, supra, and to United States v. Smith, 812 F. Supp. 368 (E.D.N.Y.1993) for authority. Neither case, however, is controlling here. *142 Warren turned on a federal district court's attempt to transfer a defendant from primary state custody to federal custody without the primary state sovereign having relinquished its priority of jurisdiction and in the face of that state sovereign's objections. Warren nowhere addresses a state's prior express relinquishment of primary jurisdiction. Smith addressed "whether a federal court may interrupt a state term of imprisonment to recommend that the state prisoner first serve a subsequently imposed federal sentence." Smith, 812 F.Supp. at 369. Nowhere in Smith is it suggested that New York State had previously relinquished its priority of jurisdiction and therefore Smith answered the question in the negative. In dicta Smith noted that priority of jurisdiction "continues until the first sovereign relinquishes its priority by, for example, bail release, dismissal of the state charges, parole release, or expiration of the sentence." Id. at 371 n. 2 (emphasis added). Nowhere does Smith's dicta purport to establish an exclusive list of the methods by which primary jurisdiction may be relinquished. The Court notes also that the relinquishment discussion in Smith arose in the context of a federal court's recommendation to transfer custody of a state prisoner to a federal facility solely on the strength of a writ of habeas corpus ad prosequendum and in the face of the state sovereign's continuous assertion of its undisputed priority of jurisdiction: on those facts it makes sense that Smith would survey only implicit manifestations of relinquishment by the state. In short, neither Warren nor Smith establish that New York State was unable to expressly relinquish its priority of jurisdiction by waiver and exhaustive research has disclosed no case nullifying such a relinquishment. This is not a case where a federal court is attempting to "tamper[] with a valid final judgment of a court of a different sovereignty." Liberatore, 574 F.2d at 85. Quite to the contrary both the executive representative of the primary state sovereign, by its express waiver, and the judicial branch of that sovereign, by entering judgment in reliance on that waiver, have indicated their intention and belief that the federal court possessed primary jurisdiction when it entered its judgment. Nor does any other aspect of the Second Circuit's comity analysis in Liberatore speak to a state sovereign's inability to relinquish its primary jurisdiction by express waiver. Indeed Liberatore's holding expressly noted that there, Connecticut had the right of prior jurisdiction over the defendant and "had availed itself of this right by seeking and obtaining his conviction in the courts of that state," from which it followed that the district court could not take any action which would "interfere with the execution of that valid preexisting New York State judgment of conviction." Id. at 89. Where, as here, New York State expressly declined to avail itself of its right of prior jurisdiction, nothing in Liberatore's principles precludes the instant transfer of jurisdiction to the United States. Nor is this a case where the federal court improperly relied only on a writ of habeas corpus ad prosequendum to assert jurisdiction over a defendant in state custody. See Thomas v. Whalen, 962 F.2d 358 (4th Cir.1992); cf. Liberatore, 574 F.2d at 89 (loan to the second sovereignty in compliance with such a writ has no effect on prior jurisdiction.) It is true that petitioner was in federal custody on such a writ when New York State relinquished its priority of jurisdiction. Those cases which hold that such writs will not invest the federal court with primary jurisdiction, however, in no way establish that the existence of such a writ precludes the federal court from assuming primary jurisdiction over petitioner merely because he was on loan to the federal sovereignty in compliance with such a writ when New York State independently relinquished its priority of jurisdiction. BOP itself acknowledges that the act relinquishing primary jurisdiction only "usually requires the United States Marshal to assume custody pursuant to an outstanding detainer." (Govt. Response, BOP Attachment at 4) (emphasis added); see also United States v. Vann, 207 F. Supp. 108, 111 (E.D.N.Y.1962) ("The controlling factor in determining the power to proceed as between two contesting sovereigns is the actual physical custody of the accused.") That petitioner was already in federal custody did not of itself prevent this *143 Court from assuming primary jurisdiction upon New York State's relinquishment. BOP advises that under its view, had the Court arranged with the Schenectady County District Attorney to grant petitioner bail, and further arranged for the U.S. Marshal to immediately arrest petitioner upon his being "bailed," the Court could have indirectly achieved the jurisdiction which it herein finds it was invested with expressly and directly. Indeed, in its effort to accommodate the Court BOP suggests that if the Court could somehow arrange for the New York State Court to vacate its sentence and release the petitioner on bail, BOP could then take possession of petitioner at which time the New York State Court could reimpose the very same sentence. It is unclear to the Court who such a pretextual undertaking would be intended to satisfy since every conceivably concerned party would be required to participate, but in any event, the Court finds that such machinations are, on these facts, unnecessary for BOP to take custody of petitioner for service of his federal sentence. III. CONCLUSION For all the foregoing reasons the Court finds that New York State effectively relinquished its priority of jurisdiction and that this Court had primary jurisdiction over the petitioner when it imposed the federal sentence. It is therefore ORDERED That the United States Bureau of Prisons assume custody of the petitioner for service of the remainder of his federal sentence as determined under the time served calculations previously made by the Bureau of Prisons; It is further ORDERED That the Bureau of Prisons, as petitioner's primary custodian, implement its stated policy as to place of incarceration and maintain petitioner in a federal facility for the duration of his federal sentence until such time as that sentence is satisfied, at which time petitioner should be returned to the custody of New York State to serve the remainder, if any, of his concurrent state sentence. IT IS SO ORDERED.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1795172/

893 F. Supp. 1508 (1995) Kenneth L. DEITCHMAN, Plaintiff, v. Stephen F. WEINER, Defendant. No. 94-2278-JWL. United States District Court, D. Kansas. July 14, 1995. B. Buzz Deitchman, Dallas, TX, for plaintiff. *1509 Richmond M. Enochs, Wallace, Saunders, Austin, Brown & Enochs, Chartered, Overland Park, KS, for defendant. MEMORANDUM AND ORDER LUNGSTRUM, District Judge. I. Introduction In this case plaintiff Kenneth L. Deitchman has brought a claim against defendant Stephen F. Weiner for negligent entrustment of his automobile to his minor daughter. The matter is currently before the court on defendant's motion for summary judgment (Doc. # 29). For the reasons set forth below, defendant's motion is granted. II. Factual Background On July 15, 1992, Stephanie Elise Weiner, defendant's daughter, and plaintiff were involved in a motor vehicle accident at the intersection of 81st Street and Ward Parkway in Kansas City, Missouri. Ms. Weiner, who was sixteen years old at the time of the accident, was driving a 1986 Dodge Colt automobile which belonged to defendant and was driving the automobile with the consent, knowledge and permission of defendant. Ms. Weiner failed to yield the right of way and pulled directly in front of plaintiff, causing the accident. Ms. Weiner died July 30, 1992, as a result of a head injury suffered in the accident. Plaintiff sustained injuries in the accident, including a shoulder injury. Prior to the date of the accident, Ms. Weiner had completed a driver's education course and had a valid Class C Kansas driver's license.[1] She had not been involved in any prior motor vehicle accidents and had not been convicted of any traffic violations. Defendant, who had been a passenger in a car driven by his daughter on numerous occasions, had no knowledge of any incidents in which his daughter had failed to yield the right-of-way prior to the date of the accident. III. Summary Judgment Standards When considering a motion for summary judgment, the court must examine all the evidence in the light most favorable to the nonmoving party. Langley v. Adams County, Colorado, 987 F.2d 1473, 1476 (10th Cir.1993). A moving party who bears the burden of proof at trial is entitled to summary judgment only when the evidence indicates that no genuine issue of material fact exists. Fed.R.Civ.P. 56(c); Anthony v. United States, 987 F.2d 670, 672 (10th Cir.1993). If the moving party does not bear the burden of proof at trial, it must show "that there is an absence of evidence to support the nonmoving party's case." Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S. Ct. 2548, 2554, 91 L. Ed. 2d 265 (1986). Once the movant meets these requirements, the burden shifts to the party resisting the motion to "set forth specific facts showing that there is a genuine issue for trial." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256, 106 S. Ct. 2505, 2514, 91 L. Ed. 2d 202 (1986). The nonmovant may not merely rest on the pleadings to meet this burden. Id. Genuine factual issues must exist that "can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party." Id. at 250, 106 S.Ct. at 2511; Tersiner v. Union Pacific R. Co., 740 F. Supp. 1519, 1522-23 (D.Kan. 1990). More than a "disfavored procedural shortcut," summary judgment is an important procedure "designed `to secure the just, speedy and inexpensive determination of every action.' Fed.R.Civ.P. 1." Celotex, 477 U.S. at 327, 106 S.Ct. at 2555. IV. Discussion Under Missouri law,[2] the essential elements of a claim of negligent entrustment *1510 are: (1) that the entrustee is incompetent by reason of age, inexperience, habitual recklessness or otherwise; (2) that the entrustor knew or had reason to know of the entrustee's incompetence; (3) that there was an entrustment of the chattel; and (4) that the negligence of the entrustor concurred with the conduct of the entrustee as a proximate cause of the harm to plaintiff. Evans v. Allen Auto Rental & Truck Leasing Co., 555 S.W.2d 325, 326 (Mo.1977); Shelter Mut. Ins. Co. v. Politte, 663 S.W.2d 777, 779 (Mo.App. E.D.1983). In the pleadings, defendant has set forth by affidavit and attached deposition testimony that he had intimate knowledge of his daughter's physical condition; that his daughter had no physical problems which would interfere with her ability to drive; that his daughter had completed a driver's education course and had a valid Class C Kansas driver's license; that his daughter had never been involved in any prior motor vehicle accidents and had not been convicted of any traffic violations; that prior to the accident he had been a passenger in a car driven by his daughter on a number of occasions "too numerous to mention"; that he had no knowledge of any incidents in which his daughter had ever failed to yield the right of way prior to the date of the accident; and that at or prior to the date of the accident he had no reason to believe that his daughter was anything other than a safe and fit driver. Accordingly, defendant contends that there is no evidence in the record to show that his daughter had been anything less than a prudent driver and, even if his daughter had been less than a prudent driver, there is nothing in the record to indicate that defendant had notice or knowledge of this prior to the date of the accident. The court finds that defendant has met his burden of showing that there is an absence of evidence to support the plaintiff's case. Accordingly, it is incumbent on plaintiff to set forth specific facts showing that there is a genuine issue for trial. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256, 106 S. Ct. 2505, 2514, 91 L. Ed. 2d 202 (1986). In attempting to create an issue for trial, plaintiff first contends that Ms. Weiner had physical problems which interfered with her ability to drive. In his deposition, defendant discussed the fact that his daughter had a facial deformity at birth, known as craniofacial microsomia, which affected the bones on the right side of her face. She also suffered from strabismus, a condition which caused her eyes to turn slightly inward. Defendant related that around the age of three his daughter underwent minor corrective surgery to align the eyes, which was successful. She also underwent surgery around the age of thirteen at the Kansas University Medical Center, which was followed in 1991 by surgery at Humana Hospital in Dallas, Texas, in an attempt to correct her facial features, which included removing bone from the top of the head and grafting it into the face and to elevate the orbit of the eye. Based on defendant's testimony regarding the surgeries his daughter had undergone, plaintiff has submitted his own affidavit, as an expert, in which he concludes that "[b]ased on my experience as a doctor, and a driver of automobiles, I believe that the physical problems related to the decedent's vision would have interfered with her ability to drive in a safe and prudent manner." Plaintiff avers that during his years of chiropractic education, he took numerous courses, including general anatomy, which have provided him with a professional knowledge of the human skull and complications to the skull and facial bones and has also attended hundreds of hours of continuing education courses over the years and has certification in Applied Kinesiology, which is the science of muscle movement in the human body. Based on his experience and defendant's deposition testimony, plaintiff concludes there is a very strong possibility that Ms. Weiner's *1511 lateral movement in her eye was limited and he "believe[s] that [Ms. Weiner] had peripheral vision limitations of the right eye which affected her ability to see vehicles approaching from the side, primarily from the right." The court finds that plaintiff's proffered affidavit does not create a fact question for trial. In the first place, it is questionable whether a chiropractor qualifies to give expert opinion testimony regarding potential peripheral vision difficulties.[3] However, even more importantly, even if a chiropractor would so qualify and even were a factfinder to accept everything presented in plaintiff's affidavit as true, it does nothing to create a fact question in the present case. Plaintiff's opinion that Ms. Weiner had peripheral vision limitations is based on his "expert" training and experience. Nowhere does plaintiff opine that Ms. Weiner's alleged vision limitation would have been apparent to a lay person or, most important to this case, to defendant. The only evidence regarding any vision limitations of Ms. Weiner is the fact that she wore corrective lenses. Many people do. Ms. Weiner passed the vision test necessary to obtain a Kansas driver's license, and there is no evidence that her vision, peripheral or otherwise, decreased at any time following her passing the vision test. Accordingly, the court finds that there is no evidence in the record to support a finding that defendant was aware his daughter had a vision problem which would make it unsafe for her to drive. The only other evidence presented by plaintiff is that defendant had knowledge which established that his daughter "was an inexperienced driver." However, at sixteen years of age, virtually everyone is comparatively an inexperienced driver. That fact alone does not automatically make a parent who allows his or her sixteen-year-old to drive liable on a negligent entrustment claim absent any evidence that the parent had reason to know that his or her child's inexperience would make the child an incompetent driver. The only evidence presented in the record indicates that defendant had no such knowledge. In his deposition, defendant noted that his daughter had been driving since she was "somewhere between 14 and 15," she had taken a driver's education course, the defendant had been a passenger in a car driven by his daughter on occasions "too numerous to mention," and that after turning 16, his daughter drove "most anytime we went anywhere...." Based on all these experiences, defendant states that he believed his daughter was a safe and fit driver and that he had no reason to believe otherwise. Plaintiff has presented no evidence to contradict defendant's reasonable belief. V. Conclusion Following a review of the entire record presented to the court in this case, the court finds that plaintiff has failed to present any evidence which would create a fact question as to whether defendant knew or had reason to know that his daughter was an incompetent driver. Accordingly, his negligent entrustment claim fails. IT IS, THEREFORE, BY THE COURT ORDERED THAT defendant's motion for summary judgment (Doc. # 29) is granted. IT IS SO ORDERED. NOTES [1] Class C is the standard license classification for driving automobiles in Kansas. See K.S.A. § 8-234b(6). [2] A federal court sitting in diversity must apply the substantive law of the state in which it sits, including that state's choice of law rules. Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 496, 61 S. Ct. 1020, 1021-22, 85 L. Ed. 1477 (1941). Thus, the court must look to Kansas law to determine which state's laws should be applied. Under Kansas law, courts apply the traditional rule of lex loci delicti to choice of law for tort claims. Hawley v. Beech Aircraft Corp., 625 F.2d 991, 993 (10th Cir.1980); Brown v. Kleen Kut Manufacturing Co., 238 Kan. 642, 644, 714 P.2d. 942, 944 (1986). Under this rule, the law of the state where the tort occurred is applied to the substantive rights of the parties. Id. In this case, it could be said that the tort occurred in Kansas, which is where defendant allegedly entrusted his vehicle to his daughter. However, Kansas law is clear that where injuries occur in one state as result of a negligent act in another state, the liability of the parties is to be determined by the laws of the state in which the injury occurred. See Ling v. Jan's Liquors, 237 Kan. 629, 703 P.2d 731 (1985). Therefore, since the injury-causing accident occurred in Missouri, the court must apply Missouri substantive law. [3] Section 331.010 of the Missouri Revised Statutes defines the "practice of chiropractic" as "the science and art of examination, diagnosis, adjustment, manipulation and treatment of malpositioned articulations and structures of the body." A chiropractor is further defined as one declared not in the practice of medicine, operative surgery or osteopathy, but only licensed to adjust, manipulate or treat toward the restoring and maintaining the normal neuromuscular and musculoskeletal function and health.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1796930/

886 F. Supp. 202 (1995) Norman J. GALLANT, Plaintiff, v. BOC GROUP, INC., Defendant. Civ.A. No. 93-30081-MAP. United States District Court, D. Massachusetts. May 17, 1995. *203 *204 *205 Edward N. Marasi, Marasi & Franco, West Springfield, MA, for Norman J. Gallant. Joan I. Ackerstein, Robin A. Schaja, Jackson, Lewis, Schnitzler & Krupman, Boston, MA, for BOC Group, Inc. ORDER PONSOR, District Judge. For the reasons stated in the accompanying Memorandum, Defendant's Motion for Summary Judgment is hereby ALLOWED as to Counts I, II, and III and DENIED as to Count IV. MEMORANDUM REGARDING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT (Docket No. 37) I. INTRODUCTION Former sales representative, plaintiff Norman Gallant, challenges the termination of his employment from defendant BOC Group, Inc. ("BOC") on March 18, 1991.[1] Plaintiff alleges that defendant wrongfully terminated his employment because he complained of antitrust violations and because he refused to participate in the alleged illegal scheme. In plaintiff's amended complaint, he asserts violations of the Robinson Patman Act, 15 U.S.C. § 13 and Section 4 of the Clayton Act, 15 U.S.C. § 15 (Count I); a violation of the Pennsylvania Whistle Blowers Act, 43 PA. STAT. § 1423(a) (Count II); intentional infliction of emotional distress (Count III), and a discharge in violation of public policy (Count IV). Defendant now moves for summary judgment on all four counts. For the reasons set forth below, the court will allow defendant's motion for summary judgment on Counts I, II, and III, and deny summary judgment on Count IV. II. SUMMARY JUDGMENT STANDARD Summary judgment is appropriate where the record reveals no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter as law. Fed.R.Civ.P. 56(c). A factual dispute is genuine only "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Oliver v. Digital Equipment Corp., 846 F.2d 103, 105 (1st Cir.1988), quoting Anderson v. Liberty Lobby, 477 U.S. 242, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986). Although the court must view the record favorably to the nonmoving party, the nonmoving party must set forth "specific facts sufficient to demonstrate that every essential element of its claim or defense is at least trialworthy." Catrone v. Thoroughbred Racing Associations, 929 F.2d 881, 884 (1st Cir.1991). Trialworthiness necessitates that "[t]he evidence illustrating the factual controversy cannot be conjectural or problematic; it must have substance in the sense that it limns differing versions of the truth which a factfinder must resolve." Mack v. Great Atl. & Pac. Tea Co., 871 F.2d 179, 181 (1st Cir. 1989). *206 III. FACTUAL BACKGROUND The facts, as alleged by plaintiff, are as follows. BOC Group, through its wholly owned division Airco Gases, is engaged in the business of selling bulk industrial gases. BOC is a private, for-profit company, and is not funded by the state of Pennsylvania. Gallant was employed as a technical sales representative for the defendant from January 1990 through March 1991. Plaintiff claims that while employed at BOC he had a good working relationship with his supervisor, James Brazelton, and was an outstanding salesperson. Gallant alleges that in the course of his employment he became aware that defendant was engaged in price-fixing in violation of federal and state antitrust laws. Specifically, plaintiff alleges that BOC requested information about competitors' prices from potential customers and prospective employees and then agreed with its competitors not to compete with certain businesses. Gallant avers that he complained to his supervisor about the alleged antitrust violations orally and in writing and was terminated within weeks of making these complaints. Gallant further avers that BOC threatened that it would withhold payment of legitimate business expenses owed to him and would dispute the plaintiff's unemployment claim if he did not sign a separation letter releasing BOC from all claims. In fact, defendant did not pay the business expenses it owed and did contest his unemployment claim. The Unemployment Board granted Gallant unemployment compensation, and the hearing examiner made a finding of fact that the plaintiff was a good sales representative and had no problems until he complained that Airco was violating state and federal law. Gallant maintains that he suffered serious emotional distress as a result of defendant's actions. This court will now address each of plaintiff's four counts. IV. DISCUSSION A. Antitrust Standing In Count I, plaintiff asserts an antitrust claim against BOC under Section 4 of the Clayton Act, codified as 15 U.S.C. § 15. This provision of the Clayton Act provides, in relevant part, that [a]ny person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefor ... and shall recover threefold the damages by him sustained, and the cost of suit, including a reasonable attorney's fee. 15 U.S.C. § 15 (emphasis added). Plaintiff claims that BOC committed an antitrust violation by violating subsection (a) of the Robinson Patman Act, 15 U.S.C. § 13. Subsection (a) states that: It shall be unlawful for any person engaged in commerce ... either directly or indirectly, to discriminate in price between different purchasers of commodities of like grade and quality ... and where the effect of such discrimination may be substantially to lessen competition or tend to create a monopoly in any line of commerce or to injure, destroy or prevent competition with any person who either grants or knowingly receives the benefits of such discrimination, or with customers of either of them. § 13(a) (emphasis added). BOC maintains that Gallant lacks standing to bring an antitrust claim under the Clayton and Robinson Patman Acts. Thus, even assuming arguendo that defendant violated the antitrust laws, this court must first determine whether Gallant is the proper party to bring a private antitrust action. Associated General Contractors of Cal., Inc. v. California State Council of Carpenters, 459 U.S. 519, 535 n. 31, 103 S. Ct. 897, 907 n. 31, 74 L. Ed. 2d 723 (1983). The Supreme Court has held that Section 4 of the Clayton Act does not "allow every person tangentially affected by an antitrust violation to maintain an action to recover threefold damages for the injury to his business or property." Blue Shield of Va. v. McCready, 457 U.S. 465, 477, 102 S. Ct. 2540, 2547, 73 L. Ed. 2d 149 (1982). Instead, the Court has established a comprehensive antitrust standing doctrine to determine which persons are entitled to bring suit under the *207 Clayton Act. Associated General, 459 U.S. at 529-35, 103 S.Ct. at 903-07, 74 L. Ed. 2d 723 (1983); Sullivan v. Tagliabue, 25 F.3d 43, 45 (1st Cir.1994). See also SAS of Puerto Rico, Inc. v. Puerto Rico Telephone Co., 48 F.3d 39 (1st Cir.1995). The factors set forth in Associated General include: (1) the causal connection between the alleged antitrust violation and harm to the plaintiff; (2) an improper motive; (3) the nature of the plaintiff's alleged injury and whether the injury was of a type that Congress sought to redress with the antitrust laws ("antitrust injury"); (4) the directness with which the alleged market restraint caused the asserted injury; (5) the speculative nature of the damages, and (6) the risk of duplicative recovery or complex apportionment of damages. Sullivan, 25 F.3d at 46, citing Associated General, 459 U.S. at 537-45, 103 S.Ct. at 908-12.[2] These factors must be evaluated and weighed on a case-by-case basis. Id. 1. Antitrust Injury The court must first examine whether there is in fact an antitrust injury, that is, whether the alleged injury is of the type that the antitrust laws were designed to redress. Associated General, 459 U.S. at 538, 540, 103 S.Ct. at 908, 909. The First Circuit has stated that consideration of antitrust injury is a central factor in the standing calculus. Sullivan, 25 F.3d at 47. See, e.g., Balaklaw v. Lovell, 14 F.3d 793, 797-98 & n. 9 (2d Cir.1994); Todorov v. DCH Healthcare Auth., 921 F.2d 1438, 1449 (11th Cir.1991). In general, "competitors" or "consumers" are presumptively the favored plaintiffs to allege antitrust injury in the market in which the trade was restrained. SAS, 48 F.3d at 45. Gallant does not bring his claim as either a competitor or a consumer but as an employee whose injuries resulted from the loss of his employment. Furthermore, employees of alleged antitrust violators, such as Gallant, are on the list of presumptively disfavored plaintiffs, i.e., persons who may be derivatively injured, but are denied standing to sue. Id. There may be some instances when presumptively disfavored plaintiffs do have standing to bring an antitrust action. Id. In SAS, the court stated that although competitors and consumers are presumptively favored, "`presumptively' does not mean always; there can be exceptions, for good cause shown." Id. This exception does not apply in this instance. The "most obvious reason for conferring standing on a second-best plaintiff is that ... there may be no first best with the incentive to sue." Id.; cf. Associated General, 459 U.S. at 542, 103 S.Ct. at 910. In this situation, competitors and consumers have both the incentive and an ample opportunity to bring an antitrust claim. There is no reason to extend the doctrine of antitrust standing to Gallant, an individual incidentally connected to the antitrust violation. Some courts have interpreted the Supreme Court's decision in Blue Shield v. McCready as extending standing to a third category of individuals whose injury is inextricably intertwined with the injury that the antitrust violators sought to inflict. See Ashmore v. Northeast Petroleum Div., 843 F. Supp. 759, 760-70 (D.Me.1994); Ostrofe v. H.S. Crocker Co., 740 F.2d 739 (9th Cir.1984). One year prior to Associated General, the McCready court held that a consumer of health services could sue under the antitrust laws to redress a supposed conspiracy between her insurance plan and Virginia psychiatrists. The plan excluded psychologists from receiving compensation under the plan. Although McCready was not the immediate target of the alleged boycott, she was a plan beneficiary who had used a psychologist and had been denied reimbursement. The Supreme Court said that McCready's injury "was inextricably intertwined with the injury the conspirators sought to inflict on psychologists and the psychotherapy market," and was granted standing. McCready, 457 U.S. at 484, 102 S.Ct. at 2551. The Court further stated that *208 McCready was the "necessary step in effecting the ends of the alleged illegal conspiracy." Id. at 479, 102 S.Ct. at 2548. It is doubtful that the language in McCready was ever intended as a legal test of standing. SAS, 48 F.3d at 46. Moreover, in McCready, while standing was conferred to a plaintiff who was only derivatively injured, it is important to highlight that the plaintiff was a consumer in the very market directly affected by the antitrust violation. In adopting the antitrust standing doctrine, the Court in Associated General simply reinterpreted the McCready language as a legal conclusion; i.e., applying the "inextricably intertwined" standard to consumers and competitors. See SAS, 48 F.3d at 46. Although some courts have conferred standing on individuals who are neither consumers or competitors,[3] in light of the analysis set forth in SAS, this court is not inclined to expand upon the doctrine of standing currently in place in this circuit. Even under a broad reading of McCready, it is clear that Gallant's termination was not a necessary instrument to effectuate the alleged conspiracy. McCready, 457 U.S. at 479, 102 S.Ct. at 2548. Here, plaintiff's sole involvement with BOC was as an employee, and, as such, he is not the appropriate plaintiff. See SAS, 48 F.3d at 45. In this instance, termination of employment of a "second-best" plaintiff is not the type of injury the antitrust laws were enacted to protect. SAS, 48 F.3d at 45. 2. Directness of Injury and Causal Nexus Two additional and related factors set forth in Associated General are (1) the causal connection between the alleged antitrust violation and the harm to the plaintiff and (2) the directness of the asserted injury. Associated General, 459 U.S. at 542, 103 S.Ct. at 910. The first inquiry is whether there was a causal connection between BOC's alleged antitrust violation and Gallant's discharge. Plaintiff satisfies the first inquiry. Plaintiff contends that if not for the implementation of the allegedly illegal scheme, he would not have had to resist such conduct and, consequently he would not have been discharged. Clearly the two events are causally related. However the existence of a causal connection alone is not enough. Any causal connection between the alleged violations and Gallant's discharge is not sufficiently direct to make the discharge itself an antitrust violation. Reitz v. Canon U.S.A., Inc., 695 F. Supp. 552, 553 (S.D.Fla.1988). Gallant alleges that his loss of employment was a direct consequence of the alleged anticompetitive behavior. But the facts, even when viewed in the light most favorable to the plaintiff, do not support his contention. While Gallant claims that his loss of employment occurred in furtherance of defendant's illegal acts, the employment market was not the target of the alleged anticompetitive violations. The purpose of the alleged scheme was to prevent price competition for customers, not to prevent plaintiff's employment. Even assuming that plaintiff's allegations are true, the termination of his employment is only a "byproduct" of the agreement not to compete. Fallis v. Pendleton Woolen Mills, Inc., 866 F.2d 209, 211 (6th Cir.1989).[4] More direct victims existed. Any injury to plaintiff is merely incidental to the alleged agreement to prevent price competition for customers. Moreover, plaintiff has made no showing that the price fixing scheme was intended to harm him in any way. *209 3. Speculative Nature of Damages, Duplicative Recovery and Complex Apportionment of Damages Under Associated General, courts are also required to consider whether a "claim rests at bottom on some abstract conception or speculative measure of harm." Associated General, 459 U.S. at 543, 103 S.Ct. at 911, citing McCready, 457 U.S. at 475, n. 11, 102 S.Ct. at 2546, n. 11. In his complaint, plaintiff asserts that he suffered compensatory damages due to his inability to get sales, lack of business, and wrongful termination. He also seeks treble damages as provided by the Clayton Act, punitive damages for wrongful termination, and attorney's fees and other costs and expenses. There is no question that many of the requested damages are quantifiable. Although plaintiff's damages are not necessarily speculative, "if the court were to allow all indirect victims standing to sue, the dangers of duplicative recovery and complex apportionment of damages would become very real." See Fallis, 866 F.2d at 211-12, citing Province v. Cleveland Press Publishing Co., 787 F.2d 1047 (6th Cir.1986). See also Southaven Land Co. v. Malone & Hyde, Inc., 715 F.2d 1079, 1087 (6th Cir.1983) ("Particularly, indirect injuries may render damages highly speculative or create situations of complexity that would foreclose an equitable determination and apportionment of damages."). This is so because remote and direct plaintiffs potentially would be asserting conflicting claims over a common fund. In sum, even if plaintiff is correct in his allegations concerning defendant's conduct, his injury cannot be redressed under the Clayton and Robinson Patman Acts. The relevant factors — the nature of Gallant's injury, the existence of more direct victims of the alleged violations and the risk of duplicative recovery and complex apportionment of damages — weigh heavily against judicial enforcement of plaintiff's claims. Summary judgment will therefore be granted on this count. B. Pennsylvania Whistle Blowers Act Plaintiff alleges that BOC's conduct violated the Pennsylvania Whistle Blowers Act, 43 PA.STAT. § 1423(a). The Act provides that: 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 or is about to report, verbally or in writing, to the employer or appropriate authority an instance of wrongdoing or waste. By its own terms, the Act's scope is limited to employees discharged from governmental entities or any other "public body" which is created or funded by the government. § 1422.[5]See also Krajsa v. Keypunch, Inc., 424 Pa.Super. 230, 622 A.2d 355 (1993). BOC is a private corporation and is not funded in any way by the Commonwealth of Pennsylvania. For this reason, the Pennsylvania Whistle Blower's Act is inapposite in the instant case.[6] Summary Judgment will therefore be granted on Count II. C. Intentional Infliction of Emotional Distress Plaintiff's claim for intentional infliction of emotional distress is precluded by the exclusivity provision of the Pennsylvania Workers' Compensation Act, 77 PA.STAT. § 481(a). The Workers' Compensation Act is the exclusive remedy for "any work related injury." Poyser v. Newman & Co., 514 Pa. *210 32, 36, 522 A.2d 548 (1987), citing Kline v. Arden H. Verner Co., 503 Pa. 251, 253, 469 A.2d 158 (1983). The exclusivity provision of the workers' compensation statute provides, in relevant part, that "liability of an employer under this act shall be exclusive and in place of any and all other liability ... on account of any injury or death...." § 481(a). Thus, an employee waives his right of action at common law with respect to any injury that is compensable under this chapter.[7] Work related injuries arising out of intentional torts are no exception to the exclusivity provision. Poyser, 514 Pa. at 36, 522 A.2d 548. Thus, injuries arising out of intentional torts, including the intentional infliction of emotional distress, committed in the course of an employment relationship must be brought under the administrative scheme set forth in the worker's compensation statute and are precluded at common law. Whitney v. Xerox Corp., 1994 WL 412429 at * 5 (E.D.Pa. August 2, 1994) (employee's claim that he suffered severe emotional distress as a result of employer's actions to force his resignation was barred by the Workers' Compensation Act). Plaintiff's allegations that BOC refused to pay him certain expenses and threatened to contest his claim for unemployment arise out of their employment relationship and therefore are barred by the exclusivity provision of the worker's compensation act. Accordingly, BOC is entitled to judgment on Count III of plaintiff's complaint. Moreover, in order to prevail under a common law theory of intentional infliction of emotional distress, plaintiff must show that the conduct was "so outrageous and extreme that it goes beyond all bounds of decency and would be regarded as atrocious and utterly intolerable in a civilized community." Gonzalez v. CNA Ins. Co., 717 F. Supp. 1087, 1088 (E.D.Pa.1989) (employee's claim that employer falsely accused him of sexually harassing employee insufficient to support a claim for intentional infliction of emotional distress); Cox v. Keystone Carbon Co., 861 F.2d 390, 395 (3rd Cir.1988), appeal after remand, 894 F.2d 647 (3rd Cir.1990), cert. denied, 498 U.S. 811, 111 S. Ct. 47, 112 L. Ed. 2d 23 (1990) (employer's discharge of employee on first day back to work after triple bypass heart surgery insufficient to support a claim for intentional infliction of emotional distress). In Pennsylvania, "[i]t is extremely rare to find conduct in the employment context that will rise to the level of outrageousness necessary to support a claim for intentional infliction of emotional distress." Glickstein v. Consolidated Freightways, 718 F. Supp. 438, 441 (E.D.Pa.1989). Defendant's refusal to allow plaintiff to obtain unemployment compensation or his legitimate expenses and its alleged demand that plaintiff sign a release, as a matter of law, do not rise to the required level of outrageousness. For all these reasons, summary judgment will be granted on Count III. D. Discharge in Violation of Public Policy In Count IV, Gallant alleges that he was discharged for his refusal to violate antitrust laws in violation of public policy. Pennsylvania recognizes a common law cause of action for wrongful discharge, even of an employee-at-will, if the reason for the discharge offends a clear mandate of public policy. Brown v. Hammond, 810 F. Supp. 644, 646 (E.D.Pa.1993). Thus, an employee may have a cause of action where he is discharged for refusing to violate the law. See Clark v. Modern Group, 9 F.3d 321, 331-32 (3d Cir.1993); Woodson v. AMF Leisureland Centers, Inc., 842 F.2d 699 (3d Cir. 1988). Pennsylvania's public policy exception to the at-will doctrine does not extend to cases in which an employee "reasonably believes" that his employer has requested him to perform an unlawful act and is discharged for objecting to the proposal he believes is unlawful. Clark, 9 F.3d at 330. Therefore, Gallant must demonstrate that the defendant's *211 activities were indeed illegal under federal antitrust law. Id. at 332. The Patman Act prohibits any discrimination where the effect may be to lessen competition, create a monopoly, or prevent competition with any person. Plaintiff alleges that defendant violated the antitrust laws by requesting information about competitors' prices from potential customers and prospective employees and by agreeing with its competitors not to compete for certain business. Gallant further claims that defendant restricted bids on certain business held by its competitors, controlled all the pricing given by the plaintiff, and ordered the sales representatives to delay bids past the allowable contract period so that the customer would not be able to accept the plaintiff's prices. In addition, Gallant claims that the defendant ordered "retaliatory strikes" to be executed against competitors who were not exercising "market integrity" — i.e., fixing prices. These "retaliatory strikes" were intentional low bids on business held by certain competitors who were not behaving in conformance with the scheme. Furthermore, plaintiff claims that defendant ordered the plaintiff and others to obtain contracts, prices, and length of contracts from customers in order to control the market and the pricing of products. The facts, viewed in the light most favorable to the plaintiff, are sufficient to allege a violation of the Robinson Patman Act. In other words, it would not be unreasonable for a juror to conclude that the activities of the defendant were done to control the price, the market, and the competition within the industry. Of course, these facts will be contested at trial. But a reasonable juror could find that the defendant was engaged in illegal antitrust activities and that as a result of plaintiff's complaint about these activities, he was discharged in violation of public policy. V. CONCLUSION For the foregoing reasons this court hereby ALLOWS defendant's motion for summary judgment on Counts I, II, and III and DENIES the motion as to Count IV. A separate order will issue. NOTES [1] Plaintiff filed this action on March 1, 1993 in the Superior Court. BOC removed the action to this court on April 19, 1993. [2] In Associated General, the Court found that two factors, the causal connection between the plaintiff's alleged injuries and the violation of antitrust laws, and the allegation of improper motive, supported a grant of standing, and that a consideration of the remaining factors necessitated the denial of standing. Id. at 545, 103 S.Ct. at 912. [3] Ashmore v. Northeast Petroleum Div., 843 F. Supp. 759, 760-70 (D.Me.1994) (employees discharged in retaliation for their failure to violate the antitrust laws sustained "antitrust injury" and had standing to sue.) [4] In Fallis, the court held that a sales representative lacked standing to maintain an antitrust action against his former employer based on a claim that he was discharged because he refused to participate in a vertical price fixing scheme. The court stated that although the representative's alleged role as a "fulcrum" for employer's pressure on discounters weighed in favor of standing, this factor was outweighed by indirectness of his injury, existence of more direct victims, and resulting danger of double recovery or complex apportionment of damages. Fallis, 866 F.2d at 212. [5] "Public bodies" is defined as all of the following: (1) A State officer, agency, department, division, bureau, board, commission, council, authority or other body in the executive branch of State Government; (2) A county, city, township, regional governing body, council, school district, special district or municipal corporation, or a board, department, commission, council or agency; (3) any other body which is created by Commonwealth or political subdivision authority or which is funded in any amount by or through Commonwealth or political subdivision authority or a member or employee of that body. 43 P.S. § 1422. [6] Moreover, in the opposition to defendant's motion for summary judgment, plaintiff essentially concedes that the plaintiff is not entitled to protection under the Pennsylvania Whistle Blowers Act. [7] Pennsylvania courts have held that psychological or emotional harm is a compensable "injury" within the meaning of the Workers' Compensation Act. Stylianoudis v. Westinghouse Credit Corp., 785 F. Supp. 530, 532 (W.D.Pa.1992), citing William McDonough v. Workmen's Compensation Appeal Bd., 80 Pa.Commw. 1, 470 A.2d 1099 (1984).

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1797388/

744 F. Supp. 628 (1990) MARYLAND CASUALTY COMPANY, Plaintiff v. Lee Albert FITZE, Defendant. No. 3:CV-90-0890. United States District Court, M.D. Pennsylvania. August 31, 1990. Lucille Marsh, Kreder, O'Connell, Brooks & Hailstone, Scranton, Pa., for plaintiff. Cal Leventhal, Dougherty, Mundy, Leventhal & Price, Kingston, Pa., for defendant. MEMORANDUM AND ORDER CONABOY, Chief Judge. This is a declaratory judgment action initiated by the Maryland Casualty Company in which the terms and provisions of an automobile insurance policy are in dispute. The issue presented to the court is whether the Pennsylvania Motor Vehicle Financial Responsibility Law, 75 Pa.Con.Stat.Ann. §§ 1701 et seq. (hereinafter "MVFRL"), allows an insured to "stack" his underinsured motorist coverage in excess of his liability coverage. We find that it is permissible and judgment will be entered in favor of the Defendant, Lee Albert Fitze, and against the Plaintiff. I Plaintiff filed its complaint on May 8, 1990, and served the initial pleading within the 120 day period as required by FRCP 4(j). A Practice Order was then issued setting July 1, 1990, as the date for filing of motions to dismiss or for summary judgment. On May 24, 1990, the Defendant filed his answer to the complaint. Cross motions for summary judgment were filed by the Plaintiff and Defendant on June 26, 1990 and July 11, 1990, respectively. The dispositive motions have been fully briefed and are now ripe for our consideration. II The parties to this action agree that the relevant facts of this case are undisputed. Specifically, on December 30, 1988, Lee Albert Fitze was injured in an automobile accident. The negligent party who caused the accident was covered by an insurance policy for personal liability in the amount of $100,000.00. That policy amount has now been exhausted and Defendant Fitze wishes to recover on his own policy's underinsured motorist protection. The disputed policy, issued by the Maryland Casualty Company, covers two vehicles and affords bodily injury liability insurance in a single limit of $100,000.00 and uninsured motorist/underinsured motorist benefits in the same amount. The Defendant is seeking to stack his underinsured motorist benefits on each of the two vehicles for a total of $200,000.00 of available benefits and cites as his authority the case of North River Insurance Co. v. Tabor, 744 F. Supp. 625 (M.D.Pa.1990), appeal docketed, Civ. No. 90-5709 (3d Cir. August 9, 1990). On the other hand, the Plaintiff asserts that Fitze is not entitled to stack by virtue of Section 1736 of the Motor Vehicle Financial Responsibility Law of Pennsylvania, codified at 75 Pa.C.S.A. § 1736. In support *629 of this proposition, the Plaintiff cites the recent decision of Judge Waldman in Chartan v. Chubb Corp., 725 F. Supp. 849 (E.D. Pa.1989). III In order for a moving party to prevail on a motion for summary judgment, the party must first show that there is no genuine issue as to any material fact. Once that is demonstrated, the movant must establish he or she is entitled to judgment as a matter of law. See Fed.R.Civ.P. 56(c); 7 Wright & Miller, Federal Practice and Procedure; Civil Section 2712. As to the first matter, the substantive law of the case identifies which facts are material. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 2510, 91 L.Ed.2d. 202 (1986). In this case, the parties agree that Defendant Fitze has an automobile insurance policy with the Maryland Casualty Company and that he is entitled to under-insured motorist benefits. The dispute, however, occurs in the interpretation as to the extent of coverage. The courts have held that such issues as policy limits which relate to the interpretation of an insurance policy, as well as related statutory provisions applicable to those policies, have been held to be issues properly left to legal determination. See Chartan, supra at 851 citing Myers v. State Farm Insurance Co., 842 F.2d 705, 708 (3d Cir. 1988); Tabor, supra. Consequently, since no material facts are in dispute and a purely legal question has been presented, this matter is appropriate for resolution under Fed.R.Civ.P. 56. IV Whether an individual can use the concept of stacking to augment the amount recoverable in a policy is not in dispute. Both sides agree that stacking is allowable under Pennsylvania's Motor Vehicle Financial Responsibility Law. The issue that must be addressed here, however, is whether there are maximum limits on stacking of uninsured and underinsured motorist coverage. There are no state court decisions directly on point, but two federal cases have addressed the issue. In Chartan v. Chubb Corp., 725 F. Supp. 849 (E.D.Pa.1989), Judge Jay C. Waldman held that permitting individuals to stack uninsured or underinsured motorist coverage beyond that of liability coverage would be inconsistent with MVFRL and the purpose behind its provisions. The court came to this conclusion based on three factors: (1) the statutory language of the Act; (2) what the court perceived to be the legislative intent of the Pennsylvania General Assembly; and (3) recent state court decisions in Wolgemuth v. Harleysville Mutual Insurance Co., 370 Pa.Super. 51, 535 A.2d 1145 (1988) (en banc) and Tallman v. Aetna Casualty and Surety Co., 372 Pa.Super. 593, 539 A.2d 1354 (1988), appeal denied, 520 Pa. 607, 553 A.2d 969 (1988). Beginning with the language of the statute, the Chartan court looked to Subchapter C of MVFRL dealing with uninsured and underinsured motorist coverage. See 75 Pa.Cons.Stat.Ann. §§ 1731-1736. The relevant statutory language, in effect at the time of Defendant Fitze's accident, provides as follows: § 1736. Coverage in excess of required amounts The coverages provided under this subchapter may be offered by insurers in amounts higher than those required by this chapter but may not be greater than the limits of liability specified in the bodily injury liability provisions of the insured's policy. Interpreting this section, Judge Waldman found that the stated value of a policy's uninsured and underinsured motorist coverage can not be greater than the policy's limits on liability, and also that stacking of these benefits beyond the stated limits of liability was impressible. Specifically, the court stated: Permitting individuals to stack uninsured or underinsured motorist coverage beyond that of liability coverage would be inconsistent with § 1736 and undermine the purpose behind it. The legislative intent in enacting § 1736 was to "prevent the new insurance system from *630 degenerating into a purely first-party insurance system, where each driver [was] insured against his or her own loss, but no driver insure[d] against the damage he or she may do to others." J. Ronca, L. Sloan & J. Mundy, An Analysis of the Financial Responsibility Law 104, § 6:11 (1986). As the Pennsylvania Superior Court recently noted in discussing this section: The legislature has thus prevented an insured from providing greater coverage, via uninsured/underinsured coverages, for himself and his additional insureds than the amount of coverage he provides for others injured through his negligence. Wolgemuth v. Harleysville Mutual Insurance Co., 370 Pa.Super. 51, 55 n. 3, 535 A.2d 1145 (1988) (en banc). Acceptance of plaintiff's argument would permit individuals effectively to orchestrate coverage to provide adequately for their own loss but not that of potential victims of their negligence ... The legislature reasonably could not have intended to permit by means of stacking what it forbade by means of purchasing coverage directly. Chartan, supra at 853. Eight months later, in North River Insurance Co. v. Tabor, 744 F. Supp. 625 (M.D.Pa.1990), appeal docketed, Civ. No. 90-5709 (3d Cir. August 9, 1990), Judge Sylvia H. Rambo came to the opposite conclusion. Finding a strong legislative policy favoring the concept of stacking and support for that interpretation through a series of state court decisions, Judge Rambo determined that § 1736 was not meant to limit the maximum amount of recovery by an insured when stacking uninsured and underinsured benefits. The Tabor opinion, relying strongly on prior case law favoring the general concept of stacking, followed what it perceived to be the intent of the legislature to allow unlimited stacking. In reaching this conclusion, the Tabor court looked more at what was omitted in Subchapter C rather than the actual language of provisions found there. Specifically, the court noted that under Section 1717 of the statute, the legislature expressly forbid the concept of stacking for liability coverage of first party benefits. The exact wording of the provision, as contained under Subchapter B covering liability insurance, provides the following: § 1717. Stacking of benefits First party benefits shall not be increased by stacking the limits of coverage of: (1) multiple motor vehicles covered under the same policy of insurance; or (2) multiple motor vehicles policies covering the individual for the same loss. Since a similar condition is not contained under Subchapter C concerning uninsured and underinsured motor vehicle coverage, Judge Rambo concluded "that the legislature did not intend to preclude stacking of underinsured coverage." Tabor, supra at 626. Continuing on, the Tabor court cites several state court decisions favoring the concept of stacking. Tabor at 627 citing State Farm Mut. Auto. Ins. Co. v. Williams, 481 Pa. 130, 392 A.2d 281 (1978); Tallman v. Aetna Casualty & Sur. Co., 372 Pa.Super. 593, 539 A.2d 1354, appeal denied, 520 Pa. 607, 553 A.2d 969 (1988); Sones v. Aetna Casualty and Sur. Co., 270 Pa.Super. 330, 411 A.2d 552 (1979). A reading of these cases provides the justification for stacking, which is aptly recounted in Tallman, supra: [F]irst, ... it furthers the policies sought to be accomplished by the act; and second, that the intended beneficiary of an uninsured motorist policy is entitled to multiple coverage when multiple premiums have been paid. The latter rationale is grounded in the belief that a person has reasonable expectations when he pays separate premiums that he has obtained coverage under separate policies, and therefore is entitled to benefits under each. Id. 539 A.2d at 1356, quoting Utica Mutual Insurance Company v. Contrisciane, 504 Pa. 328, 338, 473 A.2d 1005, 1010 (1984). *631 Finally, Judge Rambo concludes her reasoning in support of unlimited stacking of uninsured and underinsured coverage by citing a new provision recently enacted by the state legislature. Section 1738, which became effective July 1, 1990, provides, in relevant part: § 1738. Stacking of uninsured and underinsured benefits and options to waive (a) Limit for each vehicle.— When more than one vehicle is insured under one or more policies providing uninsured or underinsured motorist coverage, the stated limit for uninsured or underinsured coverage shall apply separately to each vehicle so insured. The limits of coverages available under this subchapter for an insured shall be the sum of the limits for each motor vehicle as to which the injured person is an insured. (b) Waiver.— Notwithstanding the provisions of subsection (a), a named insured may waive coverage providing stacking of uninsured or underinsured coverages in which case the limits of coverage available under the policy for an insured shall be the stated limits for the motor vehicle as to which the injured person is an insured. (c) More than one vehicle.— Each named insured purchasing uninsured or underinsured motorist coverage for more than one vehicle under a policy shall be provided the opportunity to waive the stacking limits of coverage and instead purchase coverage as described in subsection (b). The premiums for an insured who exercises such waiver shall be reduced to reflect the different cost of such coverage. 1990 Pa. Legis. Serv. 23 (Purdon) (Act No. 1990-6). Based on this newly enacted provision, the Tabor court believes that the legislative intent is "borne out" to allow stacking of uninsured and underinsured benefits in excess of the maximum recoverable amount under first party liability coverage. Tabor at 627. V An analysis of both the Chartan and Tabor decisions, and the state court precedents which they cite, leads to the conclusion that the use of stacking of uninsured and underinsured coverage is permissible. In laying the foundation to justify its reasons not to limit recovery under stacking, the Tabor court found: The Pennsylvania legislature's intent on the issue of stacking can be determined from several sources. First, while the legislature specifically excluded the stacking of first party benefits in Section 1717 of the MVFRL, 75 Pa.Cons.Stat. Ann. § 1717 (Purdon Cum.Supp.1990), it made no such provision in the uninsured/underinsured provisions of the act. One can conclude, therefore, that the legislature did not intend to preclude stacking of underinsured coverage. Tabor at 626. The Chartan court would agree with the basic premise that stacking is allowable under Subchapter C for uninsured and underinsured benefits although it would not be allowed for liability coverage under Subchapter B. Chartan at 553 citing Tallman v. Aetna Casualty and Surety Co., 372 Pa.Super. 593, 539 A.2d 1354 (1988), appeal denied, 520 Pa. 607, 553 A.2d 969 (1988). The Chartan court goes on, however, to concluded that a further extension of this argument to justify unlimited stacking under Subchapter C would be inappropriate. To that end, Judge Waldman explained: Finally, plaintiff argues that, because § 1717 of the statute expressly forbids stacking of first party benefits, and because no such provision appears in Subchapter C, the legislature intended to permit stacking of uninsured benefits in excess of liability coverage. (footnote omitted) While the premises of plaintiff's argument are valid, her conclusion is not sound. Tallman established the right to stack coverage under Subchapter C in those instances where an insured has made an election pursuant to § 1734. Section 1736, however, reflects a clear decision by the General Assembly to limit the extent to which such coverage may be stacked. In short, one would not expect to find a provision parallelling that of § 1717 in Subchapter C for the simple *632 reasons that § 1717 bars stacking entirely while Subchapter C does not. Chartan at 854. Moreover, the Chartan court emphasized that Section 1736 of MVFRL provides that uninsured and underinsured coverage "may not be greater than the limits of liability specified in the bodily injury provisions of the insured's policy." Though Section 1736 does not mention the term "stacking", the Chartan court concluded that "[t]he legislature reasonably could not have intended to permit by means of stacking what it forbade by means of purchasing coverage directly." Chartan at 853. The court in Tabor, however, disagrees with this conclusion and makes a strong argument based on the legislative intent surrounding the newly enacted provisions of MVFRL. Although the new provisions would not apply to the Defendant's policy, the court apparently used the new enactment based on the rule of statutory construction that the General Assembly is presumed to be familiar with the law as it then existed when it enacts new legislation. Tabor at 626; 1 Pa.Cons.Stat.Ann. § 1921(c)(5) (Purdon Cum.Supp.1990). Judge Rambo appears to argue that the new provisions serve to clarify, not correct, any deficiencies concerning stacking provisions for uninsured and underinsured benefits. The new law now provides an opportunity for an insured to utilize stacking or waive its provisions. 75 Pa.Cons.Stat.Ann. § 1738. If an insured chooses to have a stacking option, the limits of coverage "shall be the sum of the limits for each motor vehicle as to which the injured person is an insured." Id. at § 1738(a). If an insured chooses to waive the ability to stack coverage, they are entitled to a reduced premium to reflect the different cost of such coverage and their benefits would be restricted to "the stated limits for the motor vehicle as to which the injured person is an insured." Id. at § 1738(b) and (c). The terms of Section 1736, to which the Chartan court relied to limit stacking coverage, was left untouched by the legislature. Be that as it may, Judge Rambo argues that in light of this new provision, the legislative intent not to limit stacking of uninsured and underinsured benefits in relation to liability coverage is "borne out". We agree. The mischief sought to be curb by enacting § 1736 was to prohibit persons from securing greater coverage for themselves at the expense of the general public. By requiring minimum coverage levels and limiting the stated policy value of uninsured and underinsured coverage, the legislature sought to have all motorists financially responsible for injuries incurred by or to them in a motor vehicle accident. In allowing stacking, however, the legislature also recognized that an unwary consumer in the often confusing insurance marketplace should have a reasonable expectation to receive what he or she believes was purchased in terms of coverage. For this is not a case in which the Defendant was acting irresponsibly in securing coverage. Rather, Fitze obtained liability coverage in the amount of $100,000.00, far in excess of the $15,000.00 required by law. He also secured $100,000.00 as to each of the two vehicles he owned for uninsured and underinsured coverage. To allow the Defendant to recover in excess of his liability coverage would not, in this court's opinion, defeat the purpose of the Act in requiring a motorist to be financially responsible for any injuries suffered or caused by his or her negligence. The intended beneficiary of an underinsured motorist policy is entitled to multiple coverage when a higher premium has been paid. The legislature recognized this when enacting the new provisions of MVFRL by requiring a reduction in premiums where stacking is waived. For not only should the law promote a source of fiscal security to assist a faultless and injured victim of an automobile accident, but also, it should provide for consumer protection to the millions of policyholders in a habitually vague and unfamiliar realm dominated by the insurance industry. If the legislature intends to place limits on stacking of uninsured and underinsured *633 benefits, it has the authority to explicitly do so. Until that time, this court will not read into the law a restrictive provision which would, as in this case, cause harm to an injured victim who acted responsibly when securing coverage for his own liability as well as providing protection for himself. We acknowledge that the limitations under § 1736 still exists, but we believe a literal reading of the statute is required which would narrowly limit its application to the stated policy limits on the face of the insurance contract until the legislature expressly provides otherwise. Accordingly, an appropriate order is attached. ORDER AND NOW, this 31st day of August, 1990, IT IS HEREBY ORDERED THAT: 1. Plaintiff's motion for summary judgment is DENIED. 2. Defendant's motion for summary judgment is GRANTED. 3. Judgment is herein entered in favor of the Defendant, Lee Albert Fitze, and against the Plaintiff, Maryland Casualty Company. 4. The Clerk of Court is directed to close this file.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1800642/

681 F. Supp. 549 (1988) P.M.F. SERVICES, INC. and Richard Rueth, Plaintiffs, v. Daniel J. GRADY, Lynn Grady, Mount Greenwood Bank, and The Northern Trust Company, Defendants. No. 87 C 9113. United States District Court, N.D. Illinois, E.D. March 10, 1988. *550 Michael R. Collins, Harold E. Collins & Assocs., Ltd., Chicago, Ill., for plaintiffs. Denise M. Higgins, Burke & Burke, Ltd., Chicago, Ill., for Mt. Greenwood. Claudia J. Lovelette and Angela S. Curran, Burke, Bosselman & Weaver, Chicago, Ill., for Northern Trust Co. MEMORANDUM OPINION AND ORDER SHADUR, District Judge. P.M.F. Services, Inc. ("P.M.F.") and Richard Rueth ("Rueth") have sued Daniel Grady, individually and doing business as PMF Services ("Grady"),[1] his wife Lynn *551 Grady, Mount Greenwood Bank ("Mt. Greenwood") and the Northern Trust Company ("Northern"), alleging violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO") as well as state law claims of conversion and negligence.[2] Mt. Greenwood and Northern have moved to dismiss the Complaint as to them under Fed.R.Civ.P. ("Rule") 12(b)(6) for failure to state a claim on which relief may be granted and, in the case of Mt. Greenwood, under Rule 9(b) for failure to plead fraud with particularity. For the reasons stated in this memorandum opinion and order, Mt. Greenwood's motion is granted in its entirety and Northern's motion to dismiss the conversion count is granted. Northern's motions to dismiss or for a more definitive statement of the negligence count are denied. FACTS[3] P.M.F. is an Indiana corporation (¶ 2). Rueth is identified only as a citizen of Indiana. His relationship to P.M.F. is not alleged, although he "has been caused to expend and become liable for large sums of money necessary to finance and continue the business of P.M.F." (¶ I.23). Illinois citizen Grady was an employee of P.M.F. Finally, Mt. Greenwood and Northern are Illinois banking companies. In April 1986 Grady opened an account at Mt. Greenwood as a sole proprietor doing business as "PMF Services" (¶ I.8). From then through August 1987 he stole checks belonging to P.M.F.,[4] transported them to Illinois and deposited them in his Mt. Greenwood account (¶¶ I.9, 10). Grady later withdrew funds from the account for his benefit and that of his wife (¶ I.13). Nothing in the Complaint indicates how many checks Grady stole or deposited or how many withdrawals he made. Its ¶ I.11 asserts Mt. Greenwood "knew or should have known" the checks were stolen and that accepting those checks therefore violated 18 U.S.C. § 2315 ("Section 2315"). Similarly, its ¶ I.12 asserts Mt. Greenwood sent statements on Grady's "PMF Services" account to Grady's home rather than to P.M.F., thereby furthering a fraudulent scheme in violation of the mail fraud statute (18 U.S.C. § 1341 or "Section 1341"). Mt. Greenwood profited from the scheme through the service charges on Grady's account and by investing the account balance (¶ I.21). *552 Northern's alleged involvement was less extensive than that of Mt. Greenwood. It was the payor bank[5] on numerous checks it paid over the forged endorsement of P.M.F. (¶ IV.1.). CONTENTIONS OF THE PARTIES Plaintiffs say those allegations state these RICO claims against Mt. Greenwood: 1. Mt. Greenwood participated directly and indirectly in the conduct of P.M.F. through a pattern of racketeering activity in violation of RICO § 1962(c). 2. Mt. Greenwood maintained an interest in and control over P.M.F. through a pattern of racketeering activity in violation of RICO § 1962(b). 3. Mt. Greenwood invested its income from the account in its own operations in violation of RICO § 1962(a). Because each violation assertedly injured P.M.F. and Rueth in their business and property, under Complaint Count I they assert liability under RICO § 1964(c). P.M.F. also says Mt. Greenwood converted P.M.F.'s checks by accepting Grady's forgeries (Count III) and negligently breached its duty of reasonable care to P.M.F. when it negotiated checks under a forged endorsement (Count V). P.M.F. says Northern converted its funds by paying on the forged P.M.F. endorsement (Count IV) and was also negligent in doing so (Count V). Mt. Greenwood raises six challenges to the RICO count: 1. Rueth's claim must be dismissed because it is not alleged he was directly harmed by any RICO violation. 2. Allegations of the predicate offenses—mail fraud and receiving stolen property—are insufficient. 3. There is no allegation of a pattern of racketeering activity. 4. P.M.F. was not harmed "by reason of" Mt. Greenwood's investment in itself, so the claim based on RICO § 1962(a) fails. 5. Mt. Greenwood had no "interest" or "control" over P.M.F., so the claim based on RICO § 1962(b) fails. 6. Mt. Greenwood did not participate in or conduct the affairs of P.M.F., so the claim based on RICO § 1962(c) fails. As for the conversion claims, each of Mt. Greenwood and Northern contends the Complaint does not adequately allege the necessary elements of such an action. Finally, as to the negligence claims, Mt. Greenwood says it had no duty of reasonable care to P.M.F. (a predicate for negligence liability), while Northern says the negligence count is too vague to state a claim. RICO RICO § 1964(c) creates a private cause of action for "any person injured in his business or property by reason of a violation of section 1962." Pleading RICO violations and the consequent private cause of action is a legal field strewn with pitfalls. Plaintiffs' counsel has managed to land in many of them. As will be seen, many of the problems represent pleading errors rather than the legal impossibility of pleading RICO violations, so counsel may perhaps be entitled to another try. 1. Rueth's RICO Standing As already pointed out, all the Complaint alleges about the relationship between Rueth and P.M.F. is that Rueth became liable for large sums "to finance and continue the business of P.M.F." (¶ I.23). No acts by Mt. Greenwood are asserted to have caused direct (rather than purely derivative) harm to Rueth. When Mt. Greenwood pointed out that deficiency, plaintiffs ignored the issue. Perhaps Rueth can allege facts that would establish his entitlement to recovery under RICO (though that appears doubtful from the nature of the banks' alleged misdeeds[6]), but the current *553 Complaint does not even attempt to do so. Rueth is dismissed as a Count I plaintiff. 2. Predicate Offenses To recover under RICO, P.M.F. must show it was harmed by a "pattern of racketeering activity." As the next section of this opinion reflects, this Court need not fully retrace the tortuous path that concept has followed (and continues to wend) through the federal courts. For the moment it is enough to say P.M.F. alleges multiple violations of 18 U.S.C. §§ 1343 and 2315, each of which is a predicate offense (see RICO § 1961(1)). When alleged predicate offenses sound in fraud, Rule 9(b) requires pleading "with particularity" (Haroco v. American National Bank and Trust Co. of Chicago, 747 F.2d 384, 405 (7th Cir.1984), aff'd on other grounds, 473 U.S. 606, 105 S. Ct. 3291, 87 L. Ed. 2d 437 (1985)). That requirement clearly applies to the Complaint's allegations of mail fraud, and just as clearly that requirement has not been met here. As this Court's former colleague Honorable Susan Getzendanner stressed in McKee v. Pope Ballard Shepard & Fowle, Ltd., 604 F. Supp. 927, 930-31 (N.D.Ill.1985) (citations omitted): [A]t the least, a plaintiff pleading fraud must "specify the time, place and contents of any alleged false representations, and the full nature of the transaction." ... This should include the identity of the person making the misrepresentations, and how the misrepresentations were communicated to the plaintiff.... The identity of those making the misrepresentations is crucial. Courts have been quick to reject pleadings in which multiple defendants are "lumped together" and in which no defendant can determine from the complaint which of the alleged misrepresentations it is specifically charged with having made, nor the identity of the individual by whom and to whom the statements were given, nor the situs and circumstances of the conversation, nor ... the date of the utterance. P.M.F.'s Complaint fails on every item identified in McKee. P.M.F. apparently seeks to cure those defects by appending to its memorandum copies of hundreds of checks it says were either deposited in or drawn on Grady's Mt. Greenwood account. Of course the issue on a Rule 12(b)(6) motion is the sufficiency of the Complaint, not whether P.M.F. can ultimately provide evidence to support liability. Because the complaint does not allege mail fraud with particularity, those portions must be dismissed.[7] More critically, Mt. Greenwood also says P.M.F. has not properly alleged use of the mails to further the fraud.[8] In that respect P.M.F. relies entirely on Mt. Greenwood's mailing of the account statements to Grady. P.M.F. says those mailings furthered the fraudulent scheme because, if the statements had been sent to P.M.F. rather than Grady, it would have discovered Grady's fraud earlier. Even if that last contention were assumed to be correct, it remains true that P.M.F. really complains of the bank's nonmailing to it—the failure to mail—and not of the mailing itself. That may readily be seen from the fact that if Mt. Greenwood had mailed copies of the statements to both P.M.F. and Grady's PMF Services, P.M.F. would have had no complaint. Thus in "mail fraud" terms the situation is no different than if Mt. Greenwood *554 had simply done nothing. Nor is this a purely formal difference. Federal mail fraud requires the use of the mails as a jurisdictional prerequisite. Nonuse of the mails cannot confer federal jurisdiction, for that means commerce is not involved. P.M.F. offers nothing at all to support its impermissibly extended (and strained) version of the mail fraud concept in that respect.[9] Its mail fraud allegations are therefore insufficient. Unless it can cure that flaw, it may not replead mail fraud as a predicate offense. Finally, Mt. Greenwood says the allegations of its receipt of stolen property are inadequate because of the conclusory allegation that it "knew or should have known" (¶ I.11) the checks were stolen. To the extent that Mt. Greenwood's position rests on Rule 9(b)'s particularity requirement in pleading fraud, it is misguided. That Rule says "knowledge ... may be averred generally." Moreover, the receipt of stolen property (the other predicate offense alleged by P.M.F.) is not "fraud," so the particularity requirement does not apply.[10] Nevertheless the Complaint is defective. Section 2315 criminalizes the "knowing" receipt of stolen property that has moved across state lines after being stolen. Knowledge that the property was stolen is thus an essential element of the crime (e.g., United States v. Forrest, 620 F.2d 446, 450 (5th Cir.1980)). Yet ¶ I.11 does not allege knowledge, but rather that Mt. Greenwood "knew or should have known" the checks were stolen. Of course, it may be that P.M.F. (in the exercise of the objective good faith demanded by Rule 11) may be able to cure that defect by pleading Mt. Greenwood's knowledge. If so, and if it can cure its other RICO problems discussed in this opinion, it may replead.[11] 3. Pattern of Racketeering Activity Mt. Greenwood also says the Complaint does not adequately allege a pattern of racketeering activity. Of course that is certainly true now that the allegations of predicate offenses have been found inadequate. But even if those defects are corrected as to the Section 2315 charges, Mt. Greenwood contends the Complaint will still be deficient because it does not allege "continuity plus relationship" (see, e.g., Sedima, S.P.R.L. v. Imrex Co., Inc., 473 U.S. 479, 496 n. 14, 105 S. Ct. 3275, 3285 n. 14, 87 L. Ed. 2d 346 (1985); Morgan v. Bank of Waukegan, 804 F.2d 970, 975-76 (7th Cir.1986)). No extended discussion of this complex area is needed, because the present case is *555 really controlled by Liquid Air Corp. v. Rogers, 834 F.2d 1297 (7th Cir.1987), which was decided during briefing on the current motion. Liquid Air held the pattern requirement could be satisfied by "the repeated infliction of economic injury upon a single victim in a single scheme" (id. at 1303-05). Clearly P.M.F. means to assert Grady took checks on many occasions over a 16-month period (though the Complaint does not say so in so many words). That surely satisfies the pattern element as described in Liquid Air. 4. Violation of RICO § 1962(a) Section 1962(a) prohibits "any person who has received any income derived, directly or indirectly, from a pattern of racketeering activity ... to use or invest, directly or indirectly, any part of such income, ... in ... the ... operation of, any enterprise...." In turn Section 1964(c) provides a cause of action to anyone injured in his business or property "by reason of" violations of Section 1962. P.M.F. says Mt. Greenwood received service charges on Grady's account and earned interest on the balance in the account. Those funds were retained by Mt. Greenwood. But Mt. Greenwood says P.M. F. must do more under Section 1964(c): It must allege that the investment back into Mt. Greenwood harmed P.M.F. in order to satisfy the "by reason of" language of that section. Our Court of Appeals has not yet addressed this aspect of civil liability under RICO, though a number of other courts have had occasion to do so. Several courts have embraced the reasoning urged by Mt. Greenwood, including one in this District (Heritage Insurance Co. v. First National Bank of Cicero, 629 F. Supp. 1412, 1417 (N.D.Ill.1986) (Getzendanner, J.)).[12] Some few courts have rejected it (e.g., Haroco, Inc. v. American National Bank, 647 F. Supp. 1026, 1032-33 (N.D.Ill.1986) (Decker, J.)).[13] It cannot be gainsaid that the line of cases exemplified by Heritage Insurance is consistent with both the literal language and the fair import of the statute. Nonetheless there has been a growing trend to read RICO very expansively in every respect, even at the expense of what would appear to be the statute's plain meaning (let alone the conventional approaches to statutory construction). In this Court's view, however, there is no reason (including the existence of Section 904 of the Organized Crime Control Act of 1970, Pub. L. 91-452, 84 Stat. 922, at 947 calling for liberal construction of the RICO title) to treat civil RICO as though it falls wholly outside the legal principles that normally apply to statutes and their application. For example, it is certainly true that the victims of (say) mail fraud are most typically injured by the crimes themselves, not by the criminal's use of the proceeds in the operation of an "enterprise" as defined in Section 1961(4).[14] That in turn may mean that many such victims may not be able to state claims under Section 1962(a) under the Heritage Insurance approach. But it is really irrelevant that such a common-sense reading of Section 1964(c) will cause Section 1962(a) to produce a less broad sweep of civil liability than can be asserted under (say) Section 1962(c). It should not be forgotten that civil RICO (Section 1964) was a late addition, spot-welded to an already fully-structured criminal statute with defined goals—a criminal statute that (to mix a metaphor) had been several years in gestation (with a correspondingly extensive legislative history).[15] That being true, it should not occasion *556 any surprise, nor should it lead to a strained reading of the statutory language, simply because a more normal and common-sense reading of Section 1964 does not produce a totally seamless result. Viewed in its original (and present) form as a criminal statute, Section 1962 attacks the various perceived evils flowing from "racketeering activity," and from the ill-gotten gains derived from that activity, that led to the adoption of criminal RICO in the first place: 1. Section 1962(a) is principally aimed at the use of those illicit gains (a) to acquire interests in businesses (whether or not such businesses are otherwise legitimate), (b) to set up such businesses or (c) to operate such businesses. 2. Section 1962(b) is aimed at the use of racketeering activities to take over or to maintain any interest in, or control of, such businesses. 3. Section 1962(c) is aimed at individuals employed by or associated with any "enterprise" (a broadly expansive term) who engage in racketeering activity to conduct or participate in the conduct of the enterprise's affairs. In each instance the crime (and the proof of crime) is complete without the government's need to identify with particularity every victim (or indeed any specific victim) of the offense. By contrast Section 1964's private civil remedy mandates the identification of such victims, in order that they have standing to sue. Most importantly, each such victim must have been "injured in his business or property by reason of a violation of section 1962...." Hence the nature of the claim necessarily depends on the nature of the "violation"—and in each instance the specific subsection of Section 1962 makes the violation not the conduct of racketeering activity alone, but rather the use of that racketeering activity in the particular way the subsection declares unlawful. Once again that means a specific subsection—in this instance Section 1962(a)—need not provide a universal remedy to serve the purposes, or to fit the mandate, of Section 1964. This Court therefore joins the courts referred to in n. 12 and other courts that have reached like results. In terms of this case, P.M.F. has not identified any way it was injured "by reason of" Mt. Greenwood's having used the service charges or interest earned on Grady's account to fund Mt. Greenwood's own operations. That being so, P.M.F. has failed to state any claim grounded in a RICO § 1962(a) violation. 5. Violation of RICO § 1962(b) Section 1962(b) makes it illegal for "any person through a pattern of racketeering activity ... to acquire or maintain, directly or indirectly, any interest in or control of any enterprise...." P.M.F. says Mt. Greenwood acquired P.M.F.'s money through a pattern of racketeering activity and that is a sufficient "interest" in P.M.F. to satisfy Section 1962(b). P.M.F. offers no authority for that surprising proposition.[16] While Mt. Greenwood may perhaps have obtained a possessory interest in funds rightfully belonging to P.M.F.,[17] it certainly obtained no interest in P.M.F. itself, and that is the operative requirement under Section 1962(b).[18]*557 Hence the Complaint fails to state a claim under Section 1964(c) for a violation of Section 1962(b). 6. Violation of RICO § 1962(c) Section 1962(c) makes it unlawful for "any person employed by or associated with any enterprise ... to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity." Mt. Greenwood points out there are no allegations it was either "employed by or associated with" P.M.F. or conducted or participated in the conduct of P.M.F.'s affairs. It has advanced a detailed legal argument to that effect, supported by extensive citation to case authority. How does P.M.F. respond? This way (P. Mem. 6): Mount Greenwood had an association and was acting in concert with Daniel Grady pursuant to the account relationship established in its knowing receipt of checks belonging to the Plaintiff. Furthermore, Grady was an employee of the Plaintiff who participated directly in the affairs of the company. The Bank's association with Grady enabled it to receive the stolen checks. For the purposes of 1962(c), the persons are both Grady and Mount Greenwood and the victim or the enterprise is the Plaintiff. That is the entire argument counsel advances to justify pleading a violation of Section 1962(c). It will not do the job. Even apart from impermissibly asserting facts not in the Complaint, counsel ignores both arguments made by Mt. Greenwood. Section 1962(c) prohibits associates or employees of enterprises from certain conduct. P.M.F. identifies itself as the RICO "enterprise," but it does not allege Mt. Greenwood was either its associate or its employee. Rather it says Mt. Greenwood associated with someone—Grady—who happened to be P.M.F.'s employee. And that is not what the statute prohibits. True enough, the element of "association" may be satisfied by a business relationship between the RICO "enterprise" and the defendant (United States v. Yonan, 800 F.2d 164, 167-68 (7th Cir.1986), cert. denied, ___ U.S. ___, 107 S. Ct. 930, 93 L. Ed. 2d 981 (1987)). But here—unlike the defendant in Yonan—Mt. Greenwood had no business relationship with P.M.F. but only a relationship with Grady. In the same way, there are no allegations of Mt. Greenwood's participation in P.M.F.'s affairs.[19] In sum, the Complaint contains no allegations that would support claims that Mt. Greenwood was either associated with P.M. F. or participated in the conduct of P.M.F.'s affairs. That means the RICO count must also be dismissed to the extent it is premised on violations of Section 1962(c). CONVERSION 1. Mt. Greenwood Count III alleges Mt. Greenwood (1) was the depository bank of numerous checks whose endorsement had been forged by Grady, (2) failed to act in good faith and a commercially reasonable manner in dealing with the checks, (3) still retains the proceeds of the checks and (4) wrongfully paid on forged endorsements. Those allegations are said to state a claim for conversion. Uniform Commercial Code § 3-419 (Ill. Rev.Stat. ch. 26, ¶ 3-419)[20] says: *558 (1) An instrument is converted when ... (c) it is paid on a forged endorsement. However, the Illinois Code Comment to that section makes it clear that section does not apply to P.M.F. and Mt. Greenwood (Section 3-419, comment (1)(c), supp.): Payment in the strict sense occurs only when a drawee pays a check, and this paragraph covers such a payment on a forged indorsement in an action by a payee. Actions by a payee against a depositary bank taking a check on a forged indorsement rest on a common law conversion theory under § 1-103, since this paragraph does not negate that basis.[21] Illinois common law has long recognized a conversion cause of action for a payee against a depositary bank (Independent Oil Men's Association v. Fort Dearborn National Bank, 311 Ill. 278, 280-81, 142 N.E. 458, 459 (1924)). Common-law conversion actions on a check require the plaintiff payee to prove (1) ownership or other right to possession of the check, (2) forged endorsement of plaintiff's signature and (3) unauthorized cashing of the check by defendant bank (Burks Drywall, Inc. v. Washington Bank & Trust Co., 110 Ill. App. 3d 569, 573, 66 Ill. Dec. 222, 226, 442 N.E.2d 648, 652 (2d Dist.1982)).[22] In its current form, Count III alleges neither that P.M.F. was the owner or payee of the checks nor that P.M.F.'s endorsement was forged. Count III must therefore be dismissed. Nevertheless it is clear from both the other counts and P.M.F.'s memoranda that it intended to plead those elements. Accordingly P.M.F. may amend its flawed pleading. Recognizing P.M.F. can correct those errors, Mt. Greenwood also says Section 3-419(3) precludes actions by the payee of a check against a depositary bank. Section 3-419(3) says in part: a depositary or collecting bank, who has in good faith and in accordance with the reasonable commercial standards applicable to the business of such representative dealt with an instrument or its proceeds on behalf of one who was not the true owner is not liable in conversion or otherwise to the true owner beyond the amount of any proceeds remaining in his hands. In its most natural reading, that provision means a payee may bring a conversion action against a depositary bank only when the depositary bank did not act with commercial reasonableness or when it retains the funds (or both, of course).[23] Here P.M. F. has alleged both that Mt. Greenwood did not act in a commercially reasonable manner and that it retains the funds.[24] Hence an appropriate amendment will state a viable *559 claim.[25] 2. Northern Count IV says Northern (1) paid on numerous checks bearing P.M.F.'s forged endorsement, (2) failed to act in good faith and a commercially reasonable manner in doing so and (3) still retains the proceeds of the checks. As with Mt. Greenwood, those allegations are insufficient to state a claim against Northern because there are no allegations P.M.F. was the payee of the checks and its endorsement was forged. Once cured, the Complaint will state a claim.[26] Northern says the Complaint is also inadequate because it does not charge (1) the identity of Northern's customer (on whose account the checks were drawn), (2) the amounts and dates of the checks and (3) the type of indorsement on each check. Northern cites no authority requiring such detailed pleading in a Complaint.[27] It argues that without knowing the alleged makers of the checks it cannot frame an answer to the Complaint, but that is just the sort of situation that calls for Rule 8(b)'s statement that a party "is without knowledge or information sufficient to form a belief as to the truth of an averment." P.M.F. can scarcely complain if its own lack of particularization forces an uninformative answer. And of course discovery is available to both sides to flesh out the skeletal pleadings. To the extent Northern really complains that it cannot evaluate the merits of potential defenses (e.g., under Section 3-406 for contributing to the forgery) or crossclaims (e.g., against Mt. Greenwood under Section 4-207 for breach of presentment warranty), its concern is really misplaced. It is up to Northern to develop the factual basis for its defenses and crossclaims, and again discovery is the standard means for doing that. Northern has moved in the alternative for a more definite statement pursuant to Rule 12(e). Such motions are disfavored, particularly where, as here, the information a party seeks is available through discovery. True enough, the Complaint is not a model of clarity, and counsel may wish to expand its allegations when preparing the amended complaint, but once the failure to identify P.M.F.'s interest in the checks is cured, Northern will be able to answer. NEGLIGENCE Count V says both Mt. Greenwood and Northern failed to use reasonable care in handling checks owned by and payable to P.M.F. and are therefore liable to it in negligence. Each claim may be dealt with briefly. *560 1. Mt. Greenwood Mt. Greenwood says its duty to use reasonable care extends only to its customers and, because P.M.F. is not its customer, it cannot be liable in negligence to P.M.F. P.M.F. responds Section 3-419 imposes such a duty. Neither party cites to any case law discussing a depositary bank's liability to a payee in negligence (as opposed to liability under the UCC or for conversion). Plaintiffs in P.M.F.'s position would gain nothing by allowing negligence claims. Under common law conversion and Section 3-419(3) as interpreted in this opinion, payees may recover up to the amount a bank retains without a showing of negligence, and up to the full amount of the checks if a bank fails to act either in good faith or in accordance with reasonable commercial standards. Whether the limitation of liability of Section 3-419(3) protects Mt. Greenwood thus depends entirely on whether it was negligent in any event.[28] Even apart from any limitation imposed by the Hohfeldian requirement of a "right-duty" pairing in negligence as in all other causes of action, any negligence action by a noncustomer payee against a depositary bank is necessarily controlled by Section 3-419. There is no reason to recognize an independent cause of action in negligence. Mt. Greenwood is dismissed as a defendant in Count V. 2. Northern Northern has raised no objections to the negligence count other than those it raised on the conversion count. Most of those objections fail for the same reasons discussed earlier. In this instance, however, Count V does allege the checks Northern paid were owned by and payable to P.M.F., thus avoiding the flaw in P.M. F.'s statement of the conversion claim. Nor does Northern challenge that as a sufficient factual allegation to raise a legal duty of due care on its part to P.M.F. Consequently Count V states a claim against Northern. CONCLUSION Rueth does not have standing to assert a RICO claim against Mt. Greenwood. He is dismissed from the current Complaint as a plaintiff. P.M.F.'s RICO claims against Mt. Greenwood fail to state a cause of action for which relief may be granted for the many reasons identified in this opinion. Mt. Greenwood is dismissed as a defendant to Count I of the present Complaint. P.M.F. has not stated claims upon which relief may be granted for conversion against either Mt. Greenwood or Northern. Counts III and IV are accordingly dismissed. Northern's motion to dismiss Count V is denied. Northern's alternative motion for a more definitive statement of Count V is also denied. It is ordered to answer Count V on or before March 21, 1988. This Court has not sought to opine fully as to plaintiffs' possible ability to recast their dismissed claims in viable form—nor should it have done so. Amended Rule 11 has rendered obsolete the type of thinking that viewed pleading as a kind of game, unrelated to the pleader's ability ultimately to prove the facts as reshaped to keep a plaintiff in court. If either or both plaintiffs opt to try again via an amended complaint, each defendant is ordered to answer or otherwise plead within 14 days after actual delivery of the new pleading to its counsel. This action is scheduled for a status hearing March 31, 1988 at 9 a.m. NOTES [1] As that designation makes obvious, there is an inherent potential for confusion between "P.M.F. Services, Inc." and "PMF Services." In fact, though none of the litigants seems to have focused on it, Grady's bank account and checks reflect even more—they use "P.M.F. Services" (periods and all). Indeed, the crux of plaintiffs' Complaint is that Grady used the similarity to steal from P.M.F. With callous disregard for the reader, plaintiffs' counsel has done nothing to minimize the confusion in the Complaint and later memoranda. Rather counsel has maximized the confusion by referring indiscriminately to "PMF Services, Inc." and "P.M.F. Services" as well. Unfortunately, counsel does not stop there. Despite the presence of two plaintiffs and four defendants, the terms "plaintiff" and "defendant" are often used in the singular, leaving the reader to puzzle out which plaintiff or which defendant is referred to. Similarly, the term "defendants" is often used when counsel does not appear to be referring to all the defendants. And the list could go on—counsel uses possessives without apostrophes, leaving the reader to guess whether he intends a singular or plural possessive, etc. Such sloppy pleading and briefing are inexcusable as a matter of courtesy as well as because of their impact on defendants' ability to respond. This opinion ultimately dismisses the Complaint against Mt. Greenwood Bank and dismisses one count against Northern Trust Company on substantive grounds, but it also contemplates the possibility that counsel may seek to file an amended complaint to cure the many defects. If he does that, counsel would be advised to ensure that the amended complaint is also readable. [2] RICO citations will take the form "RICO § ____" or simply "Section—," in each instance referring to the numbering in Title 18. As for the state law claims, they are appropriately before this Court both under the doctrine of pendent jurisdiction and because of diversity of citizenship (all plaintiffs are Indiana citizens, while each defendant is solely an Illinois citizen). [3] Rule 12(b)(6) principles require this Court to accept as true all well-pleaded factual allegations, drawing all reasonable inferences in plaintiffs' favor (Marmon Group, Inc. v. Rexnord, Inc., 822 F.2d 31, 34 (7th Cir.1987) (per curiam)). Complaint citations will use numbers only, referring first to the count (omitting the word "Count") and then to the paragraph (e.g., "¶ II.4"). Where a paragraph precedes the counts it will be cited simply, e.g., "¶ 2." [4] ¶ I.9 says the checks belonged to "plaintiffs," an example of the confusion referred to in n. 1. Yet the overall context of the Complaint seems to indicate the stolen checks belonged to P.M.F. rather than to it and Rueth. If this conclusion is mistaken, counsel is invited to clarify his allegations if he elects to file an amended complaint. [5] ¶ IV.1 actually alleges Northern was the "payee bank," but it is clear from the context that counsel meant to assert Northern was the payor. [6] Should Rueth desire to replead, counsel's attention is directed to authority such as Warren v. Manufacturers National Bank of Detroit, 759 F.2d 542, 544-46 (6th Cir.1985) (sole stockholder, creditor and employee of corporate victim has no RICO standing) and Gallagher v. Canon U.S.A., Inc., 588 F. Supp. 108, 110-11 (N.D.Ill. 1984) (shareholder has no RICO standing). [7] Should P.M.F. replead mail fraud as a predicate offense its counsel should remember that it is the fraudulent scheme, not the use of the mails or the resulting loss, to which Rule 9(b)'s particularity requirement applies. Moreover, the need to plead the elements of fraud does not call for the pleading of evidence. Attaching copies of assertedly stolen checks adds a great deal of bulk, but it does nothing toward pleading any of those elements. [8] Mt. Greenwood also seems to argue P.M.F. must allege the use of the mails with particularity. That might be the case if the content of the mailings themselves constituted the fraudulent misrepresentations. However, there is no reason to require P.M.F. to specify the dates on which (or the frequency with which) Mt. Greenwood sent statements to its customer. Notice pleading on that element is certainly sufficient. [9] This Court (Dunham v. Independence Bank of Chicago, 629 F. Supp. 983, 987-89 (N.D.Ill.1986)) and others (see, e.g., United States v. Kuna, 760 F.2d 813, 819-20 (7th Cir.1985)) have upheld mail fraud charges based on "lulling" mailings sent to the injured party—mailings that have delayed discovery of the fraud and hence did "further" the fraudulent scheme. But again that "furthered" requirement has substantive content and may not be treated as merely formalistic (see, e.g., United States v. Maze, 414 U.S. 395, 400-03, 94 S. Ct. 645, 648-50, 38 L. Ed. 2d 603 (1974); United States v. Kwiat, 817 F.2d 440, 443-44 (7th Cir.1987)). Despite the need to address that issue, P.M.F. cites only to a case it identifies simply as "McGee v. Gurstenburg & Co., Inc., (N.D.Illinois)." This Court's law clerk located that case as McGee v. Gerstenberg and Co., Inc., No. 84 C 9778 and found the court's opinion of March 24, 1986 [Available on WESTLAW, 1986 WL 4183]. It is not on point. In that case the account statements were mailed to the victim and might thereby have been an integral part of the scheme to defraud (id., slip op. at 6). [10] This Court's research has found no case specifically discussing whether allegations of violations of Section 2315 in a RICO complaint must comply with Rule 9(b). This Court's colleague Honorable Nicholas Bua has assumed without discussion that Rule 9(b) does not apply: Compare his treatment of the mail-fraud and sale-of-stolen-property allegations in Ichiyasu v. Christie, Manson & Woods International, Inc., 637 F. Supp. 187, 189 (N.D.Ill.1986). [11] P. Mem. 2-4 adverts to several facts that assertedly support an inference of Mt. Greenwood's knowledge. Of course, knowledge can be proved by circumstantial evidence (Rugendorf v. United States, 376 U.S. 528, 536-37, 84 S. Ct. 825, 830, 11 L. Ed. 2d 887 (1964)). D.R. Mem. 5-7 responds that the matters identified do not justify an inference of knowledge. That of course is not relevant on a Rule 12(b)(6) motion, where well-pleaded facts (such as knowledge) are treated as true. [12] See also, e.g., Omega Construction Co. v. Altman, 667 F. Supp. 453, 464-65 (W.D.Mich.1987); Airlines Reporting Corp. v. Barry, 666 F. Supp. 1311, 1314-15 (D.Minn.1987) (citing cases); Cincinnati Gas & Electric Co. v. General Electric Co., 656 F. Supp. 49, 83-84 (S.D.Ohio 1986). [13] Accord, Louisiana Power & Light Co. v. United Gas Pipe Line Co., 642 F. Supp. 781, 805-07 (E.D.La.1986). [14] This general point is made in Louisiana Power, 642 F.Supp. at 806-07. [15] Indeed, though this Court has not troubled (and has not troubled its law clerk) to make an exhaustive search of Title 18, it knows of no other private civil cause of action embedded in the body of federal statutes labeled "Crimes and Criminal Procedure." [16] P.M.F. does refer (albeit by an incorrect citation) to Sutliff, Inc. v. Donovan Companies, Inc., 727 F.2d 648, 653 (7th Cir.1984) for the proposition that "control" need not be formal, as for example by acquiring a majority of the stock of a corporation. True enough, but that does not come close to making P.M.F.'s case. In Sutliff the plaintiff enterprise alleged defendants had directly caused plaintiff to enter into many transactions it would otherwise not have (id. at 651). That is "control" as the term is normally used. P.M.F. has made no allegations that Mt. Greenwood exercised any such control here. [17] Once again this Court makes no finding on that score, of course. It merely accepts P.M.F.'s allegations, as Rule 12(b)(6) requires. [18] This Court's research has identified no case where a civil plaintiff or the government has asserted a Section 1962(b) violation based solely on defendant's possession of funds of an enterprise. If that were sufficient, extended judicial discussions of the "interest in or control of any enterprise" language such as that in United States v. Jacobson, 691 F.2d 110, 112-13 (2d Cir.1982) would be unnecessary. In Jacobson defendant had unquestionably gotten money from the enterprise wrongfully (id. at 111-12), yet the court still found it necessary to explore whether defendant had obtained an interest in or exerted control over the enterprise. [19] Section 1962(c) can be satisfied by indirect as well as direct participation. For example, had P.M.F. alleged Mt. Greenwood controlled or directed Grady's acts, the allegations on this component of the RICO claim might be enough. But the Complaint contains no such allegations, and it is of course open to serious question whether P.M.F. could make them in good conscience. [20] All further references to UCC provisions will also take the form "Section—." Even though this opinion thus uses "Section —" to refer to provisions in more than one statute, that multiple usage should not be a source of any confusion. All the numbers in the different statutes are sufficiently different to avoid confusion, and that is particularly true of UCC. [21] [Footnote by this Court] P.M.F. relies on Bellflower Ag Service, Inc. v. First National Bank & Trust Co. in Gibson City, 130 Ill.App.3d 80, 85 Ill. Dec. 399, 473 N.E.2d 998 (4th Dist.1985) to support its claim. Bellflower is on all fours with this case and did indeed hold a depositary bank liable to a check's payee when the payee's indorsement was forged by a faithless employee. Yet Bellflower never says whether liability is grounded in Section 3-419(1) or in the common law. Thus the case is consistent with the text's conclusion that the current claims are not grounded in Section 3-419(1). [22] Burks Drywall was a conversion action under Section 3-419 rather than common law, but there is no reason to believe the elements differ. In any case, plaintiff's possession of the converted property has always been regarded as an essential element of a conversion claim (e.g., First National Bank of Chicago v. Pease, 168 Ill. 40, 48 N.E. 160 (1897)). [23] P. Mem. 8-9 argues Section 3-419(3) does not limit a bank's liability at common law, but "affirms additional instances of liability." That is obviously mistaken. Clearly the section imposes a limitation on what a plaintiff may recover "in conversion or otherwise." [24] Mt. Greenwood also says P.M.F. now knows Mt. Greenwood has not retained any funds from the checks. Of course the current motion deals only with the allegations in the Complaint. However, the attachments to P. Mem.—checks drawn on the account Grady established at Mt. Greenwood—suggest Mt. Greenwood may be correct. P.M.F. should consider whether it can in good faith plead that Mt. Greenwood retains the funds before repeating its allegation. Of course, as long as P.M.F. can plead (and later show) Mt. Greenwood did not handle the checks in a commercially reasonable manner, the protections of Section 3-419(3) do not apply and it does not matter whether Mt. Greenwood has retained the funds. [25] Mt. Greenwood argues Section 3-419 as a whole was intended to preclude a payee from direct claims against a depositary bank. Instead, Mt. Greenwood says, the payee must proceed against the payor bank (which is not protected by Section 3-419(3)), and the payor may in turn pursue depositary banks for breach of warranties of presentment. Courts that have accepted that view have also decried it as inefficient and unfair (e.g., Denn v. First State Bank of Spring Lake Park, 316 N.W.2d 532, 537 (Minn.1982); Jackson Vitrified China Co. v. People's American National Bank of North Miami, 388 So. 2d 1059, 1063 (Fla.App. 3d Dist.1980)). Even so, Mt. Greenwood's argument is misplaced. As the text indicates, the payee is limited to an action against payor banks only when the depositary bank has acted in good faith and in a commercially reasonable manner (Hydroflo Corp. v. First National Bank of Omaha, 349 N.W.2d 615, 619 (Neb.1984)). Neither Denn nor Jackson Vitrified (relied on by Mt. Greenwood) is to the contrary. In Denn the jury had found the depositary bank to have acted reasonably (316 N.W.2d at 533). While the facts are less clear, the court in Jackson Vitrified, 388 So.2d at 1061 suggests there is no bar to direct action against depositary banks that have not acted in a commercially reasonable manner. [26] Northern cannot avail itself of the protections of Section 3-419(3)—nor does it try to— because it is a payor bank. [27] Originally the Rules clearly embraced the goal of notice pleading as directed by Rule 8(a) (see also the skeletal forms of complaints in the Appendix of Forms to the Rules—forms specifically labeled by Rule 84 as "sufficient under the rules and ... intended to indicate the simplicity and brevity of statement which the rules contemplate"). Despite the trend of some of the recent case law away from that approach, courts should not go so far in demanding fact pleading as Northern urges. Thus Form 5 in the Appendix of Forms specifically allows a summary allegation of the total due for goods sold and delivered where parties have dealt with each other over an extended time period—a reasonably analogous situation. [28] Even if the "reasonable person" standard of negligence somehow reaches lesser derelictions than those encompassed by the "reasonable commercial standards" criterion of Section 3-419(3) —an unlikely proposition—that section would still protect Mt. Greenwood, because the limitation on liability applies to actions "in conversion or otherwise."

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1803152/

368 F. Supp. 134 (1973) Betty K. TRIVETT et al., Plaintiffs, v. TRI-STATE CONTAINER CORPORATION, Defendant. Civ. A. No. 2649. United States District Court, E. D. Tennessee, Northeastern Division. March 30, 1973. *135 MEMORANDUM OPINION AND ORDER NEESE, District Judge. The original and intervening plaintiffs claim that the defendant has engaged, and is engaging, in the unlawful employment practice of limiting, segregating or classifying its employees or applicants for employment in a way which would deprive, or tend to deprive, them of employment opportunities or otherwise affect their status as an employee because of the plaintiffs' sex. 42 U.S.C. § 2000e-2(a)(2). The defendants seek a summary judgment, Rule 56(b), Federal Rules of Civil Procedure, on multiple grounds and in several varying contexts. The affidavits offered by the defendant in support of its motion reflect that it has evidence to offer on the trial of beneficent and laudatory intentions in adopting its system of classifying its employees. "* * * Although evidence of announced laudatory intentions is obviously not by itself dispositive in Title VII cases, such evidence is relevant and may be accorded cumulative weight on the issue of an employer's good faith, which in turn becomes material when an intentional policy of discrimination is alleged. * * *" Ochoa v. Monsanto Company, D.C.Tex. (1971), 335 F. Supp. 53, 57 [1]. This Court "* * * has the duty of directing appropriate legal action to the extent the employer's beneficent practices fall short * * *," Rowe v. General Motors Corporation, C.A. 5th (1972), *136 457 F.2d 348, 355 [8], of eliminating sex discrimination. One facet of the defendant's motion relates to all claims of the intervening plaintiffs, on the ground that none of them presented a claim to the Equal Employment Opportunities Commission. This contention is without merit. "* * * [N]o procedural purpose could be served by requiring scores of substantially identical grievances to be processed through the EEOC when a single charge would be sufficient to effectuate both the letter and the spirit of Title VII. * * *" Miller v. International Paper Company, C.A. 5th (1969), 408 F.2d 283, 285 [1]. The defendant's motion for a partial summary judgment on this issue, therefore, hereby is Denied. The defendant also seeks a stay of these proceedings to allow arbitration of the plaintiffs' grievance, that they have been discriminated against solely because of their sex, in the rate of compensation they received and in being laid-off from their work earlier than their male counterparts. If the collective bargaining agreement between the defendant and the union representing the plaintiffs provided for arbitration of a grievance which is clearly governed by such contract of the parties, such a motion would be good. Cf. Rhine v. Union Carbide Corporation, C.A. 6th (1965), 343 F.2d, 12, 16 [2], [5], [6]. Here, however, the plaintiffs' claim is not clearly governed by the bargaining agreement of their union and their employer. Nowhere therein is there any prohibition against discrimination because of the sex of an employee. It thus appears that the major aspects of the plaintiffs' claims are beyond the power of an arbiter's decision. Cf. Newman v. Avco Corp.-Aerospace St. Div., Nashville, Tenn., C.A. 6th (1971), 451 F.2d 743, 748 [3], where there was no prohibition in the labor-management agreement against racial discrimination in hiring, employment, promotion or discharge of employees. Such motion being without merit, it hereby is denied. The defendant contends it is entitled to summary judgment on the plaintiffs' claim for monetary damages, because it had no intention to discriminate against them and because the plaintiffs lacked the physical characteristics necessary to do the work of a general floor helper. To violate Title VII of the Civil Rights Act of 1964 by discriminating against an employee because of sex, the employment practice must be shown to have been deliberate rather than accidental, but it is not necessary to show that any such violation was intentional. Sprogis v. United Air Lines, Inc., C.A. 7th (1971), 444 F.2d 1194, 1201 [10]; see also Local No. 189, United Paperworkers v. United States, C.A. 5th (1969), 416 F.2d 980, 996, certiorari denied (1970), 397 U.S. 919, 90 S. Ct. 926, 25 L. Ed. 2d 100, and Jones v. Lee May Motor Freight, Inc., C.A. 10th (1970), 431 F.2d 245. Whether sexual characteristics were crucial to the successful performance of the job of general floor helper has not yet been demonstrated. See and cf. Rosenfeld v. Southern Pacific Company, C.A. 9th (1971), 444 F.2d 1219, 1224-1225 [3, 4]. The defendant also claims that it has ceased its former practice of discrimination because of sex, and that it is entitled to a summary judgment on the issue of injunctive relief. If the evidence as a whole reflects that the defendant had discriminated against females in promotion and transfer, and that such discriminatory practices were not accidental, injunctive relief will be appropriate. Cf. Rowe v. General Motors Corporation, supra, 457 F.2d at 359-360 [13]. The defendant contends further that it is entitled to a partial summary judgment as to all the plaintiffs' claims for back wages except during the periods when a plaintiff was actually laid-off. If the defendant has intentionally engaged, or is intentionally engaging, in an unlawful employment practice *137 charged in the complaint, this Court "* * * may * * * order such affirmative action as may be appropriate [and], which may include * * * back pay (payable by the employer * * * responsible for the unlawful employment practice). * * *" 42 U.S.C. § 2000e-5(g). Although it would seem that any back-pay due would be confined to periods when the plaintiffs were actually laid-off, the Court does not wish at the present time to restrict the fashioning of an appropriate judgment by granting summary judgment on this issue. The same reasoning applies to the claim that the plaintiffs are not entitled to the differential between the wages of class B folders and the wages of general floor helpers. Those facets of the motion are accordingly denied. Neither the doctrine of res adjudicata nor collateral estoppel is applicable to the plaintiffs' claims. Newman v. Avco Corp.-Aerospace St. Div., Nashville, Tenn., supra, 451 F.2d 743, 748. As the Court has decided that the grievances of the plaintiffs are beyond the power of arbitration under the bargaining agreement of the parties, this Court will not defer to the results of arbitration herein. Rios v. Reynolds Metals Company, C.A. 5th (1972), 467 F.2d 54, 58 [5, 6]. The plaintiffs are not barred by the theory of election of remedies. Newman v. Avco Corp.-Aerospace St. Div., Nashville, Tenn., supra, 451 F. 2d at 746-747 [2]. As to any failure of the plaintiffs to respond to interrogatories served, such inaction is subject to a motion to compel discovery, Rule 37(a) (2), Federal Rules of Civil Procedure. The application for the original plaintiffs to represent herein the class of all female employees of the defendant was denied. Memorandum opinion and order of December 28, 1971. This summation suffices to enable the Court to DENY the other grounds for summary judgment delineated by the defendant. The clerk will assign this matter for further pretrial conference at the first convenient time.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1805431/

471 F. Supp. 1017 (1979) HALLIBURTON COMPANY, a Delaware Corporation, Plaintiff, v. TEXANA OIL COMPANY, INC., a Colorado Corporation, William O. Callaway, an Individual, and James E. Callaway, an Individual, Defendant. Civ. A. No. 78-K-689. United States District Court, D. Colorado. June 8, 1979. Stan L. Spangler, Edward C. Moss, Shaw, Spangler & Roth, Denver, Colo., for plaintiff. T. Edward Icenogle, Calkins, Kramer, Grimshaw & Harring, Denver, Colo., for Wm. Callaway & Texana. Charles S. Bloom, Wood, Herzog, Osborn & Bloom, Fort Collins, Colo., for James Callaway. MEMORANDUM OPINION AND ORDER KANE, District Judge. This is a diversity action brought to collect on a promissory note in the amount of $10,160.22 executed on January 1, 1973 by defendant Texana Oil Company, Inc. ("Texana") in favor of plaintiff. This note was signed on behalf of Texana by defendant William O. Callaway as president and by James E. Callaway as vice-president. In addition to executing this note for Texana, defendants William and James Callaway personally guaranteed the note in their individual capacities. This matter is before the court on plaintiff's motion for judgment on the pleadings against defendant James Callaway pursuant to F.R.Civ.P. 12(c). Briefs and numerous affidavits have been submitted and the motion is now ripe for determination. *1018 Plaintiff alleges that Texana has defaulted on the note, that demand for payment was made upon defendant James Callaway, and that despite this demand James Callaway has refused to pay the amount due under the guaranty. In his answer, James Callaway has admitted all the factual allegations in the complaint but asserts that this court does not have personal jurisdiction over him. Thus, the only questions before the court at this time are whether James Callaway's execution of the note and personal guaranty was sufficient under the Due Process clause to justify the exercise of personal jurisdiction over him pursuant to Colorado's "long arm statute," § 13-1-124, C.R.S.1973; and if so, whether plaintiff is entitled to a judgment on the pleadings as to defendant James Callaway. I JURISDICTION It is well settled that where federal jurisdiction is based upon diversity of citizenship as in the instant case, personal jurisdiction "is determined in accordance with the law of the state where the court sits, with `federal law' entering the picture only for the purpose of deciding whether a state's assertion of jurisdiction contravenes a constitutional guarantee." Arrowsmith v. United Press International, 320 F.2d 219, 223 (2nd Cir. 1963); accord, Litvak Meat Company v. Baker, 446 F.2d 329, 331 (10th Cir. 1971). Thus, the question of personal jurisdiction over defendant James Callaway must be examined under Colorado's long arm statute which provides in its pertinent part: § 13-1-124 Jurisdiction of courts. (1) Engaging in any act enumerated in this section by any person, whether or not a resident of the state of Colorado, either in person or by any agent, submits such person, and if a natural person his personal representatives to the jurisdiction of the courts of this state concerning any cause of action arising from: (a) The transaction of any business within this state; * * * The legislative intent of Colorado's long arm statute is to exert jurisdiction over non-residents to the fullest extent permitted under the Due Process clause of the federal constitution. Mr. Steak, Inc. v. District Court, Colo., 574 P.2d 95, 96 (1978); Safari Outfitt'rs v. Superior Court, 167 Colo. 456, 448 P.2d 783 (1968). In this motion plaintiff asserts that James Callaway's guaranty constitutes sufficient minimum contacts under Colorado law for this court to assert jurisdiction over him. On the other hand, James Callaway argues that since the note and guaranty were executed by him in Texas where he is domiciled, there is an absence of sufficient contacts with Colorado. In determining whether Colorado has sufficient minimum contacts or substantial connection with the promissory note and guaranty signed by James Callaway, it is necessary to look at the particular facts surrounding the transaction. From the uncontroverted facts set forth in various affidavits, it has been established that James Callaway is a domiciliary of Texas and vice-president, director and fifty per cent (50%) shareholder of Texana, a Colorado corporation. It has been further established that prior to the execution of the promissory note, Texana became indebted to plaintiff for services rendered by plaintiff in connection with an oil well located in Texas. In addition to its rights under the contract for services, plaintiff had the right to enforce a mechanic's and materialman's lien against the Texana oil well and certain other oil interests owned by Texana in Texas. Defendant William Callaway, president, director and fifty per cent (50%) shareholder of Texana, contacted plaintiff in an effort to persuade it to forebear from enforcing its lien rights in connection with the debt. William Callaway asked plaintiff if it was willing to make alternative arrangements for payment of this debt. As a result of this request from William Callaway, plaintiff agreed to accept payment for one-half of the debt and to accept a promissory note for the remaining half on the condition that defendants William and James Callaway personally guaranty the note. *1019 In his affidavit, William Callaway states that he was in Colorado at the time of these negotiations with plaintiff. He further states that while he was in Colorado, he had several telephone conversations with defendant James Callaway in Texas regarding the promissory note and personal guaranties. The note and personal guaranty was signed by William Callaway in Denver. These documents were then mailed to James Callaway in Texas in order to obtain his signature as had been agreed upon in the Denver negotiations. James Callaway has admitted that he signed the note and personal guaranty in Texas. Furthermore, in connection with the execution of the note, James Callaway delivered his personal financial statement to plaintiff. In exchange for the partial payment made by Texana and the execution and delivery of the note with the personal guaranties for the remainder of the debt, plaintiff released all its rights to mechanic's and materialman's liens against Texana's oil interests in Texas. Thus, it is clear from these uncontroverted facts that the transaction forming the basis of this action was shaped by the Denver negotiations between William Callaway and plaintiff as well as the telephone conversations between William Callaway in Colorado and James Callaway in Texas. The agreement to execute the note and personal guaranties was entered into in Colorado. While not physically in Colorado during these negotiations, James Callaway did however, participate in critical telephone conversations in which he agreed to execute his personal guaranty. Without this guaranty, plaintiff would not have released its lien rights in Texas. By having engaged in these telephone conversations, James Callaway transacted business within Colorado and caused important business consequences in this state within the test set forth by the Colorado Supreme Court in Van Schaack & Co. v. District Court, Colo., 538 P.2d 425 (1975); See also, Grynberg v. Ellis, Civil Action No. 77-K-959 (D.Colo. Dec. 5, 1977). Although it has been found that personal jurisdiction extends to telephone conversations involving the transaction of business within the forum, such jurisdiction has also been found on the basis of execution of a promissory note by a non-resident. In Tucker v. Vista Financial Corp., Colo., 560 P.2d 453 (1977), the Colorado Supreme Court addressed the question of whether Colorado law permits the exertion of personal jurisdiction over a non-resident on the basis of a promissory note signed outside the forum state. In finding that jurisdiction exists under such circumstances, the court held that one who signs such a note creating indebtedness in another state may be sued in that other state. In the instant case James Callaway created an indebtedness in Colorado when he agreed to sign the promissory note negotiated in Denver. In summary, the consequences of James Callaway's business activities in connection with the note and guaranty are found to be sufficient and substantial enough so that the assertion of personal jurisdiction by this court under applicable Colorado law is both fair and reasonable. II MOTION FOR JUDGMENT ON THE PLEADINGS When a plaintiff files a motion for judgment on the pleadings under F.R.Civ.P. 12(c), the court must take as true all undenied facts alleged in the complaint. Commerce National Bank v. Baron, 336 F. Supp. 1125 (E.D.Pa.1971); 5 Wright & Miller, Federal Practice and Procedure § 1368. As stated earlier, defendant James Callaway has admitted all the material allegations contained in the complaint. In his answer filed on August 14, 1978, James Callaway admitted the following allegations in the complaint: 3. Upon information and belief, Texana Oil Company, Inc. ("Texana"), at the time of the events alleged herein was a duly licensed and authorized corporation under the laws of the State of Colorado, with a principal place of business at 145 Security *1020 Life Building, Denver, Colorado 80202. On December 6, 1977, Texana was suspended as a corporation by the Secretary of State of the State of Colorado for failure to file required annual reports. * * * * * * 5. Defendant James E. Callwaway is the vice president of Texana and, upon information and belief is a resident of the State of Texas * * *. 6. On or about January 1, 1973, for value received and acknowledged, defendant Texana, acting through its president, William O. Callaway, and its vice president, James E. Callaway, executed and delivered to plaintiff its unsecured promissory note whereby Texana promised to pay to the order of plaintiff the principal sum of $10,160.22 with interest at the rate of 8% per annum, payable on or before 100 days after January 1, 1973 * * * *. 7. By the terms of the promissory note defendant Texana also agreed to pay attorney's fees in the amount of 15% of the principal and interest remaining unpaid on the note if it be placed in the hands of an attorney for collection or if suit or other judicial proceedings was instituted. 8. The promissory note was due in full on or before April 10, 1973. Despite plaintiff's demands for payment, defendant Texana has defaulted under the terms of the promissory note, having failed to pay plaintiff the entire amount of principal and accrued interest, or any of said amount, when the same was due, or at any time up to the date of this complaint. 9. By reason of its default, defendant Texana owes plaintiff the principal sum of $10,160.22, together with interest thereon accruing at the rate of 8% per annum from January 1, 1973, to the date of judgment, and an additional 15% of the principal and interest remaining unpaid for reasonable attorney's fees and costs incurred by plaintiff in enforcing the promissory note. * * * * * * 14. Defendant James E. Callaway guaranteed payment of the promissory note in his individual capacity. Despite plaintiff's demands for payment, defendant James E. Callaway has defaulted under the terms of the promissory note, having failed to pay to plaintiff the entire amount, when the same was due, or at any time up to the date of this complaint. James Callaway has admitted all of these allegations and denies ¶ 15 which states the legal conclusion that he is liable for the amount of the note. James Callaway has not asserted any legal defenses to the note or guaranty. It is clear from his answer that James Callaway has admitted all material allegations: the fact of indebtedness, the amount owed, the execution of the promissory note and his personal guaranty. The motion for judgment against James Callaway on the pleadings is granted. IT IS ORDERED that this court has jurisdiction over James Callaway and that judgment on the pleadings shall enter against him. Pursuant to F.R.Civ.P. 54(b), the court finds that there is no reason to delay judgment against defendant James Callaway and directs the clerk of the court to enter a final judgment against James Callaway in accordance with this order. This case is set for a one day trial to the court on August 10, 1979. Plaintiff filed a motion to extend the period of discovery upon resolution of its motion for judgment on the pleadings. IT IS FURTHER ORDERED that since plaintiff's motion has been determined favorably, discovery shall be extended to July 1, 1979 and the pre-trial order is due on July 15, 1979.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1806735/

468 F. Supp. 226 (1979) Douglas K. KNUTSON, Arlen N. Benham, Geoffrey Beatty, Laura Duarte, Evan Francis Williams, Joseph W. Berthiaume, Kenneth W. Jackson, Jean E. Nyland, Daniel A. Dutra, Willard B. Kittredge, Robert A. Dutra, and Gayle C. Ely, Plaintiffs, v. The DAILY REVIEW, INC., a corporation, Bay Area Publishing Co., a corporation, Floyd L. Sparks, an Individual, William Chilcote, an Individual, Dallas Cleland, an Individual, John Clark, an Individual, Carl Felder, Individually and doing business as Felder Enterprises, Defendants. No. C-73-1354-CBR. United States District Court, N. D. California. March 21, 1979. *227 G. Joseph Bertain, Jr., Timothy H. Fine, Patrick J. Carter, Edward Stadum, San Francisco, Cal., for plaintiffs. Broad, Khourie & Schulz, Michael N. Khourie, Thomas Paine, San Francisco, Cal., for defendants. MEMORANDUM OF OPINION RENFREW, District Judge. In August 1973 a group of independent newspaper dealers brought suit in this Court against the publishers and certain officers of the newspapers they distributed, alleging violations of Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2. After extensive discovery and a lengthy trial, this Court on September 23, 1974, rejected three of plaintiffs' claims for relief but found that the publisher's written Dealership Agreement, which prohibited the dealers from selling their papers to subscribers at a price above the publisher's suggested price, constituted a vertical price restraint that violated Section 1 of the Act. See Knutson v. Daily Review, 383 F. Supp. 1346, 1357 (N.D.Cal.1974).[1] Because plaintiffs had *228 failed to prove either the fact or amount of their injury, however, the Court declined to award damages. 383 F.Supp. at 1384. On appeal, the Court of Appeals for the Ninth Circuit affirmed in part and reversed in part. It agreed that plaintiffs were not entitled to recover on the three claims for relief this Court had rejected. However, it disagreed with the Court's reasons for denying plaintiffs damages for the Section 1 violation. Noting that plaintiffs need only prove some damages to establish the fact of damage, and that once the fact of damage has been shown, the amount of damage can be established according to a relaxed standard of proof, the Court of Appeals remanded for a reconsideration of the damage issue. Knutson v. Daily Review, 548 F.2d 795, 813 (9 Cir.), cert. denied, 433 U.S. 910, 97 S. Ct. 2977, 53 L. Ed. 2d 1094 (1977).[2] The case is now before this Court on remand. Having considered the opinion of the Court of Appeals, the arguments of counsel, and all the evidence presented, both at trial and at a post-trial remand hearing, this Court concludes that plaintiffs are entitled only to nominal damages for defendants' violation of Section 1 of the Sherman Act. ANTITRUST DAMAGES Before discussing the facts of this case and analyzing the Ninth Circuit's damage holding, it may be helpful to reiterate the standards applicable to the computation of antitrust damages. For it is only in the context of a long line of Supreme Court and *229 Ninth Circuit antitrust damage opinions that the Court of Appeals' decision can properly be applied to the evidence before this Court. Plaintiffs in an antitrust suit have the burden of proving damages. As many courts have noted, this requires them to prove both the fact of damage and the amount of damage. These are two separate proofs. See Story Parchment Co. v. Paterson Parchment Co., 282 U.S. 555, 562, 51 S. Ct. 248, 75 L. Ed. 544 (1931); Flintkote Co. v. Lysfjord, 246 F.2d 368, 392 (9 Cir.), cert. denied, 355 U.S. 835, 78 S. Ct. 54, 2 L. Ed. 2d 46 (1957); Newberry v. Washington Post Co., 438 F. Supp. 470, 483 (D.D.C.1977). For the former, plaintiffs must establish with reasonable probability the existence of a causal connection between defendants' violation of the antitrust law and plaintiffs' revenue-impairing injury. See Pac. Coast Agr. Export Ass'n v. Sunkist Growers, Inc., 526 F.2d 1196, 1205-1206 (9 Cir. 1975), cert. denied, 425 U.S. 959, 96 S. Ct. 1741, 48 L. Ed. 2d 204 (1976); Flintkote, supra, 246 F.2d at 392; but see Sunkist Growers v. Winckler & Smith Citrus Products Co., 284 F.2d 1, 32 (9 Cir. 1960), rev'd on other grounds, 370 U.S. 19, 82 S. Ct. 1130, 8 L. Ed. 2d 305 (1962) (plaintiff must provide proof to a "reasonable certainty").[3] For the latter, plaintiffs must show the extent of the financial impact of defendants' antitrust violation. Generally, this can be accomplished through proof of lost profits. The measure of proof needed to meet these burdens differs significantly. Plaintiffs must bear a heavier burden in proving the fact of damage than in proving the amount of damage. See Flintkote, supra, 246 F.2d at 392. Thus, although a plaintiff cannot recover damages that are uncertain in the sense that they are not the certain result of defendant's violation, once this fact of damage has been established, plaintiffs can recover all damages definitely attributable to that wrong, even if the amount of damage is uncertain or difficult to ascertain. See Story Parchment, supra, 282 U.S. at 562, 51 S. Ct. 248; Flintkote, supra, 246 F.2d at 392.[4] In calculating damages for antitrust violations, the trier of fact can rely upon probable and inferential as well as direct and positive proof. See Story Parchment, supra, 282 U.S. at 561-564, 51 S. Ct. 248; Eastman Kodak Co. v. Southern Photo Co., 273 U.S. 359, 377-379, 47 S. Ct. 400, 71 *230 L.Ed. 684 (1927). It is permitted to make a "just and reasonable estimate of the damage [suffered by plaintiffs] based on relevant data" presented, and these findings will be sustained even if the result is only approximate. See Bigelow v. RKO Radio Pictures, Inc., 327 U.S. 251, 264, 66 S. Ct. 574, 580, 90 L. Ed. 652 (1946); Story Parchment, supra, 282 U.S. at 563, 51 S. Ct. 248; Eastman Kodak Co., supra, 273 U.S. at 379, 47 S. Ct. 400; Greyhound Computer Corp., Inc. v. Int'l Bus. Mach. Corp., 559 F.2d 488, 506 (9 Cir. 1977), cert. denied, 434 U.S. 1040, 98 S. Ct. 782, 54 L. Ed. 2d 790 (1978). The essential requirement is only that plaintiffs develop a reasonable theory for calculating the amount of damages and that they introduce the data necessary to make this calculation. Lehrman v. Gulf Oil Corp., 500 F.2d 659, 668 (5 Cir. 1974), rehearing denied, 503 F.2d 1403, cert. denied, 420 U.S. 929, 95 S. Ct. 1128, 43 L. Ed. 2d 400 (1975); SCM Corp. v. Xerox Corp., 463 F. Supp. 983, at 1019 (D.Conn.1978); L. Sullivan, Handbook of the Law of Antitrust, § 251, at 786 (1977). However, "even where the defendant by his own wrong has prevented a more precise computation, the [trier of fact] may not render a verdict based on speculation or guesswork." Bigelow, supra, 327 U.S. at 264, 66 S.Ct. at 579, 580. The burden may be relaxed, but it is never eliminated. LAW OF THE CASE In addition to being influenced by these general standards for evaluating damage evidence, the Court must follow the more detailed instructions given it by the Court of Appeals in this case. 548 F.2d 795. First, the Court of Appeals found that the Daily Review plaintiffs had met their initial burden of proving the fact of damage.[5] Recognizing that "[d]ifferent standards govern proof of the fact and proof of the amount of damages," and that to prove the fact of damage, plaintiffs need only offer "`proof of some damage flowing from the unlawful conspiracy,'" the Court of Appeals concluded that The Daily Review "plaintiffs [have] produced evidence that despite circulation drops their net profits would have been higher in some amount" had there been no price restraint. Knutson, supra, 548 F.2d at 811, 813. In addition, the Court of Appeals concluded that these "reduced net profits were `precisely the type of loss that the claimed violations of the antitrust laws would be likely to cause,'" and that therefore, even though there may be "some infirmities in [plaintiffs'] evidentiary showing," these "infirmities are not so significant as to call into question the fact of damage, but relate only to the amount of damage." Knutson, supra, 548 F.2d at 813, quoting Zenith Radio Corp., supra, 395 U.S. at 125, 89 S. Ct. 1562 (emphasis added). This conclusion might be subject to some dispute, both on the grounds that plaintiffs' evidence of profit loss was found by this Court not to be credible,[6] and because the alleged loss probably was not of "the type *231 that the statute was intended to forestall."[7]See Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 487-488, 97 S. Ct. 690, 697, 50 L. Ed. 2d 701 (1977), quoting Wyandotte *232 Co. v. United States, 389 U.S. 191, 202, 88 S. Ct. 379, 19 L. Ed. 2d 407 (1967). However, as the law of the case, these findings must be accepted on remand, and this Court must assume the fact of damages. Therefore, all that remains for this Court to do is ascertain the amount of damages to which each Daily Review plaintiff is entitled. THE AMOUNT OF DAMAGES After considering all the evidence presented at trial, this Court concluded that plaintiffs had failed to meet their burden of proving either the fact or the amount of damage.[8] The Court of Appeals disagreed, finding that this holding, by requiring proof to a reasonable probability that plaintiffs *233 actually would have raised their prices, created "a nearly insurmountable barrier to recovery in maximum price-fixing cases." Knutson, supra, 548 F.2d at 812. As a result, and in order to ease plaintiffs' burden, the Court of Appeals established a presumption that the dealers' pricing policies would have been guided by the principle of profit-maximization. It did so in a paragraph that deserves extended scrutiny, for it is in this paragraph that the Court of Appeals sets forth the guidelines for evaluating the evidence on "amount of damages." The Court of Appeals stated: "Rather than imposing the nearly impossible burden of proving what each dealer would have done if he had been free to make his own pricing decision, we assume that, absent evidence to the contrary, a dealer would have raised his prices had it been profitable to do so; that is, dealers are profit maximizers. [Footnote omitted.] This assumption merely amounts to a recognition that a `restraint' in fact restrains. The defendants can attempt to show plaintiffs would have kept their prices beneath a maximizing point despite their violative behavior. Contrary evidence might include dealer testimony that he would not have raised his price, or a showing by the defendants that the dealers had reasons other than the restraint for selling below a profit-maximizing price." 548 F.2d at 812. Central to the Court of Appeals' holding was its "assumption" that absent the price restraint, each dealer would have raised his or her prices so long as it would have been profitable to do so. Although the Court of Appeals used the word "assume" rather than "presume," the context in which the word appears suggests that the Court was creating a rebuttable presumption that all dealers are profit maximizers. See Knutson, supra, 548 F.2d at 816 (Smith, J., dissenting). But what does this presumption mean? At first glance, the language would suggest that the burden of proving damages — at least in maximum price restraint cases — should be shifted from plaintiff to defendant; that plaintiffs are presumed to have intended to charge the price at which they would have received the greatest profit; and that because a "restraint in fact restrains," this profit-maximizing price is presumed to be higher than the fixed price. However, this interpretation could place on the district court the burden of determining the profit-maximizing price, and the Court of Appeals could not have intended such a result. The inappropriateness of this result is illustrated by the hypothetical case in which neither party has introduced any evidence as to the amount of damages. In such a case, even though plaintiffs have not shown what their pricing policies would have been, the district court, in presuming that plaintiffs would have raised their prices to the profit-maximizing level, would itself have the burden of determining what that level would be. Because the parties would have introduced no supporting evidence, the district court could only make this determination by combining economic analysis with speculation and conjecture. The district court would first have to determine whether the Court of Appeals' presumption was based on short-term profit maximization or on long-term profit maximization. Then it would have to calculate the optimum price to be charged. In doing so, it would be compelled independently to consider such factors as the effect of a price rise on circulation, the impact of intra- and interbrand competition, and the response of the publisher to a dealer's pricing change. The obligation to undertake this type of speculative economic analysis should not be thrust on the district courts. See Illinois Brick Co. v. Illinois, 431 U.S. 720, 742-743, 97 S. Ct. 2061, 52 L. Ed. 2d 707, rehearing denied, 434 U.S. 881, 98 S. Ct. 243, 54 L. Ed. 2d 164 (1977). Moreover, adoption of this interpretation of the Ninth Circuit's decision would create a conflict with the clear line of judicial authority. In all other cases in which antitrust plaintiffs have sought compensation for lost profits, the courts have required them to introduce at least some evidence of the extent to which defendants' anti-competitive practices caused damage. See, e. g., Bigelow, supra, 327 U.S. at 264-266, 66 *234 S.Ct. 574; Story Parchment, supra, 282 U.S. at 561, 51 S. Ct. 248; Eastman Kodak, supra, 273 U.S. at 379, 47 S. Ct. 400; Greyhound, supra, 559 F.2d at 505-506; Gray v. Shell Oil Co., 469 F.2d 742, 748 (9 Cir. 1972), cert. denied, 412 U.S. 943, 93 S. Ct. 2773, 37 L. Ed. 2d 403 (1973); Siegel v. Chicken Delight, 448 F.2d 43, 52-53 (9 Cir. 1971), cert. denied, 405 U.S. 955, 92 S. Ct. 1172, 31 L. Ed. 2d 232 (1972); Lessig v. Tidewater Oil Co., 327 F.2d 459, 471-472 (9 Cir.), cert. denied, 377 U.S. 993, 84 S. Ct. 1920, 12 L. Ed. 2d 1046 (1974); Flintkote, supra, 246 F.2d at 392-394; Newberry, supra, 438 F.Supp. at 483 ("There is simply no proof that provides a basis for determining when, if ever, a price increase would have been attempted by any [plaintiff news dealer] or in what amount * * *"). These courts have dealt with the problem of uncertain damages by relaxing plaintiffs' burden of proof, not by shifting the entire burden to defendants. For these reasons, it seems more appropriate to interpret the Knutson decision in such a way as to maintain the burden of proof on the plaintiffs. This can be done by focusing on the "had it been profitable to do so" language. The Ninth Circuit "assume[d] that, absent evidence to the contrary, a dealer would have raised his prices had it been profitable to do so; that is, dealers are profit maximizers." 548 F.2d at 812. As noted above, this statement could be read as creating a presumption that absent a restraint, each dealer would have charged the profit-maximizing price, i. e., the price determined by the district court to be profit maximizing. However, the statement can also be read as holding that once plaintiffs have proved that, absent restraints, it would have been profitable for them to have raised their prices, the Court must presume their intent to have done so. This interpretation would place on plaintiffs the burden of proving that the profit-maximizing price was greater than the price charged while the restraint was in effect. If plaintiffs produced no probative evidence in support of this contention, then they would not be entitled to damages. However, if they could demonstrate — by use of the before/after test, the yardstick test, or by the use of experts — that they would have profited by charging more for their product than defendants had allowed them to charge, the Court would presume their intent to have done so, and the burden would shift to defendants to offer evidence to the contrary.[9] The Court of Appeals' statement that a restraint in fact restrains is not necessarily inconsistent with this interpretation. That language should not be read as a declaration that a maximum price restraint restrains only if it is set below the profit-maximizing price and that the district court must therefore presume that the profit-maximizing price was higher than the fixed price. Rather, it should be read merely to state that the restraint imposed by defendants prevented plaintiffs from exercising free choice in setting prices, and that whether plaintiffs would in fact have set their prices above the imposed price still depends on whether they can show that it would have been profitable to have done so. See Continental T. V., Inc. v. GTE Sylvania, Inc., 433 U.S. 36, 53 n.21, 97 S. Ct. 2549, 53 L. Ed. 2d 568 (1977); Chicago Board of Trade v. United States, 246 U.S. 231, 238, 38 S. Ct. 242, 244, 62 L. Ed. 683 (1918) ("Every agreement concerning trade, every regulation of trade, restrains. To bind, to restrain, is of their very essence.") Thus, in evaluating the evidence on remand, this Court will not presume that plaintiffs would have set their prices at a level higher than the fixed price. Rather, *235 plaintiffs must first demonstrate to this Court's satisfaction that the profit-maximizing price was higher than the fixed price. If the evidence presented does not support that contention, then plaintiffs are not entitled to more than nominal damages.[10] However, if plaintiffs can demonstrate that the profit-maximizing price was higher than the fixed price, then the Court will presume that they would have charged that higher price to their customers, and it will shift the burden to defendants to rebut that presumption. THE PROFIT-MAXIMIZING PRICE In determining whether plaintiffs have met their burden of proving that the profit-maximizing price exceeded the fixed price, the Court must focus on the period from September 1, 1969 to September 1, 1973. This is the time interval during which plaintiffs are potentially entitled to damages, for defendants terminated their illegal dealership agreements with plaintiffs on August 31, 1973, and the applicable statute of limitations for private causes of action under the federal antitrust laws is four years. See 15 U.S.C. § 15b; Knutson, supra, 383 F.Supp. at 1353. Plaintiffs concede that from the start of this damage period to January 1, 1971, a period of sixteen months, the profit-maximizing price was virtually identical to the maximum resale price set by defendants. Their expert economist concluded that the prices were "so close" during this period that the dealers "would have followed the suggested price," and none of the plaintiffs alleged that the profit-maximizing price would have been higher. See Plaintiffs' Proposed Finding of Fact 17; Transcript, Oct. 13, 1978, at 7; Transcript, Jan. 25, 1978, at 23. Therefore, because there has been no showing that it would have been more profitable for plaintiffs to have charged a higher price for The Daily Review subscriptions from September 1, 1969 to January 1, 1971, this Court finds that plaintiffs are not entitled to any damages for that time period. Plaintiffs argue that as of January 1, 1971, however, the profit-maximizing price of The Daily Review rose approximately fifty cents per month. On that date, the Oakland Tribune raised its monthly subscription price from $3.25 to $3.75. Plaintiffs contend that the Tribune's pricing policies had a direct competitive impact on their own prices, that their profit-maximizing price was fifty cents lower than whatever price the Tribune happened to be charging, and that this Court should therefore find that as of January 1, 1971, the profit-maximizing price of The Daily Review was approximately $3.25 per month. See Plaintiffs' Proposed Finding of Fact 13. Plaintiffs support this contention with three arguments. First, they point to their own testimony that the price of the Tribune was a significant influence on their pricing policies and that they felt it important to maintain approximately a fifty-cent price differential. See Transcript, Jan. 26, 1978, at 18, 29-30, 44-45; Transcript, Jan. 27, 1978, at 56; Plaintiffs' Exhibit Nos. 1009-1014, Affidavits of Robert Dutra, Kenneth Jackson, Willard Kittredge, Joseph Berthiaume, Evan Williams, and Jean Nyland. Next, they point to the historical fact, that the subscription price of The Daily Review was set fifty cents below that of the Tribune from October 1, 1960 to May 18, 1967, from November 1, 1967, to November 1, 1968, and again from October 1, 1969 to January 1, 1971. See Plaintiffs' Proposed Finding of Fact 13. Presumably, this indicates that there is a correlation between the profit-maximizing price of The Daily Review and the price of the Tribune. Finally, they note that Floyd Sparks, the publisher of The Daily Review, testified on numerous occasions that his pricing policies were greatly influenced by competition from the Tribune and that fifty cents seemed to be the most appropriate margin by which to *236 undersell that paper. See Transcript, Vol. 3, Nov. 16, 1973, 11:50 A.M. Session, at 119; Transcript, Vol. 4, Nov. 30, 1973, 2d Session, at 12; Transcript, Jan. 27, 1978, at 13-14. In light of plaintiffs' arguments and the testimony adduced at trial and on remand, the Court is willing to find that plaintiffs have met their initial burden of proving that as of January 1, 1971, the profit-maximizing price of The Daily Review rose to approximately $3.25 per month, fifty cents above the maximum subscription price set by defendants. The Court realizes the artificiality of this figure. Certainly the profit-maximizing price is in a constant state of flux and is influenced by many factors, including competition from other newspapers and news sources, the quality of the product, carrier demands, the state of the local economy, etc. However, the Court concludes that plaintiffs have produced enough evidence to show that a fifty-cent Daily Review price hike on or after January 1, 1971 would have led to increased dealer profits, assuming that the publisher continued to sell his papers to them at pre-1971 prices. Therefore, the Court finds that plaintiffs' initial burden has been met. Having established that the profit-maximizing price was higher than the fixed price after January 1, 1971, the Court must determine whether defendants have rebutted the presumption that plaintiffs would actually have raised their prices to this level. The Court is mindful of the Court of Appeals' suggestion that this rebuttal can consist of evidence such as "dealer testimony that he would not have raised his price, or a showing by the defendants that the dealers had reasons other than the restraint for selling below a profit-maximizing price." Knutson, supra, 548 F.2d at 812. After considering the testimony of the witnesses and the evidence presented, this Court finds that defendants have rebutted the presumption, and it therefore finds that plaintiffs are only entitled to nominal damages. Defendants have rebutted the presumption that plaintiffs would have raised their subscription prices on January 1, 1971 with two arguments. First, they point to subsequent events which demonstrate that plaintiffs would have delayed for a period of at least several months before reacting to the Tribune's January 1, 1971 price hike. Second, they contend that plaintiffs were aware that if they had raised their prices on or after January 1, 1971, the publisher would have been forced to convert his independent distributor system to an employee distribution system or to take some other action that would have jeopardized the dealers' independent status. Knowing that their future existence as independent dealers would have been jeopardized by instituting a price hike, defendants argue that plaintiffs would voluntarily have maintained the publisher's suggested price even though their "profit-maximizing" price may have been higher. TIME LAG In late July 1973, defendants notified all plaintiffs that their Dealership Agreements would be terminated effective at the close of business on August 31, 1973. Knutson, supra, 383 F.Supp. at 1353. On August 6, 1973, plaintiffs filed this lawsuit. Shortly thereafter, the parties agreed, inter alia, that during the pendency of this litigation, plaintiffs could continue to distribute The Daily Review, setting their own subscription price, but that defendants would be prohibited from selling the papers to them at other than the then prevailing rates. See Knutson, supra, 548 F.2d at 801; 383 F.Supp. at 1354. In other words, as of September 1, 1973, plaintiffs could sell The Daily Review at any price they chose while defendants could not raise their prices or react to plaintiffs' decisions in any way. The existence of this agreement provides the Court with an ideal situation for testing the profit-maximizing presumption. As of September 1, 1973, all of plaintiffs' pricing restraints had been lifted, the publisher's hands had been tied, and the Tribune's selling price had been established at one dollar higher than The Daily Review's. If plaintiffs were truly profit maximizers, they all *237 would have immediately raised their prices to $3.25 per month. However, they did not. Although plaintiff Berthiaume raised his subscription price on September 1, plaintiffs Kittredge, Williams, and Nyland did not act until October 1, and plaintiffs Dutra and Jackson did not raise their prices until November 1. Knutson, supra, 383 F.Supp. at 1378 n.40. These time lags between the date of price freedom and the date of dealer response prove just how fragile the presumption of profit maximization can be. At a minimum, the Court must find that five of the six plaintiff dealers would have hesitated one to two months after achieving price freedom before raising their prices to the profit-maximizing level. Their delay in responding to the actual lifting of the maximum price restraint compels such a result. Moreover, in light of this Court's earlier determination regarding plaintiffs' credibility, the Court now finds that the time lag would have been greater. Plaintiffs knew that their entitlement to damages would depend in part on the profits they received after September 1, 1973. They knew that the sooner their prices were raised, the more likely it would be that this Court would find them to be immediate profit maximizers. Their delay in responding to price freedom only shows that the presumption of immediate profit maximization is unsupported here, and that plaintiffs actually would have hesitated for at least a few months before raising their prices to the "profit-maximizing" level. The Court must so find.[11] DEALER REACTION The second piece of rebuttal evidence offered by defendants is even more harmful to plaintiffs' claim for damages. It consists of testimony that the publisher would have responded to plaintiffs' price freedom by converting to an employee distribution system, and that knowledge of the likelihood of this response would have been a "[reason] other than the restraint for [plaintiffs'] selling below a profit-maximizing price." Knutson, supra, 548 F.2d at 812. Although the publisher and the dealers all earned their income through sales of The Daily Review, their strategies for maximizing profits appear to have been in conflict. See Transcript, Vol. 11, Feb. 8, 1974, at 304. The publisher, whose gross income was derived 88% from advertising revenue, was predominantly concerned with maintaining a high circulation in order to promote his sales of advertising lineage. See Transcript, Vol. 4, Nov. 30, 1973, 2d Session, at 27; Transcript, Vol. 11, Feb. 8, 1974, at 319. Advertising rates are in large part a function of total circulation. The greater the circulation, and therefore the greater the potential market, the more willing advertisers are to purchase space from a newspaper. Therefore, because circulation tends to increase as subscription prices decrease, the publisher can maximize his profit by keeping the price of his paper low. This low price leads to higher circulation and therefore to more substantial advertising revenues. See Albrecht v. Herald Co., 390 U.S. 145, 169 n.2, 88 S. Ct. 869, 19 L. Ed. 2d 998 (1968) (Stewart, J., dissenting); Knutson, supra, 383 F.Supp. at 1363; Transcript, Vol. 4, Nov. 30, 1973, 2d Session, at 9. Unlike the publisher, the dealers' profit picture depends solely upon circulation. Knutson, supra, 383 F.Supp. at 1363-1364. Their income is derived exclusively from sales of The Daily Review, not from sales of advertising. Under the dual rate structure established by the publisher, the dealers pay a base rate for each paper purchased up to a specified number, and a higher rate for each additional paper purchased. Id. at 1352 n.4. These payments, plus the carriers' earnings, are subtracted from total subscription revenues to determine dealers' profits. Id. at 1351-1352; 548 F.2d at 808. Because a dealer's profit per paper is higher when he *238 pays the publisher only at the lower base level rate, his most logical profit strategy would be to raise subscription prices to the point that circulation drops to the base level. See Transcript, Vol. 9, Feb. 6, 1974, 2d Session, at 25; Transcript, Jan. 27, 1978, at 53. This strategy is obviously in conflict with the publisher's high circulation strategy. See Knutson, supra, 383 F.Supp. at 1364. Sparks, the publisher of The Daily Review, acknowledged that a dealer's decision to raise subscription prices would seriously impair the profitability of his paper. See Transcript, Jan. 27, 1978, at 20-21. He had no doubt that a dealer price hike would lead to a drop in circulation that would in turn lead to diminished advertising revenues. See Transcript, Vol. 4, Nov. 30, 1973, 2d Session, at 9; Transcript, Jan. 26, 1978, 4 P.M. Session, at 23.[12] This problem would have been particularly severe toward the beginning of the damage period because of the strong competition for advertising revenues then existing between The Daily Review, the San Leandro Morning News, and the Fremont News Register. Transcript, Jan. 27, 1978, at 22. However, the problem would continue so long as advertising revenues were the publisher's main source of income. Moreover, because a diminution of advertising revenues would decrease the funds available for future circulation promotions, a dealer price hike would trigger a downward profit spiral, ultimately leading to tremendous financial losses for The Daily Review. See Transcript, Vol. 11, Feb. 8, 1974, at 341; Transcript, Vol. 14, Feb. 14, 1974, at 220. Sparks recognized also the need to maintain a uniform subscription price for his paper, both to avoid confusion among his subscribers and to make widespread circulation promotions more feasible. See Knutson, supra, 383 F.Supp. at 1363, Transcript, Vol. 2, Nov. 15, 1973, at 426; Transcript, Vol. 3, Nov. 16, 1973, 11:50 A.M. Session, at 127, 147; Transcript, Vol. 5, Dec. 1, 1973, at 27. For all these reasons, he testified that he would have responded to price freedom in such a way as to maintain as much control over subscription prices as would have been legally possible. See Transcript, Vol. 2, Nov. 15, 1973, at 421; Transcript, Vol. 3, Nov. 16, 1973, 11:50 A.M. Session, at 146; Transcript, Vol. 4, Nov. 30, 1973, 2d Session, at 34.[13] The Court finds that the need for swift reaction to a dealer price hike in order to maintain price uniformity and advertising revenues would have caused Sparks to respond to dealer price freedom either by immediately converting to an employee distribution system or by converting to a system of free distribution, even if that required cutting back on the frequency of publication.[14] The evidence amply supports this finding. See Transcript, Vol. 11, Feb. 8, 1974, at 373; Transcript, Vol. 22, Apr. 25, 1974, at 194, 2 P.M. Session, at 6; Transcript, Jan. 26, 1978, 4 P.M. Session, at 21, 26-28, 44; Transcript, Jan. 27, 1978, at 35-36; Transcript, Feb. 2, 1978, at 148. Furthermore, this conclusion is not undermined by Sparks' failure to respond to the dealer price hikes that occurred between September 1, 1973, and November 1, 1973. As noted above, the publisher's hands were tied by the stipulation of the parties — approved *239 by the Court — that enjoined him from refusing to sell The Daily Review to plaintiffs at the established rates. See Knutson, supra, 383 F.Supp. at 1354. He was thus prohibited from raising his prices or from terminating their distributorships during the pendency of the litigation. The publisher's inaction during the post-September 1, 1973 period does not therefore provide probative evidence of whether Sparks would have converted to a new distribution system when the dealers gained price freedom. DEALER AWARENESS The presumption that plaintiffs would have charged the "profit-maximizing" price cannot be rebutted merely by evidence that their dealerships would have been terminated if they had raised their prices. If plaintiffs were unaware that the publisher would have been forced to respond to a price increase, they might have raised their prices regardless of the likely consequences.[15] However, upon consideration of the evidence, this Court concludes that plaintiffs were aware of potential publisher response and that this awareness would have kept them from raising their subscription prices even if they had had price freedom earlier than September 1, 1973. See Knutson, supra, 383 F.Supp. at 1364 n.19A. The presumption established by the Court of Appeals that plaintiffs were profit maximizers was partially based on the assumption that these dealers were knowledgeable businesspersons with the aptitude and inclination to act in their own self interest. After having observed the demeanor and having heard the testimony of these individuals during trial, this Court agrees; plaintiffs were sophisticated newsdealers who understood the dynamics of their industry and who therefore should be found to have been aware of the consequences of a price hike. A number of plaintiffs admitted during trial that they had at least considered the impact of a dealer price hike on the publisher's profits. See, e. g., Transcript, Vol. 7, Dec. 13, 1973, Morning Session, at 16; Transcript, Vol. 8, Feb. 5, 1974, at 135. In addition, the evidence demonstrates plaintiffs' awareness of the "market fact" that subscription price, circulation, and advertising revenues are all interrelated. See Transcript, Vol. 8, Feb. 5, 1974, at 142; Transcript, Vol. 14, Feb. 14, 1974, at 363-364. Moreover, their own expert economist, Dr. David Bradwell, testified during the remand trial that plaintiffs were aware of the publisher's need to maintain a high circulation, and that they would not have raised prices if it meant putting themselves out of business.[16] *240 In light of this evidence, and plaintiffs' testimony that their pricing decisions would be influenced by long-term rather than by short-term objectives, see Transcript, Jan. 26, 1978, 1:30 P.M. Session, at 11, 40; Transcript, Jan. 27, 1978, at 47, 49, the Court concludes that plaintiffs would not have been "profit-maximizers." Surely they were aware that any action on their part to raise subscription prices — even if it would have been in their immediate self-interest — would in the long run have had disastrous consequences for their businesses. Any price hike or threat of price hike would have caused the publisher to convert to an employee distribution system or to take some action that would destroy plaintiffs' positions as independent newsdealers. Therefore, because the evidence shows that plaintiffs would not have raised their prices even if they had been free to do so, the Court can award only nominal damages.[17] This award will be trebled pursuant to 15 U.S.C. § 15. See Newberry v. Washington Post Co., supra, 438 F.Supp. at 483; Siegfried v. Kansas City Star Co., 193 F. Supp. 427, 440 (W.D.Mo.1961), aff'd, 298 F.2d 1 (8 Cir.), cert. denied, 369 U.S. 819, 82 S. Ct. 831, 7 L. Ed. 2d 785 (1962). Plaintiffs' damage award is significant in two respects. First, it incorporates the finding of the Court of Appeals — applicable here as the law of the case — that plaintiffs have established the fact of damages. See p. 230, supra. Second, it indicates that even though the fact of damages has been established, plaintiffs have not proven the amount of damages; they have failed to demonstrate to the Court's satisfaction that they suffered lost profits due to defendants' illegal maximum price restraint. In fact, the evidence points to the contrary conclusion, that the Sherman Act violation did not affect plaintiffs' profits. In Newberry, supra, the court found that the publisher of the Washington Post violated Section 1 of the Sherman Act by illegally restraining the price at which its dealers sold the newspaper. Those plaintiffs who had raised their prices despite the restraint were awarded treble damages based on their evidence of lost profits. 438 F.Supp. at 483. The remaining plaintiffs received only nominal damages, however, because the Court found that "[there] is simply no proof that provides a basis for determining when, if ever, a price increase would have been attempted by any of [the plaintiffs] or in what amount * * *. The Court has found that [defendant restrained plaintiffs'] freedom to price without interference; but this does not establish that but for the Post's action, all prices would have been raised, or by what amount. * * * Cognizant of the Supreme Court's establishment of a relaxed standard of proof of the amount of damages once an antitrust violation has been shown [citation omitted], the Court concludes nonetheless that it would be the sheerest speculation to award more than nominal damages." 438 F.Supp. at 483. In this case as well, the Court concludes that it would be sheer speculation, and in fact contrary to the evidence, to award more than nominal damages. Cf. SCM Corp. v. Xerox Corp., supra, 463 F.Supp. at 1017-1020 (D.Conn.1978) (evidence does not support plaintiff's lost profits damage theory). Accordingly, the Court concludes that plaintiffs are each entitled to an award of three dollars. See Morning Pioneer Inc. v. Bismarck Tribune Co., 493 F.2d 383, 388 (8 Cir.), cert. denied, 419 U.S. 836, 95 S. Ct. 64, 42 L. Ed. 2d 63 (1974); Siegfried v. Kansas City Star Co., supra, 298 F.2d 1, 6 (8 Cir.), *241 cert. denied, 369 U.S. 819, 82 S. Ct. 831, 7 L. Ed. 2d 785 (1962); Newberry, supra, 438 F.Supp. at 483; United Exhibitors v. Twentieth Century Fox F. D. Corp., 31 F. Supp. 316, 317 (W.D.Pa.1940). But see Herman Schwabe, Inc. v. United Shoe Machinery Corp., 297 F.2d 906, 909 n.4 (2 Cir.), cert. denied, 369 U.S. 865, 82 S. Ct. 1031, 8 L. Ed. 2d 85, rehearing denied, 370 U.S. 920, 82 S. Ct. 1552, 8 L. Ed. 2d 500 (1962) (dictum); Ledge Hill Farms, Inc. v. W. R. Grace & Co., 230 F. Supp. 638, 640 (S.D.N.Y.1964). Accordingly, IT IS HEREBY ORDERED that The Daily Review plaintiffs Joseph W. Berthiaume, Robert A. Dutra, Kenneth W. Jackson, Willard B. Kittredge, Jean E. Nyland, and Evan F. Williams are each awarded damages from defendants in the amount of three dollars ($3.00). IT IS HEREBY FURTHER ORDERED that a hearing will be held on Thursday, May 3, 1979, at 9 A.M. to determine reasonable attorneys' fees. Counsel shall file memoranda accordingly. NOTES [1] Actually, because the dealers sold their papers to carriers, who in turn sold to the public, the agreement established a "resale-resale price." Knutson v. Daily Review, 548 F.2d 795, 800 n.2 (9 Cir.), cert. denied, 433 U.S. 910, 97 S. Ct. 2977, 53 L. Ed. 2d 1094 (1977). For the sake of simplicity, and because the dealers took "all reasonable steps to insure that the carriers sold at the announced subscription price," ibid., this Court will discuss the damage evidence as though plaintiff-dealers sold directly to the public. See Knutson v. Daily Review, 383 F. Supp. 1346, 1376 n.35 (N.D.Cal.1974). [2] The Court of Appeals also ordered "a limited remand on the Section 2 count." Knutson, supra, 548 F.2d at 800. However, it did not indicate which aspects of this Court's findings should be reconsidered. Having fully weighed the evidence presented at trial, and having considered the legal analysis contained in the Court of Appeals' decision, this Court reaffirms its finding that there has been no Section 2 violation. Plaintiffs' Section 2 claim was that "sometime prior to 1970 defendants attempted and conspired to monopolize the publication of community or suburban daily newspapers in the southern Alameda County area in violation of § 2 of the Sherman Act, 15 U.S.C. § 2," and that "as an integral part of that attempt to monopolize defendants fixed resale prices, imposed territorial restraints on dealer distribution, and terminated all independent home-delivery dealers." 383 F.Supp. at 1369, 1370-1371. An attempt and conspiracy to monopolize can only be established if plaintiffs have proven that defendants "possessed `a specific intent to acquire unlawful monopoly power.'" Id. at 1371, quoting Chisholm Brothers Farm Equipment Co. v. Int'l Harvester Co., 498 F.2d 1137, 1144 (9 Cir. 1974). Because there was "no indication in the evidence as a whole * * of predatory or knowingly unlawful activity in connection with defendants' effort to establish, by contract, the subscription price of their newspapers," id. at 1372, and because defendants in fact "took prompt action to bring their distribution practices into compliance with the antitrust laws * * *," ibid., this Court found that there was no specific intent to monopolize and denied plaintiffs relief on their Section 2 claim. Id. at 1372, 1376. The Court of Appeals agreed with the standards used to determine whether there had been a Section 2 violation and disagreed only with the Court's determination that defendants had not knowingly engaged in any unlawful activity in setting a maximum resale price. 548 F.2d at 814. However, despite this disagreement, the Court of Appeals concluded that "* * * the Section 1 violation alone, or in conjunction with [the publisher's] newspaper acquisitions, the questionable promotional practices, and the padding of circulation figures would have supported a district court finding of specific intent, but that finding was not compelled and we cannot say that the district court's contrary determination was clearly erroneous." Id. at 815 (emphasis added). Despite the Court of Appeals' assertion that defendants' conduct was "knowingly unlawful," the evidence demonstrates that there was no specific intent to monopolize and this Court therefore reaffirms its earlier holding that "[p]laintiffs have failed to prove that * * * defendants attempted or conspired to monopolize the publication of community daily newspapers in the southern Alameda County area." 383 F.Supp. at 1376. [3] Defendant's violation need not be the sole cause of the injury; however, it must be at least a substantial factor in bringing the injury about. See Mulvey v. Samuel Goldwyn Productions, 433 F.2d 1073, 1075 n.3 (9 Cir. 1970), cert. denied, 402 U.S. 923, 91 S. Ct. 1377, 28 L. Ed. 2d 662 (1971). Moreover, the injury must be of the type the antitrust laws were intended to prevent and must flow from that which makes defendant's acts unlawful. See Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S, 477, 489, 97 S. Ct. 690, 50 L. Ed. 2d 701 (1977); Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 125, 89 S. Ct. 1562, 23 L. Ed. 2d 129 (1969); Murphy Tugboat Co. v. Crowley, 454 F. Supp. 847, 850-851 (N.D.Cal. 1978). [4] There are two reasons why plaintiff's burden of proving the amount of damages is relaxed in an antitrust case: first, the "self-evident intangible nature of the subject matter"; and second, the recognition that most difficulties in computing antitrust damages arise as a result of defendant's own wrongful conduct. See Flintkote Co. v. Lysfjord, 246 F.2d 368, 391 (9 Cir.) cert. denied, 355 U.S. 835, 78 S. Ct. 54, 2 L. Ed. 2d 46 (1977). Precise calculation of damages is often made impossible where defendant has restrained plaintiff in his profit-making activities, as this restraint obscures the conditions that would have prevailed in a free market. Further, courts have recognized that to allow defendants to escape payment of damages because they have made it difficult for the plaintiff to prove the exact amount of injury would be to permit a wrongdoer to profit by his own wrongdoing. Such defendants should not be permitted to argue that inexact and imprecise damages are improper. If the courts were willing to accept such arguments, potential defendants would be encouraged to act in a manner that would render damages as uncertain and speculative as possible, and this would of course undercut the policies underlying the antitrust laws. See Bigelow v. RKO Radio Pictures, Inc., 327 U.S. 251, 264-265, 66 S. Ct. 574, 90 L. Ed. 652 (1946); Story Parchment Co. v. Paterson Parchment Co., 282 U.S. 555, 563, 51 S. Ct. 248, 75 L. Ed. 544 (1931); Eastman Kodak Co. v. Southern Photo Co., 273 U.S. 359, 377-379, 47 S. Ct. 400, 71 L. Ed. 684 (1927); Pac. Coast Agr. Export Ass'n v. Sunkist Growers, Inc., 526 F.2d 1196, 1207 (9 Cir. 1975). [5] There were two groups of independent newspaper distributors who brought this lawsuit, those who sold The Daily Review and those who sold the Argus. On remand, this Court is only concerned with The Daily Review plaintiffs, Joseph W. Berthiaume, Robert A. Dutra, Kenneth W. Jackson, Willard B. Kittredge, Jean E. Nyland, and Evan F. Williams. Gayle C. Ely, the seventh Daily Review plaintiff, did not appeal from the adverse decision below. The Court of Appeals has agreed that the Argus plaintiffs are not entitled to damages, stating that "* * * the Argus plaintiffs * * * did not meet the-fact-of-damage Flintkote test. * * * Unlike other plaintiffs, the Argus plaintiffs had a complete failure of proof of damages, not simply some deficiencies in the proof of amount of damages." Knutson, supra, 548 F.2d at 813. [6] Plaintiffs' proof of lost profits was based on a "before/after" theory under which the "before" period was the time during which plaintiffs were restrained from raising their prices and the "after" period was the time subsequent to September 1, 1973, when plaintiffs were free to charge whatever prices they wished. All the Daily Review plaintiffs raised their subscription prices during the "after" period. They all claim increased net profits resulting from this price hike, despite losses in circulation. See Knutson, supra, 548 F.2d at 810. As a result, they contend that the evidence proves that their profits would have been higher before September 1, 1973, had they been allowed to charge their subscribers the "profit-maximizing" price. After considering the testimony and demeanor of the Daily Review plaintiffs, this Court found that their post-September 1973 actions were self-serving and that the evidence taken from the "after" period was unreliable: "Since plaintiffs' crucial profit and loss data, * * * was recorded and compiled well after the complaint was filed in the very litigation in which it was to be used to prove actual injury, its credibility is certainly suspect. Plaintiffs clearly had the opportunity to vary their gross income and expense figures during the `after' period in order to exaggerate the favorable impact that price increases might have on profitability. * * * [S]ome of plaintiffs' profit data strains the Court's credulity to the breaking point. * * * "* * * Moreover, when assessing the credibility of these profit and loss statements the Court cannot ignore the fact that the unaudited financial statements originally offered by several of the plaintiffs purportedly reflecting their actual operations indicated significantly higher net profit figures than were reported on those plaintiffs' federal income tax returns for the years in question. * * * "Another and equally fundamental weakness in plaintiffs' proof of the fact of damage arises from the artificiality of the `after' period upon which the claims of lost profits are based. Plaintiffs conceded that `[d]amages must be predicated on real market conditions * * *.' [Footnote omitted.] Yet during the entire `after' period one dominant market factor — the wholesale price charged by the publisher and paid by the dealers — has been under a court-imposed restraint that prevents defendants from raising that price." Knutson, supra, 383 F.Supp. at 1382-1383. Moreover, as will be seen later in this opinion, the evidence demonstrates that plaintiffs would not have charged a higher price for their papers, even if it had been profitable to do so, because of their fear of publisher response. Because of the need to maintain a uniform sales price and a high level of circulation, the publisher could not have permitted the dealers to raise their prices with the resulting drop in circulation without taking action to protect his interests. For these reasons, it appears to this Court that there remains a substantial question as to whether plaintiffs have produced evidence that they were in fact injured by defendants' maximum resale price restraint. [7] Because vertical resale price restraints have long been viewed as per se violations of Section 1 of the Sherman Act, see Albrecht v. Herald Co., 390 U.S. 145, 151-152, 88 S. Ct. 869, 19 L. Ed. 2d 998, rehearing denied, 390 U.S. 1018, 88 S. Ct. 1258, 20 L. Ed. 2d 169 (1968); Kiefer-Stewart Co. v. Seagram & Sons, 340 U.S. 211, 213, 71 S. Ct. 259, 95 L. Ed. 219, rehearing denied, 340 U.S. 939, 71 S. Ct. 487, 95 L. Ed. 678 (1951), courts have not found it necessary to evaluate the anticompetitive consequences of each violation. However, recent case law has called into question the continued application of per se analysis to this type of case. See Continental T. V. Inc., v. GTE Sylvania, Inc., 433 U.S. 36, 57-59, 97 S. Ct. 2549, 53 L. Ed. 2d 568 (vertical territorial restrictions should be subjected to rule of reason rather than per se analysis); Eastern Scientific Co. v. Wild Heerbrugg Instruments, Inc., 572 F.2d 883, 885-886 (1 Cir. 1978), cert. denied, ___ U.S. ___, 99 S. Ct. 112, 58 L. Ed. 2d 128 (1978) (resale price restraint having lesser anti-competitive effect than pure territorial restriction analyzed under rule of reason in light of Continental). For this reason, it seems appropriate for the Court to consider whether the purposes of the antitrust laws are truly served by a finding that plaintiffs have proven a violation and the fact of injury. See Brunswick, supra, 429 U.S. at 487-488, 97 S. Ct. 690, 697 (respondents not allowed to recover under Clayton § 7 for lost profits suffered when large manufacturer acquired their competitors, thus preventing competitors from going out of business; Court held that because respondents sought to recover "the profits they would have realized had competition been reduced," their "injury was not of `the type that the statute was intended to forestall,'" and that it would be "inimical to the purposes of [the antitrust] laws to award damages for the type of injury claimed * * *"); Murphy Tugboat Co. v. Crowley, 454 F. Supp. 847, 851-852 (N.D. Cal.1978) (Brunswick reasoning applicable to Sherman § 1 claim). The anticompetitive consequences that usually flow from the imposition of maximum resale price restraints were articulated by the Supreme Court in Albrecht, supra: "[First,] agreements to fix maximum prices `no less than those to fix minimum prices, cripple the freedom of traders and thereby restrain their ability to sell in accordance with their own judgment.' [Footnote and citation omitted.] "* * * [Second, m]aximum prices may be fixed too low for the dealer to furnish services * * * and conveniences which consumers desire and for which they are willing to pay. [Third, m]aximum price fixing may channel distribution through a few large or specifically advantaged dealers who otherwise would be subject to significant nonprice competition. * * * [Fourth,] if the actual price charged under a maximum price scheme is nearly always the fixed maximum price, which is increasingly likely as the maximum price approaches the actual cost of the dealer, the scheme tends to acquire all the attributes of an arrangement fixing minimum prices." 390 U.S. at 152-153, 88 S.Ct. at 873, quoting Kiefer-Stewart, supra, 340 U.S. at 213, 71 S. Ct. 259. None of these "evils" are present in this case. First, even if the restraint "cripple[d] the freedom" of plaintiffs, the Supreme Court has expressly rejected this factor as a basis for imposing antitrust liability. See Continental T. V. Inc. v. GTE Sylvania, Inc., supra, 433 U.S. at 53 n. 21, 97 S. Ct. 2549. Second, plaintiffs have not alleged that they would have provided additional services or conveniences to their subscribers if they had been allowed to charge a higher price. The motivation for raising prices was to effect a decrease in circulation that, because of the dual rate structure, would lead to higher net profits. Setting higher prices in order to increase services would appear to be counterproductive; it would retard the desired circulation drop. Third, there is no indication that the price restraint protected any dealer from "significant nonprice competition." In fact, the dealers did not compete among themselves for subscribers and, if anything, the elimination of the price restraint would have made inter-dealer competition even less likely. The dealers wanted to restrict distribution. Because of the dual rate structure they had no interest in expanding their distribution into other dealers' territories. See Knutson, supra, 548 F.2d at 809, 810. Fourth, it cannot be said that the price ceiling was actually a cover for a minimum price setting scheme. The resale price was not set at the dealers' cost. Had the dealers wanted to increase circulation, they could have afforded to undercut the suggested price. The reason they chose not to sell at a lower price was simply because they had no need and no motivation to increase circulation once the base level of sales had been reached. In fact, it is not unreasonable to conclude that defendants' maximum resale price restraint had a pro-competitive effect and that price freedom would have had anticompetitive consequences. By seeking the removal of the resale price restrictions, plaintiffs sought the power to increase profits by raising subscription prices in their areas of distribution. However, because each plaintiff had a de facto monopoly in his or her area, these increased profits could only be characterized as monopoly rents. The result of lifting the price ceiling would therefore be to encourage each dealer's fortification and exploitation of his or her particular monopoly. Moreover, because the effect of a price hike would be to decrease circulation, a dealer's freedom to raise prices would logically lead to the elimination of any interdealer competition that may have existed on the fringes of each dealer's area of distribution. This analysis suggests that although plaintiffs' alleged losses may be of the type that the claimed violation would be likely to cause, they are not of the type that the antitrust laws were intended to prevent. For this reason, the Court questions whether plaintiffs should have been found to have demonstrated a violation and resulting fact of injury. See Brown Shoe Co. v. United States, 370 U.S. 294, 320, 82 S. Ct. 1502, 8 L. Ed. 2d 510 (1962) (antitrust laws were enacted for the protection of competition, not competitors); cf. Albrecht, supra, 390 U.S. at 156-159, 88 S. Ct. 869 (Harlan, J., dissenting). [8] Noting that "[t]he evidence * * * presented * * * amounted to no more than conjectural hindsight and even contained contradictory assertions of interested parties," 383 F.Supp. at 1379, that "[t]he credibility of the evidence is further diminished by the fact that these claims [of damage] were first made during the trial and lack any corroborating circumstantial evidence," 383 F.Supp. at 1380, that "plaintiffs' crucial profit and loss data * * * recorded and compiled well after the complaint was filed * * * is certainly suspect * * * [and] strains the Court's credulity to the breaking point," 383 F.Supp. at 1382, and that "the `after' period upon which the claims of lost profits are based" constitutes "an artificial rather than a real market experience thereby destroying the probative value of the `before/after' test relied upon by plaintiffs," 383 F.Supp. at 1383, the Court held "* * * that plaintiffs have not shown that there is a reasonable probability that they actually would have increased their prices during the damage period if they had been permitted to do so or that they actually would have realized higher profits had they raised their prices. Consequently, plaintiffs have failed to prove both the fact and amount of damage on their lost profits claim." 383 F.Supp. at 1384. [9] As noted by the Court of Appeals, defendants could rebut the presumption that plaintiffs would have charged the profit-maximizing price by introducing contrary evidence such as "dealer testimony that he would not have raised his price, or [other testimony] that the dealers had reasons other than the restraint for selling below a profit-maximizing price." 548 F.2d at 812. It is significant that these examples rebut the presumption that each dealer intended to charge the profit-maximizing price, not the presumption that the profit-maximizing price was higher than the fixed price. [10] Under most circumstances, plaintiffs who fail to establish the amount of their injury are not entitled to any damage award. However, in this case, the Court of Appeals' determination that "fact of injury" has been established compels a finding that plaintiffs are entitled to at least nominal damages. [11] This conclusion is supported by plaintiffs' "Second Supplemental Damage Study," submitted after trial, in which their expert, Dr. David Bradwell, calculated damages based on the assumption that plaintiffs would not have raised their prices until July 1, 1971. See, e. g., Plaintiffs' Exhibits 1002B, 1005B, 1006B, and 1007B. [12] Plaintiffs' own expert, Dr. David Bradwell, testified that if the dealers had been permitted to effect the proposed price hike, circulation levels would have dropped approximately 22%. Transcript, Jan. 25, 1978, at 151. [13] Either of these options could have been pursued without violating the antitrust laws, particularly insofar as they would have been the result of a good-faith, valid business decision, having across-the-board effect, and authorized by the explicit terms of the termination clause of the Dealership Agreements. See Knutson, supra, 548 F.2d at 804-807; 383 F.Supp. at 1358, 1359-1367. [14] This conclusion is reinforced by Sparks' "termination" letter of July 25, 1973, in which he stated that the conversion of his distribution system was "necessary to obtain closer supervision over our circulation, and in particular over efforts to increase such circulation. * * Any loss in circulation to [our] competitors would adversely affect our advertising revenue." Knutson, supra, 383 F.Supp. at 1353-1354. [15] If that were the case, the Court could award plaintiffs damages for the profits they lost between the date they would have responded to price freedom by raising prices and the date the publisher would have responded by converting his distribution system. Because of the time lag in dealer response mentioned earlier, however, and the publisher's need to act quickly, this damage period would have been very short indeed. [16] "Q. Did you happen to discuss with any of the plaintiffs the emphasis that the circulation department placed upon maintenance and growth of circulation and volume at the Hayward Daily Review?" "A. Yes, there was some discussions [sic] of the promotional activities of the circulation department. "Q. Well, and the emphasis upon the part of the circulation management that the dealers' primary function was to develop circulation? "A. Yes. * * * * * * "Q. And the dealers recognized that, the extreme importance of that fact to circulation management? "A. Oh, no question." Transcript, Jan. 25, 1978, at 148-149. "Q. Of course you recognize there are substantial differences in the factors which a publisher considered from those which a dealer considered, do you not? "A. Yes. * * * * * * "Q. Do you assume that the dealer is equally [concerned] about the impact of his actions upon the newspaper firm? "A. In a different way, yes. "Q. In which way, Doctor Bradwell? "A. Well, if he were to act in such a predatory way that he destroyed his source of supply, he would be out of business." Transcript, Jan. 25, 1978, at 153, 155. [17] Although the record has not been fully developed, evidence of the Sacramento Union dealers' experience seems to support this conclusion. The Sacramento Union Dealership Agreements did not set any maximum resale prices; those dealers were free to charge whatever price they wished. See Transcript, Vol. 16, Apr. 16, 1974, at 74-75; Transcript, Vol. 16, Apr. 17, 1974, at 168, 232. However, none of them actually sold their papers at other than the publisher's suggested price. See Transcript, Jan. 25, 1978, at 134. This lends support to the Court's conclusion that because of the need for uniformity of prices and the need to maintain circulation at a level that would support advertising revenues, a newsdealer would not vary from his publisher's suggested resale price even if he or she were free to do so.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1806144/

991 F.Supp. 460 (1998) THE ROUSE COMPANY, et al. v. FEDERAL INSURANCE COMPANY. Civil No. Y-96-3335. United States District Court, D. Maryland. January 14, 1998. *461 Jay I. Morstein, Kathleen A. Ellis, Baltimore, MD, for Plaintiffs. E. Charles Dann, Jr., Stephen E. Marshall, Baltimore, MD, for Defendant. MEMORANDUM OPINION JOSEPH H. YOUNG, Senior District Judge. I. The Rouse Company and Rouse-New Orleans, Inc., a subsidiary of The Rouse Company (collectively, "Rouse") bring this diversity action against Federal Insurance Company ("Federal") seeking a declaratory judgment that Rouse was covered under an executive and corporate liability insurance policy issued by Federal for losses suffered from a multi-million dollar verdict against *462 Rouse in Louisiana state court. Rouse con-comitantly contends that Federal breached the insurance contract by refusing to pay under the policy. The case is now before the Court on cross-motions for summary judgment. The evidence before the Court establishes the following undisputed facts. Rouse purchased executive and corporate liability insurance from Federal in 1989 and renewed the policy without change in its substantive provisions for the period of May 13, 1990 through May 13, 1991 by endorsement originating from New Jersey, where Federal is located. The policy was negotiated, paid for, and delivered in Maryland. In November 1990, Robert P. Guastella Equities, Inc., not a party to this litigation, sued Rouse, New Orleans Riverwalk Associates, New Orleans Riverwalk Limited Partnership, Connecticut General Life Insurance Company, and the World Trade Center of New Orleans, Inc. in the Civil District Court for the Parish of New Orleans, Louisiana. Guastella alleged wrongful acts of Rouse which undisputedly fell within the policy's coverage. In 1993, a Louisiana jury returned a verdict in favor of the plaintiff, and judgment was entered against The Rouse Company and New Orleans Riverwalk Associates, and against New Orleans Riverwalk Associates and Connecticut General Life Insurance Company for their 50% share each of $9,530,400, plus interest and costs. The Louisiana Court also entered judgment against The Rouse Company of New Orleans, Inc. "to the same extent as New Orleans River-walk Associates." In November 1993, after the trial, Plaintiffs first notified Federal of a claim based on the Louisiana litigation. Federal denied coverage by letter dated February 23, 1994 for Rouse's failure to provide written notice of the claim as required by Policy Section 4.1. Federal also maintained it was not liable for the costs of defending the suit because Federal's consent was not first obtained, as required by Policy Paragraph 6.1. Although Rouse subsequently informed Federal of later developments in the case, and invited Federal to discuss post-trial settlement negotiations, Federal maintained coverage did not exist and that its consent was irrelevant. Ultimately, the suit settled for $4,750,000. Rouse estimates that its legal fees and costs exceed $1,400,000. Plaintiffs argue that its policy with Federal covers the Louisiana claim because Federal has failed to demonstrate that lack of notice resulted in actual prejudice. Plaintiffs assert that Maryland law applies because the policy was delivered and the premiums paid in Maryland, or because New Jersey, where the policy was allegedly countersigned, would apply Maryland law. Federal contends that Louisiana law governs the question of notice as a condition precedent to coverage and that Maryland or New Jersey would apply Louisiana law. Federal concurrently argues that under Louisiana law, Plaintiffs' failure to provide notice bars coverage. II. A. Initially, the Court must determine what law applies under Maryland's choice of law rules, which this Court must follow when exercising diversity jurisdiction. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). The absence of a forum selection clause in the policy requires the Court to follow Maryland's general rule of lex loci contractus by looking to the law of the place where the contract was made to determine its meaning and operation. American Motorists Ins. Co. v. ARTRA Group, Inc., 338 Md. 560, 570, 659 A.2d 1295 (1995). Under the lex loci principle, a contract is "made" where the last act necessary for its formation is performed. Grain Dealers Mut. Ins. Co. v. Van Buskirk, 241 Md. 58, 66, 215 A.2d 467 (1965). In the context of insurance contracts, the "last act" necessary to form the contract is usually the delivery of the policy and the payment of premiums, which undisputedly occurred in Maryland. E.g., Aetna Cas. & Sur. Co. v. Souras, 78 Md.App. 71, 77, 552 A.2d 908 (1989) (citing Sun Ins. Office v. Mallick, 160 Md. 71, 81, 153 A. 35 (1931)). However, if the insurance contract requires the counter-signature of a representative of the insurance company to render the contract effective, the *463 countersignature is the last act needed to form the contract. E.g., Eastern Stainless Corp. v. American Protection Ins. Co., 829 F.Supp. 797, 799 (D.Md.1993). The first page of the policy between Federal and Rouse states that the policy "shall not be valid unless also signed by a duly authorized representative of the Company." The signatures of Federal's vice-president and assistant secretary appear below this declaration. Accordingly, the policy requires a countersignature to become effective, and the jurisdiction where the countersignature is made is the lex loci contractus under Maryland law. Unlike Eastern Stainless, however, this first page contains no indication as to where Federal signed it, and the parties proffer no admissible evidence concerning the location of the countersigning. B. Even assuming that Federal countersigned the policy in New Jersey, where Federal maintains its principal place of business, the Court may apply Maryland law under Maryland's limited rule of renvoi, which permits a Maryland court to disregard the rule of lex loci contractus and apply Maryland law, if: (1) Maryland has a substantial relationship to the contractual issue presented, and; (2) the foreign jurisdiction whose law of contract interpretation would ordinarily apply under Maryland's lex loci principle would, under the foreign jurisdiction's own choice of laws principles, apply Maryland law. ARTRA, supra, 338 Md. at 574, 579, 659 A.2d 1295. Maryland possesses a substantial relationship to this insurance policy because The Rouse Company, the parent company of all persons and entities protected under the policy, is a Maryland corporation, and because the policy was delivered and the premiums paid in Maryland. The remaining question is whether New Jersey would apply Maryland substantive law of contract interpretation under its choice of law rules. New Jersey applies the RESTATEMENT (SECOND) OF CONFLICT OF LAWS in resolving choice of law issues. When an insurance contract is at issue, New Jersey courts look first to § 193 of the Restatement[1] which requires application of the law of the state that "the parties understood was to be the principal location of the insured risk during the term of the policy, unless with respect to the particular issue, some other state has a more significant relationship under the principles stated in § 6 to the transaction and the parties ...." Gilbert Spruance Co. v. Pennsylvania Mfrs. Ass'n Ins. Co., 134 N.J. 96, 629 A.2d 885, 889, 893 (1993). The fact that the parties regarded Maryland as the principal place of the insured risk is indicated by the inclusion of The Rouse Company's Maryland address in the insurance contract. Further, the delivery of the policy, and the payment of premiums, in Maryland indicate the parties' understanding that Maryland was the principal location of the insured risk. Under § 193, a New Jersey court should find that Maryland law controls. Federal urges, however, that New Jersey would, and that this Court must, apply Louisiana law. Federal asserts that Comment f to § 193, which concerns multiple risk policies, mandates the application of Louisiana law under New Jersey conflicts of law principles because the lawsuit giving rise to the claim under the policy occurred in Louisiana, giving it the greatest interest in the insurance policy. Comment f concerns the problems encountered when an insurance policy insures multiple risks located in different states which by statute require specific forms of insuring clauses. In such a case, the single policy insuring multiple risks will usually incorporate the statutorily-mandated forms of the states involved, and the courts will, presumably, treat the policy as involving separate policies, each insuring an individual risk. The example provided in Comment f is a fire insurance policy in states X, Y, and Z, which require special statutory forms of fire insurance. In this circumstance, when the policy contains multiple insuring clauses to comply with each state's statutes, the Restatement suggests that if a fire occurs in state X, the court should apply the law of state X in *464 determining the rights and obligations under the policy. It is beyond question that the instant policy was intended to cover risks in multiple jurisdictions. Items 6 and 7 of the policy's first page state that the employees, directors, and officers of Rouse and all its subsidiaries are covered. Further, Section 2.3 of the policy states that the coverage extends to claims made anywhere in the world. However, Defendants' argument that New Jersey would apply Louisiana law is erroneous. The language of Comment f indicates that it only applies in the limited situation where states statutorily require special forms of insuring clauses for certain kinds of insurance, and multiple clauses are incorporated in a multiple-risk policy. Continental Ins. Co. v. Beecham, Inc., 836 F.Supp. 1027, 1036 (D.N.J. 1993); United Brass Works, Inc. v. American Guarantee & Liab. Ins. Co., 819 F.Supp. 465, 469-70 n. 3 (W.D.Pa.1992); but see Curran Composites, Inc. v. Liberty Mut. Ins. Co., 874 F.Supp. 261, 264 (W.D.Mo.1994) (interpreting Comment f to require treatment of multiple risk policy as multiple insurance policies governed by law of place where specific risk located); Pioneer Chlor Alkali Co. v. National Union Fire Ins. Co., 863 F.Supp. 1237, 1240 (D.Nev.1994) (same). A dearth of case law exists on the interpretation of Comment f, and New Jersey courts have not addressed the issue. However, based on the foregoing analysis, the Court reasonably believes that New Jersey would find Comment f inapplicable in this situation because its literal language does not extend to facts of this case. See Sherby v. Weather Bros. Transfer Co., 421 F.2d 1243, 1244 (4th Cir.1970). C. Under New Jersey law, when the subject matter of the insurance is an operation or activity which is predictably multi-state, § 193's emphasis on the principal location of the risk is diminished and the governing law will be that of the state with the dominant relationship in accordance with §§ 6 and 188 of the Restatement. Gilbert Spruance, supra, 629 A.2d at 893; see also NL Industries, Inc. v. Commercial Union Ins. Cos., 926 F.Supp. 1213 (D.N.J. 1996). Section 188 of the Restatement governs choice of law issues for contractual cases in general, and specifically refers to § 6. Gilbert Spruance, supra, 629 A.2d at 888. Accordingly, the Court may consider the place of contracting, the place of contract negotiation, the place of performance, the location of the contract's subject matter, the residence of the parties, the parties' intentions, the needs of interstate systems, the policies of the forum, the policies of other concerned states and their relative interest, the policies of law at issue, uniformity of result, and ease of determination and application of the law. Id. Assuming arguendo that a New Jersey court would apply §§ 6 and 188 to this case due to the dispersed nature of the insured risk, the Court holds that New Jersey would apply Maryland law. Although the parties are silent regarding their intentions when they entered into the insurance contract, the contract was negotiated in Maryland, the premiums were paid in Maryland, the Rouse parent corporation is domiciled in Maryland, and Rouse's Maryland address is the only address listed on the agreement as that of the insured. Further, the relevant Maryland, New Jersey, and Louisiana laws are similar and the basic policies underlying the relevant law are similar.[2] Under these circumstances, the Court reasonably believes that New Jersey would apply Maryland law. In sum, the Court holds that, under Maryland's limited renvoi doctrine recognized in ARTRA, the Court may disregard the principle of lex loci contractus, assuming arguendo that New Jersey law would apply under lex loci as the place of countersignature of the disputed policy, because New Jersey would apply Maryland law. Accordingly, *465 the Court will apply Maryland law to resolve the relevant issues.[3] III. Having determined that Maryland law applies, the Court must consider whether Rouse's failure to report the existence of a claim to Federal until 1993 deprives it of coverage under the disputed policy. Rouse contends Federal cannot rely on a lack of notice defense absent proof of "actual prejudice." MD. CODE ANN., INS. II § 19-110 (Repl.Vol.1997) (formerly MD. ANN. CODE art. 48A, § 482). Federal responds that it has suffered actual prejudice. A. Initially, the Court must ascertain what type of coverage the disputed insurance contract afforded Rouse. Under Maryland law, the "actual prejudice" requirement of § 19-110 does not apply to a "claims made plus reporting" policy — that is, a policy which requires that a claim be made against the insured, and reported to the insurer, within the effective dates of the policy. T.H.E. Ins. Co. v. P.T.P. Inc., 331 Md. 406, 416, 628 A.2d 223 (1993) (holding that actual prejudice requirement of § 19-110 did not apply in "claims made plus reporting" policy where claim was not made and reported within the policy's effective period); see also Zuckerman v. National Union Fire Ins. Co., 100 N.J. 304, 495 A.2d 395 (1985); Jefferson Guar. Bank v. Westbank-Marrero Cab Co., 570 So.2d 498 (La.Ct.App.1990) (citing Livingston Parish Sch. Bd. v. Fireman's Fund American Ins. Co., 282 So.2d 478 (La.1973)). If, however, the policy is a "claims made" policy, requiring only that a claim be made against the insured during the policy period to afford coverage, § 19-110 does apply. St. Paul Fire & Marine Ins. Co. v. House, 315 Md. 328, 341, 554 A.2d 404 (1989). It is axiomatic that an insurance contract is interpreted like any other contract. Litz v. State Farm Fire & Cas. Co., 346 Md. 217, 224, 695 A.2d 566 (1997); Smith v. Metropolitan Life Ins. Co., 29 N.J.Super. 478, 102 A.2d 797, 799 (App.Div.1954); Lewis v. Hamilton, 652 So.2d 1327, 1329 (La.1995). If the policy's language is clear and unambiguous, the Court will assume the parties meant what they said and will not resort to extrinsic evidence to ascertain the contract's meaning. Travelers Ins. Co. v. Benton, 278 Md. 542, 545, 365 A.2d 1000 (1976); Longobardi v. Chubb Ins. Co., 121 N.J. 530, 582 A.2d 1257, 1260 (1990); Lewis, supra, 652 So.2d at 1329. If the contract is ambiguous, the jury must determine the contract's meaning. Aragona v. St. Paul Fire & Marine Ins. Co., 281 Md. 371, 375, 378 A.2d 1346 (1977); Michaels v. Brookchester, Inc., 26 N.J. 379, 140 A.2d 199, 203 (1958); Carter v. BRMAP, 591 So.2d 1184, 1188 (La.Ct.App. 1991). Ambiguity exists if a reasonable person could find the disputed contract provision susceptible of more than one meaning. State, Department of Economic & Community Devel. v. Attman/Glazer P.B. Co., 323 Md. 592, 605, 594 A.2d 138 (1991); McCarthy v. Berman, 668 So.2d 721, 726 (La.1996); cf. Nunn v. Franklin Mut. Ins. Co., 274 N.J.Super. 543, 644 A.2d 1111, 1113-14 (App.Div. 1994) (ambiguity will be found in an insurance contract where reasonable insured cannot discern the boundaries of coverage). Here, the contractual language of the policy is ambiguous as to whether the Rouse-Federal policy is a "claims made" or a "claims made plus reporting" policy. While Section 4.1 of the policy states that "[t]he insureds shall, as a condition precedent to exercising their rights under this policy, give to [Federal] written notice as soon as practicable of any claim made against them...," the cover page of the agreement states that "THIS IS A CLAIMS MADE POLICY. EXCEPT AS OTHERWISE PROVIDED HEREIN, THIS POLICY COVERS ONLY *466 CLAIMS FIRST MADE AGAINST THE INSURED DURING THE POLICY PERIOD." Thus, Section 4.1 states that the policy is a "claims made plus reporting" policy, while the cover page states that the policy is a "claims made" policy. A reasonable person could interpret the contract as requiring the claim be made and notice be given for coverage to attach, or as requiring simply the making of a claim with a concomitant covenant of notice. Because these provisions are in direct conflict as to the type of policy contemplated by the parties, the Court cannot determine whether reporting was, in fact, required. It is well-settled in Maryland that when a genuine ambiguity exists in a contract, it will be resolved against the drafter of the contract under the principle of contra proferentum. House, supra, 315 Md. at 341, 554 A.2d 404. Unlike the House case, however, the record does not indicate who drafted the instrument; indeed, the record suggests that the policy was negotiated and drafted as a joint effort between two sophisticated business entities. Thus, unlike House, the Court cannot hold that the instant policy must be interpreted as a true "claims made" policy within the meaning of § 19-110 under the doctrine of contra proferentum. B. This analysis does not necessarily preclude the Court from granting summary judgment. As stated above, if the policy is a "claims made plus reporting" policy, § 19-110 does not apply and Federal would be entitled to judgment because Rouse's duty to notify is a condition precedent, rather than a mere covenant whose breach can justify a denial of coverage only on a showing of prejudice. If, however, Federal can show actual prejudice, it is entitled to judgment because assuming arguendo that the policy is a true "claims made" policy, Federal may prevail should it demonstrate actual prejudice under § 19-110. In a true "claims made" policy, the insured's duty to notify the insurer of a claim's existence is a mere covenant requiring the showing of actual prejudice under § 19-110. Sherwood Brands, Inc. v. Hartford Accident & Indemnity Co., 347 Md. 32, 41-42, 698 A.2d 1078 (1997). The Maryland Court of Appeals recently reaffirmed that the "actual prejudice" standard of § 19-110 measures the materiality of the breach of the insured's covenant of notification. Id. at 42, 698 A.2d 1078. The insurer must establish actual prejudice by a preponderance of affirmative evidence. MD. CODE ANN., INS. II § 19-110 (1997). Federal argues that Rouse's delay constitutes actual prejudice because it was deprived of the right to participate in the defense of the Louisiana lawsuit; could not adequately protect its financial interests; was unable to determine whether the claim should be defended; could not allocate defense costs between uninsured and insured entities; and could not participate in the settlement. Federal's arguments, however, are broad conclusory statements which do not demonstrate actual prejudice. Federal maintains that deprivation of these rights resulted in a material breach of the insurance contract, citing general principles of Maryland law concerning material breach. Federal overlooks the critical fact that in Maryland, material breach is measured by the yardstick of actual prejudice in disputes concerning an insured's failure to provide timely notice of a claim to the insurer, not by general principles of contract law. Sherwood Brands, supra. As the party asserting the affirmative defense of lack of notice, Federal bears the burden under § 19-110 of demonstrating that it is entitled to judgment. Federal's conclusory statements, without more, do not satisfy its burden of proof. Further, Rouse correctly notes that Federal's own witnesses contradict Federal's position and that Rouse has brought forth evidence that Federal had no right to settle the claim or force Rouse to settle (Pl.'s Mot. Exh. 3, at 30-34). The plain language of § 6.1 does not afford Federal the right to select counsel or decide whether a claim should be defended. Further, Federal's witness stated that Federal would probably have approved Rouse's selection of its Louisiana counsel (Pl.'s Mot. Exh. 4, at 40-41). *467 Finally, Federal's claim that its financial interests were not adequately protected because the same counsel represented all defendants in the Louisiana litigation is without merit. Even assuming arguendo that the various defendants should have had separate counsel, Federal has not demonstrated how this fact impinges on its own interests, especially given Federal's inability to force a settlement of the claim, and a lack of evidence that Federal would have objected to the actual settlement of the case had it received timely notice.[4] Federal is correct that the purpose of notice provisions in a "claims made" insurance policy is to ensure that the insurer receives adequate notice of a claim to protect its exposure. As the Maryland Court of Appeals has observed in the analogous area of the insurer's duty to defend, notice provisions permit the insurer to gather the necessary information to fulfill this duty. Sherwood Brands, supra, 347 Md. at 41, 698 A.2d 1078. Were general principles of material breach to apply in this case, Federal's arguments would have considerable force, for an insurer cannot reasonably be expected to consent to settlement or to defense costs without knowledge of the claim's factual basis. Nevertheless, the Maryland legislature has consciously decided to measure material breach in insurance disputes concerning notice provisions by the benchmark of actual prejudice. Because Federal has failed to meet its burden under § 19-110, it is not entitled to summary judgment. IV. The Court holds that Maryland law applies to this dispute, and that the policy at issue in this case is ambiguous as to whether it is a "claims made" or a "claims made plus reporting" policy. The jury must decide this issue, for its resolution will determine who is entitled to judgment. Specifically, if the jury determines that the policy is a "claims made plus reporting" policy, Federal is entitled to judgment. If the jury determines that the policy is a "claims made" policy subject to § 19-110, Rouse is entitled to judgment, and Federal must provide coverage under the policy, unless Federal proves actual prejudice at trial by a preponderance of the evidence. Should the jury determine that Rouse is entitled to coverage, it will be asked to assess damages based upon the evidence presented. Based upon the foregoing analysis, the parties' cross-motions for summary judgment will be denied. ORDER In accordance with the attached Memorandum, it is this 14th day of January, 1998, by the United States District Court for the District of Maryland, ORDERED: 1. That Plaintiffs' Motion for Summary Judgment BE, and hereby IS, DENIED; and 2. That Defendant's Cross-Motion for Summary Judgment BE, and hereby IS, DENIED; and 3. That a copy of this Memorandum and Order be mailed to counsel for the parties. NOTES [1] Although the literal text of § 193 speaks to contracts of fire, surety, or casualty insurance, Comment a to that section indicates that § 193 includes liability insurance in its purview. RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 193 cmt. a. [2] Although the similarity of these states' laws and policies can be seen to render the choice of law problem largely illusory, Maryland's lone recognition of a "false conflicts" principal appears in its limited adoption of the renvoi doctrine in ARTRA, supra. The Court is bound to follow Maryland choice of law principles as the forum state, making the above analysis required under Maryland law. [3] The renewal of the Rouse-Federal policy in 1990 does not affect the Court's analysis. Although Maryland has not addressed the issue, it is generally held that absent significant change from the original policy, renewal of an insurance policy does not create a new and independent contract; accordingly, the governing law remains that governing the original policy. Williams v. Mutual of Omaha, 297 F.2d 876 (4th Cir.1962); National Farmers Union Property & Cas. Co. v. Gibbons, 338 F.Supp. 430 (D.N.D. 1972); Miller v. Mutual Benefit Health & Accident Ass'n, 76 N.M. 455, 415 P.2d 841 (1966); see generally 3 A.L.R.3d 646 § 5, at 655-56. [4] The cases cited by Federal to support a finding of actual prejudice are inapposite in this case. Washington v. Federal Kemper Ins. Co., 60 Md. App. 288, 482 A.2d 503 (1984), concerned actual prejudice where an insurer was under a contractual duty to defend. This duty does not apply in this case, and Federal did not need to mount a full defense of the claim. Further, the Court of Appeals abrogated Washington in Sherwood Brands, supra. In Woodfin Equities Corp. v. Harford Mut. Ins. Co., 110 Md.App. 616, 678 A.2d 116 (1996), aff'd in part, rev'd in part, 344 Md. 399, 687 A.2d 652 (1997), the decisive factor in finding actual prejudice was the insured's post-trial right to control the case. As discussed above, Federal had no right to control the course of the case or the selection of counsel, and in any event, Federal has not pointed to specific evidence that it would not have consented to the ultimate settlement reached in the Louisiana litigation. Finally, the case of General Accident Ins. Co. v. Scott, 107 Md.App. 603, 669 A.2d 773, cert. denied, 342 Md. 115, 673 A.2d 707 (1996), is of no avail to Federal, for as in General Accident, Federal's "evidence" is conclusory and fails to identify any specific harms resulting from the deprivation of its right to consent to settlement or to approve defense costs. Federal instead relies on the very type of conclusory allegations prohibited by that case. Further aggravating Federal's mistaken approach are its concessions that it would have likely approved Rouse's counsel and that it had no right to control the case or the settlement.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1802050/

831 F.Supp. 464 (1993) Deborah Gail PERSLEY, Plaintiff, v. NATIONAL RAILROAD PASSENGER CORPORATION, Defendant. Civ. No. H-92-2943. United States District Court, D. Maryland. June 16, 1993. Gerald F. Gay and Arnold, Bacot, Gay & Tingle, Baltimore, MD, for plaintiff. Stephen D. Caplis, Jr. and Whiteford, Taylor & Preston, Baltimore, MD, for defendant. MEMORANDUM OPINION ALEXANDER HARVEY, II, Senior District Judge. This civil action arises as a result of an assault upon plaintiff Deborah Gail Persley by a fellow employee, Daniel Foster. At the time of the assault, both Persley and Foster were employed by defendant National Railroad Passenger Corporation ("Amtrak"). Plaintiff has not here sued Foster but has brought this action against Amtrak under the Federal Employers' Liability Act, 45 U.S.C. § 51 et seq. ("FELA"), alleging that the assault was caused in part by the negligence of Amtrak. Presently pending is defendant's motion for summary judgment. The Court has considered memoranda and a number of depositions submitted both in support of and in opposition to the pending motion. The pertinent facts have been fully developed by the depositions and other discovery. Oral argument has been heard in open court. For the reasons to be stated, the Court has concluded that defendant's motion for summary judgment must be granted. I Background Plaintiff began working for Amtrak in October of 1989. Her position was as an "onboard service attendant," a job which required *465 her to tend to the needs of Amtrak passengers. All of the events relevant to the pending motion occurred on or before December 8, 1989, the date of the assault. Considered in a light most favorable to plaintiff, the record currently before the Court evidences the following facts. Plaintiff's employment "base" was in Washington, D.C. She worked aboard trains originating in Washington and traveling to various other cities throughout the country. Prior to December 8, 1989, plaintiff had allegedly been subject to verbal abuse by various male employees of Amtrak. Plaintiff never complained of this abuse to any of her superiors. No Amtrak employee had ever previously threatened to assault plaintiff. Plaintiff's first contact with Foster occurred approximately two weeks prior to the assault. Both plaintiff and Foster were working aboard a train which was making a round trip from Washington to Chicago. Foster, who had been employed by Amtrak for approximately five years, worked at that time in the dining car. When they first met, plaintiff and Foster discussed their common interest in music. At that time, plaintiff's impression of Foster was that he was "a very nice guy." At her deposition, plaintiff testified that during this trip Foster neither said nor did anything offensive. Plaintiff's next contact with Foster apparently occurred during another round trip on the Washington-Chicago route. It was during this trip that the assault occurred. On this trip, plaintiff was assigned to a particular sleeper car. Within the sleeper car, plaintiff was assigned her own "roomette," in which she could rest during her breaks. A number of other employees, including Foster, were also assigned roomettes in the same car. According to plaintiff, a number of incidents which occurred during this trip presaged the assault. Plaintiff was told by a third person that Foster had inquired as to whether plaintiff had a child. When Foster was informed that plaintiff did have a child, Foster allegedly stated that he could tell "because of the gap between [her] legs." Plaintiff confronted Foster concerning this remark, at which time Foster "giggled." However, plaintiff testified that following this confrontation "everything was fine," and that she did not feel any fear or apprehension related to Foster. At the time, plaintiff did not report this incident to any supervisor. During a delayed layover in Chicago, a number of Amtrak employees had gathered and were dancing to music. Plaintiff testified that Foster was "a little vulgar in his dancing," and that he was "exercising his hips a little bit more than just a regular dance calls for." Plaintiff testified that she backed away from Foster, after which Foster did not bother her. At the time, plaintiff did not report this incident to any supervisor. Sometime later during the trip, Foster and plaintiff were passing in a hallway of the train. As is required of Amtrak employees, they passed back-to-back. At that time, Foster pinned plaintiff to the wall by pressing his buttocks against her. When plaintiff protested, Foster laughed, and then eventually released her. At the time, plaintiff did not report this incident to any supervisor. At a later point in this trip, plaintiff was helping a number of passengers board the train. As she walked down the hall of the sleeper car, she noticed Foster sitting in his roomette. He did not have a shirt on, and was wearing only his underwear. As she passed, he was calling her name. Afraid that the passengers would see Foster in this condition, plaintiff quickly hurried past his room. Again, at the time, she did not report this incident to any supervisor. Soon after this incident, plaintiff was resting in her roomette when Foster began to pull on the "call bell" which is used by passengers to summon on-board service attendants. Plaintiff did not respond to the bell. A conductor named Richard Meehan came by and asked plaintiff why she was not responding to the bell. Plaintiff informed Meehan that she believed that it was Foster who was ringing the bell. Meehan continued down the hall, and plaintiff heard Meehan speaking to Foster. At that point, the bell ceased to ring. The bell ringing incident apparently did not cause plaintiff to have any great concern. When the bell stopped ringing, *466 plaintiff "dismissed the whole thing and proceeded to go to sleep." The assault occurred soon after the bell ringing incident. Plaintiff was resting in her roomette, but was not fully asleep. She was lying face down on her bed and was fully clothed. As was required by her job, the door to her roomette was open, although the opening was covered by a curtain with a zipper down the middle.[1] Plaintiff heard Foster in the hallway outside of her roomette. He was calling her name. Foster then entered the roomette and zipped the curtain closed behind him. At her deposition, plaintiff testified that it was customary for co-workers to enter each other's rooms to talk. She stated that, "your room becomes your office when you're on the train." When asked whether she had any reason to tell Foster to leave her roomette at the time he entered, plaintiff stated, "Not at the present time, no." Plaintiff was asked, "So, all the prior incidents notwithstanding ... you didn't have any problem with him being in your room at this point?" Plaintiff responded simply, "No." Plaintiff testified that after Foster entered her roomette, the next thing that she remembers is that Foster was lying on her back. Foster was "feeling all over [her] body," and at one point allegedly penetrated plaintiff's vagina with his fingers. Plaintiff repeatedly told Foster to stop what he was doing and to leave her roomette. Foster ignored these requests. Finally, plaintiff told Foster that if he did not stop, she would scream. At this, Foster removed himself from plaintiff's back and left the roomette. As he was leaving the roomette, Foster was met by James Sullivan, who was the chief of on-board services. Sullivan was headed towards plaintiff's roomette to have a work-related discussion with her. Plaintiff testified that she heard Foster and Sullivan engage in a brief discussion, and then heard them laughing. Sullivan then entered plaintiff's roomette. Plaintiff immediately informed Sullivan that she wished to file a charge against Foster. According to plaintiff, Sullivan then stated something to the effect that, "If you two were having sex ... that's okay." However, when plaintiff persisted, Sullivan began to take the situation more seriously. Later during the trip, he did in fact bring plaintiff the forms necessary for the filing of a formal complaint against Foster.[2] Plaintiff's final contact with Foster occurred when the train was coming back into Washington. As was customary at the end of a run, the Amtrak employees were gathered in the kitchen area of the dining car. Foster handed plaintiff a handwritten note. The note contained a phone number at which Foster could be reached, and stated, "Looking at the snow outside the only thing I can think about is how hot my passion is. Or should I say `our passion.' Call me, o.k.?" And then in a post-script, the note stated, "Yes, I am very bold and brave. And honest." At her deposition, plaintiff was asked how she reacted to Foster's note. Plaintiff stated, "I did try to pretend like I wasn't going to — wasn't going to do anything about it. I didn't want to, you know, rev him up or anything." Plaintiff was also asked whether she had ever done anything to encourage Foster to think that there was the possibility of a romantic relationship between him and the plaintiff. The plaintiff responded, "No, I did not." In addition to the various enumerated contacts between plaintiff and Foster, plaintiff also testified to an incident which occurred between Foster and plaintiff's roommate, Irania Bell, who was also employed by Amtrak. According to plaintiff, Bell had once told her of an incident, occurring prior to December 8, 1989, in which Foster had made sexual advances upon Bell. Neither Bell nor plaintiff ever reported this incident to any Amtrak supervisor. *467 The record currently before the Court contains evidence of Foster's prior employment history with Amtrak. At least two of Foster's supervisors, Sullivan and Eunice Murray, who at the time of the incident was a train manager, stated that Foster was "flirtatious," with both co-workers and passengers. Sullivan characterized Foster as a "womanizer," but "in a non-aggressive manner." Murray had once disciplined Foster for fraternization with a female passenger.[3] Sullivan considered Foster to be a "high maintenance employee" who "required small corrective action." There is no evidence in the record indicating that, prior to December 8, 1989, Foster had ever engaged in sexual harassment, or assault of any type, or that he had ever been disciplined for conduct of this sort. At her deposition, plaintiff testified that she believed that the alleged assault might not have occurred if the roomette to which she was assigned had been equipped with a radio or other device for communicating with other employees or supervisors on the train. Plaintiff stated that "[l]ooking back at it, had I had some kind of component to interact with people, chances are he wouldn't have even bothered me because he knew that device was in there." Noticeably absent from the record before the Court is any evidence that any employee had ever requested such a device prior to December 8, 1989, or that Amtrak was or should have been aware of any prior sexual assault perpetrated in a roomette or elsewhere on a train by a male employee against a female employee. II Summary Judgment Standards As set forth in Rule 56(c), F.R.Civ.P., the standard for the granting of a motion for summary judgment is that the moving party must 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." One of the purposes of Rule 56 is to require a party, in advance of trial and after a motion for summary judgment has been filed and supported, to come forward with some minimal facts to show that it may not be subject to the defenses asserted. See Rule 56(e). A "mere scintilla of evidence is not enough to create a fact issue; there must be evidence on which a jury might rely." Barwick v. Celotex Corp., 736 F.2d 946, 958-59 (4th Cir.1984) (quoting Seago v. North Carolina Theatres, Inc., 42 F.R.D. 627, 640 (E.D.N.C.1966), aff'd, 388 F.2d 987 (4th Cir. 1967)). In the absence of such a minimal showing, a party moving for summary judgment should not be required to undergo the expense of preparing for and participating in a trial of the issue challenged. As Judge Winter said in Bland v. Norfolk and Southern Railroad Company, 406 F.2d 863, 866 (4th Cir.1969): While a day in court may be a constitutional necessity when there are disputed questions of fact, the function of a motion for summary judgment is to smoke out if there is any case, i.e., any genuine dispute as to any material fact, and, if there is no case, to conserve judicial time and energy by avoiding an unnecessary trial and by providing a speedy and efficient summary disposition. In two cases decided in 1986, the Supreme Court clarified and expanded the principles applicable to a trial court's consideration of a motion for summary judgment filed under Rule 56. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). In Anderson, the Supreme Court held that the standard for granting a motion for summary judgment under Rule 56 is the same as that for granting a directed verdict under Rule 50, F.R.Civ.P., 477 U.S. at 250-51, 106 S.Ct. at 2511-12. The Court explained this standard as follows: [T]he judge must ask himself not whether he thinks the evidence unmistakably favors one side or the other but whether a fairminded *468 jury could return a verdict for the plaintiff on the evidence presented. The mere existence of a scintilla of evidence in support of the plaintiff's position will be insufficient; there must be evidence on which the jury could reasonably find for the plaintiff. Id. at 252, 106 S.Ct. at 2512 (emphasis added). In Catrett, the Court held that there is "no express or implied requirement in Rule 56 that the moving party support its motion with affidavits or other similar material negating the opponent's claim." 477 U.S. at 323, 106 S.Ct. at 2553 (emphasis in original). In reaching this result, the Court observed: Summary judgment procedure is properly regarded not as a disfavored procedural shortcut, but rather as an integral part of the Federal Rule as a whole, which are designed "to secure the just, speedy and inexpensive determination of every action." Fed.Rule Civ.P. 1; ... Rule 56 must be construed with due regard not only for the rights of persons asserting claims and defenses that are adequately based in fact to have those claims and defenses tried to a jury, but also for the rights of persons opposing such claims and defenses to demonstrate in the manner provided by the Rule, prior to trial, that the claims and defenses have no factual basis. Id. at 327, 106 S.Ct. at 2555. The party moving for summary judgment has the burden to show that no genuine issue of fact exists and that the movant is entitled to judgment as a matter of law. Barwick, 736 F.2d at 958. The facts and the inferences to be drawn from the facts must be viewed in a light most favorable to the nonmoving party. Ross v. Communications Satellite Corp., 759 F.2d 355, 364 (4th Cir.1985). Nevertheless, the Fourth Circuit has stated that, with regard to motions for summary judgment, trial judges have "an affirmative obligation ... to prevent `factually unsupported claims and defenses' from proceeding to trial." Felty v. Graves-Humphreys Co., 818 F.2d 1126, 1128 (4th Cir.1987) (quoting Celotex, 477 U.S. at 323, 106 S.Ct. at 2553). Pursuant to these authorities, the issue presented by the pending motion is whether or not plaintiff has produced any evidence upon which a reasonable factfinder could conclude that defendant Amtrak was negligent in producing the injury suffered by plaintiff. See Rogers v. Missouri Pacific R.R. Co., 352 U.S. 500, 506-507, 77 S.Ct. 443, 448-449, 1 L.Ed.2d 493 (1957). III Discussion In a FELA case in which the plaintiff's injuries have been intentionally inflicted by a co-employee, a plaintiff may recover under either of two theories: (1) that the employer is directly negligent for failing to prevent the foreseeable assault; or (2) that the assault was perpetrated within the fellow employee's scope of employment and in furtherance of the employer's business. Sowards v. Chesapeake & Ohio Ry. Co., 580 F.2d 713, 715 (4th Cir.1978); Lancaster v. Norfolk & Western Ry. Co., 773 F.2d 807, 818 (7th Cir.1985), cert. denied, 480 U.S. 945, 107 S.Ct. 1602, 94 L.Ed.2d 788 (1987). In this case, plaintiff is proceeding under a theory of direct negligence.[4] Accordingly, in order to prevail in this case, plaintiff must show that the alleged assault was foreseeable and that defendant could reasonably have prevented the assault. Plaintiff has produced no evidence that Foster's alleged assault was foreseeable. There is no evidence in this record indicating that prior to December 8, 1989, Foster had ever committed any act even arguably similar to a sexual or other assault. The record does not disclose that Foster had a history of violent acts or of sexual harassment or that his supervisors were aware of facts which would have led them to suspect that he might *469 engage in such conduct.[5] At the most, Foster had a reputation with a number of his supervisors of being "flirtatious" and a "womanizer." However, Foster's reputation in this regard cannot reasonably be construed as making foreseeable to Amtrak that he would sexually assault a co-employee, or as imposing any sort of duty upon Amtrak to fire him or to take supervisory measures to prevent such an assault. As to the various incidents which occurred on the day of the assault, it is undisputed that, with the exception of the bell ringing, no Amtrak supervisor knew of any of the incidents. Even if supervisory personnel of Amtrak were aware of all of the various incidents, Foster's assault could not reasonably be said to have been foreseeable. Plaintiff herself testified to the fact that, until the moment that the assault actually occurred, she had no reason to fear Foster. "A railroad has no liability for an assault by one employee upon another in the absence of notice of the assaulter's `vicious propensities.'" Green v. River Terminal Ry. Co., 763 F.2d 805, 808-809 (6th Cir.1985). Since plaintiff has produced no evidence that the alleged assault was foreseeable, no genuine issue of material fact is presented concerning this issue. At her deposition, plaintiff suggested that defendant was negligent in failing to provide a radio or other device for communicating with other employees on the train. At the hearing on the pending motion, plaintiff's counsel conceded that he could not in good faith press such a claim absent evidence that Amtrak knew or should have known that one of its employees would be assaulted in a roomette. The Court would agree. There is no evidence in the record indicating that prior to December 8, 1989, any Amtrak employee ever requested such a device, that prior to this date Amtrak was aware of other assaults which had occurred in a roomette, or that any other circumstances existed which should have made such an assault foreseeable. Absent such evidence, Amtrak cannot be said to have been under any legal duty to take any action of this sort to prevent such an assault. Thus, no genuine issue of fact is presented in this case concerning this issue. IV Conclusion In sum, plaintiff has presented no evidence that either this specific assault or an assault of this kind upon an employee was foreseeable by Amtrak prior to Foster's assault upon plaintiff. Thus, there is no evidence in the case to support a finding that Amtrak negligently failed to prevent this alleged assault. Accordingly, defendant's motion for summary judgment will be granted. An appropriate Order will be entered by the Court. NOTES [1] Plaintiff testified that she was required to leave the door to her roomette open so that she could hear if a passenger called for her. [2] Soon after the alleged assault, Amtrak did in fact schedule a hearing on plaintiff's charge. However, the hearing itself was never held. On the morning of the hearing, Foster agreed to resign his position with Amtrak. The parties have not been able to determine Foster's whereabouts, and his deposition has not been taken in this case. [3] Foster was off duty, out of uniform, and not in his room. He was chatting with a female passenger. Murray instructed Foster to get about his business. As Murray was walking away, Foster walked with her and "gave [her] a little lip." Murray charged Foster with discourtesy towards a supervisor, and with fraternization. This incident did not involve any harassment of or assault upon the female passenger. [4] Neither in the complaint nor in the opposition to the pending motion, nor at oral argument, did plaintiff contend that Foster was acting within the scope of his employment when he assaulted her. In any case, no evidence has been presented to support such a contention. "[W]here one employee assaults another employee for the sole purpose of satisfying his own temper or spite, the employer cannot be held liable for such a wanton act." Sowards, 580 F.2d at 715. [5] The only even arguable exception to this may be Foster's alleged sexual advance upon plaintiff's roommate, Irania Bell. There is some question whether the Court may even consider this evidence since it appears to be hearsay. In any event, this incident is not relevant to the issue of whether Foster's assault was foreseeable to Amtrak, inasmuch as the incident was never reported to any Amtrak supervisor.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1805279/

59 B.R. 314 (1985) STATES STEAMSHIP COMPANY, a corporation, Plaintiff, v. AETNA INSURANCE COMPANY, a corporation, Defendant. No. C-83-2508 SW. United States District Court, N.D. California. May 29, 1985. Opinion Vacated September 21, 1985. *315 Peter A. Lindh, Walsh, Donovan & Lindh, San Francisco, Cal., for plaintiff. Kent J. Clancy, Jess B. Millikan, Derby, Cook, Quinby & Tweedt, San Francisco, Cal., for defendant Aetna Ins. Co. MEMORANDUM SPENCER WILLIAMS, District Judge. The matter is before the court on plaintiff's motion for summary judgment. The issue is whether containers leased by States Steamship Company and insured by Aetna under an all risk marine policy were at risk of loss or damage when States filed a voluntary petition in bankruptcy. If so, Aetna is liable under the policy's sue and labor clause for costs reasonably incurred to recover them. After careful consideration of the pleadings on file, the evidence in the record, and the arguments of counsel, the court finds that the containers were at risk and, as a matter of law, Aetna is liable under the policy for certain of the costs sought. The question of which particular recovery costs are compensable is deferred to a later day. FACTS States leased some 4500 containers from various lessors. At any given time, the containers were scattered throughout the world in depots, on ships, or elsewhere. During the latter part of 1978, States encountered financial difficulties. To keep it afloat until it found a buyer, States obtained a line of credit from Crocker Bank. On December 4, 1978, when States informed Crocker that negotiations with a potential buyer had broken off, the line of credit was withdrawn. That day States filed a petition in bankruptcy. States thereupon ceased to operate in its usual manner. Although voyages in progress were completed and vessels were returned to U.S. ports, States no longer sought to book cargo. A significant number of employees, including most of those involved in container operations, were terminated. States was obligated contractually to return the 4500 containers to the lessors. States claims that as a practical matter it was unable to do so by virtue of its bankruptcy. Nonetheless, to help discharge its contractual obligations, States assisted the lessors in recovering their equipment by entering into stipulations with them for relief from the automatic bankruptcy stay and providing them with information as to the last known locations of leased equipment in foreign and domestic ports. The lessors' retrieval efforts, which lasted several months and cost more than $200,000, resulted in the recovery of all but approximately 57 containers. The lessors ultimately made claim against States in its bankruptcy proceeding for expenses incurred in recovering this equipment. With bankruptcy court approval, States paid those expenses in full. By this action, States seeks to recover these and other expenses from Aetna, its insurer. At the time of its filing for bankruptcy, States had in effect with Aetna an *316 open container policy providing insurance against "all risks of loss or of damage to . . . cargo containers" owned or leased by States. Present in that policy was a standard sue and labor clause, which in essence both authorized and required States to sue, labor and travel in order to defend, safeguard and recover the insured containers if they encountered loss or misfortune. Aetna became obligated to bear the expenses reasonably incurred thereby. States moves for partial summary judgment, arguing that the bankruptcy put the containers at risk within the meaning of its insurance policy. It seeks a ruling that the amounts States paid the lessors for expenses incurred in recovering the leased containers and returning them to lessors' depots are expenses for which Aetna is liable under the sue and labor clause. ANALYSIS I. DOES STATES' CONTRACTUAL OBLIGATION TO THE LESSORS BAR RECOVERY UNDER THE POLICY? States argues that the expenses the lessors incurred in returning the containers from their locations around the world, which expenses States ultimately bore, were expenditures necessary to avoid a loss covered by the parties' marine insurance policy. Aetna contends, however, that States should be barred from collecting on these claims because States had a pre-existing contractual obligation to the lessors to return their containers to designated locations. In Aetna's view, allowing States to recover against Aetna would convert the marine insurance contract into a performance bond. In support of its argument, Aetna relies on Charleston Shipbuilding and Drydock Co. v. Atlantic Mutual Ins. Co., 1946 A.M.C. 1611 (Arbitration at N.Y.), and Einard LeBeck, Inc. v. Underwriters at Lloyds, 224 F.Supp. 597 (D.Or.1963). Neither of these cases stands for the proposition that a pre-existing contractual duty to a third party would preclude recovery by an assured from its insurer for a covered loss. In Charleston Shipbuilding, a floating drydock, which was insured under a policy containing a sue and labor clause, was damaged while engaged in the launching of a vessel. The assured's claim to recover the costs of removing and relaunching the vessel under the sue and labor clause was rejected by the arbitrator. Although the arbitrator did indicate that the launching of the vessel was the subject of a pre-existing contractual obligation to the vessel's owner, this was not the basis for the denial of the sue and labor claim. The reason the launching expenditures did not come within the ambit of sue and labor clause was that the steps taken by the assured to complete the launching were not in any sense direct to avert damage to the marine railway, nor directed to the "defense, safeguard and recovery" of the marine railway. They were undertaken with the sole purpose of fulfilling the assured's contract obligation with the (vessel's owner). Id. at 1617 (emphasis added). Charleston Shipbuilding therefore does not stand for the proposition that an assured cannot recover for an insured loss which also happens to be the subject of a pre-existing contractual duty to a third party. Nonetheless, it does stand for the proposition, discussed infra, that sue and labor charges include only those sums expended to avert or minimized a threatened or on-going covered loss. Aetna's reliance on Einard LeBeck is similarly misplaced. The subject of the all risks insurance in that case was a synagogue which was moved from one location to another. During the move, the building sustained damage which rendered it a constructive total loss. The contractor, who was an assured on the policy, sought to recover under the sue and labor clause of the policy for various items, including the rental value of equipment left in place under the synagogue for a period of months. In the course of its opinion, the court did point out that the equipment remained under and attached to the building in accordance with the contract between the synagogue owner and the contractor, but, again, that was not the basis for the *317 court's ruling. The sue and labor claim was rejected because the equipment for which rental charges were sought "was never furnished for the purpose of protecting the synagogue from further damage." Id. at 598. Thus, Aetna's argument is not supported by the cases on which it relies. Nor is there any other reason to bar recovery because States had a duty running to the lessors to return their containers and some or all of the expenditures sought to be recouped under the sue and labor clause also may be characterized as the fulfillment of that duty. States' contractual obligations to the lessors in no way void Aetna's obligations to States under the insurance contract. Notwithstanding its obligations to third parties, States, as the named assured, is entitled to collect from Aetna if the marine insurance policy covers its claim. II. IS BANKRUPTCY A RISK COVERED BY THE POLICY? It must be determined next whether bankruptcy of the assured is a risk which an all risks marine insurance contract extends to cover. With some exemptions not pertinent here, the policy at issue provides insurance against all risks of loss or damage to the containers. It is well-settled than an all risks insurance policy protects against all risks which are not expressly excluded. Northwestern Nat'l. Ins. Co. v. Chandler Leasing Corp., 1982 A.M.C. 1631, 1633 (N.D.Cal.1982). Recovery under such a policy is allowed "for all fortuitous losses not resulting from misconduct or fraud, unless the policy contains a specific provision expressly excluding the loss from coverage." C.H. Leavell & Co. v. Fireman's Fund Ins. Co., 372 F.2d 784, 787 (9th Cir.1967) (emphasis in original). The Aetna policy does not include an exclusionary clause exempting from coverage those losses due to bankruptcy. Because of the absence of such an express exclusion, the court concludes that bankruptcy is a risk covered by the policy at issue here. III. IS BANKRUPTCY AN EVENT WHICH MAY TRIGGER A SUE AND LABOR CLAUSE? Under the sue and labor clause of a marine insurance contract, the assured is entitled to recover from the insurer those expenses incurred to minimize or avert a loss to the insured subject matter for which the underwriter would be liable under the policy. The underwriter may be liable for certain charges the assured incurs in caring for the property even though no actual loss or damage occurs. The loss which is being or is sought to be avoided must be one caused by the operation of an insured peril. See Gilmore, Grant and Black, Charles, The Law of Admiralty 75 (2d ed. 1975); Lambeth, R.J., Templeman on Marine Insurance, Its Principles and Practice 153-160 (5th ed. 1981); Buglass, Leslie J., Marine Insurance and General Average in the U.S. 333-34 (1981). The sue and labor clause "creates an unconditional obligation on the part of the assured to take all reasonable steps to conserve the property." Einard LeBeck, 224 F.Supp. at 598. Defendant argues that the retrieval charges for which States seeks to recover are not sue or labor charges because the sums were not expended to avoid or mitigate an insured loss due to an active and imminent peril. Thus, it must be ascertained whether bankruptcy is an event which may trigger the sue and labor clause of an all risks marine insurance policy. No American authority directly on this point has been brought to this court's attention, nor has the court discovered any on its own. Nonetheless, there is persuasive British authority which indicates that bankruptcy may constitute a peril such that expenses reasonable incurred by the assured to minimize or avert a loss which results or may result from it are recoverable. In ICS v. British Traders Ins. Co., 1984 Lloyd's Law Reports 154, plaintiffs leased containers to a third party and were insured under a policy containing a sue and labor clause. The lessee, who was required to insure the containers but failed to do so, encountered financial difficulties and was *318 ultimately adjudged a bankrupt. Plaintiff incurred costs in recovering its containers and made claim under the sue and labor clause. On appeal, the British court ruled that the test of whether these costs were sue and labor was whether or not in all the circumstances the assured had acted reasonably to avert a loss when there was a risk that the insurers might have to bear it. The court stated that plaintiffs would be entitled to recovery if they "established the existence of a threat of loss of damage, no matter if that threat resulted from the insolvency of the lessee." Id. at 157. Under British Traders, then, bankruptcy may qualify as an event which triggers an insurer's liability under a sue and labor clause. In this court's view, the British Traders case represents a well-reasoned approach to resolving questions concerning sue and labor clauses and bankruptcy. Its standard therefore is adopted as the applicable one for resolving the matter at hand. IV. HAS STATES ESTABLISHED THAT ITS BANKRUPTCY IMPERILLED THE CONTAINERS? The court turns now to an examination of the evidence to determine whether, as a matter of law, there are no genuine issues of material fact which are in dispute. States has introduced numerous affidavits and declarations which supports its contention that its bankruptcy caused the leased containers to be at risk. For instance, States' president stated in his declaration that "given the cessation of its operations, the loss of co-operation of its agents, and the lay-off of its employees, State (sic) effectively lost control of its container operations and was no longer, as a practical matter, able to return the approximately 4500 containers that it had on leased from various lessors." To controvert this assertion, Aetna has introduced a copy of States' balance sheet which shows that at the time it filed for bankruptcy, States had substantial liquid cash assets. Aetna argues that because States had cash on hand, the containers were not at risk when the bankruptcy occurred; rather, in Aetna's view, States was financially able to recover the containers but made an intentional decision[1] to forego that contractual obligation. In the court's view, Aetna's evidence and accompanying argument do not raise a triable issue of fact. The balance sheet as a whole depicts a company whose finances are complex and whose liabilities are vast. States' assets simply were not sufficient to meet those liabilities. After it filed for bankruptcy, laid off its employees and lost the cooperation of its agents world-wide, States did not have the financial wherewithal to continue operating, the amount of its liquid cash assets notwithstanding. The containers therefore were placed at risk of loss or damage. CONCLUSION The bankruptcy of States Steamship Company was an event which imperilled some 4500 containers which States had leased from third parties and insured under an all risks marine insurance policy issued by Aetna. Pursuant to that policy, Aetna would have been liable for loss or damage to those containers. Therefore, States was authorized and required by the sue and labor clause to take reasonable steps to avert the threatened loss. Lacking the ability to return the imperilled containers on its own, States assisted the lessors in retrieving them. Those were reasonable efforts designed to protect the containers from harm. The court holds only that, as a matter of law, in light of the facts surrounding this *319 bankruptcy, the costs States incurred in this endeavor, either directly or by way of reimbursement to the lessors from the bankrupt estate, are the proper subject of a sue and labor claim. It remains to be determined which of the numerous claims at issue in this litigation actually fall within the sue and labor clause and which are subject to the many defenses[2] which the defendant has raised. Accordingly, plaintiff's motion for partial summary judgment is GRANTED. IT IS SO ORDERED. NOTES [1] The defendant contends that recovery against it is barred by Cal.Ins.Code § 533, which provides that "an insurer is not liable for a loss caused by the willful act of the insured." The California courts "have likened a `willful act' under that section to the intentional commission of a wrongful act with a `preconceived design' to inflict injury". U.S. Fidelity and Guar. Co. v. Am. Employers' Ins. Co., 159 Cal.App.3d 277, 205 Cal.Rptr. 460, 466 (1984) (emphasis in original). Absent extenuating circumstances, and none has been demonstrated here, the inability of a company to cover its liabilities and its filing for protection under the bankruptcy laws do not constitute the type of willful act to which the statute refers. [2] Aetna has raised questions concerning whether certain losses occurred during the policy term, whether delays in reporting the losses voided coverage, and whether particular charges actually were incurred for the purpose of avoiding harm to the insured containers.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1792485/

428 F.Supp. 114 (1977) UNITED STATES of America, Plaintiff, v. N.V. NEDERLANDSCHE COMBINATIE VOOR CHEMISCHE INDUSTRIE et al., Defendants. No. 68 Cr. 870 (DNE). United States District Court, S. D. New York. February 28, 1977. *115 Donald A. Kaplan, Dept. of Justice, Washington, D. C., for plaintiff. Rogers, Hoge & Hills, New York City, for defendant John A. Massaut (Covington & Burling, Washinton, D. C., of counsel). Turk, Marsh, Kelly & Hoare, New York City, for defendant Harry Y. de Schepper. Covington & Burling, Washington, D. C., for defendants N.V. Amsterdamsche Chininefabriek, N.V. Nederlandsche Kininefabriek, Bandoengsche Kininefabriek Holland N.V., ACF Farmaceutische Groothandel *116 N.V. and N.V. Bureau Voor Der Kinineverkoop "Buramic." MEMORANDUM EDELSTEIN, Chief Judge: This is a motion by the government to dismiss the indictment, pursuant to Rule 48(a) of the Federal Rules of Criminal Procedure, as against the following defendants: N.V. Amsterdamsche Chininefabriek, N.V. Nederlandsche Kininefabriek, Bandoengsche Kininefabriek Holland N.V., ACF Farmaceutische Groothandel N.V., N.V. Bureau Voor der Kinineverkoop "Buramic," Carel N. van der Spek, John A. Massaut, George Cruickshank, Walter W. Buchler, John A. Lumley, Pierre Augustins and Harry Y. de Schepper.[1] The affidavit of Joel Davidow and Memorandum of Law submitted by the government in support of its motion relate primarily to the dismissal of the indictment against John A. Massaut. The court will therefore first focus upon the motion as it relates to that defendant. Rule 48(a) vests this court with discretion in determining if the instant motion should be granted. E. g., United States v. Bettinger, 54 F.R.D. 40 (D.Mass. 1971); United States v. Greater Blouse, Skirt and Neckwear Contractors Ass'n, 228 F.Supp. 483 (S.D.N.Y.1964). Any suggestion that the district court simply "rubber stamp" a Rule 48(a) motion ignores the Supreme Court's inclusion in the Rule of the requirement that indictments be dismissed "by leave of court."[2] A court, in the exercise of its discretion, certainly must protect the defendant from harassing motions. See United States v. Greater Blouse, Skirt and Neckwear Contractors Ass'n, 228 F.Supp. 483, 487 (S.D.N.Y.1964). In addition to protecting the rights of the defendant, the court is vested with the responsibility of protecting the interests of the public on whose behalf the criminal action is brought. This is especially true where, as here, the matter comes before the court on indictment rather than information. See, e. g., United States v. Bettinger, 54 F.R.D. 40 (D.Mass.1971); United States v. Doe, 101 F.Supp. 609 (D.Conn.1951). The indictment in this case alleges a criminal conspiracy to fix prices, control bidding and buying, and allocate customers and markets in the sale of quinine, quinidine, and other products derived from cinchona bark. The defendants include major sellers of these products and individuals who allegedly played a significant role in the criminal conspiracy. The offenses included in the indictment have been characterized by government counsel as being of the most grave and serious nature.[3] In light of the gravity of these charges, the court is constrained to examine with great care whether the government's present desire *117 to dismiss these indictments is in the public interest. The government does not contend that insufficient evidence exists to sustain convictions on the charges pending against Mr. Massaut. What is contended is that prosecution of this indictment would be at great public expense without any certainty of success due to the difficulty in gathering witnesses and the possible frailty of witness' memory. The outcome of litigation, to be sure, cannot be predicted with complete accuracy. To that extent, uncertainty is inherent in every litigation. As such, the government assertions are not persuasive and hardly indicate the exercise of judicial discretion in favor of the government's motion. The government's motion also relies in large part on a private agreement with N.V. Nederlandsche Combinatie Voor Chemische Industrie (Nedchem) whereby Nedchem would plead guilty to three counts of the indictment and the government would move to dismiss the indictment as to Nedchem's employee, Mr. Massaut. The court has already made it clear to all involved that it would not be privy to any agreement by which some defendants entered guilty pleas in return for dismissals as to others.[4] The government now seeks to justify its motion to dismiss by presenting the court with the fait accompli of Nedchem guilty pleas. This court will not be a party indirectly to that which it previously rejected directly. The court is not affected in the exercise of its discretion by the previous pleas of Nedchem. After reviewing the entire record,[5] the court has determined that a dismissal of the indictment against Mr. Massaut is not in the public interest. Therefore, the government's motion to dismiss as to Mr. Massaut must be and is denied. The government's stated reason for dismissing as to the other individual defendants is "[s]ince most of the remaining individuals played minor roles, it would be unfair to proceed against them while Massaut was being dismissed."[6] Denial of the motion as to these defendants follows from the denial of the motion as to Massaut. As to the remaining foreign corporations, the government merely states, "[T]he possibility of their coming to the United States in some future year is neither sufficiently great nor important to justify the expense and inconvenience of continued commitment of resources to this case, including further immigration surveillance, possibly for many more years."[7] For the reasons above stated the motion as to these defendants must also be denied. So ordered. NOTES [1] The motion to dismiss does not include defendants Georg Tessmar, Buchler & Company and Lake & Cruickshank Limited. The government states that Georg Tessmar has died and that a separate motion to dismiss will be forthcoming as to him. No explanation is offered regarding Buchler & Company or Lake & Cruickshank Limited. [2] The Second Preliminary Draft of Federal Rules of Criminal Procedure (1944) 178 [Rule 50] recommended that the prosecutor be given absolute power to dismiss a case subject only to a requirement that a statement of reasons for the dismissal also be filed. The Supreme Court changed the Rule to the form in which it was adopted by Congress and in which it currently remains. [3] At the hearing in this case on March 11, 1970, Mr. Sklarsky of the Department of Justice argued for maximum penalties to be imposed upon a corporate defendant which entered pleas of nolo contendere to two counts of the indictment. Mr. Sklarsky, in support of the government's position, stated: First, I would like to say that this was a thorough-going conspiracy which affected a vital and important and necessary drug, quinine and quinidine. Tr. p. 24. I say in view of all the circumstances in this case, in view of the nature of the product and the crime, the wilfulness of the crime, the knowledge they were violating the law, the effect of the crime, the profits they incurred, all these put together well deserve or should deserve a maximum fine on each of the two counts. Tr. p. 27. [4] Hearing of March 25, 1975 at which Nedchem entered the guilty pleas: MR. GRIBBON: Your Honor, I feel at this juncture I have no difficulty in representing both of them [Nedchem and Massaut]. Should a trial take place in which both the corporation and the individual were presenting defenses, I would want to have an opportunity to reexamine that matter myself and to put the question afresh to both the corporation and the individual. THE COURT: But I am afraid that may be too late. I think that potential danger of the inherent risk of conflict must be examined because, as I suggested and tried to point out to you, if you are proceeding on the assumption and have given advice to these defendants both separately and jointly that this Court will dismiss the remaining counts, you are treading upon very tenuous ground. This is not to say that the Court will not yield to a motion by the Government, but I just think it is entirely too dangerous for you to proceed on the assumption that there will not be a trial. Tr. pp. 7-8. * * * * * * THE COURT: Do you understand that I am not bound by any representation or promise made to you by the Government concerning whether or not I will grant a motion to dismiss the indictment as to any other defendant, including Mr. Massaut? Do you understand that? Tr. p. 18. [5] The court notes other "arguments" contained in the Davidow affidavit. The court finds them unpersuasive. [6] Memorandum of Law submitted by the United States in support of its Motion for Leave to Dismiss, pp. 5-6. [7] Affidavit of Joel Davidow, p. 7.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1923652/

127 B.R. 6 (1991) Richard W. HUDGINS, Trustee, Plaintiff/Appellant, v. Sherry Ann DAVIDSON, Defendant/Appellee. Civ. A. No. 91-20-NN. United States District Court, E.D. Virginia, Newport News Division. May 9, 1991. Roy H. Lasris, Buxton, Lasris, Soberick & Vannan, Yorktown, Va., for plaintiff. Stephen A. Dunnigan, Richmond, Va., for defendant. *7 ORDER CLARKE, District Judge. This matter came before the Court for hearing on the appeal of the bankruptcy trustee, Richard W. Hudgins, from a decision of the bankruptcy court granting the defendant/appellee's Motion for Summary Judgment and dismissing the trustee's Complaint to Revoke Discharge. For the reasons stated below, the decision of the bankruptcy court is REVERSED and REMANDED for further proceedings consistent with this opinion. Defendant/appellee Davidson, the debtor in the original bankruptcy proceeding, filed her petition for relief pursuant to Chapter 7 of the Bankruptcy Code on December 9, 1988. One of the individual creditors, James Massey, filed a complaint in an adversary proceeding on April 3, 1989, alleging fraud by omission and misrepresentation of assets by Davidson. The complaint asked that defendant Davidson's debts be declared non-dischargeable based on the fraud of the debtor, and also requested that Massey receive a judgment for the amounts owed him by Davidson. On April 25, 1989, Massey sought and was granted leave to amend his complaint to allege additional facts in support of his fraud claim. On July 31, 1989, Massey again requested that he be granted leave to amend his complaint to include further factual allegations in support of his fraud claim. The bankruptcy court denied this request as untimely, and the case proceeded to trial several days later on August 3, 1989. At the discharge hearing before Judge Bonney, the bankruptcy court found in favor of debtor/defendant Davidson on the creditor's claim of fraud and non-dischargeability, and consequently granted the debtor a discharge. Approximately one year later, on July 28, 1990, the bankruptcy trustee filed a Complaint to Revoke Discharge, alleging essentially the same facts which the bankruptcy court had precluded Mr. Massey from including in his complaint by way of his proposed second amendment. Thus, the facts in support of the trustee's claim had not previously been considered by the bankruptcy court, although the trustee similarly alleged fraud by the debtor Davidson as the basis for revocation of the discharge, and employed the same counsel retained in the previous proceeding by Mr. Massey. Defendant Davidson filed a Motion for Summary Judgment in response to the trustee's complaint, requesting dismissal on the grounds that the trustee had knowledge of any fraud prior to the discharge, which would prevent revocation of the discharge pursuant to 11 U.S.C. § 727(d)(1), and also on the basis of res judicata and collateral estoppel. A hearing on the Motion for Summary Judgment was held before Judge Bonney on November 2, 1990. The bankruptcy court first ruled that the trustee was not chargeable with the knowledge of the alleged fraud possessed by creditor Massey prior to the time of the discharge hearing, and denied the Motion on the section 727(d)(1) prior knowledge grounds. On the grounds of res judicata and estoppel, however, the court granted the Motion for Summary Judgment and dismissed the trustee's Complaint, finding that the second suit by the trustee presented "an identical situation." It is the trustee's appeal from this decision which is presently before this Court. The doctrines of res judicata and collateral estoppel are closely related, and operate to protect litigants from the burden of relitigating an identical issue with the same party or one in privity with that party, as well as to promote judicial economy. See Blonder-Tongue Laboratories, Inc. v. University of Illinois Foundation, 402 U.S. 313, 328-29, 91 S.Ct. 1434, 1442-43, 28 L.Ed.2d 788 (1971); Watkins v. M. & M. Tank Lines, Inc., 694 F.2d 309, 311 (4th Cir.1982); Alderman v. Chrysler Corp., 480 F.Supp. 600, 604 (E.D.Va.1979). These underlying policies are equally applicable to bankruptcy courts, and parties will not generally be accorded the opportunity to relitigate a claim previously determined by a court of competent jurisdiction. In re Garafano, 99 B.R. 624 (E.D.Pa.1989). *8 The distinction between the two doctrines is that: Under the doctrine of res judicata, a judgment on the merits in a prior suit bars a second suit involving the same parties or their privies based on the same cause of action. Under the doctrine of collateral estoppel, on the other hand, the second action is upon a different cause of action and the judgment in the prior suit precludes relitigation of issues actually litigated and necessary to the outcome of the first action. Parklane Hosiery Co. v. Shore, 439 U.S. 322, 326 n. 5, 99 S.Ct. 645, 649 n. 5, 58 L.Ed.2d 552 (1979). Thus, the doctrine of res judicata precludes not only the relitigation of issues that were actually decided, but also issues which could have been presented for determination, where the same parties or their privies are involved. Watkins, 694 F.2d at 311. Therefore, any preclusive effect in this case must be based on principles of res judicata, not collateral estoppel, because the issues presented in the trustee's complaint, while generally based upon fraud, involve different factual allegations and were not "actually litigated" in the prior suit brought by the creditor. Based on the principles set out above, the first issue facing the Court is the determination of whether there is identity of parties in the trustee's suit to revoke discharge and the prior action to deny discharge brought by the creditor, Mr. Massey. While obviously Mr. Massey and Mr. Hudgins are not the same party, defendant/appellee Davidson suggests that there is a relationship of privity between them sufficient to make creditor Massey's claim res adjudicata of Mr. Hudgins claim as trustee. Although the failure of the bankruptcy court to charge trustee Hudgins with creditor Massey's knowledge of fraud would belie any privity relationship, privity exists for purposes of res judicata where two parties represent the interests of the same entity, and this relationship may exist between a creditor and a trustee in some cases. See 1B J. Moore, J. Lucas and T. Currie, Moore's Federal Practice ¶ 0.411[1] (2d ed. 1984); In re Dominelli, 820 F.2d 313 (9th Cir.1987). In deciding whether the creditor and the trustee are in privity in this case, it should be remembered that the trustee here, and generally, is acting on behalf of all creditors equally, and not on behalf of any individual creditor. See In re Bell & Beckwith, 50 B.R. 422 (Bkrtcy.N.D. Ohio 1985); Collier on Bankruptcy ¶ 502.01. The creditor Massey, on the other hand, in his suit for denial of discharge, was acting mainly if not completely in his individual capacity, as is evidenced by his request for a judgment awarding him the amounts owed him by the debtor Davidson. It therefore does not appear that the interests of the same parties were being represented in the creditor's suit and the trustee's suit. Furthermore, the Court notes that the "capacities rule," which relates to privity and represented parties under the res judicata doctrine, provides that a judgment is not binding on a party in a later suit brought by him in a different capacity. It follows from this that the interests of a represented party are protected from prejudice by a judgment in a suit in which only the individual interest of some other represented person has been put before the court. See 1B Moore's Federal Practice ¶ 0.411[3.-1]. Therefore, all other Davidson creditors, whose interests are being represented by the trustee in his action to revoke discharge, should not be precluded from bringing that claim through the trustee, based on the prior action to deny discharge brought by one creditor, Massey, acting in his individual capacity and in his own interest. This result is consistent with the general res judicata principle that only parties or their privies may be bound by a prior judgment, and more specifically, that the party against whom the earlier decision is asserted must have had a full and fair opportunity to litigate the claim. See id.; Kremer v. Chemical Const. Corp., 456 U.S. 461, 480, 102 S.Ct. 1883, 1896, 72 L.Ed.2d 262 (1982). Indeed, this Court has held that it is a violation of due process for a judgment to *9 be binding on a litigant who was not a party nor a privy to the earlier suit. See Alderman, 480 F.Supp. at 607. It cannot be said in this case that the trustee had an opportunity to litigate this claim previously, nor that the interests of all creditors were represented by a single creditor's suit to deny discharge. Therefore, the Court finds that identity of the parties has not been established, and the claim of the trustee is not precluded by the doctrine of res judicata. Having ruled that there is no identity of the parties in this case, identity of the claim is no longer an issue, even if the trustee were attempting to bring his claim based on the same factual allegations made by creditor Massey in his prior claim. Therefore, the opinion of the bankruptcy court granting debtor/appellee's Motion for Summary Judgment and dismissing the trustee's Complaint on grounds of res judicata is REVERSED, and this case is REMANDED to the bankruptcy court for proceedings on the merits of the trustee's Complaint to Revoke Discharge.[1] IT IS SO ORDERED. NOTES [1] The Court will reserve ruling at this time on how the principles of res judicata would affect whether creditor Massey is bound by or entitled to any benefits of a judgment made by the Bankruptcy Court on the merits of the trustee's claim for revocation of discharge, since Massey already litigated the fraud claim in an individual capacity. See Restatement (Second) of Judgments § 42(2). The issue has not been raised, but it may be necessary to consider it at some future time.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1959814/

631 F.Supp. 1393 (1986) EASTERN ILLINOIS TRUST & SAVINGS BANK, a State Bank Chartered Under the Laws of the State of Illinois, Plaintiff, v. James C. SANDERS, Administrator of the Small Business Administration, et al., Defendants. No. 84 C 4579. United States District Court, N.D. Illinois, E.D. April 2, 1986. Jeffrey D. Colman and Norman M. Hirsch, Jenner & Block, Chicago, Ill., for plaintiff. Linda A. Wawzenski, Asst. U.S. Atty., Chicago, Ill., for defendants. MEMORANDUM AND ORDER MORAN, District Judge. BACKGROUND On May 30, 1984, Eastern Illinois Trust & Savings Bank of Momence, Illinois ("Eastern") filed a complaint against the *1394 Small Business Administration ("SBA") and its administrator, James C. Sanders, seeking damages for the SBA's refusal to honor its contractual obligation to purchase a 90 per cent share of three SBA-guaranteed loans which had gone into default. On August 8, 1984, the SBA filed its answer, contending that Eastern's violations of the lender compensation provisions of the guaranty agreement released the SBA from its obligation to purchase the loans, and that those violations also entitled the SBA to recover monies the SBA paid out in honoring its guaranty on a fourth loan. Both parties filed motions for summary judgment, which were denied. No. 84 C 4579, slip op. (N.D.Ill. Dec. 24, 1985). The case was tried by this court from October 2 to October 5, 1985. At the close of evidence this court made oral preliminary findings of fact and ordered further briefing as to the applicable legal standard in this case. For the following reasons we now find that Eastern's breach of the guaranty agreement was not material and order the SBA to honor its guaranties of the Reeves, G & W and Larson loans. The SBA will not recover funds already expended to guarantee the Mackin loan. FACTS On November 16, 1978, Eastern entered into a blanket guaranty agreement ("agreement") with the SBA which applied to subsequent loans authorized by the SBA and made by Eastern to aid small businesses. Paragraph 7 of the agreement was entitled "Purchase by SBA," and provided in part as follows: Lender may demand in writing that SBA purchase the guaranteed percentage of the outstanding balance of the loan if default by a borrower continues uncured for more than 60 days (or less, if SBA agrees) in making payment, when due, of any installment of principal or interest on any note. Paragraph 8 of the agreement was entitled "Fees or Commissions," and read in its entirety: Lender shall not require certificates of deposit or compensating balances and shall not directly or indirectly charge or receive any bonus, fee, commission or other payment or benefit in connection with making or servicing any loan, except reimbursement for charges or expenses incurred or compensation for actual services rendered. Certain other paragraphs of the agreement provided that violation of the conditions laid forth in that paragraph would result in an SBA denial of liability on the loan. Paragraph 8 contained no such provision, however. The Reeves Loan On November 7, 1979, the SBA issued an authorization and loan agreement approving a request that the SBA guarantee 90 per cent of a $250,000 loan to be made by Eastern to Reeves Communications, Inc. ("Reeves"). Pursuant to that authorization, Reeves signed a $250,000 note with a seven-year term on November 20, 1979. Eastern subsequently disbursed $249,128.82 of the principal of the loan: $1,000 for loan expenses disclosed to the SBA and the balance to Reeves. At the time that the SBA-guaranteed loan was being negotiated, Eastern also made a secondary loan of $15,000 to Reeves. This secondary loan was not disclosed to the SBA. Reeves made only two payments on the loans after October 1979, and on June 2, 1981 Eastern demanded in writing that the SBA purchase the guaranteed portion of the primary loan, as the loan was more than 60 days overdue. Reeves ceased to be an operating business in or about October 1981. The Mackin Loan On January 28, 1980, the SBA issued an authorization and loan agreement approving a request that the SBA guarantee 90 per cent of a $375,000 loan by Eastern to Mackin Corporation ("Mackin"). Pursuant to that SBA authorization, Mackin signed a $375,000 note with a 15-year term on February 26, 1980. Subsequently, Eastern disbursed the entire amount of the loan to Mackin, less only certain expenses associated with the loan which were disclosed to the SBA. On February 26, 1980, Eastern *1395 also made a secondary loan to Mackin of $20,375. The secondary loan was not disclosed to the SBA. In July 1981 Eastern demanded in writing that the SBA purchase the guaranteed portion of the primary loan, which had since gone into default. The SBA purchased its portion of that loan on September 8, 1981. Mackin Corporation was an operating business until August 1984. The G & W Loan On October 14, 1980, the SBA issued an authorization and loan agreement approving a request by Eastern that the SBA guarantee 90 per cent of a $275,000 loan by Eastern to George Grevenstuk and James West, doing business as G & W Fertilizer Company ("G & W"). Pursuant to that SBA authorization, Grevenstuk and West signed a $275,000 note with a seven and one-half year term on November 3, 1980. Eastern subsequently disbursed the entire principal of the loan, less only certain expenses which were disclosed to the SBA. On November 4, 1980, Eastern made a secondary loan of $19,250 to G & W. This loan was not disclosed to the SBA. On January 14, 1982, Eastern demanded in writing that the SBA purchase the guaranteed portion of the primary loan, which was more than sixty days overdue. G & W was still an operating business as of January 1982. The Larson Loan On December 12, 1980, the SBA issued an authorization and loan agreement approving a request that the SBA guarantee 90 per cent of a $490,000 loan by Eastern to Larson Tire Centers, Inc. ("Larson"). Pursuant to that authorization, Larson signed a $490,000 note with a fifteen and-a-half-year term on December 24, 1980. Eastern subsequently disbursed the entire amount of the principal, less certain immediate loan expenses which were disclosed to the SBA. On December 26, 1980 Eastern made a secondary loan to Larson of $20,000. This loan was not disclosed to the SBA. On January 5, 1982, Eastern demanded in writing that the SBA purchase the guaranteed portion of the primary loan, which was more than sixty days overdue. Larson remained an operating business until November 29, 1983. On January 27, 1982, Eastern received a letter from James Burke, an SBA officer, which stated that the SBA had ordered a check from the Treasury for the guaranteed portion of the Larson loan to be paid to Eastern. On March 2, 1982, Eastern received a letter from John L. Smith, district director of the SBA, which stated that the SBA would not honor any of the loan guaranties it had made to Eastern until a Department of Justice investigation of the secondary loans made to Reeves, G & W and Larson had been completed. DISCUSSION It is undisputed that the side loans charged to the borrowers by Eastern violated the agreement between the SBA and Eastern, in effect allowing Eastern to charge the borrowers a higher interest rate than the guaranty agreement permitted. The question, however, is whether the breach was so material as to release the SBA from the obligation to honor its guaranties and so material as to require that Eastern disgorge the guaranty funds it has already received for the Mackin loan. This issue was raised by the parties in their motions for summary judgment and addressed by testimony at trial. At the close of testimony, however, this court remained troubled by the unusual context of this case and the impact that context should have upon this court's materiality analysis. A contractual relation between a federal governmental agency such as the SBA and a private party is qualitatively different from a contractual relation between two private parties. Materiality of breach between private parties basically involves questions of causation and damage. Materiality of breach with regard to a federal agency raises the issue of how the courts are to deal with breaches of trust which have the potential to impact negatively on the overall success of important governmental programs, such as the guaranteed loan program. A single breach of trust *1396 may have little or no financial impact on the SBA but so undercut the regulatory objectives of a program that the damage caused by the breach is far out of proportion to the damage generally contemplated as the potential risk of a single financial transaction. In the materiality analysis applicable to this case, therefore, the concept of non-financial harm to the SBA must play a role. The determination of materiality of breach as between the SBA and a private party is governed by resort to contract principles of general federal law. See First National Bank, Henrietta v. Small Business Administration, 429 F.2d 280 (5th Cir.1970). As we noted earlier in this case, only a material breach of the contract by one party will justify non-performance by the other. Restatement, 2d of Contracts § 229. Threshold factors to be considered in determining whether a breach is material include: (1) whether the breach operated to defeat the bargained-for objective of the parties; (2) whether the breach caused disproportionate prejudice to the non-breaching party; (3) whether custom and usage considers such a breach to be material; and (4) whether the allowance of reciprocal non-performance will result in the accrual of an unreasonable and unfair advantage. Sahadi v. Continental Illinois National Bank & Trust Company, 706 F.2d 193 (7th Cir.1983). In this case, as noted above, the degree of Eastern's breach of trust also enters the calculus as we consider the materiality of Eastern's breach of contract. We apply each of the Sahadi criteria in turn. Initially, we find that the side loans charged to the borrowers by Eastern did not operate to defeat the bargained-for objective of the parties, namely provision of capital to small businesses on reasonable terms, with regard to the four loans at issue here. The side loans did not diminish the initial flow of funds to the borrower. Neither did they negatively impact on the borrower's ability to repay the loan. Second, Eastern's breach did not cause disproportionate financial prejudice, or indeed any financial prejudice, to the SBA. This court has already found that the side loans did not affect the borrowers' ability to repay the primary loans. In addition, Eastern's collateral position on the secondary loans was in all cases subordinate to the position of the SBA and Eastern on the primary loan. The secondary loans only increased Eastern's exposure to the borrowers. The fact that fees were charged to the borrowers does not of itself constitute prejudice to the SBA where, as here, Eastern's non-disclosure had no effect on the SBA's risk. Everman National Bank v. United States, 756 F.2d 865 (Fed.Cir. 1985), on which the SBA relies to establish that misrepresentations in a loan application will lead to loan denial on default, is not apposite here. Everman concerned the application of a dairyman whose milk had been downgraded from grade A to grade B (unfit for human consumption). No similar fact indicating an enhanced risk of default by a borrower was present in any of these cases. We have already found that Eastern made these loans in good faith, believing that they would be repaid. The SBA's position, however, is that considerable prejudice to the guaranteed loan program resulted from Eastern's actions even if that prejudice cannot be characterized as financial, since other lenders might learn of Eastern's violations and emulate them. A breach of trust such as Eastern's here is indeed a serious violation of the guaranty agreement from the SBA's point of view and one with which it has good reason to be concerned. At trial, the general counsel for the SBA, however, specifically stated that the SBA does not deny loan guarantees as an example to other lenders. In addition, the SBA standard operating procedure ("SOP") 50-50-3 ¶ 56, which sets out standards for SBA determinations as to whether or not to deny a loan guaranty, specifically contains two prerequisites for loan denial. The first is a substantial failure of compliance by the lender; the second is a substantial loss on the loan which results from the lender's substantial failure of compliance. This is the SBA's only SOP regarding denial of loan guaranties. *1397 These facts, while certainly not binding or determinative, provide strong evidence of SBA practice. At trial, this court listened to much testimony regarding the SBA's historical responses to various breaches of the guaranty agreement. What was clear from that testimony was that in no situation in which the SBA suffered no monetary losses as a result of a lender's violation, nor in which the offending bank was willing to erase the complained-of transaction[1] were the sanctions imposed by the SBA on the bank as severe as those imposed on Eastern here. The government attempts to distinguish its past practice from the instant case by claiming that Eastern's case is qualitatively different from other guaranty agreement violation cases because Donald Starks, Eastern's then vice-president and the man who negotiated these loans, pleaded guilty to a one-count misdemeanor of receiving a fee in connection with an SBA loan. This court continues to find that argument unpersuasive. That conviction is a fact, but loan denial or honor should not depend on whether or not the federal government chooses to prosecute a misdemeanor. In other cases of guaranty agreement violations such as the CALBIDCO and Palm Beach scenarios discussed at length at trial, the SBA was certainly equally convinced that a breach of trust had occurred. The SBA did not deny liability on those loans however. This is not to say that the secondary loans were proper or that Eastern was justified in making them. The loans clearly violated the guaranty agreement, despite Eastern's supposed reliance on the advice of counsel, and the SBA has the right to take certain actions to redress that breach. The SBA could certainly require that the secondary loan transactions be rescinded, for example, as indeed it has in other cases dealing with similar violations. The SBA could also bar Eastern from further participation in the guaranteed loan program, as it may have done here. Total denial of the loan, however, is a far more extreme response and one that we find unwarranted in these circumstances. If the SBA wishes loan denial to be among its avenues of recourse in cases where banks impose unlawful fees on borrowers, it should specifically note the possibility of denial in paragraph 8 of the guaranty agreement, the section which governs the fees a bank can charge. The SBA does specifically note the possibility of denial in other paragraphs of the guaranty agreement, including paragraph 4 (reporting requirements) and paragraph 5 (fees required to be paid to the SBA). The SBA may not, however, simply change the guaranty agreement provisions regarding loan denial after the fact. The risk of loan denial if improper fees were charged was clearly not within the contemplation of the parties at the time this agreement was entered into, and we decline to allow the SBA to make an example of Eastern where the bank had no notice of the risk it ran. To allow the SBA to deny liability on these loans at this point would "result in [the] accrual of an unreasonable or unfair advantage" to the SBA, 706 F.2d at 196, since the SBA would thereby be able to avoid a debt that it would have incurred regardless of the existence of any secondary loans, given the effect which the 1981 recession had on the Momence, Illinois economic community. If this were a case in which public monies had been fraudulently obtained by the bank from the government, as was alleged in Miller v. United States, 213 Ct.Cl. 59, 550 F.2d 17 (1977) (receipts submitted to government for reimbursement where work not actually done), our analysis might well be different. Here, however, such was simply not the case. In effect, the government here seeks imposition of the types of penalties applicable to violations of the False Claims Act, 31 U.S.C. § 3729, or the Forfeiture Act, 28 U.S.C. § 2514. Those penalties are inappropriate in these circumstances. Indeed, even where violations of the False Claims Act have been *1398 proven, courts have refused to allow the government to cancel its liability where it was not harmed as a result of the false claim. See United States v. Woodbury, 359 F.2d 370 (9th Cir.1966) (contractor failed to disclose liens in connection with government guaranteed housing project); United States v. Hibbs, 568 F.2d 347 (3d Cir.1977) (broker's false certification of heating and plumbing not related to mortgagor's default). Where, as here, "precisely the same loss would have been suffered by the government had the certification been accurate and truthful," 568 F.2d at 351, the government is not entitled to renege on its obligations. The SBA's claim that "but for" the misrepresentation it would not have guaranteed these loans is unconvincing. An immaterial misrepresentation is not of itself sufficient to void the guaranty agreement. See Brunswick Bank & Trust Co. v. United States, 707 F.2d 1355 (Fed.Cir.1983). CONCLUSION While Eastern's breaches of the guaranty agreement were deplorable, they were not so material as to justify voiding the agreement. The SBA is ordered to honor its guaranties on the Reeves, G & W and Larson loans; amounts already paid to Eastern to guarantee the SBA's portion of the Mackin loan will remain with Eastern. NOTES [1] Eastern reversed the secondary loans in February 1982, as soon as the SBA communicated its displeasure with the loans to the bank, and well before at least two of the borrowers had failed.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1923146/

127 B.R. 421 (1989) Michael ETHERIDGE and Lorine Etheridge, Plaintiffs, v. STATE OF ILLINOIS, Defendant. No. 89-1043. United States District Court, C.D. Illinois. July 12, 1989. Gregory McHugh, Aledo, Ill., for plaintiffs. Dan Slack, Rock Island, Ill., for defendant. ORDER MIHM, District Judge. Michael and Lorine Etheridge (herein "Debtors") are appealing the bankruptcy court's decision in favor of the State for $14,658 of Retailers Occupation Taxes, owed to the Illinois Department of Revenue by the Etheridges' retail building supply business. The issue on appeal is whether a late filed tax return, filed more than two but less than three years before the bankruptcy petition, is excepted from discharge under Bankruptcy Code § 523(a)(1). 11 U.S.C. § 523(a)(1). For the reasons stated below, the Court affirms the bankruptcy court's order. BACKGROUND The Bankruptcy Code attempts to balance the debtor's interest in a fresh start with creditors' interest in maximizing both the pool of assets and their individual recoveries. The Code sections at issue in this case reflect this tension. The primary mechanism for an individual debtor's fresh start is a discharge in bankruptcy, 11 U.S.C. § 524, which operates to enjoin any attempt to enforce a discharged claim. Other policies, which support the interests of certain creditors over those of the debtor, are reflected in the priorities for distribution of payments from the bankruptcy estate, 11 U.S.C. § 507, and in the exceptions from discharge of certain claims, 11 U.S.C. § 523. This case involves the state government's interest in collecting taxes due, which are generally afforded seventh priority, 11 U.S.C. § 507(a)(7); and the non-dischargeability of certain tax claims under § 523(a)(1). 11 U.S.C. § 523(a)(1). The parties here disagree about the interplay between these two sections of the Bankruptcy Code, as applied to certain retailer taxes payable by the Etheridges' business between two and three years prior to their bankruptcy filing. The Code's provisions and a recent Seventh Circuit decision appear to dispose of both the older and the more recent tax liabilities. (Older taxes are "stale," whereas newer ones are *422 non-dischargeable as a matter of public policy). Retailers Occupation tax returns are due on the last day of the month for the preceding month. Ill.Rev.Stat. ch. 120, ¶¶ 440, 444. On October 9, 1985, the Etheridges filed a consolidated late tax return covering February through September 1984, plus November 1984 through July 1985, admitting total tax liability of $30,542. The Department of Revenue issued a notice of delinquency on April 28, 1987, by which time $38,577 was due including interest and penalties. The Etheridges made two payments totaling approximately $1,300. They filed a voluntary Chapter 7 bankruptcy petition on October 21, 1987. Pursuant to the Seventh Circuit's decision in In re Groetken, 843 F.2d 1007 (7th Cir.1988), the bankruptcy court issued a pretrial order discharging Etheridges' liability for the portion of taxes for which a return was last due more than three years before filing for bankruptcy. (Adv. No. 87-8266, June 2, 1988). After trial, Judge Altenberger ruled in favor of the State of Illinois on the remaining tax obligation of $14,658 in late-filed taxes, due more than two but less than three years before the Etheridges' bankruptcy filing. In re Etheridge, 91 B.R. 842 (Bkrtcy.C.D.Ill.1989). DISCUSSION Liberal v. Strict Construction The Debtors argue first that the bankruptcy court did not apply the "applicable standard of review" (Brief of Appellant, p. 2) for barring a discharge. Debtors argue that the Bankruptcy Code must be liberally construed in favor of the debtor and any bar to discharge must be strictly construed against the creditor. Debtors further argue that Congress specifically approved discharge of tax debts. In support, Debtors cite United States v. Sanabria, 424 F.2d 1121 (7th Cir.1970), which stands for the proposition that discharge in bankruptcy prevents a lien for taxes due and owing more than three years before the bankruptcy filing, from attaching to after-acquired property. Quoting the Senate Committee Report for the 1966 bankruptcy amendments, the court noted the importance of discharge to allow honest debtors "a fresh start unburdened by what may be an overwhelming liability for accumulated taxes." The Sanabria court found that "the dominant purpose of the change was to relieve a debtor of the burden of these older taxes [i.e., those due more than three years before filing] after bankruptcy." 424 F.2d 1121, 1122. In the instant case the decision in In re Groetken, 843 F.2d 1007 (7th Cir. 1988) was dispositive on the question of the portion of the taxes due and payable more than three years before the bankruptcy filing; however, the Sanabria case sheds no further light on the issue remaining on appeal, which is the status of taxes due and payable more than two but less than three years before the bankruptcy filing. In further support of their contention that the courts are to construe any exceptions to discharge in favor of the debtor, Debtors cite In re Tester, 62 B.R. 486, 490 (Bkrtcy.W.D.Va.1986), which in turn refers to the Collier treatise on bankruptcy, stating, "exceptions to discharge are to be strictly construed against the objecting creditor and liberally in favor of the debtor." 3 Collier on Bankruptcy, § 523.05A at 523-15 (1985). However, another authority has noted the countervailing policy underlying non-dischargeability of tax liens: "in effect the Bankruptcy Code is making a policy decision in favor of the tax collector over the debtor's need for sufficient property to make a fresh start." Ginsberg on Bankruptcy, ¶ 6104, p. 6026 (1988 Supp.). In a subsequent section dealing with tax claims, the Ginsberg treatise states, "federal, state or local tax claims generally will not be discharged in a Chapter 7 case . . . The Bankruptcy Code takes a very narrow view of the dischargeability of tax claims owed to any governmental unit." Id. at ¶ 11,302, p. 11.031. The State also argues on appeal that the Bankruptcy Code's priority treatment of obligations owed to governments implies policy support for non-dischargeability of these taxes. The Court agrees. *423 Extra Burden on State Debtors further argue that bankruptcy courts have placed a heavy burden on the state to avoid a tax discharge. In support of this proposition, they cite three cases: 1. In re Cerar, 84 B.R. 524 (C.D.Ill. 1988). This case was recently before this Court. Cerar v. Federal Deposit Insurance Corp., 97 B.R. 447 (C.D.Ill.1989). Cerar interprets § 523(a)(6) (non-dischargeability for willful and malicious injury to others' property). The subject of the case was an FDIC-insured account, rather than a tax owed to a governmental unit. This Court's ruling in Cerar relied on elements and standards set forth in In re Kimzey, 761 F.2d 421 (7th Cir.1985), which also involved a debtor/bank relationship and the "willful and malicious injury" section, § 523(a)(6), rather than a governmental entity, § 523(a)(1). The standard set forth in Kimzey, clear and convincing evidence, applies to private creditors as well as the government. 2. Matter of Carracino, 53 B.R. 513 (Bkrtcy.D.N.J.1985). In Carracino, the court denied summary judgment to the state for failing to provide sufficient information to determine whether the taxes due were of the kind and for the period specified in § 523(a)(1)(A) (exceptions to discharge for certain tax obligations). 3. Matter of Carapella, 84 B.R. 779 (Bkrtcy.M.D.Fla., Tampa Div.1988). Carapella was convicted of mail fraud through eight shell corporations, none of which had filed any income tax returns. The IRS was owed over $1 million, and Carapella had been imprisoned. The IRS agent who identified the shell corporations filed alternate documents (IRS Form 870) for identification purposes, which defendant signed; these functioned as the equivalent of tax returns. Therefore, the court ruled against the state under § 523(a)(1)(B)(i) (tax debt non-dischargeable if no return or equivalent document is filed). However, the court remanded for fact finding on the dischargeability of the tax liability pursuant to § 523(a)(1)(C), (fraud and misrepresentation with respect to a tax debt). Neither Carracino nor Carapella appears to contradict the clear and convincing evidence standard of Kimzey, supra. The Debtors have presented no argument sufficient to reverse the bankruptcy court's finding that the State has met its burden. Rules of Statutory Construction The Debtors argue that the statutory construction used by the bankruptcy court was in error. The relevant Bankruptcy Code sections provide in pertinent part: § 507. PRIORITIES (a) The following expenses and claims have priority in the following order: * * * * * * (7) Seventh, allowed unsecured claims of governmental units; only to the extent that such claims are for — (A) a tax on measured by income or gross receipts — (i) for a taxable year ending on or before the date of the filing of the petition for which a return, if required, is last due, including extensions, after three years before the date of the filing of the petition; § 523. EXCEPTIONS TO DISCHARGE (a) A discharge under section 727, . . . of this title does not discharge an individual debtor from any debt — (1) for a tax or a customs duty — (A) of the kind and for the periods specified in section 507(a)(2) or 507(a)(7) of this title, whether or not a claim for such tax was filed or allowed; (B) with respect to which a return, if required — (i) was not filed; or (ii) was filed after the date on which such return was last due, under applicable law or under any extension, and after two years before the date of the filing of the petition; or (C) with respect to which the debtor made a fraudulent return or willfully attempted in any manner to evade or defeat such tax. Debtors would have the Court read subsections (A) and (B) of § 523(a)(1) together with subsections (B)(i) and (ii) as exceptions. *424 According to this reading, § 523(a)(1)(A) is not a separate and independent requirement, even though it is followed by a semicolon, because it is not followed by the word "or". Thus, there would be only three bars to discharge: for non-filing under § 523(a)(1)(B)(i), for late filing under (B)(ii), and for fraud or tax evasion under (C). Based on this construction, the Debtors argue that under § 523(a)(1)(B)(ii), the late filed tax returns for taxes due more than two but less than three years before filing the petition, are dischargeable. Debtors raise the rule of statutory construction "expressio unius est exclusio alterius": where specific exclusions are listed, everything else is included. In support of this proposition, they cite Andrus v. Glover Construction Co., 446 U.S. 608, 100 S.Ct. 1905, 64 L.Ed.2d 548 (1980), which held that the Buy Indian Act does not apply to road construction projects that would otherwise be competitively bid. The Debtors quote language in the opinion to the effect that when Congress enumerates exceptions, no additional ones are to be implied — leaving out, however, the subsequent phrase quoted in the Andrus opinion, "in the absence of contrary legislative intent". Here, as the State argues, legislative intent seems to support non-dischargeability. Somewhat closer to home, Debtors cite Matter of Cash Currency Exchange, Inc., 762 F.2d 542 (7th Cir.1985), dealing with whether a currency exchange is an entity that can be a Chapter 11 debtor under state law or under the Bankruptcy Code § 109(b)(2). In deciding that the Currency Exchange could be a debtor, the court, quoting a noted authority on statutory construction, stated, "enumeration of specific exclusions from the operation of a statute is an indication that the statute should apply to all cases not specifically excluded." 2A Sutherland, Statutory Construction, § 47.23; Cash Currency Exchange, 762 F.2d at 552. Neither authority supports the Debtors' position unless one initially accepts their contention that §§ 523(a)(1)(A) and (B) must be read together, with only subsections (B)(i) and (ii) and subsection (C) as exceptions. The State argues that the purpose of subsection 523(a)(1)(B)(ii) is to extend non-dischargeability to late-filed taxes. In support of this reading, the State cites Collier on Bankruptcy, ¶ 523.06, 3B, and the legislative history of the 1978 Bankruptcy Reform Act, including both the House and Senate Reports. The legislative history notes that both: (1) taxes entitled to priority under §§ 523(a)(1)(A), 507(a)(7)(A)(i), and (2) taxes which come under subsections (B) or (C) of § 523(a)(1) are non-dischargeable. The State also objects to the Debtors' suggested construction of § 523, which would combine subdivisions (a)(1)(A) and (B). The State argues that (A), (B), and (C) of § 523(a)(1) are alternative, independent subsections. Since the three subsections are a series, it is unnecessary to put "or" between each subsection; rather, it is sufficient to put "or" between the last two items in the series. Using an analogy to the ten numbered subsections of § 523(a), the State argues, convincingly, that it would be ridiculous to assume that (1) through (9) constitute a single alternative to subsection (10) simply because the subsections are separated by semicolons, not by "or". The State also refers to the bankruptcy court's analysis of the series of subsections in § 507 in the 1986 case of In re Easton, 59 B.R. 714 (Bankr.C.D.Ill.1986), in which the court construed the subsections of § 507 in the alternative. The State faults the reasoning whereby Debtors look at a particular subsection of § 523 of the Code, find that they fall outside that subsection, and declare that they are thereby discharged. The State argues that Debtors' reasoning is fallacious because different, independent subsections of § 523 list other debts which are non-dischargeable. Since even those cases cited by the Appellant reach their ultimate holdings based on § 523(a)(1)(A) (Edwards, Longley, infra), or § 523(a)(1)(C) (Carapella, supra), this seems to be a legitimate criticism of Debtors' position. *425 Finally, the State cites the recent case of In re Greenstein, 95 B.R. 583 (Bankr.N.D. Ill.1989). The Greenstein case applies to the situation in which a late return was filed within two years before the debtor filed a bankruptcy petition. However, the Greenstein court notes in dicta that a tax is not dischargeable if the return was due within three years before the debtor filed a bankruptcy petition, stating: "the effect of the two year limitation period [in § 523(a)(1)(B)(ii)] is to allow the taxing authorities a reasonable time to collect the tax or create a lien on assets of the debtor." This language is particularly applicable to the facts of Greenstein, which involved an amended tax assessment pursuant to an IRS audit. However, it is also apt in the instant case, since the Debtors attempt to base the dischargeability of their tax debt solely on the requirements of § 523(a)(1)(B)(ii). Whether Doss Case Should Control The Debtors rely on In re Doss, 42 B.R. 749 (Bankr.E.D.Ark.1984). In Doss, the IRS attempted to rely on § 507(a)(7)(A)(iii) (taxes not assessed before commencement of a bankruptcy case but still assessable after the case was filed). The debtors in that case countered that the taxes were ones for which a late return had been filed more than two years before bankruptcy filing and were thus dischargeable under § 523(a)(1)(B)(ii). The court agreed with the debtors that to rule otherwise would make § 523(a)(1)(B)(ii) ineffective and meaningless on those facts. However, the State distinguishes Doss, because the Doss debtor's taxes were due more than three years before the bankruptcy filing; whereas in the instant case, the taxes arose from transactions between two and three years before the bankruptcy filing. This is a significant difference with respect to dischargeability under §§ 507 and 523 of the Bankruptcy Code. The Debtors cite two additional cases interpreting the Doss decision. Both involve situations in which the IRS assessed a revised tax and penalties, based on a debtor's consent to extend the time to assess the taxes due. These facts bring the cases under § 507(a)(7)(A)(iii) (non-dischargeable tax measured by income or gross receipts which was not assessed before, but is assessable by agreement after, commencement of the bankruptcy case). Both cases are from the Northern District of Ohio. In the first, Matter of Longley, 66 B.R. 237 (Bkrtcy.N.D.Ohio 1986), the debtors used the Doss case to support the proposition that their tax liability should be dischargeable because it was not entitled to priority under § 507(a)(7). The court interpreted Doss as follows: In effect, the [Doss] court held that simply because a tax is a priority tax under § 507 because it is still assessable does not mean that the tax is automatically dischargeable and that if a debtor files a late return before two years before filing a Title 11 petition (thus taking the tax out of the provisions of § 523(a)(1)(B)(ii)), the tax is not entitled to priority and is thus, dischargeable. 66 B.R. 237, at 241. The Longley court pointed out that the debtor's reliance on Doss was misplaced because in Doss the debtors filed a late return more than two years before their bankruptcy filing, whereas in Longley there was no late return, so § 523(a)(1)(B)(ii) had no bearing. Ultimately, the Longley court held that if the taxes in question were assessable after commencement of the Chapter 7 case, they were entitled to priority under § 507(a)(7)(A)(iii) and were thus non-dischargeable under § 523(a)(1)(A). The State notes that the Longley debtors filed a late return less than two years before their bankruptcy petition, but like Doss, for taxes due more than three years before the petition. In those cases, the taxes might be dischargeable because they would not meet the three-year requirement for priority under § 507(a)(7). In the instant case, however, the State argues that it is not necessary to proceed to an analysis under § 523(a)(1)(B)(ii) (late filing) because the taxes at issue are less than three years old and are entitled to priority under § 507; thus they are excepted from discharge under § 523(a)(1)(A). *426 The Debtors also rely on Edwards v. IRS, 74 B.R. 661 (Bankr.N.D.Ohio 1987), in which the IRS conducted an audit of the debtor's timely 1982 tax returns approximately three years later, and the debtor executed a consent to extend the time to assess the 1982 taxes until the end of 1986. The debtor filed for bankruptcy in July of 1986. The Edwards court distinguished between non-dischargeable tax claims with priority treatment and those without priority treatment, stating: Legislative intent is to treat tax claims arising from late filed or fraudulent returns as non-dischargeable, but general unsecured claims, and to treat tax claims arising from current returns, or recently assessed or assessable tax returns, as non-dischargeable, but unsecured claims with priority treatment. The Edwards court therefore held that § 523(a)(1)(B) and (C) claims are not priority claims under § 507(a)(7)(A), but they are still non-dischargeable. The court distinguished the holding in Doss which held that taxes for tax years not entitled to priority were dischargeable. Edwards found that a debt arising from a tax liability assessed post-petition pursuant to an agreement, on a tax year for which timely but erroneous returns were filed more than two years before bankruptcy, is a priority non-dischargeable claim. Thus, both the Edwards and Longley cases cited by Debtors actually seem to work against their argument: first, by distinguishing the holding in Doss; second, by relying in their final holdings on § 523(a)(1)(A) alone. Furthermore, the State cites In re Groetken, supra, which found that whether the taxes came under § 507(a)(7)(A) (income or gross receipts tax) or § 507(a)(7)(E) (excise tax), the effect as to dischargeability is the same, as both subsections have a three-year period of priority. 843 F.2d at 1014. Since the Etheridges' remaining tax liability is for a period less than three years before their bankruptcy filing, arguably within the priority period, it is non-dischargeable without reference to the fine distinctions made by Edwards and Longley. In sum, the Debtors' arguments are not well supported by either logic or precedent, while the State's argument appears reasonably well supported by the cases it cites and by the rules of statutory construction. CONCLUSION After reviewing the facts and the applicable Code sections, the bankruptcy court quoted § 102(5) of the Bankruptcy Code, which states that "in this title . . . `or' is not exclusive." The legislative history for that section states, "if a party may do (a) or (b) then the party may do either or both. The party is not limited to a mutually exclusive choice between the two alternatives." Senate Report No. 95-989, 95th Cong.2d Sess. 28 (1978), U.S.Code Cong. & Admin.News 1978, pp. 5787, 5814. 91 B.R. at 844. Judge Altenberger also reviewed his decision in In re Easton, supra, involving a similar interpretation of the subsections of § 507. He concluded This court believes that the rule of construction as applied in the Easton case is likewise applicable in this case. The subparagraphs of § 523(a)(1) are in the alternative. Even though the tax may not be excepted from discharge pursuant to § 523(a)(1)(B)(ii) the taxes are not discharged because the state can take advantage of § 523(a)(1)(A) and § 507(a)(7)(A)(i) and (E). Behind each exception to discharge are separate policy considerations . . . Moreover, merely because a particular liability is not encompassed by a particular exception to discharge does not provide it a safe harbor from another exception which squarely applies. 91 B.R. at 845. Finally, the court distinguished Doss because it relies on § 507(a)(7)(A)(iii), concluding that the statutory interpretation of Doss cannot be extended to this case. Thus, the court held that the Etheridges' Retailers Occupation tax liability of $14,658 is not dischargeable. *427 The State and the bankruptcy court offer persuasive reasons for their conclusion that the tax liability due between two and three years before the bankruptcy filing should be non-dischargeable. Therefore, this Court AFFIRMS the bankruptcy court's decision.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1471330/

359 F.Supp. 339 (1973) James FLEMING, Plaintiff, v. DELTA AIRLINES, Defendant. No. 68 Civ. 1323. United States District Court, S. D. New York. May 29, 1973. *340 Emile Z. Berman and A. Harold Frost, New York City, for plaintiff; Morton H. Feder, New York City, of counsel. Bigham, Englar Jones & Houston, New York City, for defendant; James B. McQuillan, New York City, of counsel. MEMORANDUM LASKER, District Judge. On the night of April 16, 1967, plaintiff, James Fleming, a medical doctor, took Delta Air Lines Flight 52 from New Orleans to Chicago. The flight made three scheduled intermediate stops at Jackson, Mississippi, Memphis, Tennessee, and St. Louis, Missouri. On its descent into St. Louis, the plane passed through a previously forecast turbulence causing Fleming to be thrown about in his seat, to strike his head against the window trim breaking his glasses and to experience severe chest and arm pains later diagnosed as angina pectoris. The crisis having passed, the plane landed safely and Fleming continued on to Rochester, New York, his ultimate destination. Since the attack of angina pectoris occasioned by the flight turbulence, Fleming has had recurring bouts of angina pectoris (the first of which occurred on July 11, 1967) resulting in his eventual retirement from the practice of medicine. The facts pertaining both to the events of the night in question and to Fleming's attacks of angina pectoris are essentially undisputed. The conclusions which the parties draw from them are diametrically opposed. Fleming's position rests on two bases: 1) Delta's failure to warn its passengers of the possibility of turbulence of which it had advance notice giving them the option to postpone or cancel their trip was negligent; and 2) the fear occasioned by the turbulence caused a lasting debilitating heart condition from which he still suffers. Delta, on the other hand, contends that the failure to warn passengers under the circumstances did not constitute negligence and that, even if it was negligent, the incident which resulted from its negligence produced at most the contemporaneous episode of angina pectoris, but not the subsequent attacks. I. Negligence. The testimony of Fleming's meteorological expert and the various meteorological reports which were introduced in evidence establish that the pilot of Flight 52 had available to him, prior to his departure on the Memphis to St. Louis lap of the trip, information which should reasonably have led him to foresee the possibility of encountering the type of *341 turbulence which in fact occurred. The predicted weather conditions included heavy thunderstorms, surface wind gusts of 50 to 70 miles per hour, cloud tops to 45,000 feet, isolated tornadoes and hail storms, and moderate to severe turbulence. Such conditions aloft, although possibly not extreme enough to prevent take-off, are sufficiently serious to be a matter of significant concern to prospective travellers. Although an airline must bear the ultimate responsibility for deciding whether conditions permit a safe flight, it need not and, we think, must not arrogate to itself a decision which rightly belongs to each passenger, namely whether to fly under conditions which, although not hazardous, might prove to be emotionally or physically traumatizing. As the incident which gave rise to this litigation demonstrates, conditions may be dangerous to some and not to others. Clearly, an airline cannot be expected to screen the former from the latter. D'Aleman v. Pan American World Airways, 259 F.2d 493, 494 (2d Cir. 1958). However, it owes its passengers the duty to share with them information indicating such serious weather disturbances, so that they can choose for themselves whether they are physically and emotionally capable of undertaking the trip and wish to do so. In concluding that Delta's failure to warn Fleming of the possibility of serious weather disturbances of which it had advance notice was negligent, we agree with those courts which have held that common carriers owe their passengers the highest degree of care (Wallin v. Greyhound Corp., 341 F.2d 521 (6th Cir. 1965); Southeastern Aviation, Inc. v. Herd, 209 Tenn. 639, 355 S.W.2d 436 (1962) and are mindful that under federal law there is a "duty resting upon air carriers to perform their services with the highest possible degree of safety" (49 U.S.C. § 1421(b)). II. Causation. We turn to the difficult question whether the fear experienced by Fleming during the St. Louis landing caused his entire subsequent history of angina pectoris. We conclude that the evidence is so evenly weighted on this issue that Fleming has failed to meet his burden of establishing his case by a preponderance of the evidence. Fleming's medical specialist, a general practitioner, hypothesized that, although he suffered from hardening of the arteries, he did not have a pre-existing myocardial infarction. The angina pectoris condition was, therefore, not caused by a prior heart ailment, but was the direct result of the incident on Flight 52, causing fright, an onrush of adrenalin and the breaking off of a plaque from a wall of the arteries with resultant occlusion. The most persuasive evidence supporting this theory is the fact that, prior to the flight, Fleming had led an active, strenuous life as a surgeon and a sportsman without ever experiencing the symptoms associated with angina pectoris. On the other hand, however, Delta's expert, a cardiological specialist, testified that the process described by Fleming's expert would have constituted a heart attack and could not have occurred without affecting Fleming's electrocardiogram (which concededly remained unchanged throughout the period in question). Furthermore, he pointed up the significance of EKG indications of a myocardial infarction dating back to 1959[1] or earlier and posited the theory that this pre-existing condition was the cause of the angina pectoris incident on the plane and the separate episodes which followed. According to his testimony, each such incident would have had a separate direct stimulus, such as fear, fatigue, exertion or cold. Thus, the fear occasioned by the turbulence would undeniably be the direct cause of the immediately *342 following attack, but of that attack alone. On the record thus presented, we are unable to say conclusively which hypothesis is on its face more persuasive. Moreover, we cannot disregard the fact that Delta's expert is a professional cardiologist, while Fleming's is merely an internist with an interest in cardiology and is the plaintiff's close friend. Accordingly, Fleming has not met the burden of proof with respect to the later attacks of angina pectoris. He cannot, therefore, recover for them or for the loss of his livelihood and recovery must be limited to the pain and suffering occasioned by the in-flight incident and the almost contemporaneous attack of angina pectoris. The above constitutes the court's findings of fact and conclusions of law. To determine what damages are due as a result of the pain and suffering occasioned by the attack of angina pectoris suffered by Fleming on April 16-17, 1967, we instruct the parties to submit supplementary briefs on that question. Such briefs should refer to facts in the record or, if additional facts are needed, should indicate why they are necessary. It is so ordered. NOTES [1] Fleming's EKG's from 1959 on indicated "Q" and "T" wave abnormalities. The former were interpreted by his expert as being indicative solely of tranverse positioning of the heart, not of a prior myocardial infarction.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1807019/

468 F.Supp. 730 (1979) Ellen L. RAY and William H. Schapp, Plaintiffs, v. Stansfield TURNER, DCI and the Central Intelligence Agency, Defendants. Civ. A. No. 76-903. United States District Court, District of Columbia. April 5, 1979. *731 *732 James E. Drew, Washington, D. C., for plaintiffs. Lee S. Strickland, CIA, Washington, D. C., for defendants. MEMORANDUM OPINION JOHN H. PRATT, District Judge. This action is before this court on remand from the United States Court of Appeals for the District of Columbia for reconsideration of claims by the Central Intelligence Agency (CIA) that nine documents may be withheld in their entirety or in part from disclosure under the Freedom of Information Act, 5 U.S.C. § 552 (FOIA).[1] In accordance with the remand from the Court of Appeals, we have instructed the CIA to file a new supplemental affidavit containing a more specific index and itemized justification of the withheld documents and portions of documents. We have also permitted the plaintiffs, Ellen L. Ray and William H. Schaap, to conduct a limited amount of discovery to assist in our review of the exemptions claimed by the CIA. Finally, we have directed the CIA to submit the nine documents to us for an in camera inspection. Plaintiffs have filed a motion for summary judgment which challenges the adequacy of the CIA's compliance with the FOIA standards set by the Court of Appeals. The defendants have filed a cross-motion for summary judgment. After our in camera inspection of these documents in conjunction with a supplemental CIA affidavit and one set of interrogatories answered by the CIA, we conclude that the CIA has properly determined that withheld documents and portions of documents are exempt from disclosure under the FOIA. We accordingly grant defendants' motion for summary judgment. I. Claimed Exemptions The CIA has claimed that the documents and document segments at issue in this litigation may be withheld from disclosure under the authority of Exemptions 1, 3, 6, 7(C) and 7(F) of the FOIA, 5 U.S.C. §§ 552(b)(1), (b)(3), (b)(6), (b)(7)(C), *733 (b)(7)(F). Before discussing the withheld documents, we first set forth the applicable substantive and procedural standards which are to be met if documents are to be properly withheld under these exemptions. A. Exemption 1 Exemption 1 exempts material that has in fact been properly classified under criteria established by an Executive order as material that should be kept secret in the interest of national defense or foreign policy.[2] Executive Order 11652 and the National Security Council directive of May 17, 1972[3] contain the applicable substantive and procedural criteria for the withheld documents in this litigation. Executive Order 11652 authorizes the withholding of documents if the "unauthorized disclosure [of these documents] could reasonably be expected to cause damage to the national security." A document which satisfies this substantive criterion must also satisfy procedural criteria including (1) classification by one possessing the requisite authority; (2) classification at the proper time; (3) classification by conspicuous markings; (4) identification and segregation of non-classified segments; and (5) the existence of procedures for review and declassification. See Ray v. Turner, 190 U.S.App.D.C. 290, 320-21, 587 F.2d 1187, 1217-18, concurring opinion of Chief Judge Wright (1978); Halperin v. Department of State, 184 U.S. App.D.C. 124, 565 F.2d 699 (1977). B. Exemption 3 Exemption 3 of the FOIA applies to matters which are "specifically exempted from disclosure by statute," but only if the exemption statute either leaves no room for agency discretion to determine whether the information is to be disclosed or if the exemption statute specifies "`particular criteria for withholding or particular types of matters to be withheld.' 5 U.S.C. § 552(b)(3) (1976)."[4]Ray v. Turner, supra, concurring opinion of Chief Judge Wright, 190 U.S.App.D.C. at 322, 587 F.2d at 1219. In the context of this Exemption, there are two applicable statutes which provide substantive criteria for determining whether document segments may be withheld. Under 50 U.S.C. § 403(d)(3), the Director of the CIA is authorized to protect "intelligence sources and methods from unauthorized disclosure." Under 50 U.S.C. § 403g, the CIA is exempt from any law "requiring `disclosure of the organizations, functions, names, official titles, salaries, or numbers of personnel employed by the Agency.'" The Court of Appeals has determined that both of these statutes fall within the coverage of Exemption 3. Ray v. Turner, supra, concurring opinion of Chief Judge Wright, 190 U.S.App.D.C. at 322-23, 587 F.2d at 1219-20; Goland v. CIA, No. 76-1800 (D.C.Cir. May 23, 1978). C. Exemption 6 The CIA has claimed that Exemption 6 of the FOIA is applicable to one of the documents, document 10, at issue in this litigation. There is a two-pronged test applicable to determine whether a document or document segment may be withheld under *734 the authority of Exemption 6. First, the document must be part of a "personnel" file, a "medical" file, or a "similar" type of file. 5 U.S.C. § 552(b)(6). Second, the disclosure of such a file must constitute a "clearly unwarranted invasion of personal privacy." 5 U.S.C. § 552(b)(6).[5] A document segment satisfies the first part of this test if information about the identity of an individual may be disclosed by the release of a document. See Department of the Air Force v. Rose, 425 U.S. 352, 371, 96 S.Ct. 1592, 48 L.Ed.2d 11 (1976). The second part of this test is met if the privacy interest of the individual outweighs the public's right to governmental information. Department of the Air Force v. Rose, supra, at 370-82, 96 S.Ct. 1592; Getman v. NLRB, 146 U.S. App.D.C. 209, 450 F.2d 670, 673-77 (1971). D. Exemptions 7(C) and 7(F) One portion of document 10 has been withheld under both Exemption 7(C)[6] and Exemption 7(F)[7] of the FOIA. These Exemptions, like Exemption 6, contain a two-part test for determining whether document segments may be withheld. For both Exemptions, documents may only be withheld if they can first be classified as "investigatory records compiled for law enforcement purposes." 5 U.S.C. § 552(b)(7). This test is met if the document focuses with "special intensity upon a particular party" for the purpose of determining whether a law enforcement proceeding should be brought. Center for National Policy Review on Race and Urban Policy Issues v. Weinberger, 163 U.S.App.D.C. 368, 502 F.2d 370, 373 (1974). See also Rural Housing Alliance v. United States Department of Agriculture, 162 U.S.App.D.C. 122, 498 F.2d 73, 79-82, supplemented, 167 U.S.App.D.C. 345, 511 F.2d 1347 (1974). In order to meet the second part of the test for Exemption 7(C), the release of a document must result in "an unwarranted invasion of personal privacy." 5 U.S.C. § 552(b)(7)(C). This part of the test is virtually identical to the test for Exemption 6. See discussion at section I., C., supra. In order to meet the second part of the test for Exemption 7(F), the release of a document must result in an unreasonable risk to the life or physical safety of law enforcement personnel. 5 U.S.C. § 552(b)(7)(F). II. Coverage of FOIA Exemptions Before conducting our in camera inspection of the nine documents, we first consider whether eight general types of information which the CIA alleges are contained in these documents fall within the coverage of the claimed exemptions. The first type of information allegedly contained in the documents is information from or information which reveals a cooperative relationship with a foreign intelligence service. This information falls within the substantive criteria of Exemptions 1 and 3. Release of such information could "seriously damage the national security" within the meaning of Exemption 1, by inter alia, compromising the confidential diplomatic channels through which this information was acquired. These channels, moreover, clearly constitute an "intelligence *735 source" within the meaning of Exemption 3. The second type of information allegedly contained in the document segments, information which reveals foreign, covert CIA and/or foreign CIA operations, also falls within the coverage of Exemptions 1 and 3. Disclosure of covert CIA installations and operations could seriously damage the national security by impairing the conduct of our foreign relations with those governments in whose territory the CIA operates. Release of information about CIA installations and operations also constitutes the disclosure of intelligence sources and methods. Four other types of general information also fall within the ambit of Exemption 3. First, information which would reveal the identity of a confidential intelligence source falls within the terms of 50 U.S.C. § 403(d)(3) and therefore within the meaning of Exemption 3. Second, security markings may reveal intelligence methods and intelligence sources to foreign intelligence agencies even though the average citizen may not comprehend these markings. Third, dispatch and cable markings may also reveal intelligence methods and sources to foreign governments. Fourth, CIA employee names, official titles and organizational data are covered by the clear terms of 50 U.S.C. § 403g. This statute exempts the CIA from any law requiring "disclosure of the organization, functions, names, official titles, salaries, or numbers of personnel employed by the Agency." In specific, well-documented cases, the release of the above four types of information may also result in serious damage to the national security. Exemption 1, in addition to Exemption 3, may therefore bar the release of these types of information. A seventh kind of information, allegedly contained in one of the documents in this litigation, involves the names of individuals other than the plaintiff. Information which may identify an individual with another who may have engaged in illegal activities may result in the type of invidious comparison which would constitute a "clearly unwarranted invasion of personal privacy" within the meaning of Exemption 6. The countervailing governmental interest in the enforcement of federal laws may clearly outweigh the public's interest in learning the identities of undisclosed individuals. The eighth and final type of information withheld in this case concerns information allegedly withheld pursuant to the determination of another agency that a document segment is properly classified as an investigatory record compiled for law enforcement purposes. A United States Customs Service document could be such an investigatory record entitled to protection under Exemption 7(F) or Exemption 7(C) if its release would either endanger the life or physical safety of a Customs Service agent or result in an unwarranted invasion of an agent's personal privacy. III. Adequacy of Supplemental Affidavit We are persuaded that the new supplemental affidavit submitted by the CIA complies with the detailed requirements set forth in Vaughn v. Rosen, 157 U.S.App.D.C. 340, 484 F.2d 820 (1973), cert. denied, 415 U.S. 977, 94 S.Ct. 1564, 39 L.Ed.2d 1873 (1974). This affidavit contains a specific and detailed description of each document. Unlike the affidavit initially supplied by the CIA in this action, the new supplemental affidavit does not group FOIA exemptions together. It specifically discusses component portions of each document and correlates the discussion of these component portions with the eight types of information for which the CIA claims a FOIA exemption. IV. In Camera Inspection[8] In accordance with the standards set forth above, we have conducted an in camera *736 review of the nine documents at issue in this litigation. We are convinced that unreleased documents (documents 2-6) and the unreleased segments of documents 7-9 fall within the protection of Exemption 3. We are also convinced that document 10 may be withheld under the authority of Exemptions 6 and 7(F). A. Documents 2-9 We have previously determined that six general types of information fall within the coverage of Exemption 3: (1) information from or information which reveals a cooperative relationship with a foreign intelligence service; (2) information which reveals a foreign, covert CIA installation and/or foreign CIA operation; (3) information which would reveal the identity of an intelligence source; (4) information consisting of CIA employee names, official titles and organizational data; (5) information consisting of security markings; and (6) dispatch and cable numbers, headquarters file numbers and notations and filing information. On the basis of our in camera review, we have confirmed our prior conviction that the withheld documents and document segments do, in fact, fall within these general classifications.[9] The withheld documents and document segments refer to particular types of intelligence information which would not be disseminated beyond the intelligence community. Contrary to the contention in plaintiffs' motion for summary judgment, we find that the CIA has conducted a discriminating and thorough review of the withheld documents in its determination that document segments may only be released from documents 7, 8 and 9. To the extent that there is releasable material in documents 2-6 and in the undisclosed portions of documents 7-9, the releasable portions are "inextricably intertwined" with exempt portions. See Soucie v. David, 145 U.S.App.D.C. 144, 448 F.2d 1067, 1077-78 (1971). The releasable portions are either combined with exempt material in the same sentence or in a context in which exempt material would be readily discoverable from the release of non-exempt material. See Morton-Norwich Products v. Mathews, 415 F.Supp. 78, 82 (D.D.C.1976). Consequently, we further conclude that there are no undisclosed documents or document portions in documents 2-9 which may be released without revealing exempt information.[10] B. Document 10 Document 10 consists of a one page CIA memorandum containing a copy of a notebook secured by a United States Customs Service agent from an individual at a border checkpoint in a search incident to his arrest for the illegal importation of narcotics into the United States. The CIA properly, under Exemption 3, deleted those portions of this document which refer to an organizational component of the CIA and CIA file numbers. We also find that the *737 CIA properly relied upon Exemption 6 to withhold the names of individuals listed in this notebook including the name of the individual arrested. The copy of the notebook does constitute a personnel file within the meaning of Exemption 6 because it contains information held in a CIA record which identifies individuals as having some form of association with an accused narcotics trafficker. See Department of the Air Force v. Rose, 425 U.S. 352, 371, 96 S.Ct. 1592, 48 L.Ed.2d 11 (1976). The release of the names in this notebook would lead to invidious comparisons because named individuals are linked in an unspecified and unknown manner to an accused narcotics trafficker. The public interest in learning the identities of those unnamed individuals is outweighed by the countervailing public interest in permitting law enforcement officials to retain the privacy needed to investigate and prosecute those who engage in the illegal importation of narcotics. We are also satisfied that the CIA has properly accepted the recommendation of the United States Customs Service in its decision to delete the name of a Customs Service agent identified in this document. This copy of a notebook is properly classified as an investigatory record held for law enforcement purposes. We are also satisfied that the Customs Service agent who secured this notebook might well be subjected to a risk of physical harm if his name and position were disclosed or if this agent could be identified by release of the name of the individual arrested. Contrary to the allegation of plaintiffs, the defendants do not make the sweeping claim that the names of Customs Service agents may always be withheld under Exemption 7(F). The protective function of Exemption 7(F) is served where, as here, a Customs Service agent may be endangered because he has acquired information from an individual arrested for transboundary narcotic trafficking.[11] Apart from the release of the name of plaintiff Schapp, there is no other additional information in document 10 which would be separately releasable under the FOIA. V. Conclusion After an in camera inspection of withheld documents, we are further convinced that there are no documents or segregable document portions to which plaintiff is entitled under the FOIA other than those portions which have been previously released. Documents 2-9, to the extent that they have not previously been disclosed, should be withheld under Exemption 3 of the FOIA. Document 10, with the exception of the name of plaintiff Schaap, should be withheld under Exemptions 3, 6 and 7(F) of the FOIA. An order consistent with the foregoing has been entered this day. NOTES [1] Document 1 of the ten documents originally at issue has been provided to plaintiffs with only minor deletions. Plaintiffs did not appeal our refusal to order the CIA to release the remainder of document 1. This action therefore involves only documents 2 through 10. [2] The text of Exemption 1, 5 U.S.C. § 552(b)(1) provides: (b) This section does not apply to matters that are — (1)(A) specifically authorized under criteria established by an Executive order to be kept secret in the interest of national defense or foreign policy and (B) are in fact properly classified pursuant to such Executive order; . . . [3] See Executive Order, 11652, 3 C.F.R. § 678 (1971-1975 Compilation), reprinted in 50 U.S.C. § 401 (Supp. V 1975); National Security Directive of May 17, 1972, 37 Fed.Reg. 10053 (1972). [4] The text of Exemption 3, 5 U.S.C. § 552(b)(3) provides: (b) This section does not apply to matters that are — . . . . . (3) specifically exempted from disclosure by statute (other than section 552(b) of this title), provided that such statute (A) requires that the matters be withheld from the public in such a manner as to leave no discretion on the issue, or (B) establishes particular criteria for withholding or refers to particular types of matters to be withheld; . . . [5] The text of Exemption 6, 5 U.S.C. § 552(b)(6) provides: (b) This section does not apply to matters that are — . . . . . (6) personnel and medical files and similar files the disclosure of which would constitute a clearly unwarranted invasion of personal privacy; . . . [6] The text of Exemption 7(C), 5 U.S.C. § 552(b)(7)(C) provides: (b) This section does not apply to matters that are — . . . . . (7) investigatory records compiled for law enforcement purposes, but only to the extent that the production of records would . . (C) constitute an unwarranted invasion of personal privacy; . . . [7] The text of Exemption 7(F), 5 U.S.C. § 552(b)(7)(F) provides: (b) This section does not apply to matters that are — . . . . . (7) investigatory records compiled for law enforcement purposes, but only to the extent that production of such records would . . (F) endanger the life or physical safety of law enforcement personnel; . . . [8] The very detailed new supplemental affidavit made unnecessary this in camera inspection in order to secure a proper de novo review of the agency's action. We conducted such inspection only because very few documents were involved, the inspection of which required little additional expenditure of judicial energy in a case which already had gone on far too long. In the case where a substantial number of documents are involved and a detailed Vaughn affidavit is filed, we do not believe in camera inspection would be warranted and would be most reluctant to conduct such inspection. [9] The CIA has relied upon Exemption 1 as an alternative basis for contending that portions of documents 2-9 are exempted from disclosure. On the basis of our in camera inspection, it is apparent that the designated document portions do meet the substantive criteria of Exemption 1 in that their release could reasonably be expected to cause damage to the national security. We, however, find it unnecessary to separately consider the procedural criteria of Exemption 1 to determine whether these document portions are properly classified. We instead rest our decision on the ground that Exemption 3 provides an adequate basis for withholding these documents and document portions. Our decision recognizes that "[a]lthough, `inquiries into the applicability of the two exemptions may tend to merge,' Phillippi v. CIA, 178 U.S.App.D.C. 243, 250, 546 F.2d 1009, 1016 n. 14 (1976), Exemption 3 may of course be invoked independently of Exemption 1." Goland v. CIA, supra at 16 n. 50. [10] Affidavits of Leslie Bacon, Stewart Alberto and Judith Clavir, attached to plaintiffs' motion for summary judgment, contain waivers of their right to privacy under Exemption 6. These waivers do not require us to change our decision that defendant has released all segregable, non-exempt portions of the documents at issue in this litigation. [11] It follows from the above reasoning that the name of this Customs Service agent may also be withheld under Exemption 7(C) because its release would constitute an unwarranted invasion of his personal privacy. Moreover, since document 10 may be properly classified as an investigatory record, the names of the other individuals referred to in that record may be withheld under Exemption 7(C) because, as we have previously held, the release of their names would also constitute unwarranted invasion of their personal privacy.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1819743/

450 F. Supp. 724 (1978) C.B.S. IMPORTS CORP. v. UNITED STATES. C.D. 4739; Court No. 73-1-00020. United States Customs Court. April 4, 1978. *725 Siegel, Mandell & Davidson, New York City (Brian S. Goldstein, New York City, of counsel), for plaintiff. Barbara Allen Babcock, Asst. Atty. Gen., Washington, D. C., Bernard J. Babb, Washington, D. C., Trial Atty., for defendant. RE, Chief Judge: In this customs reappraisement case, the question presented pertains to the correct dutiable value of imported merchandise. The merchandise consists of men's sport shirts which were sold to plaintiff by The Tosho Co., Ltd., Osaka, Japan pursuant to purchase orders made between May and July 1971. It was exported from Japan on December 12, 1971. The appraisement was made on the basis of export value, which is defined in section 402(b) of the Tariff Act of 1930, as amended by the Customs Simplification Act of 1956 (19 U.S.C. § 1401a(b)), as follows: "(b) For the purposes of this section, the export value of imported merchandise shall be the price, at the time of exportation to the United States of the merchandise undergoing appraisement, at which such or similar merchandise is freely sold or, in the absence of sales, offered for sale in the principal markets of the country of exportation, in the usual wholesale quantities and in the ordinary course of trade, for exportation to the United States, plus, when not included in such price, the cost of all containers and coverings of whatever nature and all other expenses incidental to placing the merchandise in condition, packed ready for shipment to the United States." (Emphasis added.) The appraising officer arrived at the appraised value by accepting the invoice unit values stated in U.S. dollars, as entered, and adding thereto a charge of 7.2 percent. This 7.2 percent was added to reflect the upward revaluation of the Japanese yen occurring between the dates of orders (May and July 1971), and the date of exportation (December 1971). It was added in accordance with instructions set forth in Bureau of Customs (now the Customs Service), Region II, Information Bulletin No. 162, dated January 3, 1972, entitled "Appraisement — Currency Parities." The parties do not dispute the invoice unit prices, and only the addition of the 7.2 percent is in issue. The question presented, one of first impression, is whether this addition, representing the difference in the yen/dollar exchange rate between the dates of the orders and the date of exportation, is includable as part of the export value basis of appraisement. *726 A brief sketch of the international system of currency exchange rates during the period in question may be helpful in understanding the legal question presented. By the "Bretton Woods Agreement" in 1945, each member of the International Monetary Fund, which includes the United States, agreed to a fixed rate of exchange of its currency. Throughout the 1960's, because of the Vietnam War, changes in the world economy, and other causes, the United States balance of payments position deteriorated drastically. Furthermore, liquid capital flows were moving heavily against the United States. Speculative factors contributed to this situation as investors anticipated exchange rate appreciations by some of the countries which were heavy recipients of United States funds, such as Japan. As a remedial measure, on August 15, 1971 President Nixon announced that the United States would temporarily suspend the convertibility of the dollar into gold or other reserve assets, and imposed a 10 percent surcharge on all imports. Pres. Proc. 4074, 3 C.F.R. 60 (1971-1975 Comp.). The Secretary of the Treasury announced that the United States would not attempt to maintain official currency parities by buying or selling foreign currencies in the exchange markets. N. Y. Times, August 17, 1971, at 16. Subsequently, a number of countries, Japan among them, allowed their currencies to "float" against the dollar. This situation continued until December 18, 1971 when the so-called "Smithsonian Agreement" again fixed the parity of various currencies. The dollar was thereby devalued against the yen by almost 17 percent from the April 1971 rates. In response to these changes in currency parities, the Bureau of Customs issued instructions to increase appraised values correspondingly. These instructions are embodied in Bureau of Customs, Region II, Information Bulletin No. 162, dated January 3, 1972.[1] Plaintiff contests the appraisement, and claims that the 7.2 percent addition is not properly part of dutiable value since it is not made in accordance with the statutory definition of export value. It is plaintiff's contention that statutory valuation is not concerned with the net amount of foreign currency ultimately received by the foreign exporter, but only the price paid by the American importer. As there is no proof of sales of "such or similar merchandise" at a price higher than that paid by plaintiff, plaintiff maintains that defendant improperly computed export value. Specifically, plaintiff contends that it is error to compute export value by estimating the dutiable value taking into account any currency fluctuation between the dates of orders and the date of exportation without any basis in actual market conditions. Defendant argues that the appraisement, although expressed in terms of unit invoice values plus 7.2 percent represents the price that the customs officer found to be the freely offered price at which such or similar merchandise was freely sold or offered for sale to all purchasers for export to the United States. The appraising customs official is directed by statute (19 U.S.C. § 1500(a)) to ascertain or estimate the value of the entered merchandise by all reasonable "ways and means" in his power. The defendant therefore contends that, notwithstanding any statement of cost in any invoice, the method of determining value directed by the Regional Commissioner of Customs in Information Bulletin No. 162 is clearly reasonable in light of the declining value of the dollar vis-à-vis the yen between the dates of orders and the date of exportation. Relying on the statutory presumption of the correctness of the customs official's determination (28 U.S.C. *727 § 2635(a)), defendant urges that the appraisement should be upheld as plaintiff has failed to overcome this presumption. At the trial, plaintiff introduced three exhibits into evidence: the deposition of Mr. Vincent J. DeMaio, the import specialist who appraised the merchandise, together with four deposition exhibits including Information Bulletin No. 162; the affidavit of Mr. Ryozo Tsugeno, manager of the Textile Made-Up Goods Department of The Tosho Co., Ltd., Osaka, Japan; and Bureau of Customs, Region II, Informational Pipeline No. 21, Supplement No. 1, which provided the tables for computing the amount of the dollar/yen fluctuation during the pertinent period. The defendant introduced the testimony of its expert witness, Dr. Joseph Brada, associate professor of economics and international business at the Graduate School of Business Administration, New York University. In his deposition, Mr. DeMaio testified that he passed on the invoices in question, and that to his knowledge his advisory appraisement had been approved by the "appraiser." He stated that the 7.2 percent addition to the invoice values represented the difference in the yen/dollar exchange rate as of the date of the purchase order or contract as compared to the date of exportation. In determining the addition of 7.2 percent, Mr. DeMaio explained that he converted the U.S. dollar value of the merchandise into yen at the rate that prevailed on the date of the contract, and reconverted into U.S. dollars at the rate that prevailed on the date of exportation. Mr. DeMaio stated that the entry was appraised in accordance with the instructions set forth in Information Bulletin No. 162. Information Bulletin No. 162, addressed to customs employees, customs brokers and others, was in the form of a telegram received from the Bureau of Customs. The Bulletin which was for "information and guidance," provided in pertinent part that: "Starting immediately, whenever the District Director is satisfied that the invoice price in dollars represents export value at the time of the contract, he shall appraise the imported merchandise in the following manner: 1. He shall convert the dollar value of the merchandise into the foreign currency at the rate which prevailed on the date of the contract, and he shall reconvert into dollars at the rate which prevailed on the date of exportation." Region II, Informational Pipeline No. 21, Supplement No. 1, contains the rates of exchange on the dates of the purchase orders or contracts (.00279733 and .00279800) and the date of exportation (.00299950). The currency factor charts set forth therein provide the factor by which the invoice price in dollars is to be multiplied to determine the increased "value." For the dates in issue in this litigation, the factor is 1.072, which can also be expressed as 7.2 percent. It is clear that the imported merchandise was appraised in accordance with Information Bulletin No. 162. It is equally clear that the administrative bulletin is not binding on the court. Administrative regulations and directives should be upheld if found to implement the will of Congress as expressed in the statute. As stated by Mr. Justice White in United States v. Cartwright, 411 U.S. 546, 550, 93 S. Ct. 1713, 1716, 36 L. Ed. 2d 528 (1973): "that principle is to set the framework for judicial analysis; it does not displace it." See Commissioner of Internal Revenue v. South Texas Lumber Co., 333 U.S. 496, 68 S. Ct. 695, 92 L. Ed. 831 (1948); Skidmore v. Swift & Co., 323 U.S. 134, 65 S. Ct. 161, 89 L. Ed. 124 (1944). It is the function of this court on judicial review to interpret and apply the tariff laws in light of the intent of Congress. In the performance of this function, the court cannot defer to an administrative interpretation or application of a statute if it is inconsistent with the statutory language or congressional intent. See Social Security Board v. Nierotko, 327 U.S. 358, 66 S. Ct. 637, 90 L. Ed. 718 (1946); K. C. Davis, Administrative Law of the Seventies § 5.03, at 147 (1976). See also C. J. Tower & Sons v. *728 United States, 33 Ct. Cust. 14, 17, C.D.1628 (1954) and authorities cited in Suwannee Steamship Co. v. United States, 79 Ct. Cust. ___, C.D. 4708, 435 F. Supp. 389 (1977). The fundamental principle of supremacy of law, the crux of our constitutional government, requires that all public officials obey the mandates of the Constitution and the lawful enactments of the Congress. See U.S.Const. art. VI; United States v. Lee, 106 U.S. 196, 1 S. Ct. 240, 27 L. Ed. 171 (1882).[2] In cases of delegated power, an application of the principle is illustrated by the Supreme Court case of Morrill v. Jones, 106 U.S. 466, 1 S. Ct. 423, 27 L. Ed. 267 (1883) which dealt with a revenue law which provided that "`[a]nimals, alive, specially imported for breeding purposes from beyond the seas, shall be admitted free [of duty] upon proof thereof satisfactory to the secretary of the treasury, and under such regulations as he may prescribe.'" By regulation the Secretary prescribed that before a collector of the port admitted animals imported for breeding purposes free of duty he had to "be satisfied that the animals [were] of superior stock, adapted to improving the breed in the United States." The importer claimed that certain animals should have been admitted duty free because they had been "specially imported for breeding purposes." Although it was admitted that the animals were imported for breeding purposes, the collector demanded payment of duties on the ground that he was not satisfied that the animals were of "superior stock." In affirming the judgment returning to the importer the duties paid under protest, Chief Justice Waite wrote: "The Secretary of the Treasury cannot by his regulations alter or amend a revenue law. All he can do is to regulate the mode of proceeding to carry into effect what Congress has enacted. In the present case we are entirely satisfied the regulation acted upon by the collector was in excess of the power of the secretary." 106 U.S. at 467, 1 S.Ct. at 424. The Morrill case illustrates that an administrative official must execute or fulfill the expressed statutory mandate. He may not, by regulation or directive, amend or modify a statute by "[putting] into the body of the statute a limitation which congress did not think it necessary to prescribe." In the words of Chief Justice Waite, "the object of the secretary could only be accomplished by an amendment of the law." See also statements of Mr. Justice Holmes in Waite v. Macy, 246 U.S. 606, 608-09, 38 S. Ct. 395, 62 L. Ed. 892 (1918). Whether pursuant to regulations, bulletins or other directives, it is the judicial function to determine whether the administrative official has acted ultra vires, i. e., beyond the power delegated in the enabling act. See Columbia Broadcasting System v. United States, 316 U.S. 407, 422, 62 S. Ct. 1194, 86 L. Ed. 1563 (1942). See also Picone v. Commissioner of Licenses of New York City, 241 N.Y. 157, 162, 149 N.E. 336, 338 (1925) in which Judge Pound of the New York Court of Appeals stated that, "[l]aws are made by the law-making power, and not by administrative officers acting solely on their own ideas of sound public policy, however excellent such ideas may be." In the present case the question presented is whether the imported merchandise was correctly appraised within the meaning of "export value" as set forth in section 402(b) of the Tariff Act of 1930, as amended. Although the cases cited by counsel in their briefs may shed some light upon the *729 question presented, none is dispositive of the specific issue before the court. The statutory language speaks with crystal clarity that "the export value of imported merchandise shall be the price, at the time of exportation to the United States." (Emphasis added.) Congress intended that "export value" be based on actual prices, as determined by sales or offers for sale, rather than on any abstract notion of "value." Export value was originally defined as the "market value or price" of the merchandise. Tariff Act of 1930, ch. 497, Title IV, § 402(d), 46 Stat. 709 (1930). When Congress amended the definition of "export value," it eliminated "market value" as an element of "export value." Customs Simplification Act of 1956, ch. 887, § 2(a), 70 Stat. 943 (1956). Now, under the controlling statute, export value is based exclusively on the price of the merchandise. 19 U.S.C. § 1401a(b). It cannot be doubted, therefore, that an increase in price between the dates of orders or contracts, and the date of exportation will result in an appraised value at the higher price prevailing on the date of exportation. White Lamb Finlay, Inc. v. United States, 29 CCPA 199, C.A.D. 192 (1942); Blumenthal & Co. v. United States, 12 Ct.Cust.App. 176, T.D. 40166 (1924); Sam Yeung Co. v. United States, 52 Ct. Cust. 572, R.D. 10760 (1964). In each of these cases, however, there was sufficient proof of the increased price through actual sales on the date of exportation, or increases in the price list at the date of exportation. In the present case there is no evidence of sales or offers for sale of such or similar merchandise at a price higher than that paid by plaintiff. To the contrary, the affidavit of Mr. Ryozo Tsugeno states categorically that the merchandise was neither sold nor offered for sale for exportation to the United States at prices higher than those paid by plaintiff during the period May 19, 1971 through December 12, 1971. Mr. Tsugeno also stated that, based upon his personal inspection of the books and records kept in the ordinary course of business, plaintiff paid no additional sums to Tosho Co., Ltd. for the merchandise "by reason of revaluation of currency or for any other reason." Information Bulletin No. 162 predicates the increase in value for appraisement purposes solely on the changes in currency parities. It directs that "[the District Court of Customs] shall require the deposit of estimated duties which fully reflect the increase in value which the currency fluctuations would normally cause to occur." Defendant's expert witness, Dr. Joseph Brada, on direct examination was asked whether the prices for merchandise ordered in the period May-July 1971 from a Japanese exporter, and invoiced in U.S. dollars, would be higher than merchandise sold in December of 1971, the date of exportation. In response, he stated that: "The price would be higher in order to get the same purchasing power . .. The presumption one makes in international trade is that the . . . exporter . . . is ultimately interested in how much he's getting in terms of domestic currency because his payments to his workers, to his suppliers, and to his creditors have to be made in the domestic currency . . .. It would have taken more dollars to buy the same number of yen that the exporter had to pay to the workers and everybody else, so I would say yes, it would take more dollars." Under the statutory formula or definition, however, the amount received by the foreign exporter for his goods in terms of his own domestic currency is not the controlling factor. The statute does not provide for the assessment of duty in this manner. The statute speaks of "price" and, in the language of this court in Ernesto Solari et al. v. United States, 5 Ct. Cust. 449, 456, R.D. 4943 (1940): "the law makes offers [for sale] the criterion in determining value. Congress did not consider any sums that a foreign exporter received for his goods as having any bearing on the lawful entered value of imported merchandise." See United States v. Fisher Scientific Co., 26 CCPA 278, C.A.D. 27 (1938). *730 In the Ernesto Solari case, the Italian government forbade exports from the United States to be imported to Italy until an equal value of Italian exports had been sold to the United States. Italian exporters were selling the dollars received from American importers to Italian importers desirous of importing American goods at a premium above the usual exchange rate. The court held that such additional sums were not to be considered part of dutiable value. This result was justified because the class of goods imported into the United States was available to all American importers at the same price, even if that price was lower than before the Italian government's restriction on imports from the United States. What the Italians did with the dollars once they received them was irrelevant in determining proper dutiable value. It is true that Tosho Co., Ltd. received fewer yen for the same number of dollars on the date of exportation than it would have received had the currency exchange occurred on the dates of the purchase orders. But the change in the currency exchange rates does not automatically mean a corresponding rise in prices. Defendant's own witness, Dr. Brada, testified on cross-examination that many economic factors other than currency fluctuations could affect the price of merchandise such as that in issue here. These factors might include the level of prices in the two countries, general economic conditions, conditions in the particular industry, competition, and the nature of the merchandise itself, such as whether it was seasonal. The Bulletin presumes that currency fluctuations or revaluations automatically increase prices, and places the burden upon the importer to show that the value of the merchandise did not rise correspondingly with the increase in value of the foreign currency. Presumably, some or all of the various factors listed by Dr. Brada could be used by the importer to show that there was no actual rise in value of its merchandise. But, it is precisely these factors that must be taken into consideration by the customs officials in determining export value. It is clear that the defendant has only performed a mathematical computation on the invoice unit values of the merchandise to determine export value. Mr. Tsugeno in his affidavit states: "Based upon my knowledge of the instant merchandise and that offered by other manufacturers in Japan for exportation to the United States, I can personally state that no commercially interchangeable merchandise with that involved herein was sold or offered for sale for exportation to the United States during the pertinent period in question; * * * * * * During the period between May 19, 1971 and December 12, 1971 there were no intervening sales or offers for sale for this merchandise by reason of the fact that the merchandise in question is seasonal in nature." The appraising officer, of course, is not limited to the information contained in the invoices, but may use all reasonable ways and means in ascertaining or estimating value. 19 U.S.C. § 1500; Concord Electronics Corp. v. United States, 69 Ct. Cust. 241, 244, A.R.D. 304, 345 F. Supp. 1000, appeal dismissed, 60 CCPA 185 (1972). The estimation, however, must be based on the pertinent facts available at the time. The defendant's determination of value appears to be based more on theory than on actual facts having evidentiary value. A mathematical computation is not evidence of sales or offers for sale in the country of exportation. Under the statutory language, export value cannot be ascertained or estimated in this manner. See United States v. Alatary Mica Co., 19 CCPA 30, 34, T.D. 44871 (1931). Apparently believing that it is supportive of its position, the defendant cites Calif-Asia Co. v. United States, 17 Ct. Cust. 461, R.D. 6582 (1946) as "a situation where the Court sanctioned the use of currency revaluation in determining the freely offered price at the time of exportation." That case was decided on its particular facts, and can have but little precedential value. It *731 may be noted, however, that it was decided pursuant to a customs regulation that required currency conversion for the purpose of comparing values in determining the proper statutory value. The Calif-Asia case did not "sanction" the addition of a percentage to invoice unit values solely to represent the difference in currency exchange rates between the date of order and the date of exportation. The statute requires that export value be determined by the price at which such or similar merchandise is sold, or in the absence of sales, offered for sale for exportation to the United States. Defendant's method of appraisement was not permitted by the explicit language of the statute. It is, therefore, the determination of the court that the 7.2 percent addition to invoice unit values is not properly part of export value. In customs litigation, however, it is firmly settled that the plaintiff must not only prove that the appraised value is erroneous, but also establish a different value in its place. Arditi v. United States, 50 CCPA 49, C.A.D. 818 (1963); Kittleson v. United States, 40 CCPA 85, C.A.D. 502 (1952). To establish a value different from the appraised value, plaintiff relies on the judicially established doctrine of separability. Under this doctrine, a party to a reappraisement decision may challenge one or more of the elements entering into an appraisement while relying upon the presumption of correctness of the appraiser's return as to all other elements. United States v. H. M. Young Associates, C.A.D. 1138, 505 F.2d 721, 62 CCPA 20 (1974); United States v. Fritzsche Bros., 35 CCPA 60, C.A.D. 371 (1947); Haddad & Sons v. United States, 54 Ct. Cust. 600, R.D. 10942 (1965), aff'd, 56 Ct. Cust. 792, A.R.D. 205 (1966); United States v. Dan Brechner et al., 38 Ct. Cust. 719, A.R.D. 71 (1957). Thus, by relying on the separability doctrine, a plaintiff avoids the burden of proving each and every element of the claimed values when those elements are not contested. To take advantage of separability, the appraisement must be at the invoiced "first cost" or per se price, plus various charges, and not at a unitary price in which the appraisement is expressed as a single indivisible unit. See Concord Electronics Corp. v. United States, 69 Ct. Cust. 241, A.R.D. 304, 345 F. Supp. 1000, appeal dismissed, 60 CCPA 185 (1972), and cases cited therein. Defendant claims the appraisement at issue is not separable as it expresses the price found by the Regional Commissioner to represent the freely offered prices at the time of exportation, and not a mere addition to invoice values for some charge that he believed to be included in the price of the merchandise. Additions to invoice prices to reflect claimed increases in value, however, have been held to be separable charges. For example, in United States v. Fritzsche Bros., 35 CCPA 60, C.A.D. 371 (1947) the Court of Customs and Patent Appeals held as a separable charge the addition of 8.4 percent to the invoice values to reflect a claimed increase in the per ounce value of the merchandise due to evaporation or shrinkage in transit. Application of the separability doctrine is appropriate not only on the authority of the Fritzsche Bros. case, but also on the basis of the purpose of the doctrine. It is the essence of the doctrine that in a reappraisement case, the plaintiff who has the burden of establishing each and every disputed element of value need not prove that which is not in issue. It was formulated to reduce trial time, and limit effort to those issues actually in dispute. As stated by the Court of Customs and Patent Appeals in United States v. H. M. Young Associates, 62 CCPA 20, 23, C.A.D. 1138 (1974): "Absent the separability rule, the courts, the government, and importers would all undergo an anomalous process in which plaintiff would undertake to prove the correctness of unchallenged actions of defendant, while defendant, presumably, would abandon the presumption of correctness and attempt to prove its own unchallenged actions incorrect." This procedure, the court observed, would be "manifestly unfair, not only to the importer, but also to the courts *732 and to the society, which must be taxed to pay for a portion of every litigious process in which the government participates." See also United States v. Gehrig, Hoban & Co., 56 Ct. Cust. 782, A.R.D. 204 (1966), aff'd, 54 CCPA 129, C.A.D. 924 (1967). The question before the court pertains to dutiable value. Clearly, therefore, the only issue to be resolved is the correctness of the addition of 7.2 percent to the invoice prices, representing currency fluctuations between the dates of orders or contracts and the date of exportation. To require the plaintiff to prove all the elements of export value, which are not in dispute, would be unfair to plaintiff, and wasteful of time and effort. Defendant claims that even if the appraisements are separable, as they have been found to be, plaintiff still cannot prevail. Relying on United States v. Pan American Import Corp., C.A.D. 993, 428 F.2d 848, 57 CCPA 134 (1970), defendant contends that in order to rely on the presumption that the unchallenged portion of the appraisement represents the export value, plaintiff must show that the merchandise was freely sold or offered for sale on the same basis as sold to it. The requirement in Pan American that plaintiff show the merchandise was freely sold or offered for sale before it could rely on the presumption of correctness of the government's appraisement has recently been expressly overruled by the Court of Customs and Patent Appeals in United States v. Imperial Products, Inc., C.A.D. 1203, 570 F.2d 337, 65 CCPA ___ (1978): "[W]e conclude that Pan American was wrongly decided, and now expressly overrule it. A viable Pan American would reduce the presumption of the appraiser's valuation to the correctness of the money figure itself and would require an importer to prove the elements of 19 USC 1401a(b) though he challenges only a single added-on item." C.A.D. 1203, slip opinion at 11, 570 F.2d at 341. The court held that the separability doctrine operates to relieve the plaintiff from any requirement to prove undisputed elements of export value. In the present case, the 7.2 percent addition, a single added-on item, is the only item being challenged. The correctness of this additional item does not depend upon the plaintiff showing any of the elements of export value. Plaintiff, therefore, may rely on the correctness of the undisputed portions of the appraisement through the operation of the separability doctrine. The only dispute before this court relates to the 7.2 percent addition to the invoice prices. The appraiser clearly considered the per se price of the merchandise to be the invoice unit values, and, in accordance with Bulletin No. 162, made the 7.2 percent addition to reflect the assumption that the merchandise increased in value in proportion to the decrease of the dollar vis-à-vis the yen. This addition is not permitted by the language of the statute. The statute requires that export value be determined by the price at which such or similar merchandise is offered for sale or sold for exportation to the United States. The appraisement of the merchandise in issue is therefore erroneous. Through the operation of the separability doctrine, the plaintiff has fully met its burden of establishing a different value for the merchandise. In view of the foregoing, and on the record before it, the court makes the following findings of fact and conclusions of law: Findings of fact: 1. The merchandise consists of men's sport shirts exported from Japan by The Tosho Co., Ltd., Osaka, on December 12, 1971. 2. The merchandise was sold to C.B.S. Imports by The Tosho Co., Ltd. on May 19, 1971, July 15, 1971 and July 22, 1971. 3. The merchandise does not appear on the final list of the Secretary of the Treasury, T.D. 54521. 4. The merchandise was appraised on the basis of export value as defined in section 402(b) of the Tariff Act of 1930, as amended by the Customs Simplification Act of 1956. *733 5. Plaintiff accepts export value, the basis of appraisement, as correct, but disputes the addition of 7.2 percent to the invoice unit values representing differences in the yen/dollar exchange rate between the dates of orders and the date of exportation. Conclusions of Law: 1. That export value, as defined in section 402(b) of the Tariff Act of 1930, as amended by the Customs Simplification Act of 1956, is the proper basis for appraisement of this merchandise. 2. That under the separability doctrine, plaintiff's burden of proof is limited to showing that the 7.2 percent addition is not includable in export value. 3. That the addition of 7.2 percent for currency fluctuation is not includable in export value. 4. That the presumption of correctness attaching to the customs officer's determination of value for the merchandise in question has been overcome. 5. That the invoice unit values are the export values of the merchandise. Judgment will issue accordingly. NOTES [1] For a discussion of the currency exchange system and its changes during the period in issue, see Edwards, The Currency Exchange Rate Provisions of the Proposed Amended Articles of Agreement of the International Monetary Fund, 70 Am. J. Int'l L. 722, 723-26 (1976); S. Rep. No. 92-678, 92d Cong., 2d Sess., reprinted in [1972] U.S. Code Cong. & Admin. News p. 2209. [2] In the Lee case, the son of General Robert E. Lee sued successfully for the recovery of property of the Lee family against the commandant of Fort Myer and the superintendent of the national cemetery at Arlington. Mr. Justice Miller proclaimed the principle of supremacy of law in the following imperishable language: "No man in this country is so high that he is above the law. No officer of the law may set that law at defiance with impunity. All the officers of the government, from the highest to the lowest, are creatures of the law and are bound to obey it. It is the only supreme power in our system of government . . .. Courts of justice are established, not only to decide upon the controverted rights of the citizens as against each other, but also upon rights in controversy between them and the government ...." 106 U.S. at 220, 1 S.Ct. at 261.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1839494/

(2008) In re Ralph MUSILLI, Debtor, Ralph Musilli, Appellant, v. Barbara Droomers, Appellee, and In re Walter Baumgardner, Debtor, Walter Baumgardner, Appellant, v. Barbara Droomers, Appellee. Nos. 08-CV-12341, 08-CV-12342. United States District Court, E.D. Michigan, Southern Division. November 25, 2008. OPINION AND ORDER GRANTING APPELLEE'S MOTION FOR LEAVE TO FILE DESIGNATION OF ADDITIONAL ITEMS IN THE RECORD (# 19) AND AFFIRMING BANKRUPTCY COURT'S DECEMBER 26, 2007 ORDER GEORGE CARAM STEEH, District Judge. Debtors Ralph Musilli and Walter Baumgardner appeal from the Bankruptcy Court's December 26, 2007 Opinion granting summary judgment in favor of appellee Barbara Droomers, ruling that Musilli's and Baumgardner's debts arising from a state court finding of contempt are nondischargeable under 11 U.S.C. § 523(a)(6), and alternatively, denying a discharge of these debts under 11 U.S.C. § 727(a)(7). Droomers moved for leave to supplement the record on September 2, 2008. A hearing was held on September 3, 2008. For the reasons set forth below, Droomers' motion for leave to supplement the record will be GRANTED, and the ruling of the Bankruptcy Court will be AFFIRMED. I. Background Attorney Warren Droomers filed a state court lawsuit in 2000 against Attorney John Parnell and the lawfirm of Musilli, Baumgardner, Wagner & Parnell, P.C. (the Firm), seeking a $352,636.60 referral fee for a civil lawsuit that settled for approximately $3.3 million. In 2002, Droomers moved in state court for relief under Michigan's Uniform Fraudulent Transfer Act (UFTA), M.C.L. § 566.31, et seq., alleging the Firm violated the UFTA by failing to set aside the $352,636.60 after receiving payment of the contingency fee. On December 20, 2002, the state court ordered the Firm to deposit $352,636.60 into escrow and refrain from "transferring any firm assets out of the corporation until the $352,636.60 is paid into escrow[.]" Following a bench trial that ended in May 2003, the state court found that Parnell and the Firm were liable to Attorney Droomers under a theory of unjust enrichment for approximately $225,000.00 plus interest and costs. On October 10, 2003, Attorney Droomers moved for an order requiring Parnell, Musilli, and Baumgardner to appear and show cause why they had not made the $352,636.60 deposit into escrow as ordered on December 20, 2002. In late 2003, the Firm changed its name to "Shores Legal Services" and filed for bankruptcy. Oakland Circuit Court Judge Fred Mester found Musilli, Baumgardner, and Parnell in contempt of the December 20, 2002 state court order, and sentenced each of them to 30 days in jail. The Michigan Court of Appeals affirmed the contempt findings on June 30, 2005, but remanded to Judge Mester on the issue of whether Musilli, Baumgardner, and Parnell were found in civil or criminal contempt. Judge Mester issued a ruling of criminal contempt on December 14, 2005, and entered judgment against Musilli and Baumgardner on finding that Attorney Droomers was damaged by the contempt in the amount of $431,350.00. Musilli and Baumgardner were ordered to pay the $431,350.00 plus $16,000.00 in costs and fees. Musilli and Baumgardner entered into a settlement agreement with Attorney Droomers' Estate, agreeing each would pay $100,000.00 to Droomers if Droomers agreed to vacate Judge Mester's December 14,2005 money judgment and finding of criminal contempt. The parties also agreed that the December 14, 2005 criminal contempt judgment would be reinstated if the $100,000.00 payments were not timely made. Pursuant to the agreement, Judge Mester vacated the criminal contempt judgment before payment was due. Musilli and Baumgardner defaulted under the terms of the settlement agreement and, on May 1, 2006, filed a two count complaint against Droomers' Counsel and Judge Mester in federal district court alleging "extortion" and civil rights claims under 42 U.S.C. § 1983. Federal District Court Judge Sean Cox dismissed the claims on October 23, 2006, and granted $3,000.00 in Rule 11 sanctions against Musilli's and Baumgardner's Counsel on December 15, 2006. Musilli and Baumgardner filed for bankruptcy protection on or about October 6, 2006. On May 1, 2007, Bankruptcy Judge Steven Rhodes lifted the automatic bankruptcy stay to allow the reopening of the state criminal contempt proceedings against Musilli and Baumgardner. On May 22, 2007, Judge Rhodes entered an order permitting Droomers' Estate, represented by appellee Barbara Droomers, to seek reinstatement of the damages judgment. Judge Mester reinstated his findings of criminal contempt on June 29, 2007, and again on April 16, 2008, reaffirming the money judgment against Musilli and Baumgardner. Droomers filed adversary proceedings against Musilli and Baumgardner in Bankruptcy Court alleging the state court criminal contempt money judgments were not dischargeable. The parties filed cross-motions for dismissal and summary judgment. In a December 26, 2007 Opinion, Bankruptcy Judge Rhodes granted Droomers summary judgment on Droomers' claims that the state court money judgement is nondischargeable under § 523(a)(6), and alternatively, that Musilli and Baumgarder should be denied a discharge of the judgment debt under § 727(a)(7). 11 U.S.C. § 523(a)(6) provides: § 523(a) A discharge under section 727, 1141, 1228(a), 1228(a), or 1328(b) of this title does not discharge an individual debtor from any debt— * * * (6) for willful and' malicious injury by the debtor to another entity or to the property of another entity[.] In granting Droomers summary judgment under § 523(a)(6), Judge Rhodes applied the doctrine of collateral estoppel to the state court criminal contempt proceedings, finding: (1) there is an identity of the parties in the state court proceedings and bankruptcy court proceedings because debtors Musilli and Baumgardner were shareholders of the Firm that was subject to the December 20, 2002 state court escrow order, and they were each found in contempt of that order; (2) the criminal contempt order is a valid and final state court judgment; (3) the bankruptcy issue of `wilful and malicious injury by the debtor" to the "property of another" was actually and necessarily determined in state court; and (4) Musilli and Baumgardner were given a full and fair opportunity to litigate the issue in state court. Judge Rhodes determined that "[t]he record establishes that Musilli and Baumgardner knew that their violation of the court order and the transferring of the assets of [the Firm] to themselves and others would injure Droomers." December 26, 2007 Opinion, at 9. 11 U.S.C. § 727(a)(2) and (7) provide: (a) The court shall grant the debtor a discharge, unless— * * * (2) the debtor, with intent to hinder, delay, or defraud a creditor or an officer of the estate charged with custody of property under this title, has transferred, removed, destroyed, mutilated, or concealed, or has permitted to be transferred, removed, destroyed, mutilated, or concealed,— (A) property of the debtor, within one year before the date of the filing of the petition; or (B) property of the estate, after the date of the filing of the petition; * * * (7) the debtor has committed any act specified in paragraph (2), (3), (4), (5), or (6) of this subsection, on or within one year before the date of the filing of the petition, or during the case, in connection with another case, under this title or under the Bankruptcy Act, concerning an insider[.] Judge Rhodes held that § 727(a)(7) makes an individual debtor liable to the extent he engages in § 727(a)(2) conduct on behalf of an "insider," citing Barclays/American Business Credit, Inc. v. Adams, 171 B.R. 298, 302 (W.D.Tenn.1992). Judge Rhodes found that Musilli and Baumgardner, as partners of the Firm, were "insiders" to the Firm's predecessor Shores Legal Services, and that Musilli and Baumgardner transferred and concealed assets within one year before Shores Legal Services filed for bankruptcy protection in 2003, all with the intent to hinder, delay, or defraud Droomers as described in the state court's December 14, 2003 and December 14, 2005 Orders. II. Analysis On appeal, a federal district court is bound by the bankruptcy court's findings of fact unless they are clearly erroneous. Investors Credit Corp. v. Batie (In re Batie), 995 F.2d 85, 88 (6th Cir. 1993) (citing Bankruptcy Rule 8013). The bankruptcy court's legal conclusions are reviewed de novo. Id. A bankruptcy judge's grant of summary judgment is reviewed de novo. Id. at 88-89. Summary judgment is appropriate under Federal Rule of Civil Procedure 56(c) if the pleadings and record evidence demonstrate that there is no genuine issue of material fact for trial and that the moving party is entitled to judgment as a matter of law. Redding v. St. Eward, 241 F.3d 530, 532 (6th Cir.2001). The evidence and all reasonable inferences must be construed in a light most favorable to the nonmoving party. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S. Ct. 1348, 89 L. Ed. 2d 538 (1986); Redding, 241 F.3d at 532 (6th Cir.2001). Summary judgment is warranted if the evidence "is so one-sided that one party must prevail as a matter of law.'" Amway Distributors Benefits Ass'n v. Northfield Ins. Co., 323 F.3d 386, 390 (6th Cir.2003) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986)). A. Droomers' Motion to Supplement the Record Appellee Droomers attached 17 exhibits to her August 31, 2008 appellate brief. Appellants Musilli and Baumgardner argue that only five of the attachments (Nos. 3, 9, 12, 13, and 16) were designated as part of the record on appeal. Droomers moves for leave to supplement the record. Attachment No. 1 is a copy of the Michigan Court of Appeals decision Droomers v. Parnell, No. 253455, 2005 WL 1540486 (Mich.Ct.App. June 30, 2005) (unpublished). Attachment No. 2 is a copy of Judge Cox's Opinion dismissing Musilli's and Baumgardner's federal claims. Attachment No. 4 is a copy of a partial transcript of a December 16, 2003 show cause hearing before Judge Mester. Attachment No. 5 is a copy of Judge Mester's December 14, 2005 Order and Judgment entering judgment against Musilli and Baumgardner in the amount of $431,350.00 plus costs and fees in the amount of $16,872.83. Attachment No. 6 is a copy of a "SETTLEMENT AND RELEASE AGREEMENT" executed by Musilli, Baumgardner, and Barbara Droomers. Attachment No. 7 is a copy of a transcript of a May 16, 2007 hearing before Judge Mester. Attachment No. 8 is a copy of a transcript of a May 16, 2007 hearing before state court Judge Wendy Potts. Attachment No. 11 is a copy of a May 16, 2007 Order issued by Judge Mester ordering Musilli and Baumgardner to report to the Oakland County Jail within 72 hours. Attachment No. 14 is a copy of an April 16, 2008 Order issued by Judge Mester further reinstating the $431,350.00 judgment of contempt against Baumgardner. Attachment No. 15 is a copy of Judge Rhodes' May 21, 2008 judgment. Attachment No. 17 is a copy of a partial transcript of May 22, 2003 proceedings before Judge Mester. "The record on appeal shall include the items so designated by the parties, the notice of appeal, the judgment, order, or decree appealed from, and any opinion, findings of fact, and conclusions of law of the [bankruptcy] court." Bankruptcy Rule 8006. A district court is authorized to supplement the record in a bankruptcy appeal, and to take judicial notice of appropriate evidence. In re Hamady Brothers Food Markets, 110 B.R. 815, 817 (E.D.Mich. 1990) (citing Huddleston v. Nelson Bunker Hunt Trust Estate, 102 B.R. 71 (N.D.Tex.1989)). Judicial notice may be taken at any stage in a proceeding. Fed.R.Evid. 201(f). Federal courts may take judicial notice of proceedings before other federal courts and state courts of record. Granader v. Public Bank, 417 F.2d 75, 82-83 (6th Cir.1969). All but Attachment 6 are copies of proceedings before the Bankruptcy Court, Oakland County Circuit Court Judges Mester and Potts, the Michigan Court of Appeals, and the Federal District Court for the Eastern District of Michigan. Attachment No. 15, a copy of Bankruptcy Judge Rhodes' May 21, 2008 judgment, was appropriately included in Musilli's and Baumgardner's designation of the record. Bankruptcy Rule 8006. Judge Rhodes reviewed the entirety of the Michigan state court proceedings, as evidenced by the original designation of record which included inter alia a copy of Droomers v. Parnell, No. 253455, 2005 WL 1540486 (Mich. Ct.App. June 30, 2005) (unpublished) as Item No. 1 (Attachment No. 1) and a partial transcript of a December 16, 2003 show cause hearing before Judge Mester as Item No. 3 (Attachment No. 4). Attachment No. 6, a copy of a "SETTLEMENT AND RELEASE AGREEMENT," was also included in the original designation of record as Item No. 8. Reviewing Droomers' proffered Attachments in light of the original designation of record, the requirements of Rule 8006, and the court's authority to supplement the record and take judicial notice of proceedings in other courts of record, Droomers' motion for leave to supplement the record will be granted. In re Hamady Brothers, 110 B.R. at 817; Granader, 417 F.2d at 82-83. B. Lifting of Automatic Stay At the outset, Musilli's and Baumgardner's argument that the Bankruptcy Court erred by lifting automatic stays arising under 11 U.S.C. § 362 and allowing the state court contempt proceedings to continue is without merit. 11 U.S.C. § 362(b)(1) expressly provides that the automatic stay provision of § 362(a)(1) "does not operate as a stay—... of the commencement or continuation of a criminal action or proceeding against the debtor." Contempt proceedings to "uphold the dignity of the court" and enforce a court's orders are not subject to the automatic stay provisions of § 362. N.L.R.B. v. Sawulski, 158 B.R. 971, 976-77 (E.D.Mich. 1993). On de novo review, the Bankruptcy Court did not err by issuing its orders permitting the continuation of the state court criminal contempt proceedings. Investors Credit Corp., 995 F.2d at 88. C. Collateral Estoppel and § 523(a)(6) Musilli and Baumgardner argue the Bankruptcy Judge erred in applying the doctrine of collateral estoppel because the Oakland County Circuit Court, acting through Judge Mester, was the "party" to the contempt proceeding, not Attorney Droomers. Musilli and Baumgardner also argue collateral estoppel does not apply because the § 523(a)(6) issues of "willful and malicious injury ... to the property of another entity" were not adjudicated in state court. Appellants continue that Droomers had no "property" subject to injury under § 523(a)(6) when the state court entered its December 20, 2002 escrow order because the paid contingency fee was "long gone" by then. Appellants argue the Bankruptcy Court erred by finding that Musilli and Baumgardner even knew Attorney Droomers was making a claim for a referral fee, and assert there was never an evidentiary hearing in state court to determine the amount of damages. Musilli and Baumgardner contend the order of contempt was premised on a violation of Michigan's UFTA, and is therefore not a state court money judgment. Collateral estoppel may be applied in nondischargeability proceedings under the Bankruptcy Code. Grogan v. Garner, 498 U.S. 279, 284-85, 111 S. Ct. 654, 112 L. Ed. 2d 755 (1991). "A finding in a prior criminal proceeding may estop an individual from relitigating the same issue in a subsequent civil action." Hinchman v. Moore, 312 F.3d 198, 202 (6th Cir.2003) (citing Emich v. Gen. Motors Corp., 340 U.S. 558, 568-69, 71 S. Ct. 408, 95 L. Ed. 534 (1951)). Federal courts give state court judgments the same preclusive effect they would have under the law of the State in which the judgment was rendered. Hinchman, 312 F.3d at 202 (quoting Migra v. Warren City Sch. Dist. Bd. of Educ., 465 U.S. 75, 81, 104 S. Ct. 892, 79 L. Ed. 2d 56 (1984)). Under Michigan law, collateral estoppel applies when: (1) there is an identity of parties across the proceedings; (2) a valid and final judgment was entered in the first proceeding; (3) the same issue was actually litigated and necessarily determined in the first proceeding; and (4) the party against whom the doctrine is asserted had a full and fair opportunity to litigate the issue in the earlier proceeding. Hinchman, 312 F.3d at 202 (quoting Darrah v. City of Oak Park, 255 F.3d 301, 311 (6th Cir.2001)). For purposes of collateral estoppel, a "party" is "one who is `directly interested in the subject matter, and had a right to make defense, or to control the proceeding, and to appeal from the judgment.'" Howell v. Vito's Trucking and Excavating Co., 386 Mich. 37, 43, 191 N.W.2d 313 (1971). Attorney Droomers, not Judge Mester or the Oakland County Circuit Court, was the one directly interested in the subject matter of the $352,636.60 being paid into escrow as ordered on December 20, 2002, and in securing and reinstating the December 14, 2005 state court contempt judgment of $431,350.00 against Musilli and Baumgardner. Attorney Droomers had the right under M.C.R. 3.606(A)(1) to initiate the contempt proceeding by moving for a court order requiring Musilli and Baumgardner to show cause why they should not be held in contempt of court for failing to obey the December 20, 2002 show cause order. DeGeorge v. Warheit, 276 Mich.App. 587, 741 N.W.2d 384 (2007). Attorney Droomers invoked his rights under the UFTA. Attorney Droomers, not the Oakland County Circuit Court, had the right of appeal, and appeared before the Michigan Court of Appeals as the appellee. Attorney Droomers was a "party" to the contempt proceedings, as were Musilli and Baumgardner. Howell, 386 Mich. at 43, 191 N.W.2d 313. Construing the pleadings and evidence in a light most favorable to Musilli and Baumgardner, there is an identity of parties across the state court proceedings and Bankruptcy Court adversary proceeding for purposes of collateral estoppel. Hinchman, 312 F.3d at 202; Matsushita Elec., 475 U.S. at 587, 106 S. Ct. 1348. A "wilful and malicious injury" under § 523(a)(6) occurs where "the actor desires to cause consequences of his act, or... believes that the consequences are substantially certain to result from it." In re Markowitz, 190 F.3d 455, 464 (6th Cir. 1999) (quoting Restatement (Second) of Torts § 8A, at 15 (1964)). "The violation of a court order that results in an order of contempt has been found to satisfy the willful and malicious requirements of § 523(a)(6)." In re Rosenberg, No. 05-23111, 2007 WL 2156282, *4 (Bankr. N.D.Ohio July 23, 2007) (citing Siemer v. Nangle (In re Nangle), 274 F.3d 481, 484 (8th Cir.2001); Heyne v. Heyne, (In re Heyne), 277 B.R. 364, 369 (Bankr. N.D.Ohio 2002); Bundy American Corp. v. Blankfort, 217 B.R. 138, 145 (Bankr. S.D.N.Y.1998); Buffalo Gyn Womenservices, Inc. v. Behn, 242 B.R. 229, 238 (Bankr.S.D.N.Y.1999); Haeske v. Arlington (In re Arlington), 192 B.R. 494 (Bankr.N.D.Ill.1996); Shteysel v. Shteysel (In re Shteysel), 221 B.R. 486 (Bankr. E.D.Wis.1998)). The Michigan Court of Appeals affirmed Judge Mester's rulings that "there was a flagrant violation of the [c]ourt's orders," that "[t]here's never been an attempt, I'm satisfied, to comply with these [c]ourt orders," and that Musilli and Baumgardner "simply disobeyed the court's order because they believed the order was unjustified." Droomers, No. 253455, 2005 WL 1540486 at **3-4, 8. Upon his finding of criminal contempt, Judge Mester was authorized by Michigan law to order Musilli and Baumgardner to pay "a sufficient sum" for their "misconduct" which "caused an actual loss to any person[.]" M.C.L. § 600.1721. Judge Mester found in his December 14, 2005 Order that "Plaintiff [Droomers] was damaged in the amount of $431,350 by the contempt of Ralph Musilli and Walter Baumgardner." In re Saylor, 108 F.3d 219 (9th Cir.1997), relied upon by the appellants, is distinguishable as not involving the violation of a court order and resulting order of criminal contempt. Although Attorney Droomers invoked rights under the UFTA to secure the December 20, 2002 escrow order, the $431,350.00 judgment is premised on an adjudication of criminal contempt arising from the appellants' disobedience of the escrow order, not Droomers' rights under the UFTA. Construing the evidence in a light most favorable to Musilli and Baumgardner, the state court's determination that Musilli's and Baumgardner's misconduct of flagrantly violating the December 20, 2002 escrow order caused Droomers to incur $431,350.00 in damages satisfies the wilful and malicious injury to property requirement of § 523(a)(6) as a matter of law. In re Markowitz, 190 F.3d at 464; In re Rosenberg, 2007 WL 2156282 at *4 (and cases cited therein); Matsushita Elec., 475 U.S. at 587, 106 S. Ct. 1348. Musilli's and Baumgardner's arguments that Droomers had no property right subject to injury, that they did not know Droomers was making a referral fee claim, and that the state court did not hold an evidentiary hearing to determine the damages amount, challenge the merits of the judgment debt. "The dischargeability of a debt must be recognized as a matter separate from the merits of the debt itself." In re Sweeney, 276 B.R. 186, 195 (6th Cir.BAP2002). Pursuant to the Rooker-Feldman doctrine, "a bankruptcy court may not review and redetermine the merits of a debt or set aside the ... judgment reflecting it, but it may within its exclusive jurisdiction determine whether that debt is dischargeable or not." This court is precluded by the Rooker-Feldman doctrine from redetermining whether the judgment amount of $431,350.00 is properly supported under Michigan procedural and substantive law. In re Sweeney, 276 B.R. at 195. For purposes of applying collateral estoppel, it is beyond reasonable dispute that the same issue of wilful and malicious injury to Droomers' property interest was actually litigated and necessarily determined in the first state court proceeding. Hinchman, 312 F.3d at 202; Matsushita Elec., 475 U.S. at 587, 106 S. Ct. 1348. The record of the state court proceedings also demonstrates beyond reasonable dispute that Musilli and Baumgardner were given a full and fair opportunity to litigate the legitimacy of the state court judgment debt before Judge Mester and the Michigan Court of Appeals. See Droomers, No. 253455 2005 WL 1540486, at *8 (recognizing that the proceedings before Judge Mester "clearly provided Parnell, Musilli, and Baumgardner with the opportunity to defend themselves against the contempt proceedings. They had ample opportunity to present exculpatory evidence at the October 29, 2003, hearing and were given further time after that date to comply with the escrow order."). There is no dispute that Judge Mester's December 14, 2005 contempt judgment of $431,350.00, and subsequent Orders reinstating the judgment, remain valid and final under Michigan law. Upon de novo review, and construing the evidence in a light most favorable to Musilli and Baumgardner, Droomers is entitled to summary judgment as a matter of law on her claim that the state court contempt judgment debt is not dischargeable under § 523(a)(6) by operation of the doctrine of collateral estoppel. Investors Credit Corp., 995 F.2d at 88; Hinchman, 312 F.3d at 202; Matsushita Elec., 475 U.S. at 587, 106 S. Ct. 1348; Amway Distributors, 323 F.3d at 390. D. § 727(a)(7) Musilli and Baumgardner argue that the Bankruptcy Judge erred under § 727(a)(7) by finding that the appellants "acts" occurred within one year of filing bankruptcy, pointing out that they filed for bankruptcy protection in October 2006, well beyond one year after they were first found in contempt of court on October 29, 2003 for disobeying the December 20, 2002 escrow order. Appellants misconstrue Droomers' theory of recovery under § 727(a)(7). Musilli and Baumgardner agreed at the September 3, 2008 hearing that the "act" of transferring property out of Shores Legal Services occurred within one year of Shores Legal Services filing for bankruptcy in late 2003. Musilli and Baumgardner are allegedly not entitled to discharge the state court judgment debt under § 727(a)(7) because they are "insiders" of debtor Shores Legal Services. As emphasized by Droomers' Counsel at the hearing, § 727(a)(2) speaks to the debtor's acts committed within one year of that same debtor's date of filing a petition for bankruptcy, while § 727(a)(7) speaks to the debtor's acts committed within one year "before the date of the filing of the petition, or during the case, in connection with another case, under this title or under the Bankruptcy Act"—Shores Legal Services' 2003 bankruptcy petition—"concerning an insider." As persons who acted on behalf of Shores Legal Services in transferring property "with intent to hinder, delay, or defraud" Droomers within one year of Shores Legal Services's bankruptcy petition, Musilli and Baumgardner are not entitled to a discharge of the state court judgment by operation of § 727(a)(7). Barclays/American Business Credit, Inc., 171 B.R. at 303. Upon de novo review, Droomers is entitled to summary judgment of the § 727(a)(7) claim as a matter of law. Id.; Investors Credit Corp., 995 F.2d at 88; Matsushita Elec., 475 U.S. at 587, 106 S. Ct. 1348; Amway Distributors, 323 F.3d at 390. III. Conclusion Appellant Droomer's motion for leave to supplement the record is hereby GRANTED. Consistent with the analysis herein, the Bankruptcy Court's December 26, 2007 Opinion is hereby AFFIRMED. SO ORDERED.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1960547/

881 F. Supp. 663 (1995) Grant ANDERSON, Plaintiff, v. D.C. PUBLIC DEFENDER SERVICE, et al., Defendant. Civ. A. No. 90-2090-LFO. United States District Court, District of Columbia. March 7, 1995. Grant Anderson, Lorton, VA, pro se. Curtis Lu, Latham & Watkins, Washington, DC, for plaintiff (appointed for Injunction only). Thomas Brent Mason, Gregory H. Gust, Zuckerman, Spaeder, Goldstein, Taylor & Kolker, Washington, DC, for Avis Buchanan. J. Herbie DiFonzo, Alexandria, VA, defendant pro se. MEMORANDUM OBERDORFER, District Judge. Prior to June 16, 1993, plaintiff Anderson had filed numerous complaints in this and other courts against judges, lawyers, and others who had participated in his 1988 prosecution and conviction for crimes of violence. On June 16, 1993, I issued an injunction prohibiting plaintiff from filing any further complaints with this Court without first seeking and obtaining leave to file. The Court of Appeals, however, held that such an injunction should not have been entered without first giving this incarcerated plaintiff an opportunity to be heard on the issue. On remand, appointed counsel filed briefs for plaintiff and represented him at a hearing with regard to whether, and if so, upon what conditions, an injunction is appropriate in this case. Upon careful consideration of the voluminous record and other relevant materials, I find that the injunction should remain in effect. In order to facilitate the appeal process which will inevitably follow this decision, the history of this protracted case is chronicled in some detail below. I On September 7, 1988, a jury convicted plaintiff of assault with intent to commit rape while armed, two counts of first degree burglary while armed, and assaulting, resisting, or interfering with a police officer with a dangerous weapon. See Anderson v. U.S., D.C. Court of Appeals Memorandum Opinion No. 88-1522 (Feb. 28, 1990). On November 28, 1988, plaintiff's counsel filed a notice of *664 appeal. Plaintiff's convictions, with the exception of one of the burglary charges, were affirmed by the District of Columbia Court of Appeals on February 28, 1990. See id. On April 6, 1990, plaintiff filed in the D.C. Superior Court a pro se motion to vacate sentence, arguing that he was denied effective assistance of counsel. See U.S. v. Anderson, Criminal No. F-7226-88, Memorandum Opinion and Order of July 26, 1990, at 9. The Superior Court reviewed plaintiff's ineffective assistance claims[1] and found them "wholly without merit." Id. at 11. Plaintiff's motion to vacate sentence was denied in a considered Memorandum Opinion and Order dated July 26, 1990, which noted that "[a]ll of [Anderson's] assertions that his trial counsel was ineffective and/or deficient are unsubstantiated by the record and transcripts of the trial proceeding below." Id. at 13. Plaintiff next argued that the mandate affirming his convictions should be withdrawn because of the ineffectiveness of his appointed appellate counsel. That request was denied by the D.C. Court of Appeals on July 19, 1990. On August 8, 1990, plaintiff's motion for expansion of the record and for appointment of counsel was denied by Judge Cushenberry because "no useful purpose would be served by granting the request for expansion or for appointment of counsel since the Court has already denied [plaintiff's] Motion to Vacate after a careful review of the trial record." See Affidavit of DiFonzo, Att. to Motion to Dismiss, at 5, quoting Order of August 8, 1990.[2] On August 27, 1990, plaintiff filed this action against the D.C. Public Defender Service, the D.C. Office of Bar Counsel, Mark Rochon (original appointed counsel who represented plaintiff through presentment), Avis Buchanan (subsequently appointed counsel who represented plaintiff through indictment, trial and sentencing), and J. Herbie DiFonzo (appellate counsel, appointed by the D.C. Court of Appeals).[3] In his complaint, plaintiff alleged, inter alia, "ineffective assistance of trial lawyer Buchanan and appellate attorney DiFonzo" and "criminal conspiracy of the plaintiff to deprive him of his rights to resort to remedy." Complaint at ¶ 10. Specifically, plaintiff claimed that Buchanan failed to interview witnesses, failed to explore inconsistencies in the testimony presented by the Government, and misquoted evidence in her summation.[4]Id. at ¶ 12. He claimed that DiFonzo: (i) failed to pursue the theory that Anderson was intoxicated at the time of the crimes and, therefore, could not formulate the requisite intent to commit them; and (ii) refused to charge that the trial transcripts were falsified.[5]See id. at ¶ 13. In addition, *665 plaintiff alleged that "[d]efendant Rochon participated in the conspiracy by failing to properly investigate the case." Plaintiff sought hundreds of millions of dollars in relief, as well as a declaratory judgment. Id. at Count VI, p. 4-5. On November 23, 1990, plaintiff filed a pro se motion to voluntarily dismiss defendants Rochon and D.C. Public Defender Service. That motion was treated as a praecipe of dismissal and was granted on November 27, 1990. An Order of February 12, 1991, granted the motion to dismiss of the Office of Bar Counsel based upon absolute immunity, granted the motions to dismiss of Buchanan and DiFonzo because plaintiff failed "to allege sufficient facts to establish that Buchanan and DiFonzo acted under color of state law," and dismissed plaintiff's complaint. See Anderson v. D.C. Public Defender Service, 756 F. Supp. 28, 30-31 (D.D.C.1991). On February 25, 1991, plaintiff filed a notice of appeal "to the United States District Court Judge for the District of Columbia from the memorandum dismissing the plaintiff's complaint" and a "motion to stay judgment to appeal to the district judge pursuant to Rule 76 F.R.C.P." Rule 76 governs appeals from magistrate judges and is inapplicable to plaintiff's case. Nevertheless, this Court treated plaintiff's filing as a motion to reconsider under Rule 60(b), and denied the motion because plaintiff "failed to provide any substantially new evidence or legal authorities." Order of March 14, 1991. On November 16, 1992, the Court of Appeals affirmed dismissal of the Office of Bar Counsel, vacated the portion of the February 12 Order that dismissed the claims against Buchanan and DiFonzo, and remanded this action for further proceedings, holding that "the heightened pleading standard" applicable in Section 1983 cases brought against public officials was not applicable to claims against those defendants. Anderson v. D.C. Public Defender Service, 980 F.2d 746 (D.C.Cir.1992). Plaintiff filed a motion for leave to file an amended complaint on January 29, 1993. He also filed a motion to consolidate this matter with Anderson v. Buchanan, Civil Action No. 92-1709, because both cases "involve identical issues and questions of law and the same presiding judge and forum." Plaintiff's motion to file an amended complaint was granted, and an amended complaint was filed on February 5, 1993. Plaintiff's motion for consolidation was denied on March 11, 1993. Plaintiff next filed an "affidavit for disqualification or recusal of Judge Louis F. Oberdorfer" on April 27, 1993. He filed discovery requests and a motion for default against two newly named defendants — Judge Reggie B. Walton (the presiding judge in plaintiff's criminal trial) and Jerry Massie (the prosecuting U.S. Attorney), who had not answered the amended complaint. On May 28, 1993, plaintiff filed a "motion for reassignment to successive trial judge." Another such motion was filed on June 7.[6] On June 16, 1993, plaintiff's motions for disqualification or recusal and for reassignment were denied, together with his motion for default judgment. The claims against defendants Walton and Massie were dismissed based upon absolute immunity, the motions to dismiss filed by defendants Buchanan and DiFonzo were granted because plaintiff "alleged no facts" demonstrating that there existed a conspiracy with government officials or that defendants acted under color of state law, and plaintiff's amended complaint was dismissed with prejudice. Memorandum and Order of June 16, 1993 (emphasis in original). Also on June 16, this Court noted that plaintiff had filed 33 complaints "against a variety of prosecutors, defense counsel (including the Public Defender), judges, [and] the Bar Counsel of the District of Columbia Bar," and "appeals and applications to the Court of Appeals for writs of mandamus as well as filing charges with the Chief Judges of this Court and the Circuit, seeking reassignment of his cases or recusal of judges." *666 Injunction Order of June 16, 1993, at 1. This Court also held that: [e]xcept for the instant case, which was remanded by the Court of Appeals and is hereby dismissed after reconsideration, none of [plaintiff's] complaints or appeals have been found to have merit. Whatever may have been the basis for plaintiff's original claims, their repetition after rejection has no tenable basis, is demonstrably frivolous, and is an abuse of the processes of this Court. Id. (emphasis added). Plaintiff was accordingly enjoined "from filing any new complaint or petition for relief in the United States District Court for the District of Columbia without first moving for leave of court to file." Id. at 2. Plaintiff was further instructed to attach to each complaint or petition for relief a copy of the Injunction, together with a motion captioned "Application Pursuant to Court Order Seeking Leave to File," which demonstrated: "(a) that his claim or claims are neither frivolous nor taken in bad faith; (b) a tenable basis for each claim; and (c) why each claim is not precluded by his previous suits." Id. The Order further advised plaintiff that "[f]ailure to comply strictly with the terms of th[e] injunction itself shall be sufficient grounds for denying leave to file." Id. On June 28, 1993, plaintiff filed a notice of appeal "from the memorandum and permanent injunction." On October 12, 1993, the Court of Appeals affirmed the dismissal of plaintiff's amended complaint. That Court also vacated the injunction of June 16 and remanded for further proceedings because the record failed to reflect whether plaintiff had received "the requisite notice and opportunity to be heard" before the injunction was entered. Anderson v. Buchanan, No. 93-7116, 1993 WL 430945 (D.C.Cir., Oct. 12, 1993). Thereafter, plaintiff filed a motion requesting the appointment of a special master and appointment of counsel, and a motion for summary judgment. An Order of December 22, 1993, denied plaintiff's requests for a special master and for summary judgment, granted his request for appointment of counsel, and set a briefing schedule with respect to whether plaintiff should be enjoined from filing new complaints or petitions for relief without prior leave of court. A hearing was held on May 31, 1994.[7] In sum, plaintiff's position is that the injunction is inappropriate because many of his complaints "have raised legitimate grievances and are not so lacking in merit as to be patently frivolous." Pl's Memo in Response to Show Cause Order, at 2. In the alternative, plaintiff argues that he should "be permitted to raise claims based on new claims or facts not previously considered or disposed of by a federal court without the need of first seeking leave of Court." Id. at 2-3. II It is axiomatic that "prisoners have a constitutional right of access to the courts." Bounds v. Smith, 430 U.S. 817, 821, 97 S. Ct. 1491, 1494, 52 L. Ed. 2d 72 (1977). That "right of access to the courts, however, is neither absolute nor unconditional." In re Green, 669 F.2d 779, 785 (D.C.Cir.1981). Although limitations on free access to the courts should be the exception to the rule, reasonable restrictions may properly be imposed in certain circumstances. "[I]t is now well settled that a court may employ injunctive remedies to protect the integrity of the courts and the orderly and expeditious administration of justice." Urban v. United Nations, 768 F.2d 1497, 1500 (D.C.Cir.1985). It has also been held that "[f]ederal courts have both the inherent power and the constitutional obligation to protect their jurisdiction from conduct which impairs their ability to carry out Article III functions." In re Martin-Trigona, 737 F.2d 1254, 1261 (2d Cir.1984), quoted in Stich v. United States, 773 F. Supp. 469, 470 (D.D.C.1991), aff'd, 976 F.2d 1445 (D.C.Cir.1992). Our Court of Appeals has held that when contemplating issuing an injunction in a case such as this, "it is incumbent upon the district court to make substantive findings as to the frivolous or harassing nature of the litigant's *667 actions." In re Powell, 851 F.2d 427, 431 (D.C.Cir.1988) (emphasis added).[8] This Court is, therefore, required to "discern if the litigant is filing numerous, similar complaints, and whether the litigant is attempting to harass a particular adversary." Id. In making such an assessment, the Court of Appeals has instructed that "[b]oth the number and content of the filings bear on a determination of frivolousness or harassment." Id. at 434 (emphasis added). A Although there has been some dispute about the number of cases plaintiff has actually filed in the federal district courts in the District of Columbia, it is certain that plaintiff has filed at least 31 cases with this Court, 30 of which were filed between 1990 and 1994.[9] Nevertheless, an injunction should not issue for "mere litigiousness alone." Id. In accordance with the mandated procedure, this Court has scrutinized plaintiff's litigation history in this forum. A sample of plaintiff's legal activities is next described. At the outset, it is abundantly clear that anyone who has had any contact with plaintiff's legal matters is a likely candidate to become a defendant in a subsequent suit. Plaintiff has sued at one time or another nearly every actor in the criminal justice system, usually raising unsupported allegations of some conspiracy to deprive him of his rights. Among those who have come under attack by plaintiff are: several District Courts; Judges in the Superior Court and Federal District Court; the Administrative Office; virtually every lawyer who has been appointed to represent plaintiff in connection with his criminal case and subsequent convictions and appeals; the U.S. Attorneys' Office and several Assistant U.S. Attorneys; clerks at the United States Supreme Court, the United States Court of Appeals for the District of Columbia, and the District of Columbia Court of Appeals; a court reporter; a courtroom deputy; the D.C. Public Defender Service; and D.C. Bar counsel. Several of the above-noted defendants have been sued by plaintiff on numerous occasions; Assistant U.S. Attorney Jerry Massie, for example, has been sued on three occasions for his involvement in plaintiff's trial in Superior Court,[10] and plaintiff's appointed trial and appellate counsel have each been sued by plaintiff multiple times. Plaintiff's propensity for recycling and repackaging claims has not gone without notice. This Court earlier determined that "[t]he facts alleged and claims raised" in Anderson v. Buchanan, Civil Action No. 92-1709, were "identical to those dismissed for failure to state a claim" in Anderson v. D.C. Public Defender Service, Civil Action No. 91-7040. Order of April 26, 1993 in Anderson v. Buchanan, at 1. Buchanan, DiFonzo, D.C. Public Defender Service, D.C. Bar Association and the D.C. Office of Bar Counsel, defendants in this action, were all named as defendants in Anderson v. D.C. Public Defender, as well. Plaintiff concedes that he alleged nearly identical claims against the same defendants sued in the instant case in Anderson v. Buchanan. See Transcript of May 31, 1994, hearing at 10. Each of these cases related to plaintiff's criminal conviction. Furthermore, many of the same claims against the same defendants had previously been deemed frivolous by Judge Cushenberry when plaintiff raised them in Superior Court in a motion to vacate sentence. See n. 4, supra. In addition, plaintiff asserted that he was denied effective assistance of counsel in a habeas corpus petition styled Anderson v. Ridley, Civil Action No. 91-182. In his petition, plaintiff also asserted bias on the part of his trial judge, and argued that the government failed to disclose evidence to him. *668 Judge Hogan dismissed the action for lack of subject matter jurisdiction, since plaintiff's motion to vacate sentence based on ineffective assistance, prosecutorial misconduct and inaccurate trial transcript had not yet been decided by the Superior Court. Order of April 22, 1991.[11] As previously noted, the Superior Court found plaintiff's claims to be without merit. See page 664, supra. Plaintiff complained about his court-appointed counsel in yet another case, Anderson v. Cubriel, Civil Action No. 92-1927. There plaintiff pressed allegations of "ineffectiveness of appellate counsel for failure to petition the court in the trial court level to address his claim of ineffectiveness of trial counsel." Motion to Vacate Sentence at 5-6 (emphasis added). Despite the extraordinary amount of judicial resources that had already been expended with regard to plaintiff's various attacks on his conviction, plaintiff has also asserted an "inordinate delay of more than (40) forty months to deprive him of due process ... to resolve ineffectiveness of appellate counsel." Id. at 6. Undaunted by the dismissal of his claims in Cubriel and Ridley, plaintiff instituted Anderson v. U.S. Attorney's Office, et al., Civil Action No. 91-2262. In that case, plaintiff sued the prosecuting attorney at plaintiff's criminal trial, the attorney who defended against plaintiff's motion to vacate sentence, and the U.S. Attorney's Office for failure to properly supervise those attorneys, alleging that the defendants conspired to withhold information which would show bias on the part of the trial judge. On January 11, 1993, that action was dismissed for failure to state a claim upon which relief could be granted. Plaintiff next alleged a larger, more broad-based conspiracy; this time, the purported conspiracy had been formed to interfere with plaintiff's court mailings with the ultimate goal being to deprive plaintiff of access to the courts. See Ibrahim v. Thornburg, et al., Civil Action No. 91-2637. Those claims reappeared in Anderson v. Administrative Office of the United States Courts, et al., Civil Action No. 92-1201, which was dismissed as frivolous. In Administrative Office, plaintiff sued all the judges of the Superior Court for the District of Columbia, the D.C. Court of Appeals, the U.S. Court of Appeals for the D.C. Circuit, and its clerks, the Administrative Office of the U.S. Courts, the U.S. Postal Service, a Justice Department attorney, the Mayor of the District of Columbia, and various other governmental departments. His complaint encompassed a "laundry list of alleged violations of plaintiff's access to the justice system." June 16, 1992 Order. In dismissing the case, this Court found that "the nature of the causes of action combined with plaintiff's prayer for one million dollars in compensation, combine to make a showing that the Complaint is frivolous." Id. at 1. In Thornburg, plaintiff sued the Attorney General, the U.S. Court of Appeals, Supreme Court clerks, the Department of Justice, the FBI, the Administrative Office of the U.S. Courts, the D.C. Superior Court, the U.S. Court of Appeals, clerks from the Court of Appeals, the Mayor, the Postal Service, and the Office of Judicial Tenure, seeking one million dollars in compensatory damages and one million dollars in punitive damages against each defendant. Plaintiff once again raised various conspiracy theories. Thornburg was dismissed for failure to provide "a short and plain statement of the claim showing that the pleader is entitled to relief," pursuant to Federal Rule of Civil Procedure 8(a). Nevertheless, the claims asserted in that case were nearly identical to those asserted in Administrative Office, were similarly without merit, and rightfully could have been dismissed as frivolous. After being transferred to a prison in Texas, plaintiff changed the targets of his conspiracy claims. In Ibrahim v. U.S. District Court, et al., Civil Action No. 93-060, plaintiff sued courts in the Western District and Southern District of Texas, as well as the Fifth Circuit Court of Appeals, regarding his confinement conditions and trial proceedings, seeking $2,000,000 in compensatory and punitive damages. Plaintiff complained that the *669 court had "done all things possible to undermine, subvert, and evanesce plaintiff's rights to res[or]t to redress of his grievance. The defendant[]s continue[] to erect barriers to deny him the right to petition the Court and have undermined his claims by purporting that the plaintiff's claims and standing to bring suit were without the Court's authority to entertain." Complaint at 2. It was determined that the claims asserted by plaintiff in U.S. District Courts constituted no more than an "attempt to relitigate cases which ha[d] been decided by two U.S. District Courts in Texas," and an effort "to circumvent the doctrine of res judicata by naming the deciding courts as additional defendants." Order dated January 29, 1993, at 2-3. Judge Sporkin found that "[n]o factual allegations in the complaint support[ed] the allegation of conspiracy" involving the Texas Courts and defendants. To the contrary, "[t]he facts only support[ed] the notion that the Judges in each of those cases diligently worked on his complaints and decided them against him." Id. The Court then dismissed the action, holding that the "complaint bears no merit and is frivolous." Id. On March 4, 1993, Judge Sporkin denied plaintiff's motion for certification of appeal as frivolous, and the Court of Appeals held that the "district court correctly ruled that there is no basis" for the appeal. Anderson v. U.S. District Courts, No. 93-504489, 1993 WL 445080 (D.C.Cir., July 7, 1993). Even plaintiff's most recent filings share a pattern of repetitiveness. In Anderson v. United States, Civil Action No. 94-22, plaintiff claims that he has been denied "expedit[i]ous appellate process." This claim is nearly identical to that asserted in Anderson v. United States, Civil Action No. 93-1057, which was dismissed for lack of jurisdiction.[12] In Anderson v. Dowlut, et al., Civil Action No. 94-2805, plaintiff has once again sued his court-appointed lawyer and the D.C. Public Defender Service, along with the District of Columbia, seeking monetary damages because the attorney assigned to represent him at his post-conviction appeal in the D.C. Court of Appeals allegedly failed to provide him with adequate legal representation. In sum, five of plaintiff's complaints have been dismissed specifically on the basis of frivolousness: (1) Ibrahim v. United States, Civil Action No. 90-2579; affirmed in No. 91-5033, 1992 WL 142636 (D.C.Cir., June 19, 1992); (2) Ibrahim v. Bergstein, Civil Action No. 92-0810 was dismissed as frivolous and malicious; affirmed in No. 92-7253 (D.C.Cir., March 26, 1993); (3) Anderson v. Administrative Office of U.S. Courts, et al., Civil Action No. 92-1201; mandamus denied in No. 92-8042, 1993 WL 98597 (D.C.Cir., March 25, 1993); (4) Ibrahim v. District of Columbia, Civil Action No. 93-0002, 1993 WL 30814 (Jan. 29, 1993); Court of Appeals denied leave to appeal in forma pauperis, finding "no basis for the appeal," in No. 93-7029, 1993 WL 328110 (D.C.Cir., July 7, 1993); and (5) Ibrahim v. U.S. District Court, et al., Civil Action No. 93-0060; affirmed in No. 93-504489, 1993 WL 445080 (D.C.Cir. July 7, 1993), the appellate court again finding the appeal baseless. Moreover, on review, some of the lawsuits initiated by plaintiff which were dismissed on other grounds, could rightfully have been dismissed on the basis of frivolousness as well. It is also worth noting that plaintiff's legal activities have not been limited to this forum. The United States Supreme Court has recognized plaintiff as a "prolific filer." In a May 2, 1994, Opinion, that Court limited plaintiff's ability to file any further extraordinary writs, observing that: [i]n the last three years alone, [plaintiff] has filed 22 separate petitions and motions, including 3 petitions for certiorari, 6 motions for reconsideration, and 13 petitions for extraordinary writs.... Like the majority of his previous submissions to this Court, the instant petition for habeas corpus relates to the denial of petitioner's various postconviction motions by the District of Columbia Court of Appeals. The current petition merely repeats arguments that we have considered previously and not found worthy of plenary review. *670 In re Grant Anderson, ___ U.S. ___, ___, 114 S. Ct. 1606, 1607, 128 L. Ed. 2d 332 (1994) (emphasis added). Plaintiff's profuse and meritless filings have also caused the District of Columbia Court of Appeals to order that its court clerk "not accept for filing any further petitions for extraordinary relief, civil appeals, appeals from denials of petitions for extraordinary relief, or collateral appeals taken from no. F7226-88 [resulting in plaintiff's criminal convictions] or motions in those cases without the payment of docketing and filing fees." Order Nos. 93-SP-1515, 94-SP-881, 94-SP-1078 (D.C.Cir., Oct. 20, 1994). Based on the foregoing, plaintiff's propensity for filing numerous and frivolous documents is manifest. B When dealing with the issue of harassment, the analysis must focus on "the number and content of [plaintiff's] filings and the effect of those filings on the [defendants] and the district court." In re Powell, 851 F.2d 427, 433 (D.C.Cir.1988). The defendants in this case have perceived plaintiff's actions as burdensome and oppressive. Mr. DiFonzo, who served as plaintiff's trial counsel, has been a named defendant in two suits alleging ineffective assistance of counsel. His representation of plaintiff has been criticized and has been the subject of numerous petitions for relief filed by plaintiff on the ground of ineffective assistance of counsel, as well. See Transcript of May 31, 1994 Hearing, at 32-36.[13] Because he has appeared pro se, Mr. DiFonzo has "had to bear the burden of having this on [his] mind as well as physically having to deal with it for ... four or five years, since the allegation was first brought." Id. at 36. Mr. DiFonzo has been "upset" that his "ethics and `his' professionalism have been challenged." Id. at 37. Ms. Buchanan similarly has "had to devote substantial amounts of time over the four years that this case has been pending to securing legal representation, consulting with [her] attorneys and reviewing the numerous pleadings filed by Mr. Anderson and [her] attorney." Declaration of Buchanan at 1. Ms. Buchanan first felt "offended" by plaintiff's complaints and litigation, and "[e]ach subsequent pleading that he has filed has provoked a renewed sense of outrage." Id. at 2.[14] Plaintiff's actions have constituted "a distraction that has interfered with [Ms. Buchanan's] current professional duties and responsibilities." Id. She has had to reveal the status of the actions against her on two occasions, to her substantial embarrassment. "The frequent pleadings and multiple actions" filed by plaintiff "have been a constant source of anxiety and stress" in Ms. Buchanan's life. Id. She has been "intensely frustrated and annoyed about the time and effort [she has] had to devote to fighting Mr. Anderson's frivolous allegations." Id. As unfortunate as it may be, there is no apparent end to the frustration and annoyance that may be foisted upon those who have served as plaintiff's appointed counsel. In late 1994, plaintiff once again sued Ms. Buchanan, along with the District of Columbia and the D.C. Public Defender Service, in Superior Court. In Smith and Anderson v. Buchanan, et al., Civil Action No. 94-11190, plaintiff raises claims identical to those which have been dismissed in this case and in Anderson v. Buchanan, et al., Civil Action No. 92-1709. Plaintiff again seeks millions of dollars in compensatory and punitive damages, and once again asserts that Ms. Buchanan failed to meet "reasonable standards of care and skill" in her representation of him at trial because she failed to raise the defense of intoxication on his behalf. Amended Complaint filed Nov. 21, 1994, at ¶¶ 10-12. With respect to this Court, not only has plaintiff filed more than thirty different actions, he has filed repetitive motions for recusal, meritless motions for transfer, and made *671 baseless complaints against law clerks, judges and other court personnel. In this case alone, plaintiff has filed two motions for appointment of master, two motions for transfer to claims court, and three motions for disqualification or recusal. In another case, plaintiff filed five motions for disqualification, and three mandamus petitions with the Court of Appeals, all of which were denied. Anderson v. Bradford, et al., Civil Action No. 89-2776.[15] A careful review, taking into consideration the number, content and the effect of plaintiff's repetitive and frivolous complaints, and his profuse and meritless motions, leads to the conclusion that plaintiff's litigation tactics may be regarded as harassing behavior as well as frivolous pleading, either of which will support the imposition of a limiting device under the standards set by the Court of Appeals. III Once it has been determined that injunctive relief is both necessary and proper to limit the effects of abusive litigant behavior, appropriate remedies must be fashioned. In Urban v. United Nations, a prolific filer of frivolous suits was enjoined by our Court of Appeals from: filing any civil action in this or any other federal court of the United States without first obtaining leave of that court. In seeking leave to file, [plaintiff] must certify that the claim or claims he wishes to present are new claims never before raised and disposed of on the merits by any federal court. He must also certify that the claim or claims are not frivolous or taken in bad faith. Additionally, the motion for leave to file must be captioned "Application Pursuant to Court Order Seeking Leave to File." [Plaintiff] must either cite or affix a copy of [this] order to that motion. Failure to comply strictly with the terms of this injunction will be sufficient grounds for denying leave to file. Urban v. United Nations, 768 F.2d 1497, 1500 (D.C.Cir.1985). Such an injunction was found to "satisf[y] all relevant constitutional and statutory concerns" because it "in no way interferes" with the right to file "bona fide lawsuits; it merely requires that [plaintiff's] pro se complaints, accorded a traditionally liberal reading, raise at least a colorable claim." Id.[16] The injunction initially issued in this action on April 16, 1993, closely traces the Urban prohibition. In another case involving a "frequent filer," the Court of Appeals instructed the district court to enter the following order: Petitioner may not file any civil action without leave of court. In seeking leave of court, petitioner must certify that the claims he wishes to present are new claims never before raised and disposed of on the merits by any federal court. Upon a failure to certify or upon a false certification, petitioner may be found in contempt of court and punished accordingly. In re Green, 669 F.2d 779, 787 (D.C.Cir. 1981). The 1993 injunction imposed in this case, like the one imposed in In re Green, "is designed to curb [plaintiff's] abuse while observing [plaintiff's] constitutional rights of access to the courts," and does not constitute an undue obstacle to plaintiff's access to the court. Id. at 781. Moreover, the use of injunctions which are "either issue- or party-specific, and therefore based on notions of res judicata" has been adopted in this circuit "as a strong and sound judicial response to litigants who abuse the judicial process through repetitive filings." Id. at 787, n. *672 21.[17] Indeed, it has been held that [a]part from the necessity of a case-by-case determination of poverty, frivolity or maliciousness, a court may impose conditions upon a litigant — even onerous conditions — so long as they assist the court in making such determinations, and so long as they are, taken together, not so burdensome as to deny the litigant meaningful access to the courts. Id. at 786. Even the federal law that permits a person to proceed in forma pauperis requires "that such person show by affidavit that he is unable to afford such fees or costs and that the claim or defense is neither frivolous nor malicious. 28 U.S.C. § 1915(a), (d)." Id. at 785. The restrictions imposed upon plaintiff's litigation activities by this Court have been appropriately "geared to discerning whether each claim presents a new nonfrivolous issue" under controlling law. See id. Requiring plaintiff to comply with the terms of the 1993 injunction, and to satisfy Section 1915 does not "preclude or even unduly burden" plaintiff from filing a "new and nonfrivolous complaint." Id. at 788. Such requirements merely attempt to guarantee that any complaint filed raises a new and bona fide claim. Accordingly, the previously imposed injunction shall remain in force. It must also be noted that plaintiff has adopted a new litigation strategy in an apparent attempt to avoid compliance with the 1993 injunction. Although a veteran litigant, plaintiff has filed each of his most recent cases in an improper forum — the first in Eastern District of Virginia, and the second in the District of Maryland. Without notice of plaintiff's litigation history or the terms or existence of the 1993 injunction, those courts have each conditionally accepted plaintiff's complaint and have transferred the cases to this jurisdiction. Anderson v. Dowlut, et al., Civil Action No. 94-2805, was filed in the U.S. District Court for the District of Maryland and transferred by Memorandum Order dated December 13, 1994. Anderson v. District of Columbia, Civil Action No. 94-2687, was filed in the U.S. District Court for the Eastern District of Virginia and transferred by Memorandum Order dated November 29, 1994. Because plaintiff has effectively circumscribed the injunction provisions, separate Orders will instruct the Clerk of Court to return to plaintiff his pleadings in the transferred cases, and the accompanying Order will instruct the Clerk of Court not to accept for filing any transferred actions without an appropriate Order of this Court. APPENDIX A Anderson v. Barry, et al., No. 89-0471 Anderson v. Bradford, et al., No. 89-2776 Anderson v. D.C. Public Defender Service, et al., No. 90-2090 Anderson v. U.S. District Court, et al., No. 90-2261 Anderson v. United States, et al., No. 90-2276 Ibrahim v. United States, No. 90-2579 Anderson v. United States, et al., No. 90-2638 Anderson v. Ridley, et al., No. 90-2773 Anderson v. U.S., No. 90-2871 Anderson v. Ridley, No. 91-182 Anderson v. D.C., No. 91-2261 Anderson v. U.S. Attorney's Office, et al., 91-2262 Ibrahim v. D.C., et al., No. 91-2263 Ibrahim v. Thornburg, et al., No. 91-2637 Ibrahim v. United States, et al., No. 91-2705 *673 Ibrahim v. D.C., et al., No. 92-428 Ibrahim v. D.C., et al., No. 92-545 Ibrahim v. Bergstein, No. 92-810 Anderson v. Admin. Office of U.S. Courts, et al., No. 92-1201 Anderson v. Buchanan, et al., No. 92-1709 Anderson v. Cubriel, No. 92-1972 Levi & Ibrahim v. D.C., et al., No. 92-2653 Anderson v. Bates, No. 92-2896 Ibrahim v. District of Columbia, No. 93-0002, 1993 WL 30814 (Jan. 29, 1993) Ibrahim v. U.S. District Court, et al., No. 93-0060 Tarig & Ibrahim, et al. v. D.C., et al., No. 93-0266 Anderson v. United States, No. 93-1057 Anderson v. United States, No. 94-0022 Anderson v. U.S. District Court, et al., No. 94-023 Anderson v. Elzie, No. 94-1769 Anderson v. D.C., et al., No. 94-2687 Anderson v. Dowlut, et al., No. 94-2805 NOTES [1] Judge Cushenberry reviewed plaintiff's ineffective assistance claims even though he had "failed to raise them on his direct appeal and shown no `exceptional circumstances' justifying his failure to do so." July 26, 1990 Memorandum Opinion at 11. [2] It should also be noted that "the Office of Bar Counsel conducted a preliminary inquiry into Plaintiff's allegations of ethical misconduct" on the part of defendant attorneys. Plaintiff was notified that "based upon Bar Counsel's preliminary inquiry there was no reasonable basis for opening an investigation against the attorneys complained of in plaintiff's complaint." Memo in Support of D.C. Bar Counsel's Motion to Dismiss, at 1-2. [3] James Klein was initially appointed to represent plaintiff on appeal; however, after plaintiff lodged charges of ineffective assistance against Rochon and Buchanan, Klein was permitted to withdraw. The Court of Appeals then appointed appellate counsel from outside the Public Defender Service, Herbie DiFonzo. See Order No. 88-1522 (April 13, 1989); Public Defender Service Memo in Support of Motion to Dismiss at 2. [4] In his earlier motion to vacate sentence, plaintiff similarly argued that defendant Buchanan "failed to explore misidentification, failed to elicit or explore inconsistencies in the testimony of the Government's witnesses" and failed to "call a particular witness." July 26, 1990 Order at 11. These claims were deemed "frivolous" by Judge Cushenberry. Id. at 12. Plaintiff also charged that Buchanan failed to "obtain exculpatory statements made to his mother." This allegation was also found to be without merit. Id. at 11-12. [5] DiFonzo explains that he did not attack the validity of the transcripts or file a collateral attack alleging the ineffective assistance of trial counsel for her failure to raise an intoxication defense because "there was no evidence (and plaintiff has not alleged any) that the trial transcripts had been altered or that plaintiff had a viable intoxication defense." DiFonzo Motion to Dismiss at 1-2. DiFonzo further states that a review of the trial evidence "absolutely precluded the legitimate raising of a defense that plaintiff was so intoxicated that he could not be charged with having formed the specific intent required by some of the charges." Memo in Support of Motion to Dismiss at 5. [6] Plaintiff also filed motions to transfer this action to claims court on November 5, 1993 and on November 26, 1993. Both motions were denied. Plaintiff's January 29 motion for expeditious process of complaint was denied on January 31, 1994. [7] On April 29, 1994, the Court of Appeals denied plaintiff's petition for writ of mandamus. In re Anderson, No. 94-5089, 1994 WL 173883 (D.C.Cir., April 29, 1994). [8] Although pending actions can be reviewed to determine similarity to other actions, "it would be inappropriate to characterize pending claims as frivolous except to the extent that they are similar to ones already so characterized." Id., 851 F.2d at 431. [9] The case names and numbers are set out in Appendix A hereto. [10] See Anderson v. D.C. Public Defender Service, et al., Civil Action No. 90-2090; Anderson v. United States, et al., Civil Action No. 90-2276; Anderson v. United States Attorney's Office, et al., Civil Action No. 91-2262. [11] The dismissal was affirmed by the Court of Appeals. See Anderson v. Ridley, No. 91-5293, 1992 WL 314018 (D.C.Cir., Sept. 17, 1992). [12] In late 1994, plaintiff again asserted that his trial counsel provided ineffective assistance. The latest version of plaintiff's claim is found in a civil case now pending in the D.C. Superior Court. See Smith and Anderson v. Buchanan, et al., Civil Action No. 94-11190. [13] In Anderson v. United States, Civil Action No. 94-0022, plaintiff represented that he had filed two habeas corpus petitions alleging ineffective assistance of trial and appellate counsel. See Complaint at 3. [14] Although Ms. Buchanan empathizes with plaintiff's "attempts to gain his freedom, even if those attempts involve challenging the quality of [her] performance, [she] find[s] Mr. Anderson's conduct insulting when the challenge is simply designed to obtain money." Id. at 2. [15] Plaintiff has recently filed in Bradford, a "Motion for Transcripts of Proceedings" in which he seeks the "entire transcript of all proceedings, from October 11, 1989, up unto January 30, 1995." Motion of February 21, 1995, at 1 (emphasis added). Plaintiff requests that the government provide these records (free of charge) so that he may seek appellate review of the following issues: "(1) abuse of discretion; (2) denial of counsel; (3) denial of right to amend the complaint; (4) refusal of trial court to disqualify itself; (5) and, denial of appellate review more than two years." Id. at 2. [16] The Court of Appeals imposed similar certification procedures, and required a petitioner to obtain leave to file any notice of appeal or petition for relief in Sindram v. Johnson, No. 91-7110, 1993 WL 135959 (D.C.Cir. Apr. 20, 1993). [17] Similarly, in Moy v. U.S., the Ninth Circuit modified an order entered by the district court that prevented plaintiff from filing any actions so that it prevented plaintiff from "filing any other claim based upon the facts and issues involved" in a previously dismissed suit. Id., 906 F.2d 467, 470-71 (9th Cir.1990). Even though the appellate court found "no evidence on [the] record that [plaintiff] ha[d] a general history of litigious filing," it noted that plaintiff had "wasted a great deal of the district court's and defendants' time and money attempting to relitigate claims that the district court ha[d] already found [could] not be supported by the facts or the law." Id.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1960589/

881 F. Supp. 1160 (1995) Phyllis GRETHE, Plaintiff, v. TRUSTMARK INSURANCE COMPANY (MUTUAL), Defendant. No. 95 C 1557. United States District Court, N.D. Illinois, Eastern Division. April 7, 1995. *1161 Arthur M. Gorov, Berkson, Gorov & Levin, Ltd., Chicago, IL, for plaintiff. Daniel A. Engel, Peterson & Ross, Chicago, IL, for defendant. MEMORANDUM OPINION AND ORDER LINDBERG, District Judge. On March 10, 1995, plaintiff Phyllis Grethe filed a complaint against defendant Trustmark Insurance Company ("Trustmark") seeking a mandatory injunction and declaratory relief. The complaint states that Ms. Grethe is currently undergoing treatment for life-threatening, inoperable breast cancer. Ms. Grethe seeks an order from this court mandatorily enjoining Trustmark to provide preauthorization coverage for Grethe for High-Dose Chemotherapy with Autologous Bone Marrow Transplant or Peripheral Stem Cell Rescue ("HDCT/ABMT or PSCR"). Ms. Grethe has now moved for a preliminary injunction ordering Trustmark to pay for HDCT/ABMT treatment. The court held a hearing on the motion on March 24, 1995. I. FINDINGS OF FACT Ms. Grethe is a 50 year old woman who was first diagnosed with breast cancer in 1992. DE 1 at 30.[1] She was at all relevant times a beneficiary under an employee welfare benefit plan established and maintained by her husband's employer under the Employee Retirement Income Security Act of 1974, as amended, ("ERISA"), 29 U.S.C. §§ 1001 et seq. Defendant's Hearing Br at 2. Ms. Grethe underwent surgery and standard-dose chemotherapy and seemed to be doing fairly well until the Fall of 1994 when she learned that the cancer had metasticized into her pulmonary nodules. Her treating oncologist, Dr. Gershon Y. Locker, put her back on chemotherapy. DE 1 at 30. An x-ray taken in late December indicated that Ms. Grethe's cancer was beginning to respond favorably to the chemotherapy. Tr 54. An x-ray taken on February 27, 1995 showed that the cancer in her lungs has almost disappeared. Tr 39. However, despite Ms. Grethe's current favorable response to standard-dose chemotherapy, it is inevitable that the cancer will recur in several years if standard-dose chemotherapy is the only treatment. Tr 47. Therefore, Dr. Locker has prescribed a new course of treatment for Ms. Grethe involving high-dose chemotherapy supported by autologous bone marrow transplant or peripheral stem cell rescue ("the proposed treatment"). Tr 47. In high-dose chemotherapy, the patient receives between four and eight times the standard dose of cancer-fighting drugs. Tr 48. The idea is that higher doses of a cancer-fighting drug that has proven effective in a patient may yield a long-term response or permanent cure. Tr 48. However, the higher dose also kills the patient's bone marrow cells, which produce the body's red and white blood cells, rendering the patient susceptible to life-threatening infection, bleeding, and anemia. Tr 48. Autologous bone marrow transplant and peripheral stem cell rescue are two methods of countering the toxic effect of the high-dose chemotherapy. In an autologous bone marrow transplant, some of the patient's own bone marrow is extracted (prior to the high-dose chemotherapy) and placed in frozen storage. After the high-dose chemotherapy is given, the stored marrow is given back to the patient for the purpose of causing the patient's bone marrow to regenerate. Tr 48-49; Plaintiff's Hearing Br at 8. Peripheral stem cell rescue is a similar procedure that involves storing a quantity of that part of the patient's blood that actually populates the bone marrow. When it is reintroduced after the high-dose chemotherapy, the cells in this blood will repopulate the bone marrow and overcome the potentially life-threatening toxicity of the treatment. Tr 48. *1162 According to Dr. Locker, HDCT/ABMT or PSCR "is a standard accepted treatment for patients with metastatic breast cancer in the practice of oncology today in the United States." Tr 49. Ms. Grethe consulted with various institutions about having HDCT/ABMT or PSCR. She chose the University of Colorado Hospital ("University Hospital") because it has the highest patient survival rate and the most experience with performing bone marrow transplants. DE 2, Letter from Ms. Grethe to Illinois Department of Insurance dated 2/10/95, at 1. The proposed treatment at University Hospital would be conducted under the auspices of an Institutional Review Board protocol. An Institutional Review Board ("IRB") is a federally-mandated body that is established to protect those human research subjects who are participating in a study. Tr 122. For an institution to conduct a medical study on humans, it must approve a research protocol, which is a written document that defines the objectives and the methodology proposed in the study. Tr 122. Before a patient may receive treatment under an IRB protocol, he or she must sign an informed consent, which is a document that explains (1) the risks of the proposed therapy, (2) any alternatives to the proposed therapy, and (3) that the therapy is part of a research study. Tr 122. The protocol under which Ms. Grethe was proposed to be treated outlined the considerations which led the investigators to propose the treatment outlined in the protocol. The protocol then stated its major hypothesis: These considerations lead to the hypothesis that high-dose chemotherapy with autologous bone marrow support may be capable of producing long term disease free survival in patients with minimal residual disease. We propose to determine if high dose chemotherapy with autologous bone marrow support can be safely and effectively used (1) in the metastatic disease setting after intensive ambulatory induction therapy and (2) in the high risk adjuvant disease setting. DE 1 at 251. The protocol often speaks of the proposed regimen as a "study," DE 1 at 260, 265, 275, and makes frequent reference to the "principal investigator," DE 1 at 261, 262-63, 266, 271, 275. The informed consent that accompanies the protocol is titled: "Subject Consent Form for Participation in a Clinical Investigation Project." DE 1 at 280. The first sentence of the consent form states that "[y]ou are being asked to participate in a research study to define the effectiveness of a program of high-dose chemotherapy with autologous bone marrow support ... for patients with breast cancer which is either metastatic or is at high risk for recurrence following the best available conventional treatment." DE 1 at 280. The consent form also suggests that the results of "this or associated studies" may be reported in medical meetings or medical literature. DE 1 at 287. Finally, just above the line where the patient must sign, the consent form states: "I have read the above and understand the discomforts, inconveniences, and risks of this study...." DE 1 at 288. The Certificate issued under the insurance contract contains a rider (the "Medically Necessary Rider"), which provides: Benefits will be paid only for "Medically Necessary" care. The term "Medically Necessary" as used above means: drugs, therapies or other treatments that are required and appropriate for care of the Sickness or Injury; that are given in accordance with generally accepted principles of medical practice in the U.S. at the time furnished; and that are reimbursed by Medicare; and that are not deemed to be experimental, educational, or investigational in nature by any appropriate technological assessment body established by any state or federal government; and that are not furnished in connection with medical or other research. We or our pre-certification review organization shall decide whether services are "Medically Necessary." DE 1 at 21. In late 1994, doctors from the University Hospital requested Trustmark to preauthorize the proposed treatment. In deciding whether there was coverage under the policy (and hence whether to recommend preauthorization), Dr. Deborah Smart, medical director *1163 and vice president of Trustmark, reviewed the medical record, the protocol, and the informed consent. She also requested input from three experts in the field through Trustmark's Medical Ombudsman Program. Tr 116-17, 124. The Ombudsman Program is run by Grace Powers Monaco out of Washington, D.C. Monaco has access to many consultants in leading institutions in the country. For each case referred to the Ombudsman Program, Trustmark seeks the opinion of three outside experts. Tr 124. In this case, the outside experts were Dr. Christopher Desch, Dr. William Vaughan, and Dr. Michael Clarke. In late 1994, these experts were sent the all the medical information (up to that time), including the protocol and the informed consent, and a set of questions to answer. The questions propounded to the experts were: 1. Are the drugs, therapies or treatments required and appropriate for the care of the sickness? 2. Are they given in accordance with generally accepted principles of medicine in the US at the time furnished? 3. Are they deemed to be experimental, educational or investigational in nature by you or an appropriate technological assessment body established by any state or federal government? 4. Are they furnished in connection with medical or other research? 5. Is the consent form to be signed by the patient one that would indicate or imply that the therapy being performed is a basis for research or investigation? See PE 5. Trustmark received the experts' responses on January 5, 1995. DE 1 at 11. In response to question 1 ("Are the drugs, therapies or treatments required and appropriate for the care of the sickness?"), Drs. Desch and Vaughan indicated the answer depended on whether Ms. Grethe's cancer was resistant to standard chemotherapy. If resistant, then high-dose chemotherapy would not be appropriate. Based on their interpretation of the information they had, they stated that Ms. Grethe appeared resistant to standard chemotherapy and hence was not a suitable candidate for high-dose chemotherapy. Dr. Clarke indicated that the proposed drugs were appropriate for the treatment of metastatic breast cancer. See PE 5. In response to question 2 ("Are they given in accordance with generally accepted principles of medicine in the US at the time furnished?"), all three experts indicated that they believed that the proposed treatment was in accordance with generally accepted principles of medicine in the U.S. See PE 5; Tr 53, 128-29, 191, 195. In response to question 3 ("Are they deemed to be experimental, educational or investigational in nature by you or an appropriate technological assessment body established by any state or federal government?"), Dr. Desch acknowledged that the proposed treatment would be conducted in the context of a clinical protocol, but he also stated that "[i]n this situation data will be collected but the treatment would not be considered investigatory at my institution." Dr. Vaughan answered "Not per se." Dr. Clarke answered "unknown." It appears from further comments that he did not realize that the University Hospital protocol was in fact the correct protocol. See PE 5. In response to question 4 ("Are they furnished in connection with medical research?"), Dr. Desch referenced his answer to question 3. He added: "The purpose of treatment in this situation is more along the lines of aggressive cancer management than an experimental trial with novel medicines or unpredictable side effects." Dr. Vaughan's answer was not entirely clear. He replied, "Yes, but are most appropriately done in such context and are not made more necessary as a result of that connection." Dr. Clarke stated: "The answer to this question is unknown. Again, most transplantation units are constantly trying to improve the results of treatment of breast cancer, so most regimens contain investigational elements." See PE 5. In response to question 5 ("Is the consent form to be signed by the patient one that would indicate or imply that the therapy being performed is a basis for research or investigation?"), Dr. Desch gave no answer. *1164 Dr. Vaughan replied, "Yes, but not as a primary purpose." Dr. Clarke stated: "Unknown. The protocol supplied [i.e., the Colorado protocol] includes an investigational element (radiation therapy of sites of bulk disease), but I do not know if that is the protocol that the patient will be given." See PE 5. On January 18, 1995, Trustmark denied coverage on the ground that the proposed treatment was not "medically necessary" as that term is defined in the Medically Necessary Rider. DE 1 at 19-20. According to Trustmark's letter, the treatment was not medically necessary because (1) Grethe's medical file indicated that her cancer was resistant to chemotherapy (and hence was not "required and appropriate" for care of the sickness), and (2) it was not reimbursable by Medicare. DE 1 19-20. Dr. Smart testified that she originally recommended to the claims department that the request be denied for yet another reason, namely, that the proposed treatment would be furnished in connection with medical research. Tr 126-28. Trustmark's letter of January 18, 1995 did not mention the medical research issue; it was not until early February 1995 that Trustmark raised it. Tr 159-60, 166; DE 1 at 3-4 & 55-56. On February 1, 1995, Dr. Pablo Cagnoni of University Hospital wrote Trustmark concerning its denial of preauthorization. He stated that "[t]he criteria of using Medicare coverage of a treatment to determine its experimental nature seems questionable. Medicare insures [the] elderly population, and high-dose chemotherapy with bone marrow transplant is not indicated in this population. I do not believe that Medicare has recently addressed the issue of whether or not this practice should be reimbursed." DE 1 at 3-4. In the definitional section of the Certificate, the following language appears: Medicare: Title XVIII of the Social Security Act of 1965, as amended. A person is eligible for Medicare on and after the date he is eligible for any Medicare coverage. Defendant's Hearing Br Exh 1, at 3. Effective October 1, 1994, the Certificate was altered by Amendment 13 to include the following "Benefit for Prescription Drugs for Cancer Treatment" (hereinafter the "Cancer Drug Benefit"). See DE 4. The Cancer Drug Benefit provides: The following is added to the list of Covered Charges: Prescription drugs, whether or not they have been prescribed for the treatment of the type of cancer for which the drug has not been approved by the federal Food and Drug Administration. The drug, however, must be approved by the federal Food and Drug Administration and must be recognized for the treatment or the specific type of cancer for which the drug has been prescribed.... Coverage includes services associated with the administration of such drug. Defendant's Hearing Br Exh 1, at 23. The parties presented conflicting evidence as to the efficacy of high-dose chemotherapy. Dr. Smith, who is not an oncologist, testified that she attended a one-day session at the National Cancer Institute and the National Institute of Health. Tr 115, 129, 171. Dr. Smith deduced from the discussions at the session that, for the next three to five years, there would probably be no conclusion as to the relative effectiveness of high-dose chemotherapy versus standard-dose chemotherapy. Tr 130. In contrast, Dr. Locker, who is an oncologist, testified: [S]tandard chemotherapy certainly can cause metastatic breast cancer to shrink. It is not associated with any likelihood of a long term [disease-free survival]. It is inevitable that this disease will come back. It will come back and be serious within the next few years on standard chemotherapy. There is much evidence that with high dose chemotherapy, with stem cell or bone marrow support, that many patients will be alive and free of any evidence of cancer years down the road. Tr 47. In addition, a report on Ms. Grethe's medical history prepared at University Hospital indicates that the proposed treatment would afford her a 20-25% chance of long-term survival. DE 2, Letter from Schpall to *1165 Trustmark dated 12/8/94, attachment, at 3. The court finds the evidence in support of Ms. Grethe's position more convincing. The court finds that HDCT/ABMT or PSCR offers a higher chance of long-term survival than standard-dose chemotherapy, which offers very little chance of long-term survival. However, based on the evidence presented, the court also finds that even HDCT/ABMT or PSCR is unlikely to cure Ms. Grethe's cancer. Ms. Grethe must pay for the proposed treatment or have her insurance carrier pay for it. DE 1 at 286. The proposed treatment would probably cost over $100,000.00. Ms. Grethe works ten hours per week as a student aide, earning $6.55 per hour. Ms. Grethe does not have sufficient funds to deposit with University Hospital if she does not obtain insurance coverage. Tr 99-101. Trustmark pays for HDCT/ABMT or PSCR treatment in the following types of cancer: Aplastic anemia, lymphoma, Hodgkins and non Hodgkins lymphoma, chronic myelogenous leukemia, acute leukemia in remission, and pediatric neuroblastoma. Tr 118. HDCT/ABMT or PSCR treatment for cancers of these types is approved for reimbursement by HCFA. Tr 118-19. Breast cancer is a solid tumor. Tr 116. II. CONCLUSIONS OF LAW Ms. Grethe has brought suit under 29 U.S.C. § 1132(a)(1)(B), which permits a civil action by a beneficiary "to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan." The court has jurisdiction under 29 U.S.C. § 1132(f). The Seventh Circuit has identified the factors to which a district court must look when deciding whether to grant a preliminary injunction: "To support the issuance of a preliminary injunction, a plaintiff must demonstrate: 1) a reasonable likelihood of success on the merits; 2) the inadequacy of a remedy at law; 3) the existence of irreparable harm without the injunction; 4) that the threat of harm to the plaintiff outweighs any harm to the defendant if the injunction were issued; 5) that the public interest would not be disserved if the injunction were granted." JAK Productions, Inc. v. Wiza, 986 F.2d 1080, 1084 (7th Cir.1993) (quoting Kellas v. Lane, 923 F.2d 492, 493 (7th Cir.1990)). "As a threshold matter, the moving party must establish that it has some likelihood of success on the merits." Gateway Eastern Railway Co. v. Terminal Railroad Ass'n, 35 F.3d 1134, 1137 (7th Cir.1994). If the moving party is able to so demonstrate, "the court must then determine how likely that success is, because this affects the balance of relative harms.... The more likely the plaintiff is to win, the less heavily need the balance of harms weigh in his favor; the less likely he is to win, the more need it weigh in his favor." Id. (quoting Roland Mach. Co. v. Dresser Indus., 749 F.2d 380, 387 (7th Cir.1984)). With these principles in mind, the court turns to the issue of whether Ms. Grethe has a reasonable likelihood of success on the merits. In order to establish that she is likely to succeed on the merits, Ms. Grethe must demonstrate either that she is entitled to a benefit, i.e., the HDCT/ABMT or PSCR, because it is "medically necessary" within the meaning of the Medically Necessary Rider, or that the "medically necessary" language conflicts with other language in the policy so as to render the policy ambiguous and hence to be construed in her favor. Moreover, because the Medically Necessary Rider gives Trustmark the authority to decide whether services are "medically necessary," Ms. Grethe must also show that Trustmark's decision that the proposed treatment was not "medically necessary" was arbitrary and capricious. Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115, 109 S. Ct. 948, 956-57, 103 L. Ed. 2d 80 (1989). In deciding whether Trustmark's decision was an abuse of discretion, the court bears in mind that Trustmark, when it made that decision, was operating under a conflict of interest. Id. There are five criteria for determining whether a proposed treatment is "medically *1166 necessary." In this case, Trustmark argues that Ms. Grethe's proposed treatment fails to meet two of those criteria, namely, that the treatment be reimbursed by Medicare and that the research not be in connection with medical or other research. Although Trustmark's original letter denying preauthorization stated as one of its reasons that the proposed treatment was not "required and appropriate," Trustmark did not press this point before the court. The court concludes that, for the purposes of this motion, Trustmark has waived reliance on the requirement that the treatment be required and appropriate. Is the proposed treatment "reimbursed by Medicare"? The Medically Necessary Rider provides in part that "[t]he term `Medically Necessary' ... means: drugs, therapies or other treatments that ... are reimbursed by Medicare." According to Trustmark, the applicable Medicare regulations provide: Insufficient data exists to establish definite conclusions regarding the efficacy of autologous bone marrow transplantation for the following conditions: . . . . . * Solid tumors (other than neuroblastoma). In these cases, autologous bone marrow transplantation ... is not covered under Medicare. Defendant's Hearing Br Exh 3. Trustmark reasons that if autologous bone marrow transplantation is not covered for solid tumors, then it is not covered for breast cancer, because breast cancer is a solid tumor. And if it is not covered by Medicare, then it is not reimbursed by Medicare. Hence, Trustmark concludes that the proposed treatment does not meet this requirement for it to be "medically necessary." Ms. Grethe does not seriously dispute that Trustmark has cited the relevant regulations. Rather, Ms. Grethe maintains that there is an ambiguity in the meaning of "reimbursed by Medicare." Her position is that this phrase does not refer to whether Medicare reimburses for a treatment in general, but instead whether in a particular case Medicare will reimburse for a treatment. In support of this view, she cites the section of the Certificate where it defines "Medicare" and discusses eligibility. She also cites Dr. Cagnoni's letter to Trustmark, in which he questioned the "reimbursed by Medicare" requirement based on a similar interpretation. DE 1 at 3-4. Under Ms. Grethe's interpretation, Medicare would never reimburse for any drug, therapy or treatment for Ms. Grethe because she is not eligible for Medicare. Ms. Grethe concludes that because the phrase is capable of more than one interpretation, it is ambiguous and therefore cannot be charged to her detriment. The court concludes that the phrase "reimbursed by Medicare" is not ambiguous. Although Ms. Grethe has advanced an interpretation of it different than that advanced by Trustmark, the court believes that her interpretation is not reasonable, and hence there is no ambiguity. Bechtold v. Physicians Health Plain, 19 F.3d 322, 325 (7th Cir.1994) ("A term is [only] ambiguous if it is subject to reasonable alternative interpretations."). As she herself suggests, the implication of her position is that anyone who is not eligible for Medicare cannot receive benefits because any drug, therapy or treatment would not be reimbursed by Medicare for that person. This is a completely unreasonable interpretation of the plan. There is no reason to believe that the plan covers only those people who are already covered by Medicare. Why would Ms. Grethe's husband's employer arrange for a plan that would presumably leave most of its employees without any coverage? It simply makes no sense. The reason eligibility for Medicare is defined in the policy is because the right to continuation of coverage is dependent upon, among other things, one's eligibility for Medicare. See Defendant's Hearing Br Exh 1, at 43. Clearly, the only reasonable interpretation of the phrase "reimbursed by Medicare" is the one advanced by Trustmark. Under Trustmark's interpretation, the proposed treatment is not reimbursed by Medicare because Medicare does not cover autologous bone marrow transplantation for solid tumors such as breast cancer. Therefore, the proposed treatment fails to *1167 meet this requirement for being considered "medically necessary." Is the proposed treatment to be administered "in connection with medical or other research"? The Medically Necessary Rider provides in part: "The term `Medically Necessary' ... means: drugs, therapies or other treatments ... that are not furnished in connection with medical or other research." Trustmark points to the IRB-approved protocol and the informed consent as establishing that the proposed treatment would be in connection with medical research. Ms. Grethe argues that the phrase is ambiguous because Trustmark's own witness, Dr. Smith, testified that the phrases "in connection with medical research" and "experimental or investigational" were interchangeable. Tr 152 & 204. According to Ms. Grethe, this contradicts Dr. Smith's earlier testimony that there are five criteria in the Medically Necessary Rider, see tr 125, because for there to be five criteria, "experimental or investigational" would have to be distinct from "in connection with medical research." The suggestion is that if a medical doctor experienced in the field of insurance coverage can be of two minds about this matter, then it is necessarily ambiguous to the layman. The court concludes that it is irrelevant whether the phrases "in connection with medical research" and "experimental or investigational" have the same meanings. The issue is whether the proposed treatment is to be furnished in connection with medical research. Ms. Grethe does not address the evidence adduced by Trustmark on this issue, namely, the protocol and the informed consent. To begin with, the entire concept of a protocol is that it is a written document that sets out the objectives and methodology of a study. There is no doubt that Ms. Grethe's proposed treatment would be conducted in connection with a protocol at University Hospital. The protocol states that its major hypothesis is to determine whether "high-dose chemotherapy with autologous bone marrow support may be capable of producing long-term disease free survival...." The protocol repeatedly uses words such as "study" and "investigator" that suggest its nature as a research project. The informed consent that Ms. Grethe would have to sign is titled: "Subject Consent Form for Participation in a Clinical Investigation Project." The first sentence of the form advises the patient that "[y]ou are being asked to participate in a research study...." The consent form also suggests that the results of the study may be reported in medical meetings or in medical literature. The authorization section states "I have read the above and understand the discomforts, inconveniences, and risks of this study...." Ms. Grethe does suggest that the basic concept of HDCT/ABMT or PSCR is not the real object of the study, and that the study is merely seeking to test a variation on an established form of treatment. See Tr 109, 208. Although Dr. Locker's testimony supports this position, tr 49, 83, 86-88, he nevertheless conceded that the proposed treatment would, at least in part, be furnished in connection with medical research, tr 94-95. The court concludes that Ms. Grethe's proposed treatment would be furnished "in connection with medical ... research" as that phrase is used in the Medically Necessary Rider. See Fuja v. Benefit Trust Life Ins. Co., 18 F.3d 1405 (7th Cir.1994) (concluding that breast cancer patient who had sought HDCT/ABMT treatment under a research protocol was seeking treatment "in connection with medical research"). At a minimum, given that Fuja involved the identical policy language and in light of the strong similarities between the facts in this case and those in Fuja, it cannot be concluded that Trustmark's decision on this matter was arbitrary and capricious. Ms. Grethe raises another argument based on an alleged ambiguity in the policy. She maintains that Cancer Drug Benefit, effective October 1, 1994, gave her a reasonable expectation that Trustmark would cover chemotherapy, including high-dose chemotherapy, and "associated services" such a autologous bone marrow transplantation. She argues that the apparent conflict between the Cancer Drug Benefit and the Medically Necessary Rider renders the policy ambiguous, and according to the cannon of *1168 construction that a document is to be construed against the drafter, the policy should be construed against Trustmark. In support of this position, she cites an opinion by Judge Marovich, Frendreis v. Blue Cross Blue Shield of Michigan, 873 F. Supp. 1153 (N.D.Ill.1995). The court concludes that Frendreis is distinguishable. First, the insurer in Frendreis refused coverage on the ground of an exclusion for experimental treatments. Therefore, Judge Marovich held that it was the insurer's burden to demonstrate that the claim fell within the exclusion. 873 F. Supp. at 1157. In the instant case, the Medically Necessary Rider is definitional of the benefits that the policy provides. Therefore, the burden is on Ms. Grethe to demonstrate that the treatment she seeks is a covered benefit. See Farley v. Benefit Trust Life Ins. Co., 979 F.2d 653, 658 (8th Cir.1992). Second, Frendreis is distinguishable because it involved a non-group policy in which the insurer insured the plaintiff on an individual basis knowing that she had cancer. 873 F. Supp. at 1159-60. The policy of insurance provided that "[c]hemotherapeutic drugs and services for the treatment of malignant diseases are payable." Id. at 1157. Based on these facts, Judge Marovich determined that the plaintiff could reasonably expect that her policy would cover HDCT/PSCR treatment. Id. at 1160. In the instant case, Ms. Grethe is covered under a group policy which does not allow for individual variations. Therefore, Ms. Grethe could not reasonably expect that Trustmark would write amendments with her particular condition in mind. In addition, the court believes that, reading the policy as a whole, a reasonable person would find no ambiguity when faced with the Medically Necessary Rider and the Cancer Drug Benefit. The Cancer Drug benefit is, and purports to be, a "benefit" under the policy. The Medically Necessary Rider states that "[b]enefits will be paid only for `Medically Necessary' care." Therefore, it is clear that all benefits under the Cancer Drug Benefit (like all benefits under the policy) must meet the definition of medically necessary care. Conclusion Ms. Grethe has not met her burden of establishing that the proposed treatment meets all of the criteria for qualifying as "medically necessary care" as that term is defined in the policy. Specifically, she has not established that the proposed treatment is reimbursed by Medicare, and she has not established that it would not be furnished in connection with medical research. Thus, she has failed to demonstrate that she has a reasonable likelihood of success on the merits. Indeed, based on the evidence and authorities presented to the court, it appears that there is no likelihood that she would prevail on the merits. Because Ms. Grethe has failed to satisfy the threshold requirement that she demonstrate some likelihood of success on the merits, she cannot establish an entitlement to a preliminary injunction, regardless of the balance of irreparable harms. United States v. Board of Education, 11 F.3d 668, 672 (7th Cir.1993) ("Even if the balance of irreparable harms had inclined sharply in favor of the grant of the preliminary injunction, the grant would have been impermissible because the moving party (the school board) failed to demonstrate even a faint chance of success on the merits."). ORDERED: Plaintiff's motion for a preliminary injunction is denied. Defendant's oral motion for a directed verdict is denied as moot. NOTES [1] The court will use the following abbreviations: "DE" for "Defendant's Exhibit"; "PE" for "Plaintiff's Exhibit"; "Tr" for "Transcript of Hearing (3/24/95)."

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1959949/

631 F. Supp. 465 (1986) CALIFORNIA NATURAL, INC., Plaintiff, v. NESTLE HOLDINGS, INC. and Nestle Enterprises, Inc., Defendants. NESTLE HOLDINGS, INC., Counterclaimant and Third-Party Plaintiff, v. CALIFORNIA NATURAL, INC., Counterdefendant, and Thomas F. Flynn and Drexel Biddle, Flynn, Kumar and Ruggles, Inc., Third-Party Defendants. Civ. A. No. 84-2222. United States District Court, D. New Jersey. March 31, 1986. *466 William M. Antinore, Reiners & Davis, Haddonfield, N.J., and Jeffrey R. Lerman, Montgomery, McCracken, Walker & Rhoads, Philadelphia, Pa., for plaintiff. John J. Mulderig, Brown & Connery, Camden, N.J., and Terrence C. Sheehy, Peter *467 E. Moll, David C. Eddy, Howrey & Simon, Washington, D.C., for defendants. BROTMAN, District Judge. California Natural, Inc. ("CNI") is a food processing firm located in Westville, New Jersey. This action arises out of a series of negotiations which occurred between August, 1983 and January, 1984 involving CNI and defendants Nestle Holdings, Inc. and Nestle Enterprises, Inc. ("Nestle"). During this period, the parties contemplated a complex transaction whereby Nestle was to acquire CNI. On January 25, 1984, Nestle informed CNI that it had decided against such action. Plaintiff then filed this lawsuit alleging breach of contract, promissory estoppel, and fraud. The court's jurisdiction is founded on diversity of citizenship. 28 U.S.C. § 1332. Presently before the court are cross-motions for summary judgment on the issue of liability as to all three causes of action asserted in the complaint. I. Factual Background The factual history of this case is lengthy and complex, but a full recital is important to the parties' cross-motions for summary judgment. CNI is a small company founded in 1981, and principally engaged in the sale and development of "all-natural fruit and ice cream bars and other premium desserts." Complaint at ¶ 7. In late August 1983, CNI and Nestle began discussions concerning the possibility of Nestle purchasing CNI or substantially all of CNI's assets. See, e.g., id. at ¶ 16; Deposition of Thomas F. Flynn, Vice-President, CNI, at 22-23. Extensive discussions continued through the early fall of that year. See, e.g., Dictation Tape of James M. Biggar, President, Nestle Enterprises, September 23, 1983 (discussing on-going negotiations with CNI). During the fall negotiations, Biggar was informed that due to CNI's financial needs the company required that it have a firm commitment concerning the buyout's financing by the middle of October. Biggar Deposition Transcript (Dep.Tr.) at 57. According to CNI, these negotiations culminated in a series of meetings on October 19, 1983. Plaintiff's breach of contract claim rests on the premise that the parties entered into a binding oral purchase agreement on that date during a meeting between Biggar, the President of Nestle, and Thomas G. Cullen, the President of CNI. See Cullen Dep.Tr. at 435-40, 459-60. Plaintiff argues that Biggar and Cullen agreed upon all the essential terms of an oral contract on October 19 and that the parties intended to be bound by that agreement. Cullen Dep.Tr. at 469-71, 736-37; Deposition of George Stephen, investment broker, CNI, at Tr. 204-05. According to Cullen, all that remained to be ironed out were "formalities." Cullen Dep.Tr. at 469-71. In Cullen's view, a deal had already been set. See also Flynn Dep.Tr. at 326 ("In my mind the deal was done. They had reached an agreement."); Stephen Dep.Tr. at 208, 280-81. Nestle vigorously disputes CNI's contention that the parties entered into an oral agreement on October 19, 1983 for Nestle to purchase CNI. Rather, it contends that the October 19 meeting was merely one additional step in the lengthy negotiating process. According to Nestle the parties agreed on October 19 that no "definitive binding acquisition agreement" would be completed until the parties had signed a written letter of intent, negotiated and executed an asset purchase agreement and there had been an audit of CNI. See Nestle Memorandum in Opposition to Plaintiff's Motion for Summary Judgment ("Nestle Memorandum No. 1") at 5-6. These are the steps Cullen and Flynn viewed as mere formalities rather than prerequisites for a binding agreement. Plaintiff also claims that the oral agreement between Cullen and Biggar contained all of the terms necessary to constitute a valid contract. According to CNI, the parties agreed on matters such as the price Nestle would pay for shares of CNI stock; additional payments based on future company earnings ("earn-out"); and the transaction fee. As evidence of which terms *468 were agreed upon, CNI points to deposition testimony of its executives and a memorandum of Flynn's from November 1, 1983, a dictated memorandum of Biggar's from October 27, 1983, and the Letter of Intent signed by both parties on November 28, 1983. CNI emphasizes that these writings are evidence of the binding oral agreement of October 19, 1983, and are not themselves binding contracts. See, e.g., CNI's Memorandum in Opposition to Defendant's Motion for Summary Judgment ("CNI Memorandum No. 2") at 36-39. Nestle disputes CNI's contention regarding the terms for agreement and insists that the differences among Biggar's October 27 memo, the first draft of the Letter of Intent on November 4, and the final Letter of Intent on November 29 are evidence that no final agreement was reached on October 19. See Nestle Memorandum No. 1 at 5-9. Both parties acknowledge that more meetings between their representatives occurred between the October 19 Cullen-Biggar meeting and the date of the final Letter of Intent, which CNI signed on November 29. Nestle characterizes these meetings as a continuation of an on-going negotiation process between the parties. See, e.g., Nestle's "Statement of Undisputed Facts" at 17-35. CNI contends, however, that most of Nestle's work at that point was delegated by Biggar to Frank Carpenter, whose duty was merely to "complete the necessary paperwork" and to "coordinate the closing process." See CNI's Memorandum in Support of its Motion for Summary Judgment ("CNI Memorandum No. 1") at 18; Frank Carpenter Memorandum, Plaintiff's Exhibit 30 in Appendix to CNI Memorandum No. 1. Again, according to CNI the "deal" had already been completed. During the period when CNI and Nestle representatives were meeting between October 19 and November 29, 1983, CNI also engaged in discussions with another potential buyer for its stock or assets — Cummins Diesel Engines, Inc. See Notes of Dennis Moore, Vice-President, CNI, at 1, Marked as Defendant's Exhibit "Moore 22." For example, Cullen and Moore met with several Cummins Executives in November to discuss the possible purchase of CNI. See Cullen Dep.Tr. at 982-83; Moore Deposition at Tr. 315-16. At this meeting Moore told the Cummins representatives that CNI was "negotiating with another company and that time was of the essence. That we were soon to sign a letter of intent [with Nestle], and once we got to that point they would not have any more chance." Moore Dep.Tr. at 321. The Cummins-CNI discussions continued until November 21, when Cummins advised CNI that it was no longer interested.[1] CNI admits that it had these discussions with Cummins, but claims that it was forced to do this due to "erratic" behavior by Carpenter which led CNI to question Nestle's own intentions regarding the acquisition. See Cullen Dep.Tr. at 64, 732. CNI received a new draft of the Letter of Intent on November 21. After several changes by CNI, the final Letter of Intent was signed on November 29. See, e.g., Cullen Letter to Carpenter, November 25, 1983, Marked as Defendant's Exhibit "Cullen-29." The Letter of Intent itself is another major point of contention between the parties. CNI asserts that the Letter contains the "material terms of the acquisition agreement" which it argues was already concluded. CNI Memorandum No. 1 at 2. By contrast, Nestle contends that this Letter of Intent may not be used as any evidence of a binding oral agreement. Defendants rely on ¶ 11 of the Letter of Intent, which states that this letter constitutes only a Letter of Intent and a statement of our present intentions regarding the transactions set forth above, and neither constitutes nor should be construed as evidence of any *469 form of offer or binding contract (emphasis added). This section of the Letter also provides that the "consummation of the transactions" proposed in the Letter would be "expressly subject" to the execution of an asset purchase agreement and a number of other conditions including approval by Nestle's Board of Directors and an accounting review of CNI. Finally, Nestle argues, this Letter contains several examples of "material" items requiring future negotiation.[2] Nestle asserts that the Letter represents strong evidence that the parties lacked any binding agreement by November 29, 1983. After the parties signed the Letter of Intent, CNI's Board of Directors met to discuss the "ongoing negotiations to sell the [CNI] assets" to Nestle. Minutes of Meeting of [CNI] Board of Directors, December 8, 1983, Marked as Defendants' Exhibit "Flynn-172." At that meeting the Board "ratified, approved and affirmed" the Letter of Intent and "authorized and directed" CNI's officers to "negotiate the sale of the assets of CNI to Nestle." Id. There is no mention of any CNI-Nestle oral agreement in the Board minutes. During December, Nestle's lawyers drafted the asset purchase agreement called for in the Letter of Intent. They sent a draft to CNI on January 5, 1984. Plaintiff has complained about the amount of time that elapsed before it received this draft. Cullen wrote a letter in the interim to Carpenter expressing CNI's concern about this delay and his uncertainty over Nestle's "intentions." Letter of Cullen to Carpenter, January 3, 1984 at 5. The parties debated the content of this agreement during January. See, e.g., Discussion in Nestle's "Statement of Undisputed Facts" at ¶ 76. According to Nestle, some issues concerning the agreement were never resolved. CNI asserts, however, that nothing on its part prevented the deal or the asset purchase agreement from being completed. Flynn Dep.Tr. at 473. On January 25, 1984, Carpenter called Cullen to inform him that Nestle had decided not to go forward with the CNI acquisition. Nestle contends that a number of factors weighed into this decision, such as an analysis of "Nestle's audit and legal review of CNI's financial statements, business records and trademarks and ... CNI's products and product claims." Nestle's "Statement of Undisputed Facts" at ¶ 80, n. 10. CNI claims that this decision by Nestle was not based on any newly acquired information about CNI, but rather on an altered assumption about the frozen fruit bar market based on further "reflection and business judgment." See Deposition of Robert McGuigan, President, Stouffers (Nestle subsidiary), at Tr. 53; Carpenter Dep.Tr. at 209. According to CNI, the audit produced no new relevant information on CNI. Carpenter Dep.Tr. at 5. Another fact upon which CNI places great weight is the internal "Winning Strategy Memo" written by Carpenter. Plaintiff's Exhibit P49-Carpenter; see Carpenter Dep.Tr. at 160-61. In this note Carpenter writes that Nestle should "prolong the decision-making process, ... find out how desperate [CNI's] condition is," and "buy [CNI] from the bankruptcy court" if it folds. It is not clear when this note was written, nor is there evidence that the note was circulated among other Nestle employees. Nevertheless, CNI asserts that this note is evidence of a "scheme" by Nestle to bargain in bad faith and not to carry out the acquisition agreement with CNI. See CNI Memorandum No. 1 at 6-11. *470 II. Standard for Summary Judgment The standard for granting summary judgment is a stringent one. Rule 56(c), Fed.R.Civ.P., provides that summary judgment may be granted only when the materials of record "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." See Special Jet Services, Inc. v. Federal Insurance Co., 643 F.2d 977 (3rd Cir.1981); Ely v. Hall's Motor Transit Co., 590 F.2d 62 (3rd Cir.1978). In deciding whether an issue of material fact does exist, the court is obligated to view all doubt in favor of the nonmoving party. Tomalewski v. State Farm Insurance Co., 494 F.2d 882 (3rd Cir.1974); Smith v. Pittsburgh Gage and Supply Co., 464 F.2d 870, 874 (3rd Cir.1972). The court's role on a summary judgment motion is merely to identify the existence of factual issues, not to weigh the strength or the credibility of the evidence. See, e.g., Huddell v. Levin, 537 F.2d 726, 737 (3rd Cir.1976); Ferdinand v. Agricultural Insurance Co., 22 N.J. 482, 494, 126 A.2d 323 (1956). Although the burden of proof on a motion for summary judgment lies with the moving party, the opposing party may not rest upon the mere allegations or denials of his pleading, but his response, by affidavits or as otherwise provided in this rule, must set forth specific facts showing that there is a genuine issue for trial. Fed.R.Civ.P. 56(e). The court must rule "on the record the parties have actually presented, not on one potentially possible." Madeirense v. Stulman, 147 F.2d 399 (2nd Cir.1945). See Judson v. Peoples Bank & Trust Co. of Westfield, 17 N.J. 67, 75, 110 A.2d 24 (1954). If a party fails to respond in the required manner, the court may, if appropriate, enter summary judgment against it. III. Analysis A. Breach of Contract Claim 1. Existence of Oral Agreement CNI's first claim against Nestle is for the breach of an alleged oral contract the parties entered into on October 19, 1983. The Restatement of Contracts states that "the formation of a contract requires a bargain in which there is a manifestation of mutual assent to the exchange and a consideration." Restatement of Contracts 2d § 17, at 51. A "manifestation of mutual assent to an exchange requires that each party either make a promise or begin to render a performance." Id., § 18, at 53. Mutual "assent" depends upon the intent of the parties. Parties may effectively bind themselves orally if they agree on the "essential terms" of the contract and intend to be bound by those terms. See Berg Agency v. Sleepworld-Willingboro, Inc., 136 N.J.Super. 369, 373-74, 346 A.2d 419 (App.Div.1975). The key factor is not whether every detail normally associated with a contractual undertaking has been included in an agreement between the parties. The presence of such detail is merely an "element in the evidential panorama underlying a factual finding of intent and enforceability."[3] In the case at bar CNI seeks to enforce the alleged oral agreement of October 19, 1983. Although both parties subsequently signed a Letter of Intent, CNI claims that the parties intended to and in fact did enter into a binding agreement before that document was signed. Nestle has produced an enormous amount of evidence, including the Letter of Intent, to support its contention that it *471 never reached a binding oral agreement with CNI. It asserts that the October 19 meeting was merely one session in a lengthy negotiating process which never came to fruition. The language in the Letter of Intent and the behavior of both sides throughout the fall and early winter of 1983-1984 do strongly indicate that neither side viewed the October 19 meeting as the culmination of a binding oral agreement. Despite all the evidence Nestle has introduced, CNI has responded with evidence of its own. Plaintiff relies on the deposition testimony of its executives Thomas G. Cullen, Thomas F. Flynn and Dennis G. Moore; the testimony of its investment adviser George Stephen; and the memoranda written and dictated by Flynn and Nestle executive James M. Biggar respectively. Based on the personal knowledge of the CNI representatives, CNI contends that Nestle and CNI did have a binding oral purchase agreement on October 19. Plaintiff asserts through its evidence that both sides intended to enter into the contract on that date and it was not until later that Nestle began to back away from its commitment. The above discussion indicates the presence of a material issue of fact. Despite wide discrepancy between the relative amounts of the evidence presented, a court's role at the summary judgment stage is merely to identify factual issues, not to weigh the credibility or strength of the evidence. That task must be left to the jury. See Huddell v. Levin, supra; Ferdinand v. Agricultural Insurance Co., supra. The court cannot determine as a matter of law that there was no oral agreement between the parties as of October 19, 1983. 2. Application of the Statute of Frauds Assuming arguendo that the parties did enter into an oral agreement, the court must still make the legal determination of whether the statute of frauds restricts the enforceability of the agreement. The New Jersey statute of frauds provides in relevant part that a contract for the sale of personal property is not enforceable by way of action or defense beyond five thousand dollars in amount or value of remedy unless there is some writing which indicates that a contract for sale has been made between the parties at a defined or stated price, reasonably identifies the subject matter, and is signed by the party against whom enforcement is sought by his authorized agent. N.J.S.A. 12A:1-206 (emphasis added). A contract for the sale of "personal property" includes the sale of a business and its assets. Olympic Junior, Inc. v. David Crystal, Inc., 463 F.2d 1141, 1144-45 (3rd Cir. 1972), citing N.J.S.A. 12A:1-206. The agreement in the case at bar clearly represents such a sale of personal property and thus will be unenforceable beyond $5000 unless this court determines that there is a writing that sufficiently indicates that "a contract for sale has been made." The writing necessary to overcome the statute of frauds must reasonably prove the existence of a contract obliging the defendant to buy or sell goods, and show enough of the contractual terms to assure a reasonably certain basis for giving appropriate relief to the parties. N.J.S.A. 12A:2-201(1). The satisfaction of the statute of frauds is a legal determination. The parties do not disagree about the factual evidence on this issue. CNI relies on three writings which it asserts satisfy the statute of frauds. These are the Letter of Intent, the Flynn memorandum, and the Biggar dictated memorandum. The Letter of Intent clearly cannot satisfy the statute of frauds. The Letter itself explicitly states that it "neither constitutes nor should be construed as evidence of any form of offer or binding contract." Letter of Intent at ¶ 11. Furthermore, the Letter states that the completion of the "transactions" proposed in the Letter was "expressly subject" to a number of conditions. Id.; see Factual Background, supra. Although the Letter was signed by *472 Nestle, its very language precludes its use as proof of the existence of a binding contract. The Flynn memorandum was prepared by CNI executive Thomas Flynn and no agent of Nestle's either assisted with the preparation of or signed it. Therefore, this writing as a matter of law cannot satisfy the statute of frauds. N.J.S.A. 12A:1-206; Huyler Paper Stock Co. v. Information Supplies Co., 117 N.J.Super. 353, 363-63, 284 A.2d 568 (Law Div.1971) (the signature requirement is "essential" under the statute of frauds). Finally, CNI rests its compliance with the statute of frauds on the transcribed memorandum of a dictation by James Biggar. This memorandum does refer to several terms of "the deal that [Frank] Carpenter had negotiated with Tom Cullen," such as the division between "passive" and active CNI shareholders, the price per share of stock to each group, and the amount of earnout. However, the memorandum is labeled only "Per JMB dictation tape 10/27/83." Biggar never signed this memorandum, and never sent it to CNI for its review or approval. It was no more than a hastily prepared internal memorandum and the statute of frauds writing requirement does not encompass this type of writing. Absent a signature or at least more definitive indication that a "contract for sale has been made between the parties," this memorandum as a matter of law does not satisfy the statute of frauds. See Trilco Terminal v. Prebilt Corporation, 167 N.J.Super. 449, 451, 400 A.2d 1237 (Law Div.1979), aff'd, 174 N.J. Super. 24, 415 A.2d 356 (App.Div.1980); Huyler Paper Stock Co. v. Information Supply Co., supra.[4] Based on an analysis of the memoranda submitted by CNI, the court holds as a matter of law that CNI has not satisfied the statute of frauds through a writing. CNI contends, however, that it has satisfied the statute of frauds due to the doctrine of promissory estoppel. 3. Satisfaction of Statute of Frauds Through Promissory Estoppel A party can avoid the application of the statute of frauds and enforce an otherwise unenforceable oral agreement through the doctrine of promissory estoppel. A prima facie case of promissory estoppel requires: (1) a clear and definite promise by the promisor; (2) the promise must be made with the expectation that the promisee will rely thereon; (3) the promisee must in fact reasonably rely on the promise; and (4) detriment of a definite and substantial nature must be incurred in reliance on the promise. The Malaker Corp. v. First Jersey National Bank, 163 N.J.Super. 463, 479, 395 A.2d 222 (App.Div.1978). This is another area in which Nestle has presented strong evidence to support its argument that CNI failed to create a genuine issue of material fact. For example, its evidence of a lengthy and complex negotiating process creates great doubt that it ever made a "clear and definite promise" to purchase CNI. The exchange of draft Letters of Intent also strongly supports the view that any reliance by CNI on a Nestle promise was not "reasonable." Despite such evidence, however, a factual issue remains on all elements of the promissory estoppel defense. CNI has presented sufficient evidence to avoid summary judgment on the estoppel issue. First, its deposition testimony creates a factual issue as to whether *473 there was a "clear and definite" promise made by Biggar to Cullen on October 19, 1983. This same testimony creates a factual issue on Nestle's alleged expectations of CNI's reasonable reliance on that promise. CNI claims that it relied on Nestle's promise by terminating or not pursuing discussions with other potential purchasers of CNI. Finally, CNI contends through deposition testimony that it lost "credibility" and "customers" due to Nestle's refusal to complete the acquisition agreement. This creates a factual issue of a real detriment to CNI stemming from its reliance. See generally CNI Memorandum No. 1 at 11-15. In seeking summary judgment on the promissory estoppel issue, Nestle relies in large part on the decision in Chromalloy American Corp. v. Universal Housing Systems of America, Inc., 495 F. Supp. 544 (S.D.N.Y.1980), aff'd mem., 697 F.2d 289 (2nd Cir.1982). In that case the district court held that as a result of "written disclaimers of contractual liability which were made, any reliance on the existence of an ... agreement [based on a prior oral promise] was unreasonable." 495 F. Supp. at 551. Consequently, the court rejected the attempted use of the promissory estoppel doctrine by the party seeking to enforce the agreement. That case is distinguishable from the one at bar, however, because the court relied on "undisputed facts" indicating "conclusive evidence of an intent to be bound only by a formal writing." Id. at 550 (emphasis added). As noted several times, CNI and Nestle are in dispute about whether there was such intent in this case. Courts that have rejected the promissory estoppel defense have usually based that decision on full fact findings. See, e.g., Transport Management Co. v. American Radiator and Standard Sanitary Corp., 326 F.2d 62 (3rd Cir.1963). Until all factual issues are resolved in the case at bar, the court cannot rule as a matter of law that CNI's reliance was unreasonable. For all the above reasons, the court will deny the motions for summary judgment relating to the breach of contract claim. The existence of an oral agreement remains an open factual issue. As a result of the statute of frauds, however, this alleged agreement is unenforceable beyond $5000 unless plaintiff prevails in demonstrating all the elements of the doctrine of promissory estoppel. The court holds as a matter of law, however, that the statute of frauds applies and that CNI has not satisfied it through a sufficient writing. B. Fraudulent Misrepresentation Claim In New Jersey there are five necessary elements to maintain an action for fraudulent misrepresentation: (1) a representation by defendant to the plaintiff with intent that the latter party rely upon it; (2) knowledge on the part of the defendant that the representation is in fact false; (3) belief by the plaintiff that the representation is true; (4) reliance on such representation; and (5) the taking of action and consequent injury. Thomas v. Duralite Company, 386 F. Supp. 698 (D.N.J.), aff'd in part, rev'd in part on other grounds and vacated, 524 F.2d 577 (3rd Cir.1975); accord Chatlos Systems v. National Cash Register Corp., 479 F. Supp. 738, 748 (D.N.J.1979), aff'd in part, rem'd in part on other grounds, 635 F.2d 1081 (3rd Cir.1980). A "false representation of an existing intention, i.e., a `false state of mind,' with respect to a future event or action has been held to constitute actionable misrepresentation." Capano v. Borough of Stone Harbor, 530 F. Supp. 1254, 1264 (D.N.J.1982), quoting Samatula v. Piechota, 142 N.J.Eq. 320, 60 A.2d 86 (Ch. 1948). Defendant's lack of intention of fulfilling the promise may be shown "circumstantially by ... subsequent acts and by subsequent events or by evidence that the statement was impossible to fulfill based upon contingencies or circumstances known to the promisor at the time of the statement but *474 unknown to the promisor at the time of the statement but unknown to the promisee." Capano, supra, 530 F.Supp. at 1264. In the case at bar, CNI's fraudulent misrepresentation claim closely resembles its promissory estoppel claim. In addition to the proof relied on for that claim, however, CNI also points to Flynn's "Winning Strategy Memo" as evidence that Nestle had no intention of fulfilling its alleged promise of October 19, 1983. CNI alleges that Nestle withheld from CNI its intent to pressure CNI into near-collapse. This evidence, combined with the testimony discussed earlier, combines to create at least an issue of fact on the elements for fraudulent misrepresentation. Again, the court notes that by this decision it is not making a determination regarding the relative weight and credibility of the evidence produced by each side. Such decision is beyond the scope of this court's role. In sum, the court will deny the cross-motions for summary judgment on plaintiff's fraudulent misrepresentation claim. C. Punitive Damages Claim Count IV of CNI's complaint alleges that Nestle "acted willfully, wantonly, outrageously and with reckless disregard for the rights of California Natural," and prays for an award of punitive damages. Complaint at ¶ 42. Nestle correctly points out that in New Jersey there is no independent cause of action for punitive damages. See O'Connor v. Harms, 111 N.J.Super. 22, 30, 266 A.2d 605 (App.Div.1970); Barber v. Hohl, 40 N.J.Super. 526, 534, 123 A.2d 785 (App.Div.1956). The court will not treat CNI's claim for punitive damages as a separate cause of action, but will consider this as part of the substantive claims for damages. Therefore, the court will not dismiss Count IV of the complaint and will deny the cross-motions for summary judgment. III. Conclusion Based on the submissions and arguments of the parties, the court has made the following decisions. First, the court will deny the cross-motions for summary judgment on plaintiff's breach of contract and promissory estoppel claims. Any oral agreement which may have been reached will not be enforceable beyond $5000 unless plaintiff proves the applicability of the doctrine of promissory estoppel. Second, the court will deny the cross-motions for summary judgment on plaintiff's fraudulent misrepresentation claim. Third, the court will deny the cross-motions for summary judgment on the punitive damages claim. The court will enter an appropriate order. NOTES [1] CNI renewed sale discussions with Cummins in December 1983 and January 1984, despite promises in the Letter of Intent with Nestle that it would not engage in such discussions. See Deposition of William Gemmill, Vice-President, Cummins, at Tr. 57-62. [2] Items in the Letter of Intent which Nestle relies on in its argument include: ¶ 2b: liabilities which "shall be agreed upon" ¶ 5: Nestle "will assume the prospective performance obligations of CNI under such leases — which are agreed to by [Nestle]" ¶ 6: Mr. Cullen's employment contract "shall contain ... items and matters mutually agreed upon" ¶ 7: A phantom stock plan "will be developed" Letter of Intent, November 28, 1983. See Nestle's Memorandum in Support of its Motion for Summary Judgment ("Nestle Memorandum No. 2") at 17-18. [3] A threshold consideration for this court is which law to apply in this case. The parties have not examined this issue in detail. In New Jersey, the "validity of a contract is to be determined by the law of the place of contract." Colozzi v. Bevko, 17 N.J. 194, 204, 110 A.2d 545 (1955). In the case at bar the parties entered into an alleged oral agreement in Ohio, but plaintiff signed a Letter of Intent in New Jersey and the parties negotiated and contemplated performance in New Jersey. Under these circumstances, and the presence of the fraud claim as well, the court deems that New Jersey law is most appropriate. An initial review of Ohio law indicates a close parallel with New Jersey law in any case. [4] One exception to the signature requirement is when there is a transaction between merchants and the party seeking to enforce the contract must have sent a "writing in confirmation of the contract" to which there was no objection from the opposing party within 10 days of the party's receipt of the writing. N.J.S.A. 12A:2-201(2); Trilco Terminal v. Prebilt Corporation, supra 167 N.J.Super. at 451, 400 A.2d 1237. There was no exchange of the Biggar memorandum in this case.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1960136/

881 F. Supp. 449 (1995) Melville K. TURNER and Letitia Y. Turner, Petitioners, v. UNITED STATES of America and P. Endo, Revenue Agent, Internal Revenue Service, Respondents. Civ. No. 94-00690. United States District Court, D. Hawai`i. January 19, 1995. Melville K. Turner, Honolulu, HI, pro se. *450 Letitia Y. Turner, Honolulu, HI, pro se. Michael Chun, U.S. Attys. Office, Honolulu, HI, Thomas J. Sawyer, U.S. Dept. of Justice, Trial Atty., Tax Div., Washington, DC, for respondents. ORDER GRANTING RESPONDENTS' MOTION TO DISMISS KAY, Chief Judge. FACTS On September 13, 1994, Petitioners Melville K. Turner and Letitia Y. Turner ("Petitioners") filed a petition to quash six Internal Revenue Service (IRS) summonses served on three financial institutions seeking financial information about petitioners. The summonses were issued on August 16, 1994, by an IRS employee using the pseudonym of P. Endo. Copies of the summonses were provided to Petitioners by certified mail on August 16, 1994. The return receipts for the certified mailings show that the Petitioners each signed for the mail on August 19, 1994. On September 13, 1994, Petitioners filed this petition to quash the summonses, 28 days after notice of the summons was mailed to Petitioners and 25 days after Petitioners signed for the certified mail. Petitioners assert that this Court has subject matter jurisdiction over their motion to quash the IRS summonses pursuant to § 1110 of the Right to Financial Privacy Act and § 7609 of the Internal Revenue Code. Respondents argue that this Court lacks jurisdiction to hear the petition because it was filed outside of the twenty-day period set by 26 U.S.C. 7609(b). STANDARD OF REVIEW On a motion to dismiss for lack of subject matter jurisdiction under 12(b)(1), Federal Rules of Civil Procedure, the plaintiff's allegations are not presumed to be truthful, and the plaintiff has the burden of proving that jurisdiction exists. Thornhill Publishing Co., Inc. v. General Telephone & Electronics Corporation, 594 F.2d 730, 733 (9th Cir. 1979). "[A] Rule 12(b)(1) motion can attack the substance of a complaint's jurisdictional allegations despite their formal sufficiency," whereupon the plaintiff must "present affidavits or any other evidence necessary to satisfy its burden." St. Clair v. City of Chico, 880 F.2d 199, 201 (9th Cir.1989), cert. denied, 493 U.S. 993, 110 S. Ct. 541, 107 L. Ed. 2d 539 (1989). DISCUSSION I. 26 U.S.C. § 7609 Section 7601 of the Internal Revenue Code grants the Secretary of the Treasury Department the authority to initiate investigations of all persons who may be liable to pay internal revenue tax. 26 U.S.C. § 7601. Section 7602 authorizes the Secretary to "examine any books, papers, records, or other data which may be relevant or material" in ascertaining the correctness of any return or determining the tax liability of any person, whether or not a return has been filed. Section 7602(a)(2) provides that the Secretary may issue summonses to compel persons in possession of such books, papers, records, or other data to produce them for examination. When the IRS issues summonses to third-party recordkeepers such as banks and credit unions, Section 7609 of the Code requires that the IRS give notice to the taxpayer within three days of the date of issuance of the summons and at least 23 days before the examination is to take place. 26 U.S.C. § 7609(a)(2). The taxpayer then has twenty days from the date of notice to bring a proceeding to quash the summons. 26 U.S.C. § 7609(b)(2). Section 7609(h) grants the United States District Courts jurisdiction over taxpayer motions to quash third-party summonses. 26 U.S.C. § 7609(h). Because any exercise of a court's jurisdiction over the government depends on the government's consent, this statutory waiver of the government's sovereign immunity must be strictly construed. Ponsford v. United States, 771 F.2d 1305, 1309 (9th Cir.1985); Faber v. United States, 921 F.2d 1118, 1119 (10th Cir.1990); Stringer v. United States, 776 F.2d 274, 275 (11th Cir.1985). The Ninth Circuit and other courts have held that the jurisdiction granted district courts by § 7609(h) is limited by the twenty-day filing requirement of § 7609(a)(2), which acts as a *451 condition precedent to the government's waiver of its sovereign immunity. Ponsford, 771 F.2d at 1309; Faber, 921 F.2d at 1119; Stringer, 776 F.2d at 275. The plain language of § 7609 indicates motions to quash must be filed within twenty days from the date "notice is given in the manner provided in subsection (a)(2)." Section 7609(a)(2) provides for notice either by in-hand service or by registered or certified mail. Federal Rules of Civil Procedure 6(e) provides that: Whenever a party has the right or is required to do some act or take some proceedings within a prescribed period after the service of a notice or other paper upon the party and the notice or paper is served upon the party by mail, 3 days shall be added to the prescribed period. Accordingly, where notice of an IRS summons is sent to the taxpayer by mail, the taxpayer has 23 days in which to file his motion to quash. Petitioners filed their petition to quash the summonses 28 days after the IRS sent them notice by certified mail, thus failing to comply with the 23 day filing period required for this Court to assert jurisdiction under § 7609(h)(1). II. 12 U.S.C. § 3410 Petitioners also assert that the Court has jurisdiction over their motion to quash the IRS summonses pursuant to 12 U.S.C. § 3410. Section 1110 of the Right to Financial Privacy Act provides customers of financial institutions the right to file a motion to quash administrative summonses of financial records from the institutions. 12 U.S.C. § 3410. Like 26 U.S.C. § 7609, however, the government's waiver of its sovereign immunity is conditioned on the timely filing of the motion to quash. As discussed previously, § 3410 requires customers to file their motion to quash within ten days of receiving inhand service or within fourteen days of the date notice was mailed to the customer. In the case at bar, Petitioners failed to file their motion to quash the IRS summonses within the allotted time frame provided by either statute. Because timely filing is a prerequisite to this Court's jurisdiction over this matter pursuant to either statute, the Court hereby dismisses the petition to quash for lack of subject matter jurisdiction. CONCLUSION For the foregoing reasons, this Court GRANTS the Respondents' motion to dismiss. IT IS SO ORDERED.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1960455/

881 F. Supp. 688 (1995) Eric S. WHITE, Administrator, C.T.A., of the Estate of Lucy Lee Bennett, Plaintiff, v. UNITED STATES of America, Defendant. Civ. A. No. 92-11672-RCL. United States District Court, D. Massachusetts. March 30, 1995. *689 Gerald B. O'Grady, III, Tyler & Reynolds, P.C., H. Theodore Cohen, McGregor & Shea, P.C., Boston, MA, for plaintiff. Susan M. Poswistilo, Asst. U.S. Atty., Boston, MA, Henry J. Riordan, Trial Atty., Tax Div., U.S. Dept. of Justice, Washington, DC, for defendant. LINDSAY, District Judge. Report and recommendation accepted. REPORT AND RECOMMENDATION RE: DEFENDANT UNITED STATES' MOTION FOR SUMMARY JUDGMENT (DOCKET ENTRY # 23); PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT (DOCKET ENTRY # 13) BOWLER, United States Magistrate Judge. Pending before this court are cross motions for summary judgment in the above styled action to recover federal estate taxes. Defendant United States of America ("defendant") filed a motion for summary judgment seeking to dismiss this action. (Docket Entry # 23). Plaintiff Eric S. White, Administrator, C.T.A., of the Estate of Lucy Lee Bennett ("plaintiff") opposes summary judgment (Docket Entry # 26) and moves for summary judgment to recover federal estate taxes, interest and penalties, if any, on amounts of $113,032.57 and $3,026.33 paid by plaintiff in 1991 together with accrued interest. (Docket Entry # 14). Defendant opposes the motion. (Docket Entry ## 20 & 24). After conducting a hearing on plaintiff's motion for summary judgment, this court took the motion under advisement. (Docket Entry # 27). This opinion also addresses defendant's motion for summary judgment. (Docket Entry # 23). BACKGROUND On July 31, 1957, Lucy Lee Bennett, a/k/a/ Lucy Lee Perry ("Bennett"), signed an indenture establishing a revocable trust ("the trust"). Under the fifteenth article, Bennett reserved the right to amend the trust with a written instrument delivered to the trustees. In order to amend the trust, the trustees had *690 to receive the written instrument.[1] In addition, any amendment would not effect any prior lawful act made by the trustees. The pertinent language reads that: The Donor reserves the right by written instrument delivered to the Trustees hereunder to alter, amend or revoke this Indenture in whole or in part, but without effect upon any lawful act of the Trustees prior to the receipt of such instrument. (Docket Entry # 24, Ex. A). By written instrument dated September 5, 1980, Bennett amended the trust to delete the third and fourth articles and to substitute the following language as the third article: During the lifetime of the Donor and while she is married the Trustees shall distribute from principal the sum of [$6,000] per annum in securities and/or cash to Carol Lee Herbel, daughter of the Donor, Eric S. White and Joseph N. White, sons of the Donor, Brian C. Herbel, Bradley N. Herbel, Sarah W. White, Emily S. White and David T. White, grandchildren of the Donor, and to any other grandchildren of the Donor, and to any other grandchildren of the Donor subsequently born. (Docket Entry # 24, Ex. C). The September 1980 amendment set the date for the distributions, exclusive of the first distribution, as "immediately after the first of the successive years." It is undisputed that Bennett remained married from the date of this amendment to her death. (Docket Entry # 16). By written instrument dated August 9, 1982, Bennett made another amendment to the trust by: (1) adding the names of two donees; (2) directing that the missed 1981 and 1982 distributions be made together; and (3) directing that the 1983 and subsequent distributions be made with the amounts set forth in the September 1980 amendment, albeit to the enlarged list of donees. The August 1982 amendment reads, in part, as follows: Whereas no principal distributions were made under Article Third during the year 1981, I direct that the 1981 distributions and the 1982 distributions shall be currently made together and the 1983 and subsequent distributions shall revert to the amounts provided in Article Third but to the enlarged list of Donees. (Docket Entry # 24, Ex. D). On January 30, 1987, Bennett died. At the time of her death, the trustees had made distributions to the designated donees for the years 1981, 1982, 1984 and 1985. Significantly, however, the trustees had not made the distributions for the years 1983, 1986 and 1987 despite the language that the trustees "shall" make such distributions on "the first of the successive years." (Docket Entry # 16). After Bennett's death, the trustees distributed the 1983, 1986 and 1987 missed distributions to the donees. On or about October 1, 1987, plaintiff filed for an extension of time and paid an estate tax of $910,000. In December 1987 plaintiff filed an estate tax return on form 706. Therein, plaintiff reported an estate tax liability of $813,756.27 and claimed a refund of $96,243.53 in light of the prior payment of $910,000. (Docket Entry # 24, Ex. J & S; Docket Entry ## 15 & 16). In February 1988 the Internal Revenue Service ("the IRS") paid the estate a refund of $96,243.53 with interest of $2,098.42, resulting in a total payment of $98,341.95. On schedule K of form 706, plaintiff listed as a debt of the decedent, $180,000 for the distributions to the donees made after Bennett's death under the trust for the years 1983, 1986 and 1987. Plaintiff described the $180,000 debt on the schedule as: Distributions to decedent's issue required by Second Amendment dated September 5, 1980 to Trust u/i dated July 31, 1957 but not in fact made during decedent's lifetime. $54,000 for the years 1983, 1986 & 1987. (Docket Entry # 24, Ex. J & S; Docket Entry # 15). In 1990 the IRS audited plaintiff's form 706. The IRS disallowed the $180,000 deduction set forth in schedule K. In its explanation of the adjustment, the IRS stated that *691 the $180,000 deduction for the distributions not made during Bennett's lifetime were not allowable under 26 U.S.C. § 2053(c)(1)(A). The IRS therefore included the $180,000 amount for the distributions in the gross estate. (Docket Entry # 24, Ex. J & O; Docket Entry # 15) On November 8, 1990, the IRS sent plaintiff a statutory notice of a $79,559.89 estate tax deficiency. The estate agreed to pay the deficiency with interest. On January 14, 1991, the IRS assessed a $79,559.89 deficiency in estate tax and $3,472.68 in interest. On March 19, 1991, the estate paid the IRS $113,032.47 and on May 22, 1991, the estate paid an additional $3,026.33.[2] As a result, as of October 26, 1992, the estate had paid in full the estate tax plus the deficiency. (Docket Entry # 24, Ex. O & S). In February 1992 plaintiff filed form 843 seeking a refund of the $113,032.47 and $3,026.33 payments with interest. Plaintiff provided the IRS with a detailed explanation as to why the $180,000 amount of the distributions was a valid and enforceable claim against the trust at the time of Bennett's death and, therefore, properly excluded from the date of death value of the trust. Plaintiff alternatively sought inclusion of the $180,000 amount as a schedule K debt. (Docket Entry # 24, Ex. Q). By letter dated May 11, 1992, the IRS disallowed the claim for a refund. (Docket Entry # 24, Ex. R). This action for a refund pursuant to 26 U.S.C. § 6532(a)(1) followed. DISCUSSION While both parties move for summary judgment (Docket Entry ## 13 & 23), this court analyzes the cross motions for summary judgment separately and under different frameworks. With regard to defendant's motion for summary judgment, plaintiff bears the underlying burden of proof and, hence, must present definite and competent evidence to survive summary judgment. Webb v. I.R.S., 15 F.3d 203, 205 (1st Cir. 1994) (citing Bonilla-Aviles v. Southmark San Juan, Inc., 992 F.2d 391, 393 (1st Cir. 1993)). Summary judgment is permissible when "there is no genuine issue as to any material fact and ... the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). Inferences are drawn in favor of the nonmoving party. Space Master International, Inc. v. City of Worcester, 940 F.2d 16 (1st Cir.1991); Herbert W. Price v. General Motors Corporation, 931 F.2d 162 (1st Cir.1991). In deciding whether a factual dispute is genuine, this court must determine whether "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 2510, 91 L. Ed. 2d 202 (1986); accord Aponte-Santiago v. Lopez-Rivera, 957 F.2d 40, 41 (1st Cir. 1992) (citing Anderson). "A fact is `material' if it might affect the outcome of the suit under the governing substantive law." Beck v. Somerset Technologies, 882 F.2d 993 (5th Cir.1989) (citing Anderson). Where, as here, the taxpayer brings an action for a refund, there is a presumption that the IRS' decision, which denied the inclusion of the $180,000 amount in schedule K and rejected the argument that the $180,000 should be excluded from the calculation of the fair market value of the gross estate, is correct. See United States v. Janis, 428 U.S. 433, 440, 96 S. Ct. 3021, 3025, 49 L. Ed. 2d 1046 (1976) (presumption of correctness attaches in refund suit and taxpayer bears burden of proof in refund suit); Connor v. C.I.R., 847 F.2d 985, 989 (1st Cir.1988); Lefebvre v. C.I.R., 830 F.2d 417, 419 n. 3 (1st Cir.1987) ("Commissioner's deficiency determination is presumed correct, and, in seeking a redetermination, the taxpayer bears the burden or proof to show otherwise"); Estate of Todisco v. C.I.R., 757 F.2d 1, 6 (1st Cir.1985) ("basic rule in all tax cases" is that "burden of proof rests on the taxpayer"); United States v. Rexach, 482 F.2d 10, 16 (1st Cir.), cert. denied, 414 U.S. 1039, 94 S. Ct. 540, 38 L.Ed.2d *692 330 (1973); Compton v. United States, 334 F.2d 212, 216 (4th Cir.1964). Turning to the correctness of the decision to disallow inclusion of the $180,000 as a schedule K deduction, section 2053[3] authorizes deductions from the taxable estate for "claims against the estate ... as are allowable by the laws of the jurisdiction," in this case Massachusetts. 26 U.S.C. § 2053(a)(3). First and foremost, the $180,000 amount was a claim against the trust not a claim against the estate under section 2053. The trust is a separate and distinct entity from the estate. The distributions from the trust were mandatory. Use of the word "shall" without reserving a right to revoke a distribution demonstrates the mandatory nature of the distributions. Each claim therefore vested in a particular beneficiary on the first of the year with regard to that year's distribution. Second, even assuming the existence of a claim against the estate and the applicability of section 2053, section 2053(c)(1)(A) expressly limits the reach of deductions for "claims against the estate" by making such claims subject to a consideration requirement. Thus, such claims are "deductible only if the agreement giving rise to the claim was `contracted bona fide and for an adequate and full consideration in money or money's worth.'" Estate of Huntington v. C.I.R., 16 F.3d 462 (1st Cir.1994) (quoting section 2053(c)(1)(A)). The purpose of section 2053(a)(1)(C)'s limitation is to prevent deductions of gifts or testamentary dispositions under the guise of being a claim or debt against the estate. Estate of Huntington v. C.I.R., 16 F.3d at 465. In Huntington, the First Circuit disallowed an estate tax deduction for an amount paid in settlement of a claim after decedent's death based on an oral agreement between decedent and her husband to execute mutually reciprocal wills. Although the First Circuit recognized that the decedent received a financial benefit from the oral, reciprocal will agreement, the court affirmed the disallowance inasmuch as the oral agreement was not the kind of "`bona fide' contractual obligation for which section 2053 allows a deduction." Estate of Huntington v. C.I.R., 16 F.3d at 465-466 & 469. Bennett's directions to distribute the $180,000 amount were not made for a bona fide contractual obligation nor given for adequate consideration. Family transactions are subject to particular scrutiny. Estate of Huntington v. C.I.R., 16 F.3d at 466. Bennett received no consideration for her instructions to the trustees to make the distributions for 1983, 1986 and 1987 to her designated donees. The underlying nature of the transactions was, in every sense, a gift. Consequently, even assuming arguendo the applicability of section 2053, section 2053(c)(1)(A) bars a schedule K deduction for the donative distributions at issue. Plaintiff's alternative theory, that the $180,000 missed distributions reduce the includable net value of the trust in the estate, is well taken. Plaintiff asserts, and this court agrees, that the fair market value of the trust on the date of Bennett's death does not include the vested and legally enforceable obligations of the trust to issue the missed distributions in the amount of $180,000.[4] The definition of the gross estate is the value of the decedent's property at the time of death. 26 U.S.C. § 2031(a). Under section 2033, the value of the gross estate includes "the value of all property to the extent of the interest therein of the decedent at the time of his death." 26 U.S.C. § 2033. Similarly, section 2036 provides the general rule with respect to trust instruments with a retained right to income that, "The value of the gross estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer." 26 U.S.C. § 2036. The value of an item of decedent's property, such as the trust at issue, "is the fair market value" at the time of decedent's death, absent an alternative valuation method *693 inapplicable to the instant dispute. See generally 26 C.F.R. §§ 20.2031-1(b) & 20.2031-2.[5] The "fair market value" is the price at which the property would change hands between a willing buyer and a willing seller ... both having reasonable knowledge of relevant facts." 26 C.F.R. § 20.2031-1(b). Logically, the fair market value of an item of property does not include legally enforceable debts. Rather, it is the net, not the gross, value of the property. And, in Estate of Harter v. C.I.R., 3 T.C. 1151, 1944 WL 165 (1944), the United States Tax Court ("Tax Court") addressed the issue of whether to deduct from the gross value of a trust at the time of the decedent's death the value of unpaid promissory notes held by the trust's beneficiaries which remained unpaid on the date of the decedent's death. The court in Harter recognized the distinction between the net value of the trust and the decedent's gross estate. Furthermore, in order to determine the net value of the trust, the court in Harter offset the value of the unpaid notes against the gross value of the trust because such notes were "legal and enforceable." Thus, the value of the unpaid notes was not included in the decedent's gross estate. Estate of Harter v. C.I.R., 3 T.C. 1158-1159; see also Estate of Vose v. C.I.R., 14 T.C. 113, 1950 WL 122 (1950), as modified, 20 T.C. 597, 1953 WL 78 (1953) (trust certificates constituted prior charge on trust corpus to the extent of the face value of the certificates in determining value of trust for inclusion in gross estate). The missed distributions at issue were legally enforceable obligations of the trust. The trust is enforceable under Massachusetts law. See Ventura v. Ventura, 407 Mass. 724, 555 N.E.2d 872, 874-875 (1990); Sullivan v. Burkin, 390 Mass. 864, 460 N.E.2d 572, 575 (1984); Mass.Gen.L. ch. 203, § 25. The language of the trust required the trustees to make the distributions on the first of the year as to each year's distribution. Once this date passed, Bennett had transferred her control over the amount of the distributions. Otherwise stated, Bennett's power lapsed on the first of the year with respect to the distribution at issue. Bennett could not have canceled or amended the amount of a missed distribution which, under the mandatory language of the trust, became binding once the date for the distribution passed. Bennett therefore made a completed gift for federal estate tax purposes. Although revenue rulings are neither precedential nor binding, see Salomon, Inc. v. U.S., 976 F.2d 837, 841 (2nd Cir.1992); Disabled American Veterans v. C.I.R., 942 F.2d 309, 314 (6th Cir.1991); Magneson v. C.I.R., 753 F.2d 1490, 1493 (9th Cir.1985); Peoples Trust Co. of Bergen County v. United States, 444 F.2d 193, 197 (3rd Cir.1971), this court finds instructive Revenue Ruling 84-25 which involved the tax consequences of unpaid promissory notes on the date of the decedent's death which were not held in a trust. The ruling states that, "in the case of a legally enforceable promise for less than an adequate and full consideration ..., the promisor makes a completed gift ... on the date when the promise is binding and determinable in value rather than when the promised payment is actually made."[6]Rev.Rul. 84-25, 1984-1 C.B.; see also C.I.R. v. Copley's Estate, 194 F.2d 364, 367 (7th Cir.1952). Defendant correctly notes that in general the federal estate tax and the federal gift tax "are construed in pari materia." Harris v. C.I.R., 340 U.S. 106, 71 S. Ct. 181, 95 L. Ed. 111 (1950). A completed gift for gift tax purposes occurs when the "donor has so parted with dominion and control as to leave him no power to change its disposition." 20 C.F.R. § 25.2511-2(b). A gift is incomplete for gift tax purposes when the "donor reserves the power to revest the beneficial title to the property to himself." 20 C.F.R. *694 § 25.2511-2(c); see also 26 C.F.R. § 25.2511-2(f). As discussed supra, Bennett did not reserve the right to revest the missed distribution once the date for the distribution had passed. She executed a trust which required the trustees to distribute a certain amount of money to designated donees on a particular date. The trustees had a fiduciary obligation to abide by the terms of the trust. See Harrison v. Marcus, 396 Mass. 424, 486 N.E.2d 710, 714 n. 11 (1985). After the date passed for a distribution, Bennett no longer had the power to change the designated amount to the designated donee. The remaining issue is whether the 1983, 1986 and 1987 missed distributions are subject to the three year rule of 26 U.S.C. § 2038(a)(1).[7] As explained in Estate of Jalkut, 96 T.C. 675, 1991 WL 64935 (1991), section 2035(a) "provides for the inclusion in the gross estate of any gifts made by the decedent within 3 years of death." Estate of Jalkut, 96 T.C. 678 & 683. Subsection 2035(d)(1), however, exempts the provisions of section 2035(a)(1) from estates where, as here, the decedent dies after December 31, 1981. Subsection 2035(d)(2) then provides that subsection 2035(d)(1) is inapplicable to "a transfer of an interest in property which is included in the value of the gross estate under sections 2036, 2037, 2038, or 2042 or would have been included under any of such sections if such interest had been retained by the decedent." 26 U.S.C. § 2035(d)(2). The end result for present purposes is that gift transfers made within three years of the date of the decedent's death will be included in the decedent's gross estate "if such property interests are included in the gross estate under section 2038." Estate of Jalkut, 96 T.C. 683-684. "Ultimately," the language of the trust is controlling in determining whether transfers effected within three years of the decedent's death are included in the gross estate by operation of section 2038. Estate of Jalkut, 96 T.C. 684; accord Estate of McNeely v. United States, 16 F.3d 303, 305 (8th Cir.1994) (determination of whether transfer made within three years of death falls within gross estate turns on "`particular terms of the trust'"); Estate of Barton v. C.I.R., 1993 WL 503909 (T.C. Dec. 9, 1993). As previously addressed, the trust mandates distributions on the first of the year with regard to that year's distribution. On this date, Bennett's power lapsed and she relinquished her ability to revoke the amount of the distribution in question to the designated donee. Similar to the 1985 transfers at issue in Jalkut, once the date of a distribution had passed, Bennett had relinquished her power to revoke the amount of the distribution and, under the language of the trust, the trustees were required to make the distribution. Estate of Jalkut, 96 T.C. 685. Bennett's relinquishment on the first day of the year pertaining to the missed distribution at issue was not an exercise of her power to invade the trust corpus at will. On this date and under the terms of the trust, she could no longer alter or change the amount of the distribution at issue. The trustees were obligated to issue the distribution. The fifth article of the trust expressly authorizes the trustees "to pay from principal upon the death of the Donor ... any gift ... made by the Donor during her lifetime." The third article of the trust mandated the distribution *695 of a specific sum of money from principal to specific donees on the first of the successive year as to the distribution at issue. The trustees had a fiduciary obligation to the beneficiaries/donees to carry out the settlor's directions "as expressed in the terms of the trust." Harrison v. Marcus, 396 Mass. 424, 486 N.E.2d 710, 714 n. 11 (1985). After the date passed for a distribution, under the terms of the trust, Bennett lacked the ability to invade or change the amount of the distribution to the designated donee. She therefore relinquished her power at that time. Consequently, with respect to the 1986 and 1987 missed distributions, Bennett's relinquishment occurred within three years of the date of her death. The amounts of the 1986 and 1987 distributions but not the 1983 distribution are therefore includable in Bennett's gross estate by virtue of the three year recapture provision of section 2038. In sum, defendant met its summary judgment burden as to the correctness of the IRS' deficiency assessment with respect to the 1986 and 1987 missed distributions. Plaintiff fails to demonstrate the incorrectness of the IRS' deficiency assessment as to the 1986 and 1987 distributions. Plaintiff is not entitled to a schedule K deduction for the 1986 and 1987 distributions and such distributions are includable in the gross estate by virtue of the three year rule of section 2038(a)(1). Defendant, however, fails to meet its summary judgment burden with regard to the correctness of the IRS' deficiency assessment as to the exclusion of the 1983 distribution from Bennett's gross estate. As to plaintiff's motion for summary judgment (Docket Entry # 13), plaintiff fails to set forth a genuine issue of material fact that the IRS' inclusion of the 1986 and 1987 distributions in the gross estate was incorrect. Plaintiff does, however, meet his burden of showing an entitlement to summary judgment as to the 1983 distribution. Plaintiff adequately dispels the presumption of the correctness of the IRS' decision to include the 1983 distribution in Bennett's gross estate and establishes that there is no genuine issue of material fact that the IRS' decision to include the 1983 distribution in Bennett's gross estate was incorrect as a matter of law. Remaining issues include the amount of the deficiency assessment in light of this ruling. CONCLUSION In accordance with the foregoing discussion, this court RECOMMENDS[8] that defendant's motion for summary judgment (Docket Entry # 23) and plaintiff's motion for summary judgment (Docket Entry # 13) be ALLOWED in part and DENIED in part. NOTES [1] Hence, the fact that Bennett may have attempted unsuccessfully to amend the trust in early 1986 is immaterial. Defendants fail to offer any valid written instrument in accordance with the fifteenth article whereby Bennett directed the trustees to delay dispensing future distributions. [2] According to plaintiff, on May 6, 1991, the IRS issued a bill for interest and penalties in the amount of $3,026.33. (Docket Entry # 1, ¶ 17). On June 17, 1991, the IRS issued a penalty in the amount of $795.60, which it abated on April 27, 1992. (Docket Entry # 24, Ex. S). [3] Unless otherwise noted, all sections referred to without reference to a particular title are taken from Title 26 of the United States Code. [4] Whether such distributions fall within Bennett's gross estate by operation of section 2038(a)(1) is a separate issue. [5] It is the valuation of the trust and the effect of its obligation to make a distribution for the specified amount of money which is at issue rather than the valuation of the particular securities held by the trust. [6] In this ruling, the promissory notes ran directly from the donor/decedent to the donees and the ruling therefore states that the assets used to pay the proceeds of the notes are a part of the decedent's gross estate. Rev.Rul. 84-25, 1984-1 C.B. In the case at bar, however, the assets used to satisfy the amounts of the missed distributions are part of the trust and, as legally enforceable obligations, reduce the value of the trust on the date of death. [7] Section 2038 states, in part, that: the value of the gross estate shall include that value of all property ... To the extent of any interest therein of which the decedent has at any time made a transfer ... where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power ... by the decedent ... to alter, amend, revoke, or terminate, or where any such power is relinquished during the 3-year period ending on the date of the decedent's death. 26 U.S.C. § 2038(a). Succinctly summarized in Jalkut, due to section 2038, "the value of the gross estate includes the value of any interest transferred by the decedent, the enjoyment of which is subject to change by virtue of the decedent's retention of the power to alter, amend, revoke, or terminate." Estate of Jalkut, 96 T.C. 675, 680, 1991 WL 64935 (1991). As previously discussed, Bennett's power with regard to the missed distributions lapsed on the first of the year pertaining to the distribution at issue. Hence, she no longer had an interest therein at her death. And, the value of the trust on the date of death did not include the legally enforceable obligation to issue the missed distributions. Rather, the question is whether she relinquished her power to revoke within three years of the date of her death vis-a-vis the missed distributions. [8] Any objections to this Report and Recommendation must be filed with the Clerk of Court within ten days of receipt of the Report and Recommendation to which objection is made and the basis for such objection. Any party may respond to another party's objections within ten days after service of the objections. Failure to file objections within the specified time waives the right to appeal the district court's order. United States v. Escoboza Vega, 678 F.2d 376, 378-79 (1st Cir.1982); United States v. Valencia-Copete, 792 F.2d 4, 6 (1st Cir.1986).

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1959899/

631 F. Supp. 534 (1986) Frank MURRAY, Plaintiff, v. DOMINICK CORPORATION OF CANADA, LTD., John S. Jenkins, and John Halsey, Defendants. No. 85 Civ. 6121 (RWS). United States District Court, S.D. New York. April 1, 1986. Brown, Raysman & Millstein, New York City, for plaintiff; Peter Brown, Sylvia Khatcherian, Henry Abelman, of counsel. Brown, Wood, Ivey, Mitchell & Petty, New York City, for defendant Dominick Corp. of Canada, Ltd. and Jack S. Jenkins; Joseph G. Riemer, III, Paul Windels, III, of counsel. Griggs, Baldwin & Baldwin, New York City, for defendant John Halsey; Douglas W. Brandrup, Robert J. Woolsey, of counsel. OPINION SWEET, District Judge. In this action, Frank Murray ("Murray") seeks to recover $1,424,000 in compensatory damages and $2,000,000 in punitive damages based on the alleged fraud, breach of fiduciary duties and gross negligence of Dominick Corporation of Canada, Ltd. *535 ("Dominick Canada"), John Jenkins ("Jenkins") and John Halsey ("Halsey") with regard to their handling of his securities accounts. The defendants have brought a motion for summary judgment based on the doctrine of res judicata. For the following reasons the motion of Halsey will be granted, and the motion of Dominick Canada and Jenkins denied. The Complaint In his complaint, Murray alleges the following facts. In November, 1979, Murray went to the offices of Dominick and Dominick, Inc. ("DDI"), located in New York City, seeking advice with respect to his portfolio of securities. At DDI, he met with defendant Halsey, a registered stockbroker and was introduced to Jenkins by telephone. Jenkins was the president and chairman of the Board of Dominick Canada and was represented to be an expert on Canadian securities. Following these discussions, Murray opened a cash account in the amount of $10,000. Several weeks later, Jenkins telephoned Murray and recommended that he open a margin account by delivering his portfolio of securities to Halsey. By January, 1980, Murray delivered securities and cash valued at approximately $120,000 and directed that $60,000 be placed in an account managed by Halsey and $60,000 in an account to be managed by Jenkins. Murray alleges that some of these securities, which were jointly held by himself and his son, were not to be deposited in any account but merely retained until substitute securities could be delivered. He asserts that Halsey and Jenkins ignored these instructions and that all these securities were transferred to Canada and deposited there. During the next year, Murray alleges that he received frequent telephone calls from Jenkins for the purpose of recommending securities transactions but without disclosing full information regarding the nature of the securities involved. Murray asserts that these transactions were overly speculative and thus unsuited for his investment needs and goals. To pay for these additional transactions, Murray deposited additional securities worth approximately $360,000. Murray further contends that Jenkins refused to follow his instructions with regard to account limitations and stop-loss orders. After discovering these alleged improprieties in December, 1980, Murray requested of both Halsey and Jenkins that all of his Canadian accounts and securities be returned to Dominick Investor Services Corporation ("DISC") in New York. Nevertheless he asserts that Jenkins and Halsey refused to honor this request until August, 1982, at which time his account was worth only $70,000. Prior Proceedings On October 18, 1982, Murray executed a Uniform Submission Agreement to initiate an arbitration proceeding against DDI and DISC before the New York Stock Exchange ("NYSE"). By this agreement, Murray agreed to submit the matter in controversy, as well as "all related counterclaims and/or third party claims which may be asserted" to arbitration in accordance with the rules of the NYSE. In particular, NYSE Rule 600 provides that: (a) Any dispute, claim or controversy between a customer or non-member and a member, allied member, member organization and/or associated person arising in connection with the business of such member, allied member, member organization and/or associated person in connection with his activities as an associated person shall be arbitrated ... as provided by any duly executed and enforceable written agreement or denial of the customer or non-member. Murray's complaint before the NYSE arbitration panel alleged that DDI and DISC, acting alone and in conjunction with Dominick Canada, had defrauded Murray. The complaint set forth the same allegations of churning and unsuitability that appear in the complaint to this action. Moreover, the very same transactions formed the basis for the arbitration proceeding since these are the only transactions and accounts which Murray has had with either Dominick Canada, DDI or DISC. All of the allegedly *536 wrongful transactions occurred on exchanges and in the over the counter markets in Canada although account statements were issued both by Dominick Canada and DDI. At the arbitration proceeding, DDI and DISC initially sought the dismissal of the proceeding on the basis that the New York respondents in that action, while affiliates of Dominick Canada, were separate entities and had committed no wrongdoings in connection with the transactions in Canada. In opposition, Murray argued that while Dominick Canada was not a party to the arbitration, DDI had participated extensively in the transactions by steering him to the Canadian office, by their extensive knowledge of and participation in the transactions and therefore acted as the agent of Dominick Canada. The arbitration panel denied the motion to dismiss, held five days of hearings and then issued the following standard form award on May 23, 1983: And having heard and considered the proofs of the parties, have decided and determined that in full and final settlement of the above matter, respondents shall pay to claimant the sum of $50,000 .... The New York Supreme Court's decision confirming the award and denying reargument was affirmed by the Appellate Division, First Department. On July 9, 1984, Murray was paid $54,234.39 in full satisfaction of the judgment of the New York Supreme Court and executed a satisfaction of judgment on the same day. Discussion Defendants Dominick Canada, Jenkins and Halsey have moved for summary judgment based on the claim that Murray has already fully and fairly litigated all claims arising out of the transactions in his accounts with Dominick Canada, DDI and DISC.[1] Since these defendants were not parties to the arbitration proceeding, they essentially seek the application of nonmutual collateral estoppel as a defense to the relitigation of certain issues by the plaintiff. See Blonder-Tongue Laboratories v. University of Illinois Foundation, 402 U.S. 313, 91 S. Ct. 1434, 28 L. Ed. 2d 788 (1971); 18 Wright, Miller & Cooper, Federal Practice and Procedure, § 4464 (1981). In advancing this claim of collateral estoppel, the defendants rely on several cases which state that, where a litigant has fully adjudicated the identical issues in a prior proceeding, relitigation on these issues will be barred. Israel v. Wood Dolson Co., 1 N.Y.2d 116, 151 N.Y.S.2d 1, 4, 134 N.E.2d 97, 99 (N.Y.1956). In Goldstein v. Doft, 236 F. Supp. 730 (S.D.N.Y.1964), aff'd, 353 F.2d 484 (2d Cir. 1965), the plaintiff brought an action against one of the partners in a partnership claiming damages based on misrepresentations and breach of contract. As noted by the court, however, the plaintiff had earlier brought to arbitration claims based on the same transactions against the partnership and its corporate principal. These arbitration claims were disallowed in an award by the arbitration panel which was confirmed by the state court. In recognition of the fact that the second suit was merely an attempt to relitigate the same issues against the agent of the defendants in the previous action, the court held the plaintiff to be barred by the doctrine of res judicata. Id. at 733-34. Similarly, in Ritchie v. Landau, 475 F.2d 151 (2d Cir.1973), the plaintiff brought an action against the major stockholder and president of a corporation seeking recovery for an alleged breach of oral contract. As discussed by the court, the plaintiff had also brought an action directly against the corporation for breach of the same contract. After three days of hearings the arbitration panel awarded the plaintiff *537 $200,000 in a summary award without explanation. Again the court recognized that because the subsequent judicial proceedings were based on the actions of an agent of a corporation for which there had already been a disposition, collateral estoppel would bar relitigation. See also Lober v. Moore, 417 F.2d 714, 716 (D.C.Cir.1969) (prior tort action against owner of taxicab barred relitigation against employee driver). These cases recognize that, where the legal relationship between two parties establishes vicarious liability for one party based on the acts of the other, a suit brought against either of the parties will foreclose a subsequent action against the other. See Israel v. Wood Dolson Co., supra, 151 N.Y.S.2d at 4, 134 N.E.2d at ("In cases involving the relationship of principal and agent, master and servant, or indemnitor and indemnitee, the liability of more than one party turns on, or is dependent upon, identical issues."). The above cases are dispositive with regard to the present action against Halsey. Since the transactions and the accounts presented to the arbitrators are identical to those raised here, there can be no doubt that the arbitration proceeding and award against the corporate defendants DDI and DISC allowed the plaintiff a full and fair opportunity to present any claims arising out of the conduct of DDI's registered representative Halsey. Moreover, the submission agreement itself required that all claims arising out of the transaction be presented to the arbitration panel. Since the disputed transactions and accounts involved Halsey in connection with his employment as an associated person of DDI, Murray's claims against Halsey personally were within the jurisdiction of the NYSE arbitration panel and should have been raised at that time. Since Dominick Canada and Jenkins were not members of the NYSE or associated persons, it is conceded that they were beyond the jurisdiction of the arbitration proceeding. Thus, as to these defendants, the motion for summary judgment depends on whether the arbitration award necessarily encompassed all issues which might be raised against them. Based on the record presented, it is not possible to conclude that the entire conduct of Dominick Canada and Jenkins were considered in the arbitrator's decision and award. Unlike the factual circumstances of the Goldstein and Ritchie decisions discussed above, the actions of Dominick Canada and its agent Jenkins cannot be deemed to be coextensive with DDI and DISC so as to preclude further litigation. These corporate parties bear no master/servant or principal/agent relationship to each other as a matter of law since they are independent corporate affiliates. The only other basis to hold this action barred would be if the arbitration proceeding held that DDI and DISC were joint tortfeasors with Dominick Canada and Jenkins. "When two or more persons together cause injury, each is fully liable to the victim." Zapico v. Bucyrus-Erie Co., 579 F.2d 714, 718 (2d Cir.1978). A finding of joint liability in this case would depend on a factual finding that the parties were engaged in a joint enterprise, see Connell v. Hayden, 83 A.D.2d 30, 443 N.Y.S.2d 383, 399-400 (N.Y.App.Div.1981), or that DDI and DISC were aiding and abetting the tortious conduct of Dominick Canada and Jenkins. See Fisher v. Klatz, 266 F. Supp. 180, 197 (S.D.N.Y.1967). In his amended complaint filed in the arbitration proceeding, however, Murray asserted claims against DDI and DISC based both on theories of individual and joint liability. In the arbitration itself, each party stressed opposing characteristics of the relationship between the American and Canadian brokerage affiliates: Murray argued that the cooperation and complicity was extensive while DDI and DISC argued that they had no responsibility for the Canadian transactions. Since the arbitration award did not contain any finding that the foreign and domestic affiliates were joint tortfeasors, it does not estop subsequent litigation against Dominick Canada and Jenkins. As noted by the Honorable Charles S. Haight in a similar context: *538 We cannot know from the form of the arbitrator's award to what extent the arbitrators were influenced ... by the presence of factors for which [one respondent] was responsible, but for which [another] could not be. ... Where a previous arbitration award is ambiguous in respect of what issues were decided, it necessarily has limited value in subsequent litigation. Brownko International, Inc. v. Ogden Steel Co., 585 F. Supp. 1432, 1435 (S.D.N.Y. 1983). Moreover, on the face of the complaint in this action, which must be accepted for the purposes of this motion, it appears that Jenkins had numerous discussions with Murray in the absence of Halsey, that Jenkins was the only "expert" in Canadian securities, and that he maintained sole control over the securities deposited directly in the Dominick Canada account. Since there exists a factual dispute as to whether Halsey, DDI and DISC participated in the alleged fraudulent acts by Jenkins and Dominick Canada, one cannot conclude that there exists joint and several liability. Dominick Canada and Jenkins may attempt to establish that DDI and DISC were joint tortfeasors with regard to the injuries allegedly suffered by Murray. Should they succeed on such a defense, it would then be appropriate to credit the recovery obtained in the arbitration proceeding against any damages assessed in this one. Otherwise, Murray might obtain duplicative damages. Cf. Bradshaw v. State of New York, 24 A.D.2d 930, 264 N.Y.S.2d 725 (N.Y.App. Div.1965). Even if it were established here that the Canadian and American brokerage firms were joint tortfeasors, this action would not be entirely precluded by satisfaction of the prior judgment, since as noted above, there is no way to determine that the arbitration proceeding also awarded damages based on joint and several liability. The only conclusive result of the arbitration award is to exclude any further claims based on the actions and statements of DDI and DISC. Dominick Canada and Jenkins have also moved to compel arbitration before the NYSE based on the submission agreement between Murray, DDI and DISC. As noted above, however, neither of these defendants were members of the NYSE and therefore were not contemplated by the submission agreement. Although an order to compel arbitration is not appropriate, Murray in his opposition papers has consented to arbitration of any claims against the defendants in this action if they waive any jurisdictional defenses. Conclusion The motion of Dominick Canada and Jenkins for summary judgment is denied while the motion of Halsey is granted. The complaint will be dismissed as to defendant Halsey. IT IS SO ORDERED. NOTES [1] The defendants refer also to an investigation conducted by the Toronto Stock Exchange which did not disclose any violations of that Exchange's regulations. Since this administrative proceeding did not involve any adjudication of Murray's claim it does not preclude the present claim. Venes v. School Board of District 26, 43 N.Y.2d 520, 402 N.Y.S.2d 807, 373 N.E.2d 987 (N.Y.1978).

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1841843/

246 B.R. 500 (2000) In re Charles L. and Lisa N. THOMAS, Debtors. Charles L. and Lisa N. Thomas, Appellants, v. United States of America, Appellee. No. CIV. A. 99-2200, Bankruptcy No. 98-14907. United States District Court, E.D. Pennsylvania. March 23, 2000. *501 *502 John R. Crayton, Bensalem, PA, Ina S. Weiner, Philadelphia, PA, Julia Carlone, IRS Spec. Proc. Branch, for appellants. Daniel K. Astin, Philadelphia, PA, Frederick K. Reigle, Reading, PA, for appellee. MEMORANDUM & ORDER ANITA B. BRODY, District Judge. I. INTRODUCTION This is an appeal from an order of the United States Bankruptcy Court, In re Thomas, 231 B.R. 581 (Bankr.E.D.Pa. 1999). Appellant-debtors Charles and Lisa Thomas appeal the ruling of the bankruptcy court that allowed an amended proof of claim of the Internal Revenue Service ("IRS"). For the following reasons, I will affirm the bankruptcy court's ruling. II. FACTS Debtor Charles Thomas has operated a delivery service, All American Couriers ("All American"), since 1990. All American specializes in rush, same day deliveries. Thomas is the sole employee of All American and manages all of its operations and sales. Although Thomas occasionally delivers packages himself, most of the deliveries are made by drivers who operate as independent contractors and receive a commission per delivery. Because All American uses independent contractors to make the actual deliveries, Thomas acts as the middle-man between the customers and the drivers. When customers contact All American, Thomas answers the phone and arranges the pick-up and delivery details. In addition to handling customer relations, Thomas personally selects drivers to ensure their reliability. In 1995, Thomas incorporated All American under Subchapter S so that the company could obtain cargo insurance. Thomas is the sole owner of All American's stock. Since 1990, All American has grown rapidly. For example, the gross revenues increased from approximately $100,000 in 1992 to more than $250,000 in 1997. Thomas's net income has also grown dramatically, from $9,000 in 1992 to more than $68,000 in 1997. Despite the robust growth of All American, Thomas and his wife Lisa filed for relief under Chapter 13 of the Bankruptcy Code on April 17, 1998. On August 20, 1998, the IRS filed an amended proof of claim, which included a secured claim of $55,521.90. The collateral for the IRS's secured claim is Thomas's stock in All American. On September 2, 1998, the debtors filed an objection to the IRS's claim. In their objection, the Thomases contended that the value of All American stock was only $3,000, and therefore, the secured part of the claim had to be reduced to $3,000. On December 14, 1998, Judge Stephen Raslavich of the United States Bankruptcy Court for the Eastern District of Pennsylvania held a hearing on the objection. At the hearing, Thomas testified about the background and growth of the company. *503 He spoke about the loyalty that All American's customers and drivers had towards him. Thomas also indicated that he intended to continue operating All American. After Thomas's testimony, Thomas called William Barbera, a Certified Public Accountant and Thomas's appraiser, to testify as an expert. In his appraisal of All American, Barbera determined that All American's revenues resulted exclusively from Thomas's efforts. Because he determined that All American's income flowed from Thomas's efforts, Barbera concluded that All American had no independent value as a going concern. Barbera further determined that, because All American had no independent value as a going concern, the proper measure of All American's value was its liquidation value, which he calculated at $10,000. In response to Barbera's testimony, the IRS called Paul Elkins, also a Certified Public Accountant, to present his expert opinion as to the value of All American. Elkins had previously evaluated All American and determined that the income method was the most appropriate method to measure the value of All American. Elkins specifically rejected the liquidation method of valuation because All American was continuing operations and a liquidation valuation would not account for the business's goodwill or value as a going concern. Using the income based analysis, Elkins calculated the price that an investor would be willing to pay to purchase All American's stock based on its projected rate of return. According to the bankruptcy court, Elkins' analysis proceeded by extrapolating the business' revenues over the next five years . . ., discounting that amount for present value plus risk factors, and then discounting the amount again for the lack of marketability of the stock. Thomas, 231 B.R. at 584. The total value of All American, under Elkins's income-based analysis, was $56,000. The Thomases challenged the validity of Elkins's appraisal, claiming that present value of All American should not include future earnings and again contending that the proper valuation of All American stock should be the liquidation value of the company's assets. The bankruptcy judge rejected the debtors' arguments and permitted the IRS's proof of claim as filed. In ruling for the IRS, the bankruptcy judge relied on Elkins's testimony and appraisal of All American. See id. at 588-89. The Thomases appealed the bankruptcy court's ruling on two grounds: (1) that Thomas is entitled to retain the future income from All American in order to fund his bankruptcy plan under Chapter 13; and (2) that the bankruptcy judge erroneously interpreted Pennsylvania law regarding the value of goodwill. III. STANDARD OF REVIEW This court has appellate jurisdiction over final orders of the bankruptcy court pursuant to 28 U.S.C. § 158(a)(1). The legal conclusions of the bankruptcy court are subject to de novo review. See In re Ben Franklin Hotel Assocs., 186 F.3d 301 (3d Cir.1999). The bankruptcy court's findings of fact are reviewed for clear error. See id.; see also, Fed. R.Bankr.P. 8013. IV. DISCUSSION Chapter 13 addresses the "Adjustment of Debts of an Individual with Regular Income" and establishes a mechanism by which financially over-extended individual debtors can voluntarily create payment plans to pay off their debts. See 11 U.S.C. §§ 1301-1330. A debtor's Chapter 13 plan typically provides that the debtor will pay creditors from disposable income earned after the filing of the bankruptcy petition, rather than funds received from the liquidation of the debtor's pre-petition assets. See 11 U.S.C. § 1322(a)(1); see also, 8 Collier on Bankruptcy ¶ 1300.01 (Lawrence P. King, ed., 15th ed.)("Collier"). "Disposable income" *504 under Chapter 13 is the amount of the debtor's income that exceeds the debtor's reasonable and necessary household and business expenses. See 11 U.S.C. § 1325(b)(2)(A)-(B). As a practical matter, the debtor pays his disposable income to the Chapter 13 trustee, who then transfers the payments to creditors based on the debtor's Chapter 13 plan. Under Chapter 13, all of the debtor's property, including assets acquired after filing for bankruptcy protection, are included in the bankruptcy estate. See 11 U.S.C. § 1306(a). Therefore, income earned by debtor after the filing of the petition is included in the bankruptcy estate. See 11 U.S.C. § 1306(a)(2). Although the post-petition income is considered estate property, a tax lien on pre-petition assets does not attach to the post-petition income itself. See, e.g., United States v. Sanabria, 424 F.2d 1121, 1123 (7th Cir.1970). Chapter 13 provides that debtors can repay both secured and unsecured claims. See Collier ¶ 1300.01. A claim is secured if the creditor has a lien on the debtor's property to ensure payment to the creditor. See 11 U.S.C. § 101. Under 11 U.S.C. § 506(a), a creditor's claim is secured only to the extent of the value of the collateral. See 11 U.S.C. § 506(a) (stating "[a claim is secured] to the extent of the value of such creditor's interest in the estate's interest in such property"). To determine the value of the collateralized property, § 506(a) provides that: "Such value shall be determined in light of the purpose of the valuation and of the proposed disposition or use of such property." Id. According to the United States Supreme Court, "`the proposed disposition or use' of the collateral is of paramount importance to the valuation question." Associates Commercial Corp. v. Rash, 520 U.S. 953, 117 S. Ct. 1879, 138 L.Ed.2d.148 (1997). In this case, the debtors' appeal arises from the bankruptcy judge's valuation of the collateral of the IRS's secured claim, Thomas's stock in All American. The debtors contend that the bankruptcy judge should not have used the income-based method to appraise the value of All American and that the liquidation value of All American's assets arrives at a more appropriate measure of the company's worth. As noted above, § 506(a) provides that collateral shall be valued according to the "proposed disposition or use of such property." 11 U.S.C. § 506(a). In interpreting § 506(a), the Supreme Court in Rash established that "`the proposed disposition or use' of the collateral is of paramount importance to the valuation question." Rash, 117 S.Ct. at 1885. Thomas's testimony at the hearing reflected that he intended to continue the operations of All American. See Tr. at 23. There was no indication that Thomas intended to liquidate the assets of All American. Because Thomas intends to continue operating All American, both Section 506(a) and the Supreme Court's opinion in Rash mandate that All American be valued as a going concern. The present value of All American as a going concern includes the value of anticipated future income. See, e.g., Prince, 85 F.3d at 319. As the Seventh Circuit observed in Prince: In general, stock as an asset has value because of its capacity to generate cash flows in the future. . . . In financial terms, the value of the stock on any given day (its "present value") is how much an investor would be willing to pay on that given day in order to obtain the right to receive the stock's cash flows in the future. Theoretically, the stock's present value would be derived first by plotting out the stock's expected future cash flows. . . . This projected stream of income would then be "discounted" back to the present day. Id. Because the future income is a necessary component of the going concern value *505 of a business, it was proper for the bankruptcy court to include All American's anticipated future earnings in determining the present value of the going concern value of All American. The debtors contend that the going concern value is not the proper valuation of All American and that the liquidation value of the company's assets is the more appropriate method of appraisal. Liquidation value is an appropriate measure of a company's value when the company is dissolving. See Shanno v. Magee Industrial Enterprises, Inc., 856 F.2d 562 (3rd Cir.1988); see also, Prince, 85 F.3d at 320 (stating "In most cases, liquidation value is only an appropriate estimation of stock worth where a company is dissolving."). Liquidation value is not a proper measure of a company, however, when the business will continue its operations. See, e.g., Prince, 85 F.3d at 319. As the Prince court observed: where a business is expected to continue as a going concern, the company's expected future earnings from operations often far exceed the liquidation value of the company's physical assets. Thus, when valuing a business that is continuing to operate as a going concern, liquidation value is generally an inaccurate approximation of what shares are worth to shareholders. Id. In this case, there is no indication from Thomas's testimony that All American will be dissolved, and therefore, the bankruptcy judge properly concluded that the liquidation value of All American is not the proper measure of the value of the company's stock. Thomas also contends that the bankruptcy judge improperly included future earnings in the present valuation of All American, because valuing All American "based on a discount of future net income is improper when that same future income is needed by Mr. and Mrs. Thomas to fund their Chapter 13 plan." Reply Br. of Appellant at 3. The Thomases assert that such a valuation will impermissibly force them to pay the same IRS claim twice: "Once, when the IRS is granted a secured claim based on future income, and twice, when that same future income is turned over to the Chapter 13 trustee." Br. of Appellant at 9. As noted above, Thomas's post-petition income is not subject to the IRS's lien on the All American stock. The inclusion of anticipated future income in the present valuation of the company's stock, however, does not subject Thomas's actual future earnings to the IRS lien. The present value of the anticipated future income is used solely to estimate the present value of All American stock. The present value of All American stock is then used to measure the amount of the IRS secured lien. Once the amount of the IRS lien is determined, Thomas's future disposable income will be paid towards the IRS claim according to the Chapter 13 plan. Although the present value of anticipated future earnings influence the amount of the IRS's secured claim, the claim is only paid once. At no point does the IRS lien extend to Thomas's actual future earnings. Therefore, including the anticipated earnings to determine the value of All American stock, and the value of the IRS claim, does not force Thomas to pay off the same claim twice. The debtors also argue that, even if the income based method is an appropriate appraisal of the value of All American, the bankruptcy judge erroneously applied Pennsylvania law to determine the value of goodwill.[1] Under Pennsylvania law, goodwill is intangible property that is defined as the positive reputation a business may enjoy in the eyes of the public that creates a probability that old customers will continue their patronage. See Butler, 541 Pa. at 378, 663 A.2d 148. As the bankruptcy judge *506 correctly observed, Pennsylvania law divides goodwill into two categories: (1) "professional goodwill," and (2) "economic goodwill." Professional goodwill is "intrinsically tied to the attributes and/or skills of certain individuals." Solomon v. Solomon, 531 Pa. 113, 124-26, 611 A.2d 686 (1992); see also, Gaydos v. Gaydos, 693 A.2d 1368, 1372 (Pa.Super.1997). This type of goodwill arises from an individual professional's reputation, specialized skills and judgment. See, e.g., In re Paolino, 1991 WL 284107 (Bankr. E.D.Pa.); Dugan v. Dugan, 92 N.J. 423, 457 A.2d 1, 6 (1983). Because professional goodwill is inextricably intertwined with an individual's skill and attributes, professional goodwill cannot be valued and cannot survive if that individual is disassociated from the business. See id. By contrast, economic goodwill is wholly attributable to the business itself and can be alienated from the individuals in the business. See id. As a result, economic goodwill can be valued. The distinction between economic and professional goodwill is pertinent in the context of divorce proceedings, in which professional spouses claim that the goodwill value of their practices result from professional goodwill, and therefore, are not subject to equitable distribution with their ex-spouses. See, e.g., Buckl v. Buckl, 373 Pa.Super. 521, 542 A.2d 65 (1988); Gaydos, 693 A.2d at 1370; Beasley v. Beasley, 359 Pa.Super. 20, 518 A.2d 545 (1986). Typically, the spouse who is a professional is a member of a professional practice, such as a physician, architect, attorney, or accountant. See, e.g., Gaydos, 693 A.2d at 1370 (dentist); Buckl, 373 Pa.Super. 521, 542 A.2d 65 (architect); Beasley, 359 Pa.Super. 20, 518 A.2d 545 (attorney); Butler, 541 Pa. at 364, 663 A.2d 148 (accountant). Although goodwill cases usually involve professional practices, some other services have been considered sufficiently individualized and specialized to derive professional goodwill from a single individual. See, e.g., In re Rives, 130 Cal. App. 3d 138, 149, 181 Cal. Rptr. 572 (Ct.App. 3rd Dist.1982) (spouse maintained a queen bee business); In re Hargrave, 163 Cal. App. 3d 346, 352, 209 Cal. Rptr. 764 (Ct.App. 3rd Dist.1985) (spouse was a manufacturer's representative). Applying the principles of goodwill under Pennsylvania law, the bankruptcy judge determined that the goodwill of All American was not professional goodwill that was attributable to Thomas, but economic goodwill that could be alienated from Thomas: The goodwill at issue in the present case is not of the same type enjoyed by a professional person that is likely to be deemed inalienable. Prospective patients or clients are influence to seek out a certain doctor, lawyer, accountant, architect, or similar professional, as a result of the person's reputation for possessing specific and highly individualized skills based on the professional's training and experience, that allows him or her to offer a unique service. Such skills include the ability to perform a certain life saving operation, win difficult trials, save money on taxes or design buildings that are characterized by a particular aesthetic quality. The goodwill claimed by Charles Thomas is not of that nature. Thomas testified that customers give him repeat business because they trust his ability to reliably arrange for the pick up and delivery of their parcels in a timely fashion. The ability to perform this service does not involve the type of specialized skill or judgment that is so individualized it is incapable of being transferred to another. With Thomas' involvement, the Court finds that a purchaser could take over All American and retain its reputation for reliable service. Id. at 588. Because the goodwill of All American was associated with the business and was not personal to Thomas, the bankruptcy judge then concluded that the IRS *507 valuation properly included goodwill in the present value of All American stock. Thomas contends that the bankruptcy court was incorrect in its ruling that professional goodwill only inheres in strictly professional practices. The essence of Thomas's argument is that professional goodwill can be attributed to individuals in non-professional businesses: [Professional goodwill] applies to the reputation of Charles Thomas in the eyes of his customers just as it would a car mechanic, plumber, or painter who performed personal services without assistance from other employees and under a corporation or trade name. Br. of Appellant at 4-5. Thomas further contends that the goodwill associated with All American is inextricably tied to his attributes, and therefore, is professional goodwill that should not be included in the value of All American. A review of applicable caselaw indicates that professional goodwill is not limited to specific professions. See, e.g., Rives, 130 Cal.App.3d at 149, 181 Cal. Rptr. 572. In Rives, for example, the court determined in a divorce proceeding that the husband's queen bee business had professional goodwill that was solely attributable to the husband's talents: The record establishes that the queen bee business resembles a professional practice in many respects. It depends in part upon husband's skill, experience and reputation in the industry. Husband has a specialized skill and his reputation in the industry is excellent. Id. at 149, 181 Cal. Rptr. 572; see also, Hargrave, 163 Cal.App.3d at 352, 209 Cal. Rptr. 764 (stating "[t]he type of service offered by husband through Charles Hargrave Associates is closely akin to the type of services offered by accountants, lawyers, physicians, and other professionals."). Therefore, non-professional services can be considered sufficiently specialized that goodwill can be attributed to the individual. Furthermore, the mere fact that a party is a professional is not necessarily sufficient to attribute the business's goodwill to that individual. See, e.g., Paolino, 1991 WL 284107 at *5. For example, the court in Paolino rejected a doctor's claim that the goodwill of his medical practice should be attributed to him personally, stating: There is no evidence presented to suggest that [Dr. Paolino]'s skills and reputation as a medical practitioner were such that would generate referrals from other physicians, either locally or from a larger area. Dr. Paolino presented no basis upon which I could conclude that he has created a medical practice that exists in any measure due to his personal goodwill. Id. Because all professionals do not necessarily engender professional goodwill and non-professionals can create professional goodwill, the key issue in determining the existence of professional goodwill is not whether the particular individual is a professional; instead, the proper focus is in determining the existence of professional goodwill is whether the individual has established a reputation for specialized skill, experience and judgment. As the bankruptcy court correctly noted, professional goodwill results from "the person's reputation for possessing specific and highly individualized skills based on the professional's training and experience, that allows him or her to offer a unique service." Thomas, 231 B.R. at 588. In this case, Thomas presented no evidence that his activities in the courier service involved specialized skill or judgment. By contrast, the IRS expert testified that the operations of All American were not dependent on Mr. Thomas personally. See Tr. at 56. Moreover, the IRS expert distinguished the operation of All American from more traditional professions: [I]n a personal services corporation such as a doctor or a lawyer or a dentist, there's the expectation of the person requesting the service to deal with a *508 specific individual. And, they usually only do it for a task or a particular function at a point in time. In the case of Mr. Thomas's business, even though Mr. Thomas believes that people are dealing with him as opposed to All American Courier, the fact is the service is being performed by somebody other than Mr. Thomas, the actual delivery on time and at the right point in time. Id. at 49-50. The bankruptcy judge agreed with Elkins's testimony, stating: "The ability to [manage All American] does not involve the type of specialized skill or judgment that is so individualized it is not capable of being transferred to another." See Thomas, 231 B.R. at 588. Therefore, the evidence on the record demonstrates that Thomas's activities in the operation of All American did not involve the specific and highly individualized skills based on Thomas's training and experience that are associated with professional goodwill. Because All American's goodwill is not the result of Thomas's specialized attributes, it is not inextricably tied to Thomas individually and it could survive if Thomas was disassociated from All American. Therefore, the goodwill of All American is not professional goodwill that is attributable to Thomas, but economic goodwill that should be included in the valuation of All American. V. CONCLUSION I have determined that the calculation of the present value of the stock of All American Couriers, Inc. properly includes the company's future earnings and that the bankruptcy judge properly held that the goodwill associated with All American is attributable to the company. Therefore, I affirm the ruling of the bankruptcy court. NOTES [1] The parties agree that state law governs the determination of property rights in bankruptcy proceedings and that Pennsylvania is the applicable state law.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1844964/

(2008) In re SPIEGEL, INC., et al., Reorganized Debtors. Civil Case No. 07 Civ. 3947(RJH). Bankruptcy Case No. 03-11540. United States District Court, S.D. New York. March 31, 2008. MEMORANDUM OPINION AND ORDER RICHARD J. HOLWELL, District Judge. Jacqueline J. Johnson brings this appeal from an Order of the United States Bankruptcy Court for the Southern District of New York (Lifland, J.) dated April 4, 2007. The order from which Johnson appeals denied her motion for reconsideration of an earlier order, dated December 19, 2006, disallowing her proof of claim against the Spiegel Creditor Trust (the "Creditor Trust"). The Creditor Trust now moves this Court to dismiss Johnson's appeal as an untimely appeal of the order disallowing Johnson's proof of claim. In the alternative, the Trust asks this Court to dismiss Johnson's appeal for failure to timely file an appellate brief. For the reasons that follow, the Court grants the Creditor Trust's motion to dismiss Johnson's appeal to the extent she seeks to appeal the December 19, 2007 disallowance order. To the extent that Johnson appeals the April 4, 2007 Order, the Court affirms the decision of the bankruptcy court. BACKGROUND By Order dated and entered December 19, 2006 (the "Disallowance Order") the Bankruptcy Court disallowed petitioner's proof of claim against the Creditor Trust. On January 10, 2007, Johnson filed a motion for reconsideration of the Disallowance Order. The Bankruptcy Court interpreted Johnson's motion as one seeking relief from the Disallowance Order under Fed.R.Civ.P. 60(b) or, in the alternative, seeking an extension of time to file a notice of appeal from the order. By Order dated April 4, 2007 (the "Reconsideration/Extension Order"), the bankruptcy court denied Johnson's motion. On April 16, 2007, Johnson filed a timely notice of appeal of the Reconsideration/Extension Order.[1] She also filed two additional motions for reconsideration in the bankruptcy court. On April 12, 2007, Johnson filed a "Motion to Reconsider and Allow Corrections to Clearify [sic] Misunderstanding..." in which she wrote that the "court-misunderstood [sic] claimant's motion, by considering it request [sic] to seek to extend the time to file an appeal" and that "[claimant was not presenting a notice to file an appeal." (Johnson's 2d Mot. to Reconsider 1.) However, Johnson also wrote that her first motion to reconsider "seemed clear to Claimant, that she was seeking a reconsideration of the expungement, while requesting a right to preserve her appeal." (Id. 2.) By Order dated April 19, 2007, Judge Lifland denied this motion. Then, Johnson filed her third motion to reconsider, or as she styled it, the "Motion to Re Reconsider." In this third motion, Johnson claimed violation of her right to a trial by jury, and argued that the "petitioner lacked standing." Judge Lifland denied the third motion to reconsider on May 17, 2007. On May 21, 2007, the notice of appeal of the Reconsideration/Extension Order and the parties' designations and counter-designations of the record on appeal were docketed with the Clerk of Court. On June 29, 2007, the Creditor Trust filed the instant motion to dismiss, on the grounds that (a) Johnson's appeal, properly understood, was taken from the Disallowance Order and that appeal was untimely; and (b) Johnson had failed to file an appellate brief within fifteen days of the entry of appeal on the docket. In a nearly incomprehensible response to the Creditor Trust's motion, Johnson appears to argue that she demonstrated excusable neglect for her failure to file a timely notice of appeal of the Disallowance Order. Johnson's response papers might also be read to argue that she failed to file an appellate brief because she had yet to receive the record on appeal. At a conference held to discuss the motion to dismiss, Johnson appeared to argue excusable neglect in filing a late notice of appeal from the Disallowance Order. (Tr. 7-9, Oct. 4, 2007.) DISCUSSION I. Appeal of the Disallowance Order Bankruptcy Rule 8002(a) requires that a "notice of appeal shall be filed with the clerk within 10 days of the date of the entry of the judgment ... appealed from." "[T]he time limit contained in Rule 8002(a) is jurisdictional." In re Siemon, 421 F.3d 167, 169 (2d Cir.2005). The time to file a notice of appeal may be tolled by certain timely filed motions. When such a motion has been timely filed, "the time for appeal for all parties runs from the entry of the order disposing of the last such motion outstanding." Fed. R Bankr.P. 8002(b). A motion for relief under Fed.R.Civ.P. 60 tolls the time to file a notice of appeal if the "motion is filed no later than 10 days after the entry of judgment." Fed. R. Bankr.P. 8002(b)(4); see also Fed R. Bankr.P. 9024 (applying Rule 60 to the Bankruptcy Code with limitations not applicable here). Alternately, a "bankruptcy judge may extend the time for filing the notice of appeal." Fed. R. Bankr.P. 8002(c)(1). "A request to extend the time for filing a notice of appeal must be made by written motion filed before the time for filing a notice of appeal has expired, except that such a motion filed not later than 20 days after the expiration of the time for filing a notice of appeal may be granted upon a showing of excusable neglect." Fed. R. Bankr.P. 8002(c)(2). Here, Johnson did not file a notice of appeal, a motion for relief from the judgment, or motion to extend the time to file a notice of appeal within 10 days of the entry of the Disallowance Order. However, her motion to extend the time file a notice of appeal was filed within twenty days of the expiration of the ten day appeal period. Therefore, Judge Lifland had the discretion to grant the request for an extension if Johnson showed excusable neglect. Judge Lifland denied her motion to extend the time to file a notice of appeal, finding that she had not demonstrated excusable neglect. As a result, this Court is without jurisdiction to review the Disallowance Order. This does not end the matter, however, for Johnson has appealed the April 4, 2007 Reconsideration/Extension Order, and this appeal was timely filed. Consequently the Court will address the merits of Johnson's appeal. II. Appeal of the Reconsideration/Extension Order A. Appellant's Failure to File a Brief on Appeal Under Bankruptcy Rule 8009(a)(1), the appellant is required to "serve and file a brief within 15 days after entry of the appeal on the docket." An "appellant's failure to take any step other than timely filing a notice of appeal does not affect the validity of the appeal, but is ground only for such action as the district court or bankruptcy appellate panel deems appropriate, which may include dismissal of the appeal." Fed. R. Bankr.P. 8001(a). Thus, courts have held that "[t]he time limitations imposed by Rule 8009 are not jurisdictional, and hence the district court is not required automatically to dismiss the appeal of a party who has failed to meet those deadlines." In re Tampa Chain Co., 835 F.2d 54, 55 (2d Cir.1987). "Rather, the court should exercise discretion to determine whether dismissal is appropriate in the circumstances...." Id. "Appropriate circumstances for dismissal include where the appellant has acted in bad faith, negligently, indifferently, or with dilatoriness." In re Godt, 282 B.R. 577, 583 (E.D.N.Y.2002). As the rules indicate, the court hearing the bankruptcy appeal has substantial discretion to craft ah appropriate remedy. 10 Collier on Bankruptcy ¶ 8001.06 (15th ed. rev.) ("Dismissal is not, of course, the only sanction available. Costs are sometimes imposed on the party or directly on counsel. In the case of failure to take steps to provide an adequate record, the courts sometimes refuse to permit the record to be supplemented and refuse to consider issues not resolvable on the record transmitted.") Johnson has been bringing claims against Spiegel since the early 1990s. She was recently held in contempt by the bankruptcy court for obtaining a default judgment against Spiegel in violation of an injunction issued by that court. Still, there is nothing to suggest that Johnson's failure to file an appellate brief here is borne of anything other than profound confusion. As a result, the Court declines to dismiss the appeal for failure to file an appellate brief. However, the Court will not allow Johnson additional time to file a separate appellate brief. This sanction is quite minimal: in both her response to the motion to dismiss and the conference held by the Court to discuss that motion, Johnson addressed the merits of the issues that the Court finds dispositive of her appeal. B. Denial of Johnson's Motion for Rule 60(b) Relief from the Disallowance Order "Although a defeated litigant cannot circumvent the time limitations on appeal by styling a belated petition for reconsideration as a motion under Rule 60(b), the denial of a motion properly made under Rule 60(b), as [Johnson's] was, is final and appealable." Cinerama, Inc. v. Sweet Music, S. A., 482 F.2d 66, 71-72 (2d Cir.1973) (Friendly, J.) (internal citations omitted); see also Feldberg v. Quechee Lakes Corp., 463 F.3d 195, 198 (2d Cir. 2006) ("[B]ecause the Goodspeeds' notice of appeal entered on July 20, 2005 is only timely with respect to the district court's denial of their motion for reconsideration entered on June 27, 2005, we only have jurisdiction to review that ruling.") The Court reviews the Bankruptcy Court's denial of a Rule 60(b) motion for abuse of discretion. See In re Lawrence, 293 F.3d 615, 623 (2d Cir.2002) ("The District Court would have been required to review for abuse of discretion any decisions by the Bankruptcy Court with respect to Rule 60(b)...."); In re Finley, Kumble, Wagner, Heine, Underberg, Manley, Myerson & Casey, 194 B.R. 728, 731 (S.D.N.Y.1995) ("With respect to Siewert's appeal from the Reconsideration Order, the bankruptcy court's denial of reconsideration is reviewable only for abuse of discretion."). Reviewing Johnson's confused and rambling submissions to the bankruptcy court, this Court can decipher no argument that raises even a colorable claim for relief based on Rule 60(b). Her initial motion only asked for more time to file a motion for reconsideration. In her reply to the Creditor Trust's opposition to her motion for reconsideration, Johnson relied on the same arguments and the same evidence regarding her discrimination claims that was before the Court when it issued the Disallowance Order. As the bankruptcy court correctly noted, a "motion for relief from judgment is generally not favored and is properly granted only upon a showing of exceptional circumstances." United States v. Int'l Bhd. of Teamsters, 247 F.3d 370, 391 (2d Cir.2001). Moreover, "[t]he burden of proof is on the party seeking relief from judgment, in this case [Johnson]." Id. Consequently the Court finds that the bankruptcy court did not abuse its discretion in determining that Johnson had not demonstrated that she was entitled to relief from the Disallowance Order. Therefore Johnson's appeal of this aspect of the bankruptcy court's Reconsideration/Extension Order is denied. C. Denial of Johnson's Motion for an Extension of Time to File a Notice of Appeal As noted above, a motion to extend the time to file a notice of appeal filed within "20 days after the expiration of the time for filing a notice of appeal may be granted upon a showing of excusable neglect." Fed. R. Bankr.P. 8002(c)(2). Johnson's motion to extend was timely as it was filed on January 10, 2007, that is, within twenty days of the expiration of her time to appeal the December 19, 2006 Disallowance Order. The Bankruptcy Rules, unlike the Federal Rules of Appellate and Civil Procedure as amended in relevant part in 1991, do not contain a specific provision governing situations in which a would-be appellant claims not to have received notice of the entry of judgment. Cf. Fed. R.App. P. 4(a)(6) (where party does not receive notice of entry of judgment within twenty-one days and no party would be prejudiced thereby, a district court may reopen time to file an appeal); Fed R. Civ. P. 77(d) ("Lack of notice of the entry does not affect the time for appeal or relieve — or authorize the court to relieve — a party for failing to appeal within the time allowed, except as allowed by Federal Rule of Appellate Procedure (4)(a)."); Avolio v. County of Suffolk, 29 F.3d 50, 52 (2d Cir. 1994) (noting that Rule 4(a)(6) was amended in 1991 to specifically address such situations); Fed R. Civ. P. 77(d) advisory committee's note to 1991 Amendments ("This revision is a companion to the concurrent amendment to Rule 4 of the Federal Rules of Appellate Procedure. The purpose of the revisions is to permit district courts to ease strict sanctions now imposed on appellants whose notices of appeal are filed late because of their failure to receive notice of entry of a judgment."). Rather, in bankruptcy cases, whether or not there is a claim that notice of the entry of judgment was not received, "the party seeking the extension of time in which to file a notice of appeal has the burden of establishing `excusable neglect.'" In re Enron Corp., 364 B.R. 482, 486 (S.D.N.Y.2007). The excusable neglect inquiry is "at bottom an equitable one, taking account of all relevant circumstances surrounding the party's omission." Silivanch v. Celebrity Cruises, Inc., 333 F.3d 355, 366 (2d Cir. 2003) (quoting Pioneer Inv. Servs. Co. v. Brunswick Assocs. Ltd. P'ship, 507 U.S. 380, 395, 113 S. Ct. 1489, 123 L. Ed. 2d 74 (1993)). "Factors to be considered in evaluating excusable neglect include `[1] the danger of prejudice to the [non-movant], [2] the length of the delay and its potential impact on judicial proceedings, [3] the reason for the delay, including whether it was within the reasonable control of the movant, and [4] whether the movant acted in good faith.'" Id. (quoting Pioneer, 507 U.S. at 395, 113 S. Ct. 1489) (alterations in original). However, as the first two factors will almost always favor the non-movant, and the fourth is rarely at issue, courts focus on the third factor. Id. Here, the bankruptcy court determined that Johnson had not demonstrated excusable neglect by claiming that she had not received the December 19, 2006 Disallowance Order until January 3, 2007. As the bankruptcy court noted, Johnson had been notified that the Creditor Trust would prosecute its objection to her claim at the December 19, 2006 hearing, which Johnson did not attend. The Creditor Trust submitted a sworn affidavit of a legal assistant stating that he had placed the Disallowance Order in the mail to Johnson on December 19, 2006. Bankruptcy court decisions to deny a request to file a late notice of appeal are reviewed for abuse of discretion. See In re Enron Corp., 419 F.3d 115, 124 (2d Cir.2005). Here, to the extent that Johnson can appeal the bankruptcy court's decision not to extend her time to file a notice of appeal after having filed a motion in which she ostensibly disclaimed any intention of seeking such an extension, the Court finds that the bankruptcy court did not abuse its discretion. "Lack of notice of the entry does not affect the time to appeal or relieve or authorize the court to relieve a party for failure to appeal within the time allowed, except as permitted in Rule 8002." Fed. R. Bankr.P. 9022(a). Thus, "the prospective appellant [has] the duty of following the progress of the action and advising himself when the court makes an order he wishes to protest." In re O.P.M. Leasing Services, Inc., 769 F.2d 911, 917 (2d Cir.1985). "Notification by the clerk is merely for the convenience of litigants. And lack of such notification in itself has no effect upon the time for appeal." In re Hilliard, 36 B.R. 80, 83 (S.D.N.Y.1984) (quoting Fed.R.Civ.P. 77(d) advisory committee's note on 1946 amendments).[2] Thus, the Court finds that the bankruptcy court did not abuse its discretion in finding that Johnson's failure to monitor the docket after the December 19 hearing in which her claim was to be addressed precluded a finding of excusable neglect. See In re Kloza, 222 Fed.Appx. 547, 550 (9th Cir.2007) ("It is well-settled that failure to receive notice of entry of judgment or order is not an excuse for an untimely appeal because it is the party's affirmative duty to monitor the dockets.") (quoting In re Warrick, 278 B.R. 182, 187 (9th Cir. BAP 2002)). Accordingly, Johnson's appeal of this aspect of the Reconsideration/Extension Order is denied. CONCLUSION The Court grants the Creditor Trust's motion to dismiss the appeal [4] to the extent that Johnson seeks to appeal the December 19, 2006 Disallowance Order. To the extent that Johnson seeks to appeal the April 4, 2007 Reconsideration/Extension Order, the order of the bankruptcy court is affirmed. The Clerk of the Court is directed to close this case. SO ORDERED. NOTES [1] The ten day appeal period would have expired on April 14, 2007. See Fed. R. Bankr.P. 8002(a). As this was a Saturday, plaintiffs time to appeal expired on Monday, April 16, 2007. See Fed. R. Bankr.P. 9006(a). [2] In non-bankruptcy cases before the 1991 amendments of Rule 77(d) and Rule 4(a)(6), "a party was obligated to find out when the judgment was entered, and counsel's failure to investigate when he did not receive notice of a judgment from the clerk, constituted] unexcusable neglect and does not warrant an extension of time in which to file a notice of appeal." Avolio v. County of Suffolk, 29 F.3d 50, 52 (2d Cir. 1994); see also Bortugno v. Metro-North Commuter R.R., 905 F.2d 674, 677 (2d Cir. 1990) (finding district court abused its discretion in extending time to file a notice of appeal where party had reason to know that judgment would be issued shortly but failed to monitor the docket or the New York Law Journal).

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1851578/

231 B.R. 571 (1999) In re Eugene T. RICHARDS, Jr. and Mary Ellen B. Richards, Debtors. Mark Burke Richards, Intervenor-Appellant, v. United States of America, Appellee. No. Civ.A. 98-5148, Bankruptcy No. 97-14798DWS. United States District Court, E.D. Pennsylvania, Philadelphia Division. January 29, 1999. *572 *573 Mark L. Tunnell, Gawthrop, Greenwood and Halsted, West Chester, PA, John R. Crayton, Crayton and Belknap, Bensalem, PA, for Mary Ellen B. Richards, debtor. John R. Crayton, Crayton and Belknap, Bensalem, PA,, for Eugene T. Richards, debtor. Roger N. Huggins, Gawthrop, Greenwood and Halsted, West Chester, PA, for Mark Burke Richards, intervenor-appellant. Charles M. Flesch, Tax Division of U.S. Dept of Justice, Washington, DC, for United States, U.S. Dept. of Justice, Tax Div., appellee. Edward Sparkman, Philadelphia, PA, trustee pro se. OPINION BUCKWALTER, District Judge. I. INTRODUCTION After a trial on the merits, the United States Bankruptcy Court for the Eastern District of Pennsylvania held that the debtors' trust, the corpus of which is real property, is their nominee as co-trustees for the benefit of their minor son, even though it had previously found that the trust was validly created and not a sham, and that the conveyance of the property to the trust was not fraudulent. The minor son, who intervened in the proceedings below, now appeals from this determination. For the reasons discussed below, the decision of the Bankruptcy Court, holding that the trust is the debtors' nominee, is AFFIRMED. II. JURISDICTION This Court has jurisdiction over appeals from final judgments, orders, and decrees from the Bankruptcy Court. See 28 U.S.C. § 158(a). Jurisdiction is also proper under the collateral order exception to the final judgment rule. See In re Sacred Heart Hosp. of Norristown, 133 F.3d 237, 241 (3d Cir.1998). Although the August 18, 1998 order from which this appeal arises is not "final" in the sense that the Bankruptcy Court did not fully dispose of the contested matter in the underlying proceedings, the Court agrees with Appellee, see Appellee's Br. at 1 n. 1, that the order is nonetheless appealable as the decision contained therein was effectively a preclusive decision on the merits, see F/S Airlease II, Inc. v. Simon, 844 F.2d 99, 103 (3d Cir.), cert. denied, 488 U.S. 852, 109 S. Ct. 137, 102 L. Ed. 2d 110 (1988). III. FACTUAL AND PROCEDURAL HISTORY A. Factual History Debtors Eugene T. Richards, Jr. ("Husband") and Mary Ellen B. Richards ("Wife") were married in 1979. At that time, Wife was 38 years old, pregnant with their son, and employed by Bell of Pennsylvania as an instructor. Husband was 27 years old and was a real estate broker. The Richards decided that Wife would retire from her job to stay at home to care for their son and Husband would remain responsible for supporting the family. They further agreed that Wife's assets, which included a home in Avalon, New Jersey, would remain her separate property. *574 After their son, Mark Burke Richards, was born on August 23, 1979, Wife sold the home in Avalon and bought another property near the beach. She also acquired another property at some other point in time, but the family only resided in one of these properties. When Husband decided to open a restaurant business, Wife sold the residence they were not using to finance his acquisition of a pre-existing restaurant. However, the business failed and the Wife's sole remaining property, the one in which the family resided, was foreclosed upon. Husband was left with debt from the failed business of approximately $80,000, exclusive of employment tax liabilities owed to the IRS. Husband subsequently returned to the real estate business and the family moved to a two-bedroom apartment. According to Husband, he felt financially responsible for Wife losing her home. By 1984, the couple realized that Mark would be their only child. Wanting him to grow up near his cousins, they subsequently purchased a home located in Chester Springs, Pennsylvania ("Residence") for a purchase price of $96,000. This amount was financed by granting a mortgage on the Residence ("First Mortgage") to Financial Mortgage Services in exchange for $91,200, with the balance and closing costs being paid in cash. In May 1984, the Richards began making payments under the First Mortgage, which included escrow for real estate taxes and homeowners' insurance. On or about June 5, 1984, the First Mortgage was assigned to Norwest Mortgage, Inc. ("GMAC"). From May 1984 to the present, the Richards have continuously resided in the Residence with their son. Indeed, not only is the Richards' furniture in the home, but Husband has used part of the Residence as a home office. In addition, since 1984, the Richards have used their personal funds to pay the mortgage, real estate taxes, and utility bills for the Residence, including the telephone, electric and heating bills, which are in one or both of their names. From May 1984 until August 1997, the Richards have also continued to maintain homeowner's insurance on the Residence with both Husband and Wife listed as the named insureds. Shortly after purchasing the Residence, the Richards discussed putting the home in trust for their son. According to them, their intent in so doing was not to evade creditors but to ensure that Mark would have the house to live in no matter what happened to them. Husband then contacted an attorney and advised him that they wanted to deed the Residence in trust for their son. An appropriate deed was prepared and, on or about December 6, 1984, the Richards transferred title to the Residence from themselves to themselves as trustees for their five-year-old son, for a consideration of $1.00. Although the deed was then duly recorded in Chester County, the Richards did not separately contact GMAC to advise it of the transfer. Husband claims, however, that he provided GMAC with indirect notice of the transfer through tax bills that reflected the trust. Concomitantly, the Richards were liable for $2,734 in federal income taxes for the tax year ending 1983. Husband was also liable for employment taxes in connection with the failed restaurant amounting to over $20,000 for the tax periods ending June 30, 1982, September 30, 1982, and December 31, 1982. Husband made periodic payments towards these liabilities and, by March 20, 1987, the assessed federal income tax liability, including interest and penalties, was paid in full. On January 1, 1988, Husband entered into an Installment Agreement with the IRS, obligating him to make monthly payments of $400 towards the remaining outstanding taxes. The IRS' records show that he indeed made approximately 20 payments in compliance with this agreement. Additionally, Husband signed a Tax Collection Waiver form with the IRS agreeing to extend the statutory period applicable to the employment tax liabilities until December 31, 1999. On or about January 1, 1989, the Richards applied for a home equity loan of $12,500 from Malverne Federal Savings and Loan Association ("Malverne"). Although Husband testified that he had advised the loan officer that the Residence was held in trust for his son, the loan application unequivocally listed the location of the Residence as the Richards' address and states that they "own" *575 the home. The application was prepared by an employee of the bank using information obtained from Husband over the telephone or contained in the bank's files, as the Richards had previously applied for, and obtained, a home equity loan from Malverne in January 1986. However, no documentation for that 1986 transaction was available because they had all been destroyed by the bank in accordance with its document retention policy. The couple each signed the application for the 1989 loan and, by doing so, represented under penalty of perjury that the information contained in the application was true. The loan was subsequently approved and, on or about January 15, 1989, the Richards signed a promissory note for it. From the inception of the loan, the Richards used their personal funds to make the payments. As collateral for the loan, the Richards granted Malverne a second mortgage on the Residence ("Second Mortgage"). The mortgage document, which both Wife and Husband signed, fails to disclose that they hold the property in trust for their son and does not mention the 1984 deed transferring the property from the Richards to themselves as trustees for their son. Rather, it identifies the Richards as owners of the property and refers solely to the deed transferred to them in 1984. According to Malverne's Manager and then Vice President of the Consumer Loan Department, the bank was not aware when it approved the 1989 home equity loan that the Richards did not own the Residence. While a title search conducted in 1989 identified the Richards as the owners of the home, a subsequent search performed in 1991 disclosed the existence of the trust. In 1990 and 1991, the Richards fell behind on their mortgage payments on both the First and Second Mortgages. In 1990, GMAC instituted foreclosure proceedings against them based on the First Mortgage, naming the Richards in their capacity as mortgagees and as trustees for their son. Husband then contacted an attorney and requested assistance in resolving the matter. The Richards ultimately entered into an agreement with GMAC to have the foreclosure suit discontinued, proceeding solely in their capacity as mortgagors and not as representatives of the trust. In 1991, Malverne also instituted foreclosure proceedings against the Richards in their capacity as mortgagors and as trustees for their son. A settlement was reached in that action as well. In response to these foreclosure actions, the Richards also applied to the Pennsylvania Housing Finance Agency under the auspices of the Homeowners' Emergency Mortgage Assistance Program for loans to avoid the foreclosure. According to Husband, he had advised the housing counselor that the Residence was held in trust. However, the counselor denied ever being so advised. Her denial is supported by the applications, signed by both Husband and Wife, in which they once again inexplicably referred to the Residence as one of their assets. Moreover, the counselor testified that her agency's policy is to require ownership of the residence as condition of granting a loan. In any event, both of the Richards' applications were ultimately denied because they were deemed to be overextended. For each of the tax years beginning with 1988 through 1995, except for 1990, the Richards filed a federal income tax return on which they: (1) deducted home mortgage interest paid with respect to the GMAC mortgage; (2) deducted real estate taxes paid in connection with the Residence; and (3) deducted expenses incurred in connection with Husband's home office maintained at the Residence. The IRS audited the Richards' 1991, 1992, and 1993 income tax returns, accepting the deductions the Richards had claimed for home mortgage interest and real estate taxes paid in those years. However, the IRS objected to other deductions that were taken and consequently, made adjustments to the Richards' tax liabilities for those years. On September 16, 1996, the Richards consented to the IRS examination results, thereby increasing their tax liabilities for those years. At trial, Husband testified that he had taken the deductions for home mortgage interest and real estate taxes because he thought that the individual who paid the mortgage interest and taxes was the one entitled to take the deductions. *576 In October 1995, Wife had emergency surgery. According to Husband, this experience prompted the Richards to contact an attorney about estate planning. Husband advised the attorney of the existence of the trust and the attorney prepared a document entitled, "Joint Trust Under Deed." According to Husband, the purpose of this document was to memorialize their intent in 1984 to create the trust. Shortly afterwards, but sometime before February 29, 1996, the Richards signed it and backdated it to December 6, 1984. Prior to 1998, however, the Richards neither opened a bank account in the name of the trust, nor obtained a taxpayer identification number for it. They also never filed a gift tax return reflecting the transfer or a fiduciary tax return with the IRS. At trial, the Richards testified that they were not aware of any requirement that they do so but rather, believed that all they had to do to effectuate the trust was to execute the deed. According to Wife, neither she nor Husband ever represented to anyone after the transfer in 1984 that they owned the Residence. Quite to the contrary, she stated that they told friends that their son, Mark, owned the house and, when Mark was about ten years old, advised him similarly. Mark also testified that he was involved in certain decisions regarding improvements to the home. Husband testified that he had no idea that the couple's continued payment of all expenses associated with the Residence would place the trust in any jeopardy. On February 5, 1996, the IRS' Collection Division served a summons on the Richards, requiring them to provide information about their assets, expenses, and liabilities, in connection with the collection of the Richards' outstanding income tax liabilities for the tax years ending 1987, 1988, 1989, and 1994. During a meeting on February 20, 1996, Husband advised the IRS that the couple did not, in fact, own any real estate as they had put their home in trust for their son. Responding to a request by the IRS to provide documentation of this fact, Husband forwarded a copy of the Joint Trust Under Deed to the IRS by letter dated February 29, 1996. However, Husband failed to mention in this letter that the document had been backdated. The IRS did not learn of this fact until Husband was deposed on September 3, 1997. B. Procedural History On September 16, 1996, the United States filed a complaint against the Richards, individually and as trustees for their minor son, Mark Burke Richards, in the United States District Court for the Eastern District of Pennsylvania, seeking to reduce to judgment assessments for the tax periods ending 1987, 1988, 1989, and 1994, and to foreclose upon the Residence to satisfy the federal tax liens. On February 14, 1997, the Richards filed an answer to the complaint but, on April 18, 1997, they filed a Voluntary Petition for Relief under Chapter 13 of the Bankruptcy Code. Subsequently, the IRS filed a Proof of Claim dated April 30, 1997 and filed amendments to this claim on May 6, 1997, September 19, 1997, and March 18, 1998. The claim, as amended, is for a total of $216,803.73, categorized as follows: an unsecured claim of $7,073.89, a secured claim of $124,495.64, and a priority claim of $85,234.20. On June 3, 1997, the Richards filed an objection to the IRS' claim. In the objection, Wife contended that the IRS' secured claim should be reduced to exclude the value of the Residence because the couple held title to it only as co-trustees for their son and did not possess any equitable interest therein. On June 26, 1997, the IRS filed a motion to dismiss the bankruptcy proceeding with prejudice, or to modify the automatic stay. Thereafter, the IRS moved for summary judgment with respect to its dismissal motion and the objection. The Richards crossmoved for summary judgment with respect to the same, and their son was granted leave to intervene ("Intervenor-Appellant"). While these motions were pending, Husband moved on November 13, 1997 to have the case voluntarily dismissed as to him. That request, although opposed by the IRS, was granted by the Bankruptcy Court on April 22, 1998. The Bankruptcy Court thereafter denied the IRS' motion for summary judgment and denied the cross-motion as to the objection, *577 but granted the cross-motion as to the IRS' dismissal motion. See In re Richards, No. 97-14798DWS, 1998 WL 205915 (Bankr. E.D.Pa. Apr. 3, 1998). In disposing of the summary judgment motions, the court made several significant factual findings and legal conclusions, most of which are not being challenged on this appeal. First, it determined that a valid, passive trust had been created under Pennsylvania law by operation of the 1984 deed. See id. at *6-8. As a result, the court held that the Richards possessed no individual interest in the Residence; rather, they held legal title to the property solely by virtue of the trust and for the benefit of their son. Second, the court rejected the IRS' contention that the transfer of the property constituted a fraudulent conveyance under Pennsylvania's then applicable Uniform Fraudulent Conveyance Act ("UFCA"), 12 Pa.Cons.Stat.Ann. §§ 5101-5110. See id. at *8-10. The IRS claimed that, because the Richards were jointly liable for $2,734 in federal income taxes for the tax year ending 1983, the transfer was intended to avoid this liability. The court, however, found that the Richards had satisfied the debt to the IRS for their 1983 tax liability and thus, the IRS was no longer a creditor (as that term was defined under the UFCA) and was not entitled to have the transfer set aside as fraudulent. Additionally, the court found that the IRS lacked standing under the UFCA to oppose the transfer of property held as tenants by the entireties based solely on Husband's individual debts. Third, the court rejected the IRS' contention that its lien attached to the Residence because the trust had no economic substance and was, therefore, a sham. See id. at *10-12. Using a test enunciated in Markosian v. Commissioner of Internal Revenue, 73 T.C. 1235, 1243-45, 1980 WL 4562 (1980), the court determined that certain factors were absent and thus, the IRS could not maintain the sham trust theory. Although the court naturally found that there was no independent trustee to prevent the Richards from acting in derogation of the interests of Intervenor-Appellant, the court held that an economic interest had passed under the trust to a family member, namely the son, because he had acquired the right, as the beneficiary of a passive trust, to have the trust terminated upon his demand and to have the legal title of the Residence transferred to him. Moreover, since the Richards held title to the Residence as trustees for Intervenor-Appellant, the court found that they were legally required to administer the property in his interest. However, because there was a dispute in the record as to whether the Richards had acknowledged to third-parties (that is, Malverne) that the Residence was the property of the trust, the court was unable to determine whether there was evidence that the Richards' relationship to the Residence was substantially the same before and after they created the trust. Nonetheless, the court concluded that the passing of an economic interest and the legal restrictions on the Richards as co-trustees were sufficient to defeat the IRS' sham trust theory. Finally, the court found several disputed issues of material fact warranting a rejection of the IRS' contention that the trust is the nominee or alter ego of the Richards. See In re Richards, 1998 WL 205915, at *12-13. Using a test promulgated in United States v. Klimek, 952 F. Supp. 1100, 1113 (E.D.Pa. 1997), the court determined that undisputed evidence in the record established that little or no consideration was paid for the transfer of the Residence, and that the relationship between the relevant parties (the Richards and their son) could be characterized as a close one. However, the issues in dispute included whether the Richards represented themselves to third-parties (including Malverne) as owners of the property; whether the Richards' state of mind with respect to their ownership of the property changed after the creation of the trust; and what the purpose and intent of the Richards was in establishing the trust. Unable to resolve the factual disputes relating to the IRS' nominee/alter ego theory, the court directed the parties to a trial on the merits, which was subsequently held on July 10 and 17, 1998. The Bankruptcy Court then issued another Memorandum Opinion in which it made the legal determinations that are the subject of this appeal. See In re *578 Richards, No. 97-14798DWS, 1998 WL 549001 (Bankr.E.D.Pa. Aug. 18, 1998). Preliminarily, the court held that, irrespective of whether title to the Residence was held in trust for Intervenor-Appellant or title to the Residence had vested in him in 1984, the nominee/alter ego theory remained available to the IRS in determining whether the Residence would be construed, for federal tax purposes, as belonging to the Richards if they indeed treated and viewed the property as their own. See id. at *6-7. Then, after consideration of the Klimek factors, to the delineation of which none of the parties objected, the court concluded that the trust held the Residence as the Richards' nominee. See id. at *8-10. Accordingly, the court, while not reaching the issue of whether the trust was the Richards' alter ego, held that the IRS' claim was secured by the Residence and set a hearing to determine the value of the Residence. This value was recently determined by the court. See In re Richards, No. 97-14798DWS, 1999 WL 14680 (Bankr.E.D.Pa. Jan. 12, 1999). IV. DISCUSSION A. Standards of Review In reviewing a bankruptcy court's determinations, the district court reviews its legal conclusions de novo, its factual findings for clear error, and its exercise of discretion for abuse thereof. See In re Trans World Airlines, Inc., 145 F.3d 124, 131 (3d Cir. 1998). Due regard should also be given to the opportunity of the bankruptcy court to judge the credibility of witnesses. See Fed. R.Bankr.P. 8013. Although Intervenor-Appellant states that he is only challenging the Bankruptcy Court's legal conclusions and not its factual findings, see Intervenor-Appellant's Br. at 3, it is obvious that the determinations at issue here involve mixed findings of both law and fact. In that case, the findings must be separated by the reviewing court, with appropriate standards applied to each component. See In re Fegeley, 118 F.3d 979, 982 (3d Cir.1997). "On an appeal, the district court may . . . affirm, modify, or reverse a bankruptcy judge's judgment, order, or decree or remand with instructions for further proceedings." Fed.R.Bankr.P. 8013. On appeal, Intervenor-Appellant advances three principal arguments. First, that the Bankruptcy Court erroneously relied on the nominee theory in light of its previous findings that the trust was not created for an improper purpose; that the trust was a passive one; that the transfer of the Residence was not a fraudulent conveyance; and that the trust was not a sham. Second, that the Bankruptcy Court erroneously misapplied the nominee theory to the facts in this case. And third, that the Bankruptcy Court improperly applied the nominee theory in the case sub judice to deprive Intervenor-Appellant of his interest because his parents made certain mistakes with respect to the trust after the transfer. B. Reliance on the Nominee Theory The Bankruptcy Court properly relied on the IRS' nominee theory even after making various rulings regarding the legal status of the trust when it was first established. It is well settled that the IRS may properly levy against property of a delinquent taxpayer's nominee. See, e.g., Today's Child Learning Ctr., Inc. v. United States, No. CIV. A. 97-1063, 1998 WL 98990, at *6 (E.D.Pa. Mar. 6, 1998) (Newcomer, J.); United States v. Klimek, 952 F. Supp. 1100, 1113 (E.D.Pa.1997) (Dalzell, J.); Ross Controls, Inc. v. United States, 164 B.R. 721, 727 (E.D.Pa.1994) (Brody, J.). As is apparent from a reading of the cases applying this doctrine, the nominee theory stems from equitable principles. Focusing on the relationship between the taxpayer and the property, the theory attempts to discern whether a taxpayer has engaged in a sort of legal fiction, for federal tax purposes, by placing legal title to property in the hands of another while, in actuality, retaining all or some of the benefits of being the true owner. Said another way, the nominee theory is utilized to determine whether property should be construed as belonging to the taxpayer if he/she treated and viewed the property as his/her own, in spite of the legal machinations employed to distinguish legal title to the property. *579 Intervenor-Appellant's arguments fail to appreciate the distinction between the legal status of the property placed in the trust at the time the trust was established, and the subsequent treatment of the property by the grantors. The Bankruptcy Court did indeed hold that the Richards had legally created a valid, passive trust and that the trust had been established for a proper purpose; that the transfer of the Residence had not been a fraudulent conveyance in order to avoid tax liabilities; and that the trust had not been a sham. At its core, all of these conclusions essentially address the validity of the trust at the time it was created and its continued viability as a separate legal entity. The nominee theory, by contrast, addresses the manner in which the Richards viewed and treated the property thereafter and thus, the mere existence of a separate legal entity has no bearing on its application after the time the trust was created. Accordingly, the Court holds that the Bankruptcy Court properly relied on the nominee theory. C. Application of the Nominee Theory The Bankruptcy Court properly applied the nominee theory to the facts in this case. While courts have identified a variety of factors relevant to the determination that property is, in fact, being held as the nominee of the taxpayer, the articulation employed by the Bankruptcy Court, taken in part from United States v. Klimek, comports with the current understanding of the nominee theory: (a) No consideration or inadequate consideration paid by the nominee; (b) Property placed in the name of the nominee in anticipation of a suit or occurrence of liabilities while the transferor continues to exercise control over the property; (c) Close relationship between transferor and the nominee; (d) Failure to record conveyance; (e) Retention of possession by the transferor; (f) Continued enjoyment by the transferor of benefits of the transferred property; and (g) Expenditure of personal funds by the transferor to purchase and maintain the property. However, these factors should not be applied rigidly or mechanically, as no one factor is determinative. Rather, the critical consideration is whether the taxpayer exercised active or substantial control over the property. See, e.g., United States v. Kudasik, 21 F. Supp. 2d 501, 508 (W.D.Pa.1998). The only factor that is clearly absent is (d), as it is undisputed that the Richards properly recorded the deed in Chester County, evidencing the transfer of the property to the trust. However, the record is equally clear that $1.00 for the transfer amounts to little or no consideration, and that the relationship of parents to their children is a close one. While Intervenor-Appellant would prefer wholly to disregard these two factors because this situation involved a transfer of a gift between family members, the Court will instead simply accord them relatively little weight under these facts. The remaining factors are not so summarily disposed and require a careful review of the record. The Bankruptcy Court's prior ruling that the transfer was not a fraudulent conveyance essentially precludes any contention that the Richards transferred the property in order to avoid any then current debt to the IRS. Moreover, there is no evidence that the Richards transferred the property for the purpose of avoiding any future liability to the IRS. Other evidence in the record does suggest, however, that the Richards established the trust to protect the home generally from future creditors. In light of their own foreclosure experience after Husband's restaurant business failed, this is foresightful estate planning. There is also substantial evidence in the record establishing that the Richards retained possession of the Residence, that they continued to enjoy all the benefits of owning the Residence, and expended their personal funds to maintain the property. Although the Richards occupied the Residence as their sole living quarters after the transfer, they never paid any rent to the trust for this privilege. As the occupants of the Residence, they were obliged to pay the living *580 expenses of the home, such as the utility bills for the telephone, electricity, and heating. All of these expenses were naturally paid using the Richards' personal funds. But significantly, the Richards, and not the trust, also paid the mortgage, real estate taxes, and homeowner's insurance premiums on the property — all with personal funds. Indeed, the Richards, and not the trust, were the named insureds on the insurance policy. Moreover, the Richards took ample advantage of the available federal income tax deductions for the payment of home mortgage interest and real estate taxes on their personal income tax returns, while concurrently failing to secure a taxpayer identification number for the trust, establish a separate trust bank account, file tax returns on behalf of the trust, file fiduciary tax returns on behalf of themselves, or even a gift tax return reflecting the initial transfer. Furthermore, the Richards' representations to third-parties evince the manner in which the Richards treated and viewed the property. To Malverne, they identified themselves in their individual capacity as the owners of the Residence and thereby, granted a second mortgage on the Residence in exchange for a loan on which they personally obligated themselves. To the Pennsylvania Housing Finance Agency, they listed the Residence as one of their assets. In both cases, they utterly failed to disclose the very existence of a trust in connection with the Residence. Intervenor-Appellant claims that, because he was only five years old, the Richards were obligated as co-trustees, as well as being his legal guardians, to act in a manner outwardly conforming with ownership. Evidence was presented at trial concerning the Richards' state of mind. To wit, the Richards testified that they told other third-parties that the home had been placed in trust for their son, and that they involved their son in certain home improvement decisions. In addition, in settling the foreclosure proceedings instituted by GMAC and Malverne, the Richards proceeded solely in their capacity as mortgagors, and not as co-trustees. Considering all the evidence in the record, this Court concludes that the Richards owned the Residence in equity. Once having embarked upon a strategy to place the home in trust for their son, it was the Richards' obligation to maintain the formalities accompanying the establishment of a separate legal entity and to carry out their duties as co-trustees. Indeed, Mr. Richards, at least, was an experienced real estate broker, sophisticated enough to consider placing the Residence in a trust, to seek legal advice to accomplish this, and to make clear that the trust owned the Residence when applying for the home equity loans. Similar precautionary steps ought to have been taken after the transfer. The Richards' unequivocal actions here speak louder than their assertions and are consistent with a determination that the Richards viewed and treated the home as their own. That is, the Richards' relationship to the Residence was substantially the same before and after they established the trust in that they exercised active or substantial control over the property. Accordingly, this Court holds that the Bankruptcy Court properly determined that the trust held the Residence as the Richards' nominee. D. Intervenor-Appellant's Equity Argument Ironically, Intervenor-Appellants also claims that it would be inequitable to hold him responsible for the Richards' omissions and liabilities once title to the Residence had vested in him. The Court is not persuaded. First, Intervenor-Appellant's arguments in this regard were not raised by him in the Bankruptcy Court and are being maintained for the first time on appeal. Thus, this Court need not address them as he has waived them for purposes of this appeal. See In re Sacred Heart Hosp. of Norristown, 133 F.3d 237, 241 n. 6 (3d Cir.1998). Second, even if they were to be considered, the Court finds not only factual assertions unsupported by the record, but also contentions of illogic and excusable mistake which lack merit. As the trust's beneficiary, it appears that Intervenor-Appellant will be harmed should the IRS foreclose on the Residence. However, this is a result which may occur in intrafamily *581 transfers where little heed is paid to legal formalities. V. CONCLUSION For the foregoing reasons, the order of the Bankruptcy Court for the Eastern District of Pennsylvania dated August 18, 1998 is AFFIRMED.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1852471/

355 B.R. 867 (2006) In re James L. PARIS, Debtor. James L. Paris, Appellant, v. United States of America, Appellee. No. 6:06-cv-1084-Orl-19JGG. United States District Court, M.D. Florida, Orlando Division. October 10, 2006. *868 James L. Paris, Daytona Beach, FL, pro se. Carol Koehler Ide, U.S. Dept. of Justice, Tax Division, Washington, DC, for Appellee. *869 ORDER FAWSETT, Chief District Judge. Appellant James L. Paris appeals from an Order of the United States Bankruptcy Court for the Middle District of Florida ("Bankruptcy Court") granting summary judgment in favor of Appellee United States of America in an adversarial proceeding related to Appellant's voluntary Chapter 7 Bankruptcy petition. (Bankr. Dkt. No. 83, filed June 13, 2006, pp. 4, 10).[1] This case comes before the Court on the following: 1. Brief For Appellant James Paris (Doc. No. 15, filed September 13, 2006); 2. Brief For Appellee United States of America (Doc. No. 18, filed September 28, 2006); and 3. Reply Brief For Appellant (Doc. No. 19, filed October 10, 2005). Background of the Case Appellant was the owner,, president and registered agent of James L. Paris Financial Services, Inc. (the "corporation"). (Bankr.Dkt. No. 33, "Plaintiff's Response To Defendant's Request For Admissions", p. 1, hereinafter "Resp. to Adm."). Thus, he had the authority to hire, fire and manage the employees of the corporation, had the authority to direct the payment of the corporation's bills, and had the authority to determine the financial policy of the corporation. (Id. at 1-3). Appellant could negotiate on behalf of the corporation in its dealings with its suppliers, clients, and customers. (Id. at 2). He also had the authority to open and close corporate bank accounts, sign the checks of the corporation, and to make deposits and authorize deposits to the corporate bank accounts. (Id. at 2-3). Appellant hired his brother Carmen Paris to work as the vice president of the corporation. (Id. at 3). Carmen was an authorized bank signatory for the corporation and signed checks on the corporation's accounts until he left its employment in June 2002.[2] (Id. at 3). He also signed the "Employer's Quarterly Federal Tax Return" of the corporation for the tax periods ending March 31, 2000, June 30, 2000, December 31, 2000, March 31, 2001, June 30, 2001, and September 2001. (Id. at 3). On June 8, 2002, Appellant was informed by an employee of the Internal Revenue Service ("IRS") that the corporation was delinquent in its payroll tax obligations beginning with the tax period ending June 30, 2000. (Doc. No. 2, Ex. 51, June 6, 2006 Hearing, pp. 22-23, hereinafter "June 30, 2006 Hearing"). At that time, the corporation had unencumbered funds in its accounts, or it acquired such funds thereafter. (Bankr.Dkt. No. 83, p. 9 n. 8). After this date, Appellant opened a new corporate bank account and signed checks drawn on the corporation's accounts. (Resp. to Adm. at 2-3). He authorized the issuance of corporate payroll checks, signed such payroll checks, and signed the corporation's federal payroll tax returns. (Id. at 2-3). More specifically, Appellant signed the following checks drawn on the corporation's bank account after June 8, 2002: Date Payee Amount June 13, 2002 Century Small Business $ 250.00 *870 Date Payee Amount June 17, 2002 Carol Brown $1,051.37 June 17, 2002 State Farm Insurance $ 129.13 July 20, 2002 Benjamin Moore $1,000.00 June 26, 2002 Pappas Law Firm $ 900.00 June 26, 2002 Benjamin Moore $ 250.00 July 10, 2002 Charls Sizemore $ 556.47 July 19, 2002 [illegible] $ 100.00 July 30, 2002 [illegible] $ 100.00 July ___, 2002 OC Fund $ 184.80 August ___, 2002 [illegible] Paris $ 200.00 August 1, 2002 Sharon Paris $ 100.00 August 2, 2002 Carol Brown $1,051.37 August 6, 2002 Century Small Business $ 250.00 August 7, 2002 Sharon Paris $ 100.00 August 12, 2002 Cathy Tuttle $ 350.00 August 16, 2002 Carol Brown $1,051.37 August 29, 2002 [memo line: Legal Fees] $1,500.00 (Id. at 3). He also signed the "Employer's Quarterly Federal Tax Return" of the corporation for the tax periods ending March 31, 2002 and June 30, 2002.(Id.). On April 9, 2004, the IRS assessed trust fund recovery penalties ("Trust Fund Penalties") against Appellant pursuant to Title 26 U.S.C. § 6672, otherwise known as Section 6672 of the Internal Revenue Code, for payroll taxes which were withheld from the wages of employees of the corporation but not paid over to the IRS. (Bankr.Dkt. No. 83, pp. 3-4). Specifically, the assessed Trust Fund Penalties were as follows: Tax Period Ending Assessment Amount June 30, 2000 $ 5,754.03 September 30, 2000 $13,510.39 December 31, 2000 $ 7,359.09 March 31, 2001 $ 7,354.15 June 30, 2001 $ 4,628.43 September 30, 2001 $ 3,629.09 December 31, 2001 $ 540.22 March 31, 2002 $ 6,212.16 June 30, 2002 $ 4,619.68 September 30, 2002 $ 1,410.24 December 31, 2002 $ 198.63 (Id. at 4). Appellant filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code on September 2, 2005, and on that same day he filed the adversarial proceeding leading to this appeal. (Id. at 4). In the adversarial proceeding, Appellant sought a determination that he was not liable for the Trust Fund. Penalties and that any such liability was dischargeable. (Id.). Upon consideration of Appellee's Motion for Summary Judgment, the Bankruptcy Court found (1) that Appellant was liable for the Trust Fund Penalties assessed against him pursuant to Section 6672 of the Internal Revenue Code for the periods ending June 30, 2000 through December 31, 2002 and (2) that such Trust Fund Penalties were excepted from discharge pursuant to Title 11 U.S.C. § 523(a)(1)(A). (See Bankr.Dkt. No. 83). Appellant timely appealed this Order, and the Court has jurisdiction pursuant to Title 28 U.S.C. § 158(a). Standard of Review In reviewing an order of a Bankruptcy Court, this Court reviews the Bankruptcy Court's legal conclusions de now, but it must accept the Bankruptcy Court's factual findings unless they are clearly erroneous. FED. R. BANKR. P. 8013; Rush v. JLJ Inc. (In re JLJ Inc.), 988 F.2d 1112, 1116 (11th Cir.1993). This Court may not make independent factual findings. In re JLJ Inc., 988 F.2d at 1116. Analysis "Section 6672 imposes liability upon (1) a responsible person (2) who has willfully failed to perform a duty to collect, account for, or pay over federal employment taxes." Thosteson v. United States, 331 F.3d 1294, 1298 (11th Cir2003).[3] Appellant concedes that he a responsible person *871 but raises two issues, one evidentiary and the other relating to willfulness. (Doc. No. 15, p. 10). The Court addresses each of these issues in turn. Initially, however, the Court finds that the facts and legal arguments are adequately presented in the litigants' briefs and the record itself and that its decision would not be significantly aided by oral argument. See FED. R. BANKR.P. 8012. Therefore, the Court denies Appellant's request for oral argument. Objections to the Bankruptcy Court's Findings of Fact Appellant takes issue with the Bankruptcy Court's consideration of Appellee's Motion for Summary Judgment on the evidence of record without giving Appellant an opportunity to depose Carmen Paris and two IRS employees. (Doc. No. 10-12). He also contends that such witnesses "would have supported his claim that he was not willful in the non-payment of his corporation's payroll taxes." (Id. at 12). Appellant's contentions are unfounded for two reasons. First, the findings of fact of the Bankruptcy Court are restricted to the undisputed facts of record as evidenced by Appellant's Response To Defendant's Request for Admissions, the oral stipulation of the parties from the June 6, 2006 hearing before the Bankruptcy Court, and the undisputed Exhibits attached to Appellee's Motion for Summary Judgment. (Compare Resp. to Adm., pp. 1-5; June 6, 2006 Hearing, pp. 22-23; Bankr.Dkt. No. 36, filed April 20, 2006, Exs. C, J with Bankr.Dkt. No. 83, pp. 1-4). Even if the Bankruptcy Court had not restricted its findings of fact to the admissions contained within Appellant's response, Appellant's failure to timely respond to an the request for admissions served to place Appellee's requests as "admissions on file." United States v. 2204 Barbara Lane, 960 F.2d 126, 129 (11th Cir.1992). Further, Appellant did not seek to withdraw such admissions under Federal Rule of Civil Procedure 36(b), nor did the Bankruptcy Court make the findings necessary to withdraw such admissions. See Perez v. Miami-Dade County, 297 F.3d 1255, 1269 (11th Cir.2002) (requiring the application of the two-part test of Rule 36(b) before a court can withdraw the admissions of a party). Secondly, none of avenues of questioning for these witnesses that were suggested by Appellant in his brief are relevant to Appellant's actions after June 8, 2002. On this date, as the parties agree, Appellant was made aware of the corporation's delinquent payroll tax obligations. (June 6, 2006 Hearing, pp. 22-23). It is also the beginning of the time period that is relevant to the findings of fact and conclusions of law of the Bankruptcy Court regarding Appellant's willfulness. Therefore, the Court finds that the Bankruptcy Court's factual findings are not clearly erroneous. Objection to the Bankruptcy Court's Conclusion of Law The sole remaining issue in this appeal is whether Appellant willfully failed to pay over the withheld payroll taxes to the IRS. Appellant argues that he did not willfully fail to pay over the funds to the IRS because (1) Carmen embezzled the funds withheld for such purpose without his knowledge and (2) there were no "unencumbered funds" available to the corporation to pay the back taxes when Appellant "regained" control of the corporation. (Id., 9-13). In opposition, Appellee contends that the Bankruptcy Court correctly found willfulness where Appellant continued to draw funds from the corporation's accounts to pay various creditors after he became aware of the corporation's delinquent *872 quest payroll tax obligations. (Doc. No. 18, pp. 8-9). Additionally, Appellee avers that Appellant made no effort before the Bankruptcy Court to show that the corporation's funds were encumbered and that he admitted to paying corporate funds to other creditors after June 8, 2002. (Id. at 10-11). Once it is established that a taxpayer is a responsible person, he assumes the burden of proving lack of willfulness. George v. United States, 819 F.2d 1008, 1011 (11th Cir.1987). Although the Supreme Court has ruled that Section 6672 precludes the imposition of trust fund recovery penalties without personal fault, the willfulness requirement of Section 6672 has been interpreted by courts to broadly encompass a range of actions by responsible persons. Id. (citing Slodov v. United States, 436 U.S. 238, 255, 98 S. Ct. 1778, 56 L. Ed. 2d 251 (1978)). In Mazo v. United States, 591 F.2d 1151, 1155 (5th Cir.1979), the predecessor court to the Eleventh Circuit defined "willfully" as "meaning, in general, a voluntary, conscious and intentional act." It does not require a fraudulent or other bad motive on the part of the responsible person. Id. The willfulness requirement of Section 6672 is satisfied where there is evidence that the responsible person had knowledge of payments to other creditors after he became aware of the failure to remit withholding taxes. Smith v. United States, 894 F.2d 1549, 1553 (11th Cir.1990). Even if the responsible person is unaware that withholding taxes have gone unpaid in past quarters, one who becomes aware that taxes have gone unpaid in past quarters in which he was also a responsible person is under a duty to use all unencumbered funds available to the corporation to pay those back taxes. Thosteson v. United States, 331 F.3d 1294, 1301 (11th Cir.2003). Appellant admits that he was the president of the corporation with concomitant authority during the tax periods identified in the Order of the Bankruptcy Court. He admits that he became aware that the corporation had failed to pay over to the IRS payroll taxes on June 8, 2002. Nevertheless, Appellant continued to write check after check of the corporation's funds to creditors other than the IRS, such as Century Small Business, Sharon Paris, State Farm Insurance, and OC fund, after June 8, 2002. Such conduct is sufficient to support a finding of willfulness. Thosteson, 331 F.3d at 1301. Moreover, the Bankruptcy Court found that the funds paid by Appellant to the corporation's suppliers, employees, and attorneys were unencumbered. (Bankr.Dkt. No. 83, p. 9, n. 8). Appellant generally avers that such funds are encumbered under state and federal securities law, but he provides no citation to authority for his assertion. (Doc. No. 15, passim). The Bankruptcy Court concluded that Appellant had failed to allege that he was legally obligated to use such funds for any purpose other than satisfying the corporation's payroll tax obligations. (Bankr.Dkt. No. 83, p. 9, n. 8). Likewise, Plaintiff presents no argument to this Court as to how the creditors identified in the Order of the Bankruptcy Court held a superior legal interest in the corporate funds paid over to them after June 8, 2002 than the IRS. Thus, the Court finds no error in the Bankruptcy Court's conclusion that Appellant willfully fails to pay over to the IRS withheld payroll taxes. Conclusion Based on the foregoing, the June 13, 2006 Order of the Bankruptcy Court and its findings of fact and conclusions of law are AFFIRMED. Further, Appellant's request for oral argument is DENIED by the Court. *873 DONE and ORDERED in Chambers in Orlando, Florida on October 10, 2006. NOTES [1] References to the Bankruptcy Court refer to docket entries for the bankruptcy Adversary Proceeding No. 3:05-ap-00264-JAF. [2] The circumstances surrounding the termination of Carmen Paris are disputed by the parties and, in any event, are relevant only tangentially to the findings of fact and conclusions of law of the Bankruptcy Court. For the benefit of the reader, Appellant alleges that without his knowledge Carmen embezzled the corporation's funds while serving as vice president of the corporation. (Doc. No. 15, pp. 5-6). [3] The general rule for personal liability for unpaid payroll taxes is set forth in Section 6672(a) of the Internal Revenue Code, which provides: Any person required to collect, truthfully account for, and pay over any tax imposed by this title who willfully fails to collect such tax, or truthfully account for and pay over such tax, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall . . . be liable to a penalty equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over. . . . 26 U.S.C. § 6672(a).

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1852827/

362 B.R. 131 (2007) In re: NORTHWESTERN CORPORATION, Reorganized Debtor. The Plan Committee of Northwestern Corporation, Appellant, v. Northwestern Corporation, et al., Appellees. Ad Hoc Committee Of Class 7 Debtholders, Appellant, v. Northwestern Corporation, et al., Appellees. No. 03 12872 KJC, No. CIV.A.06 157 JJF, CIV.A.06 158 JJF. United States District Court, D. Delaware. March 2, 2007. Alan W. Kornberg, Kelley A. Cornish, Margaret A. Phillips, Paul, Weiss, Rifkind, Wharton & Garrison LLP, New York, NY, Neil B. Glassman, Charlene Davis, Bayard Firm, Wilmington, DE, for Appellant, The Plan Committee. Philip Bentley, Matthew J. Williams, Kramer Levin Naftalis & Frankel LLP, New York, NY, Adam G. Landis, Rebecca L. Butcher, Kern K. Mumford, Landis Rath & Cobb LLP, Wilmington, DE, for *132 Appellant, The Ad Hoc Committee of Class 7 Debtholders. Bonnie Steingart, Gary L. Kaplan, John W. Brewer, Fried, Frank, Harris, Shriver & Jacobson LLP, New York, NY, Dale R. Dubé, Bonnie Glantz Fatell, Blank Rome LLP, Wilmington, DE, for Appellee, Magten Asset Management Corporation. John V. Snellings, Amanda Darwin, Nixon Peabody LLP, Boston, MA, Kathleen M. Miller, Smith, Katzenstein & Furlow LLP, Wilmington, DE, for Law Debenture Trust Company of New York. Jesse H. Austin, III, Karol K. Denniston, Paul, Hastings, Janofsky & Walker LLP, Atlanta, GA, Victoria W. Counihan, Dennis A. Meloro, Greenberg Traurig, LLP, Wilmington, DE, for Appellee, the Reorganized Debtor NorthWestern Corporation. MEMORANDUM OPINION FARNAN, District Judge. Pending before the Court are two appeals, one filed by the Plan Committee (the "Plan Committee") of NorthWestern Corporation ("NorthWestern" or the "Reorganized Debtor") and one filed by an ad hoc group of creditors (the "Ad Hoc Committee") holding undisputed Class 7 Claims against the Reorganized Debtor. Both the Plan Committee and the Ad Hoc Committee (collectively, "Appellants") appeal from the February 2, 2006 Order of the United States Bankruptcy Court for the District of Delaware, denying the Plan Committee's Motion In Aid Of Consummation And Implementation Of The Plan For Order Authorizing And Directing Northwestern Corporation To Distribute Surplus Distributions. For the reasons set forth below, the Court will affirm the Bankruptcy Court's Order. I. PARTIES' CONTENTIONS By its appeal, the Plan Committee contends that the Bankruptcy Court erred in declining to authorize the Plan Committee to distribute to unsecured creditors a surplus held in a Disputed Claims Reserve consisting of more than 2.3 million shares of New Common Stock valued at $80 million. The Plan Committee contends that the, Bankruptcy Court erroneously construed Section 7.7 of the Plan to require that each and every Disputed Claim, including the QUIPS Litigation claims asserted by Magten Asset Management Corporation ("Magten") and Law Debenture Trust Company of New York ("Law Debenture"), must be resolved prior to any distributions. According to the Plan Committee, the plain and unambiguous language of Section 7.7 obligates Northwestern to make Surplus Distributions every six months, regardless of whether all Disputed Claims are resolved. The Plan Committee contends that the Bankruptcy Court's reading of Section 7.7 is contrary to the plain language of the Plan and results in a stay and/or impermissible modification of a substantially consummated Plan in violation of the Bankruptcy Code. The Ad Hoc Committee has joined in the arguments made by the Plan Committee. In response, Appellees Magten and Law Debenture contend that the Bankruptcy Court correctly concluded that the Plan Committee's Motion was premature in light of the unresolved status of the QUIPS Litigation. Magten and Law Debenture contend that a surplus does not exist, unless there are sufficient shares of New Common Stock to satisfy all the Disputed Claims in full. According to Magten and Law Debenture, a distribution at this time, might leave them with the unfair and inequitable result of potentially recovering less than the full amount of their resolved *133 claims. Thus, Magten and Law Debenture contend that the Bankruptcy Court correctly read Section 7.7 of the Plan in conjunction with the stipulation entered into between Northwestern and Law Debenture (the "QUIPS Stipulation") which established a "sub-reserve" within the Disputed Claims Reserve and provided Magten and Law Debenture with the right to draw from the larger claims reserve in the event their recovery exceeded the amount set aside in the "sub-reserve." Northwestern has also filed a Response to Appellant's Opening Brief contending that the Bankruptcy Court's Order should be affirmed. Northwestern contends that the Bankruptcy Court's interpretation of Section 7.7 of the Plan is consistent with its plain language, as well as with the other provisions of the Plan including, Section 7.5 which requires NorthWestern to "maintain a Disputed Claims Reserve equal to the aggregate of any distributable amounts of Cash and New Common Stock equal to the relevant percentage of the Distributions to which holders of Disputed Claims would be entitled under this Plan if such Disputed Claims were Allowed Claims in the amount of such Disputed Claim or such lesser amount as required by a Final Order." NorthWestern also contends that the Bankruptcy Court's decision to deny the Plan Committee's Motion ensures that the Disputed Claims Reserve is protected to satisfy any potential recovery by the holders of claims being litigated through the QUIPS Litigation. II. STANDARD OF REVIEW The Court has jurisdiction to hear appeals from the Bankruptcy Court pursuant to 28 U.S.C. § 158(a). The Court reviews the Bankruptcy Court's findings of fact under a "clearly erroneous" standard, and reviews its legal conclusions de novo. See Am. Flint Glass Workers Union v. Anchor Resolution Corp., 197 F.3d 76, 80 (3d Cir. 1999). In reviewing mixed questions of law and fact, the Court accepts the Bankruptcy Court's findings of "historical or narrative facts unless clearly erroneous, but exercise[s] `plenary review of the trial court's choice and interpretation of legal precepts and its application of those precepts to the historical facts.'" Mellon Bank, N.A. v. Metro Communications, Inc., 945 F.2d 635, 642 (3d Cir.1991) (quoting Universal Minerals, Inc. v. C.A. Hughes & Co., 669 F.2d 98, 101-02 (3d Cir.1981)). The appellate responsibilities of the Court are further understood by the jurisdiction exercised by the Third Circuit, which focuses and reviews the Bankruptcy Court decision on a de novo basis in the first instance. Baroda Hill Inv., Inc. v. Telegroup Inc., 281 F.3d 133, 136 (3d Cir. 2002). III. DISCUSSION In pertinent part, Section 7.7 of the Plan provides: On each Subsequent Distribution Date, the holders of Allowed Claims shall receive a Pro Rata Share in the Surplus Distributions attributable to such holders' Class; provided, however that the Reorganized Debtor shall not be under any, obligation to make Surplus Distributions on a Subsequent Distribution Date unless the aggregate market value of the Surplus Distributions (which value shall be determined based on the intrinsic value as of the Effective Date) to be distributed on such Subsequent Distribution Date exceeds $50,000 in any Class; provided, further that if the Final Distribution required under this Plan is less than $25,000 in aggregate market value in any Class such Surplus Distributions shall revest in Reorganized Debtor. *134 Plan at § 7.7 (emphasis added). Section 7.7 of the Plan goes on to define "Surplus Distribution" as (i) Unclaimed Property; and (ii) to the extent that a Disputed Claim is not Allowed or becomes an Allowed Claim in an amount less than the Disputed Claim Amount, any excess of the amount of Cash or New Common Stock in the Disputed Claims Reserve attributable to such Disputed Claim over the amount of Cash or New Common Stock actually distributed on account of such Disputed Claim plus any interest, dividends or other Distributions earned thereon. Id. (emphasis added). "Subsequent Distribution Date" is also defined as "each six (6) month anniversary of the Effective Date." Id. at § 1.183. In this case, the Reorganized Debtor reached a settlement with PPL Montana LLC ("PPL") which resulted in certain shares that had been set aside for PPL to be released into the Disputed Claims Reserve. In the Court's view, these released shares meet the second definition of "Surplus Distribution" set forth in Section 7.7 of the Plan. The Plan requires distribution of such surpluses every six months and does not specifically provide that all Disputed Claims must be resolved before any Surplus Distribution can be made. The Court concludes that the Plan language is clear and unambiguous and that Surplus Distributions are mandated without regard to the status of any other Disputed Claims, including the QUIPS claims. To hold otherwise would, in the Court's view, allow the QUIPS Stipulation to modify Section 7.7 of the Plan, a result which is prohibited by Section 1127(b) of the Bankruptcy Code because the Plan has been confirmed and substantially consummated. See e.g., Almeroth v. Innovative. Clinical Solutions, Ltd. (In re Innovative Clinical Solutions), Ltd., 302 B.R. 136, 144 (Bankr.D.Del.2003). Magten and Law Debenture contend that a distribution before the final resolution of their Disputed Claims would result in unequal treatment among the creditors in violation of Section 1129(b) of the Bankruptcy Code. In the Court's view, this result can be avoided by remanding this matter to the Bankruptcy Court for further inquiry regarding the amount of shares in the Disputed Claims Reserve and the estimated amount of shares that would be necessary to allow the QUIPS claimants to recover fully on their claims. At this juncture, Northwestern is maintaining a Disputed Claims Reserve solely for the benefit of the QUIPS Litigation claims. The sub-reserve created for the QUIPS claims holds enough shares to satisfy $25 million dollars in claims pursuant to the QUIPS Stipulation. Magten and Law Debenture have, in other papers related to this litigation, valued their claims in full at $50 million; however in the context of this appeal, Magten and Law Debenture contend that their claims exceed $50 million. Compare D.I. 18, Exh. A at 3 ("Despite the substantial, consummation of the Plan, Northwestern can readily provide Magten with a recovery on the full value of its claim — a $50 million allowed claim . . .") with D.I. 16 at 2 ("Given that the claims of Magten and Law Debenture are in excess of $50 million, the Bankruptcy Court reached the only rational conclusion — there can be no determination that a surplus exists.") Northwestern has similarly made various representations to the Bankruptcy Court concerning the amount of shares held in the Disputed Claims Reserve. The latest suggestion from the Plan Committee's papers is that the Disputed Claims Reserve holds enough shares to satisfy $50 million in claims by the QUIPS claimants with another 1.5 million shares left over as surplus. D.I. 18 at 5. *135 In the Court's view, these matters should be left to the Bankruptcy Court to sort out, with the guidance that, if a Surplus Distribution exists, it should be distributed udder Section 7.7 of the Plan, in accordance with this decision. Accordingly, the Court will reverse the decision of the Bankruptcy, Court and remand this matter to the Bankruptcy Court to require North-Western to make a Surplus Distribution consistent with Section 7.7 of the Plan, after fully reserving shares for the QUIPS Litigation in an amount to be determined by the Bankruptcy Court. IV. CONCLUSION For the reasons discussed, the Court will reverse the February 2, 2006 Order of the Bankruptcy Court and remand this matter for further findings and/or proceedings consistent with this Memorandum Opinion. An appropriate Order will be entered. FINAL ORDER At Wilmington, this 2 day of March 2007, for the reasons discussed in the Memorandum Opinion issued this date; IT IS HEREBY ORDERED that the February 2, 2006 Order of the Bankruptcy Court denying the Plan Committee's Motion In Aid Of Consummation And Implementation Of The Plan For Order Authorizing And Directing Northwestern Corporation To Distribute Surplus Distributions is REVERSED and REMANDED for further findings and/or proceedings consistent, with, the accompanying Memorandum Opinion.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1855390/

63 B.R. 415 (1986) In re FORTY-EIGHT INSULATIONS, INC., Debtor, FORTY-EIGHT INSULATIONS, INC., Plaintiff, v. Richard T. BLACK, et al., Defendants, ROBERT E. SWEENEY, CO., L.P.A., Defendant and Counter-plaintiff v. FORTY-EIGHT INSULATIONS, INC., Fibrex, Inc., a Delaware corporation, Foster Wheeler Energy Corporation, a Delaware corporation, Nachman, Munitz & Sweig, Ltd., Victor Von Schlegell, and John Does 1-10, Counter-defendants. No. 85C9260. United States District Court, N.D. Illinois, E.D. July 23, 1986. *416 James S. Gordon, Edward Slovick, James E. Gordon, Ltd., Chicago, Ill., for Nachman, Munitz & Sweig. Norman J. Barry, Joseph P. Della Maria, Jr., Christopher G. Walsh, Jr., Charles D. Knight, Rothschild, Barry & Myers, Chicago, Ill., for TPD-2. Thomas D. Nissen, O'Malley & O'Malley, Ltd., Chicago, Ill., for Robert E. Sweeney Co., L.P.A. MEMORANDUM OPINION AND ORDER HOLDERMAN, District Judge: Robert E. Sweeney Co., L.P.A. (hereinafter "Sweeney"), an Ohio law firm, has filed what it has denominated as a "counterclaim" against Forty-Eight Insulations, Inc., Fibrex, Inc., Foster Wheeler Energy Corp., Nachman, Munitz & Sweig, Ltd., Victor Von Schlegell and John Does 1-10.[1] The counterclaim arises out of the chapter 11 bankruptcy proceedings of Forty-Eight Insulations, Inc. and represents Sweeney's fourth attempt at stating a cause of action under the increasingly popular civil provisions of the RICO statute. 18 U.S.C. § 1961 et seq. All of the named "counter-defendants" have moved to dismiss Sweeney's counterclaim. It is those motions that the Court addresses here. A brief factual background is necessary for an understanding of the issues raised by the counterclaim and the motions to dismiss. Forty-Eight Insulations, Inc. (hereinafter "Forty-Eight") filed for chapter 11 reorganization sometime in early 1985. According to Sweeney's counterclaim, the bankruptcy proceedings were in large measure due to the thousands of claims brought against Forty-Eight for asbestosis and asbestos-related diseases. At the time the chapter 11 action was initiated Sweeney had negotiated settlements for a number of individuals who had worked for Forty-Eight and were suffering from asbestos related health problems. These settlements along with Sweeney's legal fees, amounting to some $70,000, were stayed by Forty-Eight's chapter 11 proceeding. If the Court deciphers Sweeney's cryptic counterclaim correctly, Sweeney alleges that the counter-defendants have engaged in bankruptcy fraud in violation of 18 U.S.C. § 152 and mail fraud in violation of 18 U.S.C. § 1341.[2] Sweeney further alleges *417 that these frauds, which are defined as racketeering acts under the RICO statute, constitute a pattern of racketeering activity. After four attempts to state a claim under the RICO statute, Sweeney's counterclaim fails to allege that the pattern of racketeering violates the substantive RICO provision — section 1962. In fact, section 1962 of Title 18 United States Code is not once mentioned in the counterclaim. Counter-defendants have moved to dismiss the counterclaim on the grounds that: (1) the counterclaim does not allege a violation of the RICO statute; (2) the alleged frauds are not pled with sufficient particularity as required by Rule 9(b) Fed.R. Civ.P.; and (3) Sweeney has not suffered a direct injury to its business or property as required by the RICO statute, 18 U.S.C. § 1964(c). The Court holds that all three of the counter-defendants' contentions have merit. 1. The failure to allege a violation of RICO's substantive provision. Sweeney concedes that the counterclaim does not allege a violation of 18 U.S.C. § 1962(a), (b), (c) or (d), but argues instead in its responsive memorandum that the counterclaim should be interpreted as alleging a violation of 18 U.S.C. § 1962(c). The sufficiency of the counterclaim must be judged on the wellpleaded facts expressly stated in the counterclaim and not by the extraneous allegations subsequently raised by the counterclaimant to bolster the claim. Muskikiwamba v. Essi, Inc., 760 F.2d 740, 752 (7th Cir.1985); Rogers v. Lincoln Towing Service, Inc., 771 F.2d 194, 198 (7th Cir.1985). Under this standard the counterclaim is facially deficient. Even if the Court were to construe the counterclaim to allege a violation of section 1962(c), such a construction would only raise more serious doubts as to the sufficiency of the complaint because some of the counter-defendants ("persons") would not be distinct from the alleged "enterprise" as required by Haroco v. American National Bank & Trust Co., 747 F.2d 384, 400 (7th Cir.1984), aff'd, ___ U.S. ___, 105 S. Ct. 3291, 87 L. Ed. 2d 437 (1985). Moreover, if Fibrex is the alleged enterprise the complaint fails to show how still other counter-defendants participated in its affairs through a pattern of racketeering activity. Thus, the counterclaim does not allege a violation of the RICO statute and must therefore be dismissed. 2. Failure to plead fraud with particularity. It is well established in this circuit that allegations of fraud in the RICO context must comply with the mandates of rule 9(b) Fed.R.Civ.P. "which requires that allegations of fraud specify `with particularity' the circumstances of the alleged fraud." Haroco v. American National Bank & Trust Co., 747 F.2d at 405. See also Rule 9(b) Fed.R.Civ.P. ("In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity"). It is an understatement to say that the counterclaim is unclear as to the alleged frauds committed by the counter defendants. The counterclaim alleges that Forty-Eight's chapter 11 proceeding is somehow fraudulent and therefore the counter-defendants have violated 18 U.S.C. § 152. Section 152 contains nine substantive paragraphs relating to fraudulent activities with regard to bankruptcy proceedings. Sweeney has invoked this section generally without alleging the specific violations committed by the counter defendants. Rule 9(b) requires more than mere invocation of statutory enactments. Moreover, the Court, along with the counter-defendants, is unable to determine what specifically the counterclaimant objects to with regard to the chapter 11 proceeding. The counterclaim alleges that Forty-Eight has leased its assets to Fibrex and that the president of Fibrex is the same person who is the president of Forty-Eight. Without more, the mere fact that a related enterprise is leasing the assets of the debtor does not give rise to the presumption of fraud. Counterclaimant does not allege that the *418 lease was entered into at less than arms length or at particularly disadvantageous terms for the debtor. The counterclaim also alleges that the mailing of the chapter 11 reorganization petition and the injunctive complaint which initiated the present litigation constitutes mail fraud in violation of 18 U.S.C. § 1341. How the filing and mailing of these documents constitutes mail fraud is not clear from the counterclaim. If the counterclaim is asserting that the legal documents contained false representations, sufficient particularity under Rule 9(b) requires the complaining party to briefly flesh out the overall scheme to defraud and specifically aver the time, place, participants and substance of the allegedly false representations and state how the false representations advance the fraudulent scheme. See Tomera v. Galt, 511 F.2d 504, 508 (7th Cir.1975) (holding Rule 9 requires a "brief sketch of how the fraudulent scheme operated, when and where it occurred and the participants"). Such specificity is required to protect individuals from broad and unfounded charges of fraudulent wrongdoing. The need to protect the reputations of individuals is just as acute, if not greater, in the RICO context where defendants are labeled "racketeers." If, on the other hand, the counterclaim is alleging that the filing and mailing of both the bankruptcy petition and the complaint for injunctive relief were just a part of a broader scheme to defraud, that broader scheme is not apparent from the counterclaim. Sweeney alleges in its response to the motion to dismiss that the petition and complaint were in furtherance of a scheme to transfer assets, however, the counterclaim does not adequately allege such a scheme. The counterclaim does not disclose the who, what, where and how of the fraudulent scheme. Besides the counterclaimant's failure to allege the mail fraud with sufficient particularity there is significant doubt as to whether the filing of a chapter 11 petition and a complaint could constitute mail fraud. See Spiegel v. Continental Illinois National Bank, 609 F. Supp. 1083 (N.D.Ill.1985). Moreover, the Court is concerned that if counterclaimant's position were followed, the result may very well be the infringement of the counter-defendants' right to petition the government through the courts as guaranteed by the First Amendment of the United States Constitution. See e.g. California Motor Transport v. Trucking Unlimited, 404 U.S. 508, 902 S. Ct. 609, 30 L. Ed. 2d 642 (1972). The counterclaim does not allege that the petition and complaint are an attempt to subvert and/or corrupt the judicial process. Absent such an allegation, petitioning through the judicial process is presumptively proper. 3. The failure to allege a RICO injury. Sweeney argues that all of the above discussed defects are easily corrected by filing another amended complaint. The Court does not believe that the task is so easily accomplished given the nature of the claims counterclaimant would like to make against the various parties and in view of Sweeney's three previous attempts to state a RICO claim. In any event, the counterclaim suffers from another deficiency that cannot be cured by the filing of an amended counterclaim. Sweeney does not have standing to sue under the RICO statute as it has not had its business or property injured by reason of a 1962 violation as required by 18 U.S.C. § 1964(c). Sweeney's alleged injury is the "loss" of the $70,000 in legal fees due to Forty-Eight's petition for chapter 11 relief. For starters, it is not certain that Sweeney has "lost" these legal fees as Forty-Eight has yet to file its plan of reorganization. At this point, it is pure speculation that the settlement agreements achieved by Sweeney, which are the basis for its legal fees claim, will be wholly dishonored. A delay in payment is not the same thing as a loss. As the counter-defendants point out, it could be that Sweeney's clients will receive 100 cents on the dollar for their settlements under the reorganization plan. Unlikely, but not an impossibility when viewed *419 from this stage of the bankruptcy proceedings. Equally troublesome is the nature of Sweeney's alleged injury. What Sweeney is alleging is that because of the frauds committed by the counter-defendants, Sweeney's clients have not received their personal injury settlements and because the clients have not received their settlements Sweeney has not been paid its legal fees by the clients. Although this appears to be an injury to Sweeney's business or property it does not result directly from a violation of the RICO statute. Sweeney's injury, if it exists at all, derives from the alleged injury to its clients. The Seventh Circuit has held that such indirect or derivative injuries are not recoverable under the RICO statute. Carter v. Berger, 777 F.2d 1173 (7th Cir.1985). See also Warren v. Manufacturers National Bank of Detroit, 759 F.2d 542 (6th Cir.1985) (holding corporate shareholders cannot sue for RICO injuries to the corporation); Gallagher v. Canon U.S.A., Inc., 588 F. Supp. 108 (N.D. Ill.1984) (holding shareholders are not the "person injured" by reason of a section 1962 violation against the corporation). Therefore, Sweeney does not have standing to bring a RICO action against the counter defendants. CONCLUSION For the foregoing reasons, the counterclaim is dismissed in its entirety with prejudice. The motions for sanctions raised by Forty-Eight and Nachman, Munitz & Sweig, Ltd. are denied. Sanctions are not appropriate at this time, however, Sweeney is forewarned that any future filings should be made in good faith and only after a thorough analysis of the facts and applicable law. Sweeney's motion for joinder of parties is rendered moot by this decision. The original injunction action filed by Forty-Eight against Sweeney and its clients is more appropriately considered by the bankruptcy court. Therefore, having resolved the matters outside the realm of Title 11, this matter is referred back to the bankruptcy court for a timely resolution. NOTES [1] Apparently, Sweeney would like to assert a counterclaim against Forty-Eight Insulations, Inc. and a third party action against the other "counter-defendants." The John Does are "other individuals yet unknown to plaintiff who are involved in the conspiracy to defraud" alleged in the counterclaim. Counterclaim at p. 3. The John Does remain unidentified at the time of this ruling. [2] The counterclaim actually alleges that the counter-defendants' fraudulent activities violate 11 U.S.C. § 152 and 11 U.S.C. § 1341. The Court presumes, as did the counter-defendants, that Sweeney intended to allege violations of Title 18, not Title 11 of the United States Code.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1868288/

271 F. Supp. 506 (1967) UNITED STATES v. Henry KLEIN, Steve P. Xydas, Ernest Fontana, James T. Skeens, Walter F. Riggin, George Davenport, Earl W. Tavenner, Edward McDaniels, Dale H. Sutherland, Robert Hamilton, and Eric Edmonston. No. 595-66. United States District Court District of Columbia, Criminal Division. August 8, 1967. *507 Harold J. Sullivan, Asst. U. S. Atty., Washington, D. C. Bernard Margolius, Washington, D. C., for Henry Klein. Ira M. Lowe, Washington, D. C., for Steve P. Xydas. Albert J. Ahern, Jr., Washington, D. C., for Ernest Fontana. Paul Stephen Sherbacow, Washington, D. C., for James T. Skeens. H. Clifford Allder, Washington, D. C., for Walter F. Riggin and Earl W. Tavenner. Robert M. Price, Washington, D. C., for George Davenport and Edward McDaniels. Peter D. Manahan, Washington, D. C., for Dale H. Sutherland. Theodore Breault, Washington, D. C., for Robert Hamilton. James M. Jones, Washington, D. C., for Eric Edmonston. MEMORANDUM OPINION JOHN LEWIS SMITH, Jr., District Judge. Defendants have moved for a pre-trial psychiatric examination of the witness Robert Earl Barnes. The principal case cited in support of such a course of action is State v. Butler, 27 N.J. 560, 143 A.2d 530 (1958). Other authorities cited bear on the admissibility of psychiatric testimony at trial and the propriety of pretrial psychiatric examination of the complaining witness in sex offense cases, and as such are not in point, cf. United States v. Hiss, 88 F. Supp. 559 (S.D.N.Y.1950), Ballard v. Superior Court of San Diego County, 64 Cal. 2d 159, 49 Cal. Rptr. 302, 410 P.2d 838 (1966). It is well established that the grant or denial of the motion in question is within the discretion of the trial judge. In State v. Butler, supra, the court stated at page 556: Manifestly, a practice of granting psychiatric examination of witnesses must be engaged in with great care. Orders to permit it to be done should be executed only upon a substantial showing of need and justification. * * * Much reliance must be placed upon the judgment of the trial court in the individual case. Defendants' argument that the question of Barnes' competency and credibility has been raised by him in Criminal No. 1133-66 is neither controlling nor compelling. Barnes filed a motion as defendant therein on his own behalf for a mental examination. That case is separate and distinct from the one at hand, and the possible reasons for filing such a motion are too numerous and speculative for the mere fact of the filing to affect this court's decision on the instant motion. The court notes that there is on file in United States v. Barnes, Criminal No. 532-66, a letter dated March 19, 1965, from Dr. Donald Goldberg, Staff Psychiatrist of the Legal Psychiatric Services of the District of Columbia Department of Public Health, to then Chief Judge *508 McGuire of this court stating that a March 16, 1965 evaluation of Robert Earl Barnes gave no evidence of psychosis. The results of that evaluation will be available to defense counsel prior to trial. Defendants have offered no other substantive grounds on which to base the granting of a motion for mental examination prior to the commencement of the trial. The mere allegation of a psychopathic personality, defective delinquency, or any lesser mental affliction having prevarication or a tendency to prevaricate as one of its characteristics is not in itself justification for granting the motion in question. Accordingly, the motion for a psychiatric examination of the witness Robert Earl Barnes will be, and hereby is, denied.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1868739/

277 F. Supp. 235 (1967) E. D. SLOAN, Trustee in Bankruptcy for Fairmont Mobile Homes, Inc., Plaintiff, v. Blake P. GARRETT and David H. Garrett, trading and doing business as Garrett and Garrett, a partnership, Defendants. C. A. No. 66-805. United States District Court D. South Carolina, Greenville Division. November 24, 1967. *236 Wyche, Burgess, Freeman & Parham, James C. Parham, Jr., Greenville, S. C., for plaintiff. Younts, Reese & Cofield, Melvin K. Younts, Greenville, S. C., for defendants. FINDINGS OF FACT, CONCLUSIONS OF LAW, OPINION AND ORDER DONALD RUSSELL, District Judge. In compliance with Rule 52(a), Rules of Civil Procedure, 28 U.S.C.A., I find the facts specially and state my conclusions of law thereon, in the above cause, as follows: FINDINGS OF FACT 1. The bankrupt Fairmont Mobile Homes, Inc. (hereinafter called "Fairmont") is a corporation chartered in early 1965 under the laws of South Carolina with an original capital and surplus account of $150,000.00. Prior to bankruptcy, it was engaged in the business of fabricating and selling mobile homes at a plant located in leased premises at Donaldson Air Base, near Greenville, South Carolina. The president was Charles D. Green but during the period involved herein he was largely inactive. Walter C. Abercrombie was its Secretary-Treasurer until his resignation on February 17, 1966. Hubert Wade became Comptroller January 1, 1966, and served as such until petition in bankruptcy was filed in early March, 1966. The plaintiff is the trustee in bankruptcy of Fairmont and brings this action as such. 2. The defendant Garrett and Garrett is a partnership composed of Blake P. Garrett and David H. Garrett, both residents of Greenville County, South Carolina, and as such is engaged in a general construction business in Fountain Inn, South Carolina. 3. Sometime about the middle of 1965, Fairmont contracted with Garrett and Garrett to construct on the former's leased premises a plant addition. The agreed contract price, payable on completion, was $7,875.00. Construction of the addition was completed November 19, 1965, and occupancy began at about that time. 4. When the addition was completed, Fairmont was unable to make payment as contracted. There was some suggestion by the bankrupt that the partnership might accept, at least in part payment, a mobile unit. The Garretts were not receptive to the idea, stating that "we were out of the trailer business, we weren't selling any, and we didn't need it." It was finally agreed that, after a cash payment of $1,840.00 on November 23, 1965, the balance of the contract price should be liquidated by monthly payments of $1,000.00, with interest. Monthly payments were accordingly made in December, 1965, and January 27, 1966. When each of these payments was made, it was suggested again that a mobile unit might be transferred in discharge of the debt but the partnership was not agreeable. At the time of the transfer assailed herein, the balance due on such contract was $4,035.60. 5. In February, David Garrett received a telephone call from one Rice, expressing an interest in purchasing a mobile unit and inquiring whether Garrett had one for sale. It might be remarked, parenthetically, that such inquiry was a natural one, since the Garretts had owned and operated a similar plant to that of the bankrupt up until about a year before. David Garrett immediately communicated with Fairmont and made arrangements to accept a mobile unit in satisfaction of the debt due the partnership. Such mobile unit was thereupon sold by the defendant to Rice. The voidance of this transfer is the issue posed by this suit filed by the trustee in bankruptcy. 6. There are two crucial dates on which the determination of the validity of the transfer largely turns. The first concerns the date on which the actual transfer from the bankrupt to the partnership occurred; the second is the date *237 on which the partnership became possessed of such facts as should have led the partnership to believe Fairmont insolvent. In connection with the latter issue, it seems fairly well recognized by the parties that such date was the occasion on which Blake Garrett, meeting with certain officers of Fairmont, viewed a balance sheet statement of the condition of Fairmont as of the end of January, 1966, prepared by Mr. Wade. 7. The plaintiff contends that the date of the transfer was February 15, 1966, that being the date on which certificate of origin was executed, and that the date on which Blake Garrett was made aware of facts sufficient to induce a belief of the Fairmont's insolvency was no later than February 12, 1966. The defendant fixes transfer as February 7 or 8, 1966, and date of reasonable cause to believe Fairmont insolvent on its part as February 19, 1966. 8. The testimony offered by the trustee on the date of transfer is not too clear. Mr. Abercrombie testified that, while he "may have talked with" Mr. David Garrett about the transfer of a coach to the partnership "on either February 7 or 8", he did not recall it at the time he testified, but he did recall that "in early February, of 1966, several transfers were proposed", and he was actually instructed by either Mr. Green or Mr. Moorhead (the president of the holding company which controlled the Fairmont) to transfer a coach to the defendant. He added that he "didn't transfer" the coach to the defendant. Mr. Wade, who executed the certificate of origin on February 15, did so at the direction of Mr. Moorhead and disclaimed any personal knowledge of the actual transfer itself. While neither Mr. Abercrombie nor Mr. Wade could fix a date for the delivery of the coach to the partnership, both testified that it was normal for delivery to be contemporaneous with the execution of the certificate of origin. From this, the trustee would argue that delivery would have been on February 15, the date of the preparation of the certificate of origin. 9. Over against this largely negative testimony by the trustee is the positive testimony of David Garrett that he talked to Mr. Abercrombie on February 7, made "a trade" with him at that time, and received delivery of the coach from Fairmont at the partnership's yard in Fountain Inn on the afternoon of February 7 or February 8. To some extent, this testimony was reinforced by Rice, the purchaser of the coach from the partnership. He fixed the date when he talked to Mr. Garrett about a coach as "very early in February, first week in February." Mr. Garrett advised him, after a short delay, that he had a coach such as Mr. Rice wanted and "within a few days of our (this) conversation" Mr. Rice inspected the coach at the yard of the partnership in Fountain Inn and "verbally traded" for it. Mr. David Garrett, incidentally, identified the date of such inspection as Thursday, February 10, which, of course, is consistent with Mr. Rice's testimony. In addition, Mr. Blake Garrett, on his return from the Bahamas on February 10, testified that he saw the coach on the yards of the partnership. Blake Garrett's brother, Charles Garrett, testified that he visited the yards of the partnership on February 11 or 12 and observed the coach in the yards. 10. The trustee urges that this direct testimony offered by the defendants to establish date of delivery should be disregarded because it would involve a delivery made contrary to the usual practice of Fairmont, which normally made delivery of coach contemporaneous with delivery of certificate of origin. However, Mr. Abercrombie's testimony to some extent indicates that delivery of the coach was to be made in advance of the preparation of a certificate of origin. He testified that "in early February" he was instructed, whether by Mr. Green or Mr. Moorhead not being clear, to transfer a coach to the defendants. It is true he testified that he did not make the transfer. But, at least from his testimony, his superiors were directing the delivery of a coach to the defendants in "early February" and there is no reason *238 to assume that such delivery was not made, as Mr. Garrett testified unequivocally that there was. Delay in the preparation of the certificate of origin in this case could well have arisen from the unusual confusion within Fairmont's own organization at the time. Mr. Abercrombie testified that he had misgivings about the transfers he was instructed to make. This would have explained his reply to the request which Mr. David Garrett testified he made for the issuance of a certificate of origin. According to Mr. Garrett, Mr. Abercrombie stated that due to some confusion there had been a delay in the delivery of the certificate. Actually, the preparation of the certificate was finally directed some days later by Mr. Moorhead, to whom the certificate was actually delivered by Mr. Wade. It was thereafter mailed to the defendants. 11. I find that, in performance of the agreement for the acceptance of the coach in payment of Fairmont's debt to the defendants, the coach involved in this proceeding was delivered to the defendants at their yard in Fountain Inn on February 7 or 8, 1966. 12. Turning to the second crucial date: It is apparent from the record that from the outset the financial affairs of Fairmont were conducted in a slip-shod manner. Mr. Wade, who joined Fairmont as Comptroller January 1, 1966, stated that he did not "find any of the books or the records or anything (of Fairmont) in order or in an orderly manner" when he assumed his duties. What profit-and-loss statements as were prepared were generally abbreviated, inaccurate and even contradictory and were "on a worksheet basis". It would appear that no attempt at a balance-sheet statement of the financial conditions of Fairmont was made until Wade completed one sometime in February, 1966. As Mr. Wade testified, it was necessary for him "to bring these books (of Fairmont) into order before anything could accurately be determined." 13. For several months prior to bankruptcy, Fairmont was pressed for operating capital. It was unable, for instance, to pay the defendant-partnership when the latter's debt accrued. Thereafter, Fairmont was slow in meeting its monthly payments to the defendant-partnership. During much of this time, it was carrying an overdraft with its bank. The record indicates, however, that the real financial condition of the bankrupt was not recognized until after Wade presented his financial statement to the board of directors. Prior to that, it was felt that Fairmont's difficulties stemmed not from a want of solvency but from a want of adequate working capital; and, if such working capital could be secured, its operations would be profitable. 14. Sometime in February, the management of Fairmont enlisted the assistance of Blake Garrett in seeking either a new source of operating capital or an acceptable merger. Blake Garrett's interest apparently arose out of his friendship for Fairmont's management. He, also, had formerly been in the mobile-home business and had some acquaintance with others interested in such business. He testified that at no time prior to February 19, 1966, did he see or review or have at his disposal any financial statements or records of Fairmont. 15. He had visited the plant a time or two in January but, as Mr. Abercrombie explained these visits, "Mr. Green had approached Mr. Garrett for advice and asked him to come out and look over the operations as we had it, and see if he could make any suggestions as to how we could do it better." This request was prompted by the fact that "Mr. Garrett had at one time owned a mobile home plant, which had done quite well in Tennessee." 16. In an effort to secure additional working capital for Fairmont, Garrett sought a loan from the Palmetto Bank at Laurens, South Carolina, sometime in latter January or early February, 1966. Garrett testified that, prior to such loan application, discussion was had about a balance sheet of Fairmont and was told there was none available. Certain of the *239 directors of Fairmont and Garrett offered "to personally guarantee" any loan that the bank might make Fairmont "in lieu of a balance sheet." This occurred during a period of national credit stringency and the loan was denied, but the willingness of Garrett to guarantee personally such loan is strong confirmation that he had no reason to believe Fairmont insolvent. 17. There was, also, testimony, uncontradicted, that a number of parties were approached with reference to a merger or sale of Fairmont in January and February. It was thought that, through some form of a merger, or a sale of Fairmont "as a going concern", everyone, including the stockholders, would "get their money." 18. I find that, while this evidence indicates that at all times Fairmont was cramped by a shortage of working capital, there was not sufficient evidence to induce a reasonable belief that Fairmont was insolvent prior to the preparation by Mr. Wade of a financial statement of the bankrupt as of the close of the books for the period ending January 29, 1966. Until this time, the solvency of the company was believed by all concerned; and its real need was believed to be an increase in its working capital. When, however, Mr. Wade's financial statement was made available, all the officers of Fairmont and Mr. Blake Garrett (who reviewed such financial statement at a meeting of the directors of Fairmont which he attended) were in possession of knowledge of the insolvency of Fairmont. When such financial statement came to the knowledge of Mr. Blake Garrett is in controversy between the parties. The trustee contends that the meeting, at which the financial statement was seen by Mr. Garrett, occurred on February 12, 1966. The defendants would fix the date as February 19, 1966. 19. The trustee bases his position upon the fact that Mr. Abercrombie was present at the meeting, that his connection with the bankrupt terminated on or before February 17 and that he was no longer with the bankrupt after that date. The meeting, thus, if Mr. Abercrombie was present, had to have occurred before February 17. The only meeting when the financial statement could have been taken up at a meeting attended by Abercrombie prior to February 17 was February 12. 20. On the other hand, Mr. Blake Garrett, who is not clear on whether Abercrombie was present at the meeting, fixes the meeting on the 19th of February. Mr. Moorhead supports generally Mr. Garrett in this. He testified that, as best he recalled it, he received the financial statement from Mr. Abercrombie on the night of the 17th, when Mr. Abercrombie's resignation was given him. About two days later, he reviewed this statement with Mr. Garrett and the directors of Fairmont. 21. It is not easy to resolve this issue. All the parties seemed to be giving their best recollections and I am sure are sincere in their opinions. Mr. Abercrombie was firm in his testimony that he presented this financial statement to the directors when Blake Garrett was meeting with them. He fixed the date as sometime before February 15. This testimony would necessarily place the meeting on February 12. 22. I have some difficulty with the date of February 19 for the meeting. In the first place, Abercrombie, according to all the testimony, brought this financial statement to the attention of the board. While his resignation is dated February 17, he actually ceased to take any part in the management a day or two before this. He had differed heatedly, apparently, with the directors and, in the words of Mr. Wade, "he was asked to relieve himself for a few days to cool off." Also, Moorhead arrives at February 19 as the proper date by reasoning from the date on which, as he recalls it, he received the statement from Abercrombie. He received such statement, according to his recollection, on the night of February 17 or 18 and accordingly first brought the statement to the attention of Mr. Blake Garrett on the 19th. But it would seem unlikely that Abercrombie would *240 have been around on the evening of either the 17th or 18th. It is much more reasonable to conclude from the record that he ceased to be at the offices of the bankrupt after the 15th, a conclusion that makes the February 12 date more reasonable. I, therefore, feel that February 12 should be accepted as the date for the meeting at which Blake Garrett, as well as the directors of the bankrupt, came into possession of facts sufficient to lead them reasonably to conclude that Fairmont was insolvent. 23. After the bankruptcy, the question of the value of the lease (as distinguished from the machinery thereon) was considered by the trustee, who, after inquiry, felt it valueless and abandoned it. I find from the evidence that this conclusion of the trustee was amply justified. Moreover, while the lease gave the bankrupt the right to remove additions placed on the leasehold by the former, if such removal could be made without damage to the other buildings on the leasehold, I find that such removal was not practical and the trustee properly made no endeavor in this direction. On the basis of the foregoing findings of fact, my conclusions of law are: CONCLUSIONS OF LAW Jurisdiction This cause, instituted by the trustee in bankruptcy to void an alleged preference by the bankrupt under the provisions of the Bankruptcy Act, is properly cognizable in this Court. Flanders v. Coleman (1919), 250 U.S. 223, 227, 39 S. Ct. 472, 63 L. Ed. 948; 11 U.S.C.A. § 96(b), Bankruptcy Act § 60(b). Merits The law, rendering transfers by a bankrupt in advance of bankruptcy void, is clear. It was stated in Aulick v. Largent (C.C.A. 4 1961) 295 F.2d 41, 44-45, thus: "It is well established that under Section 60, sub. a(1) of the Bankruptcy Act, certain elements must be present to constitute a preference, as follows: "1. A debtor, making or suffering a transfer of his property, "2. to or for the benefit of a creditor, "3. for or on account of an antecedent debt resulting in a depletion of the estate, "4. while insolvent, and "5. within four months of bankruptcy, "6. the effect of which transfer will be to enable the creditor to obtain a greater percentage of his debt than some other creditor of the same class. "Under section 60, sub. b of the act, 11 U.S.C. § 96, sub. b, a preference is voidable by the trustee in bankruptcy only upon proof of the additional element that the creditor receiving or to be benefited by the preference had reasonable cause to believe that the debtor was insolvent. If any one of the elements of a preference as enumerated above is wanting, consideration may not be given to an avoidance of the transfer under section 60, sub. b, since a preference has not been established. The burden of proving the existence of these essential elements is upon the trustee seeking to avoid the transfer." See also, Moran Bros., Inc. v. Yinger (C.A. 10 1963) 323 F.2d 699. But the defendants urge that these general principles are inapplicable here, since they are the beneficiaries of a valid mechanics lien, the discharge of which will not work a preference. Admittedly, bankruptcy does not discharge valid liens. Greenblatt v. Utley (C.C.A. 9 1956) 240 F.2d 243, 247. The defendants had a valid mechanics lien, under the law of South Carolina, over and upon the plant addition constructed by them for the bankrupt. Cutler-Hammer, Inc. v. Wayne (C.C.A. 5 1939) 101 F.2d 823, 825, cert. den. 307 U.S. 635, 59 S. Ct. 1031, 83 L. Ed. 1517; Stone v. Mondie (D.C.Okl.1957) 157 F. Supp. 929, 931. But such lien is valid in bankruptcy against general creditors only to the extent of the value of the property over *241 which the lien exists; to give it any greater value would be preferential. Thus, in Ricotta v. Burns Coal & Building Supply Company (C.C.A. 2 1959) 264 F.2d 749, 751, the Court ruled: "Moreover, the essence of a preference is that it depletes the bankrupt's estate available to remaining creditors. Bachner v. Robinson, 2 Cir., 107 F.2d 513, 514; Continental & Commercial Trust & Sav. Bank v. Chicago Title & Trust Co., 229 U.S. 435, 443-444, 33 S. Ct. 829, 57 L. Ed. 1268. Where the payment merely avoids the bite of a lien which the trustee could not have successfully attacked, no such depletion occurs. Accordingly the ruling below that the payments in question were in their entirety preferential is incorrect. * * * * * * "* * * If the amounts it received during the four months prior to bankruptcy exceed that which it could have obtained through the filing and enforcing of liens for the same debts, then to the extent of that excess the estate available to the general creditors was depleted and the payments preferential. Cf. Perkins v. Lakeport Nat. Bank, D.C.N.H., 139 F. Supp. 898; In re Dibblee, D.C.S.D.N.Y. 1869, 7 Fed.Cas.No. 3,884, [651] at 656." To the same effect is Small v. Williams (C.C.A. 4 1963) 313 F.2d 39, 44, in which the Court said: "It is well-established, of course, that payments upon a preferred claim which have the effect of releasing assets of comparable value to the claims of general creditors are not preferential. They are not preferential because they do not deplete the debtor's estate or diminish the assets available for distribution among the general creditors. When the value of the security is substantially less than the secured claim, however, a partial payment upon the secured claim which does not effect a release of any of the security or reduce the claim to the extent that it is effectively secured, does result in a depletion of the debtor's estate." See, also, Virginia National Bank v. Woodson (C.C.A. 4 1964) 329 F.2d 836, 840; Douglass v. Pugh (D.C.Ky.1959) 177 F. Supp. 274, 276, aff. 287 F.2d 500. In this case, the property subject to the mechanics lien, passing into the hands of the trustee, was without value. The payment of the debt secured by such lien through the transfer of the coach did not have "the effect of releasing assets of comparable value to the claims of general creditors" but, on the contrary, resulted in a depletion of the assets of the bankrupt. Whether the transfer is preferential must, then, be determined, without regard to the mechanics lien, by the application of the general principles set forth in the Aulick Case, supra. This transfer satisfies all the requirements for a preference under Section 60 save one, i. e., "the creditor receiving it or to be benefited thereby * * * has, at the time when the transfer is made, reasonable cause to believe that the debtor is insolvent." I have found as a fact that the defendants did not have such "reasonable cause * * * to believe the debtor" to be insolvent until February 12. However, the transfer to the defendants had already been made on either February 7 or 8. The contention that the transfer did not take place, that title to the coach did not pass, until the certificate of origin was prepared on February 15 is untenable. Passage of title is a matter of intent but, "The actual delivery of the goods is of the greatest importance as evincing an intention to pass title. If unaccompanied by an explanation or the specification of any condition, the buyer generally has a right to regard it as passing title." 46 Am.Jur., sec. 433, p. 602. The coach involved in this proceeding was delivered to the defendant on February 7 or 8; title passed at that time. It is of no moment that the actual execution of the certificate of origin was not prepared until February 15. "As between the parties", the transfer was effective *242 despite such delay in the preparation of the certificate. See Section 46-150.15, Title 46, Code of Laws, South Carolina (1962); Grain Dealers Mut. Ins. Co. v. Julian, 247 S.C. 89, 99, 145 S.E.2d 685. Since "at the time of the transfer", the defendants did not have reasonable cause to believe the bankrupt insolvent, the transfer is not void under section 60(b) of the Bankruptcy Act and judgment in favor of the defendants must be entered. And it is so ordered.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1868926/

277 F. Supp. 366 (1967) TEXAS OIL AND GAS CORP., a corporation, and John H. Hill, an individual, Plaintiffs, v. PHILLIPS PETROLEUM COMPANY, a corporation, Defendant. Civ. No. 66-241. United States District Court W. D. Oklahoma. December 18, 1967. *367 George L. Verity, Brown, Verity & Brown, Oklahoma City, Okl., for plaintiffs. Edward J. Fauss, Don Jemison, Oklahoma City, Okl., for defendant. MEMORANDUM OPINION DAUGHERTY, District Judge. Plaintiffs own oil and gas leases on federal lands situated in Oklahoma. The Federal Government executed these oil and gas leases pursuant to the Federal Mineral Leasing Act of 1920, as amended, Title 30, United States Code, Section 181 et seq. The Corporation Commission of the State of Oklahoma issued its Order by which the Tonkawa formation underlying said oil and gas leases was forced pooled and pursuant thereto the working interests under said leases as to said formation are now owned by the defendant Phillips Petroleum Company.[1] The force pooling statutes of Oklahoma have been held a constitutional exercise of the police power of the State in the interest of oil and gas conservation and prevention of waste. Anderson v. Corporation Commission, 327 P.2d 699, cert. denied 358 U.S. 642, 79 S. Ct. 536, 3 L. Ed. 2d 567 (1959). The Plaintiffs assert herein that said forced pooling Order of the Oklahoma Corporation Commission is void as to their working interests in the Tonkawa formation because the lands involved to *368 which their oil and gas leases pertain belong to the United States and that by virtue of Article IV, Section 3, Clause 2 of the United States Constitution, Title 30, United States Code, Sections 181, 184, 187a and 188 (Federal Mineral Leasing Act of 1920, as amended), and certain rules and regulations promulgated by the Secretary of the Interior (Title 30, Chap. II, Code of Federal Regulations (Revised as of January 1, 1967), Section 221), exclusive control over said lands resides in the United States Government to the exclusion of the State of Oklahoma. Plaintiffs request that their title in said lands be quieted by declaring said Oklahoma Corporation Commission Order to be null and void. Jurisdiction is present in this Court by reason of a substantial controversy between the parties which arises under the above mentioned clause of the United States Constitution, the above enumerated statutes of the Federal Mineral Leasing Act of 1920, as amended, and said rules and regulations of the Secretary of the Interior. 28 U.S.C. § 1331 (a). The Court finds the required jurisdictional amount to be involved. The Defendant by way of defense herein asserts that this identical matter in controversy has been decided in favor of the Defendant in a decision by the Chief, Branch of Minerals Adjudication, Bureau of Land Management, Department of the Interior, United States of America; that if this action is an attempt to accomplish a judicial review of the above decision the same is improper as all administrative remedies were not exhausted by the Plaintiffs; that said administrative proceedings undertaken by Plaintiffs constituted an election of remedies and is a bar to this proceeding; that the Secretary of the Interior as the appropriate representative of the United States is an indispensable party and has not been joined herein; that the Plaintiff John H. Hill, an individual, is not a real party in interest; that the owner of the leasehold estates involved herein failed to appeal from the forced pooling Order of the Oklahoma Corporation Commission, and Plaintiffs, as successors in interest, are now estopped to proceed in this Court to attack said Order; that the Plaintiffs have acquired their interests at such time as to condemn them as not proceeding herein with clean hands; that the United States of America has approved the communitization of the leases involved and the Plaintiffs are bound thereby; that the Oklahoma Corporation Commission had jurisdiction to space federal lands and force pool the interest of federal lessees therein; that if the Federal Government by action of the Congress has exercised any controls in this regard, the same have been fully satisfied in this case; that in either of the foregoing events the forced pooling Order of the Oklahoma Corporation Commission herein is valid; that the Plaintiffs have no standing to assert or utilize any of the powers or prerogatives of the Federal Government and collaterally attack herein said forced pooling Order; that Plaintiffs' action for one or all of the above reasons should be dismissed, any by counterclaim filed herein the Defendant asks that its title and interest in the lands involved be quieted against both Plaintiffs. Article IV, Section 3, Clause 2 of the United States Constitution provides: "Congress shall have Power to dispose of and make all needful Rules and Regulations respecting the Territory or other Property belonging to the United States; * * *." This clause does not place the exclusive control of the federal public domain in the United States Government. It only confers this power on Congress and leaves to Congress the determination of when and where and to what extent this power will be exercised. United States v. Hatahley, (10 Cir. 1955), 220 F.2d 666, reversed on other grounds, 351 U.S. 173, 76 S. Ct. 745, 100 L. Ed. 1065 (1956). Therefore, we must look to the acts of Congress and specifically those relied upon by the Plaintiffs as above set out to ascertain if the Congress has undertaken to exercise exclusive control over federal lands which have been leased *369 by the Government for oil and gas mining purposes. Nothing in these cited statutes (nor the entire Act itself) specifically indicates that Congress has undertaken to reserve unto itself exclusive control over federal lands leased for oil and gas development to the exclusion of the States. Section 187 does provide that no lease issued under the said Act shall be assigned or sublet except with the consent of the Secretary of the Interior, and authorizes the Secretary of the Interior to promulgate rules for the prevention of undue waste and that the lease shall contain a provision that such shall be observed. However, said Section further provides at the end thereof that: "None of such provisions shall be in conflict with the laws of the State in which the leased property is situated." This language is not aimed at putting the lands under the exclusive control of the Federal Government to the exclusion of the States. Contrary to the position of the Plaintiffs, the Federal Mineral Leasing Act of 1920, as amended, seems to leave to the States the power to exercise State police power over Federal oil and gas leases. For instance, Title 30, United States Code, Section 189 of said Act provides: "Nothing in said sections shall be construed or held to affect the rights of the States or other local authority to exercise any rights which they may have, including the right to levy and collect taxes upon improvements, output of mines, or other rights, property, or assets of any lessee of the United States." Furthermore, the authorities treating with the matter of exclusive control of federal lands by the Federal Government clearly and definitely hold that State law and the State police power extends over the federal public domain unless and until Congress has determined to deal exclusively with the subject. State of Colorado v. Toll, 268 U.S. 228, 45 S. Ct. 505, 69 L. Ed. 927 (1925); McKelvey v. United States, 260 U.S. 353, 43 S. Ct. 132, 67 L. Ed. 301 (1922); International Bridge Company v. People of the State of New York, 254 U.S. 126, 41 S. Ct. 56, 65 L. Ed. 176 (1920); Omachevarria v. State of Idaho, 246 U.S. 343, 38 S. Ct. 323, 62 L. Ed. 763 (1918); United States v. Hatahley, supra. But whereas the Congress may not desire to assume exclusive control over the federal lands it may desire to prescribe certain limited controls. From an examination of the said Federal Mineral Leasing Act the Court concludes that the Congress has not undertaken to assume exclusive control of federal mineral lands under the Act but it has imposed two significant controls which must be satisfied before the State police power in the area of conservation may ultimately attach. One is that a federal mineral lessee may not assign his lease without the consent of the Federal Government. 30 U.S.C. § 187. Another is that a pooling or communitization agreement involving federal and non-federal lands must be approved by the Federal Government. 30 U.S.C. § 226(j). The forced pooling Order involved herein, with no election being made by the federal lessee to participate in the cost of drilling the well, did effect the transfer or assignment of the working interests involved herein to the Defendant by operation of law for the prescribed monetary bonus and did bring about a communitization or pooling of the leaseholds in the spacing unit as to the Tonkawa formation. However, the evidence herein reveals without dispute that the federal government approved the transfer of the working interests involved herein to the Defendant by the forced pooling Order of the Oklahoma Corporation Commission and approved the communitization of the leases in the spacing unit prescribed by the Oklahoma Corporation Commission. Thus, these limited controls established by Congress have been fully satisfied in this case. *370 Plaintiffs have pointed to a number of regulations[2] promulgated by the Secretary of the Interior which pertain in a general way and to a certain extent to matters of conservation in the production of oil and gas. Plaintiffs assert that these regulations supplement the Federal Mineral Leasing Act of 1920 and support and justify their position that the Federal Government has undertaken to assume exclusive control over federal mineral lands. But the regulation making power of the Secretary of the Interior, in so far as the Federal Mineral Leasing Act is concerned, is contained in Section 189 of Title 30, United States Code, which section, as above stated, provides that nothing in the sections referred to and to which the Secretary of the Interior may promulgate regulations shall be construed or held to effect the rights of the States or other local authority to exercise any rights which they may have. This limitation on the construction of the sections must also apply to any regulations made by the Secretary of the Interior to do any and all things necessary to carry out and accomplish the purposes of said sections. This is to say that since Congress has said that the pertinent sections of the Federal Mineral Leasing Act which it passed shall not be construed to affect the rights of the States or other local authority to exercise any rights which they may have, this must likewise be a limitation on the Secretary of the Interior as to his regulation making authority set out in the same section. It is also significant to note that said regulations were not promulgated exclusively on the authority of the Federal Mineral Leasing Act. They are also founded on authority of 25 U.S.C. §§ 356, 397, 398, 396d dealing with the leasing of Indian lands for oil and gas purposes, 30 U.S.C. § 306 dealing with the leasing of oil and gas deposits under railroads and other right of way, and 30 U.S.C. § 359 dealing with the leasing of mineral deposits within acquired lands of the United States (lands to which the Mineral Leasing laws have not been extended). Moreover, these regulations provide in section 221.4 that the supervisor[3] is authorized to require compliance with the regulations but that inasmuch as conditions in one area may vary widely from conditions in another area, the regulations are general, and detailed procedure thereunder in any particular area is subject to the judgment and discretion of the supervisor, and to any areal plan of development that may be adopted pursuant to law. A forced pooling order based on a spacing order of the Oklahoma Corporation Commission would be an areal plan of development adopted pursuant to law. Therefore, any detailed procedure under the regulations is subject thereto. Any doubt in this connection is completely dispelled by the approval of the forced pooling order by the Federal Government. The Court, therefore, concludes that the cited regulations do not apply in this case so as to affect the rights of the State of Oklahoma which cover the same subject matters. These regulations might apply in those States which do not have acceptable conservation laws, perhaps to off-shore drilling and other situations. But by the provisions of the Federal Mineral Leasing Act and the limitation therein that the pertinent sections may not affect State rights, by provisions in the regulations themselves, and the act of the Federal Government in approving the spacing and forced pooling orders of the Oklahoma Corporation Commission in this case, it is concluded that the cited regulations must be so treated. No cases have been presented or found which hold that the Federal Government through the Congress has determined *371 that it will deal exclusively with leasehold interests granted or created pursuant to the Federal Mining Leasing Act of 1920, as amended, and the case of Wallis v. Pan American Petroleum Corp., 384 U.S. 63, 86 S. Ct. 1301, 16 L. Ed. 2d 369 (1966), holds that State law applies to such leaseholds where no significant threat to any identifiable federal policy or interest is shown. No such threat can be seen herein in view of the aforementioned approvals granted by the Federal Government which satisfy the federal policy and interest that assignments of federal leases and pooling or communitization of federal leases with non-federal leases must be approved by the Federal Government. Moreover, no threat can be seen to the royalty interest of the Federal Government in the lands involved by reason of the forced pooling order since its proportionate share will be received thereunder. The cases relied upon by Plaintiffs,[4] which deal with attempted State taxation of federal land and interference with the interests of the Federal Government in its lands, are not in point. The clause of the Constitution and the Federal Statutes and Regulations relied upon by the Plaintiffs contain no specific prohibition against the exercise of the State police power over the working interests of the Plaintiffs in the lands involved. Nor do they evince a Congressional intent to exercise exclusive control over the same. Congress has required federal approval of assignments of its leases and communitization agreements involving its lands with non-federal lands. In this case this approval has been granted. The Oil and Gas Conservation laws of Oklahoma, including the forced pooling Order involved herein, therefore, apply to the federal lands dealt with herein. In view of this determination, it is unnecessary to treat with the other defenses raised herein. Therefore, judgment should be entered dismissing the action of the Plaintiffs for failure to assert a claim upon which relief may be granted. Judgment should also be entered on the Counterclaim of the Defendant quieting its title and interest in the lands involved against the Plaintiffs. Counsel for Defendant will prepare an appropriate judgment for signature by the Court. NOTES [1] Under Oklahoma law any lessee in a drilling and spacing unit can initiate a force pooling request before the Oklahoma Corporation Commission. If a lessee elects not to participate in the cost of drilling the well he is compensated by a monetary bonus determined by the value of his interest in the formation involved and his working interest therein is transferred by operation of law to the one initiating the forced pooling proceeding. Royalty interests are not affected by this proceeding. [2] These are C.F.R. Title 30, Chapter II, Sections 221.1, 221.2(n) (1) & (2), 221.5, 221.35, 221.4, 221.20, 221.21, 221.58(a) (e), 221.59, 221.22, 221,26, 221.15, 221.36, 221.27, 221.23, 221.34, 221.61 and 221.32. [3] The supervisor is a representative of the Secretary of the Interior authorized and empowered to supervise and direct oil and gas operations and to perform other duties prescribed in the regulations. [4] These cases are: Van Brocklin v. Anderson, 117 U.S. 151, 6 S. Ct. 670, 29 L. Ed. 845 (1886); Utah Power and Light Co. v. United States, 243 U.S. 389, 37 S. Ct. 387, 61 L. Ed. 791 (1917).

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1872153/

225 F. Supp. 244 (1963) Verle G. CONARD, Plaintiff, v. Lewis S. STITZEL, Warden, Berks County Prison, Defendant. Civ. A. No. 31391. United States District Court E. D. Pennsylvania. December 27, 1963. *245 William J. Woolston,[*] Philadelphia, Pa., for plaintiff. Robert J. Bond, Jr., Philadelphia, Pa., for defendant. FREEDMAN, District Judge. Plaintiff sues under the Civil Rights Acts[1] for violation of constitutional rights guaranteed by the Eighth Amendment's provision against cruel and unusual punishment and the Fourteenth Amendment's provision against denial of the equal protection of the laws. He charges that the defendant, who is Warden of the Berks County Prison, subjected him to cruel and unusual punishment while he was incarcerated there from *246 sometime in May 1959 to July 22, 1959. He alleges that he was given inadequate food and accommodations, was deprived of medical care, was denied the rights and privileges normally afforded prisoners, and that in consequence he suffered physical and mental pain and anguish.[2] Plaintiff escaped from the Berks County Prison on July 22, 1959, but was recaptured on October 19, 1959 and has since been incarcerated. Defendant has moved for judgment on the pleadings on the ground that the action is barred by the statute of limitations. We deal here with a federal cause of action. There is no general federal statute of limitations,[3] and Congress has not specified a limitation period for this specific cause of action. In such circumstances it has long been the general practice of the federal courts to apply the relevant state statute of limitations.[4] The application of state statutes of limitations to federal causes of action is not ordinarily inconsistent with federal policy. Indeed, the failure of Congress to designate a limitation period may be said to indicate a congressional intention that the state period should apply.[5] In Campbell v. Haverhill,[6] the Supreme Court held that a state statute of limitations barred a patent infringement action in the federal courts. This conclusion was said to be compelled by the Act of Congress that: "The laws of the several States, except where the Constitution, treaties, or statutes of the United States otherwise require or provide, shall be regarded as rules of decision in trials at common law, in the courts of the United States, in cases where they apply."[7] But the court went on to assign reasons of general policy: "[W]hy should the plaintiff in an action for the infringement of a patent be entitled to a privilege denied to plaintiffs in other actions of tort? If States cannot discriminate against such plaintiffs, why should Congress by its silence be assumed to have discriminated in their favor? Why, too, should the fact that Congress has created the right, limit the defenses to which the defendant would otherwise be entitled? Is it not more reasonable to presume that Congress, in authorizing an action for infringement, intended to subject such action to the general laws of the State applicable to actions of a similar nature?"[8] It is not always easy to decide what is the applicable state statute. Resort must necessarily be had to the decisions of the state courts which have dealt with state causes of action of a similar nature. Thus in Gordon v. Loew's Inc.,[9] an antitrust suit under the Clayton Act was held barred by a New Jersey statute of limitations, N.J.S. 2A:14-1, N.J. S.A., for "actions at law brought for any *247 forfeiture upon any penal statute" because the New Jersey courts had held the statute applicable to a treble damage action by a tenant against his landlord under the State Rent Control Act, N.J.S. 2A:42-14 et seq., N.J.S.A. The state court view was permitted to prevail even though an antitrust suit is not covered by the federal statute of limitations for actions in the nature of a penalty or forfeiture.[10] The principle of the Gordon case has been reaffirmed in this circuit in Carlton Lamp Corp. v. General Electric Co., 254 F.2d 815 (3d Cir. 1958); Dean Oil Co. v. American Oil Co., 254 F.2d 816 (3d Cir. 1958); and Shapiro v. Paramount Film Distributing Corp., 274 F.2d 743 (3d Cir. 1960). Since there is no Pennsylvania statute of limitations of general applicability to actions to vindicate invasions of constitutional rights, determination of the applicable statute of limitations must be made from the nature of the conduct complained of. Here the gravamen of the complaint is that defendant caused plaintiff to suffer physical and psychological injury. The statute of limitations under which this case falls is the Act of June 24, 1895 (P.L. 236, § 2, 12 P.S. § 34), which prescribes a two-year period of limitations in suits "brought to recover damages for injury wrongfully done to the person, in case where the injury does not result in death * * *." The Act of 1895 has been construed broadly and has been applied to actions for injuries done to the person whether the claim sounded in tort or assumpsit.[11] It has also been applied to a damage action for invasion of the right of privacy on the ground that such a claim is for "injury wrongfully done to the person" and not for injury to property.[12] Plaintiff urges that his action falls outside the scope of the statute for personal injuries on the authority of Wakat v. Harlib, 253 F.2d 59 (7th Cir. 1958). There an action under the Federal Civil Rights Act was held not within the Illinois statute for injuries to the person, but governed by the limitation period for "civil actions not otherwise provided for." Ill.Rev.Stat.1955, c. 83, § 16. That case is based on the construction which the Illinois state courts have given to their statutes. It sheds little light on the statutory framework of Pennsylvania, which has no similar "catch-all" provision.[13] Since the present action is governed by the Act of 1895 it is of no moment that the claim might also fit within the language of the colonial Act of March 27, 1713 (1 Smith's Laws 76, § 1, 12 P.S. § 31). It has been authoritatively decided that the Act of 1713 was impliedly repealed by the later Act of 1895 to the extent that it dealt with the same subjects.[14] Once it is determined that the case falls within the Act of 1895 it follows that the tolling provision of § 5 of the Act of 1713 (12 P.S. § 35), which tolls the operation of the statute of limitations in favor of persons under certain disabilities, including imprisonment,[15]*248 does not apply. Walker v. Mummert, 394 Pa. 146, 146 A.2d 289 (1958); Peterson v. Delaware River Ferry Co., 190 Pa. 364, 42 A. 955 (1899). The rule was established in Peterson, which involved minority. It was re-affirmed in Walker, where the circumstances weighed more heavily for the plaintiff than they do here. The plaintiff was confined to the Harrisburg State Hospital when he was struck and injured by the defendant's automobile. He was non compos mentis at the time and his incompetency continued until his parole from the Hospital more than two years later. He brought suit for his injuries within a year after his parole, more than three years after the accident. His suit was held barred by the Act of 1895. The statute was not tolled during the period he was non compos mentis, because the tolling section of the Act of 1713, which included this disability, was held to be inapplicable to causes of action to which the Act of 1895 applied. No distinction from the Peterson case was thought possible on the basis of the particular disability.[16] Certainly, then, there is no basis to distinguish the disability of imprisonment, which is also specified in the tolling section of the Act of 1713. It follows, therefore, that the plaintiff's imprisonment during all or part of the two-year period immediately preceding the filing of his complaint did not toll the running of the applicable Pennsylvania statute of limitations. It remains to be considered whether I must modify or reject entirely the state statute of limitations in order to protect the federal cause of action or safeguard a federal policy inherent in it. The fundamental premise on which federal courts apply state statutes of limitations to federal causes of action is that thereby the implied intention of Congress is carried out. But in some circumstances it is highly unreasonable to ascribe such an intention to Congress. Thus federal courts will not apply a state statute of limitations which discriminates against federal causes of action by expressly fixing a shorter period for them than for similar state actions.[17] And the established federal equitable doctrine that fraudulent concealment of a wrong suspends the operation of laches or statutes of limitations[18] has been applied in actions on federal causes to which state statutes of limitations were held applicable.[19] So too, federal courts have refused to apply the provision of an applicable state statute of limitations which would have tolled its operation because of defendant's absence from the state, where the service of process provisions of the federal antitrust laws would have allowed service in the state during that period.[20] Finally, it has been held in an action under § 303(b) of *249 the Labor Management Relations Act[21] that the close interrelation between the various statutes which comprise the federal labor program renders the need for a uniform rule as to the limitation of actions so great as to preclude the application of the diverse state periods.[22] The present case is not one calling for special intervention against the operation of the state statute of limitations. There is no discrimination against the assertion of federal rights, for the absence of a tolling provision in cases under the Act of 1895 applies equally to state and federal causes of action. There is no established federal judicial principle that periods of limitation should not run on federal causes of action while a potential plaintiff is in prison. Nor is there any closely interwoven federal statutory scheme which will be hampered unless actions under the Federal Civil Rights Acts are preserved during imprisonment. The general and "catch-all" language of the Civil Rights Acts gives rise to federal causes of action for many unrelated types of wrongs, and there is no such need for uniformity as exists in areas such as federal labor law. If, as in antitrust cases, it may ultimately prove advantageous to establish a federal statute of limitations,[23] Congress will make the choice. Finally, as in all judicial action, this decision necessarily is confined to the facts of this case. Circumstances may be envisaged in which application of state statutes of limitations would amount to a complete denial of a right created by Congress. But here the facts forbid any inference that plaintiff's incarceration prevented his assertion of his right of action. From the time of his escape on July 22, 1959, until the two-year statutory period had elapsed,[24] plaintiff spent a total of only 19 days — and these separated into three periods — at the Berks County Prison. He was not, therefore, under the thumb of the defendant for any substantial period. Moreover, there is nothing to indicate that his state imprisonment after he was recaptured impeded the institution or prosecution of the federal cause of action he asserts here. There is, therefore, no showing of a denial of a federal right beyond the general expiration of a right to sue by the running of a reasonably sufficient period of time. Such nondiscriminatory elimination of stale claims is a universally accepted policy. "Whatever prejudice there may have been in ancient times against statutes of limitations, it is a cardinal principle of modern law and of this court, that they are to be treated as statutes of repose * * *." Campbell v. Haverhill, 155 U.S. 610, 617, 15 S. Ct. 217, 220, 39 L. Ed. 280 (1895). ORDER And now, December 27, 1963, defendant's motion for judgment on the pleadings is granted. NOTES [*] Mr. Woolston has served without compensation as plaintiff's counsel by appointment of the court after plaintiff was granted leave to proceed in forma pauperis. For this service he has the appreciation of the court. [1] 42 U.S.C. § 1983: "Every person who, under color of any statute, ordinance, regulation, custom, or usage, of any State or Territory, subjects, or causes to be subjected, any citizen of the United States * * * to the deprivation of any rights, privileges, or immunities secured by the Constitution and laws, shall be liable to the party injured in an action at law * * *."; 28 U.S.C. § 1343: "The district courts shall have original jurisdiction of any civil action authorized by law to be commenced by any person: * * * "(4) To recover damages * * * under any Act of Congress providing for the protection of civil rights * * *." [2] Paragraph 13 of the amended complaint reads: "As a consequence of that cruel and unusual nature of the punishment to which the defendant required plaintiff to submit, plaintiff suffered both physical and mental pain and anguish and plaintiff lost some twenty pounds of weight during that confinement, and plaintiff was in effect throughout said punishment confinement denied all but minimal basic animal existence, and thus throughout and as a result of said punishment plaintiff became reduced to an irrational being * * *." [3] See generally Note, Federal Statutes Without Limitations Provisions, 53 Columbia L.Rev. 68 (1953). [4] See O'Sullivan v. Felix, 233 U.S. 318, 34 S. Ct. 596, 58 L. Ed. 980 (1914); Chattanooga Foundry and Pipe Works v. City of Atlanta, 203 U.S. 390, 27 S. Ct. 65, 51 L. Ed. 241 (1906); McClaine v. Rankin, 197 U.S. 154, 25 S. Ct. 410, 49 L. Ed. 702 (1905); Campbell v. Haverhill, 155 U.S. 610, 15 S. Ct. 217, 39 L. Ed. 280 (1895). [5] See Holmberg v. Armbrecht, 327 U.S. 392, 395, 66 S. Ct. 582, 90 L. Ed. 743 (1946); Campbell v. Haverhill, 155 U.S. 610, 616, 15 S. Ct. 217, 39 L. Ed. 280 (1895). [6] 155 U.S. 610, 15 S. Ct. 217, 39 L. Ed. 280 (1895). [7] Rev.Stat. § 721 (1875), the predecessor of 28 U.S.C. § 1652. [8] 155 U.S. at 616, 15 S.Ct. at 219, 39 L. Ed. 280. [9] 247 F.2d 451 (3d Cir. 1957). [10] Chattanooga Foundry and Pipe Works v. City of Atlanta, 203 U.S. 390, 397, 27 S. Ct. 65, 51 L. Ed. 241 (1906), construing Rev.Stat. § 1047 (1875), predecessor to 28 U.S.C. § 2462. [11] See Jones v. Boggs & Buhl, Inc., 355 Pa. 242, 49 A.2d 379 (1946) and cases cited therein. See also Berg v. Remington Arms Co., 207 F. Supp. 65 (E.D.Pa.1962); Ravetz v. Upjohn Co., 138 F. Supp. 66 (E.D.Pa.1955). [12] Hull v. Curtis Publishing Co., 182 Pa. Super.Ct. 86, 96-97, 125 A.2d 644, 649 (1956), citing Dean Pound: "A man's feelings are as much a part of his personality as his limbs." [13] Cf. Hoffman v. Wair, 193 F. Supp. 727 (D.Or.1961). [14] Walker v. Mummert, 394 Pa. 146, 146 A.2d 289 (1958); Peterson v. Delaware River Ferry Co., 190 Pa. 364, 142 A. 955 (1899); Rodebaugh v. Philadelphia Traction Co., 190 Pa. 358, 42 A. 953 (1899). [15] "If any person or persons, who is or shall be entitled to any such * * * actions for trespass, for assault, menace, battery, wounding or imprisonment * * * be, or, at the time of any cause of such action given or accrued, fallen or come, shall be, within the age of twenty-one years, femme covert, non compos mentis, imprisoned, or beyond sea, that then such person or persons shall be at liberty to bring the same actions, so as they take the same within such times as are hereby before limited, after their coming to or being of full age, discoverture, of sound memory, at large, or returning into this province, as other persons." Act of 1713, § 5 (12 P.S. § 35). [16] See concurring opinion of Mr. Chief Justice Jones, 394 Pa. at 150-152, 146 A.2d at 291-292. [17] See, e. g., Caldwell v. Alabama Dry Dock & Shipbuilding Co., 161 F.2d 83 (5th Cir. 1947), cert. den. 332 U.S. 759, 68 S. Ct. 59, 92 L. Ed. 345; Wolf Sales Co. v. Rudolph Wurlitzer Co., 105 F. Supp. 506 (D.Colo.1952); Davis v. Rockton & R.R.R., 65 F. Supp. 67 (W.D.S.C.1946), aff'd. 159 F.2d 291 (4th Cir.). [18] See Bailey v. Glover, 88 U.S. (21 Wall.) 342, 22 L. Ed. 636 (1874); Atlantic City Electric Co. v. General Electric Co., 312 F.2d 236 (2d Cir. 1962), cert. den., 373 U.S. 909, 83 S. Ct. 1298, 10 L. Ed. 2d 411; United States v. General Electric Co., 209 F. Supp. 197 (E.D.Pa.1962). [19] See, e. g., Holmberg v. Armbrecht, 327 U.S. 392, 66 S. Ct. 582, 90 L. Ed. 743 (1946); Moviecolor Ltd. v. Eastman Kodak Co., 288 F.2d 80, 90 A.L.R. 2d 252 (2d Cir. 1961), cert. den. 368 U.S. 821, 82 S. Ct. 39, 7 L. Ed. 2d 26. [20] See, e. g., Banana Distributors, Inc. v. United Fruit Co., 269 F.2d 790 (2d Cir. 1959); Stevens v. Walker, 61 F. Supp. 441 (W.D.Wash.1945). [21] 29 U.S.C. § 187(b). [22] Fischback & Moore, Inc. v. International Union of Operating Engineers, 198 F. Supp. 911 (S.D.Cal.1961). The court said that until Congress saw fit to provide a limitation period the doctrine of laches would be used to prevent recovery in cases where the plaintiff delayed unconscionably in asserting his claim. [23] See 15 U.S.C. § 15b, passed in 1955, which first provided a federal statute of limitations in treble-damage actions. [24] Assuming, to plaintiff's advantage, that his cause of action did not accrue until the day of his escape.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1872903/

137 B.R. 802 (1992) UNITED STATES of America, Plaintiff, v. ONE PARCEL OF REAL PROPERTY, COMMONLY KNOWN AS STAR ROUTE BOX 1328, GLENWOOD, WASHINGTON COUNTY, OREGON, Defendant. Civ. No. 89-1057-BE. United States District Court, D. Oregon. February 24, 1992. *803 Charles H. Turner, U.S. Atty., Dist. of Oregon, Leslie J. Westphal, Asst. U.S. Atty., Portland, Or., for plaintiff. Gary M. Bullock, Bullock & Regier, P.C., Portland, Or., for claimant Eileen Crowell. OPINION BELLONI, District Judge. The motions before me concern two related civil forfeiture cases, in which the defendants are property of Eileen and Palmer Crowell. Eileen Crowell moves to refer the two cases to the Bankruptcy Court for the District of Oregon. I have heard oral arguments *804 and considered the briefs of the parties. BACKGROUND Eileen and Palmer Crowell are a married couple from Glenwood, Oregon, in Washington County. They were arrested on various federal drug and tax charges, stemming from the cultivation and distribution of marijuana by Palmer. Palmer subsequently pled guilty to the possession and manufacture of controlled substances. He was recently sentenced to a term of imprisonment. The drug charges against Eileen were dropped, but she entered an Alford plea to one count of underreporting her income for the year of 1986. She has a continuing dispute with the IRS regarding her tax liability for the years 1987, 1988, and 1989. On October 6, 1989, the United States filed two civil forfeiture actions against property of the Crowells. CV89-1056-BE concerns a pickup truck, a trailer and $117,520 in U.S. currency. CV89-1057-BE concerns approximately 17 acres of real property which contains the Crowell residence, known as Star Route Box 1328. The Crowells hold this real property as tenants by the entirety. Palmer and Eileen have each filed claims in both forfeiture actions. They were permitted to continue living in their residence pursuant to an occupancy agreement. The forfeiture cases were stayed pending the resolution of the criminal cases. On October 17, 1991, about the time that the criminal proceedings were concluding, Eileen filed a Chapter 13 bankruptcy petition. Thus, these forfeiture cases came under the automatic stay, at least as far as Eileen is concerned. Eileen's claim to the property in these forfeiture cases appears to be the major asset of the bankruptcy estate. Apart from the government's forfeiture claims, Eileen's principal creditors are the IRS, which asserts a claim for income taxes, and Washington County, which asserts a claim for property taxes. On December 10, 1991, the United States moved for relief from the automatic stay in order to pursue these forfeiture cases against Eileen. At about the same time, Eileen filed this motion to refer the forfeiture cases to the bankruptcy court. The Bankruptcy Judge has taken under advisement the government's motion for relief from the automatic stay, but has not yet ruled on that motion. DISCUSSION As a preliminary matter, the government moves to strike Eileen's reply memorandum regarding this motion because it was filed approximately a week late. The government does not show any prejudice due to this tardiness. I find that it would be too harsh to strike the reply memorandum in this instance, but caution counsel to be more prompt in the future. The government's motion to strike is denied. Turning to the motions to refer, the essential question is whether these forfeiture cases should be tried in the district court or the bankruptcy court. This requires analysis of the statute which sets out the division of labor between the district and bankruptcy courts, 28 U.S.C. § 157. This statute first defines the spectrum of cases which may be referred to the bankruptcy court in section 157(a): "Each district court may provide that any and all cases under title 11 [bankruptcy cases] and any and all proceedings arising under title 11 or arising in or related to a case under title 11 shall be referred to the bankruptcy judges for the district."[1] However, the broad language of 28 U.S.C. § 157(a) is limited by section 157(d), which states: The district court may withdraw, in whole or in part, any case or proceeding referred under this section, on its own *805 motion or on timely motion of any party, for cause shown. The district court shall on timely motion of a party, so withdraw a proceeding if the court determines that resolution of the proceeding requires consideration of both title 11 and other laws of the United States regulating organizations or activities affecting interstate commerce [emphasis added]. Thus, section 157(d) provides for either mandatory or permissive withdrawal of cases from the bankruptcy court. Although section 157(d) speaks in terms of withdrawing the reference to the bankruptcy court, and the motion here is to refer cases to the bankruptcy court, the principles to be considered are the same. The United States contends that these cases are subject to mandatory withdrawal under section 157(d), because their resolution requires consideration of both title 11 and other laws of the United States regulating organizations or activities affecting interstate commerce. The United States also argues that this is a proper case for permissive withdrawal from the bankruptcy court. Eileen Crowell contends that this is not an appropriate case for either mandatory or permissive withdrawal of reference. 1. Mandatory Withdrawal The parties do not dispute that these forfeiture cases are, at the least, "related cases" under 28 U.S.C. § 157(a). That is, the outcome of these cases could conceivably have an effect on the bankruptcy estate. In Re Fietz, 852 F.2d 455, 457 (9th Cir.1988). These forfeiture cases will determine whether the defendant property belongs, at least in part, to Eileen Crowell, or whether her interest in the property has been forfeited to the government. Therefore, these forfeiture cases will certainly have an effect on the bankruptcy estate. As discussed above, proceedings must at least be related to a case under title 11 in order for referral to the bankruptcy court to be proper under 28 U.S.C. § 157(a). Thus, these are cases which could be referred to bankruptcy court, and which normally would be referred to bankruptcy court under L.R. 2101-1. However, under 28 U.S.C. § 157(d), this court must withdraw reference if the resolution of a proceeding requires consideration of laws of the United States regulating organizations or activities affecting interstate commerce. The United States argues that the forfeiture statutes are rooted in the Commerce Clause, and are the type of laws that Congress had in mind when it enacted section 157(d). The parties have not cited, and I have not located, any cases which discuss the operation of § 157(d) in forfeiture cases. I have also been unable to locate any cases from the Ninth Circuit which discuss the standards for mandatory withdrawal of reference. However, I am satisfied that the forfeiture statutes are laws regulating organizations or activities affecting interstate commerce within the terms of § 157(d). In enacting the forfeiture statutes, Congress relied on its powers under the Commerce Clause, making a specific finding in 21 U.S.C. § 801 that trafficking in illegal narcotics affects interstate commerce. Moreover, the federal courts have found that § 157(d) applies to a number of statutes that are comparable to the forfeiture statutes. See, e.g., Hatzel & Buehler v. Orange & Rockland Utilities, 107 B.R. 34 (D.Del.1989) (Occupational Safety and Health Act); Johns-Manville Corp., 63 B.R. 600, 602 (S.D.N.Y.1986)(Comprehensive Environmental Response Compensation Liability Act and Clean Water Act); In Re Hartley, 55 B.R. 781, 784 (N.D.Ohio 1985)(Racketeering Influenced and Corrupt Organization Act); In Re White Motor Corp., 42 B.R. 693 (N.D.Ohio 1984) (Employee Retirement Income Security Act and Internal Revenue Code). Eileen Crowell argues that withdrawal is not mandatory if the role of "other laws" is only tangential or de minimus. This is correct; in In Re White Motor Corp., supra, the court found that Congress indicated that withdrawal would be required only if substantial and material consideration of nonbankruptcy federal laws was necessary for the resolution of a *806 case. 42 B.R. at 703. However, Eileen Crowell acknowledges that resolution of these cases will require application of the innocent ownership defense set out in 21 U.S.C. § 881(a)(7). I find that this issue, in itself, requires substantial and material consideration of a statute regulating activities affecting interstate commerce. Moreover, it is likely that other provisions of the forfeiture laws will be considered in resolving these cases. Eileen Crowell also argues that withdrawal of reference is not mandatory when a proceeding requires consideration of only federal interstate laws or only bankruptcy laws. She relies on a minority line of cases which indicate that § 157(d) does not apply to proceedings that involve no bankruptcy issues, even if they are related to a bankruptcy case. See, e.g., In Re Chateaugay Corp., 86 B.R. 33 (S.D.N.Y. 1987). I reject this argument for two reasons. First, I find it more logical to accept the majority view, that § 157(d) applies to all related cases. Otherwise, the district courts would be faced with an anomalous situation where they must withdraw cases which contain bankruptcy issues, but need not withdraw cases with no significant bankruptcy issues. Second, Eileen Crowell argues strenuously, in other portions of her memoranda, that these cases involve the resolution of bankruptcy issues regarding the priority of liens between the United States, the IRS and Washington County. Accordingly, I find that these cases are subject to mandatory withdrawal under 28 U.S.C. § 157(d). Therefore, Eileen Crowell's motions to refer these cases to the bankruptcy court are denied. 2. Permissive Withdrawal As an alternate ground for my decision, I find that these are appropriate cases for permissive withdrawal of reference from the bankruptcy court. Section 157(d) gives the district court the discretion to deny reference to the bankruptcy court if good cause is shown, even if the case is one that could properly be heard in the bankruptcy court. There are a number of factors which should be considered in determining whether to exercise such "permissive withdrawal," including whether the proceeding is a core or a non-core proceeding, judicial economy, convenience, and expertise of the court. Hatzel & Buehler, Inc. v. Orange & Rockland Utilities, supra, 107 B.R. 34. The distinction between "core" and "non-core" or "related" proceedings is set out in 28 U.S.C. § 157(b)(2). Under this subsection, bankruptcy judges have the power to determine all core proceedings and to enter appropriate orders and judgments, but are precluded from entering a final order to resolve a non-core proceeding unless all parties consent. If there is no consent in a non-core proceeding, the bankruptcy judge must submit proposed findings and conclusions for de novo review by the district court. Thus, a core proceeding may be determined quickly and finally by a bankruptcy court, but there is a potential for delay when a bankruptcy court handles non-core proceedings. Core proceedings include, but are not limited to: 1) matters concerning the administration of the estate; 2) allowance or disallowance of claims against the estate or exemption from the property of the estate, or estimation of claims or interests for the purpose of confirming a plan; 3) determination as to the dischargeability of particular debts; 4) determination of the validity, extent or priority of liens; and 5) confirmation of plans. Although some of these categories appear broad enough to encompass these forfeiture cases, the courts have adopted a narrower interpretation, in order to avoid the constitutional problems noted in Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S. Ct. 2858, 73 L. Ed. 2d 598 (1982). In Re Cinematronics, Inc., 916 F.2d 1444, 1450 (9th Cir.1990). The Fifth Circuit has formulated a standard that is widely accepted: If the proceeding involves a right created by the federal bankruptcy law, it is a core proceeding . . . If the proceeding is one that would arise only in bankruptcy, it is also a core proceeding . . . If the proceeding does not involve a substantive right created by the federal bankruptcy law, and is one that could exist outside *807 of bankruptcy, it is not a core proceeding; it may be related to the bankruptcy because of its potential effect, but under Section 157(c)(1) it is an otherwise related or non-core proceeding. Matter of Wood, 825 F.2d 90, 97 (5th Cir. 1987). Under this standard, these forfeiture cases are clearly not core proceedings, but are related proceedings which could have an effect on the debtor's estate. Thus, any order or judgment issued by the bankruptcy court would not be final until adopted by the district court. I find that the Fifth Circuit's analysis is persuasive, and consistent with the law of the Ninth Circuit. Therefore, since these are not core proceedings, the bankruptcy court could not enter a final judgment without the consent of the parties. The United States indicates that it will not give such consent. Another related issue is the question of the right to a jury trial. Grave Seventh Amendment problems would arise if a jury trial is conducted by the bankruptcy court in a non-core proceeding, because section 157(c)(1) requires de novo review by the district court of such matters. In Re Cinematronics, Inc., supra, 916 F.2d at 1451. Where a jury trial is required and the parties refuse to consent to bankruptcy jurisdiction, withdrawal of the case to the district court is appropriate. Id. Eileen Crowell has made a jury demand in these cases. She now states that she is willing to waive her right to a jury trial. However, under Fed.R.Civ.P. 38(d), once a demand for jury trial has been made, it may not be withdrawn without the consent of the parties. The United States has indicated that it will not give such consent. Accordingly, the fact that these cases are related proceedings rather than core proceedings weighs heavily in favor of withdrawing the cases from the bankruptcy court, primarily because of the need for a jury trial, but also because of the potential for duplication of proceedings. The United States argues that another factor weighing against referral is my familiarity with forfeiture law and with these particular cases. Although the bankruptcy court could undoubtedly deal with forfeiture issues, I do have some familiarity with these particular cases, which weighs slightly in favor of withdrawing the cases. The parties hotly dispute the issue of which forum would best promote judicial economy. As discussed above, the fact that these are not core proceedings means that any decision by the bankruptcy court would be subject to de novo review by the district court. The United States also contends that since Palmer's claims cannot be adjudicated in the bankruptcy court, reference of Eileen's claims to the bankruptcy court would simply duplicate the proceedings. Eileen argues that Palmer's guilty plea to a drug violation means that he has no defense in these forfeiture cases, and will not be a factor. However, the record shows no indication that Palmer intends to abandon his claims. Moreover, during oral argument the government argued without contradiction that Palmer might raise defenses regarding the issue of probable cause for forfeiture. Therefore, I cannot assume that Palmer intends to abandon his claims. As long as Palmer remains a party to these cases, it seems likely that reference to the bankruptcy court would multiply, rather than streamline, the proceedings. Eileen argues that her defense of being an innocent spouse involves the same facts and issues as her defense to the tax liens being asserted against her by the IRS in the bankruptcy court. Thus, she reasons, it would be more efficient to try all such issues in the bankruptcy court. The tax liens appear to be based on income which allegedly came from Palmer's drug endeavors, and thus there is some factual overlap with the innocent spouse defense in the forfeiture cases. However, there are some differences in the legal standards to be applied in the IRS claims and these forfeiture cases. It is clear that neither the district court or the bankruptcy court is a perfect forum. Whether these cases are tried in this court or the bankruptcy court, there is likely to be some duplication of efforts. However, I find that trial in the district court is likely to cause less duplication and delay than trial in the bankruptcy court, and therefore the district court is the more efficient forum. *808 For all of these reasons, I find that it is advisable to withdraw reference of these forfeiture cases from the bankruptcy court. However, at present the automatic stay prevents the resolution of Eileen Crowell's claims in the forfeiture cases. Therefore, the course of future proceedings is to some extent contingent on the bankruptcy court granting the government's motion for relief from the stay. Furthermore, I anticipate that withdrawal of reference will not remain necessary after the trial of the forfeiture issues. At that time, I would entertain a motion to refer any remaining issues regarding the priority of interests to the bankruptcy court. CONCLUSION Eileen Crowell's motions to refer these civil forfeiture cases to bankruptcy court are denied. The reference of these cases to bankruptcy court is withdrawn pursuant to 28 U.S.C. § 157(d). NOTES [1] The District of Oregon has provided for the reference of all such cases in L.R. 2101-1, which states: "This court hereby continues its reference to the bankruptcy judges of this district of all cases under Title 11 and all proceedings arising under Title 11 or arising in or related to cases under Title 11." Thus, it is the policy of the District of Oregon to automatically refer all such cases to the bankruptcy court for decision.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1809633/

558 F.Supp. 600 (1983) Kenneth Norman SMITH, Petitioner, v. Donald WYRICK, Warden, Respondent, and Michael David MANIS, Petitioner, v. Donald WYRICK, Warden, Respondent. Nos. 82-0916-CV-W-1-R, 82-0476-CV-W-1 and 82-0903-CV-W-1. United States District Court, W.D. Missouri, W.D. March 3, 1983. Ronald L. Hall, Asst. Federal Public Defender, W.D. Mo., Kansas City, Mo., for petitioner. *601 John Ashcroft, Atty. Gen., Rosalynn Van Heest, Asst. Atty. Gen., Jefferson City, Mo., for respondent. MEMORANDUM OPINION AND ORDERS DIRECTING FURTHER PROCEEDINGS JOHN W. OLIVER, Senior District Judge. I. On December 17, 1982 we entered orders directing further proceedings in both of the above entitled cases. Both cases are related for the reason that both State prisoners, acting upon the advice of a fellow inmate at the Missouri Penitentiary, have attempted to obtain an immediate hearing of all federal claims alleged in their respective applications for federal habeas corpus relief on the dual theory that each exhausted all available State postconviction remedies by filing motions to recall mandate in the Supreme Court of Missouri and that the Missouri Rule 27.26 proceedings which each petitioner admittedly has pending in the Circuit Court of Greene County, Missouri have been subject to unreasonable delay and are being processed in a manner which deprives both petitioners of an effective State post-conviction remedy. The orders entered on December 17, 1982 required the State to file a response which would establish the procedural posture of all of each petitioner's State court filings and for a statement of the State's position in regard to any State appellate postconviction remedies that either petitioner might have under the circumstances. The Federal Public Defender's office was appointed to represent the petitioners in this Court and to take any action on behalf of the petitioners which might be appropriate under the circumstances. The Attorney General's office has filed responses to which copies of some of the relevant State court records are attached. The Federal Public Defender's Office has filed responses on behalf of each petitioner to which additional relevant State court records are attached. We have considered the responses filed pursuant to this Court's December 17, 1982 orders and enter orders directing further proceedings for reasons which need to be stated in detail. II. Factual Circumstances In Regard to Petitioner Smith The response filed by the Attorney General's office in regard to petitioner Smith states that he is in State custody under three sentences of 15, 14, and 10 years imposed by the Circuit Court of Greene County, Missouri on March 14, 1980. That response attached copies of all Missouri Rule 27.26 motions which petitioner Smith filed in the Circuit Court of Greene County, Missouri in September of 1981. The response further stated that each 27.26 motion has been denied by that State trial court. In regard to the availability of further State postconviction remedies, the response stated the following: As to petitioner's present right to appeal any adverse action that may have been taken by the Circuit Court of Greene County, Missouri court rules provide that a late notice of appeal may be filed up to six months from the date of final judgment. Rule 81.07(a), V.A.M.R., provides in pertinent part that: When an appeal is permitted by law from a final judgment in a trial court, but the time prescribed for filing the ordinary notice of appeal with the clerk of the trial court as set forth in Rule 81.04 has expired, a party may seek a special order of the appropriate appellate court permitting a late filing of the notice of appeal. The special order may be allowed by the appellate court only upon motion with notice to adverse parties, filed within six months from the date of final judgment, and only upon a showing by affidavit, or otherwise, that there is merit in appellant's claim for the special order and that the delay was not due to appellant's culpable negligence. Rule 81.05(a) provides that a judgment becomes final "at the expiration of thirty days after the entry of such judgment, if *602 no timely motion for a new trial is filed." In petitioner's cases, the judgments against petitioner were filed August 17, 1982, and August 23, 1982. These judgments became final September 16 and September 22, 1982 respectively. Petitioner has until March 16 and March 22, 1983, to file a motion for a special order to permit a late filing of a notice of appeal. In regard to the State's position as to petitioner Smith's right to further State appellate postconviction review, the response filed by the Attorney General's office stated: Respondent does not object to the appointment of the federal public defender for the limited purpose of filing such a late notice of appeal so that the appellant's process can begin and the state court can appoint counsel for petitioner. Such a result is clearly more appropriate than a hearing on the merits in federal court without giving the state appellate courts the opportunity to correct any errors that may have occurred either in the trial or in the Rule 27.26 proceedings.... The state courts are adequately equipped to handle appellant's claim and they are presently the appropriate form [sic] for appellant to raise his allegations of error. The files and records now before the Court show that none of petitioner Smith's Missouri Rule 27.26 motions which pended in the Circuit Court of Greene County, Missouri had been ruled at the time we considered petitioner Smith's first application for federal habeas corpus. We denied that first application for federal habeas corpus May 11, 1982. The files and records show that all of petitioner's Missouri Rule 27.26 motions were denied in the month of August, 1982. We made clear in Smith v. Wyrick, 538 F.Supp. 1017, 1025 (W.D.Mo. 1982) that our denial of petitioner's claim of ineffective assistance of appellate counsel was not to be considered as any adjudication of petitioner Smith's claims of ineffective assistance of trial counsel "which petitioner may assert in the pending Rule 27.26 proceeding which pends in the Circuit Court of Greene County, Missouri." In footnote 9 on page 1026 of that opinion we stated: We reiterate that our determination of petitioner's claim of ineffective assistance of appellate counsel is not an adjudication of petitioner's claims of ineffective assistance of trial counsel. The transcript of the trial reveals that defendant's appointed trial counsel apparently had something in mind in regard to petitioner's claimed use of drugs. Exactly what trial counsel may have had in mind and how he may have intended to develop what he may have had in mind, both as matters of fact and as a matter of law, are matters which we are confident will be explored in depth during the processing of the Missouri Rule 27.26 proceeding which now pends in the Circuit Court of Greene County, Missouri. [538 F.Supp. at 1026] Our first opinion in Smith clearly indicated that under applicable Supreme Court of the United States standards, petitioner Smith was entitled to an evidentiary hearing on his claim of ineffective assistance of trial counsel. In affirming this Court's denial of federal habeas corpus relief in connection with petitioner Smith's first application, the Court of Appeals for the Eighth Circuit pointed out that: Under the law of this Circuit, a federal district court must provide a hearing in a section 2254 action "if relevant facts are in dispute and a fair evidentiary hearing was not granted in the state court." Jensen v. Satran, 651 F.2d 605, 608 (8th Cir.1981); Pruitt v. Housewright, 624 F.2d 851, 852 (8th Cir.1980).... a petitioner contending relevant disputed facts must have a fair hearing regardless of the procedural posture of the claim in state court. The federal court must hold this hearing if the state court does not.[1] *603 The fact that petitioner Smith has now been denied relief on his Missouri Rule 27.26 motions which had not been ruled at the time we denied petitioner Smith's first federal habeas petition merely means that petitioner Smith must exhaust his available State court appellate remedies before he can invoke the federal habeas jurisdiction of this Court. It cannot be said that it is futile to require the filing of a motion for a late notice of appeal of the decision of the Circuit Court of Greene County, Missouri denying petitioner Smith's Missouri Rule 27.26 motions for the reason such a motion was granted by the Missouri Court of Appeals, Southern District, in connection with petitioner Manis, as we will discuss later in detail. See also Shepherd v. State, 637 S.W.2d 801 for another recent example in which a Missouri Court of Appeals granted leave to an unsuccessful Missouri Rule 27.26 movant to file a late appeal. The response filed by the Federal Public Defender of petitioner Smith properly recognized that petitioner has not exhausted his available State postconviction remedies in regard to any of the claims alleged in his federal habeas petition. The Federal Public Defender also advised this Court that: During the week of February 7, 1983 the undersigned conferred with Miss Rosalynn Van Heest, Assistant Attorney General, State of Missouri, who represents the respondent in this action. She advised the undersigned that if the reasons for Smith's failure to file notices of appeal in each of his four 27.26 actions were not due to his culpable negligence, the respondent would join petitioner's motion for a special order permitting a late filing of the notices of appeal in each of the 27.26 Motion Judgments, entered in the Circuit Court of Greene County, Missouri. The Federal Public Defender accordingly made the following request in the recommended action part of the response he filed on behalf of petitioner Smith: The undersigned requests that he be given additional time within which to investigate the facts surrounding Mr. McNabb's failure to appeal the adverse judgments entered by Judge Bacon and Judge Powell in these four 27.26 actions, and to assist the petitioner in preparing and filing in each case by March 16, 1983 (a) a motion to proceed in forma pauperis in the Missouri Court of Appeals, Southern District; (b) a motion for a special order permitting late filings of notices of appeal; and (c) a motion for appointment of appellate counsel. The granting of this request will give the petitioner an opportunity to commence exhausting his remaining available state court remedies, thereby satisfying the exhaustion requirement of 28 U.S.C.A. (Unannotated Text Vol.) § 2254(b) (West 1968), and will *604 allow him, if necessary, to seek federal habeas relief from his five state felony convictions at a later time. Appropriate orders will therefore be entered in accordance with that request which will be designed to assist petitioner Smith in obtaining appropriate appellate review in the courts of Missouri. III. Factual Circumstances In Regard to Petitioner Manis A. The initial response filed by the Attorney General's office in regard to petitioner Manis stated that he is in State custody "pursuant to multiple judgments of conviction and sentences for robbery imposed in 1977 by the Circuit Court of Greene County, Missouri." That initial response stated that the Attorney General's office had encountered difficulties in obtaining copies of the appropriate court records from the Clerk of the Circuit Court of Greene County, Missouri. However, by the filing of a supplemental response, the Court now has before it copies of a number of petitioner Manis' pro se Missouri Rule 27.26 motions filed in the Circuit Court of Greene County, Missouri. A copy of petitioner Manis' pro se Missouri Rule 27.26 motion, filed as Case No. CV 181-2597-CC-4 in the Circuit Court of Greene County, Missouri was attached to the initial response filed by the Attorney General's office. That pro se motion sought to vacate a 7 year sentence imposed March 1, 1977 on a plea of guilty to a charge of robbery in Case No. 82-692-4 in the Circuit Court of Greene County, Missouri. The response stated that that motion was denied without an evidentiary hearing by the State trial court on August 5, 1982. In regard to that particular pro se Missouri Rule 27.26 motion, the initial response filed by the Attorney General stated: The judgment of the Circuit Court of Greene County denying petitioner's Rule 27.26 motion was handed down August 5, 1982. No notice of appeal has been taken from that judgment, although respondent's Exhibit B indicates that certain orders have been handed down in which petitioner has been found indigent and eligible for representation by appointed counsel; preparation of transcript has been ordered; and leave to proceed in forma pauperis has been granted. The initial response filed by the Attorney General's office added, however, that: Respondent has contacted the Missouri Court of Appeals, Southern District, and has been informed that no timely notice of appeal has been filed in petitioner's case. Until this motion is filed, the Missouri Court of Appeals, Southern District cannot act on petitioner's appeal. The initial response filed by the Attorney General's office added that the procedural situation in regard to petitioner Manis' pro se Missouri Rule 27.26 motion directed at his 7 year sentence is substantially the same as that which exists in regard to all of petitioner Smith's Missouri Rule 27.26 motions. Specifically, the initial response filed by the Attorney General's office stated that: Under Missouri Supreme Court Rule 81.04, petitioner's notice of appeal in the Missouri Court of Appeals, Southern District, should have been filed ten days after the judgment became final, which would be September 4, 1982. Petitioner did not file a timely notice of appeal. Nevertheless, Missouri Supreme Court Rule 81.07 provides that: When an appeal is permitted by law from a final judgment in the trial court, but the time prescribed for filing the ordinary notice of appeal with the clerk of the trial court as set forth in Rule 81.04 has expired, a party may seek a special order of the appropriate appellate court permitting a late filing of the notice of appeal. The special order may be allowed by the appellate court only upon motion with notice to adverse parties, filed within six months from the date of final judgment, and only upon a showing by affidavit, or otherwise, that there is merit in the appellant's claim for this special order and that the delay was not due to the appellant's culpable negligence. *605 Since judgment became final September 4, 1982, the deadline for seeking relief under Rule 81.07 has not expired and will not expire until March 4, 1983. And, in the same pattern as that stated in regard to petitioner Smith, the initial response filed by the Attorney General's office in regard to petitioner's pro se Missouri Rule 27.26 attack upon his 7 year sentence stated: Respondent does not object to the appointment of the federal public defender for the limited purpose of filing a motion for a late appeal, and notes that upon such event counsel will be appointed by the Missouri Court of Appeals, Southern District according to the docket sheets. In light of developments since the filing of the Attorney General's response, it will not be necessary for the Federal Public Defender to take any further action in connection with petitioner's exhaustion of his available State postconviction remedies in connection with this particular conviction. A letter from the Federal Public Defender under date of February 11, 1983 reported that Thomas J. Marshall, Public Defender for the Fourteenth Missouri Judicial Circuit, Moberly, Missouri, filed a Notice of Appeal on petitioner's behalf on or about February 7, 1983 in accordance with an order granting leave to do so entered by the Missouri Court of Appeals, Southern District, on December 22, 1982. It should be added that the Court was further advised by State Public Defender Terry Brummer by a letter under date of February 17, 1983 that petitioner Manis will be represented by Peter Sterling, Public Defender at Rolla, Missouri, rather than by Public Defender Marshall. Under the circumstances, and at an appropriate time, this Court will enter an order dismissing petitioner Manis' federal petition for habeas corpus in regard to his seven year sentence. B. Copies of a number of petitioner Manis' additional pro se Missouri Rule 27.26 motions were attached to a supplemental response filed by the Attorney General's office. In case No. 182-425-CC-2, filed March 2, 1982 in the Circuit Court of Greene County, Missouri, petitioner Manis, in a Missouri Rule 27.26 proceeding, sought to vacate a 30 year sentence imposed after trial on June 10, 1980 for robbery. Read broadly, as petitions for postconviction relief must be read, it is apparent that petitioner Manis alleged that he was denied the effective assistance of counsel.[2] None of petitioner Manis' pro se Missouri Rule 27.26 motions complied with the requirements of Missouri Rule 27.26(c) in that incomplete answers were made to the specific questions in the standard form and petitioner Manis' pro se claims were stated on "supplemental pages" attached to his pro se motions. For example, petitioner Manis' additional pro se motion in Case No. CV-182-483-CC-2, filed March 10, 1982, in which petitioner Manis sought to have a 15 year sentence and an 18 year sentence, both for robbery, vacated and set aside, answered question 3 of the standard Missouri Rule 27.26 form by making reference to "Criminal Case No. 479-299-FX-2. Robbery and Robbery." Question No. 4 of the standard form which made inquiry in regard to "the date upon which sentence was imposed and the terms of the sentence" was answered by stating "1980 (15 and 18)." Various of the other questions calling for specific information were answered in vague and general terms with statements such as "See records, files, transcripts and court records" and "see attached pages." Close study of the "supplemental pages" attached to that particular motion suggests that a 15 and an 18 year sentence were *606 imposed on May 23, 1980 in connection with the trial of two separate offenses; that an appeal was noticed in connection with only one of those cases; and that the appeal noticed in connection with the other sentence was dismissed on the State's motion for failure to have been filed in a timely manner. State v. Manis, 603 S.W.2d 706 (Mo.App. 1980) reflects the fact that an appeal was dismissed in regard to one of the convictions obtained on May 23, 1980. That case, however, does not indicate whether the untimely notice of appeal was filed in regard to the 15 year sentence or the 18 year sentence. The supplemental response filed by the Attorney General's office states that petitioner Manis' pro se Missouri Rule 27.26 motions under discussion currently pend in the Circuit Court of Greene County, Missouri. The docket sheets attached as exhibits to the supplemental response show that apparently the only judicial action taken in connection with petitioner Manis' pending pro se motions has been a transfer of the cases from Division 2 to Division 4 of the Circuit Court of Greene County, Missouri and a determination made in both cases in the latter Division on April 4, 1982 that the "Court determines Deft. is indigent and refers case to office of public defender." The docket sheets do reflect that the "office of public defender," appointed to represent petitioner Manis pursuant to Missouri Rule 27.26(h), has not yet filed any amended Missouri Rule 27.26 motion on behalf of the petitioner in spite of the fact that the record shows that petitioner's pro se motion was not filed in compliance with Missouri Rule 27.26(c). From the time of State v. Fritz, 429 S.W.2d 699 (Mo.Sup.1968), decided almost fifteen years ago, the appellate courts of Missouri have made clear that the trial courts of Missouri are expected to require counsel appointed to represent indigent Missouri Rule 27.26 movants to discharge the duties imposed upon them by that Rule of the Supreme Court of Missouri.[3] *607 Missouri Rule 27.26(e), entitled "Hearings," provides in its pertinent part that: Unless the motion and the files and records of the case conclusively show that the prisoner is entitled to no relief, a prompt hearing thereon shall be held. "Prompt" means as soon as reasonably possible considering other urgent business of the court. This hearing shall be an evidentiary hearing if issues of fact are raised in the motion, and if the allegations thereof directly contradict the verity of records of the court, that issue shall be determined in the evidentiary hearing. All proceedings on the motion shall be recorded by the official court reporter. (Emphasis ours) Examination of the "supplemental pages" attached to both of petitioner Manis' pro se Rule 27.26 motions filed in March of 1982 establishes that numerous issues of fact within the meaning of Missouri Rule 27.26(e) are raised in regard to federal constitutional claims which simply cannot be determined without a plenary evidentiary hearing held in accordance with the mandate of that Rule. The record presently before this Court suggests that although petitioner Manis' pro se motions were filed in March of 1982, petitioner has not been afforded the evidentiary hearing mandated by Missouri Rule 27.26(e).[4] In spite of the state of the record in regard to petitioner Manis' pro se motions, the supplemental response filed by the Attorney General's office in regard to those motions contends that petitioner Manis' petition for federal habeas corpus "should be denied without prejudice until such time as petitioner exhausts his State remedies in the trial and appellate courts [of Missouri.]" In support of that contention the supplemental response filed by the Attorney General's office stated the following: Respondent would like to point out these actions have been pending for less than a year and it is evidence [sic] that action has been taken by the Circuit Court, consisting of appointment of counsel. Any inaction cannot be attributed to the Court but rather to appellant's appointed counsel. In Thompson v. White, 591 F.2d 441, 443 (8th Cir.1979), it was held that the fact of a two-year delay in which no action was taken by the state court did not absolve a habeas corpus petitioner from the responsibility of exhausting his state court remedies. That holding applies with much greater force here where there has been no inordinate delay and where counsel has been appointed. A prisoner in state custody is required to exhaust his state remedies before seeking federal relief, and "[a]n exception is made only if there is no opportunity to obtain redress in state court or if the corrective process is so clearly deficient as to render futile any effort to obtain relief." Duckworth v. Serrano [454 U.S. 1] 102 S.Ct. 18, 19 [70 L.Ed.2d 1] (1981). (Emphasis the Attorney General's.) In the next part of this memorandum opinion we will state the reasons why the authorities relied upon by the Attorney General's office do not support the State's contention. *608 IV. A. The State's reliance upon Thompson v. White, 591 F.2d 441 (8th Cir.1979) to support its suggestion that petitioner Manis' petition for federal habeas corpus should be dismissed outright for failure to exhaust is misplaced. The Court of Appeals' opinion in Thompson reflects that Thompson was convicted of first degree murder in 1966 and that no appeal was taken in that case. On September 10, 1975, however, Thompson filed a Missouri Rule 27.26 motion contending, among other things, that his federal constitutional rights had been violated because the jury that convicted him was not drawn from a cross section of the community. The State trial court took no action on that motion for nearly two years. On March 1, 1977 petitioner filed a writ of habeas corpus in the Supreme Court of Missouri complaining of the "unwarranted and inordinate delays" in processing his pending motion. On March 14, 1977 the Supreme Court of Missouri properly denied the writ "without prejudice to petitioner to make application to the Circuit Court of Bollinger County for appointment of counsel and a hearing in the pending 27.26 action." Although the Supreme Court of Missouri had clearly indicated that an evidentiary hearing was necessary, the State on June 3, 1977 filed a motion to dismiss which the State trial court granted on June 28, 1977. An appeal was noticed to the Missouri Court of Appeals, Springfield District, the next day.[5] On October 2, 1977, however, and while the State appeal was still pending, the petitioner attempted to invoke the habeas jurisdiction of the United States District Court for the Eastern District of Missouri. The State moved to dismiss for failure to exhaust and that motion was granted by Judge Filippine for reasons stated in Thompson v. White, 442 F.Supp. 1269 (E.D. Mo.1978). The petitioner then appealed to the Court of Appeals for the Eighth Circuit and while that appeal was pending, the Missouri Court of Appeals, Springfield District, on October 23, 1978, reversed the State trial court and "remanded the question of constitutionally impermissible discrimination in jury selection process for an evidentiary hearing in the State trial court." The Court of Appeals for the Eighth Circuit, in determining the appeal of the dismissal by the federal district court, cited the leading Eighth Circuit case of Mucie v. Missouri State Dept. of Corrections, 543 F.2d 633 (8th Cir.1976), and stated that "we share the opinion of the federal district court that the delay in processing Thompson's Rule 27.26 motion was extreme and unexplained." The Court of Appeals for the Eighth Circuit noted in Thompson, however, that "the State court had started to process the motion before Thompson filed the petition in federal court and continued to process it promptly thereafter." The Court of Appeals therefore concluded that "We have no reason to believe that the state courts will delay a decision on that issue. There is, therefore no reason to apply Mucie here." [Thompson v. White, 591 F.2d 441, 443 (8th Cir.1979)] Mucie, of course, is the leading Eighth Circuit case in which questions of State court delay were considered. In that case the Court of Appeals for the Eighth Circuit reversed the federal district court's outright dismissal of a federal habeas corpus petition *609 on the ground that the petitioner had failed to exhaust his available State postconviction remedies. The procedural history of that case shows that Mucie's original petition for federal habeas corpus was dismissed for failure to exhaust in September, 1973. Mucie thereafter filed a Missouri Rule 27.26 motion on December 5, 1973. The Eighth Circuit noted that the State "for some unknown reason ... did not file a response until almost a year later, November 7, 1974, and did not serve petitioner's counsel with this response until October 15, 1975." Petitioner Mucie therefore filed a second petition for federal habeas corpus on January 14, 1976. A month later, on February 13, 1976, the State trial court denied the long pending Missouri Rule 27.26 motion. Mucie then appealed that action to the Missouri Court of Appeals. The federal district court dismissed for failure to exhaust in light of Mucie's obvious right to have the Missouri Court of Appeals rule on the State court's denial of his Missouri Rule 27.26 motion. The Court of Appeals for the Eighth Circuit, however, reversed the second dismissal of a federal habeas application and articulated "the Mucie rule" to which the Court of Appeals made reference in Thompson. The Court of Appeals for the Eighth Circuit concluded in Mucie that "where it appears the state has been unnecessarily and intentionally dilatory, ... to hold that a petitioner is still precluded from pursuing his remedy in a federal court reduces the Great Writ to a sham and mockery" [543 F.2d at 636]. Judge Lay's opinion in Mucie made clear that: The exhaustion doctrine requires only that the state courts have one full and fair opportunity to decide a question which is properly presented to it. Picard v. Connor, 404 U.S. 270, 92 S.Ct. 509, 30 L.Ed.2d 438 (1971); and Wilwording v. Swenson, 404 U.S. 249, 92 S.Ct. 407, 30 L.Ed.2d 418 (1971).[6] The question of whether delay in State court postconviction proceedings should excuse the exhaustion requirement was again considered in Seemiller v. Wyrick, 663 F.2d 805 (8th Cir.1981). In that case the United States District Court for the Eastern District of Missouri entered an order of outright dismissal for failure to exhaust. That dismissal was vacated by the Court of Appeals for the Eighth Circuit and the federal district court was directed to retain jurisdiction for a period of sixty days to await developments in regard to the State court's processing of a pending Missouri Rule 27.26 motion. The Court of Appeals for the Eighth Circuit further directed the district court to proceed with the merits of a federal ineffective assistance of counsel claim if the State trial court had not rendered a decision on a long pending Missouri Rule 27.26 motion within that period of time. The Seemiller court noted, however, that if the State trial court should rule the pending Missouri Rule 27.26 motion in favor of the prisoner within the sixty day period, any claim for federal habeas relief would then be moot. The Court of Appeals added that: Should the state court render a decision unfavorable to appellant, then the district court should consider anew the question whether state appeal should be excused. See Mucie v. Missouri State Department of Corrections, supra. An order similar to that entered in Seemiller was recently entered by the Court of Appeals for the Eighth Circuit in Wade v. Lockhart, 674 F.2d 721 (8th Cir.1982). Wade vacated and remanded an outright dismissal of a State prisoner's habeas petition for failure to exhaust. *610 We are satisfied that the Court of Appeal's conclusion in Thompson that the Mucie rule was not to be applied under the particular factual circumstances of that case does not sustain the State's argument that this case should be dismissed outright at this time. We are further satisfied that both Seemiller and Wade's application of the Mucie rule reflect implicit directions to the district courts of the Eighth Circuit to retain jurisdiction of a State prisoner's federal habeas corpus case in which questions of undue delay are presented for a reasonable period of time in order to permit appropriate State court action. We believe that Mucie and the progeny of that case require district courts in the Eighth Circuit to direct further proceedings consistent with exhaustion, rather than entering an order of outright dismissal for failure to exhaust. B. The State's reliance on the United States Supreme Court's per curiam opinion in Duckworth v. Serrano, 454 U.S. 1, 102 S.Ct. 18, 70 L.Ed.2d 1 (1981) to support outright dismissal at this time is also clearly untenable. That case reflected a per curiam reversal by the Supreme Court of the United States of an unpublished opinion of the Seventh Circuit which had, in its turn, reversed the federal district court's dismissal of a State prisoner habeas petition for failure to exhaust. The Supreme Court noted that on the facts of that case, the federal claim of ineffective assistance of counsel had never been raised in any State court; had not been raised in the federal district court; and was raised for the first time on appeal in the Court of Appeals for the Seventh Circuit. Duckworth merely stated familiar law when it held that: It has been settled for nearly a century that a state prisoner must normally exhaust available state remedies before a writ of habeas corpus can be granted by the federal courts. Ex parte Royall, 117 U.S. 241 [6 S.Ct. 734, 29 L.Ed. 868] (1886); Ex parte Hawk, 321 U.S. 114 [64 S.Ct. 448, 88 L.Ed. 572] (1944); Irvin v. Dowd, 359 U.S. 394, 404-405 [79 S.Ct. 825, 831-832, 3 L.Ed.2d 900] (1959); Nelson v. George, 399 U.S. 224, 229 [90 S.Ct. 1963, 1966, 26 L.Ed.2d 578] (1970); Picard v. Connor, 404 U.S. 270 [92 S.Ct. 509, 30 L.Ed.2d 438] (1971); Pitchess v. Davis, 421 U.S. 482 [95 S.Ct. 1748, 44 L.Ed.2d 317] (1975). [454 U.S. 1, 3 [102 S.Ct. 18, 19, 70 L.Ed.2d 1] (1981)] The Court noted that the exhaustion requirement, which was first articulated in Ex parte Royall, 117 U.S. 241, 6 S.Ct. 734, 29 L.Ed. 868 (1886), is currently codified in 28 U.S.C. §§ 2254(b) and (c). The Court stated and applied familiar law when it held that "an exception is made only if there is no opportunity to obtain redress in state court or if the corrective process is so clearly deficient as to render futile any effort to obtain relief." Id. The reason for the per curiam reversal of the Seventh Circuit was fully stated in the final paragraph of the Supreme Court per curiam opinion: The Court of Appeals engrafted an exception onto the habeas statute not envisioned by Congress, inconsistent with the clear mandate of the Act, and irreconcilable with our decisions requiring the exhaustion of state judicial remedies. Therefore, the judgment of the Court of Appeals is reversed, and the case is remanded to that court for further proceedings consistent with this opinion. We are satisfied that we are required under the Court of Appeals of the Eighth Circuit opinions above cited to retain jurisdiction of this case for the time being and to direct further proceedings consistent with our duty to afford petitioner an opportunity to exhaust his available State court postconviction remedies. We are further satisfied for reasons that we state in the next part of this memorandum opinion that the State postconviction remedial process is neither "unavailable" to afford petitioner an opportunity to obtain redress in connection with the federal claims alleged in his pro se Missouri Rule 27.26 motions nor "so clearly deficient as to render futile" any attempt by petitioner to obtain relief in the courts of Missouri. *611 V. Consideration of the record requires that we find and conclude in regard to petitioner Manis' other Missouri Rule 27.26 motions which pend in, but which have not yet been ruled by, the Circuit Court of Greene County, Missouri, that circumstances do not exist which may be said to render the Missouri Rule 27.26 State postconviction proceedings "ineffective to protect the rights of the prisoner" within the meaning of 28 U.S.C. § 2254(b). The record before this Court establishes that the flood of correspondence, motions, efforts to avoid use of available State court postconviction remedies, the Section 1983 action filed in this Court, and numerous filings in the Supreme Court of Missouri have unduly complicated the orderly processing of petitioner Manis' other Missouri Rule 27.26 motions.[7] Experience in both State and federal postconviction proceedings establishes that procedural difficulties are frequently encountered in cases in which a particular prisoner seeks pro se postconviction relief in regard to multiple sentences imposed in separate cases by different judges of the same court. Such difficulties are compounded when, as the above cases illustrate, two different prisoners, in effect, attempt to join forces in their efforts to obtain postconviction relief. Experience also establishes, however, that courts responsible for the proper administration of postconviction proceedings exercise their power to appoint independent and disinterested counsel to represent such prisoners in all their numerous pro se postconviction cases. Courts also frequently assign and transfer all such cases to a single judge who has no prior contact with any of the cases in which the particular prisoners may have received their various sentences. The commendable and coordinated action taken by the Judges of the Circuit Court of Greene County, Missouri in regard to their appointment of independent counsel to represent petitioner Manis on his appeal to the Missouri Court of Appeals, Southern District, is but an example of the application of the experience to which we make reference. We are satisfied from our experience in many other Missouri State prisoner cases that the courts of Missouri having jurisdiction of the cases under consideration, both trial and appellate, will give appropriate consideration to the appointment of new and independent counsel to represent both petitioner Smith and petitioner Manis and that such courts will consider the assignment of all matters relating to both petitioners to a single judge for prompt and orderly disposition in a manner consistent with applicable law. We would also anticipate that the State courts would enter orders similar to the orders entered by this Court on December 17, 1982 which provided that both petitioners shall consult with their appointed counsel before attempting to communicate with the particular court having jurisdiction without first seeking the advice of appointed counsel. We are confident that the courts of Missouri will give appropriate consideration to the appointment of members of the Bar to assist any State Public Defender who may be appointed to represent petitioner Smith and petitioner Manis in the further processing of their pending postconviction litigation. The Court is also confident that the Assistant Federal Public Defender appointed to represent both petitioners in all proceedings *612 before this Court will, in accordance with the experience established in similar earlier cases, stand ready to give any advice that may be requested of him by counsel appointed by the courts of Missouri. And, finally, this Court is confident that the Judges of the Missouri Court of Appeals, Southern District, and the Judges of the Circuit Court of Greene County, Missouri are familiar with the fact that this Court will respond promptly, as it has in many cases in the past, to any request for information that this Court may furnish under the circumstances. For the reasons stated, it is ORDERED (1) that all prayers of the State for outright dismissal at this time for failure to exhaust should be and are hereby denied. It is further ORDERED (2) that the Assistant Federal Public Defender continue to assist petitioner Smith and petitioner Manis in connection with obtaining appropriate State court postconviction review on the merits of the cases discussed above. It is further ORDERED (3) that in specific regard to petitioner Smith, the Assistant Federal Public Defender is granted additional time to investigate the circumstances surrounding the failure to file a notice of appeal on behalf of petitioner Smith in order that he may thereafter take the action stated in the request and recommendation of the Federal Public Defender which we quoted above. It is further ORDERED (4) that on or before April 15, 1983 the Attorney General's Office and the Assistant Federal Public Defender shall prepare, serve, and file their respective reports which shall advise this Court of all progress made in regard to petitioner Smith's and petitioner Manis' pending State court postconviction litigation. It is further ORDERED (5) that the Clerk of the Court forward to the Clerk of the Missouri Court of Appeals, Southern District, and to the Clerk of the Circuit Court of Greene County, Missouri, three courtesy copies of the following for the information of the Judges of those respective courts: (a) Copies of this Court's December 1, 1982 opinion, reported as Smith v. Wyrick, 538 F.Supp. 1017 (W.D.Mo.1982); (b) Copies of the opinion of the Court of Appeals for the Eighth Circuit affirming this Court, reported as Smith v. Wyrick, 693 F.2d 808 (8 Cir.1982); (c) Copies of this Court's December 17, 1982 memorandum opinions and orders entered in each of the above entitled cases; (d) Copies of this Court's memorandum opinion and orders entered this day; and (e) Copies of the separate responses filed on behalf of petitioner Smith and Petitioner Manis by Assistant Federal Public Defender Ronald L. Hall. NOTES [1] In Mitchell v. Wyrick, 698 F.2d 940, 1983, the Court of Appeals for the Eighth Circuit had occasion to quote passages from two recent Eighth Circuit cases cited by it in Smith v. Wyrick. The quoted cases emphasize that if petitioner Smith is not given an evidentiary hearing in the State court, this Court will be forced to conduct such a hearing under the controlling rule of our Court of Appeals. Mitchell stated: In Jensen v. Satran, 651 F.2d 605, 607-8 (8th Cir.1981) we held: A federal district court must grant an evidentiary hearing in a section 2254 action if: (1) the merits of the factual dispute were not resolved in a state hearing, (2) the state factual determination is not supported by the record, (3) the state fact finding procedure failed to provide full and fair hearings, (4) there is a substantial allegation of newly discovered evidence, (5) material facts were not developed at the state court hearing, or (6) it appears the state fact trier did not afford the petitioner a full and fair hearing. Pruitt v. Housewright, 624 F.2d 851, 852 (8th Cir.1980) (citing Townsend v. Sain, 372 U.S. 293, 313, 83 S.Ct. 745, 757, 9 L.Ed.2d 770 (1963)). This court has required a federal district court to grant an evidentiary hearing in a section 2254 action "if relevant facts are in dispute and a fair evidentiary hearing was not granted in state court." Id. (quoting Parton v. Wyrick, 614 F.2d 154, 158 (8th Cir.), cert. denied, 449 U.S. 846, 101 S.Ct. 131, 66 L.Ed.2d 56 (1980)). Before a hearing is required, however, it must appear that the petitioner's allegations, if proven, would establish the right to his release. See also Walker v. Solem, 648 F.2d 1188 at 1189 (8th Cir. 1981) (standards for evidentiary hearings in section 2254 cases discussed); Lindner v. Wyrick, 644 F.2d 724 at 729 (8th Cir.1981) (dismissal without an evidentiary hearing proper when dispute can be resolved on the basis of the record). [2] The 30 year robbery sentence involved in Case No. 182-425-CV-2 is not the same 30 year robbery sentence which was affirmed on direct appeal, reported as State v. Manis, 614 S.W.2d 771 (Mo.App.1981). Petitioner Manis apparently has not filed a Missouri Rule 27.26 motion in regard to that 30 year robbery sentence. [3] Fritz reversed a State trial court which had denied without evidentiary hearing a Missouri Rule 27.26 motion in order "to permit the filing of an amended motion and for such further proceedings as may be called for under Supreme Court Rule 27.26 V.A.M.S." Fritz noted that "in an effort to improve the effectiveness of the remedy provided under our Rule 27.26, an amended version of the rule was promulgated January 9, 1967, to become effective September 1, 1967." The Fritz court then quoted the following paragraph from the leading Missouri case of State v. Stidham, 415 S.W.2d 297, 298 (Mo.1969): The amended rule was adopted after considerable study and is intended to provide a post-conviction procedure in accord with the principles enunciated in the so-called trilogy of Sanders v. United States, 373 U.S. 1, 83 S.Ct. 1068, 10 L.Ed.2d 148, Fay v. Noia, 372 U.S. 391, 83 S.Ct. 822, 9 L.Ed.2d 837, and Townsend v. Sain, 372 U.S. 293, 83 S.Ct. 745, 9 L.Ed.2d 770. Further in keeping with the teachings of the trilogy, the amended rule is designed to discover and adjudicate all claims for relief in one application and avoid successive motions by requiring motions to be in questionnaire form and by providing for the appointment of counsel if the motion presents questions of law or issues of fact and the movant is shown to be indigent. [429 S.W.2d at 701] The appellate courts of Missouri, in an exemplary and commendable manner, have consistently required that the State trial courts of Missouri comply with all the requirements of amended Missouri Rule 27.26. See, for examples, Gerberding v. State, 433 S.W.2d 820 (Mo. 1968); Larson v. State, 437 S.W.2d 67 (Mo. 1969); Forbes v. State, 511 S.W.2d 894 (Mo. App.1974); Keith v. State, 511 S.W.2d 896 (Mo. App.1974); Smith v. State, 526 S.W.2d 399 (Mo.App.1975); Harris v. State, 547 S.W.2d 519 (Mo.App.1977); Wheatley v. State, 559 S.W.2d 526 (Mo.Sup.1977); State v. Holland, 575 S.W.2d 869 (Mo.App.1978); Wilson v. State, 585 S.W.2d 243 (Mo.App.1979); and Quillun v. State, 626 S.W.2d 414 (Mo.App. 1981). The cited cases reflect Missouri appellate recognition that the failure of a Missouri trial court to comply with all requirements of Missouri Rule 27.26, particularly in regard to holding proper evidentiary hearings on the merits of an alleged federal claim, results in the waste of appellate judicial time and in further litigation in both the State and federal courts. See also State v. Herron, 376 S.W.2d 192 (Mo.Sup.1964), and State v. Gee, 408 S.W.2d 1 (Mo.Sup.1966), both of which were decided before Missouri's Rule 27.26 was amended in 1967, in which the Supreme Court of Missouri appropriately recognized the impact of the Supreme Court of the United States habeas trilogy and reversed and remanded State trial courts' denials without evidentiary hearings of movants' federal claims. [4] We recognize, of course, that petitioner Manis, apparently acting on the advice of a fellow inmate, has not proceeded in any appropriate manner to obtain a hearing in the Circuit Court of Greene County, Missouri. Indeed, petitioner has attempted to invoke this Court's habeas jurisdiction and has claimed the right to have the hearing to which he is entitled under applicable federal constitutional law conducted in this Court rather than proceeding in the courts of Missouri in accordance with the available postconviction remedies provided by State law. We recognize further that the numerous motions, pleadings, briefs, and the flood of papers filed on petitioner Manis' behalf by a fellow inmate at the State penitentiary have presented all courts in which such filings have been made with a confused and complicated procedural picture. The processing of petitioner Manis' postconviction motions was further complicated by pro se litigation which he and petitioner Smith filed in this Court. See Smith and Manis v. Honorable Max E. Bacon, et al., 699 F.2d 434 (8 Cir.1983). [5] The filing by the State and the granting by trial courts of motions to dismiss postconviction proceedings without holding an evidentiary hearing frequently does no more than invite appellate reversal and delay the determination of the merits of a particular federal postconviction claim. The files and records in petitioner Smith's case, for example, show that the State's motion to dismiss without evidentiary hearing was granted in regard to one of petitioner Smith's Missouri Rule 27.26 motions. The Missouri Court of Appeals, Southern District, will not be able to review the merits of petitioner Smith's federal claim; it can only consider whether, under federal standards, petitioner Smith was entitled to an evidentiary hearing and, should it so decide, remand the case to the Circuit Court of Greene County, Missouri for further proceedings. [6] Jones v. Shell, 572 F.2d 1278 (8th Cir.1978) illustrates the Eighth Circuit's application of the Mucie rule. In Jones, the federal district court granted the State's motion to dismiss a petitioner's application for federal habeas corpus relief on the ground that the petitioner in that case had failed to exhaust available State court remedies. The Court of Appeals for the Eighth Circuit stated that "the writ of habeas corpus, challenging illegality of detention, is reduced to a sham if the trial courts do not act within a reasonable time" and that "whether the exhaustion defense is a valid one here is beside the point. Habeas corpus procedure should not be so dilatory or technical as to deny a petitioner a hearing and ruling on the merits of his claim within a reasonable time." [572 F.2d 1280] [7] In Part IV of our December 17, 1982 opinion in consolidated cases Nos. 82-0476-CV-W-1 and 82-0903-CV-W-1 in this Court we made reference to the "Supplemental pleading to the habeas corpus" filed on behalf of petitioner Manis in this Court to which are attached various short form orders of the Supreme Court of Missouri denying the relief requested in those pro se proceedings. The filing of redundant pro se proceedings in the Supreme Court of Missouri and other Missouri appellate courts cannot be said to excuse the exhaustion of State court postconviction remedies required by 28 U.S.C. § 2254(c). As a practical matter, experience establishes that the filing of such redundant pro se proceedings tends to confuse and complicate the orderly processing of a Missouri Rule 27.26 motion by the State trial court having jurisdiction of the case.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1832053/

65 B.R. 602 (1986) In the Matter of ARMANDO GERSTEL, INC., Debtor. Jeanette E. TAVORMINA, as Trustee, Appellant, v. AQUATIC COMPANY, N.V., et al., Appellees. EFRAIM ROSEN, INC., Appellant, v. Jeanette E. TAVORMINA, as Trustee, et al., Appellants. Nos. 85-782-Civ, 85-784-Civ. United States District Court, S.D. Florida, Miami Division. September 30, 1986. *603 Robert G. Hewitt, Harper & Hewitt, Miami, Fla., for Tavormina, Trustee. Britton, Cohen, Cassel, Kaufman & Schantz, Miami, Fla., for Efraim Rosen, Inc. Jerry M. Markowitz, Miami, Fla., for Herris. Maurice Rosen, North Miami, Fla., for Public Ins. Consultants. Hauser & Metsch, Miami, Fla., for Aquatic Co. Richard Phillips, Schatzman and Schatzman, Coral Gables, Fla., for Evvco Enterprises, Inc. Angelo Ali, Miami, Fla., for Lillian Kaufman and Beuche Girod Corp. Phillips & Phillips, Miami, Fla., for Florence R. Semet. Traline & Potash, North Miami, Fla., for Michael Landy. Billie Tarnove, P.A., Fort Lauderdale, Fla., for Irving Halpern, Inc. Armando Oliveros, Jr., Miami, Fla., for Fausto Villar. ORDER AFFIRMING BANKRUPTCY COURT AND REMANDING FOR FURTHER PROCEEDINGS EDWARD B. DAVIS, District Judge. These two related bankruptcy appeals arise out of the bankruptcy proceedings of ARMANDO GERSTEL, and the proceeds of an insurance claim he filed. TAVORMINA appeals the bankruptcy court's determination that GERSTEL validly assigned his claim in an insurance policy to several creditors. ROSEN appeals the court's dismissal of his garnishment action. 43 B.R. 925. I. Facts GERSTEL was in the jewelry business. In 1981 an armed assailant robbed his store. The next day he hired a law firm, an accountant, and insurance adjustors to help him file his claim for casualty loss with JEWELERS MUTUAL INSURANCE COMPANY. GERSTEL eventually filed a $2.1 million claim with JEWELERS MUTUAL. JEWELERS MUTUAL denied its obligation. GERSTEL then sued JEWELERS MUTUAL and its agent, MICHAEL WEXLER, in Florida state court. In June of 1983 (two years later) the parties settled for $1.5 million. While GERSTEL's case against JEWELERS MUTUAL was pending, GERSTEL assigned all his rights to the proceeds of his insurance policy to several creditors, in the event he won the lawsuit against JEWELERS MUTUAL. When the case was settled, the funds were placed in escrow because of these third-party claims against the proceeds. The validity of these assignments *604 is essentially the subject of CASE NO. 85-782-CIV-DAVIS. Meanwhile, another GERSTEL creditor, EFRAIM ROSEN, sued GERSTEL. ROSEN eventually won, and then sought a Writ of Garnishment against JEWELERS MUTUAL for GERSTEL's money. At the time, however, the lawsuit between JEWELERS MUTUAL and GERSTEL was still pending. The effect of the garnishment is the subject of 85-784-CIV-DAVIS. In November 1983, before the state court could distribute the settlement proceeds, GERSTEL filed a petition for bankruptcy. Jeanette TAVORMINA was appointed trustee. In 1984 the escrow funds were transferred to the trustee, pursuant to order of the bankruptcy court. The Trustee then filed an adversary proceeding challenging the various assignments. In 1984 the bankruptcy court issued its Findings of Fact and Conclusions of Law (FOF/COL). The court determined the priorities among all the competing claims, including the claims of the various assignees of the insurance proceeds. The court held that: 1. The lien of GOODHART for attorneys' fees in representing GERSTEL had top priority, in the amount of $600,000. 2. The claim of Irving Herris for accountant's fees was unenforceable. 3. The claim of the insurance adjustors was also unenforceable, although GERSTEL's assignment of his claim to the adjustors was valid. 4. All assignments to creditors were absolute assignments of GERSTEL's claim against JEWELERS MUTUAL, not security agreements. Thus, they were enforceable because not subject to the filing requirements of the U.C.C. The priority of the assignments, in chronological order of the date of execution, are: a) ADJUSTORS; b) Irving HALPERN; c) Florence SEMET; d) Fausto VILLAR; e) AQUATIC CO.; f) BUECHE GIROD CORP.; g) D'ESPOSITO BROS. JEWELRY, INC.; h) Estate of Charles KAUFMAN. 5. As to the garnishor EFRAIM ROSEN, GERSTEL's claim against JEWELERS MUTUAL was still uncertain at the time the writ of garnishment was served. When the parties later settled, the funds were placed in escrow, thus they never became subject to garnishment. ROSEN got nothing. 6. None of the other creditors had established priority over the attorney's lien and assignments. 7. GOODHART and the various assignees were entitled to interest upon their respective claims. TAVORMINA has appealed the bankruptcy court's ruling in 85-782-CIV-DAVIS; ROSEN has appealed in 85-784-CIV-DAVIS. Several appellees have filed briefs. No one, however, contests GOODHART's priority over the first $600,000. II. Discussion of Law A. Assignments of Insurance Claim TAVORMINA claims, first, that GERSTEL's transfers of his interest in the settlement proceeds were not assignments, but mere security agreements. Therefore, the assignees were required to comply with the U.C.C. filing requirements in order to perfect their security interests. Since they did not do so, TAVORMINA claims, the transfers are void. Fla.Stat. Section 679.9-102(1) provides that filing requirements apply (a) to any transaction (regardless of its form) which is intended to create a security interest in personal property or fixtures including goods, documents, instruments, general intangibles, chattel paper, accounts or contract rights; and also (b) to any sale of accounts, contract rights or chattel paper. (emphasis added). The intent of the parties governs whether a particular document or transaction creates a security interest or an assignment. Hassett v. Revlon, Inc. (In re *605 OPM Leasing Services, Inc.), 23 B.R. 104, 115-16 (Bkrtcy., S.D.N.Y.1982); See also 4 Anderson, Uniform Commercial Code 31 (1973); 4 Fla.Jur.2d, Assignments Section 13. No formal wording is required. A Court examines the practices of the parties, their objectives, their business practice and their relationship. Major's Furniture Mart, Inc. v. Castle, 602 F.2d 538 (3d Cir. 1979). It finds an assignment when there is an intent to assign a present right in the subject matter of the assignment, divesting the assignor of all control over that which is assigned. Matter of Candy Lane Corp., 38 B.R. 571 (Bkrtcy., S.D.N.Y.1984); In re Moskowitz, 14 B.R. 677 (Bkrcy, S.D.N.Y. 1981). The various contracts assigning the interests in the insurance proceeds were worded somewhat differently. Some are worded more strongly than others. The bankruptcy judge, however, determined that all were intended as absolute assignments, not as security interests. This is a finding of fact, and must be affirmed unless clearly erroneous. In re Garfinkle, 672 F.2d 1340 (11th Cir.1982); Birmingham Trust National Bank v. Case, 755 F.2d 1474 (11th Cir.1985). While it is debatable whether these transfers were intended to be assignments or security, the bankruptcy judge's findings were not clearly erroneous. The Court finds that the transfers were assignments made in payment of pre-existing debt. Therefore, perfection was not required. See In re Moskowitz, 14 B.R. 677 (Bkrcy, S.D.N.Y.1981). Moreover, Fla.Stat. Section 679.104(7) specifically excludes "a transfer of an interest or claim in or under any policy of insurance except as provided with respect to proceeds (Section 679.306) and priorities in proceeds (Section 679.312)" from the filing requirements of the U.C.C. The assignments also qualify as transfers of a claim under an insurance policy. B. Whether Assignments were Proceeds TAVORMINA argues that, under Section 679.104(7), the transfers were assignments of proceeds of the insurance policy, and therefore filing was required. "Proceeds" as defined in Section 679.306 includes: whatever is received upon the sale, exchange, collection, or other disposition of collateral or proceeds. Insurance payable by reason of loss or damage to collateral is proceeds, except to the extent that it is payable to a person other than a party to the security agreement. "Proceeds" as used in Section 679.104(7) and as defined in Section 679.306 refers to insurance payments by reason of loss or damage to collateral. The appellees' claims are not based upon a security interest in the stolen jewelry, but upon other prior indebtedness. There was no previous "collateral" that was sold or destroyed. Therefore, the insurance money is not "proceeds" under the U.C.C. Since none of the appellees ever had a security interest in the jewelry, the U.C.C. does not apply to their transaction. See Paskow v. Calvert Fire Ins. Co., 579 F.2d 949 (5th Cir.1978); Beaver Crane Service, Inc. v. National Surety Corp., 391 So.2d 224 (Fla. 3d DCA 1980); Kahn v. Capital Bank, 384 So.2d 976 (Fla. 3d DCA 1980). C. Assignments were not Preferential Transfers TAVORMINA next claims that the assignments were preferential transfers under Section 547 of the Bankruptcy Code. The bankruptcy judge made no findings on the issue. Section 547 voids any transfer made within ninety days of bankruptcy if not perfected within ten days, or when the case is commenced, whichever is later. All of the assignments took place outside the ninety day period. TAVORMINA claims that since the transfers were not perfected, under Section 547(e) they are deemed made within the ninety day period. Since these were not security interests, however, perfection was not required. Moreover, the funds never became "property of the debtor" under Section 541. The legislative history of Section 541 explains that the section "will not apply in those instances where property which ostensibly belongs to the debtor is in reality held by *606 the debtor in trust for another." See U.S. Cong. & Admin.News 1978, p. 5787; See also In re Moskowitz, supra. Therefore, any payments that JEWELERS MUTUAL made to GERSTEL under the settlement agreement within the ninety-day period would be held in trust for the assignees, and would not constitute property of the debtor's estate. D. Interest Prior to Final Judgment The bankruptcy judge determined that GOODHART and the assignees would be entitled to interest on their claims under Matter of Innkeepers of New Castle, Inc., 671 F.2d 221, 231 (7th Cir.1982). Interest would begin to run from the time the debts became due. Brooks v. School Board of Brevard County, 419 So.2d 659 (Fla. 5th DCA 1982); Bryan & Sons Corp. v. Klefstad, 265 So.2d 382 (Fla. 4th DCA 1972). In this case, however, the assignment involved a contingent claim; therefore, the interest can only be assessed from the date of judgment against JEWELERS MUTUAL, when the assignees became entitled to the principal amount. Klein v. Newburger, Loeb & Co., 151 So.2d 879 (Fla. 3d DCA 1963). Interest is computed at the statutory rate of 12% under Fla.Stat. Section 687.01. E. Priority of SEMET over AQUATIC The bankruptcy court held that SEMET's claim had priority over AQUATIC's based on its earlier intervention in the lawsuit. The bankruptcy judge apparently did not address the letter from AQUATIC to JEWELERS MUTUAL giving notice of its claim. If the letter were conclusive, then AQUATIC would get priority, since priority is established according to the order of notice to the debtor. See Boulevard National Bank of Miami v. Air Metal Industries, Inc., 176 So.2d 94 (Fla.1965); Oper v. Air Control Products, Inc. of Miami, 174 So.2d 561 (Fla. 3d DCA 1965). Therefore, the Court remands this case to the bankruptcy court for determination of this issue. F. Specific Amount of Award Lastly, TAVORMINA complains that the bankruptcy judge merely ordered her to distribute the proceeds in accordance with the final judgment, without specifying the amounts to which each was entitled. The Court remands on this issue as well. The bankruptcy court is directed to specify the amounts to which each assignee is entitled. G. Rosen's Garnishment Claim The last issue on this appeal concerns ROSEN's garnishment proceeding against JEWELERS MUTUAL. ROSEN obtained a judgment against GERSTEL and sought to garnish whatever assets of GERSTEL that JEWELERS MUTUAL possessed. The bankruptcy court dismissed its claim on several grounds. As to appellees HALPERN, SEMET, AQUATIC, VILLAR, and BUECHE GIROD CORP., ROSEN's claim must be dismissed because, at the time of service of the garnishment writ, GERSTEL had already transferred all his interest in the insurance claim to these appellees. Thus, JEWELERS MUTUAL did not possess any property of GERSTEL that could be garnished. The garnishor only acquires such rights as the debtor could assert against the garnishee. See Coyle v. Pan American Bank of Miami, 377 So.2d 213 (Fla. 3d DCA 1979). When ROSEN served its Writ of Garnishment, GERSTEL had already relinquished any rights it had against JEWELERS MUTUAL to all appellees except D'ESPOSITO BROTHERS and KAUFMAN. Since ROSEN's claim may still have priority over D'ESPOSITO BROTHERS and KAUFMAN, however, the Court must review the bankruptcy judge's Findings of Fact and Conclusions of Law as they apply to ROSEN's claim. ROSEN claims that under Florida law the entry of Judgment against a garnishee relates back to service of the writ, so that even if the claim was contingent when ROSEN filed his Writ of Garnishment, when Judgment was rendered it became effective as of the date of service. Florida East *607 Coast Ry. Co. v. Consolidated Engineering Co., 116 So. 19, 21 (Fla.1928). The flaw in ROSEN's argument, however, is that, even if ROSEN is right, when the writ was served JEWELERS MUTUAL's liability to GERSTEL was still contingent; therefore, JEWELERS MUTUAL did not possess any property of GERSTEL. Florida law requires that the obligation from the garnishee (in this case JEWELERS MUTUAL) to the primary debtor (GERSTEL) not be contingent or uncertain. See Tomlin v. Anderson, 413 So.2d 79 (Fla. 5th DCA 1982); Chaachou v. Kulhanjian, 104 So.2d 23 (Fla.1958). Moreover, by the time the parties had settled and it became clear that JEWELERS MUTUAL did owe GERSTEL the insurance proceeds, GERSTEL had already assigned his rights in the settlement proceeds to the remaining assignees, D'ESPOSITO BROTHERS and KAUFMAN. Thus, once again JEWELERS MUTUAL had no property of GERSTEL that ROSEN could garnish.[1] Nor does ROSEN have priority over TAVORMINA pursuant to service of the garnishment writ. Florida law provides that a lien is obtained on the personal property of the debtor when the writ of execution is delivered to the sheriff. Smith v. Purdy, 272 So.2d 545 (Fla. 3d DCA 1973); In re Belize Airways, Ltd., 20 B.R. 817 (Bkrcy., S.D.Fla.1982). While, as ROSEN suggests, execution and garnishment are two similar forms of final process, no Florida court has ever held that a writ of garnishment is the same as execution for the purpose of creating a lien on personal property. Until a Florida court rules otherwise, a judgment creditor who seeks a lien for the purpose of establishing priority in bankruptcy must deliver a writ of execution to the sheriff; it is free to seek other remedies simultaneously. Since under 11 U.S.C. Section 544 the trustee in bankruptcy acquires the status of a judicial lien creditor whose execution against the debtor has returned unsatisfied, the trustee takes priority over ROSEN. It is ORDERED AND ADJUDGED that (1) the bankruptcy court's Findings of Fact and Conclusions of Law are hereby AFFIRMED IN PART, REVERSED IN PART, and REMANDED IN PART. This case is hereby REMANDED to the bankruptcy court for proceedings consistent with this opinion. NOTES [1] The cases that ROSEN cites are inapposite because they all assume that the garnishee possesses property of the debtor.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1832469/

358 B.R. 76 (2006) MCI WORLDCOM COMMUNICATIONS, Plaintiff, v. COMMUNICATIONS NETWORK INTERNATIONAL, LTD., Defendant. No. M-47 (RJH). United States District Court, S.D. New York. December 6, 2006. *77 MEMORANDUM OPINION AND ORDER HOLWELL, District Judge. Communications Network International, Ltd. ("CNI") requests leave to file an interlocutory appeal from an order issued by the bankruptcy court of the Southern District of New York (Gonzalez, J.) granting in part a motion for judgment on the pleadings filed by MCI WorldCom Communications, Inc. ("WorldCom"). For the reasons stated below, the Court denies CNI's motion for leave to appeal. BACKGROUND In February 2001, WorldCom filed suit against CNI in the United States District Court for the Eastern District of Pennsylvania to recover unpaid amounts for telecommunications services, basing its claims on theories of contract, negotiable instrument, quantum meruit, and unjust enrichment ("Pennsylvania Action"). CNI counterclaimed for fraud, intentional nondisclosure, breach of contract, and defamation based on the companies' prior business relations.[1] In 2002, WorldCom and certain of its subsidiaries filed for bankruptcy under Chapter 11 of the Bankruptcy Code in the Southern District of New York. In re WorldCom Inc., Case No. 02-13533(AJG) (Bankr.S.D.N.Y.2002). By order dated October 29, 2002, the bankruptcy court set a January 23, 2003 deadline for filing of a proof of claim against WorldCom. CNI filed a timely proof of claim, reasserting the counterclaims that it had filed in the Pennsylvania Action. WorldCom objected to the claim and initiated an adversary proceeding against CNI, reasserting the complaint that was the subject of the Pennsylvania Action. MCI WorldCom Commc'ns v. Commc'ns Network Int'l, Ltd. (In re Worldcom, Inc.), Adv. Proc. No. 04-04338(AJG) (Bankr.S.D.N.Y.). WorldCom moved for judgment on the pleadings dismissing all of CNI's counterclaims and ruling in favor of WorldCom on the issue of CNI's liability. CNI responded *78 with a motion to file responses nunc pro tunc and a cross-motion for judgment on the pleadings. In an opinion dated March 13, 2006, the bankruptcy court, inter alia, granted WorldCom's motion in part, dismissing all of CNI's claims against WorldCom ("March 13, 2006 Opinion"). On April 4, 2006, the bankruptcy court signed an interlocutory order consistent with this opinion ("April 4, 2006 Order"). On April 10, 2006, CNI filed a notice of appeal, appealing this order to the United States District Court for the Southern District of New York. On Jun 29, 2006, CNI filed a motion seeking to have the Court consider this notice of appeal as a timely filed motion for leave to appeal and grant it leave to appeal the April 4, 2006 Order. DISCUSSION Under 28 U.S.C. § 158, districts courts are vested with appellate jurisdiction over bankruptcy court rulings. Although "final orders of a bankruptcy court may be appealed to the district court as of right, 28 § 158(a)(1), appeals from non-final bankruptcy court orders may be taken only `with leave' of the district court." In re Orange Boat Sales, 239 B.R. 471, 472 (S.D.N.Y.1999). CNI does not argue that Judge Gonzalez's order was final and therefore its appeal is as of right. See In re Pan Am Corp., 159 B.R. 396, 400 (S.D.N.Y.1993) (holding dismissal of counterclaims against one party not to be final order for which party could appeal as of right because it was not certified as final under Rule 54(b)). Instead, CNI moves the Court to grant it leave to appeal. CNI filed a notice of appeal with the bankruptcy court within ten days of Judge Gonzalez' order, but failed to file a motion for leave to appeal within the statutory time limit. However, under Rule 8003(c) of the Federal Rules of Bankruptcy Procedure, this mistake is not fatal to the motion for leave to appeal. Rule 8003(c) provides: If a required motion for leave to appeal is not filed, but a notice of appeal is timely filed, the district court or bankruptcy appellate panel may grant leave to appeal or direct that a motion for leave to appeal be filed. The district court . . . may also deny leave to appeal but in doing so shall consider the notice of appeal as a motion for leave to appeal. The Court will therefore treat the notice of appeal as a motion for leave to appeal, in conjunction with CNI's subsequently filed supporting papers. Nonetheless, the Court denies this motion. While neither the Bankruptcy Code nor the Federal Rules of Bankruptcy provide standards for evaluating a motion for leave to appeal, the majority of courts have applied the analogous standard for certifying an interlocutory appeal set forth in 28 U.S.C. § 1292(b). See, e.g., In re Alexander, 248 B.R. 478, 483 (S.D.N.Y.2000); In re Johns-Manville Corp., 45 B.R. 833, 835 (S.D.N.Y.1984). 28 U.S.C. § 1292(b) provides that leave should only be granted if the order being appealed (1) "involves a controlling question of law"; (2) "as to which there is substantial ground for difference of opinion"; and (3) "an immediate appeal from the order may materially advance the ultimate termination of the litigation." The Second Circuit has held that the district court's power to grant an interlocutory appeal should not be "liberally construed," Klinghoffer v. S.N.C. Achille Lauro Ed Altri-Gestione Motonave, 921 F.2d 21, 24-25 (2d Cir.1990), and that district courts should "exercise great care in making a § 1292(b) certification," Westwood Pharms., Inc. v. Nat'l Fuel Gas Distrib. Corp., 964 F.2d 85, 89 (2d Cir.1992). See also In re Flor, 79 F.3d 281, 284 (2d Cir.1996) ("[U]se of this certification procedure *79 should be strictly limited because only `exceptional circumstances [will] justify a departure from the basic policy of postponing appellate review until after the, entry of a final judgment.'") (citations and quotations omitted). But see In re Manville Forest Prods. Corp., 31 B.R. 991, 995 n. 5 (S.D.N.Y.1983) (applications for leave to appeal should be liberally granted where it can help the expeditious resolution of the case). "In regard to the first prong, the question of law must refer to a pure question of law that the reviewing court could decide quickly and cleanly without having to study the record." In re WorldCom, No. M-47 (HB), 2003 U.S. Dist. LEXIS 11160, 2003 WL 21498904, at *10 (S.D.N.Y. June 30, 2003) (quotations omitted). The question must also be "controlling," in that the reversal of the order would terminate the action (for example, denial of a motion to dismiss), or at the very least its resolution would materially affect the outcome of the litigation. See In re XO Commc'ns, Inc., No. 03 Civ. 1898(DC), 2004 U.S. Dist. LEXIS 2879, 2004 WL 360437, at *3 (S.D.N.Y. Feb.26, 2004). In this case, the bankruptcy court order at issue granted WorldCom's motion for judgment on the pleadings insofar as it dismissed CNI's counterclaim. The resolution of this order on appeal would materially affect the outcome of the litigation: A successful appeal will allow CNI's claims to proceed while an unsuccessful appeal would terminate all its claims against WorldCom. However, there is significant doubt as to whether CNI raises a pure question of law not requiring a thorough examination of the record. In its motion papers, CNI accepts that the bankruptcy court stated the correct legal standard for application of WorldCom's defense, but argues that its particular claims are not subject to that defense. (Appellant's Mem. of L. at 4.) The operative question, even as it is presented by CNI, is whether its tort claims are wholly independent from any contract claims and not in conflict with any applicable tariff. (Id. at 4-5.) The Court therefore finds that at most, the question presented for interlocutory appeal is a mixed question of law and fact not generally suitable for interlocutory appeal. The second prong, whether there is substantial ground for a difference of opinion as to the question of law, requires a genuine doubt as to whether the bankruptcy court applied the correct legal standard. In re Worldcom, 2003 WL 21498904, at *10. "It is the duty of the district judge . . . to analyze the strength of the arguments in opposition to the challenged ruling when deciding whether the issue for appeal is truly one on which there is a substantial ground for dispute." In re Flor, 79 F.3d at 284 (quotation omitted). CNI argues that the bankruptcy court misapplied the Filed Rate Doctrine in dismissing its counterclaims. The Filed Rate Doctrine prevents a regulated carrier from charging rates that conflict with the published tariff. Am. Tel. & Tel. Co. v. Cent. Office Tel., Inc., 524 U.S. 214, 222, 118 S.Ct. 1956, 141 L.Ed.2d 222 (1998). It is intended to prevent discrimination between customers and preserve the exclusive role of federal agencies in approving rates. Fax Telecommunicaciones, Inc. v. AT & T, 138 F.3d 479, 489 (2d Cir.1998). The doctrine applies not only to contract claims alleging excessive price or inadequate services, but also to some tort claims. As correctly stated by the bankruptcy court, the Filed Rate Doctrine bars tort claims that are "wholly derivative of [a] contract claim for additional or better services." Cent. Office., 524 U.S. at 235, 118 S.Ct. 1956. *80 CNI argues that the bankruptcy court misread the clear rule that the Filed Rate Doctrine does not preempt all state law claims in dismissing its tort claims. (Appellant's Mem. of L. at 5.) On the contrary, the bankruptcy court carefully reviewed CNI's tort claims and determined that only the claims based on fraud and misrepresentation were barred by the Filed Rate Doctrine. (March 13, 2006 Opinion 15.) CNI's other claims of slamming[2] and defamation were dismissed on other grounds that are not challenged in CNI's motion for leave to appeal.[3] In considering whether the Filed Rate Doctrine barred the fraud and misrepresentation claims, the bankruptcy court found these claims to be based on promises regarding the business relationship between WorldCom and CNI and therefore derivative of its contract claims. (Id. at 13-14.) The Court finds that the bankruptcy court laid out the correct legal standard and,, while deferring a definitive ruling on the issue pending an eventual appeal, concludes that there is no substantial ground for a difference of opinion as to a controlling question of law. The final question is whether an interlocutory appeal would materially advance the ultimate termination of the litigation. For example, reversing on appeal a denial of a motion to dismiss would clearly hasten the termination of the litigation. Both WorldCom's claims and CNI's counterclaims are based on the same operative facts. If we deny leave to appeal, but CNI is ultimately successful on an appeal of the final judgment, then few additional facts will need to be developed to evaluate CNI's claims. However, granting CNI leave to appeal at this juncture will result in piecemeal litigation in this Court and in bankruptcy court, the likelihood of multiple appeals, and delay in the entry of final judgment. Therefore, an interlocutory appeal would not materially advance the ultimate termination of the litigation. After applying the factors outlined in 28 U.S.C. § 1292(b) to the present case, the Court finds nothing to "justify a departure from the basic policy of postponing appellate, review until after the entry of a final judgment." Coopers & Lybrand v. Livesay, 437 U.S. 463, 475, 98 S.Ct. 2454, 57 L.Ed.2d 351 (1978). CONCLUSION For the foregoing reasons, the Court denies CNI's motion for leave to appeal. SO ORDERED. NOTES [1] The factual bases of these claims and counterclaims are set out in detail by Bankruptcy Judge Gonzalez in his opinion dated March 13, 2006 that is the subject of this motion for leave to appeal. For convenience, the Court attaches that opinion hereto. [2] "Slamming" is the unauthorized change of a customer's telecommunications service. [3] CNI argues that the bankruptcy judge incorrectly applied the Filed Rate Doctrine to its claims that "revolve around issues of . . . trade disparagement." (Appellant's Mem. of L. at 5.) In fact, the bankruptcy judge explicitly found the Filed Rate Doctrine did not bar CNI's defamation claim.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1855843/

132 B.R. 19 (1991) In re MEMORIAL ESTATES, INC., Debtor. CHICAGO BANK OF COMMERCE, a/k/a Associated Bank, Plaintiff, v. AMALGAMATED TRUST AND SAVINGS BANK, As Trustee Under Trust Agreement dated September 27, 1974; known as Trust No. 2744, et al., Defendants. Appeal of William L. NEEDLER, Appellant, v. Norman B. NEWMAN, Trustee and Chicago Bank of Commerce, Appellees. Nos. 89 C 6770, 83 B 1016. United States District Court, N.D. Illinois, E.D. September 13, 1991. George Grumley, Chicago, Ill., for Chicago Bank of Commerce. James C. Truax, Chicago, Ill., for William L. Needler. MEMORANDUM OPINION BRIAN BARNETT DUFF, District Judge. In a careful, thoroughly researched opinion, Bankruptcy Judge Schwartz assessed sanctions against attorney William L. Needler and his client for the dilatory and unreasonable actions they had taken in the course of litigating the action pending before Judge Schwartz. Because the assessment of sanctions was within Judge Schwartz' jurisdiction and was not an *20 abuse of his discretion (indeed, far from it, as the discussion below demonstrates), this court affirms his decision. Background This case began in 1982, when Amalgamated Trust & Savings Bank (the Bank) brought a foreclosure action in state court against Memorial Estates, Inc. Cemco (the company represented by Mr. Needler) has an interest in the cemetery property owned by Memorial Estates and upon which the Bank was attempting to foreclose. Memorial Estates (apparently at Cemco's urging) filed a voluntary petition for reorganization under Chapter 11 in 1983 (the case was converted to a Chapter 7 liquidation later that year) and the foreclosure proceeding was removed to the bankruptcy court. In 1985 the bankruptcy court appointed a receiver. As is fully set forth in appendices A and B to the bankruptcy court's opinion, Cemco obstinately opposed the appointment, both before and after it was accomplished (the appendices record motions, emergency motions, motions to reconsider, appeals, motions for remand to the state court, and motions to vacate). During the course of the bankruptcy proceedings, the Bank made a number of motions for sanctions against Cemco, its principal Barnard Savage, and Mr. Needler. The court reserved ruling on those matters until after the underlying bankruptcy proceedings had been resolved. On June 26, 1989 the bankruptcy court entered an order imposing $42,423 in sanctions upon Mr. Needler, Cemco and Mr. Savage. That decision generated a number of appeals. As far as this court's research has uncovered, both courts which have considered the question have held that the bankruptcy court had jurisdiction to enter the sanctions after the close of the remainder of the case. One court further held that the sanctions were appropriate, the other remanded for further fact-finding. Discussion On this appeal, Mr. Needler has identified forty-six issues which he claims are before the court for decision. This court's understanding of its jurisdiction in this matter, however, is far more limited. While Mr. Needler apparently would like to reopen nearly every question decided by the bankruptcy court during the approximately six-year course of these proceedings, that is not the proper scope of this appeal. This appeal concerns the matter of sanctions entered against Mr. Needler, and there are only three issues which are properly before the court. First, whether the bankruptcy court had jurisdiction to enter the sanctions in the first place, second, whether the sanctions themselves were proper (included in this question is the converse — whether the bankruptcy court properly denied Cemco's motion for sanctions) and third, whether the court afforded Mr. Needler adequate process in imposing the sanctions. The court will address each issue in turn. 1. Jurisdiction This court is fortunate to have the guidance of two other courts' decisions on the precise jurisdictional question posed here. Judge Shadur addressed the question in November, 1989, see In re Memorial Estates, 89 C 3719, 89 C 5833, Transcript of Proceedings before Hon. Milton I. Shadur, November 7, 1989, contained in Appendix A to Brief of Plaintiff-Appellee (Transcript), and Judge Plunkett in June, 1990, see In re Memorial Estates, Inc., 116 B.R. 108 (N.D.Ill.1990) (Memorial Estates). As the court noted above, both reached the same conclusion — that the bankruptcy court was empowered to enter sanctions itself, rather than certify the question to the district court. Judge Schwartz based his decision imposing sanctions on two separate provisions — 28 U.S.C. § 1927 and Bankruptcy Rule 9011. Both Judge Shadur and Judge Plunkett have expressed their doubts that § 1927 authorizes the bankruptcy court to impose sanctions.[1] See Transcript at 5-7 *21 and Memorial Estates, 116 B.R. at 110. But see In re TCI Ltd., 769 F.2d 441 (7th Cir.1985) (affirming bankruptcy court order imposing sanctions under § 1927 without discussing jurisdictional question). While this court also has doubts that Judge Schwartz could have acted solely under the authority of that provision, it need not decide the question here because Judge Schwartz based his action additionally upon Bankruptcy Rule 9011 which, this court holds, does authorize the imposition of sanctions in this matter. Mr. Needler argues that because the sanctions were imposed for conduct which occurred during the course of a `related' proceeding, rather than a `core' proceeding, the question of sanctions itself was `related', and required certification to a district court. Bankruptcy courts may hear and determine "core proceedings", 28 U.S.C. § 157(b)(1), but in "related" proceedings, are limited to submitting proposed findings of fact and conclusions of law to the district court, 28 U.S.C. § 157(c). There is nothing in the statute which compels the conclusion that the question whether sanctions are appropriate is "core" or "related" depending solely upon the type of proceeding out of which the questioned conduct arose. Indeed, both Judge Shadur and Judge Plunkett have held that the matter of sanctions is a "core" matter. This court would suggest that, whether core or not, the bankruptcy court is empowered to impose sanctions pursuant to 11 U.S.C. § 105, which provides: (a) The court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title. No provision of this title providing for the raising of an issue by a party in interest shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process. This court has previously held, in In re The Matter of H. Burton Schatz, 122 B.R. 327 (N.D.Ill.1990), that § 105 empowers the bankruptcy courts to enter civil contempt orders in core proceedings. If so, then surely it empowers the courts to enforce its own integrity by entering sanctions pursuant to rule 9011. Thus, whether or not the question of sanctions is "core" (and this court believes that it may be neither "core" nor "related", but rather a procedural question which depends upon the power of the court as granted by Congress) the bankruptcy court has the power to enter sanctions for conduct such as that which occurred in this matter — conduct which challenges the very authority of the court. The court also finds Judges Shadur and Plunkett's analyses persuasive, however, and cites them as alternative support for its holding. In his discussion of the issue Judge Shadur first noted that all proceedings, core or related, which take place in the bankruptcy court are governed by the bankruptcy rules. Transcript at 9-10. As Judge Shadur explained, to hold otherwise would make all related proceedings "game[s] without any rules . . ." — that is, if the bankruptcy rules did not govern the conduct of related proceedings, then nothing did, and surely that could not have been Congress' intent. This court, as did Judge Plunkett, finds that reasoning compelling and agrees that the bankruptcy rules, including Rule 9011 (the rule upon which Judge Schwartz based his award), govern the conduct of related proceedings. That does not answer the question, however, whether proceedings under Rule 9011 are "core" or "related". Section 157(b)(2) provides a (non-exhaustive) list of "core" proceedings and includes "(A) matters concerning the administration of the estate;" and "(O) other proceedings affecting the liquidation of the assets of the *22 estate or the adjustment of the debtor-creditor or the equity security holder relationship except personal injury tort or wrongful death claims." This court again agrees with Judge Shadur's analysis that conduct which, as Judge Schwartz found Mr. Needler's did, "`impeded the administration of the estate itself.'" In re: Memorial Estates, Inc., No. 83 B 1016, Adv. No. 83 A 1119 slip op. at 11, (Bankr., N.D.Ill. June 26, 1989), fits within either subsection (A) or (O) and thus the matter of sanctions related to that conduct is "core". Judge Plunkett made a similar finding. Memorial Estates at 111. 2. Propriety of Sanctions in This Case Even if the bankruptcy court was empowered to enter sanctions pursuant to Rule 9011, Mr. Needler argues, the imposition of sanctions in this instance was nonetheless improper. The record, however, does not support his claim. Bankruptcy Rule 9011 provides: (a) Signature. Every petition, pleading, motion and other paper served or filed in a case under the Code . . . shall be signed by at least one attorney of record. . . . The signature of an attorney . . . constitutes a certificate that the attorney . . . has read the document; that to the best of the attorney's . . . knowledge, information, and belief formed after reasonable inquiry it is well grounded in fact and is warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law; and that it is not interposed for any improper purpose, such as to harass, to cause delay, or to increase the cost of litigation. . . . If a document is signed in violation of this rule, the court on motion or on its own initiative, shall impose on the person who signed it, the represented party, or both, an appropriate sanction, which may include an order to pay to the other party or parties the amount of the reasonable expenses incurred because of the filing of the document, including a reasonable attorney's fee. (Emphasis added). For purposes of this case, therefore, Rule 9011 is co-extensive with Fed.R.Civ.P. 11, and the cases interpreting that rule are applicable to this dispute. For simplicity, this court will, for the remainder of this opinion, refer to the two interchangeably as "Rule 11". As Judge Schwartz noted, there are two `prongs' of conduct which Rule 11 prohibits: 1) the filing of a document which is not supported by a reasonable investigation of the facts or by the law; or 2) the filing of a document for an "improper purpose". Judge Schwartz relied for the most part on the second, `improper purpose' prong of the rule in imposing sanctions against Mr. Needler, finding that Mr. Needler and Cemco "multiplied the[] proceedings and demonstrated an intention to delay and harass". In re Memorial Estates, No. 83 B 1016, Adv. No. 83 A 1119 (Bankr.N.D.Ill. June 26, 1989) slip op. at 33. Judge Schwartz had ample support for his decision. This court has outlined some of the conduct which led to the imposition of sanctions above, and refers the reader to the bankruptcy court's own decision and appendices thereto for a more thorough rendition of the precise facts which led to the decision to impose sanctions. Judge Schwartz also carefully considered the amount of sanctions appropriate in this instance, and devised a formula by which he attempted to charge Mr. Needler and his cohorts for the time spent by opposing counsel and the trustee on each instance of sanctionable conduct. The court's estimates of time were conservative and clearly not an abuse of his discretion. This court will therefore not disturb the amount of the sanction imposed. 3. Due Process That leaves the court with the final issue properly before it on this appeal — whether the bankruptcy court afforded Mr. Needler all the process he was due prior to imposing sanctions. That matter can be dealt with fairly quickly. The Bank requested sanctions a number of times during the course of the proceedings in the bankruptcy court and finally filed a motion *23 consolidating all those requests. When the motion was fully briefed (including Cemco's surreply) the court ruled. The bankruptcy court opinion also refers to a hearing held on the matter of sanctions. It appears from the record that the hearing was held on one of the Bank's earlier motions, rather than the consolidated motion. Because this court agrees with the bankruptcy court that "[h]earings are not essential where the record in the case is sufficient to support the award of sanctions," Transcript at 23, it need not decide whether or when such a hearing was held. See e.g. McLaughlin v. Bradlee, 803 F.2d 1197, 1205 (D.C.Cir.1986), citing Fed.R.Civ.P. 11 advisory committee notes, which require that "the court must to the extent possible limit the scope of sanction proceedings to the record." The court's decision was based upon the record and amply documented. There is no question that Mr. Needler not only was given notice, both formally at the time the Bank's motion was made and informally during the course of the proceedings before that court, of the likelihood of the imposition of sanctions. Furthermore, he was granted an ample opportunity to be heard, filing not only a response to the Bank's motion but, as the court noted above, a surreply. There has thus been no conceivable abuse of Mr. Needler's right to due process. Conclusion The decision of the bankruptcy court is affirmed. NOTES [1] § 1927 provides: Any attorney or other person admitted to conduct cases in any court of the United States or any Territory thereof who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys' fees reasonably incurred because of such conduct. Judges Shadur and Plunkett both expressed the (well-grounded) opinion that the term "court of the United States" does not include bankruptcy courts.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1858491/

16 B.R. 1015 (1982) MESA PETROLEUM COMPANY, Plaintiff, v. C. John CONIGLIO, et al., Defendants. No. 75-28-Civ-Oc. United States District Court, M.D. Florida, Ocala Division. January 25, 1982. Fred Elefant, Jacksonville, Fla., John F. Russell, Homosassa Springs, Fla., for defendant Locke. Steven H. Gray, Ocala, Fla., for defendant Coniglio. Stephen A. Hould, Jacksonville, Fla., for plaintiff. ORDER CHARLES R. SCOTT, Senior District Judge. This matter is before the Court upon motion of plaintiff Mesa Petroleum Company (hereinafter `Mesa') for an order clarifying the duties of defendant C. John Coniglio in his capacity as trustee of the constructive trust created by this Court in its order of December 26, 1978. On October 13, 1978, this Court entered a final judgment in favor of Mesa against the defendants C. John Coniglio and C.A. Locke, Jr. The judgment set forth that Mesa was to recover $159,290.67 from Locke and $159,290.67 from Coniglio, together with an award of costs plus interest from the date of judgment. The judgment also stated that the Court would, in a separate order, set aside certain real property conveyances from Locke and his wife to Coniglio and his wife that were determined to have been made with the intent of defrauding Mesa.[1] *1016 On December 26, 1978, the Court entered an order awarding Mesa attorneys' fees in the amount of $50,000. Moreover, having abandoned the idea of setting aside the fraudulent conveyances, the Court created a constructive trust, the res consisting of the fraudulently conveyed property referred to above.[2] The Court named defendant C. John Coniglio, who along with his wife was record owner of the property, as trustee.[3] The order directed Coniglio to hold the property, which consists of four tracts of land in Sumter County, Florida, in trust for Mesa, providing in paragraph three that "such trust shall be extinguished only upon the satisfaction of the judgment entered by this Court against defendant C.A. Locke, Jr. . . . dated October 13, 1978, and upon satisfaction of this order entered by the Court against defendant C.A. Locke, Jr. . . . dated December 26, 1978." Locke has never satisfied either the judgment debt of October 13, 1978, or the attorneys' fees order of December 26, 1978. On August 31, 1979, Locke filed a voluntary petition for bankruptcy. In re: Coy Aldridge Locke, Jr., d/b/a C & L Farms, Case No. 79-541-BK-J. On June 11, 1980, Locke was granted a personal discharge in the bankruptcy proceedings. On April 27, 1981, Mesa filed its Motion for Order Clarifying Trustee's Duties. The motion seeks an order from this Court directing Coniglio, as trustee under the trust created by order of December 26, 1978, to marshal the assets of the trust, liquidate the trust and satisfy the judgment against Locke in favor of Mesa. A hearing on Mesa's motion was held November 4, 1981. The Court determined at that hearing that it lacked sufficient information as to the effect of Locke's bankruptcy upon both the Court's October 13, 1978 judgment and the trust created by order of December 26, 1978. Accordingly, the Court ordered all concerned parties to file memoranda elucidating and supporting their respective positions in this regard. This has been done and the Court is prepared to enter its decision. Prior to reaching the legal issues involved herein, it is necessary to embark on a more detailed factual account that will serve as the foundation for the Court's resolution of this matter. The Court's final judgment of October 13, 1978, arose out of an action filed in 1975 by Mesa against Diamond T Cattle Company (hereinafter `Diamond T') and Coniglio, Locke and G. Wilbur Hallauer, the sole shareholders of Diamond T. Mesa Agro, the agricultural division of Mesa, entered into a joint venture agreement with Diamond T whereby Diamond T was responsible for acquiring and grazing cattle in Florida that would subsequently be sold by Mesa in Texas. Following a serious decline in the cattle market that resulted in substantial losses to the joint venture, Mesa informed the shareholders of Diamond T that it would be unwilling to advance further funds to the joint venture without first obtaining their personal guarantees that Diamond T's share of the then-existing and projected losses would be paid. Those losses were expected to approach $425,000. Pursuant to an oral agreement, the three shareholders of Diamond T, Coniglio, Locke and Hallauer, executed individual promissory notes evidencing Diamond T's portion of the losses. *1017 On September 12, 1974, only four days prior to executing his promissory note to Mesa, Locke and his wife, Jay Nell Locke, conveyed the four tracts of real property at issue to Coniglio and his wife, Mary Joan Coniglio. Shortly thereafter, by mortgage dated September 17, 1974, Coniglio and his wife encumbered all four tracts of real property to the Federal Land Bank of Columbia, South Carolina, as security for a loan to Coniglio in the amount of $500,000. In its opinion and judgment of October 13, 1978, the Court, following a discussion of the relevant law not pertinent to the instant matter, awarded Mesa the amount of $159,290.67 against each of the defendants Locke and Coniglio, together with costs and interest from the date of judgment. The Court also found that the conveyance of the four tracts of land from Locke and his wife to Coniglio and his wife was fraudulent. To support this finding, the Court relied upon the absence of any sales contract evidencing the transaction, the lack of any real consideration for the transfer, the absence of a real estate broker's involvement in the transaction, the close personal relationship between the transferors and the transferees, the immediate events surrounding the oral agreement and the promissory notes between Mesa and the defendants Locke and Coniglio, and the real possibility of ultimate litigation by Mesa against Locke and Coniglio. In sum, the Court found that the transfer, along with the encumbrance of the property by Coniglio and his wife as security for the loan from the Federal Land Bank of Columbia, South Carolina, were made with the specific intent of defrauding and hindering Mesa from collecting on the promissory note from Locke. Consequently, the Court, in its judgment of October 13, 1978, indicated that it would, in a separate order, set aside the fraudulent conveyance of the four tracts of land from Locke and his wife to Coniglio and his wife. Subsequent to entry of the Court's judgment, Coniglio and his wife dissolved their marriage. Under Florida law, this changed their ownership status from tenants by the entirety to tenants in common. Florida Statutes § 689.15 (1981). On December 26, 1978, the Court entered its order awarding attorneys' fees to Mesa and imposing a constructive trust on the four tracts of land found to have been fraudulently conveyed, naming Coniglio as trustee.[4] Mesa's interest in the land was to be subordinate only to the security interest of the Federal Land Bank of Columbia, South Carolina. On August 31, 1979, Locke filed a voluntary petition for relief in bankruptcy. In his petition, Locke listed his debts to Mesa on Schedule A-3, captioned "Creditors Having Unsecured Claims Without Priority." Nowhere on his bankruptcy petition did Locke list Tracts No. 2, 3, or 4 as property of the debtor. He did, however, claim an interest in Tract No. 1. On October 28, 1974, shortly after Locke and his wife conveyed the four tracts of property to Coniglio and his wife, Tract No. 1 was ostensibly reconveyed to Locke and his wife pursuant to an "Articles of Agreement." This Articles of Agreement was an agreement for deed whereby Coniglio and his wife would apparently retain title to Tract No. 1 until they received from Locke and his wife the sum of $217,678.00, payable in annual installments of $19,239.00. The first installment was to be paid January 1, 1976, with each subsequent installment to be made on the first day of January of each succeeding year until the debt was paid in full. The Articles of Agreement was never recorded. Thus, with regard to Tract No. 1, Locke listed Coniglio as a secured creditor on Schedule A-2, listed the tract as real property of the debtor on Schedule B-1, and *1018 listed the tract as exempt property on Schedule B-4. In claiming the exemption, Locke relied upon the fact that he and his wife purchased the property as tenants by the entirety. On November 5, 1979, Mesa filed its proof of claim in the Locke bankruptcy proceeding. After setting forth the amount of its claim and making reference to the Court's judgment of October 13, 1978 and order of December 26, 1978, Mesa set forth that: 7. The undersigned claims the security interest under the writing referred to in Paragraph 4 hereof [the Court's judgment of October 13, 1978 and order of December 26, 1978]. . . . 8. This claim is a general unsecured claim, except to the extent that the security interest, if any, described in Paragraph 7 is sufficient to satisfy the claim. On April 11, 1980, the trustee in bankruptcy filed an objection to Mesa's claim, which read as follows: 3. Claim Number 3 filed by Mesa Petroleum Company on January 15, 1980, in the amount of $212,584.28, filed as a secured claim, on the ground that the security (land in Sumter County, Florida) never passed into the hands of the Trustee. This objection, if sustained by the Bankruptcy Judge, will result in the entry of an Order disallowing this claim, but the disallowance will be without prejudice to the claimant to pursue whatever security rights it may have in the property in which the security interest is claimed. The trustee objected to two other claims on precisely the same grounds, that is, that the security never passed into the hands of the trustee. With regard to each claim objected to, the trustee employed the same language to the effect that if the objection were sustained, it would be without prejudice to the right of the claimant to pursue whatever security rights he may have in the property. On May 7, 1980, the bankruptcy judge entered his "Order on Claims" in response to the objections filed by the trustee. With regard to Mesa's claim, the judge's order set forth that: 3. Claim Number 3, filed by Mesa Petroleum Company on January 15, 1980, in the amount of $212,584.28, filed as a secured claim, is hereby allowed as an unsecured claim for $212,584.28. No explanation was given for the bankruptcy judge's determination as to Mesa's claim. In ruling upon the trustee's other two objections, the Order on Claims tracked the language of the trustee's Objections To Claims, that is, it expressly disallowed the secured claims "without prejudice to the claimant's right to pursue any remedy he may have in the collateral in which he may have a security interest." Mesa, pursuant to the order of the bankruptcy judge, participated as a general unsecured creditor in the distribution of Locke's assets. Mesa was, in fact, the only unsecured creditor. As a result, Mesa received $1,056.08 on its unsecured claim. On June 11, 1980, Locke was granted a personal discharge in bankruptcy. The question of law before the Court involves the effect of Locke's bankruptcy proceeding upon Locke's judgment debts to Mesa. More specifically, the question is whether Mesa is now entitled to a forced sale of all or any part of the four tracts of land which form the res of the constructive trust created in the Court's order of December 26, 1978. At the outset it is important to note that, with regard to the issues of bankruptcy law that must necessarily be considered in connection with this matter, the governing law is that which existed prior to the effective date of the Bankruptcy Reform Act of 1978. The new bankruptcy code took effect October 1, 1979. Since Locke's bankruptcy petition was filed on August 31, 1979, the proceedings were conducted in accordance with the law as it existed on that date. Advisory Committee on Bankruptcy Rules of the Judicial Conference of the United States, Suggested Interim Bankruptcy Rules and Forms, at 7 (1978). Mesa filed its proof of claim in the bankruptcy proceeding as a secured creditor except *1019 to the extent that its security, the four tracts of property, was insufficient to cover the debt owed to it by Locke. The claim was objected to by the trustee on the ground that the security had never passed into the hands of the trustee. The trustee apparently wanted the bankruptcy judge to disallow the claim entirely in the bankruptcy proceeding, but to make such disallowance without prejudice to Mesa's rights to pursue any remedy it might have with regard to the security itself. The bankruptcy judge, although he followed the path suggested by the trustee with respect to the other claims objected to, allowed Mesa to proceed as an unsecured creditor as to the full amount of its claim. Although not expressly stated, this decision was an implicit disallowance of Mesa's secured claim. The bankruptcy judge, however, offered no explanation for this action. Mesa proceeded to partake in distribution of the bankruptcy estate and, as noted, received just over $1,000 on its claim for $212,584.28. There is no question that Locke was granted a personal discharge in bankruptcy. Thus, his personal liability to Mesa was extinguished. Mesa's beneficial interest in the property constituting the res of the constructive trust, however, continued unaffected by the bankruptcy proceeding. Counsel for Locke disputes this, arguing, that the bankruptcy judge's implicit disallowance of Mesa's claim as a secured claim is a conclusive determination of the invalidity of that claim as a secured claim. As a general proposition, it is true that "a determination by the bankruptcy court of the validity or invalidity of a lien on certain property of the bankrupt would seem . . . to be conclusive elsewhere with respect to the property in issue as between the parties to the determination and those in privity with them." 4 Collier on Bankruptcy, § 670.3 (14th ed. 1978). Thus, a creditor who files his claim as secured indicating that he desires to avail himself of his alleged security while at the same time participate with other creditors as to any possible deficiency, subjects himself to a preliminary investigation concerning the validity of his security. "It may lack the prescribed form, it may be tainted with fraud, it may be defective as a preference or other voidable transfer." 3 Collier on Bankruptcy § 57.2[4] (14th ed. 1977). In disallowing Mesa's claim as a secured claim, the bankruptcy judge offered no reasons to support his action. However, it would not appear that the disallowance was based upon any of the factors set forth above, i.e., because it lacked the prescribed form, was tainted with fraud, or was defective as a preference or other voidable transfer. Perhaps the bankruptcy judge was of the view, as is this Court, that Mesa's interest in the four tracts of property was simply not akin to a secured claim in the traditional sense. In other words, Mesa's interest in the property, though arising out of a judicial proceeding, did not constitute a judicial lien on the property. The interest was in the nature of an equitable and beneficial ownership right in the property arising out of the constructive trust imposed by this Court. See, e.g., Bell v. Smith, 32 So.2d 829, 832 (Fla.1947) quoting Restatement of Restitution § 169, wherein it was said that "[w]here a person acquires property from another by fraud, duress, or undue influence under such circumstances that a third person is entitled to restitution from the transferee, the transferee holds the property upon a constructive trust for the third person." As noted supra, the United States Court of Appeals for the Fifth Circuit has already affirmed the constructive trust imposed in this cause. It is important to emphasize the fact that, although the bankruptcy judge disallowed the secured claim, he did not attempt to adjudicate any rights in the four tracts of property. Indeed, it would not appear that he would have been able to do so. As to Tracts No. 2, 3, and 4, the debtor had no interest whatsoever in the property. Coniglio had the legal title and Mesa had an equitable interest in the property. Thus, the property never passed into the hands of the trustee and the bankruptcy court was powerless to adjudicate any rights in the property. *1020 With respect to Tract No. 1, since Locke and his wife allegedly held the property as a tenancy by the entirety, that property was similarly out of reach of the trustee. The test to determine what real property passes to a trustee in bankruptcy is whether the property is transferable by the bankrupt alone or whether the property is capable of being subjected to the claims of the bankrupt's individual creditors. Segal v. Rochelle, 382 U.S. 375, 86 S.Ct. 511, 15 L.Ed.2d 428 (1966); Palmer v. Travelers Insurance Co., 319 F.2d 296 (5th Cir. 1963). Since, under Florida law, property held by the entirety cannot be conveyed by one spouse alone and is not subject to the claims of one spouse's creditors, Tract No. 1 never became part of the bankrupt estate. With respect to the instant matter, however, the Court finds that Mesa's beneficial interest in Tract No. 1 is superior to the claim of Locke and his wife. The reconveyance of Tract No. 1 from Coniglio and his wife back to Locke and his wife, occurring as it did several years prior to the Court's order of December 26, 1978, was necessarily considered and discounted by the Court's inclusion of Tract No. 1 within the property subject to the constructive trust. Ordinarily, an agreement for deed operates under Florida law to convey equitable title to the purchaser while legal title remains in the vendor. See Miami Bond & Mortgage Co. v. Bell, 101 Fla. 1291, 133 So. 547 (Fla.1931). In the instant case, however, the Court, in creating the constructive trust, held that the equitable interest in the four tracts of land was held by Mesa. Consequently, it properly directed Coniglio, the record title holder, to act as trustee and to hold all four tracts for the benefit of Mesa. In Blankenship v. Citizens National Bank of Lubbock, 449 S.W.2d 77 (Tex.App.1969), the Texas Court of Civil Appeals dealt with a question somewhat similar to the one raised herein. Royce Blankenship, in order to secure payment of an indebtedness to the Citizens National Bank of Lubbock, Texas, pledged a single share of common capital stock in Wallace Theaters of Crosbyton, Inc. In so doing, he represented that there were only two outstanding shares of common capital stock and that his one share represented his 50 percent ownership in Wallace Theaters. Involuntary bankruptcy proceedings were subsequently commenced against Royce Blankenship. During the pendency of the bankruptcy proceedings, Citizens National Bank discovered that there were actually 250 outstanding shares of common capital stock in Wallace Theaters and that Royce Blankenship actually owned 125 shares. The 124 shares that he owned but that had not been pledged to the bank were represented by a stock certificate in the possession of Wesley Blankenship, Royce's brother. Accordingly, Citizens National Bank filed suit against Royce Blankenship, Wesley Blankenship and Wallace Theaters seeking reformation of the security agreement. The Texas trial court reformed the security agreement so as to include the additional 124 shares, finding that Royce Blankenship had intended to pledge his entire 50 percent interest in Wallace Theaters to the bank as security for his debt. On appeal, Royce Blankenship alleged that the 124 shares of stock were in his constructive possession inasmuch as the stock certificate was in his name, and that all his property passed to the trustee in bankruptcy upon the filing of his bankruptcy petition. Consequently, according to Blankenship, the Texas trial court had no jurisdiction to resolve the bank's claims to the stock. The appellate court disagreed. It found that the stock was held by Wesley Blankenship in constructive trust for the bank and, therefore, the bank, not Royce Blankenship, had constructive possession. The court held that since the bank had equitable and beneficial ownership rights in the stock, the stock did not pass into the hands of the trustee in bankruptcy. Accordingly, the trial court had jurisdiction to determine the claims against the property. Similarly, in the instant case, the bankruptcy court never acquired jurisdiction over the subject property and, therefore, properly declined to adjudicate any party's rights to it. This Court's constructive trust *1021 thus continued unaffected by Locke's bankruptcy proceeding. This holds true with respect to all four tracts of property. Locke argues, however, that Mesa waived any rights it might have otherwise had in its "security" by participating in the distribution of the bankrupt estate as a general unsecured creditor. As the Supreme Court made clear in United States National Bank in Johnstown v. Chase National Bank, 331 U.S. 28, 67 S.Ct. 1041, 91 L.Ed. 1320 (1946), a secured creditor has several options available to him in attempting to recover a debt from a bankrupt debtor. (1) He may disregard the bankruptcy proceeding, decline to file a claim and rely solely upon his security if that security is properly and solely in his possession. [citing cases] (2) He must file a secured claim, however, if the security is within the jurisdiction of the bankruptcy court and if he wishes to retain his secured status, inasmuch as that court has exclusive jurisdiction over the liquidation of all security. [citing case] (3) He may surrender or waive his security and prove his entire claim as an unsecured one. [citing case] (4) He may avail himself of his security and share in the general assets as to the unsecured balance. [citing cases] 331 U.S. at 33-34, 67 S.Ct. at 1044. Section 57(h) of the Bankruptcy Act, 11 U.S.C. § 93(h), was a codification of this fourth option. It was designed to allow a secured creditor to receive dividends along with the general creditors only as to the amount of the creditor's claim in excess of the value of his security, i.e., the amount of any deficiency. The rule, grounded upon the principle of equality and ratable distribution, prohibits the secured creditor from enjoying the whole benefit of his security while simultaneously taking dividends from the general assets on the basis of his entire claim as if he were an unsecured creditor. 331 U.S. at 34, 67 S.Ct. at 1044. In United States National Bank, supra, it was argued that Section 57(h) constituted an absolute bar to a judgment lien creditor sharing fully in the general dividends while at the same time retaining his lien on the security. The Supreme Court rejected that proposition, holding that: [t]he fact that the judgment lien creditors received general dividends contrary to the scheme of Section 57(h) does not necessarily mean that they thereby waived their liens. Nothing in the language of § 57(h) or of any other section of the Act makes such a receipt the necessary equivalent of a waiver. It is generally true that participation by a secured creditor in distributions from the general assets on the basis of his full claim indicates a waiver of security and election to be treated as an unsecured creditor. [citing case] But that is not an invariable result flowing from the application of any rigid statutory rule. The result depends, rather, upon the circumstances surrounding the receipt of dividends. And in exceptional cases, those circumstances may demonstrate the continued vitality of the security as well as indicate that it would be inequitable to declare the security forfeited. 331 U.S. at 35-36, 67 S.Ct. at 1045. The determination of whether or not a waiver occurred is to be made with the recognition that "courts of bankruptcy are essentially courts of equity, and their proceedings inherently proceedings in equity." 331 U.S. at 36, 67 S.Ct. at 1045, quoting Local Loan Co. v. Hunt, 292 U.S. 234, 240, 54 S.Ct. 695, 697, 78 L.Ed. 1230 (1933). A factor in assessing the equities inhering in a particular situation is whether the receipt of general dividends by the secured creditor caused permanent injury to the unsecured creditors. 331 U.S. at 36, 67 S.Ct. at 1045. In the instant case, the Court does not believe Mesa waived its rights in the four tracts of land by receiving a general dividend as an unsecured creditor. To begin with, an exception to the general rule that a creditor waives any rights in his security by participating as an unsecured creditor exists in cases where the security held by the creditor is not part of the assets in bankruptcy. Robinson v. Exchange National Bank of Tulsa, Oklahoma, 28 F.Supp. 244, 247 (N.D.Okl.1939). *1022 Moreover, the equities in this case clearly weigh in favor of Mesa. Except for its acceptance of the $1,056.08 payment as an unsecured creditor, Mesa has never taken any action that could be construed as a waiver of its "security interest" in the four tracts of land. Mesa filed its claim as a secured claim except to the extent that the value of the security would be insufficient to cover Locke's debt to Mesa. This was the proper way for Mesa to proceed. The passage from Section 57.09 of Collier quoted by Locke is patently inapplicable because it relates to the situation where the secured creditor filed his claim as unsecured. While it is true that in order to avoid any appearance of an intent to waive its rights in the four tracts of property Mesa should have declined to partake in the distribution of the bankrupt estate as an unsecured creditor, the significance of accepting the general dividend is discounted by the fact that such acceptance did not operate to injure any other unsecured creditor, because there were none. The purpose of the rule prohibiting secured creditors from sharing fully in the distribution of general dividends while simultaneously retaining their rights in their security is to ensure, as far as possible, equality and ratable distribution of the bankrupt's assets. United States National Bank in Johnstown v. Chase National Bank, supra, 331 U.S. at 34, 67 S.Ct. at 1044. That purpose would not be advanced by a finding that Mesa waived its rights in its security, for Mesa was the only unsecured creditor which Locke sought to discharge. In other words, the dividend paid to Mesa did not operate to diminish the estate available to other unsecured creditors, because there were no other unsecured creditors. Neither let us forget that, in discussing equities, Mesa's "security interest" arose out of a fraudulent conveyance made with the intent of preventing Mesa from recovering on its judgment debt. Accordingly, the Court is of the opinion that Mesa's acceptance of the general dividend in the amount of $1,056.08 did not constitute a waiver of its beneficial interest in the four tracts of property which form the res of the constructive trust. Therefore, in accordance with the foregoing discussion, it is apparent to the Court that Mesa is entitled to a forced sale of Coniglio's interest in the four tracts of land in order to satisfy the debts owed by Locke to Mesa arising out of this Court's judgment of October 13, 1978 and order of December 26, 1978. Accordingly, Coniglio, in his capacity as trustee under the Court's order of December 26, 1978, will be ordered to liquidate the assets of the trust and distribute the proceeds to the appropriate parties. It is so ORDERED: 1. The motion of plaintiff Mesa Petroleum Co. for an order clarifying the duties of defendant C. John Coniglio in his capacity as trustee of the constructive trust created by this Court in its order of December 26, 1978, is hereby granted. 2. C. John Coniglio is hereby ordered to sell the following parcels of real property at a public sale in accordance with the provisions of this order: TRACT NO. 1: NE ¼ less North ½ of NE ¼ of NE ¼ and NE ¼ of SE ¼ and East ½ of NW ¼ and NE ¼ of SW ¼ and West ½ of NW ¼ of SE ¼, all in Section 22, Township 18 South, Range 22 East, and SE ¼ of SE ¼ of SW ¼, Section 15, Township 18 South, Range 22 East; TRACT NO. 2: East ½ of SW ¼ less begin at NW corner of NE ¼ of SW ¼ run South 416 feet; East 208 feet; North 416 feet; West 208 feet to the point of beginning, and SW ¼ of SE ¼ and East ½ of SW ¼, all in Section 33, Township 18 South, Range 23 East; TRACT NO. 3: West ½ of West ½ of Section 34, Township 18 South, Range 23 East; and NW ¼ of NW ¼, Section 3, Township 19 South, Range 23 East; and East ½ of NE ¼ of NE ¼, Section 4, Township 19 South, Range 23 East; TRACT NO. 4: East ½ of SE ¼, Section 33, Township 18 South, Range 23 East. 3. The public sale shall be conducted in accordance with 28 U.S.C. § 2001(a), that is, *1023 the property shall be sold by C. John Coniglio, either as a whole or by separate tracts, at the front steps of the Sumter County Courthouse on a date to be determined by C. John Coniglio, provided that the sale take place within 90 days from the date of this order. 4. Notice of the sale shall be made pursuant to 28 U.S.C. § 2002. Such notice shall be published once a week for four consecutive weeks prior to sale in the Florida Times-Union and the Sumter County Times. The notice shall be captioned with the style and number of this case and shall contain: the full legal description of the property, the time, place and date of sale, a statement to the effect that the property is being sold by C. John Coniglio pursuant to an order of this court, a statement indicating that the property may be purchased either as a whole or by separate tracts, and a statement indicating that the property will be sold to the highest and best bidder for cash. 5. Prior to sale, C. John Coniglio and Mesa Petroleum Co. shall each employ a disinterested person to appraise the property. The property shall be appraised both as a whole and as to each individual tract. 6. The sale of the property shall be to the best and highest bidder for cash; provided, however, that no offer shall be accepted that is less than two-thirds of the mean appraised value of the property as a whole or the particular individual tract being bid upon. The "mean appraised value" is to be derived by averaging the figures of the appraiser employed by C. John Coniglio and the appraiser employed by Mesa Petroleum Co. 7. Upon sale, C. John Coniglio shall promptly report to this Court and move for an Order Confirming Sale. 8. Upon confirmation by this Court, C. John Coniglio shall distribute the proceeds of the sale as follows: First: To the Federal Land Bank of Columbia, South Carolina in an amount sufficient to satisfy the debt owing from C. John Coniglio and Mary Joan Coniglio, his former wife, arising out of the mortgage loan agreement dated September 17, 1974, which debt is secured by the four tracts of land described in paragraph 2 of this order. Second: To Mesa Petroleum Co., up to and including an amount sufficient to satisfy the total claims of Mesa Petroleum Co. against C.A. Locke, Jr. arising out of this Court's judgment of October 13, 1978 and order of December 26, 1978. Third: The balance, if any, is to be deposited in the registry of this Court, in which event the Court will consider the claims of C. John Coniglio with respect to costs and attorney's fees incurred in administering the constructive trust and conducting the sale ordered herein. 9. Upon confirmation of the sale by this Court, and satisfaction of the mortgage debt owed to the Federal Land Bank of Columbia, South Carolina, C. John Coniglio shall execute and deliver a good and sufficient deed conveying the property to the purchaser or purchasers thereof; and said purchaser or purchasers, or their authorized agents, shall thereupon, without delay, be let in possession of the property so conveyed. 10. This Court retains jurisdiction of this cause for the purpose of entering such further orders as may be necessary and just, including the entry of an order confirming the sale. NOTES [1] The property presently at issue consists of four tracts of land located in Sumter County, Florida. In order to facilitate the discussion, the land will be referred to simply as Tracts No. 1, 2, 3 and 4. Certain other parcels of land, not relevant herein, were found to have been fraudulently conveyed from Coniglio and his wife to their son, C. John Coniglio, Jr. That land was reconveyed back to Coniglio, Sr. by quit-claim deed. [2] The Court's order of December 26, 1978, in addition to creating a trust beneficiary interest in Mesa as against the judgment debt of Locke, created a lien on the property as against the judgment debt of Coniglio. Moreover, the Court created a lien on the property found to have been fraudulently conveyed from Coniglio and his wife to their son, see note 1 supra, as against the judgment debt of Coniglio. Only the trust created in paragraph 3 of the December 26, 1978 order is relevant to the instant discussion inasmuch as Coniglio, by agreement filed February 20, 1981, was granted a release as to his personal liability to Mesa. [3] The four tracts of land at issue were conveyed by Locke and his wife, Jay Nell Locke, to Coniglio and his wife, Mary Joan Coniglio, as tenants by the entirety. Coniglio and his wife subsequently dissolved their marriage, thereby altering their ownership status from tenants by the entirety to tenants in common. Florida Statutes § 689.15 (1981). However, apparently as part of their dissolution of marriage property settlement agreement, Mary Joan Coniglio conveyed all of her right, title and interest in the four tracts of land to C. John Coniglio, leaving him as sole record title holder of the property. [4] The Court abandoned the idea of setting aside the fraudulent conveyances after discovering Florida law to the effect that property owned by the entirety is not subject to the law of fraudulent conveyances because a judgment against one spouse cannot be enforced against the other. The Court's creation of the constructive trust was affirmed by the United States Court of Appeals for the Fifth Circuit. Mesa Petroleum Co. v. Coniglio, 629 F.2d 1022, 1030 (5th Cir. 1980).

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1871752/

29 B.R. 46 (1983) In re George FOX and Elizabeth Fox, Debtors. Louis GALOFARO and Jean Galofaro, Plaintiffs, v. George FOX and Elizabeth Fox, Defendants. No. Civ-82-1075T. United States District Court, W.D. New York. April 15, 1983. *47 Paul M. Aloi, Penfield, N.Y., for plaintiffs. James W. Richards, Rochester, N.Y., for defendants. DECISION and ORDER TELESCA, District Judge. INTRODUCTION This is an appeal from a Decision and Order and a Chapter 13 Confirmation Order of the Bankruptcy Court for the Western District of New York (Edward D. Hayes, J.) entered in this matter on October 6, 1982 and October 18, 1982, respectively. Plaintiffs, Louis and Jean Galofaro (hereinafter the "Galofaros") appeal from the October 6, 1982 Decision and Order which failed to find that the defendants', George and Elizabeth Fox's (hereinafter the "Foxes" or the "debtors"), Chapter 13 Plan was proposed in good faith, and from so much of the October 18, 1982 Chapter 13 Confirmation Order as failed to find (1) that the debtors' Plan was not proposed in good faith, and (2) that property to be distributed under the Plan was less than the amount that would be distributed if the debtors' estate was liquidated under Chapter 7 of the Bankruptcy Code. FACTS The Galofaros obtained a judgment in New York Supreme Court for Ontario County against the Foxes on September 24, 1981 in the amount of $31,660 based on causes of actions sounding in intentional tort. Thereafter, the Foxes filed a Bankruptcy Petition, Statement and Plan under Chapter 13 of the Bankruptcy Code (Title 11, United States Code). The debtors' schedules listed two unsecured debts: (1) a debt in the amount of $8,000 owed to James W. Richards, attorney for the debtors, for his legal representation of the debtors during the defense of the action brought by the Galofaros; and (2) a debt in the amount of $31,660 owed to the Galofaros by reason of the judgment the Galofaros obtained against the Foxes. All other debts the Foxes scheduled were secured claims which were to be paid outside the Plan, with the exception of the priority claim of James W. Richards in the amount of $750 for his representation of the debtors in connection with their bankruptcy proceeding. The Plan proposed payments by the debtors of $250 per month for a period of 42 months, or a total distribution to unsecured creditors of $9,750 (after the priority claim for attorney's fees of $750 was deducted); the dividend to unsecured creditors was to be, therefore, approximately 20% of their claims, after the deduction for expenses of administration. The Court below found that the amount available for distribution under a Chapter 7 liquidation would be $7,606.25. This amount was arrived at by allowing each of the joint debtors to elect a New York State homestead exemption of $10,000, thereby allowing $20,000 of the equity in the debtors real property to be exempted from the property of the estate. *48 The Galofaros argue that the debtors' Plan has not been proposed in "good faith", as is required by Sec. 1325(a)(3) considering the inconsistencies of the debtors' statements, the low percentage dividend to unsecured creditors and the nature of most of the unsecured debt, i.e., non-dischargeable. Additionally, the Galofaros argue that the debtors' Plan has not satisfied the requirement of Sec. 1325(a)(4) which requires creditors in a Chapter 13 to receive more than they would receive in a Chapter 7 liquidation. They maintain that the debtors should be required to make an additional $10,000 distribution to unsecured creditors. It is their position that joint debtors in New York are only permitted to claim one New York State homestead exemption if both of the joint debtors elect their state exemptions. CPLR 5206, 11 U.S.C. § 522(b), (d). GOOD FAITH A Chapter 13 Plan must have been proposed in good faith and may not have been proposed by any means forbidden by law. 11 U.S.C. Section 1325(a)(3). "The established historical meaning of `good faith', a term used throughout the Bankruptcy Act, requires merely that the plan conform with the provisions, purposes, and spirit of chapter 13." 5 Collier on Bankruptcy Para. 1325.01[C]; Memphis Bank & Trust Co. v. Whitman, 692 F.2d 427, 7 C.B.C. 2nd (6th Cir.1982); In re Rimgale, 669 F.2d 426, 5 C.B.C. 2nd 1281 (7th Cir. 1982); In re Barnes, 13 B.R. 997, 4 C.B.C. 2nd 1510 (D.D.C.1981). Historically, Bankruptcy Court has always exercised a careful examination of the relationship between a debtor and its attorney. The ability to scrutinize the relationship continues under the Bankruptcy Code Section 329 and Bankruptcy Rule 220. In the instant case, the creditor objected to the amount of the debtor's attorney's claim in the amount of $8,000 for attorney's fees in the defense of the action which gave rise to the only other unsecured debt in the amount of $31,000. The attorney's fee in the amount of $8,000 was approved without the benefit of a hearing to determine its reasonableness. At the very least, the disposition of this important factor on an impromptu basis in the middle of a confirmation hearing denies the elements of due process and fairness deserved by both the objecting creditors and the debtor. As part of the inquiry requested by the creditors, they submitted proof that during the pendency of the law suit, the debtors borrowed $2,000 from a credit union for purposes of "[a] wood burner and chimney and attorney's fees". (emphasis added) Add to that, attorney Richards'[*] suggestion at the confirmation hearing that he might reduce his fees and a total situation is presented where a hearing on that issue is mandated. The case accordingly is remanded to Bankruptcy Court for a hearing on the reasonableness of the attorney's fee submitted by the unsecured creditors attorney James Richards. Bankruptcy Code Section 329, Section 1325(a)(3), also In Re Rimgale, 669 F.2d 426 (7th Cir.1982). DOUBLE EXEMPTION ISSUE Mr. and Mrs. George Fox in their joint petition under Chapter 13 elected the New York State exemptions. Under the Homestead Statute (CPLR 5206), they each claimed as exempt the respective interests in their residence which they own as tenants by the entirety. Thus, each valued their interest in excess of $10,000 for a total claimed exemption of $20,000. The creditors object, claiming they are limited to a single exemption of $10,000 arguing that a double exemption was not contemplated by the Legislature. In support of this position, the creditors cite Matter of Feiss, 15 B.R. 825 (Bkrtcy.1981). For the reasons enunciated in Matter of Rizzo, 21 B.R. 913 (Bkrtcy.1982), I hold that the creditors are *49 entitled to a total exemption of $20,000. See also 11 U.S.C. Section 522(m). CONCLUSION The case is remanded to Bankruptcy Court for a hearing on the objections raised by the creditors concerning the amount claimed for attorney's fees. In all other respects, the Plan is confirmed. SO ORDERED. NOTES [*] Mr. Richards: "May I make a suggestion, your Honor? I would be willing to reduce the attorney's fees . . ." The Court: Well, I'm . . ." Mr. Richards: "That would have the effect of increasing the amount to the Gallofaros, would it not?". (Transcript of Proceedings February 22, 1982).

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1869187/

80 F.Supp. 443 (1948) DAVIS et al. v. COOK et al. No. 2682. United States District Court, N. D. Georgia, Atlanta Division. September 28, 1948. *444 A. T. Walden, of Atlanta, Ga., Oliver W. Hill, of Richmond, Va., and Thurgood Marshall and Edward R. Dudley, both of New York City, for plaintiffs. B. D. Murphy, J. C. Savage, J. C. Murphy, Ralph Williams and J. M. B. Bloodworth, all of Atlanta, Ga. for defendants. E. MARVIN UNDERWOOD, District Judge. This is an action by Samuel L. Davis, a Negro teacher in the public schools of Atlanta, on behalf of himself and of other Negro teachers and principals similarly situated. The petition charges that defendants *445 over a long period of years have consistently pursued and maintained and presently practice the policy, a custom and use of paying Negro teachers and principals in the public schools of Atlanta, less salary than white teachers and principals in the public school system possessing the same professional qualifications, certificates, experience, and exercising the same duties as Negro teachers and principals, solely because of race and color. The petition seeks a declaratory judgment and an injunction against the Board of Education of the City of Atlanta and its agents to restrain them from continuing this alleged discriminatory policy in violation of the Fourteenth Amendment of the Constitution of the United States. The defendants, on the other hand, contend that they do not now and never have discriminated against plaintiff or other Negro teachers on account of their race or color, but that the salaries of the various teachers of the public schools of Atlanta are fixed upon consideration of entirely proper factors. Findings of Fact. All the public schools in Atlanta, both white and Negro, are part of one system of schools and the same type of education is given in all schools. All public school teachers and principals in Georgia, including plaintiffs, are required to hold teaching certificates as provided by the State Board of Education. Negro and white teachers alike must meet the same requirements to receive teacher's certificates and are issued identical certificates. For many years the School Board operated under two salary schedules providing lower rates of pay for Negro principals and teachers than for white principals and teachers. In addition to these schedules, there were also schedules prepared by State authorities fixing the State's contribution to the educational fund, which listed white and Negro teachers separately. These State schedules have listed in the past and still list comparable compensation of Negroes consistently lower than the compensation of white teachers. Payments to the Board under State schedules are used by the Board but do not determine the exact amounts received by teachers since the Board provides additional funds which determine the actual compensation going to them. Under these double schedules of both the Board and the State, discriminatory difference in pay because of race and color was reflected in the salaries paid to the Negroes and resulted in lower pay to them than to white teachers. In 1942, after the filing of a suit against the Board by one of the colored teachers named Reeves, charging discrimination because of race and color which was subsequently dismissed, the Board abolished its salary schedules by resolution and directed the administration to work out a new single salary schedule which would be free of discrimination on account of race or color. The resolution provided: "Be It Resolved, that all salary schedules for the pay of teachers in the public schools of Atlanta are hereby repealed, abrogated and abolished. Teachers now employed in the system will be paid as a minimum at the same rate of pay as they are now receiving until the Board can revise the rates of pay, which will be done as promptly as possible, and upon a basis which will not make any discrimination whatever as among teachers on account of race or color. The Board reserves the right, and expects to exercise it, of adding to the minimum stated above an additional sum to any teacher if it be found that such teacher has, between the time of the adoption of this resolution and the adoption of new rates of pay, been unfairly dealt with for any reason within that period, if any such case should exist. "A committee consisting of the Board of Education, acting as a committee of the whole, is hereby appointed to make out a new basis for the pay of teachers which will be based wholly on valid considerations and will not discriminate against any person on account of race or color, and will report the same promptly to this Board for action. "This Board, in taking this action, does not concede that any such discrimination intentionally exists under present schedules, but complaint having been made that such discrimination does exist, deems it wise to abolish the existing schedules and to study *446 the question anew, to the end that if any such discrimination does in fact exist, it may be promptly eliminated." As a result, there was worked out a system referred to as the Track and Step System, which was as follows: High School Principal's Salary Schedule: ----------------------------------------------------------- | Study Increments | |-----------------------------------------------------------| | 1st | 2nd | 3rd | 4th | 5th | -----------------------------------|-----------|-----------|-----------|-----------|-----------| Track | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 13 | 14 | 15 | 16 | |-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----| I | 175 | 185 | 195 | 205 | 215 | 225 | 230 | 230 | 235 | 235 | 240 | 240 | 245 | 245 | 250 | 250 | |-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----| II | 175 | 190 | 205 | 220 | 235 | 250 | 255 | 255 | 260 | 260 | 265 | 265 | 270 | 270 | 275 | 275 | |-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----| III | 266 | 293 | 300 | 316 | 333 | 350 | 355 | 355 | 360 | 360 | 365 | 365 | 370 | 370 | 375 | 375 | ----------------------------------------------------------------------------------------------- Salary Schedule for Junior and Senior High Schools: ----------------------------------------------------------- | Study Increments Above M. A. | |-----------------------------------------------------------| | M. A. | 1st | 2nd | 3rd | 4th | 5th | -----------------------------------|---------|---------|---------|---------|---------|---------| Track | 1 2 3 4 5 6 7 | 8 9 | 10 11 | 12 13 | 14 15 | 16 17 | 18 19 | |-----------------------------------|---------|---------|---------|---------|---------|---------| I | 135 145 155 165 175 185 195 | 205 205 | 210 210 | 215 215 | 220 220 | 225 225 | 230 230 | |-----------------------------------|---------|---------|---------|---------|---------|---------| II | 165 175 185 195 205 210 215 | 225 225 | 230 230 | 235 235 | 240 240 | 245 245 | 250 250 | |-----------------------------------|---------|---------|---------|---------|---------|---------| III | 180 190 210 220 230 240 250 | 265 265 | 270 270 | 275 275 | 280 280 | 285 285 | 290 290 | |-----------------------------------|---------|---------|---------|---------|---------|---------| IV | 195 207 220 232 245 257 270 | 280 280 | 285 285 | 290 290 | 295 295 | 300 300 | 305 305 | ----------------------------------------------------------------------------------------------- Salary Schedule for Elementary Schools: ----------------------------------------------------------------------------------------------------------------- | | Tenure | |-----------------------------------------|-----------------------------------------------------------------------| | | Automatic | | Study Increments Above the M. A. Degree | | Probation | | M. A. |-----------------------------------------------------------| | 3 years | | Degree | 1st | 2nd | 3rd | 4th | 5th | |-----------------|-----------------------|-----------|-----------|-----------|-----------|-----------|-----------| Track | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 13 | 14 | 15 | 16 | 17 | 18 | 19 | |-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----| Track 1 | | 80 | 90 | 100 | 110 | 120 | 130 | 140 | 140 | 145 | 145 | 150 | 150 | 155 | 155 | 160 | 160 | 165 | 165 | | 70 |-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----| Track 2 | | 110 | 120 | 130 | 140 | 150 | 160 | 170 | 170 | 175 | 175 | 180 | 180 | 185 | 185 | 190 | 190 | 195 | 195 | | to |-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----| Track 3 | | 140 | 150 | 160 | 170 | 180 | 190 | 200 | 200 | 205 | 205 | 210 | 210 | 215 | 215 | 220 | 220 | 225 | 225 | | 120 |-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----| Track 4 | | 131 | 143 | 156 | 168 | 181 | 193 | 206 | 206 | 211 | 211 | 216 | 216 | 221 | 221 | 226 | 226 | 231 | 231 | ----------------------------------------------------------------------------------------------------------------- Elementary School Principal's Salary Schedule: ----------------------------------------------------------------------------------------------------------------- | | Tenure | |-----------------------------------------|-----------------------------------------------------------------------| | | Automatic | | Study Increments Above the M. A. Degree | | Probation | | M. A. |-----------------------------------------------------------| | 3 years | | Degree | 1st | 2nd | 3rd | 4th | 5th | |-----------------|-----------------------|-----------|-----------|-----------|-----------|-----------|-----------| Track | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 13 | 14 | 15 | 16 | 17 | 18 | 19 | |-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----| Track 1 | | 70 | 75 | 80 | 85 | 90 | 95 | 105 | 105 | 110 | 110 | 115 | 115 | 120 | 120 | 125 | 125 | 130 | 130 | | 65 |-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----| Track 2 | | 80 | 90 | 100 | 105 | 110 | 115 | 125 | 125 | 130 | 130 | 135 | 135 | 140 | 140 | 145 | 145 | 150 | 150 | | to |-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----| Track 3 | | 90 | 100 | 110 | 120 | 130 | 140 | 150 | 150 | 155 | 155 | 160 | 160 | 165 | 165 | 170 | 170 | 175 | 175 | | 105 |-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----|-----| Track 4 | | 118 | 126 | 134 | 143 | 151 | 159 | 172 | 172 | 177 | 177 | 182 | 182 | 187 | 187 | 192 | 192 | 200 | 200 | ----------------------------------------------------------------------------------------------------------------- *447 In addition to the provisions of the schedules, there were other criteria provided, referred to as subjective, for placement or advancement on the schedules. Among them were experience, teaching efficiency, skill and success in pupil relations, professional growth, special talent or skill, personality, et cetera. This system of rating the salaries of principals and teachers was adopted September, 1944, and resulted in an average increase over the old discriminatory scale of about $8 per month for Negro and of slightly under $2 per month for white teachers. Plaintiff Davis was placed on the new schedules at the same salary he was receiving and had received for six years under the old double and discriminatory pay rolls. He is still being paid the same basic salary, no change having been made as to him. Placements on the new schedules were recommended by separate committees, one for white teachers and one for Negro teachers, and approved after some changes by the Superintendent. The White Committee, assisted by Dr. Hunter, former acting Superintendent, was composed of an assistant superintendent, a supervisor and a principal of the school affected. All were white. The Negro Committee, also assisted by Dr. Hunter, consisted of an assistant superintendent, a supervisor and a principal of the school affected. All were colored except Dr. Hunter and the assistant superintendent. Except for the service of the white members who served on both committees, the work of each was independent of the other. The initial placement on the schedules is most important since it determines how long it takes an individual to reach his maximum placement where his salary is frozen, unless he is placed on another track in the exercise of official discretion based on subjective qualifications. For example, if a high school principal were placed on Track I, Step 9, at a salary of $235 per month, and not transferred because of subjective qualifications to another track, he would attain his maximum salary of $250 in eight years and could not go higher. But if placed on Track II, Step 5, he would receive the same initial salary, $235 per month, but would attain a maximum salary of $275 per month in twelve years. Any principal could reach the maximum placement in the sixteenth year after becoming a principal, even if placed on Step 1 on any track, but the track he was placed on would determine what his ultimate salary would be, which would differ greatly according to the track on which he was placed. The maximum basic salary attainable on Track I is $250 per month, while that of Track III is $375. While the operation of the schedules is complicated and their provisions overlapping, and, as shown by the evidence, little understood by defendants or teachers, they, together with the subjective criteria, are not on their face discriminatory and only become so, if administered in a discriminatory manner. The schedules themselves fix definite and positive standards which affect all alike after they are once placed and while they remain thereon. Discrimination, if any, therefore, must appear in the use of the subjective criteria or because of race or color, either in the original placement on the schedules or subsequent advancement thereon beyond a position which the objective provisions of the schedules would indicate, because the salary of a teacher is determined by his place on the schedule. Nothing is more important than the instruction and training of youth and every means should be employed to select and retain the most competent and effective teachers. This can not be done by any rule of thumb method nor by consideration of seniority or technical achievement alone. Competency of teachers cannot be and should not be determined by scholastic degrees alone, though they may be helpful in measuring qualification. Teaching ability may vary greatly among those having equal technical training and experience, and honest discretion must be allowed those responsible for their selection. The subjective criteria, therefore, if applied in a fair and non-discriminatory manner, are not only permissible but highly important and commendable. *448 We are only concerned in this case as to whether the evidence shows discrimination because of race or color. For the most part, the evidence consists of statistical tables of objective qualifications and analyses and discussion thereof. The schedules themselves leave little room for weighing subjective qualifications, which are important and should be given due consideration. So the Court, in considering whether discrimination has been shown, must make wide allowance for statistical limitation and proper official discretion and judgment in weighing the qualifications of teachers. The sampling method was used in preparing the statistics used in evidence. The master pay rolls of the Board of Education pertaining to the selection of principals and teachers were used in the preparation of the various tables and charts in evidence. As before stated, there were formerly separate pay rolls, one for white teachers and the other for Negro teachers. These discriminated against Negro teachers because of race and color. Subsequent to the adoption of the new schedules, a single pay roll has been adopted which is constructed by assembling the names, arranged alphabetically, of each school separately and binding all together. For statistical purposes, sample names were drawn from the master pay roll containing the names of 1,123 white teachers and 356 Negro teachers in the school system. The names of night school, supply teachers, and administrative officers were excluded. The basic pay of teachers is made use of in the consideration of this case, although their actual compensation is about 40% greater due to a so-called "bonus" given because of increased cost of living. The percentage of increase of salaries for all being the same, respectively, the bonus would not affect any pre-existing discrimination. The personnel cards of the teachers whose names were included in the samples drawn from the pay rolls furnished the data used in most of the tables and charts in evidence. Professor Blayton prepared the statistics for plaintiffs and Mr. Barnes for defendants. Both are qualified experts in the field of statistics. Plaintiffs rely on the statistics and analyses furnished by Blayton which they contend show a general pattern of discrimination because of color extending, without removal thereof, from a prior time when there was discrimination to the present. These statistics are challenged by defendants on the ground that there has been no proper sampling and that the bases of the computations are too narrow and exclude very important elements which go into the selection of a satisfactory teacher. They further assert that there is no fair way of deciding whether or not discrimination exists other than to consider each individual with reference to others with similar qualifications. With respect to all statistics except those relating to the principals of high schools, which will be considered later, it appears that, although there may be some question as to strict application of technical rules of sampling, and examination and analysis of the method used by Blayton convinces me that any alleged variations were minor and did not materially affect the overall results. Furthermore, if the method used materially and erroneously affected the conclusions derived from the statistics made up from such samples, discrepancies could easily have been pointed out by tables made in accordance with the methods asserted to be correct by defendants, or by an analysis of the whole population of the group studied, as in the case of high school principals, instead of the samples used by Blayton. No such tables were presented by defendants. I find, therefore, that the Blayton statistics are reasonably correct and present conclusions which, after allowing for considerable margin of error and for reasonable scope in the exercise of a fair discretion based on subjective qualifications of teachers, may be properly used in the consideration and determination of the issue as to whether or not discrimination because of race or color has been shown. *449 I shall discuss some of the more significant statistics included in the tables and charts put in evidence as illustrative to show the basis of my findings. Specific reference to all is not considered necessary. I shall first consider the statistics relating to high school principals. There are twelve white high school principals and two Negro high school principals. For comparison, Blayton used only six of the twelve white principals for comparison with the two Negro principals, claiming to have selected the six white principals by proper method of sampling. At the hearing on November 18, 1947, the Court raised the question as to whether a comparison of one hundred per cent of one group with only fifty per cent of the other would give a fair result and requested counsel to furnish tabulations and analyses covering all of the white as well as all of the Negro principals. This was furnished to the Court at the rehearing of the case on July 8, 1948, which had been ordered by the Court to allow both parties to supplement their evidence and reargue certain questions pointed out by the Court. The rehearing was had and counsel were allowed until July 21, 1948 to furnish briefs and tables. The tables, attached to defendants' brief, which compare the statistics relating to all high school principals, both white and Negro, with those derived from the samples, do not show very material differences, as the following tabulation shows: Summary Statistics (White) ------------------------------------------------------------------------------------------------------------- | | Years in | Years of | Years of | | No. | Salary Basic | | Atlanta | Principalship | Previous | | Study | Sept. Population | Age | System | (1947) | Exp. | Degree | Incrs. |--------------------- | | | | | | | '46 '47 -----------|------|------------|--------------------|-------------|---------|----------|--------------------- Mean | 55 | 27 | 12 | 5 | M. A. | 4 | $340.50 $350.60 | | | | | | | Sample | | | | | | | -----------| | | | | | | Mean | 58 | 32 | 17 | 5 | M. A. | 4 | $354.00 $359.57 ------------------------------------------------------------------------------------------------- Summary Statistics (Colored) ------------------------------------------------------------------------------------------------- Mean | 48 | 14 | 4 | 2 | M. A. | 1 | $240.50 $256.50 ------------------------------------------------------------------------------------------------- The mean is used, since there are only two Negro High School principals, and items under the heading "State Certificates" are omitted for lack of space and because substantially the same for all. Comparing the results obtained from consideration of data derived from consideration of the total white population instead of from the samples selected, there appears a slight difference in age, a greater difference in experience in the Atlanta system and years of principalship, but the years of previous experience appear the same as is also true of the data with respect to State certificates, degrees and study increments. There is a difference of $13.50 per month in the mean pay for 1946 and of $9.07 per month for the year 1947 between the results obtained from samples and those from the whole white population. There was no change with respect to the Negro principals since there were only two and both were considered in the original tabulation. Comparing the mean basic monthly salaries of the total population of white and colored high school principals for 1946 and 1947, it will be seen that the mean Negro salaries for the two years were $240.50 and $256.50, respectively, and of white principals, $340.50 and $350.60, respectively, showing a difference in the mean salaries of the white principals, of $100 in 1946 and $104.10 in 1947 over the mean salaries of Negro principals. This wide difference can only be attributable to subjective qualifications or discrimination and not to qualifications set out in the schedules. There was no evidence relating to the subjective qualifications of the two Negro principals which would justify the great difference in their salaries from those of the white principals. The evidence was to the contrary. Defendants have complained that it was unfair to use in the comparison of salaries *450 the track and step assignments of those principals who, prior to the adoption of the new schedule, because of their long service and achievement of maximum increments, had reached the top of the scale and were receiving the maximum salaries. There were five of these principals, each receiving the maximum salary of $375. To examine into the validity of this objection, comparison may be made between the other seven white principals and the two Negro principals. From an examination of the pertinent tables, it will be seen that with respect to Cornell there is only one white principal who received less than he did in 1946 and in 1947 he was advanced to a higher salary than Cornell. With respect to schedule qualifications of the seven white principals, excluding the five who had attained the maximum position, three have had longer experience in the Atlanta system, one the same, and three less. With respect to the years of principalship, only two had had longer experience, while four had less and one the same. With respect to increments earned, three had more than Cornell, while two had less and two had the same. All the principals held the same kind of State certificates and all held M. A. Degrees, except one white principal who had only an A. B. Degree. With respect to placements on track and step, the tables show that all were placed higher than Cornell except one and he was given the same rating in 1947. Gideons rated lower than all of the said seven white principals in Atlanta experience, but his principalship was longer than all but three and the same as one. He had no increments, while all of the white principals except one had increments. His monthly salary for the year 1946 was $55 less than the lowest paid to any white principal, and $88 less than the lowest paid in 1947. It was $135.50 lower in 1946 and $150 lower in 1947, than the mean monthly salary of all white principals. I pass now to a consideration of the statistics relating to high school teachers. It appears from the tables in evidence that 78.1% of white high school teachers received more than $189 per month, basic salary, and 21.9% of them $189 or less; while 1.5% of the Negro teachers received more, and 99.5% of them less than $189. Like differences are shown in group step placements. For example, 54.2% of Negro teachers are on Track I, 16.6% on Track II, 25% on Track III, and 4.2% on Track IV; while 4.4% of white teachers are on Track I, 12.4% on Track II, 14.3% on Track III, and 68.9% on Track IV. The chart of comparative qualifications of high school teachers shows that 58% of the white teachers have M. A. degrees and 36% have A. B. degrees, while 41% of the Negroes have M. A. degrees and 50% A. B. degrees. With respect to elementary principals, the tables show that all of the colored principals received less than $214 per month, while only 17.1% of the white principals, received such salary, and the balance, or 82.9% received more, up to the maximum salary of $314. Of the Negro elementary school principals, 100% are placed on Tracks I and II, while 16.7% of the white elementary principals are placed on Track II, 25% on Track III, 58.3% on Track IV, and none on Track I. As to their comparative educational qualifications, the charts show that 66.7% of the white teachers hold M. A. degrees, while 80% of the Negroes hold such degrees; 33.3% of the white teachers hold A. B. degrees, while 20% of the Negroes hold such degrees. The charts relating to elementary school-teachers show that 71.5% of the white teachers received over $139 basic salary per month, but not over $214, while the balance, 28.5%, received less than $140. On the other hand, 95.2% of the Negro teachers received less than $140, while 4.8% received between $140 and $164 per month. With respect to placements, the tables show that 96.5% of the elementary Negro teachers are placed on Tracks I and II, and 3.5% on Tracks III and IV, while 25.6% of the white teachers are placed on Track II, 18.1% on Track III, and 56.4% on Track IV, and none on Track I. The chart comparing academic standing of the elementary school teachers shows that 26% of the white teachers have M. A. degrees, 42% A. B. degrees, 29% two-year normal training; while 5% *451 of the Negro teachers have M. A. degrees, 73% A. B. degrees, and 21% two-year normal training. Defendants' experience tables show that 23% of white high school teachers have had five years of experience or less, while 41% of the Negro high school teachers have had five years or less. Similar comparisons between elementary teachers show that 35% of the white teachers had five years of experience or less, while 53% of the Negro teachers have had such experience. Defendants' tables with reference to study increments show that 87.8% of the white elementary principals and 75% of the Negro elementary principals have earned increments, 36.6% of the white principals and 50% of the Negro principals having earned five increments; that 42.4% of the white elementary teachers had increments, 20% of them having as many as five, while 29.3% of the colored elementary teachers had increments, 16.9% of them as many as five. Each increment entitles the teacher to a $5 per month permanent increase. With respect to objective qualifications of the teachers, both white and colored, it appears that the white teacher is 4.6 years older than the colored teacher and that 83% of the white teachers have been elected to tenure as compared to 76% of the colored; that the average years of education of the white teachers was 17.83, while that of the Negro teachers was 17.67; that the median total teaching experience in the Atlanta System of the white teachers was 18.5 years and that of the Negroes 15.4 years, a difference of three and one-half years, while their total average teaching experience was 20.2 and 16.8 years, respectively; that the median group step assignment of white high school teachers was Track IV, Step 9, while that of the Negroes was Track I, Step 16, and of the elementary principals, the median group step of the white principals was Track IV, Step 5, and that of the Negroes, Track I, Step 4; of elementary teachers, the median group step of the white teachers was Track IV, Step 3, and that of the Negro teachers, Track I, Step 17. The median basic monthly salary of white high school principals was $348 and the mean salary, $340.50, while the median salary of the Negro high school principals as well as the mean salary was $240.50. The median elementary white principal's salary was $270 and the mean salary $254.15. The median salary of the Negro elementary principals was $165 and the mean salary $167.73. The median salary of white high school teachers was $210 and the mean salary $198.45, while the Negro high school teachers had a median salary of $150 and a mean salary of $140.65. The median salary of white elementary school teachers was $170 and the mean salary $160.19, and the median salary of the Negro elementary school teachers was $115 and the mean salary $112.38. The evidence shows a great differential between the pay of white and Negro teachers in favor of the former and also placements on the schedules uniformly and decidedly more favorable to the white teachers far beyond what objective qualifications would justify. It is realized that the results obtained are computed for the most part from tables and statistics based upon samples and not on the whole school population and are not absolutely accurate, but I find that they are reasonably correct and reliable, especially in the absence of a contrary showing, and that even after considerable allowance is made for their incompleteness and for administrative discretion, there is still left so wide a gap between comparative salaries of white and Negro teachers that it cannot be attributed to other causes than discrimination because of color or race. I find as a fact that such discrimination exists. Conclusions of Law. The basis of this action is inequality of treatment due to alleged discrimination by defendants in the pay of school teachers and principals because of race or color. The acts of defendants as a Board of Education are State action and this Court has jurisdiction of the suit. Gaines, State of Missouri ex rel. v. Canada, 305 U.S. 337, 59 S.Ct. 232, 83 L.Ed. 208. *452 Plaintiff Davis had a right to bring and maintain this class action on behalf of himself and the Negro school principals and teachers to obtain a declaratory judgment concerning the alleged discrimination against them in the application of the salary schedules. McDaniel v. Board of Public Instruction, D.C., 39 F. Supp. 638. No administrative remedy for removing inequalities was provided at the time the suit was filed and the provision for appeal to the superintendent, with right to review by the Board, was for an appeal not to a disinterested arbitrator, but to the very agents who made the placements and fixed the salaries in the first instance. So that, even if the remedy had existed at the time of filing the suit, it would not have been such as must be exhausted before appealing to the courts for a judicial determination of a constitutional right. Lane v. Wilson, 307 U.S. 268, 59 S.Ct. 872, 83 L.Ed. 1231; Mitchell v. Wright, 5 Cir., 154 F.2d 924; Morris v. Williams, 8 Cir., 149 F.2d 703; Mills v. Board of Education of Anne Arundel County, D.C., 30 F.Supp. 245, 248. The law is well settled that, in cases of this kind, discrimination due solely to race or color, constitutes an infringement of constitutional right, and in a case properly coming within this rule, a declaratory judgment is proper and an injunction should issue requiring equality of treatment. The fact that the salary schedules and rules relating to the selection and placement of principals and teachers, presented in evidence in this case, are fair upon their face, is not a defense if they are, in their practical application, administered in a discriminatory manner. Smith v. Texas, 311 U.S. 128, 61 S.Ct. 164, 85 L.Ed. 84; Yick Wo v. Hopkins, 118 U.S. 356, 6 S.Ct. 1064, 30 L.Ed. 220; Sipuel v. Board of Regents of the University of Oklahoma et al., 332 U.S. 631, 68 S.Ct. 299; Mitchell v. Wright, 5 Cir., 154 F. 2d 924; Reynolds, et al. v. Board of Public Instruction for Dade County, Florida, 5 Cir., 148 F.2d 754, certiorari denied 326 U.S. 746, 66 S.Ct. 53, 90 L.Ed. 446; Mills v. Board of Education of Anne Arundel County, D. C., 30 F.Supp. 245; Alston v. School Board of Norfolk, 4 Cir., 112 F.2d 992. As pointed out by Judge Chesnut in the Mills case, supra, and also by Judge Parker in the Alston case, supra, a plaintiff in a case of this kind, and the class he represents, "are qualified school teachers and have the civil right, as such, to pursue their profession without being subjected to discriminatory legislation on account of race or color. It is no answer to this to say that the hiring of any teacher is a matter resting in the discretion of the school authorities. Plaintiffs, as teachers qualified and subject to employment by the state, are entitled to apply for the positions and to have the discretion of the authorities exercised lawfully and without unconstitutional discrimination as to the rate of pay to be awarded them, if their applications are accepted." Alston v. School Board of Norfolk, 112 F.2d 992, 996. The crucial question in this case is whether the very substantial differential between the salaries of white teachers and the colored teachers represented by plaintiff is due to discrimination on account of race or color. I find that it is and that plaintiff is entitled to the relief sought for himself and the principals and teachers he represents. A declaratory judgment and injunction in accordance with these findings and conclusions will be entered. The Court disclaims any power to fix the salaries of the teachers. That is the right and within the province of defendants. The Court only decrees that the salaries may not, when so fixed, be discriminatory because of color or race. The Court realizes that a readjustment of salaries will be a difficult task and will require time and patience, so that the injunctive relief granted will be stayed a reasonable time to permit compliance by defendants. Counsel, after conference between themselves, may submit an appropriate form of judgment, inserting therein for consideration by the Court what they deem to be a reasonable time to allow for the readjustment of salaries, if they can agree thereon.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1870086/

589 F.Supp. 258 (1984) MASTERCRAFT FLOORING, INC., et al., Plaintiffs, v. Raymond J. DONOVAN, Defendant. Civ. A. No. 83-1737. United States District Court, District of Columbia. May 24, 1984. *259 William J. Scott, Dayton, Md., Ronald S. Liebman, Washington, D.C., for plaintiffs. Richard A. Stanley, Asst. U.S. Atty., Washington, D.C., for defendant. MEMORANDUM HAROLD H. GREENE, District Judge. Plaintiffs brought this action against the Secretary of Labor and the Comptroller General[1] for injunctive and declaratory relief from the final administrative action of the Department of Labor debarring plaintiffs for violations of the Service Contract Act, 41 U.S.C. §§ 351-358, and implementing regulations. It is alleged in the complaint that the Secretary's decision to place Mastercraft on the list of persons ineligible to contract with the Federal government was violative of the Administrative Procedure Act. Both sides have moved for summary judgment. For the reasons stated below, plaintiffs' motion will be granted and defendant's motion will be denied. I The material facts are not in dispute. On April 7, 1977, Mastercraft Flooring, Inc. was awarded a contract to provide all labor and materials for the alteration and installation of carpeting and other floor covering in some fifty federal office buildings located in the Washington, D.C. area between June 1, 1977 through May 3, 1978. The contract was subject to the Service Contract Act which requires that certain minimum wages and fringe benefits be paid to employees engaged in government contract work. Early in 1978, the Department of Labor conducted an investigation to determine whether Mastercraft was complying with the statute, from which it concluded that Mastercraft had misclassified some of its employees and had failed to pay the proper fringe benefits to some others. In April, 1978, Mastercraft paid the amount demanded by the government (i.e., $11,548.02) under protest. However, subsequently the company conceded that it had failed to pay full fringe benefits between July and December, 1977 in the amount of $6,218.38. On August 28, 1978, the Regional Solicitor for Region III of the Department of Labor filed a complaint against Mastercraft and its president, and the following January, an evidentiary hearing was held at which the parties presented live testimony and submitted documentary evidence. The Administrative Law Judge issued his decision on November 5, 1979, as follows. First. The ALJ found that there was some evidence to support the government's charge that some of Mastercraft's employees who were hired as furniture movers, *260 laborers, or helpers actually performed duties normally performed by apprentices or journeymen carpet layers. He also found, however, that the company and its president neither authorized nor encouraged such activities by these employees, but that, to the contrary, when management observed any furniture mover engage in activities outside his job function, it invariably instructed him to cease doing so immediately. Second. With respect to the Department of Labor's charge that Mastercraft improperly altered employee time cards and underpaid its employees, the ALJ determined that, because many of the government buildings in which Mastercraft was removing and installing carpet were in close proximity to the employees' homes, employees were permitted to proceed to the work site directly from their homes without punching a time clock at the office. These employees were instructed, however, to call in and to report their starting and quitting times for recordation by a timekeeper. The ALJ found that many of the employees violated this trust and attempted to defraud Mastercraft by reporting more hours than they had actually worked, and that the company, upon learning of such practices, justifiably corrected their time cards.[2] In making this finding, the ALJ noted that the general tone of the testimony and my personal observation of the demeanor of the witnesses leads me to conclude that, with very few exceptions, the ... employees were attempting to cheat [Mastercraft] whenever and however possible and were generally unreliable and untrustworthy. ALJ Decision Findings of Fact at 5 ¶ 15.[3] Third. Mastercraft stipulated that it had failed to pay the fringe benefits required by the contract from July through December 1977.[4] The ALJ found, however, that this failure to pay "was not intentional, but rather inadvertent."[5] Mastercraft likewise stipulated that it failed to pay the five-cents-an-hour apprenticeship training contribution for each hour worked by a carpet layer. The ALJ found that this, too, was excusable because Mastercraft honestly and logically but nevertheless erroneously assumed that it did not have to pay such contributions because it did not have apprentices or an apprenticeship training program. Fourth. With respect to yet another violation charged, the ALJ found that Mastercraft complied with the notice requirements of the contract and the Act by posting the terms and conditions of employment as well as the rate of compensation required under the contract. Fifth. The ALJ found that Mastercraft's records were generally accurate and adequate. In his view, based on evidence that he found credible, those discrepancies and errors that did exist were not committed willfully with an intent to avoid the requirements of the contract and the Act but were "the result of an honest effort by the Employer to maintain accurate records of the actual time worked by his employees and to keep from being defrauded by said employees." Findings of Fact at 7 ¶ 25. As a result of the violations listed above, the ALJ held that Mastercraft owed its *261 employees $6,218.30 in fringe benefits.[6] He further held that, in failing to pay the fringe benefits, plaintiffs breached the contract and violated the Act and regulations and were therefore subject to the debarment provisions of section 5(a) of the Service Contract Act, 41 U.S.C. § 354(a).[7] The ALJ went on to recommend to the Secretary, however, that plaintiffs be relieved from the ineligible list provisions of Section 5(a), based upon the "unusual circumstances" of the case.[8] The Department of Labor appealed the ALJ decision, and on November 4, 1981, the Administrator for the Wage and Hour Division issued a 13-page decision, finding in favor of the Department on all issues. The first twelve pages of this opinion consists of a verbatim repetition of the Statement of the Case, the Argument, and the Conclusion found in the government's brief. The only words added by the Administrator were the following: On the basis of the entire record, I find that the views expressed by the Government in its exceptions, as set out above are supported by the evidence in the record, are in accordance with applicable law, and are proper. Accordingly, to the extent that the findings and conclusions contained in the decision of the Administrative Law Judge are consistent with such views they were affirmed; to the extent that they are inconsistent with such views, they are set aside and the Judge's decision is modified to accord with the views expressed by the Government in its exceptions.[9] Administrator's Opinion of November 4, 1981 at 12. On May 26, 1982, the Secretary of Labor, in a one paragraph letter addressed to the Comptroller General, affirmed the decision of the Administrator and directed the Comptroller General to place plaintiffs on the list of ineligible bidders. This lawsuit followed.[10] II The issue presented to this Court is whether the Secretary's decision to debar plaintiffs was arbitrary, capricious, an abuse of discretion, or otherwise not in *262 accordance with law. 5 U.S.C. § 706. This standard does not change merely because the Secretary rejected the ALJ's recommendation. Stamper v. Secretary of Agriculture, 722 F.2d 1483, 1486 (9th Cir.1984); Saavedra v. Donovan, 700 F.2d 496, 498 (9th Cir.1983).[11] However, agency findings which are contrary to the factual findings of the ALJ are entitled to less weight than they would otherwise receive, particularly where, as here, credibility determinations from demeanor evidence are at issue. Saavedra v. Donovan, supra, 700 F.2d at 498. Under the Department's regulations, the decision of the ALJ becomes the final agency decision after twenty days "unless exceptions are filed thereto." 29 C.F.R. § 6.10(b). The regulations further provide that, if a party takes exception to the ALJ's decision, the Administrator, after reviewing the record, shall affirm, modify, or set aside, in whole or part, the findings conclusions, and order contained in the decision of the hearing examiner, and shall include a statement of reasons or bases for the actions taken. With respect to the findings of fact, the Administrator shall modify or set aside only those findings that are clearly erroneous (emphasis added). 29 C.F.R. § 6.14. It is clear from the record that the Administrator was completely derelict in his duties. He gave no statement of his reasons nor did he provide any basis for his decision to set aside the ALJ's findings and recommendation. As noted supra all the Administrator did was to copy the government's brief. In so doing, he entirely ignored the ALJ's decision, including those of the ALJ's findings which were based on his personal observations of the witnesses' demeanor and their credibility.[12] An agency which expects deference for its decisions from a court upon review must do more than to copy the government's brief and label it a decision. A determination such as that is essentially worthless. III It remains to be determined whether there is any substantive basis for the Administrator's decision. With regard to the issue of debarment, the Secretary has provided that the existence of "unusual circumstances" ... must be determined on the basis of the facts and circumstances of the particular case. Some of the principal factors which must be considered in making this determination are whether there is a history of repeated violations of the Act; the nature, extent, and seriousness of past or present violations; whether the violations were willful, or the circumstances show there was culpable neglect to ascertain whether certain practices were in compliance, or culpable disregard of whether they were or not, or other culpable conduct (such as deliberate falsification of records); whether the respondent's liability turned on bona fide legal issues of doubtful certainty; whether the respondent has demonstrated good faith, cooperation in the resolution of issues, and a desire and intention to comply with the requirements of the Act; and the promptness with which employees were paid the sums determined to be due them. It is clear that the mere payment *263 of sums found due employees after an administrative proceeding, coupled with an assurance of future compliance, is not in itself sufficient to constitute "unusual circumstances" warranting relief from the ineligible list sanction. It is also clear that a history of recurrent violations of identical nature, such as repeated violations of identical minimum wage or recordkeeping provisions does not permit a finding of "unusual circumstances." * * * Washington Moving and Storage Co., No. SCA-168, March 12, 1974; quoted in Federal Food Service, Inc. v. Donovan, 658 F.2d 830 at 833 (D.C.Cir.1981). Applying the Secretary's criteria to the instant case, the ALJ found that (1) plaintiffs had no prior history of any violations of the Act; (2) the current violations were neither serious nor extensive; (3) these violations were unintentional and inadvertent, and did not result from plaintiffs' culpable negligence or disregard of the requirements of the contract, the Act, and the regulations; (4) plaintiffs cooperated in the investigation, made full payment of the fringe benefits upon learning that they had misread the contract, and showed good faith in their dealings with both their employees and the Department of Labor; and (5) plaintiffs paid all amounts alleged to be due prior to filing of the administrative complaint by the Department.[13] In short, in every single pertinent respect the ALJ found that Mastercraft had demonstrated that unusual circumstances militating against debarment were present. Those findings are not fanciful or arbitrary, but they appear to be a careful and accurate conclusion based on the record. Under the regulations, the Administrator had the authority to set aside the ALJ's factual findings only if they were clearly erroneous. 29 C.F.R. § 6.14. Here, however, the Administrator could not possibly find that these findings were clearly erroneous; and his rejection of these findings was based on no evidence whatsoever.[14] Debarment is a severe penalty which may have a serious economic impact upon a business and may well cause it to fail. It should therefore be used prudently and not, as in this case, with a reckless hand. As had been well stated, [t]he very absence of any sanction other than the catastrophic one of three years debarment supports the legislative history that use of debarment against innocent and petty violations was not intended. Federal Food Service, Inc. v. Donovan, supra, 658 F.2d at 834. The media reports almost daily largescale violations of procurement laws and regulations by mammoth corporations, but the government appears generally to bear such violations with equanimity, making ever larger purchases from the offenders. Yet here, where the Department of Labor's own Administrative Law Judge, in a careful opinion, found these plaintiffs to have committed violations which were inadvertant, relatively insignificant, and quickly rectified, the Administrator of the Wage and Hour Division rubber-stamped the brief of the Department's prosecuting arm without apparently either thought or deliberation. The Administrator's decision, in turn, was then rubber-stamped by, or in the name of, the Secretary. What we have here, then, is a classic case of arbitrary and capricious action. Plaintiffs' motion for an injunction and for declaratory relief will be granted. NOTES [1] The Comptroller General is responsible for publishing a list of contractors who are ineligible to bid for government contracts. Plaintiffs' names were placed on the list by the Comptroller General upon the order of the Secretary of Labor. [2] Indeed, if an employee disputed the number of hours recorded on his time card, Mastercraft would add the number of additional hours the employee claimed to have worked to his subsequent pay check. [3] With one minor exception involving $18.45, the ALJ found that Mastercraft paid all of its employees for all the hours they actually worked. Id. at 5 ¶ 17. [4] The fringe benefits due under the contract were additional hourly cash payments which were added to the employees' hourly rate. [5] Mastercraft misread the wage rates because the fringe benefits were not consistently listed under the appropriate headings in the various Wage Determination categories of the contract, and because, as the ALJ stated, the inconsistent method of designating fringe benefits within the same contract is or could be extremely misleading. Conclusion of Law at 10 ¶ 7. Upon learning that it had misread the contract, Mastercraft promptly paid all the health and welfare benefits in full before the Labor Department filed its administrative complaint. [6] He also concluded that the company was entitled to recover all sums in excess of that amount it paid to its employees pursuant to the directions of the Department of Labor. [7] That section provides as follows: The Comptroller General is directed to distribute a list to all agencies of the Government giving the names of persons or firms that the Federal agencies of the Secretary have found to have violated this chapter. Unless the Secretary otherwise recommends because of unusual circumstances, no contract of the United States shall be awarded to the persons or firms appearing on this list or to any firm, corporation, partnerships, or association in which such persons or firms have a substantial interest until three years have elapsed from the date of publication of the list containing the name of such persons or firms. Where the Secretary does not otherwise recommend because of unusual circumstances, he shall, not later than ninety days after a hearing examiner has made a finding of a violation of this chapter, forward to the Comptroller General the name of the individual or firm found to have violated the provisions of this chapter. [8] The circumstances upon which the ALJ based his recommendation are as follows: (1) Neither [plaintiff] has any past history of violations of the Act, (2) The nature, extent, and seriousness of the present violations are unintentional, inadvertent and not overly serious, and the circumstances of the case show that the violations were not caused by [plaintiffs'] culpable negligence to ascertain whether its pay policies were in compliance or culpable disregard or whether they were not, and that full payment was made when the requirement for such payment was pointed out to them, and (3) [Plaintiffs] cooperated in the investigation, and showed good faith in their dealings with both their employees and the Department of Labor. ALJ Decision, Conclusion No. 14 at 11. [9] For the reasons indicated by the government, the Administrator also rejected the ALJ's recommendation that plaintiffs be relieved from the debarment provisions of the Act. [10] Although plaintiffs contest the individual findings and conclusions of the Administrator which were adopted by the Secretary, they seek to overturn only its determination that no "unusual circumstances" are present that would justify removal of their names from the list of those ineligible to bid on government contracts. [11] The ALJ's findings are simply part of the administrative record that the Court must weigh against the other evidence supporting the agency's decision. [12] To cite just one example, the Administrator overruled the ALJ's finding that, based on testimony that he deemed credible, recordkeeping errors were not done willfully or with an intent to avoid the requirements of the regulations, but were the result of an honest effort to maintain accurate records and to keep from being defrauded by the employees. An acceptance, without discussion, of the Department's contention that these discrepancies were instead deliberate falsifications intended to avoid overtime liability, was clearly arbitrary. That arbitrariness was hardly cured or alleviated by the Administrator's conclusion that the ALJ's finding was erroneous "to the extent that [it was] inconsistent with [the Department's] views. [13] The remaining factor — whether liability turned on bona fide legal issues of doubtful certainty — is not applicable here. [14] For example, the Administrator cited no evidence in support of his crucial finding that the evidence shows ... the deliberate falsification of [plaintiff's] records, and it does not demonstrate good faith on their part, nor a desire and intent to comply with the law. Decision at 12-13. The Administrator cited to no evidence because the record does not contain any such evidence.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1867142/

574 F.Supp. 1067 (1983) UNITED STATES, Plaintiff, v. Carl ROSS, Individually, and The Ross Glove Company, Defendants. Court No. 83-3-00440. United States Court of International Trade. November 28, 1983. *1068 J. Paul McGrath, Asst. Atty. Gen., David M. Cohen, Director, Commercial Lit. Branch, Civ. Div., A. David Lafer, on the motion, Washington, D.C. (Kathleen A. Bucholtz, Asst. Regional Counsel, U.S. Customs Service, Washington, D.C., of counsel, on the memorandum), for plaintiff. Law Offices Treumann, Walter Treumann, on the motion, Chicago, Ill., for defendants. MEMORANDUM OPINION AND ORDER CARMAN, Judge: Plaintiff seeks to enforce a claim for penalties and duties concerning certain merchandise imported by defendants in 1978, asserting that false entry documents were filed by defendants resulting in an undervaluation of $304,611.78. The United States Customs Service (Customs), pursuant to 19 U.S.C. § 1592 (1982) and the applicable regulations, issued on February 24, 1983 a prepenalty notice to defendants who duly responded. Customs issued thereafter on March 11, 1983 a penalty claim notice which indicated that any petition for mitigation or remission would have to be filed within 7 days of the date of the penalty claim notice. Defendants objected, contending 7 days was too short a time and did not file a petition for mitigation or remission. Plaintiff commenced this action. Defendants move to dismiss for want of subject matter jurisdiction, lack of due process, and on estoppel grounds. Initially, the court must address the question of subject matter jurisdiction. The defendants contend they were not given adequate notice regarding the penalty claim, and that, therefore, the plaintiff was not entitled to proceed with court action. The plaintiff contends that notice was given under 19 C.F.R. § 162.32(a) (1983), thus enabling the court to maintain jurisdiction. For the reasons that follow, the court holds that it does have subject matter jurisdiction in this case. Preliminarily, the plaintiff notes that Count IV of the amended complaint seeks only to collect the duties lawfully owed and not fines or penalties. Therefore, the plaintiff contends that defendants' arguments are irrelevant in regard to Count IV. Defendants' position seems to assume that because the statutory provision enabling the United States to collect duties[1] is contained within the same section *1069 that outlines the penalty assessment procedures that those procedures are applicable to a duty claim brought by the United States. Any such assumption clearly is in error. Section 1592(d), taken at face-value, demonstrates that the United States need not follow the elaborate penalty procedures when pursuing a duty claim. Subsections (b) and (c) of § 1592 are cast in such terms as "monetary penalty" or "penalty claim." Subsection (d) alone deals with "lawful duties" and makes no reference to the preceding matters.[2] Such was the understanding of the Customs Service and is reflected in the implementing regulations. See 19 C.F.R. §§ 162.79, .79(b) (1983). Section 162.79(b) simply states that such lawful duties are to be restored within 30 days of the written notice, and that application may be made to the Commissioner of Customs for review. Thus, the provisions concerning the prepenalty notice, penalty notice, etc., do not apply when the United States is seeking restoration of lawful duties. The government fulfilled its obligation in this respect by the March 16, 1983 letter from the District Director to the defendant. See Defendants' Exhibit 5. Since the defendant has not as yet deposited the requested duties, pursuant to a proper and lawful demand, the court has jurisdiction to entertain Count IV of the amended complaint. The remaining counts seek the imposition of fines and/or penalties for violations of the Customs laws. The defendants maintain that contrary to statutory and due process standards, no reasonable opportunity to respond to the penalty notice was given, thus depriving the court of subject matter jurisdiction. Section 1592(b)(2) specifies that a person against whom a penalty claim has been issued "shall have a reasonable opportunity * * * [to seek] remission or mitigation of the monetary penalty." 19 U.S.C. § 1592(b)(2) (1982).[3] It is the defendants' position that in giving 7 days to respond to the penalty claim, Customs violated this section and deprived them of due process. In allowing only 7 days to file a petition for mitigation, Customs was acting pursuant to 19 C.F.R. § 162.32(a) (1983).[4] This regulation was promulgated in response to changes in the customs laws brought about by the Customs Procedural Reform and *1070 Simplification Act of 1978. Among other changes, the 1978 Act shortened the statute of limitations in cases of negligent and grossly negligent violations of the customs laws.[5] Thus, sections 162.32 and 162.78 of 19 C.F.R. authorizes the reduction of the period to respond to a prepenalty and penalty notice to not less than 7 days in cases where the statute of limitations is in danger of running out. Defendants' contention that 19 C.F.R. § 162.32(a) (1983) abridges their statutory right to a "reasonable opportunity" to respond is without merit. The Secretary is authorized to make "regulations as may be necessary to carry out the provision of this chapter." 19 U.S.C. § 1624 (1982). Further, the administering agency is to be accorded "great deference" by the courts in determining whether a regulation conforms to the statutory mandate. See, e.g., Forester v. Consumer Product Safety Commission, 559 F.2d 774, 783 (D.C.Cir. 1977). There is no doubt that Customs was sensitive to the concerns of the importing public when it promulgated section 162.32(a).[6] After weighing the competing interests issue, Customs deemed 7 days to be a "reasonable period." In addition, defendants have offered no identifiable evidence substantiating their assertion that 7 days is unreasonably burdensome. The regulations are exceedingly general as to the preparation and contents of a petition for mitigation. See 19 C.F.R. § 171.11(c)(3) (1983). Compliance within 7 days cannot be said to be an unreasonable burden. With regard to the constitutional argument, the discussion above a fortiori establishes the validity of the agency action under due process analysis. The regulation in question is reasonable and defendants were given the opportunity to exercise their rights under it. No due process in the substantive or procedural sense was withheld here. Alternatively, defendants argue that section 162.32(a) should not be given effect because it is contradictory to 19 C.F.R. § 171.12(b) (1983). The latter provision reads: When filed. Petitions for relief shall be filed within 60 days from the date of the mailing of the notice of fine, penalty, or forfeiture incurred, unless additional time has been authorized as provided in § 162.32(a) of this chapter. Id. Defendants maintain that the 60 days allowable pursuant to 171.12(b) is contradictory to the 7 days permissible under 162.32(a) and that they should be given the benefit of the more favorable regulation. *1071 The two provisions, however, are complementary. The 60-day provision is of general application to those proceedings commenced before the effective date of the amendments of the 1978 Act. Section 162.32(a), on the other hand, deals with the exceptional situation where the statute of limitations is involved and more rapid administrative procedures are appropriate. The provisions, therefore, cover two clearly distinguishable situations. The defendant next asserts that section 162.32(a) is "deeply buried in an inappropriate part of the regulations." Defendants' Memorandum in Support, at 12. This argument lacks merit for several reasons. The passage of the 1978 Act impelled Customs to promulgate a new set of regulations. It was necessary, therefore, at least for a time, to have two sets of regulations in operation. See 43 Fed.Reg. 53,453 (1978). Further, section 171.12(b) makes specific reference to section 162.32.[7] In sum, the notice given to the defendants was reasonable and in conformity with the applicable statute. Since no petition for remission or mitigation was filed within the 7 days, the plaintiff was entitled to file suit. The court has subject matter jurisdiction over the penalty-seeking counts in the amended complaint. The defendants urge next that plaintiff should be estopped from limiting defendants' time to petition for mitigation to only 7 days pursuant to section 162.32(a) because of events that allegedly occurred on March 14, 1983. Defendants maintain that through counsel they phoned the Regional Counsel's office of Customs and received incomplete information concerning the time limit of only 7 days to petition for mitigation. Defendants assert that they relied upon incomplete information and wrote to Customs asking for more time. Defendants assert, based upon these events, that plaintiff should be estopped from insisting upon the 7-day time period pursuant to section 162.32(a). Even if the facts were as defendants allege, estoppel will not lie in a case such as this. To work an estoppel on the government, mere erroneous responses to oral inquiries are insufficient. Schweiker v. Hansen, 450 U.S. 785, 788, 101 S.Ct. 1468, 1470, 67 L.Ed.2d 685 (1981) (per curiam); see Cheers v. Secretary of Health, Education & Welfare, 610 F.2d 463, 469 (7th Cir.1979), cert. denied, 449 U.S. 898, 101 S.Ct. 266, 66 L.Ed.2d 128 (1980). Accordingly, the defendants' estoppel argument is without merit. Lastly, defendant requests that the court deem counsel's letter of March 18, 1983 to the acting district director a petition for mitigation. Such a request offends logic in that the letter states, "We regret that we cannot in the time allotted to us respond to the Penalty Notice except to advise you that Carl Ross and Ross Glove Company neither violated the law nor committed false or fraudulent acts of [sic] omissions." Defendants' Exhibit 6, at 1. The letter goes on to cite section 171.12 and requests that 60 days be given to respond. The letter reflects none of the contents that section 171.11 specifies for petitions of this kind. It cannot be fairly said that the letter asks for anything more than an extension of time. For the reasons outlined above, the defendants' motion to dismiss is denied in all respects. NOTES [1] The United States seeks to enforce its duty claim pursuant to 19 U.S.C. § 1592(d) (1982), which reads in part: [I]f the United States has been deprived of lawful duties as a result of a violation of subsection (a) of this section, the appropriate customs officer shall require that such lawful duties be restored, whether or not a monetary penalty is assessed. Id. This subsection was added by the Customs Procedural Reform and Simplification Act of 1978, Pub.L. No. 95-410, § 110(a), 92 Stat. 888, 896, in order to remedy the problems relating to the finality of liquidations. The United States, pursuant to § 1592(d), may seek the restoration of duties even though a particular entry and liquidation have become final within the meaning of 19 U.S.C. § 1514(a) (1982). [2] The legislative history of section 1592(d) demonstrates that a duty claim brought by the United States is insulated from the extensive penalty procedures given in section 1592(b). Materials attending the passage of the Customs Procedural Reform and Simplification Act of 1978 clearly show that Congress' concern with procedural reform was relative to the penalty and fraud provisions only, not the collection of lost duties. See S.Rep. No. 778, 95th Cong., 2d Sess. 18-22 (1978), reprinted in 1978 U.S.Code Cong. & Ad. News 2211, 2230-32; H.R.Rep. No. 621, 95th Cong., 1st Sess. 2, 16 (1978). [3] A two-stage administrative procedure is contemplated by section 1592 in connection with penalty assessment. First, if a Customs officer has reasonable cause to believe a violation of the section 1592(a) prohibition has occurred, he is directed by the statute to issue a prepenalty notice. See 19 U.S.C. § 1592(b)(1)(A) (1982). Then, after due consideration of any representations the alleged violator may have made in response to the notice, the officer is directed to arrive at a determination as to the penalty or fine. In the event the officer finds that there was a violation of section 1592(a), he must issue a penalty notice, in writing, to the party concerned. The alleged violator must, according to the statute, be given a reasonable opportunity in which to file a petition for remission or mitigation. After these representations are heard and evaluated, the officer arrives at a final determination. [4] 19 C.F.R. § 162.32(a) (1983) provides in part: Fines, penalties, and forfeitures. If any person who is liable for a fine, penalty, or claim for a monetary amount, or who has an interest in property subject to forfeiture, fails to petition for relief under Part 171 of this chapter, or fails to pay or to arrange to pay the fine or penalty within 60 days from the mailing date of the violation notice provided in § 152.31 * * *, and fewer than 180 days remain from the date of the penalty notice before the statute of limitations may be asserted as a defense, the district director may specify in the notice a reasonable period of time shorter than 60 days, but not less than 7 days, for the filing of a petition for relief. [5] Public law 95-410, the Customs Procedural Reform and Simplification Act of 1978, altered the method for calculating the accrual of the statute of limitations. Prior to the amendment, Customs had 5 years from the discovery of a violation to commence an action. This 5-year period applied irrespective of the level of culpability involved in the alleged violation. Section 110(e) of public law 95-410, however, created distinctions among these levels of culpability (fraud, gross negligence, and negligence) relative to the severity of penalties as well as the accrual of the statute of limitations. The accrual for alleged violations based on fraud remained the same; namely, 5 years from discovery. But, with respect to alleged violations based on negligence or gross negligence, the accrual date was changed to the date upon which the alleged violation was committed. This change, in effect, shortened the period of limitations in negligence and gross negligence cases. See 19 U.S.C. § 1621 (1982). [6] [Commenters] contended that when a shorter time period is required because less than 1 year remains before the statute of limitations may be asserted as a defense (section 162.78), the shorter period should not be less than 14 days, rather than 7 days, and the date on which any shorter period shall commence should be the date on which the notice was received by the person, rather than the date on which the notice was mailed by Customs. * * * * * * In cases where less than 1 year remains before the statute of limitations may be asserted, the 7-day period is a minimal time for response, and a district director may provide a longer period if the delay will not prejudice the Government's ability to enforce the claim. Customs considers it essential to the enforcement of this provision that the period for response commence with the mailing of the notice. T.D. 79-160, 13 Cust.B. 398, 406-07 (1979); see id. at 409. [7] Nor is defendant's argument persuasive that the headnotes are misleading. As Judge Maletz has written, "[S]ection headings to statutory provisions are not generally delimiting." United States v. Murray, 5 CIT ___, 561 F.Supp. 448, at 456 (1983).

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/2024103/

38 B.R. 705 (1983) In re Robert G. BAKER, Debtor. Robert G. BAKER v. Brian R. SEEBER, Trustee. Civ. No. K-83-1017. United States District Court, D. Maryland. December 30, 1983. Robert G. Baker, appellant, pro se. Brian E. Seeber, Washington, D.C., for appellee. FRANK A. KAUFMAN, Chief Judge. Baker, a debtor in bankruptcy, appeals from two Orders entered February 24, 1983 *706 by Judge Evans sitting by designation in the Bankruptcy Court of this District[*], denying Baker's motion to dismiss trustee Seeber, and granting Seeber's motion to compromise Baker's claim against the Virginia National Bank and Thomas L. Wilson (Wilson). Also involved in this appeal is Seymour Pollack (Pollack), who claims to be a creditor of Baker and who has filed a request for judicial notice of "improper Bankruptcy Court action and improper acts of trustee." The trustee, Seeber, has moved to strike the request for judicial notice by Pollack and Baker's reply brief as scandalous, defamatory and inaccurate. I This appeal has its origins in a suit instituted by Baker against, inter alia, Virginia National Bank and its president, Wilson. That suit, Baker v. Krauss, Civil Action No. 82-1133-A, was recently decided in the United States District Court for the Eastern District of Virginia, Alexandria Division.[1] The claims advanced by Baker in Baker v. Krauss revolve around Baker's interest in Mecklenberg Enterprises, Inc. (Mecklenberg) which operated a restaurant in Virginia and itself filed for bankruptcy under Chapter 7. Baker alleged that defendants Virginia National Bank, Wilson and others conspired to deprive him of his interest in the assets of Mecklenberg, including Mecklenberg's leasehold of the restaurant premises. Baker also alleged that the defendants improperly looked to Baker's guarantee of a promissory note made by Mecklenberg and held by Virginia National Bank instead of first looking to Mecklenberg's assets. As trustee of Baker's estate in bankruptcy, Seeber had the right to take over prosecution of Baker v. Krauss which had been instituted prior to Seeber's assumption of the powers of trustee. See 2 Collier on Bankruptcy ¶ 323.02 (15th ed. 1983). Seeber, however, believed that Baker's claims in Baker v. Krauss lacked merit and told Baker that he would not take control of the suit and that Baker was free to do so. Sometime after so stating, Seeber was approached by defendants Virginia National Bank and Wilson and offered $1,000 for the "nuisance value" of Baker's claim against them. Seeber brought that offer to the attention of Judge Evans and applied for permission to settle the claims on that basis. Judge Evans, in an Order dated February 24, 1983, accepted the trustee's position that the claims were lacking in merit and approved the settlement.[2] Judge Evans also considered Baker's motion to dismiss Seeber as trustee and denied the same after concluding that "the trustee has fulfilled his official duties as trustee to the court and to the creditors." On March 24, 1983, the late Judge Oren Lewis of the Eastern District of Virginia denied Seeber's motion to intervene in Baker v. Krauss for the purpose of settling with defendants Virginia National Bank and Wilson. Judge Lewis ruled that Seeber, by permitting prosecution by Baker to the point where trial was only one week away, had waived his right to prosecute the suit as trustee.[3] Subsequently, summary judgment was granted in defendants' favor in Baker v. Krauss by Judge Albert V. Bryan, Jr., on all counts save one which *707 was tried without a jury and resulted in a finding for defendants and a dismissal of the entire action.[4] Those rulings are now on appeal to the Fourth Circuit.[5] In addition to claims concerning these events, Baker also challenges the appointment of the trustee,[6] alleging that there was a "deal" between the Bankruptcy Court and Seeber to appoint the latter trustee in the within case. In order to secure Seeber's appointment without arousing the opposition of creditors, the Bankruptcy Court, according to Baker, encouraged creditors not to attend the meeting at which a trustee could have been elected by the creditors. Baker points to the sentence, "It is not necessary that creditors attend this meeting," typed in all capitals at the bottom of the Order calendaring the meeting of creditors and contrasts it to the "very small print" of the form which stated the creditors' right to choose a trustee. II Baker's appeal from Judge Evans' Order allowing settlement of Baker's claim in the Virginia suit by Seeber is denied since Baker prevailed in that regard as per Judge Lewis' ruling. III 11 U.S.C. § 324 sets forth the standard for removal of a trustee, as follows: The court, after notice and a hearing, may remove a trustee or an examiner, for cause. Below, Judge Evans defined "cause" as "reasons for which the law and sound public policy recognize as sufficient warrant for removal" and reasons, which "relate to and affect the administration of the office and [which] must be restructed to something of a substantial nature directly affecting the rights and interests of the public." A Most of the case law concerning the removal of a trustee involves intentional misconduct or negligence on the part of the trustee in the administration of the estate. The most frequent setting for these disputes is alleged conflict of interest on the part of the trustee. In such context, "[p]otential conflicts of interest" are usually insufficient to remove a trustee in the absence of "fraud and actual injury to the debtor interests." In re Freeport Italian Bakery, Inc., 340 F.2d 50, 54-55 (2d Cir. 1965).[7] In Freeport Italian Bakery, Judge Hays wrote that the fact that the trustee "is a nephew-in-law and cousin of the two presidents of the bankrupt corporation does not of itself disqualify Cataldo [the trustee] from voting for or being appointed as trustee." 340 F.2d at 54. However, Judge Hays concluded that removal was appropriate because the trustee "(1) is a close relative of the principals of the bankrupt corporation and of its major creditors, (2) has participated in defrauding other creditors by concealing his own claims, (3) has filed an exaggerated claim in his own behalf and in behalf of his mother-in-law, and (4) has not fulfilled his duty as trustee to press all legitimate claims of the estate. ..." Id. at 54-55 (emphasis in original).[8] *708 Other grounds for removal can be found, for instance, in the non-disclosure of potential conflicts. See In re Oliveri, 45 F.Supp. 32, 33 (E.D.N.Y.1942) (trustee removed after discovery that he was an officer of and an attorney for the corporate landlord of the debtor which had filed a general claim against the estate); In re Schireson, 45 F.Supp. 416, 417 (E.D.Pa.1940) (trustee removed after discovery that his nomination and election were due to vote of counsel who represented the debtor's wife). See also In re Stephens, 30 F.2d 725 (S.D.Cal. 1928) in which the trustee who was removed was guilty of "negligence and careless methods ... of accounting," id. at 725, and "gross irregularity" in the administration of the estate, id. at 726. Courts also consider the best interests of the estate in bankruptcy when determining if removal of the trustee is appropriate. See, e.g. Matter of Russo, 18 B.R. 257, 273 (Bkrtcy.E.D.N.Y.1982). The weight accorded this consideration was detailed in Freeport Italian Bakery: If the administration of the estate in bankruptcy would suffer more from the discord created by the present trustee than would be suffered from a change of administration, the removal of the trustee is necessarily the better solution. 340 F.2d at 55. In many cases, that factor is considered in conjunction with an analysis of the misconduct of the trustee. In several cases, however, a trustee was seemingly removed on the basis of that consideration alone. In In re Mason, 12 B.R. 318 (Bkrtcy.D.Nev.1981), the trustee was removed "due to the bitter feeling of enmity by the debtor against the trustee." Id. The enmity in Mason had a substantial foundation: the trustee's husband had prosecuted the debtor in a criminal proceeding which resulted in the conviction and incarceration of the debtor. The court feared that the trustee would "never have the assistance and cooperation of the debtor, and the debtor's attitude could affect the rights and interests of the creditors. ..." Id. at 318-319 (footnote omitted). In In re Savoia Macaroni Mfg. Co., 4 F.Supp. 626 (E.D.N.Y.1933), the court was concerned that time not be spent determining the truth of voluminous charges and countercharges made against and by the trustee.[9] Rather than delay the administration of the estate by a lengthy inquiry, the more appropriate step was to remove the trustee so long as the charges had "some substance in fact." Id. at 627. B Under the standards followed in the above cases, there is insufficient cause presented for the removal of Seeber. Seeber's conduct itself does not warrant removal. His evaluation of the probability of success in Baker v. Krauss was endorsed by Judge Evans and independently confirmed by Judge Bryan. Although the Fourth Circuit has yet to rule on appeal from Judge Bryan, it appears that even if Seeber's actions are successfully challenged, those actions were sufficiently based upon considerations and judgments which in no way provide a basis for Seeber's removal as a trustee. It is also to be noted that there is no evidence that Seeber solicited the settlement offer from Virginia National Bank and Wilson and, accordingly, it is difficult to condemn Seeber for calling to the attention of the Bankruptcy Court the offer and recommending its acceptance. Indeed, had the offer been accepted, the estate and its creditors would be, in all likelihood, $1,000 richer. Whatever fault can be attributed to Seeber can only stem from his failure to establish clearly the terms of his authorization to Baker to prosecute the claim in Baker v. Krauss. Under the standards followed in the cases discussed above, that does not constitute negligence or misconduct of a sufficient magnitude to call for removal. *709 The record discloses that Judge Evans considered the welfare of the estate in making his decision. Reasons for removal, he wrote, must "relate to and affect the administration of the office." His assessment of where the best interests of the estate lie should only be disturbed if this Court is convinced that it is without substantial foundation. Judge Evans was in a much better position than this Court, which sits as an appellate court, to make that assessment. The facts of this case when considered in light of the above cases indicate that Judge Evans' determination not only had a substantial foundation but was correct. First, in most of the cases, the best interests of the estate do not usually alone serve as sufficient justification for removal, without culpable conduct by the trustee. Second, the cases which rely upon the best interests of the estate alone as sufficient cause for removal are distinguishable. In Mason, there was a desire to combat any "unwarranted inference of improper motive" of the trustee. 12 B.R. at 319. No such improper motive is suggested in the instant case. Nor can Seeber be removed under the Savoia Macaroni rationale of avoiding lengthy delays caused by investigating the truth or falsity of charges lodged against the trustee because the charges against Seeber have already been considered below without lengthy proceedings. IV The allegations concerning Seeber's appointment as trustee likewise do not constitute sufficient grounds for removal.[10] There is no evidence, other than Pollack's conclusory assertion, of any "deal" to install Seeber as trustee. Nor can the Order relating to the meeting of creditors be reasonably interpreted as misleading or as calculated to encourage creditors not to attend. V Seeber's request for a hearing on this appeal is denied because, in the words of Bankruptcy Rule 8012, "the facts and legal arguments are adequately presented in the briefs and record and the decisional process would not be significantly aided by oral argument." See also D.Md.R. 51-A(e)(2)(B). Seeber's motion to strike the reply brief of appellant Baker is also denied although this Court does note that the allegations contained therein are somewhat overstated. See 5 C. Wright, A. Miller & E. Cooper, Federal Practice and Procedure § 1382 at 807-12 (1969). Pollack's motion for joinder in this appeal is denied; nevertheless, Pollack's allegations have been considered by this Court in the disposition of this appeal.[11] Accordingly, Judge Evans' two Orders entered February 24, 1983 are hereby affirmed. NOTES [*] The late Judge Evans was a Senior Bankruptcy Judge of the District of Virginia. [1] Baker v. Krauss was originally filed on February 23, 1982 in the Bankruptcy Court for the District of Maryland. On August 13, 1982, it was remanded to the United States District Court for the District of Maryland, which in turn transferred the action to the Eastern District of Virginia as per Order of Judge Joseph H. Young of this Court, dated November 23, 1982. [2] Judge Evans found that the leasehold had been terminated, that it did not constitute an asset of Mecklenberg, and, therefore, was not of value to Baker. Judge Evans also found that the defendants could look to Baker's guarantee without first asserting their claim against Mecklenberg's assets. See In re Robert G. Baker, No. 82-1-0254, slip op. at 2-3 (Bkrtcy.D.Md. Feb. 24, 1983). [3] Baker v. Krauss, No. 82-1133-A (E.D.Va. March 24, 1983) (Order denying trustee's motion to be substituted as co-plaintiff and to dismiss with prejudice claims against Virginia National Bank and Wilson). [4] Id. (March 24, 1983) (Order granting summary judgment to defendants on all counts except count V); id. (March 30, 1983) (Order entering judgment in favor of defendants on count V and dismissing the action). [5] Id. (April 29, 1983) (Notice for appeal filed by Baker) (No. 83-1453). [6] That claim, advanced in a request to this Court for judicial notice, filed May 24, 1983, will be considered and determined in this case. [7] See also Schwartz v. Mills, 192 F.2d 727, 729 (2d Cir.1951); In re Microdisk, Inc., 33 B.R. 817, 819 (D.C.D.Nev.1983); Matter of REA Holding Corp., 2 B.R. 733, 735 (D.C.S.D.N.Y.1980); In re Concept Packaging Corp., 7 B.R. 607, 608-09 (Bkrtcy.S.D.N.Y.1980). [8] A similar case is Matter of Russo, 18 B.R. 257 (Bkrtcy.E.D.N.Y.1982) where the trustee was also the executor and a beneficiary of his father's estate which was the debtor's largest creditor. Although, the court in Russo concluded that to remove the trustee "on this ground alone without any showing of an actual conflict of interest may be shortsightedly discriminatory," id. at 271, removal was nevertheless appropriate because, inter alia, a review of the trustee's conduct showed that "much of his diligence was spent in an effort to aggrandize his and/or his father's interests." Id. at 272. [9] The factual details of the circumstances considered in Savoia are not set out in the opinion. [10] It should be noted that these allegations are here made for the first time, according to the record transmitted for appeal. They were not presented below despite the fact that the disputed appointment took place on April 8, 1982. [11] The issue, of whether Pollack is a person who may be heard on appeal under Bankruptcy Rules 8001 et seq., need not be reached.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1874060/

408 F. Supp. 1212 (1976) UNITED STATES of America, Plaintiff, The State of Michigan et al., Plaintiffs-Intervenors, State of Minnesota and Minnesota Pollution Control Agency, Plaintiffs, v. RESERVE MINING COMPANY et al., Defendants, Northeastern Minnesota Development Association et al., Defendants-Intervenors. No. 5-72-Civil-19. United States District Court, D. Minnesota, Fifth Division. February 21, 1976. Edward T. Fride, Duluth, Minn., and Maclay R. Hyde, Minneapolis, Minn., for defendant Reserve Mining Co. William T. Egan, Minneapolis, Minn., for defendant Republic Steel Co. John B. Gordon and G. Allen Cunningham, Minneapolis, Minn., for defendant Armco Steel Co. Wayne G. Johnson, Silver Bay, Minn., for defendants Village of Beaver Bay, Silver Bay Chamber of Commerce, Village of Silver Bay, Town of Beaver Bay, Lax Lake Property Owners Ass'n. John E. Varnum, Washington, D. C., for plaintiff United States. Michael H. Ferring, St. Paul, Minn., for United States Army Corps of Engineers. Byron E. Starns, Philip Olfelt, C. Paul Faraci and James M. Schoessler, St. Paul, Minn., for plaintiff State of Minnesota. *1213 William P. Dinan, Robert E. Asleson, Daniel C. Berglund, Duluth, Minn., for plaintiff City of Duluth. Howard J. Vogel, Minneapolis, Minn., for plaintiffs Minnesota Environmental Law Institute, Inc., Northern Environmental Council, Save Lake Superior Ass'n, Michigan Environmental Student Confederation, Inc., and Environmental Defense Fund, Inc. ORDER DEVITT, Chief Judge. Plaintiff United States seeks reimbursement and advance payment of an estimated six million dollars from defendants Reserve Mining Company, Armco Steel Company, and Republic Steel Company for expenses incurred and to be incurred in carrying out the Court ordered temporary water filtration program in Duluth, Minnesota, and other North Shore communities. By motion filed January 28, 1976, United States moves defendants be required (a) immediately to pay two million dollars to defray anticipated interim filtration expense to July 31, 1976, (b) to pay $3,728,085 by August 1, 1976 to defray anticipated expense for the period August 1, 1976 to April 30, 1977 and (c) to pay immediately $288,800 as reimbursement for interim filtration expense already expended. Defendants deny liability. Briefs have been lodged and exchanged. Argument was heard February 18, 1976. The Court is satisfied from all of the files and records, findings and conclusions, decisions of the District Court and Court of Appeals, the briefs and oral arguments, that Reserve, Armco and Republic (hereinafter Reserve) are liable for the interim costs of filtering and furnishing safe drinking water to the relevant communities on the North Shore of Lake Superior. The Army Corps of Engineers was ordered by the District Court, and on two occasions by the Court of Appeals for the Eighth Circuit, to finance and manage the temporary water filtration program. It was never contemplated that the Corps should bear the ultimate responsibility for the program. The necessity for water filtration came to light in the midst of this substantial litigation in which plaintiffs have claimed and established that defendants discharge contains millions of amphibole asbestos fibers which pollute the drinking water of several North Shore communities endangering the health and welfare of thousands. Based on these findings, the District Court (Judge Lord presiding) issued an injunction calling for an immediate abatement of the discharge. United States v. Reserve Mining Co., 380 F. Supp. 11, 16, 17, 20, 21 (D.Minn.1974). On appeal the injunction was affirmed with modification allowing for abatement to take place pursuant to a time table set out by the Court of Appeals for the Eighth Circuit. Reserve Mining Co. v. Environmental Protection Agency, 514 F.2d 492, 499-500 (8th Cir. 1975). The Court of Appeals agreed that the discharge into the water created a potential health threat endangering the health and welfare of North Shore citizens, but that the threat was not sufficiently imminent to justify an immediate abatement. Id. at 500, 528. Nonetheless, it was held that the discharge did pose a danger to the public health sufficient to justify "judicial action of a preventive nature." Id. at 535. In addition to the injunction, the preventive measures included a continuation of the filtration program undertaken by the U. S. Army Corps of Engineers pursuant to order of the District Court. Id. at 540. Some months later, the Court of Appeals restated its view "that water filtration would have to continue for many years," Reserve Mining Co. v. Lord, 529 F.2d 181 at 182 (8th Cir. 1976). In ordering that clean water be supplied to the affected communities, the Court stated: We direct the Corps of Engineers to adequately filter drinking water and furnish safe drinking water for the *1214 relevant communities on the North Shore of Minnesota. . . . We direct continuance of filtration, supervision of filtering units and supply of bottled water until construction of permanent facilities has been completed. (at p. 183) As to defraying costs for such expenditures, the Court of Appeals stated: Reimbursement for any expenditures by the United States or the local communities in carrying out the filtration program rests within the jurisdiction of the district court. Upon proper motion and notice by the Corps or governmental units involved, and hearing, the district court shall determine what amounts Reserve must pay for the interim costs of abatement. at p. 184 Defendant makes several arguments in contesting liability. 1) There is no legal basis authorizing the United States action to seek reimbursement for the interim water filtration expenses. 2) Reserve's discharge does not create a health hazard sufficient to justify removal of their wastes. 3) Factors other than Reserve's discharge contribute to the suspended solids in the public drinking water. 4) Water filtration is a governmental function and to require defendants to pay for water filtration would result in an unconstitutional taking of property for a public purpose. 5) Basic fairness requires that Reserve not be made responsible for these costs. (1) Reserve argues that there is no legal authority permitting the United States to seek reimbursement for costs disbursed in the interim filtration program. The argument is without merit. The remedy sought by the plaintiffs is that defendants be held responsible for removing the potential disease producing fibers they have spread into the public drinking water of North Shore communities. The Court of Appeals has already commented that "a court is not powerless to act in these circumstances," Reserve Mining Co. v. Environmental Protection Agency, 514 F.2d at 536. Furthermore, from the above quoted language, the Court of Appeals has determined that the United States has the right to move for reimbursement and have this Court decide the merits of the issue. Reserve Mining Co. v. Lord, at p. 184. This determination is certainly consistent with the federal court's equitable powers to implement its judgments. It has been established that Reserve's discharge violates the Federal Water Pollution Control Act (hereinafter FWPCA), 33 U.S.C. § 1151, et seq. (1970).[1] It is settled that the courts may fashion appropriate relief, including mandatory relief, when a violation of federal law has been established. See Wyandotte Transportation Co. v. United States, 389 U.S. 191, 88 S. Ct. 379, 19 L. Ed. 2d 407 (1967); United States v. Republic Steel Co., 362 U.S. 482, 80 S. Ct. 884, 4 L. Ed. 2d 903 (1960); United States v. Rohm and Haas, 500 F.2d 167 (5th Cir. 1974) cert. denied, 420 U.S. 962, 95 S. Ct. 1352, 43 L. Ed. 2d 439, 43 L.W. 3472; United States v. Armco Steel Co., 333 F. Supp. 1073 (S.D.Tex.1971). The Wyandotte case is analogous. It involved the consolidation of two actions in which barges were sunk in navigable waters in violation of § 15 of the Rivers and Harbors Act, 33 U.S.C. § 409. In United States v. Cargill, Inc., the United States sought injunctive relief requiring that the defendant be responsible for removing the barges. In United States v. Wyandotte Transportation Co., the United States itself had removed the sunken barge and sought reimbursement for the costs of removal. The United States removed the barge in Wyandotte because *1215 it contained chlorine. "It was feared that if any chlorine escaped, it would be in the form of lethal chlorine gas, which might cause a large number of casualties." 389 U.S. at 194, 195, 88 S.Ct. at 382, 19 L.Ed.2d at 411.[2] Although the Rivers and Harbors Act did not specifically provide for injunctive relief or for reimbursement expenses, the Court held at 204, 88 S.Ct. at 387, 19 L.Ed.2d at 416: The Government may, in our view, seek an order that a negligent party is responsible for rectifying the wrong done to maritime commerce by a § 15 violation. Denial of such a remedy to the United States would permit the result, extraordinary in our jurisprudence of a wrongdoer shifting responsibility for the consequences of his negligence onto his victim. It might in some cases permit the negligent party to benefit from commission of a criminal act. We do not believe that Congress intended to withhold from the Government a remedy that ensures the full effectiveness of the Act. We think we correctly divine the congressional intent in inferring the availability of that remedy from the prohibition of § 15. As for the reimbursement expenses, the Court went on to say at 204, 88 S.Ct. at 387, 19 L.Ed.2d at 417: It is but a small step from declaratory relief to a civil action from the Government's expenses incurred in removing a negligently sunk vessel. See United States v. Perma Paving Co., 332 F.2d 754 (2nd Cir. 1964). Having properly chosen to remove such a vessel, the United States should not lose the right to place responsibility for removal upon those who negligently sank the vessel. . . . As in the Wyandotte case, the United States is seeking reimbursement for alleviating a potential health risk caused by a defendant in violation of federal law. Certainly the courts' powers are no less under the FWPCA. Congress vested the courts with full powers to fashion equitable relief. 33 U.S.C. § 1160(h) provides: The court, giving due consideration to the practicability and to the physical and economic feasibility of securing abatement of any pollution proved, shall have jurisdiction to enter such judgment and orders enforcing such judgment, as the public interest and the equities of the case may require.[3] In addition to the FWPCA, Reserve's discharge violates the Refuse Act, Sec. 13 of the Rivers and Harbors Act of 1899, 33 U.S.C. § 407 (1970), and is subject to relief pursuant to its provisions. Reserve Mining Co. v. Environmental Protection Agency, 514 F.2d at 532. It is clear that a court may fashion an appropriate mandatory remedy for violations of the Refuse Act, Sec. 13 of the Rivers and Harbors Act of 1899, 33 U.S.C. § 407 (1970). See United States v. Republic Steel Co., supra, United States v. Rohm and Haas, supra; United States v. Armco Steel Co., supra. Based on the findings in this case, the United States has the right to seek reimbursement *1216 for the costs of interim water filtration.[4] (2) Defendants' argument that injury from the contaminated water is only speculative hence not supportive of an assessment of the cost of clean water against them is fatuous. Both the District and Appellate Courts have found Reserve's discharge to be a health hazard. It is not required by law, or by common sense, that illness and death are conditions precedent to taking preventive measures against such a health hazard. In affirming the trial court's injunction, the Court of Appeals has concluded that the discharge constitutes a sufficient risk to require abatement and the removal of existing fibers from the public drinking water. Defendants did not appeal from these determinations. (3) Defendants maintain that they are not solely responsible for the contaminants in Lake Superior and hence should not be solely responsible for the cost of furnishing clean water. The simple answer to this is that there may be other impurities in Lake Superior water which are also incidentally removed by filtration, but the necessity for interim purification was occasioned solely by Reserve's discharge of amphibole asbestos fibers in its taconite tailings causing the health hazard to exist. Defendants call our attention to the historical recommendations of the Minnesota Department of Health that Duluth build a water purification plant, and urge that the need for filtration and purification of the water was present long before Reserve started operations. Reserve specifically refers to other amphibole fibers and nonamphibole fibers (including diatomaceous and mineral fibers, and chrysotile asbestos fibers) which enter the lake from natural sources, and are removed by the filtration process. The argument well may be pertinent and meritorious in whole or in part when plaintiffs seek reimbursement for construction of the permanent water filtration plant. We are now dealing only with reimbursement for interim costs of filtration. This Court is in the posture of assessing liability for temporary water filtration expenses incurred as a result of previous court orders. As a consequence only those materials that were a proximate or direct cause of the filtration orders are relevant. There are no findings that the amphibole hornblende or "diatoms" are dangerous to health and hence they could not have played any part in the decision to require interim filtration. There is a finding that chrysotile asbestos is equally as dangerous as amosite. United States v. Reserve Mining Co., 380 F.Supp. at 41. However, there are no findings as to chrysotile being present in the water supply or contributing to the potential risk. The presence or absence of chrysotile had no part in the decision to require interim water filtration. The court ordered filtration program was in direct response to the findings of amphibole asbestos fibers in the drinking water of North Shore communities.[5] It has been established that Reserve was responsible for substantially all of these fibers. After a nine month trial, the trial judge made extensive findings as to the identity of the particles in Reserve's discharge and the transportation of these fibers into public water supplies. Based on what appears to be overwhelming evidence *1217 the District Court concluded that Reserve contributed all of the cummingtinite-grunerite (which would include amosite) that could be identified in Lake Superior, 380 F.Supp. at 36. In so doing, Reserve's claims that cummingtinite-grunerite comes into Lake Superior in detectable quantities from natural sources were rejected. These findings were not reversed on appeal and obviously formed the basis for the Circuit Court's conclusion that Reserve's discharge into the water posed a potential health threat. See Reserve Mining v. Environmental Protection Agency, 514 F.2d at 507, n. 20, in which the Court of Appeals expresses general agreement with the findings of "historical facts." In addition, the trial judge made findings that the defendants discharge roughly 67,000 tons of wastes daily. Forty-four percent of this material is amphibole of which 50-70% is in the cummingtinite-grunerite range, 380 F.Supp. at 33, 34. Reserve's discharge contributes five to six times more suspended solids into Lake Superior than the combined total of all natural sources. Of the natural sources under five microns, there are only 640-1,300 tons entering, whereas Reserve contributes 3,500-5,800 tons finer than five microns. Id. at 34. Furthermore, the currents carry Reserve's discharge down into the western end of Lake Superior to Duluth and Superior, Wisconsin. Id. at 16. As samples are taken further from the plant the number of amphibole fibers decreases steadily. Id. at 35. See also Reserve Mining Co. v. Environmental Protection Agency, 514 F.2d at 516, n. 48. Finally water samples from the Stewart, Baptism, Beaver, St. Louis, Knife, Manitou and Lester Rivers all revealed an absence of amphibole material of any type. 380 F.Supp. at 35. Based on these findings, the Court can come to no other conclusion but that Reserve is responsible for essentially all of the amphibole asbestos fibers found in the public drinking water of the relevant communities. In that the interim filtration was ordered to remove these amphibole asbestos particles, Reserve should bear the sole liability. At the oral arguments on this motion Reserve suggested that this decision should not be based on the findings in the record but that additional evidence should be taken and new findings made. They cite two reasons: 1) The issue of the identity and source of particles in the water supply has not been litigated; 2) Certain new evidence would provide a basis for determining what portion of the contamination is caused by Reserve. The record does not support the first claim. Several plaintiffs included in their complaints a claim for clean up costs associated with the discharge, a nine month trial took place, and the question of financial responsibility for water filtration was taken under advisement by the trial judge. United States v. Reserve Mining Co., 380 F.Supp. at 17. On August 23, 1974, in response to questions from the Court, counsel for defendants agreed that the issues of the identity and source of the suspended solids in the drinking water had been fully litigated. T-19,908-19,909, 19,919-19,920. When this Court questioned counsel as to what evidence they were precluded from introducing at trial, counsel replied that the trial judge refused to admit evidence of asbestos contamination of water supplies in other communities and evidence relating to the biological, as opposed to human health, effects of the discharge. In addition, Reserve would now like to offer new evidence going to certain congressional action in this area, and additional analysis of water samples. Reserve cannot say what these new samples will show in terms of Reserve's contribution. None of this evidence bears directly on the reasons for ordering water filtration. This Court does not wish to preclude anybody and intends to insure that all parties are fairly and completely heard. Nonetheless, there must be an end to the litigation process. There was a nine month trial, the case was submitted and extensive findings *1218 have been made. The legal issue as to financial liability is ripe for decision. The decision can and should be made based on the findings in this case. The Court has given much consideration to the possibility of apportioning damages, although neither party has expressly sought this remedy. After a review of the authorities and the record in this case, it is clear that there is no reasonable basis for apportionment. See e. g., Mathews v. Mills, 288 Minn. 16, 178 N.W.2d 841 (1970); Johnson v. City of Fairmont, 188 Minn. 451, 247 N.W. 572 (1933); Anderson v. Minneapolis, St. P. & S. S. M. Ry. Co., 146 Minn. 430, 179 N.W. 45 (1920); W. Prosser, Law of Torts, § 52, (4th ed. 1971), Restatement (Second) of Torts § 433 A and B (1965). (4) Defendants argue they should not be required to pay interim water costs because furnishing clean water in an emergency is a governmental responsibility and to require the defendants to pay would be an unconstitutional taking of private property for a public purpose. There is no merit in this claim. The logic of it is basically faulty because to subscribe to it would exempt the wrongdoer from accountability for his fault. It is hard to see how defendants' property is unconstitutionally taken from them when the Court specifically directed the furnishing of clean water facilities and supplies following a finding that a health hazard existed proximately caused by Reserve's pollution. The pertinent statute, 33 U.S.C. § 701n, as amended in 1974, authorizes the Chief of Engineers "in the exercise of his discretion is further authorized to provide emergency supplies of clean drinking water" but "on such terms as he determines to be advisable." Here the Chief of Engineers has determined that defendants caused the pollution and should reimburse the United States for the clean water. The motion has been filed to accomplish that. (5) Finally Reserve urges that it would be just plain unfair to saddle it with pure water expense because it is already burdened with tremendous potential expense incident to the change-over to land disposal and with already committed air abatement expense. It says that at the encouragement of leading Minnesota citizens and government officials, it established its very expensive operations which have provided jobs and economic opportunity to Northern Minnesota and that, therefore, the government, rather than Reserve should foot the bill for clean water costs. The history of the beginnings of the taconite industry in Northern Minnesota and its successful operations for many years may well reflect just what is represented by defendants, but this does not minimize the obligation of defendants to shoulder the legal liabilities incident to the operation of a profit making corporation in the free enterprise system. This was exactly the kind of business risk assumed by Reserve when it sought, and was granted, the necessary permits to discharge its tailings in Lake Superior. Then Minnesota Conservation Commissioner Chester S. Wilson warned Reserve of this risk at a public hearing on June 17, 1947 in an exchange with H. S. Taylor, representing Reserve. The colloquy: Chairman Wilson: "And you understand that if the permit should be granted and the discharge from the water from this plant should result in damaging consequences not contemplated, that the responsibility would be on your company or on the applicant company to take whatever action might be necessary to remedy those conditions." Mr. Taylor: "Why yes, we can stand that risk in any event we have to take certain risks." (T. p. 27) Later at the hearing, Mr. Taylor said: This company will be a responsible company and we will recognize our legal liabilities. (T. pp. 30-32) *1219 The Court finds legal liability upon Reserve and hopes it will be a responsible company and recognize it. The Court is satisfied there is liability on defendants to pay the United States[6] for interim filtration and water supply expense. This expense was incurred at the Courts' specific direction. The sole motivating force for this direction was the finding that a health hazard existed because of Reserve's discharge of amphibole asbestos fibers into Lake Superior from which the affected communities obtain their drinking water. It was shown at the hearing that the Corps of Engineers has an adequate allocation of funds with which to preliminarily carry out the Court's orders. For that reason there is no necessity for requiring deposits of funds for anticipated costs of water filtration and supplies as requested. On all of the files, records, findings and conclusions, and decisions of this Court and the Court of Appeals, the Court: 1. Denies United States advance payment of anticipated expenses because the need for such has not been shown. 2. Finds liability against Reserve, Armco and Republic for interim filtration and water supply expense reasonably incurred by United States pursuant to the Court ordered program. 3. Directs the parties to meet promptly to agree, if they can, as to the correctness of the $288,800 sought or as to the exact amount expended. Absent agreement within one week, the Court, upon motion, promptly made, will hear evidence and decide the amount of liability. 4. Will hear additional motions by United States for periodic reimbursement as may be required. NOTES [1] All references to the FWPCA are to the statute as it was in effect prior the 1972 amendments. See Reserve Mining Co. v. Environmental Protection Agency, 8 Cir., 514 F.2d 492 at 501, n. 7. [2] As in the instant case, this "fear" was characterized by the circuit court as a "potential" hazard. United States v. Cargill, Inc., 367 F.2d 971, 973 (5th Cir. 1966). [3] Reserve cites a statement in the Senate Committee Report on Sec. 311 of the 1972 amendments to the FWPCA, 1972 U.S.Code Cong. and Admin.News at p. 3732 in an effort to limit the scope of this provision. This statement does not limit the clear language in the statute. The statement relied upon by Reserve was given in the context of 33 U.S.C. § 1162, the thrust of which deals with spills and other isolated discharges of toxic substances. 33 U.S.C. § 1160(h) is set up to cover repeated and systematic violations of federal water quality standards after extensive administrative proceedings. [4] In that the relief sought can be afforded under the Refuse Act, and FWPCA, this Court does not need to reach the question of whether or not the discharge also constitutes a nuisance in violation of the federal common law. See Reserve Mining v. Environmental Protection Agency, 514 F.2d at 532. [5] The only asbestos materials pertinent to this proceeding are the amphibole amosite and the nonamphibole chrysotile, p. 63 Transcript of Proceedings, February 18, 1976. The findings reflect only the presence of amphibole fibers. United States v. Reserve Mining Co., 380 F.Supp. at 47. Reserve Mining Co. v. Environmental Protection Agency, 514 F.2d at 516, 517, 520. [6] Duluth's motion for reimbursement for temporary water filtration expenses will be decided by a separate order.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1874381/

694 F. Supp. 1542 (1988) Arthur JONES, Plaintiff, v. AMERICAN BROADCASTING COMPANIES, INC., Defendant. No. 87-412-CIV-T-17(C). United States District Court, M.D. Florida, Tampa Division. September 7, 1988. Paul A. Louis, Sinclair, Louis, Siegel, Heath and J.F. Dougherty, II, Miami, Fla., for plaintiff. *1543 Gregory G. Jones, Christopher L. Griffin, Carlton, Fields, Ward, Emmanuel Smith, Cutler & Kent, P.A., Tampa, Fla., for defendant. ORDER ON MOTION FOR SUMMARY JUDGMENT KOVACHEVICH, District Judge. This cause of action is before the Court on Defendant's motion for summary judgment filed November 6, 1987, Plaintiff's response to issues 1, 3, and 5 filed April 15, 1988, and the court-ordered joint memorandum filed June 7, 1988. This circuit clearly holds that summary judgment should only be entered when the moving party has sustained its burden of showing the absence of a genuine issue as to any material fact when all the evidence is viewed in the light most favorable to the nonmoving party. Sweat v. The Miller Brewing Co., 708 F.2d 655 (11th Cir.1983). All doubt as to the existence of a genuine issue of material fact must be resolved against the moving party. Hayden v. First National Bank of Mt. Pleasant, 595 F.2d 994, 996-7 (5th Cir.1979), quoting Gross v. Southern Railroad Co., 414 F.2d 292 (5th Cir.1969). Factual disputes preclude summary judgment. The Supreme Court of the United States held, in Celotex Corp. v. Catrett, 477 U.S. 317, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986), In our view the plain language of Rule 56(c) mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to 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. Id. 477 U.S. at 322, 106 S.Ct. at 2552, 91 L.Ed.2d at 273. The Court also said, "Rule 56(e) therefore requires that nonmoving party to go beyond the pleadings and by her own affidavits, or by the `depositions, answers to interrogatories, and admissions on file,' designate `specific facts showing there is a genuine issue for trial.'" Celotex Corp., 477 U.S. at 324, 106 S.Ct. at 2553, 91 L.Ed. 2d at p. 274. The complaint in this cause of action was filed March 24, 1987. The complaint seeks compensatory and punitive damages (one billion dollars in compensatory and three billion dollars in punitive damages) for an alleged defamatory program broadcast on Defendant's news program 20/20 on March 12, 1987. The complaint asserts that the news broadcasters of that program conspired to betray Plaintiff on national television and to portray him as dishonest, a liar, and a man who is cruel to animals. Plaintiff asserts that the defamatory statements were made with malice and based on a conspiracy to destroy his reputation for truth and honesty. On November 6, 1987, Defendant filed a motion for summary judgment, alleging there is no genuine issue of material fact and that summary judgment is appropriate. The following issues were presented by the motion for summary judgment: 1. Plaintiff must, but has failed to, specify the particular statements of fact in the broadcast that allegedly defamed him, offering instead a non-specific, "shotgun" condemnation that is, as a matter of law, insufficient. 2. Plaintiff has failed to prove by any evidence, much less by the requisite clear and convincing evidence, that any statement made by Defendant was false. 3. The statements upon which Plaintiff purports to base his claim are not reasonably capable of a defamatory meaning. 4. Being a "public figure", Plaintiff must, but has failed to, show that Defendant acted with "actual malice", that is, with knowledge that its statements were false or with reckless disregard for their truth. 5. The statements about which Jones complains were non-actionable opinion, which is protected absolutely by the First Amendment. Plaintiff, thereafter, filed a motion to compel certain discovery: 1. all original out tapes, or all original videotape films, made in the production of "Save the Elephants", March 12, 1987; 2. copy of the videotape of the entire program 20/20 for March 12, 1987; *1544 3. all notes, memoranda, written documents, original handwritten correspondence, used by any staff or employees in the preparation of the program "Save the Elephants"; 4. all original out tapes, or all original videotape films, made in the production of the segment "The Flying Elephants", broadcast in 1984; 5. copy of the videotape of the entire 1984 20/20 program containing the segment "The Flying Elephants"; 6. all notes, memoranda, written documents, original handwritten correspondence, used by staff or employees, in the preparation of the segment "The Flying Elephants"; 7. copies of all notes, memoranda and correspondence between ABC and Pat Derby with respect to the program "Save the Elephants" from January 1, 1986, through the date of the motion; 8. copies of all original handwritten notes, inter-office memoranda, and other documents prepared by Barbara Walters, Hugh Downs, and Roger Caras in preparation of the program "Save the Elephants" from the date the program was first conceived through the date of the motion, exclusive of correspondence to any attorney subsequent to on or about March 16, 1987; 9. copies of original telephone logs reflecting calls between agents, officers, or employees of ABC with respect to the preparation and showing of the program "Save the Elephants", as well as any documents, notes, or other memoranda reflecting returned or original phone calls; 10. copies of all correspondence, notes, or memoranda received by ABC as a result of the broadcast of the program "The Flying Elephants" in 1984; and 11. copies of all letters, telegrams, or other written documents received by ABC as a result of the broadcast of the program "Save the Elephants" on March 12, 1987. On November 6, 1987, Defendant filed a suggestion to the court, in the nature of a request for protection, regarding discovery. Defendant offered to provide videotapes and transcripts, of the broadcast in question, at Plaintiff's request and expense. Defendant moved the court to deny any other discovery at that point, as the case was clearly frivolous. Defendant, additionally, filed an opposition to the motion to compel and again moved the court to deny further discovery until the resolution of the motion for summary judgment. A hearing was held by Magistrate Jenkins on the motion to compel December 9, 1987. On January 29, 1988, Magistrate Jenkins issued her order on the pending discovery matters. The order determined that three (3) of the issues of the summary judgment motion presented issues to which the discovery sought by Plaintiff had no relevance, specifically issues one, three, and five. The order directed Plaintiff to respond to those three issues of the motion for summary judgment and deferred ruling on the motion to compel pending resolution of issues one, three, and five of the motion for summary judgment. On February 8, 1988, Plaintiff filed a pleading entitled "Objections to or Petition for Hearing on Appeal of Magistrate's Order and Memorandum of Law." On March 22, 1988, this Court denied Plaintiff's objections to the magistrate's order and affirmed her ruling that issues one, three, and five of the motion for summary judgment resolved prior to subjecting the parties to extensive and expensive discovery that is of no relevance to those issues. FINDINGS OF FACT The following findings of fact are relevant to the disposition of the motion for summary judgment, some are the undisputed findings delineated by the parties in the court-ordered joint memorandum: 1. The Court has jurisdiction over the subject matter of this cause based on diversity of citizenship, pursuant to 28 U.S.C. § 1332. 2. American Broadcasting Companies, Inc. (hereafter ABC) broadcast the March 12, 1987, segment of the news magazine 20/20 entitled "Save the Elephants," including *1545 the "lead-ins," that are issues in this case. 3. Plaintiff Arthur Jones is the millionaire inventor of the Nautilus exercise machines. Plaintiff claims the segment in question constitutes defamation; the complaint states that he has "deservedly" built a national and international reputation as an entrepreneur and inventor of medical and exercise equipment, which has been sold to hundreds of thousands of purchasers throughout the world. Plaintiff also states he has previously enjoyed an excellent reputation as author of hundreds of articles on the topics of exercise, muscle structure, strength training principles, flexibility and metabolic condition, and rehabilitation or injuries; these articles have been published throughout the world. 4. The Court finds that over the years Plaintiff has invited media attention and has been the subject of repeated media coverage, including coverage in such publications as the Wall Street Journal, Newsweek, Business Week, Forbes, Playboy, and Time. (Ex. B, pgs. 1-21). At one point, Plaintiff was the subject of a report on the television program "Lifestyles of the Rich and Famous." Subsequent to that program, it was reported that Plaintiff intended to sue the host of that program, Robin Leach, and was quoted as saying, "Leach `is a malicious liar ...'" (Ex. B., pg. 16). 5. The coverage of Plaintiff has not been limited to his business affairs, but has also covered aspects of his personal life. Some aspects of his personal life that have been reported by the media are; 1) Jones packs an antique Colt 45 at all times; 2) Jones "gulps coffee by the pot and fast food by the bagful, chain smokes, and nibbles constantly from bowls of Hershey's Kisses and cheese puffs scattered about his office"; 3) " ... Jones tends toward drab, baggy outfits that he may not change for days"; 4) each of Plaintiff's wives, five total, have been 16 to 20 years old at the time they wed; 5) Jones " ... has told his children they will never see any of his fortune, `Leaving it to people destroys them.'"; 6) tales of Jones days as a big game hunter; 7) the animals that he houses on this farm, which have included a gorilla, a pair of rhinoceroses, Galapogos turtles, African elephants, snakes, and crocodiles; and 8) his bottom line " ... So I would like to live as long as possible and mind my own business and do things that matter— younger women, faster airplanes, and bigger crocodiles." (Ex. B, pgs. 1-21). 6. On March 16, 1987, by letter, demanded Defendant retract the contents of the broadcast. The retraction demand letter is attached as Exhibit C of the complaint. 7. Exhibit B to the complaint is a true and correct videotape copy of a portion of the March 12, 1987, "Save the Elephants" segment of the 20/20 broadcast, which is the basis of the complaint herein. The first two "lead-ins" to the segment are not a part of Exhibit B. The complaint makes no allegation that these "lead-ins" are defamatory; they were first referred to in the April 15, 1988, response to the motion for summary judgment. Exhibit C to the motion for summary judgment is a written transcript of the segment in question. 8. Exhibit 16, Plaintiff's Appendix, is a true and correct copy of the entire broadcast of the 20/20 news program for March 12, 1987. This tape contains portions which are not claimed to be defamatory. 9. In 1984, Plaintiff transported sixty-three (63) baby African elephants from Zimbabwe to his Ocala, Florida, property aboard a 707 jetliner. Plaintiff purchased the elephants from Zimbabwe to prevent them from being killed in a "cull" of the elephant herd. Defendant broadcast a segment on its news program 20/20 entitled "The Flying Elephants". This news segment followed the efforts of Plaintiff to purchase the baby elephants and transport them to the Ocala property. 10. The herd resided on Plaintiff's estate Jumbolair until on or about July 21, 1986, when the elephants began to be dispersed pursuant to an agreement signed with David Meeks of the Little Mountain Zoological Park, in Inman, South Carolina. 11. The following is the transcript of the March 12, 1987, broadcast of the segment *1546 "Save the Elephants", including the lead-ins to the segment (material not related to this segment has been omitted and the omission is indicated by the use of asterisks): Hugh Downs: Good evening, I'm Hugh Downs. Barbara Walters: And I'm Barbara Walters. And this is 20/20. * * * * * * Downs (voice over): * * * * and in 1984, these baby elephants walked into our hearts when 20/20 reported how this Florida millionaire airlifted them to safety. Now the herd must be disbanded, and their future is in doubt. Are we all at fault? Pat Derby, Elephant Expert: What we do to animals in general is not wonderful; what we do to elephants is horrible. Downs (voice over): Roger Caras asks if the dream has gone sour, and why its time again to save the elephants. * * * * * * Walters: Well, later in this program, we'll follow up on the fate of some baby African elephants to whom a promise was not kept. * * * * * * * * * * Downs: * * * *, but next, they say elephants never forget, but sometimes people, unfortunately, do. Roger Caras reports why it may be time once again, to "Save the Elephants." Stay with us. SAVE THE ELEPHANTS Downs: It's been almost three years now since 20/20 first reported on this man, eccentric Florida millionaire and inventor of the Nautilus exercise machines, Arthur Jones, and his daring airlift rescue of a herd of baby African elephants marked for death. It was one of the most talked about segments we've done here. But, as ABC News nature and wildlife correspondent Roger Caras tells us, what we thought was the happy ending to this elephant story is actually, according to the experts, the beginning of a sad and painful journey. Arthur Jones, Entrepreneur: I simply could not live with myself if I idly stood by and watched the African elephant become extinct. Roger Caras (voice over): That's how Florida millionaire Arthur Jones explained his mission in 1984, when 20/20 first reported this story. Jones wanted to rescue baby elephants in Zimbabwe from a cull, or thinning of the herd, like this one. [videoclip of elephants being shot] This was the dramatic scene in 1984, when Jones took one of his three 707s across the Atlantic and into the heart of the African continent. His commitment seemed both emotional and financial. He paid Zimbabwe $750 for every baby elephant they let him save. Sixty-three badly frightened babies were loaded up and then, as the sun began to set, Jones had to round up his people. Mr. Jones: Buck, take that damn vehicle and run over and tell those people to get here now. Caras (voice over): Since the African airstrip had no lights, a delay in takeoff would mean no takeoff, because the pilot was afraid of other wild animals wandering out onto the strip. The crew was also worried about whether the plane would lift off at all, with 40,000 pounds of elephants aboard. Finally airborne, the tension in the cockpit eased, even if the elephants in the cargo bay were not convinced. All night long, the ghostly figures of the handlers moved around, as they tried to calm the babies. After a hair-raising 22 hour flight, they arrived at Jones' ranch for, it was assumed, the rest of their lives. At least, that was the impression Jones gave. Mr. Jones: We're going to give them an opportunity to survive and to build a self-sustaining herd of African elephants in this country. Caras (voice over): For two and a half years, the Zimbabwe orphans lived the good life here on Arthur Jones' estate in central Florida. But all of that's coming to an end. The herd is being dispersed. Pat Derby is an experienced elephant handler. She says splitting up the herd *1547 is a terrible mistake, that nature intended elephants to live in family groups. Pat Derby, Elephant Expert: These are extremely social animals. They live for each other, literally, and when you pull a baby elephant out of that situation, that's stressful in itself. I've known of elephants to die just from that. Caras (voice over): And just how big was and is the Ocala herd? The 63 that were brought from Zimbabwe joined 33 Jones already had from another source, 96 elephants total. Not the typical American home. Twelve of those died of a variety of problems, but considering what they'd gone through, that isn't that bad a result. It should be made clear that Jones' elephants got the very best care from keepers and veterinarians. Eighty-four elephants, then, survived. But there are only 53 there now. That means 31 have gone someplace, Jones says the elephants were sold by someone else, while he was selling his business, Nautilus Sports Medical Industries, Incorporated, to Ward International Corporation. Mr. Jones: I lost total control of all my assets. Things were done in the way of disposing of elephants during the time that I was not in control that I simply couldn't prevent. Caras (voice over): But Ward says they didn't control anything until August 1986. They never sold any elephants, and the agreement to sell them to a part-time animal dealer named David Meeks was signed by Jones' foreman, Ralph Cramer, in July. Ms. Derby: Ralph Cramer told me, when I was in Florida in May, that Arthur had told him to dispose of as many of the elephants as he could. Caras (voice over): When the elephants do leave Florida, this is their first stop, the Little Mountain Zoological Park, in Inman, South Carolina. It's here that their conditioning and training begins for the lives that have been chosen for them. David Meeks runs this private zoo, and although the animals appear well while they are here, the elephants don't get to stay here. Meeks says he tries to find good homes for the elephants, but good homes are hard to find for animals who may be 12 feet tall, weigh eight to ten tons and be able to walk through concrete walls. And what kinds of homes has Meeks chosen so far? Three elephants, at least, went to private individuals as pets. Eight to small animal parks and circuses not checked out by Meeks. The sales were made over the telephone. And one to an animal trainer who Meeks himself admitted to 20/20 uses cruel training techniques. All these are perfectly legal transactions. The problem is, an elephant, once stripped of its herd, dumped so to speak, will become extremely dangerous if not properly handled. Ms. Derby: So many dumped elephants become quote "rogues," because they're mishandled, they're the victims of improper diet, of every kind of atrocity in the world. Their only way to retaliate, they do one of two things, they either attack or they run. David Meeks, Animal Dealer/Trainer: When I sell it, I try to make a decision at that time if it's going to a good place, and I want to know that that person is going to be okay, okay? I can't tell, if he comes here in one day, if he's okay or not. But if this guy is USDA-licensed, someone has said that he's okay other than himself. Caras (voice over): There are a few problems with that theory. First, the USDA elephant licensing standards are minimal at best. Second, they are too understaffed to do very many meaningful inspections. Finally, private owners who don't exhibit their animals are exempt from regulations. Ms. Derby: Today, anybody with the money to purchase an elephant can get an elephant. There is no provision for quality of life. There is not provision for expertise. We have no, absolutely no, laws which protect the elephants or the people. Caras: I don't imagine a baby elephant has the kind of mind that harbors expectations, *1548 but if one did, I don't think that any one of the elephants David Meeks sold expected to end up here, in Davenport, Florida, at the Liebel Family Circus. But one was sent here. It died just after a few months. Mr. Liebel's previous elephant died too. As recently as last December, the USDA inspector found this place suitable for elephants. Mr. Liebel agreed to meet us at his circus' winter headquarters, but when we arrived, he wasn't to be found. We discovered later that he was in Inman, South Carolina, picking up yet another baby elephant from David Meeks. (voice over) One important consideration: the elephants Jones brought from Africa are African, a species with almost no history of working with man. They tend, according to most experienced handlers, to be trickier and less reliable than their Asian cousins, the elephants we're used to seeing in most zoos and circuses. Arthur Jones' staff is experienced, but what happens when they aren't around. After all, elephants can live up to 70 years. Mr. Jones: You know, and sometimes I'm not even responsible for the past, Roger, don't try to hold me responsible for the future. Ms. Derby: It's his responsibility. That herd was brought over as a herd, and it should remain a herd. Mr. Jones: It was never our intention to keep them all, it was impossible; but if we could have saved them, certainly no harm done. Ms. Derby: I really feel they should have been destroyed in Africa. It's a quick death. They would have been with their own herd. They would not have known. To send them into anything else is not kind. Caras (voice over): Jones says he doesn't know how many more he will sell, what the optimum herd size may be. Taking responsibility for 96 elephants, a herd that at maturity would weigh between 850 and 900 tons, require 4600 gallons of drinking water and 32,000 pounds of food a day, could be likened to climbing onto a tiger, and Arthur Jones, commenting on elephant ownership in general, said the advice of Confucius might apply. Mr. Jones: "He who chooses to ride the tiger should carefully determine in advance how he intends to dismount." Walters: He who chooses to bring over a herd of elephants should carefully think of what he's going to do after he has them in his backyard, shouldn't he? Caras: Barbara, it's no different than going to a pound and adopting a dog or a cat. If you're rich enough to go to Africa and bring a herd of elephants then your responsibility [is] for the life of the animals, and elephants live 60 to 70 years. He's a very rich man. He should endow these animals, give them to a university, keep them together so they can be studied and they can be cared for long after he's dead and we're dead. Walter: What would it cost? Caras: Millions, but he's got millions— $5 million, $10 million. And if not, maybe someone in the audience will come up with the money, but clearly, they should not be dissipated like that. We just got word that six more are being sent to a circus in Mexico. It's a fate worse than death. Walters: You know, we forget, isn't it cute, we're going to have all these elephants, and we're going to adopt these dogs or these cats, but we don't think of the next day. Thank you for bringing this to our attention. Let's hope that something can be done about it. * * * * * * LEGAL ISSUES The parties in the court-ordered joint memorandum stated the following to be the undisputed issues of law in this cause of action: 1. Under Florida law, in order for the statements upon which Jones bases his complaint to be actionable, those statements must be reasonably capable of a defamatory meaning. 2. The determination of whether the statements made in the broadcast are reasonably capable of a defamatory meaning is a question of law for the Court to decide. *1549 3. The entire broadcast should be considered by the Court in determining whether, in the context of the broadcast, the statements made are reasonably capable of a defamatory meaning as to Plaintiff. 4. The determination of whether the statements attacked are protected statements of opinion is also a question of law for the Court to decide. 5. Plaintiff bears the burden of identifying particular statements in the broadcast, demonstrating that those statements are reasonably capable of a defamatory connotation, and demonstrating that the statements are fact rather than opinion. Summary judgment is proper if there exists no genuine issue as to any material fact. At this time, the Court is addressing only three of the five issues presented in the motion for summary judgment; those being issues 1, 3, and 5. The parties agree that the following constitute the issues of law which the Court must resolve: 1. Whether Plaintiff has identified specific statements in the broadcast that defame him? 2. Whether the statements made in the broadcast are reasonably capable of a defamatory connotation? 3. Whether the statements made in the broadcast are protected statements of opinion and thus nonactionable? 4. Whether the "out-takes" of the March 12, 1987, broadcast are relevant in any way to the issues currently before the Court? In New York Times v. Sullivan, 376 U.S. 254, 84 S. Ct. 710, 11 L. Ed. 2d 686 (1964), the Supreme Court explicated a standard for defamation cases involving public officials. The New York Times published a political advertisement endorsing civil rights demonstrations in Alabama by black students and by implication condemned the performance of local law enforcement. A police commissioner filed suit and demonstrated in state court that certain statements in the ad referred to him and that they constituted libel per se under Alabama law. Defendant Times was left with the single defense of truth. The United States Supreme Court concluded that "a rule compelling the critic of official conduct to guarantee the truth of all his factual assertions" would deter protected speech. Id., at 279, 84 S.Ct. at 725. The court said: The constitutional guarantees require, we think, a federal rule that prohibits a public official from recovering damages for a defamatory falsehood relating to his official conduct unless he proves that the statement was made with "actual malice"—that is, with knowledge that it was false or with reckless disregard of whether it was false or not. Id., at 279-280, 84 S.Ct. at 726. The Court three years later in Curtis Publishing Co. v. Butts, 388 U.S. 130, 87 S. Ct. 1975, 18 L. Ed. 2d 1094 (1967) extended the constitutional privilege to defamatory criticism of "public figures." Mr. Justice Brennan in the majority opinion of Rosenbloom v. Metromedia, Inc., 403 U.S. 29, 91 S. Ct. 1811, 29 L. Ed. 2d 296 (1971), extended the privilege even further to included defamatory falsehoods relating to private persons where the statements concerned matters of general or public interest. The plurality opinion was joined by Justices Burger and Blackmun. Justices Black and White concurred in the judgment, in separate opinions, and Justices Harlan, Marshall, and Stewart dissented. Further modification of the privilege was had in Gertz v. Robert Welch, Inc., 418 U.S. 323, 94 S. Ct. 2997, 41 L. Ed. 2d 789 (1974). The Court there stated: We begin with the common ground. Under the First Amendment there is no such thing as a false idea. However pernicious an opinion may seem, we depend for its correction not on the conscience of judges and juries but on the competition of other ideas. But there is no constitutional value in false statements of fact. Neither the intentional lie nor the careless error materially advances society's interest in "uninhibited, robust, and wide open" debate on public issues. (cite omitted) They belong to that category of utterances which "are no essential part of any exposition of ideas, and are of such slight social value as a step to truth that any benefit that *1550 may be derived from them is clearly outweighed by the social interest in order and morality." (cite omitted) Although the erroneous statement of fact is not worthy of constitutional protection, it is nevertheless inevitable in free debate. As James Madison pointed out in the Report on the Virginia Resolutions of 1798: "Some degree of abuse is inseparable from the proper use of every thing; and in no instance is this more true than in that of the press." (cite omitted) And punishment of error runs the risk of inducing a cautious and restrictive exercise of the constitutionally guaranteed freedoms of speech and press. Our decisions recognize that a rule of strict liability that compels a publisher or broadcaster to guarantee the accuracy of his factual assertions may lead to intolerable self-censorship. Allowing the media to avoid liability only by proving the truth of all injurious statements does not accord adequate protection to First Amendment liberties. As the Court stated in New York Times Co. v. Sullivan, supra, 376 U.S., at 279, 84 S.Ct., at 725: "Allowance of the defense of truth, with the burden of proving it on the defendant, does not mean that only false speech will be deterred." The First Amendment requires that we protect some falsehood in order to protect speech that matters. The need to avoid self-censorship by the news media is, however, not the only societal value at issue ... Some tension necessarily exists between the need for a vigorous and uninhibited press and the legitimate (state) interest in redressing wrongful injury ... In our continuing effort to define the proper accommodation between these competing concerns, we have been especially anxious to assure to the freedoms of speech and press that "breathing space" essential to their fruitful exercise. (cite omitted) To that end this Court has extended a measure of strategic protection to defamatory falsehood. The New York Times standard defines the level of constitutional protection appropriate to the context of defamation of a public person. Those who, by reason of the notoriety of their achievements or the vigor and success with which they seek the public's attention, are properly classed as public figures and those who hold governmental office may recover for injury to reputation only on clear and convincing proof that the defamatory falsehood was made with knowledge of its falsity or with reckless disregard for the truth. (footnotes omitted) Id., at 339-342, 94 S.Ct. at 3007-3008. Gertz went on to conclude that the States should retain substantial latitude in their efforts to enforce legal remedies for defamatory falsehoods injurious to private individual. So long as they do not impose liability without fault, each state may define the appropriate standard of liability for a publisher or broadcaster of defamatory falsehoods relating to private individuals. Id., at 346-347, 94 S.Ct. at 3010-3011. As to public figures, the breathing space referred to in Gertz is provided by "a constitutional rule that allows public figures to recover for libel or defamation only when they can prove both that the statement was false and that the statement was made with the requisite level of culpability." Hustler Magazine v. Falwell, ___ U.S. ___, 108 S. Ct. 876, 99 L. Ed. 2d 41 (1988). To be true "it is not essential that the literal truth be established in every detail as long as the article contains the gist of the truth as ordinarily understood." Orr v. The Argus-Press Co., 586 F.2d 1108, 1112 (6th Cir.1978). It is a question of law, for the trial judge rather than a jury, as to whether or not the statements at issue are facts or non-actionable opinion, and, if fact, whether they are reasonably capable of a defamatory meaning. Diplomat Electric, Inc. v. Westinghouse Electric Supply Co., 378 F.2d 377, 382 (5th Cir.1967). There is a distinction between pure opinion and a mixed expression of opinion. Pure opinion is based on facts set forth in the broadcast or publication, or facts that are otherwise known or available to the reader or listener as a member of the public. Mixed opinion is based on facts relating to a person or his *1551 conduct that are neither stated in the publication or broadcast nor assumed to exist by a party exposed to the communication. Rather, the communication "implies" that a concealed or undisclosed set of defamatory facts would confirm his opinion. Pure opinion is protected by the First Amendment; mixed opinion is not. Hay v. Independent Newspapers, Inc., 450 So. 2d 293 (Fla. 2d D.C.A. 1984). If a statement is susceptible to two interpretations, one defamatory and one not, a jury should determine whether the statement is defamatory. Hallmark Builders, Inc. v. Gaylord Broadcasting, 733 F.2d 1461, 1463 (11th Cir.1984). Designation as a public figure may be based on two different bases. Some individuals achieve such pervasive fame or notoriety that they become a public figure for all purposes and in all contexts. More commonly, an individual voluntarily injects himself or is drawn into a particular public controversy and thereby becomes a public figure for a limited range of issues. Gertz, at 351, 94 S.Ct. at 3012. It is for the trial judge, not the jury, to determine whether or not a plaintiff is a public figure. Brewer v. Memphis Publishing Co., Inc., 626 F.2d 1238, 1255 (5th Cir.1980). In establishing limited public figure status the Eleventh Circuit Court of Appeals has adopted a three-part analysis. A court must 1) isolate the public controversy, 2) examine plaintiff's involvement in the controversy, and 3) determine whether "the alleged defamation [was] germane to the plaintiff's participation in the controversy." Long v. Cooper, 848 F.2d 1202, 1204 (11th Cir.1988); Silvester v. American Broadcasting Companies, Inc., 839 F.2d 1491 (11th Cir.1988). ISSUE: WHETHER PLAINTIFF HAS IDENTIFIED SPECIFIC DEFAMATORY STATEMENTS? When the publication under scrutiny is a television broadcast, the script must be evaluated in its totality, considering all the words used and not merely a particular phrase or sentence. The words and images should be taken together, because each is an important element of the nature of the publication. Silvester v. American Broadcasting Companies, Inc., 650 F. Supp. 766, 770 (S.D.Fla.1986), aff'd, 839 F.2d 1491 (11th Cir.1988). The Court must also, however, distinguish between an overall defamatory impact and a particular defamatory implication. A defamatory implication, which might be actionable, is a combination of individual statements which in themselves may not be defamatory and which may be literally accurate, but, when combined, might lead the reader to draw an inference that is damaging to Plaintiff. Herbert v. Lando, 781 F.2d 298, 307 (2nd Cir.1986). Where the defamatory implications of the specific statements and the overall impact of the broadcast are the same it a meaningless gesture to allow the plaintiff to rest his cause of action on the "overall impact" of the broadcast. In that instance, the plaintiff is required to specifically identify those statements which he claims are defamatory and may not rely solely on the "overall impact" to establish the alleged defamation. Id. at 307-308. The cause of action presents a situation where the alleged defamatory impact of the broadcast is the same as the alleged defamatory implication of the allegedly defamatory individual statements. Plaintiff is required to identify the specific defamatory statements. Plaintiff asserts that he has sufficiently identified the alleged defamatory statements. (see pgs. 11-22 of Plaintiff's response to issues 1, 3, and 5 of Defendant's motion for summary judgment). The Court agrees and will therefore address the remaining two issues presented in the present motion for summary judgment. ISSUE: WHETHER THE STATEMENTS MADE IN THE BROADCAST ARE REASONABLY CAPABLE OF A DEFAMATORY CONNOTATION AND/OR NONACTIONABLE OPINION? Plaintiff asserts that the broadcast as a whole, as well as specific identified statements, implies that he is a liar, a cheat, dishonest, a man who breaks promises, an animal abuser, a hypocrite, a wacky screwball, *1552 inhumane, and that he acted with ulterior motives. (joint memorandum, pg. 9). It is the Court's role to determine initially, as a matter of law, if the statements in this broadcast are "reasonably capable of a defamatory interpretation." A statement may be defamatory if it "tends to subject one to hatred, distrust, ridicule, contempt or disgrace." Keller v. Miami Herald Publishing Co., 778 F.2d 711, 716 (11th Cir.1985). In determining if the statement(s) are reasonably capable of a defamatory meaning, the Court must examine how a reasonable person would have interpreted the statements. The language of the publication should not be given a tortured interpretation but should be construed as the common mind would understand the statement. Diplomat Electric, 378 F.2d at 381-382. As to several of Plaintiff's contentions, in particular that the program implied he was an animal abuser, a wacky screwball, cheat, and acted with ulterior motives, the Court finds that no statement, nor indeed the broadcast as a whole, implies, implicates, or attributes these alleged defamatory impressions to Plaintiff. In deed, the broadcast makes it clear that when the elephants were in the care and control of Plaintiff they "got the very best care from keepers and veterinarians." Any implication, if there was such implication, that the elephants might be abused could not reasonably be construed to refer to Plaintiff. There is nothing in the broadcast, in whole or by individual statement, that implies that Plaintiff had ulterior motives for either rescuing the elephants or for later dispersing a portion of the herd, if indeed he dispersed the herd. As to the "wacky screwball" complaint, the Court finds that such a defamatory meaning can not reasonably be construed from the broadcast. A one point Hugh Downs refers to Plaintiff as an eccentric millionaire. Eccentric is not inherently derogatory or unflattering; it refers to one who deviates from an established pattern, rule or norm. The terms wacky and screwball refer to someone who is "crazily eccentric", "absurdly eccentric" or "irrational." The Court would have to take a "tortured" route to find that the broadcast in question casts Plaintiff in such a light as a "wacky screwball" and would be reasonably interpreted as defamatory to Plaintiff in that regard. Webster's 7th New Collegiate Dictionary, (1967). (See, Skolnick v. Nudelman, 95 Ill.App.2d 293, 237 N.E.2d 804, 810 (1968) where the terms "nut," "mishuginer," and the like were found to be "name-calling" but not defamatory.) The term "cheat" refers to someone who "deprives of something of value by the use of deceit or fraud." Webster's 7th. The Court finds that the broadcast, either in whole or in part, is not reasonably capable of the defamatory interpretation that Plaintiff is a "cheat." The remaining "implications" asserted by Plaintiff as defamatory are that Plaintiff is "dishonest"; this assertion encompasses the assertion that they imply he is a liar, a hypocrite, and a man who breaks promises and inhumane. The broadcasts contains the following statements: Walters: Well, later in this program, we'll follow up on the fate of some baby African elephants to whom a promise was not kept. Caras: * * * * After a hairraising 22 hour flight, they arrived at Jones' ranch for, it was assumed, the rest of their lives. At least, that was the impression Jones gave. This constitutes the statements in the broadcast which refers to Plaintiff's keeping a promise, or not, and perhaps to his "honesty." If these statements are factual in nature they might be actionable. However, the Court finds that these statements are non-actionable opinion. The second quoted statement is clearly the opinion of Roger Caras that he "assumed" and his "impression" of Jones was that the elephants would stay at the Jones' ranch forever. The statement does not imply "concealed or undisclosed set of defamatory facts" which would confirm that opinion. In context, of the broadcast it is clear that the first quoted statement is also non-actionable *1553 opinion and is in fact opinion based on the contents of the broadcast itself, rather than any set of "undisclosed" defamatory facts. Plaintiff's final assertion to be addressed is whether the broadcast, in whole or in part, is reasonably capable of the defamatory interpretation that Plaintiff is "inhumane." The Court has carefully reviewed the printed transcript and the many hours of videotape submitted by the parties in regard to this motion for summary judgment. Based on all that the Court has read and seen, it finds that the broadcast, as a whole or in part, is not reasonably capable of a defamatory interpretation that Plaintiff is inhumane and/or is nonactionable opinion. Much of the broadcast consists of non-actionable opinion based either on facts set forth in the broadcast or otherwise known or available to the public, i.e. expert opinion, Pat Derby's opinion as to the preferable fate of the elephants. Much of the broadcast is substantially true, i.e. the herd brought from Zimbabwe was being at least partially dispersed, the elephants were going to various environments, at least one of the elephants died in its new environment, Ralph Cramer signed the document selling some elephants to David Meeks, Jones is a millionaire. Taken in context and without giving the broadcast any "tortured" interpretation, the Court finds that a reasonable person would not have interpreted the broadcast, in whole or in part, as being defamatory to Plaintiff. Applying the reasonable person standard, the Court finds the following interpretation is reasonable in context or the entire broadcast. Plaintiff bought sixty-three (63) baby elephants from Zimbabwe in 1984 to protect them from being killed in a cull. Plaintiff appeared to others to be committed to saving the elephants, both emotionally and financially. Plaintiff is a millionaire. Although Plaintiff did not say so directly, some people were under the impression that Plaintiff intended to keep the elephants on his ranch "forever." Plaintiff denies that was ever his intention, as it was infeasible from the beginning. The elephants received excellent care and treatment while they were on Plaintiff's ranch. At some point in time, the herd of sixty-three (63) elephants began to be sold to David Meeks of Little Mountain Zoological Park, Inman, South Carolina. Plaintiff contends that the sale was consummated at a time he was not in control of the elephants or the rest or his assets because he had sold them to Ward International. Ward International denies it was in control at the time of the sale and that it every sold any elephants. The bill of sale for some elephants was executed by Ralph Cramer, the foreman of the ranch, and David Meeks. David Meeks' private zoo is where the elephants are first taken after sale. There they are trained and readied to go on to new owners, including circuses, zoos, and private owners. At least one of the elephants died after it was sold by Meeks to a small circus. Plaintiff had no control over the elephants after they were sold, and according to his own statements had no control over their sale. In the opinion of some, including Pat Derby "expert elephant handler" the "dumped" elephants may become problems if they are not properly handled after they leave the herd. Ms. Derby's opinion is that the elephants would have been better off being left to the cull than having the herd separated. It is also the opinion of Roger Caras that life for an elephant in a circus in Mexico is a fate worse that death. Ms. Derby, as well as Roger Caras and Barbara Walters, are of the opinion that Plaintiff should have assumed responsibility for the elephants forever and keep the herd together. Mr. Caras thinks Plaintiff should endow the herd with some of his millions. The Court, as a matter of law, finds that this "reasonable person" interpretation of the broadcast in question is not reasonably capable of a defamatory meaning that Plaintiff is inhumane. A more reasonable interpretation is that some people, including a person who has experience with elephants, feel that Plaintiff should have kept all the elephants and somehow endowed their future, because the next owner of the *1554 elephant(s) might not provide as good a home as Plaintiff had in his ownership. Accordingly, it is ORDERED that Defendant's motion for summary judgment on issues 1, 3, and 5 be granted and this cause of action be dismissed with prejudice.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1874946/

427 B.R. 337 (2010) In re STINGFREE TECHNOLOGIES COMPANY. Stingfree Technologies Company, Appellant v. Americ Investments Capital Company; VI Capital Company; Lisa Vito; and Vrobert A. Vito, Appellees Fonika Ventures, LLC, Movant. Civil Action No. 09-cv-01119. Bankruptcy No. 08-16232(bif). United States District Court, E.D. Pennsylvania. March 31, 2010. *340 Albert A. Ciardi, Jr., Philadelphia, PA, for Appellant. Gretchen M. Santamour, Philadelphia, PA, for Appellant. Gene M. Linkmeyer, Esq., for Movant. *341 OPINION JAMES KNOLL GARDNER, District Judge. This matter is before the court on the Notice of Appeal dated February 16, 2009 by debtor-appellant StingFree Technologies Company ("StingFree"), by which StingFree appeals the February 4, 2009 Order and accompanying Memorandum of United States Bankruptcy Judge Bruce Fox ("Memorandum") dismissing StingFree's Chapter 11 bankruptcy proceeding.[1] Also before the court is the Motion of Fonika Ventures, LLC to Intervene, which motion was filed June 17, 2009.[2] On January 12, 2010, I heard oral argument on the entire matter, including the motion to intervene, and took the matter under advisement.[3] Hence this Opinion. For the reasons articulated below, I deny Fonika's motion to intervene, and I affirm the Order of the bankruptcy court. JURISDICTION This Court has subject matter jurisdiction over this bankruptcy appeal pursuant to 28 U.S.C. § 158(a)(1). FACTS AND PROCEDURAL HISTORY The facts and procedural history herein are gleaned from the February 4, 2009 Order and accompanying Memorandum of the bankruptcy court, the record of this matter, and, to the extent they are in agreement, the briefs of the parties.[4] Appellee Robert Vito previously served as president, chief executive officer, and chairman of the Board of StingFree, a Pennsylvania corporation which owned and developed patents for technology designed to reduce or absorb undesirable shock vibrations when using golf clubs. The company was originally formed by Dr. Thomas Fallone and Dr. Carmen DiMario as Pendulum Corp. In June 2001, Drs. Fallone and DiMario formed a new Pennsylvania corporation called Inner Core, which purchased the patent rights held by Pendulum, changed the name in 2003 to Stingfree, and renamed the corporation in 2005 as StingFree Technologies.[5] StingFree operated from a basement office at the home of Mr. *342 Vito and his wife, Lisa Vito (appellees "the Vitos"). The Vitos charged StingFree rent.[6] StingFree hired an accountant, Christopher Nawn, CPA, to review its books and records. Mr. Nawn issued a report in January 2008 based on his review of limited corporate records. Also in January 2008, StingFree replaced Mr. Vito with Richard Rudinger as its chief executive officer and board chairman. Litigation ensued, involving Mr. Vito, StingFree, Mr. Rudinger, and StingFree director Dr. Thomas Fallone. Ultimately, the Vitos and StingFree entered into a "Stock Redemption, Separation and Settlement Agreement" ("Settlement Agreement") dated February 29, 2008.[7] The bankruptcy court summarized the Settlement Agreement, in part, as follows.[8] This agreement provided for the Vitos to sell 68,219,000 shares of Stingfree stock titled in their names (and to transfer 6,460,000 options to purchase stock) to Stingfree for $3,900,000, plus the assumption by Stingfree of certain corporate debts payable, or otherwise guaranteed, by the Vitos. The Vitos received a promissory note in this amount, with payments to be made at three stated intervals over roughly a 25-month period, from February 29th. The first payment of $1 million was due by May 19, 2008. The promissory note contained a confession of judgment provision. The Settlement Agreement also provided that Mr. Vito would resign immediately as Stingfree's president; a June 2006 employment agreement between Stingfree and Mr. Vito was terminated immediately; and Mr. Vito agreed not to compete with Stingfree for 12 months and to keep confidential corporate information. Furthermore, the two pending lawsuits involving Stingfree and the Vitos were to be withdrawn. A mutual release attached to the settlement agreement was signed that included all claims "in law or equity which the Releasors ever had, [or] now have...." The settlement agreement also recited that Stingfree was the sole owner of its patents. However, as security for promised payments from the corporation, the Vitos received a pledge of the stock being sold to the corporation as well as a "first lien security interest in the patents held by the Company on the date hereof," along with an assignment of patent rights.[9] The Vitos also promised to return all property belonging to StingFree including, but not limited to, all corporate records, including "corporate accounting records, corporate bank account statements, [and] corporate correspondence".[10] The Settlement Agreement included a mandatory arbitration clause, which provided, in part, that "[a]ny controversies or disputes arising out of or relating to this Agreement shall be resolved by binding arbitration in accordance with the then current Commercial Arbitration Rules of *343 the American Arbitration Association."[11] Additionally, the Settlement Agreement contained a section titled "Default", which provided, in part, that "A default under the terms of any of the Transaction Agreements shall be considered a default under all such agreements. All defaults, except monetary defaults, are curable, and if not so cured shall be resolved according to the Dispute Resolution Section herein."[12] The bankruptcy court found that Mr. Vito delivered certain boxes of records and materials that Mr. Rudinger found deficient, and that digital copies of corporate financial records had been altered since their original entries. The bankruptcy court further found that StingFree refrained from seeking further investors "because it considered the corporation's financial records unauditable ... and because recent tax returns had not been filed for the debtor."[13] The bankruptcy court found that on March 28, 2008, StingFree sent the Vitos a notice of default under the terms of the Settlement Agreement. The Vitos responded that they had cured any alleged defaults, which StingFree rejected, and sent their own notices to StingFree when they did not receive their $1 million payment by the extended deadline of May 31, 2008. Thereafter, the Vitos confessed judgment against StingFree in Pennsylvania state court in the amount of $4.11 million, and recorded that judgment in California and possibly Maryland.[14] The bankruptcy court further found that, as part of the Settlement Agreement, the Vitos recorded the patent assignment obtained with the United States Patent Office on July 9, 2008, and have been attempting to market and license those patents.[15] StingFree filed a petition to strike the Vitos' confessed judgment in Pennsylvania state court and sought, unsuccessfully, in state court to enjoin the Vitos from using the patents, pending the outcome of its petition to strike the confessed judgment. As part of its petition, StingFree asserted that the Vitos' claims against them were subject to arbitration.[16] StingFree filed a Chapter 11 bankruptcy petition on September 25, 2008, just prior to a hearing on StingFree's state court petition to strike the confessed judgment. The bankruptcy court found that, at the time of its bankruptcy filing, StingFree was conducting business and had only two part-time employees, neither of whom was being paid. At the time, StingFree had two directors, one of whom has since resigned.[17] The bankruptcy court notes that StingFree stated in its post-bankruptcy "Small Business Statement of Operations" that it has received no income nor made any disbursements since the bankruptcy filing; that its bankruptcy schedules disclose no real property; and that StingFree leases no business location. Its assets included one outstanding receivable at the time of the bankruptcy filing, in the amount of $60,000; a bank deposit of $4,810; unknown value for licensing agreements with Lamkin Corporation; unknown value for its alleged claims against the Vitos; and a valuation of $300,000 for the patents, *344 trademarks and other intellectual property rights.[18] In August 2008, Mr. Rudinger decided to attempt to sell the patent rights and communicated with an attorney, who formed Fonika Ventures, LLC as a vehicle to purchase StingFree's intellectual property and negotiated a purchase price of $300,000. The bankruptcy court found that two of Fonika's members are Dr. DiMario and Dr. Fallone, as well as a few other StingFree shareholders, but that the majority membership interests in Fonika are not owned by StingFree's shareholders.[19] The bankruptcy court further found that StingFree's patent valuation of $300,000 is based on the September 23, 2008 sales agreement between Fonika and StingFree, and not on an appraisal of the patent rights. Moreover, the bankruptcy court notes that the sales agreement expressly contemplates that StingFree would file a bankruptcy petition and obtain the bankruptcy court's approval to sell the patent rights free and clear of all claims, interests and liens.[20] The bankruptcy court also made the following findings: (1) Fonika has offered employment to Mr. Rudinger and Dr. DiMario, in the event Fonika successfully purchases the patents; (2) upon the sale of the patents, StingFree intends to use the sale proceeds to fund litigation against the Vitos rather than to continue operations; (3) StingFree lacks sufficient funds to engage counsel in filing bankruptcy; and (4) StingFree used a $35,000 down payment from Fonika to retain counsel and pay the requisite bankruptcy filing fees.[21] The bankruptcy court further found that, within a week of filing its bankruptcy petition, StingFree filed a motion to approve the sale of substantially all of its assets (the patent rights) to Fonika, as well as a motion to approve bidding procedures. On October 17, 2008, less than one month after the filing of the bankruptcy petition, StingFree filed a complaint against the Vitos, docketed as Adv. No. 08-0290 (the "adversary action"), and the complaint was soon amended. The thirteen-count amended complaint in the adversary action alleges, inter alia, that as president and chief executive officer of StingFree, Mr. Vito diverted StingFree revenues and capital investments for his own benefit; obtained company stock improperly and without board of director authorization; failed to provide full and complete company records after his removal as controlling officer in January 2008; and falsified company records.[22] The amended complaint alleges that StingFree entered into the Settlement Agreement "without knowledge of the full extent of Robert Vito's fraud and in reliance on representations made by the Vitos regarding the management and financial operations of the company, that would later prove to be false."[23] It further alleges that the Vitos breached the settlement agreement by failing to provide all of StingFree's books, records, inventory and supplies; that the Vitos "secretly modified" the Settlement Agreement after it *345 had been presented to StingFree for execution; and that Mr. Vito had destroyed company records.[24] The amended complaint in the adversary action asserts two federal bankruptcy-related claims and eleven claims under Pennsylvania state law.[25] Bankruptcy Court Decision By its February 4, 2009 Order and Memorandum, the bankruptcy court dismissed StingFree's Chapter 11 bankruptcy petition and denied as moot StingFree's motion to approve bidding procedures in connection with its proposed sale of its patents. Specifically, the bankruptcy court found that StingFree's petition had not been filed in good faith as implicitly required by 11 U.S.C. § 1112(b)(1).[26] In support of this conclusion, the bankruptcy court found that the petition was not filed to serve a valid bankruptcy purpose, but rather to gain a tactical advantage in litigation. In particular, the bankruptcy court concluded that the petition was not filed to preserve any going-concern value of StingFree because StingFree intended to liquidate its assets, is not presently an operating entity, and has no intention of resuming operations. Moreover, the bankruptcy court concluded that StingFree's state-law claims could have been raised without the necessity of filing any bankruptcy petition, and noted that some of them already had been raised in state court. In addition, it concluded that the state-law claims fell within the scope of the mandatory arbitration provision of the Settlement Agreement. Although StingFree contended that the Vitos had waived the contractual arbitration provision, the bankruptcy court determined that StingFree had not met its burden of establishing that a waiver had occurred. Also the court concluded that, to the extent StingFree may suffer any prejudice if arbitration were compelled, such prejudice would be insufficient to overcome the federal preference for enforcement of contractual arbitration provision. Thus, the bankruptcy court concluded that many of StingFree's claims in the adversary action, which action "serves as the centerpiece" of StingFree's bankruptcy case, cannot be heard in bankruptcy court.[27] *346 Regarding StingFree's federal bankruptcy-related claims for preference and fraudulent conveyance, the bankruptcy court noted that those claims would not be arbitrable because they are created by the Bankruptcy Code and are to be prosecuted by a bankruptcy fiduciary. The bankruptcy court concluded that those two claims were unlikely to succeed on the merits. Thus—having concluded that StingFree was not a "going concern" entity; had virtually no employees, no operations, minimal tangible assets aside from the patent rights, which appeared to have been assigned to the Vitos; and had state-law claims which must be arbitrated—Judge Fox determined that permitting StingFree's bankruptcy filing to continue for the sole purpose of litigating two bankruptcy-related claims with doubtful likelihood of success on the merits, would achieve no valid bankruptcy purpose.[28] Therefore, the bankruptcy court dismissed StingFree's Chapter 11 bankruptcy petition for cause under 11 U.S.C. § 1112(b)(1) as having been filed in bad faith, and denied as moot StingFree's motion to approve bidding procedures. This appeal followed. MOTION TO INTERVENE Initially, I address the Motion of Fonika Ventures, LLC to Intervene. Fonika moves, pursuant to Rule 24 of the Federal Rules of Civil Procedure, to intervene in this appellate action as a matter of right or, alternatively, to intervene permissively, for the purpose of supporting appellant StingFree's appeal. On September 23, 2008, Fonika and StingFree executed an Asset Purchase Agreement. The agreement provided that Fonika would purchase, among other things, all of StingFree's intellectual property and related contracts. If it acquired those assets, Fonika intended to employ Richard Rudinger, StingFree's chief executive office and board chairman, and Dr. Carmen DiMario, a StingFree shareholder. The Federal Rules of Civil Procedure provide for two types of intervention: intervention as of right, and permissive intervention. Specifically, Rule 24 provides, in pertinent part: (a) Intervention of Right. On timely motion, the court must permit anyone to intervene who: ... (2) claims an interest relating to the property or transaction that is the subject of the action, and is so situated that disposing of the action may as a practical matter impair or impede the movant's ability to protect its interest, unless existing parties adequately represent that interest. (b) Permissive Intervention. (1) In general. On timely motion, the court may permit anyone to intervene who: ... (B) has a claim or defense that shares with the main action a common question of law or fact. Fed.R.Civ.P. 24. Fonika contends that it is entitled to intervene under either standard set forth in Rule 24. I consider both types of intervention in turn, and for the following reasons, I conclude that Fonika is not entitled to intervene under either standard. Intervention as of Right Intervention as of right requires an applicant to establish all of the following: *347 (1) the application is timely; (2) the applicant has a sufficient interest in the litigation; the interest may be affected or impaired, as a practical matter by the disposition of the action; and (4) the interest is not adequately represented by an existing party in the litigation. Harris v. Pernsley, 820 F.2d 592, 596 (3d Cir.1987). The party seeking to intervene bears the burden of establishing all four requirements. United States v. Alcan Aluminum, Inc., 25 F.3d 1174, 1181 n. 9 (3d Cir.1994). However, "a very strong showing that one of the requirements is met may result in requiring a lesser showing of another requirement." Harris, 820 F.2d at 596 n. 6. Appellees contend that Fonika cannot satisfy any of the four requirements for intervention as of right. As noted above, on June 23, 2009, appellant responded to the motion to intervene, indicating it does not oppose the motion. I therefore address each element on the merits. First, regarding timeliness of the application, Fonika contends that its motion to intervene is timely because it was filed early in the litigation, and therefore permitting intervention would not prejudice appellant StingFree or cause undue delay. Appellees aver that the motion is untimely because it was filed June 17, 2009, forty-seven days after the close of briefing in this matter, without explanation for the delay.[29] Moreover, appellees assert that granting such an untimely request to intervene would cause prejudice to appellees because it would require further briefing. Timeliness of a motion to intervene is determined from all of the circumstances of the case, and the determination is within the discretion of the court. NAACP v. New York, 413 U.S. 345, 366, 93 S. Ct. 2591, 2603, 37 L. Ed. 2d 648, 662-663 (1973). Whether intervention of right or permissive intervention is sought, the application must be timely. If intervention is untimely, it must be denied. NAACP, 413 U.S. at 365, 93 S.Ct. at 2602-2603, 37 L.Ed.2d at 662. However, "where a party takes reasonable steps to protect its interest, its application should not fail on timeliness grounds." Alcan, 25 F.3d at 1182. Courts in this circuit consider three factors for determining whether an application to intervene is timely: (1) the stage of the proceeding, (2) the prejudice that delay may cause to the parties, and (3) the reason for the delay. Mountain Top Condominium Association v. Dave Stabbert Master Builder, Inc., 72 F.3d 361, 369 (3d Cir.1995). Considering these three factors, I conclude that Fonika's motion is timely. Although the parties had already submitted their appellate briefs at the time the motion was filed, no merits determinations had been made, and the parties had not appeared for any court proceedings in this appellate action. Appellees cite no legal authority for the proposition that, in an appellate matter such as this, a motion to intervene filed less than two months after the close of appellate briefing is untimely filed.[30] *348 Moreover, I conclude that no party would be prejudiced by Fonika's intervention. Appellees' brief contends that they would be prejudiced because such intervention would require further briefing, thus causing expense and delayed disposition of the appeal. However, Fonika's motion to intervene contains its proposed appellate brief, which is attached to the motion as Exhibit B, thus limiting the extent to which additional briefing would delay disposition of this action. Further, at oral argument, I permitted all parties, including Fonika, to argue on the merits of the appeal pending disposition of the motion to intervene, thus providing appellees with an opportunity to respond orally to Fonika's proposed brief. Therefore, I conclude that appellees did have an opportunity to respond to Fonika's argument without incurring considerable expense and without delaying disposition of this action. In addition, although Fonika has not explained the nearly four-month delay from the February 16, 2009 filing of this appeal and the June 17, 2009 filing of Fonika's motion to intervene, that delay is not unreasonable in light of the procedural posture of the case. Thus, I conclude that Fonika's motion is timely. Regarding the second and third Harris factors, Fonika contends that it has an interest in the "property or transaction" which is the subject of this appeal (for purposes of the second factor), namely, it seeks to bid on appellant StingFree's assets. In addition, Fonika contends that its interest could be impaired if this appeal were decided without Fonika's participation (the third factor). See Fed. R.Civ.P. 24(a)(2). Attached to Fonika's motion to intervene is the September 23, 2008 Asset Purchase Agreement between Fonika and StingFree, whereby Fonika would purchase, among other things, all of StingFree's intellectual property and related contracts.[31] Appellees aver that Fonika and StingFree can pursue the sale of patents through other avenues, for example through alternative dispute resolution or in state court, and need not pursue that matter through bankruptcy. Thus, according to appellees, Fonika's claims will not be sufficiently impaired by disposition of this appeal. I conclude that, for purposes of the second Harris factor, Fonika has established a sufficient interest in the litigation, that is, an interest relating to the property or transaction from which this appeal arises, specifically, an interest in purchasing some of StingFree's assets. However, Fonika has not established the third Harris factor, i.e., that its interest "may be affected or impaired, as a practical matter by the disposition of the action". Harris, 820 F.2d at 596. On this factor, Fonika's brief in support of its motion to intervene offers only the conclusory remark that "Fonika's interest in purchasing the assets of debtor could be impaired and prejudiced by the disposition of this appellate process if the matter was decided without Fonika's participation."[32]*349 Because Fonika fails to identify any ways in which its interest is impaired by this action, I cannot conclude that Fonika has satisfied the third Harris factor. Finally, regarding the fourth Harris factor, I conclude that Fonika has failed to establish that its rights are not adequately protected by an existing party to this litigation. When a party seeking intervention has the same "ultimate objective" as a party to the suit, "a presumption arises that its interests are adequately represented. To overcome the presumption of adequate representation, the proposed intervenor must ordinarily demonstrate adversity of interest, collusion, or nonfeasance on the part of the party to the suit." In re Community Bank of Northern Virginia, 418 F.3d 277, 315 (3d Cir. 2005). A review of Fonika's proposed appellate brief, as compared with StingFree's appellate brief, reveals that Fonika's position is substantively identical to a portion of StingFree's position. Both argue that the bankruptcy court erred in dismissing StingFree's Chapter 11 bankruptcy proceeding on the basis that StingFree wanted to liquidate its assets, rather than reorganize. Both Fonika and StingFree contend, on the merits of this appeal, that StingFree should have been permitted to pursue liquidation of its assets via Chapter 11 bankruptcy. Moreover, as Fonika's brief in support of its motion to intervene points out, "both entities desire to carry out the terms under the parties['] Asset Purchase Agreement."[33] Thus, I conclude that for purposes of this action, StingFree shares Fonika's "ultimate objective", that is, reversal of the bankruptcy court's dismissal of StingFree's Chapter 11 bankruptcy such that StingFree may liquidate its assets in that context. This gives rise to a presumption of adequate representation. In re Community Bank of Northern Virginia, 418 at 315. Fonika, as proposed intervenor, has not demonstrated any "adversity of interest, collusion, or nonfeasance" on the part of StingFree. Thus, I conclude that Fonika has not satisfied the fourth Harris factor. Accordingly, because proposed intervenor Fonika has not established that its interest in this litigation may be affected or impaired by disposition of this action and has not established that StingFree does not adequately represent Fonika's interest, I conclude that Fonika is not entitled to intervene as of right. Permissive Intervention "[D]enial of intervention as of right does not automatically mandate a denial of permissive intervention." Hoots v. Commonwealth of Pennsylvania, 672 F.2d 1133 (3d Cir.1982). In exercising its discretion, "the court must consider whether the intervention will unduly delay or prejudice the adjudication of the original parties' rights." Fed.R.Civ.P. 24(b)(3). Moreover, the court may consider whether the applicant's contributions to the proceedings would be superfluous. See Hoots, 672 F.2d at 1136. As noted above, I have concluded that Fonika's motion to intervene is timely and that permitting its intervention would not unduly delay or prejudice the original parties' rights. However, as I concluded in my discussion of the fourth Harris factor, Fonika's interests are adequately represented by StingFree because they share the same objective and because StingFree has already put forth the same arguments which Fonika seeks to make in this action. *350 Therefore, I conclude that permitting Fonika to intervene in this appeal would be unhelpful to its disposition because it would be superfluous. See Hoots, 672 F.2d at 1136. Accordingly, in the exercise of my discretion, I decline to grant Fonika's request for permissive intervention, and deny the motion to intervene in its entirety. Therefore I do not consider Fonika's proposed appellate brief in my disposition of StingFree's appeal. APPEAL OF BANKRUPTCY DISMISSAL Appellant StingFree appeals an Order entered February 4, 2009 by United States Bankruptcy Judge Bruce Fox which dismissed StingFree's Chapter 11 bankruptcy case pursuant to 11 U.S.C. § 1112(b) because it was filed in bad faith, and which denied as moot StingFree's motion to approve bidding procedures. Contentions of the Parties Contentions of Appellant[34] Appellant StingFree advances two arguments in support of its appeal of the bankruptcy court's February 4, 2009 Order and Memorandum. First, appellant contends that the bankruptcy court erred in dismissing the bankruptcy proceeding for cause because appellees failed to establish by a preponderance of the evidence that cause or bad faith exists which would warrant such dismissal. Second, appellant asserts that the bankruptcy court erred in concluding that appellant's state-law claims set forth in the adversary action fall within the scope of the mandatory arbitration provision of the parties' settlement agreement. Regarding its first argument, appellant avers that appellees failed to prove by a preponderance of the evidence that the bankruptcy case was not commenced in good faith. Appellant further asserts that its plans to liquidate do not weigh in favor of dismissal of the bankruptcy because liquidation would maximize StingFree's value. Regarding its second argument, appellant contends that although the Settlement Agreement includes a mandatory arbitration provision, each of the parties has waived its right to arbitrate this dispute. Appellant StingFree avers that it expressly waives that right, and that the Vitos have waived the right to arbitrate by "substantially invoking" the litigation machinery, specifically, by confessing judgment against appellant to enforce the Settlement Agreement. Moreover, appellant asserts that the parties did not agree to arbitrate a claim for fraudulent transfer or any issues arising under Article 9 of the Uniform Commercial Code ("U.C.C."), because those claims arose after the alleged breach of the Settlement Agreement. Thus, appellant avers that its fraudulent transfer and U.C.C. claims are within the bankruptcy court's jurisdiction. *351 Contentions of Appellees Appellees contend that the bankruptcy court correctly found that, based on the totality of the circumstances, appellant's bankruptcy petition was filed in bad faith and thus the court did not abuse its discretion in dismissing the petition. Appellees assert that the record supports the bankruptcy court's conclusion that the petition was not filed to preserve going-concern value of StingFree, based on testimony that StingFree is not an operating entity and does not intend to resume its operations. Moreover, appellees assert that the record supports the conclusion that the chief aim of appellant's petition was to continue litigation against Mr. Vito, rather than to serve a valid bankruptcy purpose. Appellees further contends that StingFree's proposed sale of assets to Fonika at a value which underestimates the value of the intellectual property weighs in favor of a conclusion that the bankruptcy petition was filed in bad faith. In addition, appellees respond that the bankruptcy court correctly held that appellant was unlikely to prevail on its bankruptcy-related claims for preference and fraudulent conveyance, and therefore the bankruptcy court had no reason to retain jurisdiction over the parties' remaining arbitrable state-law claims. Specifically, appellees contend that the bankruptcy court correctly concluded that appellant could not satisfy the elements of its fraudulent conveyance claim under the Bankruptcy Code. Appellees therefore assert that, having concluded that the bankruptcy petition was filed in bad faith and no bankruptcyrelated claims would succeed, the bankruptcy court did not abuse its discretion in dismissing appellant's bankruptcy case in its entirety. Regarding appellant's second argument, appellees respond that the bankruptcy court correctly concluded that the arbitration provision in the Settlement Agreement controls appellant's state-law claims against the Vitos. Specifically, appellees contend that under the terms of the Settlement Agreement, the arbitration provision applies only to non-monetary defaults, and all of the Vitos' obligations under the Settlement Agreement were non-monetary in nature. Thus, appellees contend that all of appellant's claims against the Vitos are within the scope of the arbitration provision. Appellees further aver that appellant has not demonstrated that the Vitos waived their rights to arbitration of appellant's state-law claims for several reasons. First, appellees contend that by confessing judgment against StingFree, the Vitos exercised their contractually prescribed remedies under the Settlement Agreement. That is, appellees assert that the Settlement Agreement specifically provides for confession of judgment, and that under the Settlement Agreement, the Vitos are not required to arbitrate monetary defaults; and that even if they were required to seek arbitration, the automatic bankruptcy stay would have prevented them from doing so. Second, appellees aver that they raised the arbitration provision as early as a November 12, 2008 hearing before the bankruptcy court. Third, appellees aver that appellant has not been prejudiced by appellees' failure to demand arbitration prior to the November 12, 2008 hearing, and that appellant has identified no such prejudice. Standard of Review The legal determinations of a bankruptcy court are reviewed de novo. The bankruptcy court's factual determinations are reviewed under the clearly erroneous standard. Sovereign Bank v. *352 Schwab, 414 F.3d 450, 452 n. 3 (3d Cir. 2005) (internal citations omitted). The decision to dismiss a Chapter 11 petition is reviewed for abuse of discretion. In re SGL Carbon Corporation, 200 F.3d 154, 159 (3d Cir.1999); see also In re Camden Ordnance Co. of Arkansas, Inc., 245 B.R. 794, 797 (E.D.Pa.2000) (Brody, J.). "Discretion will be found to have been abused only when `the judicial action is arbitrary, fanciful or unreasonable which is another way of saying that discretion is abused only where no reasonable [person] would take the view adopted by the trial court.'" In re Camden Ordnance, 245 B.R. at 797. Discussion Bad Faith A Chapter 11 bankruptcy petition is subject to dismissal for "cause" under 11 U.S.C. § 1112(b) unless it is filed in good faith. In re SGL Carbon Corporation, 200 F.3d at 161. "Once at issue, the burden falls upon the bankruptcy petitioner to establish that the petition has been filed in `good faith'." Id. at 162. Whether bad faith actually exists in a particular case is a question of fact. In re SB Properties, Inc., 185 B.R. 198, 204 (E.D.Pa.1995) (Padova, J.). Determining whether a petition has been filed in good faith is a fact-intensive inquiry, and the court considers the totality of the circumstances. In re SGL Carbon Corporation, 200 F.3d at 162. Two of the basic purposes of Chapter 11 are "preserving going concerns" and "maximizing property available to satisfy creditors". In re Integrated Telecom Express, Inc., 384 F.3d 108, 119 (3d Cir.2004) (quoting Bank of America National Savings Association v. 203 North LaSalle Street Partnership, 526 U.S. 434, 453, 119 S. Ct. 1411, 1421, 143 L. Ed. 2d 607, 622 (1999)). Accordingly, two inquiries are particularly relevant to the question of good faith: "(1) whether the petition serves a valid bankruptcy purpose, e.g., by preserving a going concern or maximizing the value of the debtor's estate, and (2) whether the petition is filed merely to obtain a tactical litigation advantage." In re Integrated Telecom Express, 384 F.3d at 119-120. As the bankruptcy court correctly noted, courts consider many factors, including the following non-exhaustive list, when determining whether to dismiss for bad faith: (1) the debtor has few or no unsecured creditors; there has been a previous bankruptcy petition by the debtor or a related entity; (3) the prepetition conduct of the debtor has been improper; (4) the petition effectively allows the debtor to evade court orders; (5) there are few debts to non-moving creditors; (6) the petition was filed on the eve of foreclosure; (7) the foreclosed property is the sole or major asset of the debtor; (8) the debtor has no ongoing business or employees; (9) there is no possibility of reorganization; (10) the debtor's income is not sufficient to operate; (11) there was no pressure from non-moving creditors; (12) reorganization essentially involves the resolution of a two-party dispute; (13) a corporate debtor was formed and received title to its major assets immediately before the petition; and (14) the debtor filed solely to create the automatic stay. In re SB Properties, Inc., 185 B.R. at 205. However, courts should "guard against any impulse to overemphasize any one factor", and "any conceivable list of *353 factors cannot be exhaustive." Id. at 205 n. 5 (citing, inter alia, Carolin Corporation v. Miller, 886 F.2d 693, 701 (4th Cir. 1989)). In this case, appellant StingFree erroneously asserts that appellees bear the burden of proving that cause or bad faith exists which warrants dismissal of StingFree's bankruptcy petition. On the contrary, in the Third Circuit, as noted above, once the issue of good faith has been raised, the burden is on the bankruptcy petitioner to establish that the petition has been filed in good faith. In re SGL Carbon Corporation, 200 F.3d at 162. StingFree's appellate brief cites nothing specific in the record before the bankruptcy court which establishes that StingFree's bankruptcy petition was filed in good faith. It avers, without citation to the record, that "the Debtor took every action necessary to preserve the dwindling assets of the company in the name of the creditors and avoid subjecting those assets to further harassing litigation."[35] Moreover, the totality of the circumstances support the bankruptcy court's factual findings that StingFree's petition was not filed in good faith. Appellant does not dispute any of the bankruptcy court's factual findings which underlie its ultimate finding that the petition was not filed in good faith. In particular, appellant does not dispute the bankruptcy court's finding that StingFree does not intend to reorganize but rather intends to liquidate its assets. Specifically, the bankruptcy court found that, based on the evidence presented, appellant StingFree is an entity without current operations, virtually no employees or tangible assets, and which filed its bankruptcy petition on the eve of a state court hearing involving its chief adversary. It proposes to reorganize by selling assets it encumbered prepetition, with the sale to an entity formed just prior to the bankruptcy filing and that funded the bankruptcy petition to date, and with little or no marketing. Moreover, the assets to be sold—viz., patent rights—may now *354 be owned by individuals asserting to be the debtor's largest creditors.[36] Thus, the bankruptcy court concluded that "the primary activity of this chapter 11 case is for the debtor to litigate against its former chief executive officer (and spouse) to recover those patent rights". Id. Appellant cites nothing in the record which would support a conclusion that the facts found by the bankruptcy court are clearly erroneous. Further, appellant offers no reason to set aside the bankruptcy court's factual findings other than its argument that a debtor may maintain a Chapter 11 petition even though it seeks to liquidate its assets rather than reorganize. Appellant correctly contends that liquidation of assets may be an appropriate use of Chapter 11 bankruptcy, because the Bankruptcy Code contemplates liquidating plans under 11 U.S.C. § 1123(b)(4), whereby a debtor may develop a Chapter 11 plan to sell of all of its assets. In re PPI Enterprises (U.S.), Inc., 324 F.3d 197, 211 (3d Cir.2003.) However, like reorganization plans, "liquidation plans ... must serve a valid bankruptcy purpose. That is, they must either preserve some going concern value, e.g., by liquidating a company as a whole or in such a way as to preserve some of the company's goodwill, or by maximizing the value of the debtor's estate." In re Integrated Telecom Express, Inc., 384 F.3d at 120 n. 4. "To say that liquidation under Chapter 11 maximizes the value of an entity is to say that there is some value that otherwise would be lost outside of bankruptcy." Id. at 120. Appellant suggests that its liquidation plan would have the effect of maximizing its value because its sale "is part of the Debtor's plan to generate enough capital to aggressively pursue its claims against Robert and Lisa Vito as well as Gibson & Perkins, P.C.". Appellant avers that "This strategy hopes to achieve the best, and only, change for positive return to shareholders as the only alternative was a failure and winding down of the company."[37] This averment supports the bankruptcy court's conclusion that the primary purpose of the bankruptcy case is for StingFree to litigate against the Vitos. Moreover, appellant cites no authority to support its assertion that liquidation in order to generate capital to fund litigation is a valid bankruptcy purpose, and fails to articulate any way in which liquidation under Chapter 11 in this case would protect or create any value that would "otherwise be lost outside of bankruptcy". In re Integrated Telecom Express, Inc., 384 F.3d at 120. Accordingly, the bankruptcy court did not err in concluding that StingFree's plan to liquidate its assets in order to fund litigation against the Vitos supports a finding that the Chapter 11 bankruptcy petition was not filed in good faith. Adversary Action Having concluded that StingFree's Chapter 11 petition was not filed to preserve any going-concern value, the bankruptcy court acknowledged appellant's contention that it may liquidate its assets through Chapter 11. However, the bankruptcy court essentially concluded that there is no reason to continue the bankruptcy proceeding solely for the purpose of adjudicating the claims raised in the adversary action. Specifically, the bankruptcy court concluded that appellant's state-law claims set forth in the adversary action could have *355 been raised without filing a bankruptcy petition (and, indeed, that some claims had been raised in state court), and that the state-law claims fall within the scope of the mandatory arbitration provision set forth in the Settlement Agreement.[38] Moreover, the bankruptcy court determined that appellant's two bankruptcy-related claims for preference and fraudulent conveyance were unlikely to succeed on the merits.[39] Therefore, it concluded that StingFree's likelihood of prevailing on those claims was "sufficiently doubtful so that continuation of this chapter 11 case simply to litigate such claims is inappropriate."[40] As discussed below, appellant does not dispute this conclusion. Appellant argues that the Vitos have waived any right to arbitrate because they have "invoked the litigation machinery" by confessing judgment against StingFree in state court.[41] However, appellant fails to identify any specific way in which the bankruptcy court's factual findings regarding waiver are clearly erroneous or how his decision to dismiss the petition constitute an abuse of discretion. On the contrary, appellant simply restates its arguments as presented to the bankruptcy court. Moreover, I conclude that the bankruptcy court correctly concluded that appellees have not waived any right to arbitration under the Settlement Agreement. As the bankruptcy court articulated, "[c]onsistent with the strong preference for arbitration in federal courts, waiver `is not to be lightly inferred.'" PaineWebber Inc. v. Faragalli, 61 F.3d 1063, 1068 (3d Cir.1995). The evidentiary burden is on the party asserting that such a waiver has occurred. See Great Western Mortgage Corporation v. Peacock, 110 F.3d 222, 233 (3d Cir.1997). Moreover, "a party waives the right to compel arbitration only in the following circumstances: when the parties have engaged in a lengthy course of litigation, when extensive discovery has occurred, and when prejudice to the party resisting arbitration can be shown." Id. Here, the bankruptcy court concluded that appellant had not met its burden of showing prejudice which would suffice to override the federal preference for arbitration. Specifically, the bankruptcy court stated: Here, the only evidence presented was that the Vitos confessed judgment against Stingfree in Pennsylvania state court two or three months prior to the debtor's bankruptcy proceeding, and that Stingfree had filed a petition in state court seeking to strike that confessed judgment based, in part, upon mandatory arbitration. Thereafter, resolution of the debtor's state court petition was stayed by the debtor's bankruptcy filing.[42] Appellant does not challenge these findings as clearly erroneous, and does not *356 identify any other evidence in the record which would support a conclusion that the parties engaged in a lengthy course of litigation, or that extensive discovery has occurred. See Great Western, 110 F.3d at 233. Moreover, appellant identifies no other prejudice which it would suffer by enforcement of the arbitration provision. Id. Bankruptcy-Related Claims Finally, appellant avers that even if its state-law claims are arbitrable, its claims of fraudulent transfer and issues arising under Article 9 of the U.C.C. should nevertheless be adjudicated by the bankruptcy court because they did not arise until after the alleged breach of the Settlement Agreement.[43] Appellant's brief does not challenge the bankruptcy court's conclusion that appellant's bankruptcy-related claims are unlikely to succeed on the merits. Moreover, appellant's brief points to nothing specific in the bankruptcy court's decision on this issue which is purportedly in error.[44] Thus, I am satisfied with the bankruptcy court's assessment of StingFree's Chapter 11 bankruptcy petition and adversary action. Appellant does not challenge as clearly erroneous any of the bankruptcy court's factual findings which underlie its ultimate factual finding that the petition was filed in bad faith. For the foregoing reasons, I conclude that the bankruptcy court did not abuse its discretion in dismissing the petition and denying as moot the related motion to approve bidding procedures. CONCLUSION For all the foregoing reasons, I deny the Motion of Fonika Ventures, LLC to Intervene and I affirm the February 4, 2009 ruling of the bankruptcy court. ORDER NOW, this 31st day of March, 2010, upon consideration of the Motion of Fonika Ventures, LLC to Intervene filed June 17, 2009; upon consideration of Appellant's Response to Motion to Intervene, which response was filed June 23, 2009; upon consideration of the Memorandum of Law in Opposition to the Motion of Fonika Ventures, LLC to Intervene, which memorandum was filed July 1, 2009 by appellees; it appearing that on February 16, 2009, appellant filed a Notice of Appeal from the February 4, 2009 Order and Memorandum of the United States Bankruptcy Court for the Eastern District of Pennsylvania; after oral argument before the undersigned on January 12, 2010; upon consideration of the briefs of the parties; and for the reasons *357 articulated in the accompanying Opinion, IT IS ORDERED that the Motion of Fonika Ventures, LLC to Intervene is denied. IT IS FURTHER ORDERED that the February 4, 2009 Order and Memorandum of United States Bankruptcy Judge Bruce A. Fox is affirmed. NOTES [1] On April 17, 2009, the Brief of Appellant, StingFree Technologies Company was filed. On May 1, 2009, the Brief of Appellees, Robert and Lisa Vito, VI Capital Company, Americ Investments was filed. [2] On June 23, 2009, Appellant's Response to Motion to Intervene was filed, indicating that appellant StingFree has no objection to Fonika's motion to intervene in this action. On July 1, 2009, appellees filed their Memorandum of Law in Opposition to the Motion of Fonika Ventures, LLC to Intervene. [3] At the January 12, 2010 argument, I first heard oral argument on the motion to intervene, and took the matter under advisement. I then conducted oral argument on the merits of the bankruptcy appeal, permitting Fonika to argue on the merits. However, I advised the parties that I would consider Fonika's argument on the merits only if I were ultimately grant the motion to intervene. (See Notes of Testimony of the oral argument conducted on January 12, 2010 before me in Allentown, Pennsylvania, styled "Hearing Before the Honorable James Knoll Gardner[,] United States District Judge" ("N.T."), at pages 26-27.) [4] My recitation of the facts of this case largely reflects the bankruptcy court's findings of fact set forth in its February 4, 2009 Memorandum. As noted below in footnote 12, appellant's brief does not dispute any specific factual findings of the bankruptcy court which underlie its determination that the bankruptcy petition was filed in bad faith. Moreover, appellees do not dispute any of the bankruptcy court's factual findings. [5] The spelling of appellant's corporate name is inconsistent in the record. The bankruptcy court refers to appellant as "Stingfree". The parties refer to it as "StingFree", as I do in this Opinion. [6] Memorandum, pages 2-3. [7] Memorandum, pages 3-4. The Stock Redemption, Separation and Settlement Agreement appears in the Record on Appeal of this matter as Exhibit L to Exhibit 9 (Exhibit 9 is the amended complaint filed in the adversary action). [8] Neither party disputes the accuracy of the bankruptcy court's summary of the Settlement Agreement. [9] Memorandum, pages 4-5 (internal citations omitted). [10] Settlement Agreement, section IV.B. [11] Settlement Agreement, section VII.B. [12] Settlement Agreement, section VIII.A. [13] Memorandum, page 10 (internal citations omitted). [14] Memorandum, pages 10-11. [15] Memorandum, page 11. [16] Id. [17] Memorandum, pages 11-12. [18] According to the bankruptcy court, Mr. Vito opined that the patents were worth more than $3.9 million and that the patents now belong to the Vitos. Moreover, the bankruptcy court notes that the Vitos still assert they are owed more than $4 million by StingFree. (Memorandum, pages 11-12.) [19] Memorandum, page 12-13. [20] Memorandum, page 13. [21] Memorandum, page 13. [22] Memorandum, pages 14-15. [23] Amended Complaint, paragraph 131. [24] Amended Complaint, paragraphs 134, 136, 144, 158. [25] Memorandum, pages 15-17. The amended complaint includes federal claims for "preferential transfer" under 11 U.S.C. § 547, "fraudulent transfer" under 11 U.S.C. § 548, and "turnover" under 11 U.S.C. § 542(e). However, the bankruptcy court treated the "turnover" claim as a state-law claim because it is alleged in the context of a breach of contract claim. (Memorandum, page 29 n. 18.) Neither party disputes this characterization. Thus, I have characterized the amended complaint as including only two federal bankruptcy-related claims. [26] Title 11 United States Code, Section 1112(b)(1) provides, in part: [O]n request of a party in interest, and after notice and a hearing, absent unusual circumstances specifically identified by the court that establish that the requested conversion or dismissal is not in the best interests of creditors and the estate, the court shall convert a case under this chapter to a case under chapter 7 or dismiss a case under this chapter, whichever is in the best interests of creditors and the estate, if the movant establishes cause. Both United States Bankruptcy Judge Bruce Fox in this case, and other courts interpreting § 1112(b)(1), have interchangeably described the statute as requiring the bankruptcy petition to be filed in good faith, or as requiring the petition not to be filed in bad faith. Accordingly, I use the "in good faith"/ "not in bad faith" terminology interchangeably in this Opinion as well. [27] Memorandum, page 34. [28] Memorandum, page 35. [29] Appellant filed its appellate brief on April 17, 2009 and appellees filed their appellate brief on May 1, 2009. [30] Appellees aver that Fonika's interests are aligned with appellant StingFree, and therefore Fonika should have filed its motion to intervene no later than contemporaneously with StingFree's April 17, 2009 brief. In support of this contention, appellees cite "Cf. Fed.R.App.P. 29(e) (stating parties submitting appellate briefs in the nature of amicus curiae must file within seven days of the filing date for the party being supported.)". However, appellees offer no authority or legal analysis for the proposition that a motion to intervene for the purpose of supporting a bankruptcy appeal is analogous to the filing of an amicus brief by a non-party. [31] Fonika's motion, Exhibit A, section 2.1. [32] Fonika's brief, page 4. In the context of the third Harris factor, Fonika further remarks that "debtor has indicated that it has no objection to Fonika intervening in this action." However, it fails to explain the relevance of StingFree's lack of opposition as applied to the issue of whether Fonika's interest may be affected or impaired by disposition of this matter. [33] Fonika's brief, page 4. [34] Although appellant's brief contains section headings which aver that the bankruptcy court erred, the text of the arguments set forth therein simply restate, verbatim, some of the arguments set forth in appellant's Post Trial Brief dated December 31, 2008 and, presumably, filed in the bankruptcy court that date. (Record, Exhibit 5.) Because the Post Trial Brief pre-dates the February 4, 2009 decision of the bankruptcy court, the analysis contained verbatim in both briefs necessarily does not specifically address the court's decision. Thus, appellant StingFree's appellate brief offers no new legal discussion, and other than asserting that the bankruptcy court erred, does not specifically address the bankruptcy court's findings and conclusions. Moreover, appellant does not address the applicable standard of review. [35] Appellant's brief, pages 15-16. Appellant's brief also states as follows: The alleged bad faith of the Debtor was enumerated as follows: (a) failure to disclose license agreements with the companies on Debtor's schedule; (b) payment of salaries pre-petition to officers; and (c) lack of unsecured debt None of these were proven by the Vitos. The alleged license agreements had no monetary value whatsoever as the company could not move forward with no certified financials and constant legal attacks by Mr. Vito. Mr. Rudinger testified further that they became worthless after Mr. Vito increased his terror campaign against the Debtor by calling and threatening anyone doing business with the Debtor. All of the salaries were disclosed and explained by Mr. Rudinger and the Debtor still cannot determine how this issue bears on the Motion to Dismiss. Finally, Mr. Vito offered no competent evidence on a lack of creditors. (Appellant's brief, page 16.) Appellant cites no court document or transcript in support of any of these allegations. Presumably, appellant is referring to arguments made by appellees in their motion before the bankruptcy court to dismiss appellant's bankruptcy petition. Because appellant fails to identify the source of these contentions, and fails to cite any of its claims to the record, I am unable to evaluate their relevance or merit. See E.D.Pa.R.Civ.Pa. 7.1(c). Moreover, these contentions are indicative of appellant's mistaken belief that appellees bear the burden of proving that StingFree's bankruptcy petition was filed in bad faith. To whatever extent these contentions may be relevant, they do not, on their own, satisfy StingFree's burden of establishing that its petition was filed in good faith. See In re SGL Carbon Corporation, 200 F.3d at 162. [36] Memorandum, page 39. [37] Appellant's brief, page 18. [38] Memorandum, pages 29-30. [39] Memorandum, pages 35-39. [40] Memorandum, page 39. [41] Appellant's brief avers that the bankruptcy court erred in concluding that the state-law claims "fall within the scope of the mandatory arbitration provision of the settlement agreement." (Appellant's brief, page 18.) However, the entirety of appellant's argument on this issue addresses the extent to which the parties have waived their right to arbitrate, and does not offer any legal analysis regarding the scope of the settlement agreement. See E.D.Pa.R.Civ.P. 7.1(c). Therefore, I address the issue of the arbitration clause only to the extent that appellant argues that it has been waived. [42] Memorandum, page 34. [43] Appellant's brief, page 22. [44] At oral argument, appellant contended that the bankruptcy court's analysis regarding the two bankruptcy-related causes of action was flawed. (See N.T. at pages 29-32.) However, instructive Third Circuit precedent holds that, in the appellate context, claims not raised and argued in a moving party's brief are abandoned and waived. See, e.g., Kost v. Kozakiewicz, 1 F.3d 176, 182 (3d Cir.1993); Coney v. NPR, Inc., 2007 WL 2571452, at *2 (E.D.Pa. Aug.31, 2007) (Strawbridge, M.J.). The Federal Rules of Bankruptcy Procedure requires that "appellant's brief shall contain the contentions of the appellant with respect to the issues presented, and the reasons therefor, with citations to the authorities, statutes and parts of the record relied on." Fed. R.Bankr.P. 8010(a)(1)(E). As noted, appellant's brief does not address any argument that the bankruptcy court erred in concluding that appellant's two bankruptcy-related claims were unlikely to succeed on the merits. Moreover, I note that appellant's Statement of Issues on Appeal (Record, Exhibit 4) does not include the issue of whether the bankruptcy court erred in this respect, as required by Rule 8006 of the Federal Rules of Bankruptcy Procedure. Accordingly, I do not consider any such argument herein.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1878615/

346 F. Supp. 833 (1972) Angelo FRANCESCHINA et al., Plaintiffs, v. Ivan H. MORGAN et al., Defendants. David CORMIER et al., Plaintiffs, v. Ivan H. MORGAN et al., Defendants. Nos. NA 72-C-32, NA 72-C-37. United States District Court, S. D. Indiana, New Albany Division. August 14, 1972. *834 Louis F. Rosenberg, Indiana Civil Liberties Union, Indianapolis, Ind., Vincent J. Carroll, Migrant Legal Action Program, Inc., Washington, D. C., for plaintiffs. James E. Bourne, Orbison, Rudy & O'Connor, New Albany, Ind., Geoffrey Segar, Ice, Miller, Donadio & Ryan, Indianapolis, Ind., Robert B. Railing, Scottsburg, Ind., for defendants. MEMORANDUM OF DECISION DILLIN, District Judge. Defendants in the above actions, consolidated for trial, allegedly denied or restricted plaintiffs' access to certain migrant farm labor camps owned by one of the defendants, when plaintiffs sought to enter for the purpose of furnishing advice, information, and services to the migrants. Plaintiffs sought injunctive relief. The consolidated actions came on for hearing on July 31, 1972, on plaintiffs' motions for a temporary injunction. On August 1, 1972, at the conclusion of the evidence, which was undisputed, all parties agreed that the Court could consider the actions as submitted on the merits as to the ultimate relief sought by plaintiffs, i. e., permanent injunctions, for the reason that the issues presented were essentially issues of law. The Court thereupon entered a permanent injunction against certain of the defendants, pursuant to partial findings of fact and conclusions of law expressed orally from the bench. This memorandum amplifies such findings and conclusions, nunc pro tunc, in accordance with Rule 52(a), F.R.Civ.P. FACTS The defendant Morgan Packing Company, Inc., (hereafter "the company") is an Indiana corporation having its principal place of business in Scott County, Indiana. It is a major grower-processor of vegetables, growing part of its crops on its own land, and also purchasing vegetables from independent farmers in the various areas within which it does business. As an incident of its operations it has seasonally employed migrant farm laborers for the past 12 years, both as field workers and cannery workers, most of whom are Mexican-Americans who are citizens of the United States, having a permanent address in Texas. Twenty-five percent of these workers speak no English, and many others speak English only on a limited basis. Most of the migrants, especially the field workers, are given temporary housing by the company during the period of their employment in various agricultural labor camps located on company property in seven Indiana counties. There are three of such camps near Austin, in Scott County, and others near Brownstown, Converse, Fountaintown, Franklin, Red Key, and Warren, Indiana. The company is required by Indiana law to *835 obtain an annual permit to operate such camps from the State Board of Health; said Board is required to and does publish rules and regulations governing the operation of such camps from the standpoint of health, sanitation, fire protection, and related subjects. Burns' Ind. Stat.Ann. § 15-2601, et seq., (1971 Cum.Supp.), IC 1971, 15-3-2-1. From time to time the company has used the interstate facilities of the United States Employment Service in filling its requirements for migrant workers (several hundred per season), pursuant to the Wagner-Peyser Act of 1933,[1] and the regulations[2] promulgated by the Secretary of Labor pursuant to that Act. It is to be noted, however, that none of the field workers may be said to be directly employed by the company. The company contracts with various so-called crew leaders for a certain number of laborers, and it then becomes the responsibility of the crew leader to recruit and deliver them. The company does not pay any wages directly to the laborers, but rather pays to the crew leader, in cash, the total sum credited to his crew for a given period of time. Many of the migrants who occupy the company's camps do not work in the company's fields at all, but harvest crops for independent farmers, who in turn pay their wages to their crew leaders. Some work alternately for the company and for independent farmers, as work becomes available. Although theoretically free to travel about when not at work, most migrants spend their leisure time in camp. The language barrier, lack of transportation, lack of surplus funds for tourism, and the desire to try to save a little money for the winter all contribute to this result. They are reluctant to discuss matters with persons represented by plaintiffs in such places as public stores and shopping centers, assuming that they ever travel to such, because their Spanish language dialogues draw unwanted attention from the natives. As a practical matter, therefore, their best assurance of contact with the outside world is by means of visits to their camp by persons such as plaintiffs. Typical of the camps are the three near Austin. Located in close proximity to each other on alternate sides of Christie Road, a public highway, they consist of groupings of one and two room houses and barracks-type buildings, with toilets, showers, lavatories, and laundry facilities being separately located in buildings used in common for such purposes. The buildings have electricity, and those intended for family occupancy include a gas range and a refrigerator. Tables and cots are also furnished. There are graveled drives leading into each compound from the public highway, with additional drives and parking areas within the compound proper. At the entrance to each compound is a sign bearing the legend "Posted — Private Property — Keep Out." The camps are located approximately one mile from the nearest grocery store, which is also owned by the company. Some of the migrants own their own automobiles, while others do not. The company has from time to time, but not on a scheduled basis, furnished bus transportation to the migrants for the purpose of attending church services in Austin, and also furnishes bus transportation for migrant children who attend the Austin school. For a number of years, the company made no effort to enforce its "no trespassing" rule. Persons wishing to visit the migrants were free to do so, and many did, including ministers, church workers, hucksters, and representatives of corporations and unincorporated associations organized for the specific purpose of attempting to better the lot of the migrants. The plaintiff Associated Migrant Opportunity Services, Inc., (hereafter "AMOS") an Indiana nonprofit corporation, is such a corporation, funded by *836 the Office of Economic Opportunity (hereafter "OEO") to provide, inter alia, information, services and benefits to migrant and seasonal workers in the State of Indiana, pursuant to 42 U.S.C. §§ 2861, 2862. Plaintiffs Franceschina and Munguia are AMOS employees, and such three plaintiffs are members of a representative class, to wit: federal, state, local or private funded agencies and those persons employed by them or who perform volunteer services for them, which agencies are mandated to provide to farm workers information about and assistance in obtaining the benefits of both private and public programs and agencies aimed at assisting farm workers. Another OEO funded nonprofit corporation active in the Austin area is Ohio Valley Opportunities, Inc., (hereafter "OVO") which includes as a part of its mission the alleviation of poverty in a certain area of Indiana, including Scott County, and is interested in family planning, "head start" programs, and the like. During the period beginning in 1967 and ending in October, 1971, its executive director was one Judith Anderson. She and others of her organization went routinely in and out of the Austin camps on various humanitarian missions, until halted as hereafter described. In June, 1971, the plaintiff Franceschina arrived in Austin as an employee of OVO. He was discharged after approximately three weeks, at the demand of the defendant Ivan H. Morgan, president of the company. He remained in the area as an OVO volunteer and in late July or early August accompanied the plaintiffs Cormier, Cardenas, and Landeros to the Austin camps, as a guide. Such plaintiffs are members of an unincorporated association called the Farm Labor Aid Committee (hereafter "FLAC"), whose organizational purpose is to inform farm workers of their right to organize for the purpose of collective bargaining, the benefits of organization, and to distribute literature on organizing. Such plaintiffs are members and representatives of a class, to wit: private individuals who seek to provide assistance and information to farm workers about the advantages of organization and collective bargaining. Said plaintiffs in fact distributed literature, consisting of a copy of the constitution of the union United Farm Workers, AFL-CIO, and a pamphlet setting out arguments in favor of unionization, both printed in the Spanish language. When this came to the attention of Morgan, he forthwith took action, in conjunction with the defendant Hoard, the company's agent in charge of the Austin camps, one Fraley, the company's agent in charge of the Converse camp, and various others, including guards hired by the company, to prevent any persons, and particularly those of the classes represented in the within causes, from entering the various camp areas for the purpose of talking to or assisting the migrants, or to permit access only upon certain conditions. Specifically, Franceschina was forbidden access under any circumstances, on the grounds, inter alia, that he was long haired, liberal, a socialist, and that he had participated in passing out the FLAC pamphlets. All persons known or suspected to be members of or friendly to FLAC were forbidden all access. Anderson was forbidden access for the purpose of organizing a day care center for migrant children on the ground that she was too friendly with Franceschina and that "migrants don't need education — if they are educated they won't work." Morgan threatened to have her discharged from her OVO job, and she was in fact discharged in a short time. During the course of this particular tirade, Morgan also boasted that he and the company dominated the local legal structure. Employees of AMOS and OVO were, after August, 1971, either denied access to the camps or were permitted to enter only after being kept waiting, being required to sign a log book, and being accompanied by a company guard to monitor conversations with migrants. A newspaper reporter was only permitted *837 access under the same conditions, and after a warning that it would be "bad" for the paper if it "got involved" in the unionization activities. Finally, on August 24, 1971, the plaintiff Munguia was arrested by a deputy of the defendant Hardy, the Sheriff of Scott County, on a warrant issued by a local justice of the peace pursuant to an affidavit charging trespass, in violation of Burns' Ind.Stat.Ann. § 10-4506 (1971 Cum.Supp.), IC 1971, XX-X-XX-X.[3] The affidavit was executed by the defendant Hoard who, in addition to his duties as an agent for the company, was an "Honorary Deputy Sheriff" on the staff of Hardy.[4] It charged Munguia with unlawfully entering camp #3 "after being ordered to depart by Karlyn C. Hoard, agent for I. H. Morgan." At the time of this incident, Munguia was an employee of AMOS. JURISDICTION The Court finds that it has jurisdiction of the actions by virtue of Title 28 U.S.C. § 1343(3), (4), as implementing provisions of the Constitution, particularly Amendments I and XIV, and civil rights legislation codified as 42 U.S.C. §§ 1981, 1982, 1983, 1985(3), 18 U.S.C. § 245, and the civil actions and remedies implied therefrom. The Court also finds that it has pendent jurisdiction with respect to claims arising under the Indiana constitution and laws pertaining to citizens' and tenants' rights. DISCUSSION There can be no doubt that the communications sought to be protected in these actions are covered by the First Amendment, and protected against state action by the Fourteenth. NAACP v. Button, 371 U.S. 415, 83 S. Ct. 328, 9 L. Ed. 2d 405 (1963); NAACP v. Alabama, 357 U.S. 449, 78 S. Ct. 1163, 2 L. Ed. 2d 1488 (1958); Martin v. Struthers, 319 U.S. 141, 63 S. Ct. 862, 87 L. Ed. 1313 (1943), including communications concerning labor problems and union organization. Thomas v. Collins, 323 U.S. 516, 65 S. Ct. 315, 89 L. Ed. 430 (1945); Hague v. CIO, 307 U.S. 496, 59 S. Ct. 954, 83 L. Ed. 1423 (1939). In the cases at hand, we find a company, licensed by the state to operate agricultural camps, inducing migrants to occupy the camps and then denying access to the migrants under color of a state trespass law, enforcing such action by causing criminal prosecutions to be instituted against persons who attempt, nevertheless, to exercise their First Amendment rights to speak and distribute literature to the migrants. This clearly violates the First and Fourteenth Amendments, Marsh v. Alabama, 326 U.S. 501, 508, 66 S. Ct. 276, 90 L. Ed. 265 (1946), and thus brings the cases within the jurisdictional ambit of 28 U. S.C. § 1343(3) and 42 U.S.C. § 1983. Just as clearly, the concerted actions of the defendants Morgan and Hoard, together with those of Fraley, and the *838 various company guards, confer jurisdiction pursuant to 28 U.S.C. § 1343(4) and 42 U.S.C. § 1985(3), whether or not "color of state law" is found to exist. Griffin v. Breckenridge, 403 U.S. 88, 91 S. Ct. 1790, 29 L. Ed. 2d 338 (1971); Folgueras v. Hassle, 331 F. Supp. 615 (W. D.Mich.1971). In support of their position, plaintiffs have cited Marsh v. Alabama, supra, and Amalgamated Food Employees Union Local 590 v. Logan Valley Plaza, 391 U.S. 308, 88 S. Ct. 1601, 20 L. Ed. 2d 603 (1968). Defendants, on the other hand, argue that the vitality of both of these cases has been sapped by the decisions of June 22, 1972, in Central Hardware Co. v. NLRB, 407 U.S. 539, 92 S. Ct. 2238, 33 L. Ed. 2d 122, and Lloyd Corp. v. Tanner, 407 U.S. 551, 92 S. Ct. 2219, 33 L. Ed. 2d 131. This Court does not believe that any of the four cases has specific application to the cases here submitted. Marsh, of course, held that an Alabama trespass statute, similar to the Indiana statute here involved, could not constitutionally be applied so as to justify prosecution of a person distributing religious writings on the privately owned streets of a company town. Logan Valley held a similar Pennsylvania statute inapplicable to peaceful picketing by a labor organization against a specific market located within the confines of a privately owned shopping center. Lloyd Corporation, on the other hand, set aside a lower court injunction restraining petitioner from interfering with the distribution of handbills on its shopping center property, on the basis that it had a right to enforce its rule against handbills in a nondiscriminatory manner. Central Hardware reversed a decision holding that union organizers had a right to solicit in petitioner's parking lot, on the basis that the case was not controlled by Logan Valley, but by NLRB v. Babcock & Wilcox Co., 351 U.S. 105, 76 S. Ct. 679, 109 L. Ed. 975 (1956), a case interpreting § 7 of the National Labor Relations Act. In Marsh, Logan Valley, and Lloyd Corporation there is much discussion as to the public or quasi-public nature of streets and sidewalks in company towns and shopping centers. In the present cases, however, the Court believes that it begs the real issue to attempt comparison of company camps to company towns, or to attempt to determine, as in Lloyd Corporation, whether exclusionary rules are applied in a nondiscriminatory manner. The real question is whether or not the owner of land may lawfully prescribe who may talk to his tenants, and monitor any conversations which may be permitted. The question supplies the answer, which must be in the negative. Likewise, it matters not whether the status of the migrants vis-a-vis the company be characterized as that of tenants, as maintained by plaintiffs, or as servants, as argued by defendants. In this connection, however, it is difficult to understand how they could be classified as servants of the company since, as above noted, many of them do not even work for the company and none are paid directly by it. The offer of free rent, which is expressly held out in the company's United States Employment Service applications, is undoubtedly a consideration which helps to induce the migrant to come to Scott County and the other Indiana communities in which the company furnishes housing. By accepting the offer, the migrant swells the pool of agricultural labor in the area, which is to the company's advantage in that it tends to guarantee the flow of crops to its canneries. This is consideration enough, it seems to the Court, to denote the migrant a tenant for the term of the crop season. A tenant sui generis, perhaps, but yet a tenant. In short, the controlling status here is that the migrants are citizens of the United States, residing in their own homes, and are entitled to be treated as such. By the same token, their would-be visitors have the constitutional *839 right to visit with them, subject to the discretion of the migrants and not of the company, its employees, and political auxiliary. Cf. Martin v. Struthers, supra; Lovell v. Griffin, 303 U.S. 444, 58 S. Ct. 666, 82 L. Ed. 949 (1938). As was said by the Attorney General of Michigan, quoted in Folgueras, ". . . The freedoms of religion, speech, press and assembly guaranteed by the First and Fourteenth Amendments to the United States Constitution are operative throughout the length and breadth of the land. They do not become suspended on the threshold of an agricultural labor camp. The camp is not a private island or an enclave existing without the full breadth and vitality of federal constitutional and statutory protection." Attorney General Opinion # 4727, filed April 13, 1971. Put another way, the company has voluntarily elected to furnish temporary homes to migrants as an aid to its business. It can no more deny access to those homes to persons going to offer sorely needed assistance[5] to the migrants, than it can enter them, search them, or quarter troops in them during the period of their lawful occupancy. All other courts which have been confronted with the problem have come to the same conclusion, by one avenue or another. NLRB v. Lake Superior Lumber Corp., 167 F.2d 147 (6 Cir. 1948); Folgueras v. Hassle, supra; State v. Shack, 58 N.J. 297, 277 A.2d 369 (1971); People v. Rewald, 65 Misc. 2d 453, 318 N.Y.S.2d 40 (1971); Henningsen v. Bloomfield Motors, Inc., 32 N.J. 358, 161 A.2d 69 (1960). See also Gomez v. Florida State Employment Service, 417 F.2d 569 (5 Cir. 1969). The Court therefore concludes that the law is with the plaintiffs in both cases, and that a permanent injunction should issue, enjoining the defendants Morgan Packing Company, Inc., Ivan H. Morgan, Karlyn Hoard, their agents, employees and successors, from delaying, hindering, or interfering in any way with the ingress and egress of plaintiffs and all others similarly situated to and from the agricultural labor camps of the defendant company, and from limiting or interfering with their oral or written communications to the residents of such camps. NOTES [1] Act of June 6, 1933, c. 49, 48 Stat. 113, 29 U.S.C. § 49, et seq. [2] 20 CFR § 602.1, et seq. [3] Section 10-4506 reads, in pertinent part, as follows: "Whoever, being about to enter upon the inclosed or uninclosed land . . . of another, shall be forbidden so to do by the owner, . . . or his agent . . . or who, being upon the inclosed or uninclosed land . . . of another, shall be notified to depart therefrom by the owner, . . . or his agent . . . and shall thereafter at any time enter upon such land . . . or neglect to refuse to depart therefrom at any time, or whoever wilfully or without right enters any . . . farm premises or farm land, or any fenced inclosed or uninclosed land, tract or area of another, when a printed or written notice forbidding or prohibiting trespass in general or in any detail has been conspicuously posted or exhibited at the main entrance to such . . . farm premises, farm land, or fenced inclosed or uninclosed land, tract or area, shall be guilty of a misdemeanor, and, on conviction, shall be fined not less than twenty-five dollars [$25.00] nor more than five hundred dollars [$500] to which may be added imprisonment for not more than six [6] months." [4] Hoard also, on occasion, displayed a deputy sheriff's badge given to him by Hardy to lend emphasis to his orders to various persons not to enter the Austin camp. [5] See, The Migratory Farm Labor Problem in the United States, United States Senate Report No. 91-83 (1969).

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1879140/

346 F. Supp. 313 (1972) Siegfried HERNANDEZ, Plaintiff, v. EUROPEAN AUTO COLLISION, INC., et al., Defendants. No. 72-C-629. United States District Court, E. D. New York. July 21, 1972. *314 Kalman Finkel, The Legal Aid Society, Civil Appeals Bureau, by John E. Kirklin, New York City, for plaintiff. *315 Martin H. Leonard, New York City, for defendants and intervenor, Auto Body Craftsmen's Guild, Inc. Louis J. Lefkowitz, Atty. Gen., by A. Seth Greenwald, New York City, for intervenor, State of New York. MEMORANDUM AND ORDER COSTANTINO, District Judge. Predicating jurisdiction upon 28 U.S. C. §§ 1331, 2281 (1970) and, alternatively, upon 42 U.S.C. § 1983 (1970) and 28 U.S.C. § 1343(3) (1970), the plaintiff's complaint challenges that part of the New York Lien Law which grants the owner of a place for the storage, maintenance, keeping or repair of motor vehicles a lien against a motor vehicle in his possession for nonpayment of charges arising from the services he has undertaken with the consent of the owner of the motor vehicle. N.Y.Lien Law § 184 (McKinney 1966, Supp. 1971). More specifically, the plaintiff challenges that portion of the law authorizing the lienor to summarily detain his motor vehicle, id., and to sell the motor vehicle at public auction with the lienor retaining from the proceeds of the public sale a sum equal to the amount of the indebtedness plus the expenses of the advertisement and sale, id. §§ 200-202, 204. For relief, in addition to his claim for damages, the plaintiff has requested the court to issue an order (1) convening a three-judge court to pass on the constitutionality of the challenged statutory provisions and (2) temporarily restraining the sale of his automobile at public auction;[1] if however, a three-judge court is not to be convened, the plaintiff would then have the court issue a preliminary injunction prohibiting the sale of the automobile and commanding its return to the plaintiff pending full determination of the alternative cause of action arising under the civil rights statute. Intervening in defense of the constitutionality of the challenged provisions of the lien law, the Attorney General of the State of New York has opposed the convening of a three-judge court and seeks to dismiss the complaint for the lack of a substantial federal question. Facts After the plaintiff's automobile was wrecked in an accident, it was towed to the European Auto Collision, Inc., a defendant named in this action. The plaintiff instructed one of the defendant's employees that no repairs were to be made on the automobile until further authorization by him pending an independent damage appraisal by an insurance adjustor.[2] Despite the plaintiff's specific instructions, the defendant garagemen fully repaired the plaintiff's automobile prior to the insurance adjustor's appraisal and without authorization from the plaintiff. Additionally, the plaintiff questions not only the itemization of the repairs made but also the necessity of some of the repairs the garage claimed to have made. Subsequently, when the plaintiff refused to pay the bill presented to him by the garage, pursuant to the lien law the garage detained the plaintiff's automobile to satisfy the claimed indebtedness, depriving the plaintiff of the use and enjoyment of his property. As storage charges mounted and the value of *316 the automobile depreciated, the garage sent the plaintiff notice that unless the bill was paid by the noticed date, the garageman's lien would be enforced at a public sale 21 days after the noticed date. In order to prevent the scheduled sale at public auction, the plaintiff filed this action accompanied by a request, which this court granted, see note 1 supra, for an order temporarily restraining the defendants from selling the plaintiff's automobile. Three-Judge Court In enacting 28 U.S.C. § 2281 (1970) the Congress has made the convening of a district court of three judges incumbent to entertain a complaint seeking to enjoin a state officer from enforcing a state statute on the grounds of its alleged unconstitutionality. But, § 2281 is not "a measure of broad social policy," rather it is "an enactment technical in the strict sense of the term and to be applied as such." Phillips v. United States, 312 U.S. 246, 251, 61 S. Ct. 480, 483, 85 L. Ed. 800 (1941). Before a three-judge court can be convened, then, the complaint must (1) allege that a statute of state-wide application violates the Constitution and (2) request relief in the form of an injunction restraining a state official from enforcing the challenged statute. See Lazarus v. Faircloth, 301 F. Supp. 266 (S.D.Fla. 1969), vacated on other grounds, Shevin v. Lazarus, 401 U.S. 987, 91 S. Ct. 1218, 28 L. Ed. 2d 524 (1971). Here, while not controverting the allegation that the challenged provisions of the lien law are of statewide application, the State argues that the complaint is fatally defective on the second requirement in failing to seek injunctive relief against a state officer. The plaintiff, on the other hand, contends that the municipally licensed public auctioneer, defendant Samuel Greenspan, designated by the defendant garage to enforce its lien against the plaintiff's automobile, is a local officer acting pursuant to the challenged state statute. The plaintiff correctly points out that under § 2281 the geographical extent of the official's powers or the mode of his selection are not in issue; what is decisive is whether the complaint is seeking to enjoin a public official or employee from performing those functions required of him by the state statute. Rorick v. Board of Commissioners, 307 U.S. 208, 212, 59 S. Ct. 808, 83 L. Ed. 1242 (1939). Consequently, a complaint seeking to enjoin a local official from acting pursuant to a statewide statute would be within the scope of § 2281. Moody v. Flowers, 387 U.S. 97, 101-102, 87 S. Ct. 1544, 18 L. Ed. 2d 643 (1967). Nevertheless, the plaintiff cannot succeed on his motion to convene a three-judge court. Defendant Greenspan, the only person sought to be enjoined by the plaintiff who could possibly convey § 2281 jurisdiction on this court, is neither a state nor local official; he is merely a private businessman regulated by a municipal licensing ordinance and essentially acting for his own benefit and that of his principal, European Auto Collision, Inc. Clearly, § 2281 does not as a matter of language nor as a matter of policy extend to a private person, Hall v. Garson, 430 F.2d 430 (5th Cir. 1970), even though he may be performing state functions for the purpose of the "state action" requirement of 42 U.S.C. § 1983 (1970), United States v. Wiseman, 445 F.2d 792 (2d Cir.), cert. denied, 404 U.S. 967, 92 S. Ct. 346, 30 L. Ed. 2d 287 (1971).[3] Thus a *317 three-judge court cannot properly be convened. Civil Rights Action The complaint also states a claim under the Civil Rights Act seeking a judgment declaring the challenged provisions of the lien law unconstitutional, an order enjoining their enforcement and monetary compensation for damages directly attributable to the actions taken by the defendants pursuant to the lien law. In order to state a cause of action arising under 42 U.S.C. § 1983 (1970) the plaintiff must allege, first, the deprivation of a right, privilege or immunity secured by the Constitution or laws of the United States and, second, that the deprivation was caused by a person acting under color of a state statute, ordinance, regulation, custom or usage, i. e., he must allege the presence of state action, see United States v. Price, 383 U.S. 787, 86 S. Ct. 1152, 16 L. Ed. 2d 267 (1966). But, here, however, treating the plaintiff's allegations as true in ruling upon the State's motion to dismiss, see e. g., Escalera v. New York City Housing Authority, 425 F.2d 853, 857 (2d Cir.), cert. denied, 400 U.S. 853, 91 S. Ct. 54, 27 L. Ed. 2d 91 (1970), and even assuming that the defendants are acting under color of state law, the court cannot find that the plaintiff's constitutional right to due process of law has been deprived by the operation of the challenged provisions of the lien law. Consequently, in light of the failure of the plaintiff's complaint to pass muster on the first requisite to a § 1983 action the court need not go further and formally pass upon the second requirement—the presence of state action.[4] Due Process of Law Fundamental to the concept of due process of law secured by the fourteenth amendment stands the principle that no one should be deprived of life, liberty or property without notice adequate to apprise him of the impending risk to his rights and a fair opportunity to be heard in opposition to those seeking to deprive him of those rights. Bell v. Burson, 402 U.S. 535, 91 S. Ct. 1586, 29 L. Ed. 2d 90 (1971); Sniadach v. Family Finance Corp., 395 U.S. 337, 89 S. Ct. 1820, 23 L. Ed. 2d 349 (1969); Anderson National Bank v. Luckett, 321 U.S. 233, 64 S. Ct. 599, 88 L. Ed. 692 (1944); Coe v. Armour Fertilizer Works, 237 U.S. 413, 35 S. Ct. 625, 59 L. Ed. 1027 (1915). Unquestionably, an attempt to deprive a person of a significant interest in property, whatever the nature of that property or the duration of the deprivation, falls within the protective sphere of the due process requirements of the fourteenth amendment. Fuentes v. Shevin, 407 U.S. 67, 92 S. Ct. 1983, 1998-1999, *318 32 L. Ed. 2d 556 (1972). Thus, in separate challenges to § 184 of the lien law—allowing the defendant garage to detain and hold the plaintiff's automobile as a res to satisfy the claimed indebtedness —and to §§ 200-202 and § 204 of the law—which, taken together, allow the garage to sell the plaintiff's automobile at public auction in satisfaction of the charges claimed by the garage—the plaintiff argues that he has been deprived of his right to due process of law in that the statutory scheme does not accord him an appropriate hearing at a meaningful time to oppose the right of the garage to deprive him of the enjoyment and use of his motor vehicle prior to the time the statute permits such a deprivation. See Bell, supra, 402 U.S. at 541-542, 91 S. Ct. 1586, 29 L. Ed. 2d 90; Boddie v. Connecticut, 401 U.S. 371, 378, 91 S. Ct. 780, 28 L. Ed. 2d 113 (1971); Armstrong, supra, 380 U.S. at 550-52, 85 S. Ct. 1187, 14 L. Ed. 2d 62 (1965). The plaintiff's argument that § 184 of the lien law operates to deprive him of due process of law cannot be sustained. Though it is uncontrovertible that the plaintiff has been deprived of the use and enjoyment of his motor vehicle because of its detention by the defendant garage, it is equally uncontrovertible that the garage came into possession of the vehicle only after the plaintiff voluntarily surrendered it to the garage, albeit for the limited purpose of storage pending insurance appraisal, rather than by a unilateral act of taking or seizure in behalf of the garage. This voluntary surrender of the vehicle to the garage for the purpose of storage has, to the extent of the debt claimed, created a lien against the plaintiff's vehicle now in the garage's possession. Consequently, due to the plaintiff's voluntary act, under New York law the defendant garage also has a property interest in the plaintiff's automobile entitling it to possession. As the plaintiff has so forcefully argued, it is no longer open to question that when a significant property interest is at stake, compliance with the safeguards of procedural due process is constitutionally required. Fuentes, supra, 407 U.S. 67, 92 S.Ct. at 1997-1998, 32 L. Ed. 2d 556. The right to be heard in defense of a property interest is not dependent upon the vesting of full title nor is it dependent upon "an advance showing that one will surely prevail" when the rights of the contesting parties are finally determined. Id. Here, while the plaintiff denies that he owes the garage a debt of $1311.50, because he admits in his complaint the act of voluntary surrender of the automobile to the garage and because he acknowledges nonpayment, in actuality, it is the amount rather than the existence of a debt that is in issue between these parties. To put it another way, since the garage claims a significant property interest entitling it to possession even though the plaintiff challenges both the existence of and the significance of the property interest claimed, the garage must also be afforded procedural due process. Fuentes, supra; Laprease v. Raymours Furniture Co., 315 F. Supp. 716, 723 (N.D. N.Y.1970). Hence, in passing on the constitutionality of a statutory authorization to a garageman to detain and hold a motor vehicle voluntarily surrendered to him in satisfaction of the charges flowing from the terms of that voluntary surrender, the essential question before the court is the constitutionality of the means which New York has chosen to provide in settling conflicting claims that would entitle either claimant to possession of a particular item of property. Under New York law the owner of a motor vehicle subject to a garageman's lien has the right to "tender the amount, if any, which he claims that he owes and replevy the property from the possession of the lienor, if he then refuses to surrender it." Dininny v. Reavis, 100 Misc. 316, 317, 165 N.Y.S. 97, 98, aff'd, 178 A.D. 922, 165 N.Y.S. 97 (1st Dep't 1917). In any case, the lienor is under a legal obligation to enforce his lien promptly to mitigate the costs chargeable to the owner of the *319 property. See, e. g., Morgan v. Murtha, 18 Misc. 438, 42 N.Y.S. 374 (App.T. 1896) (warehouseman's lien). Clearly, since this court finds the lien enforcement provisions of the New York law to be constitutional, infra, either of the remedies afforded by New York law to the owner of a motor vehicle subject to a lien—the opportunity to initiate a replevin action to challenge the detention and holding of the vehicle or the opportunity to challenge the enforcement of the lien itself by seeking equitable relief —comport with the requirements of due process. The constitutionality of the New York law must be upheld because, though an owner's voluntary act of surrender of property to another person can create a property interest in that person, New York also provides a means to challenge at a judicial hearing the propriety of any property interest that might be claimed by the person to whom the property was surrendered. Where property interests are alleged to be in conflict, a legislative determination, such as the one made by New York, placing the responsibility of initiating an action and of bearing the burden of proof upon the party seeking to recover possession rather than upon the party in possession violates neither the principles of due process of law nor those of equal protection under law. Lindsey v. Normet, 405 U.S. 56, 92 S. Ct. 862, 870-871, 873-874, 31 L. Ed. 2d 36 (1972). The plaintiff's remaining constitutional objection—a challenge to the lien enforcement provisions of the statute, §§ 200-202 and 204—at first would appear to be quite substantial. These sections of the lien law authorize the lienor, even when his claimed property interest can be open to question, to extinguish at public sale not only the property interest he claims but also the interest and title of the property's owner. Yet, this legislative determination providing for the enforcement of a garageman's lien is substantially the same as the statutory provision allowing enforcement of a warehouseman's lien, see N.Y. U.C.C. § 7-210 (McKinney 1964) that was held constitutional in Magro v. Lentini Bros. Moving & Storage Co., 338 F. Supp. 464 (E.D.N.Y.1971), aff'd mem., 460 F.2d 1064 (2d Cir., 1972), cert. denied, 406 U.S. 961, 92 S. Ct. 2074, 32 L. Ed. 2d 349 (1972). Magro, in effect, precludes the argument here. A garageman's lien is enforceable by the public sale of the motor vehicle detained to satisfy the charges of the lienor. N.Y. Lien Law § 200 (McKinney 1966, Supp.1971). The lienor must serve the owner with a notice of the sale containing a statement describing the nature of the agreement under which the lien arose, the property to be sold, an estimate of the value of the property, and the amount of the debt claimed at the date of notice. Id. § 201. Further, the notice must set a final date for payment not less than ten days from the date of service, stating the time and place of the sale if the debt is not paid. Id. The property still may not be sold, however, until the lienor publishes notice of the sale in a local newspaper once a week for two consecutive weeks after the time for payment of the lien specified in the notice. Id. § 202. After the sale, the lienor can retain an amount to satisfy his lien plus the expenses of the advertisement and sale with the remainder being subject to the original owner's demand. Id. § 204. In reviewing the means New York has provided for enforcement of the garageman's lien, it is obvious that the statutory notice more than adequately complies with the requirements of procedural due process. The required notice is detailed and informative and provides an absolute minimum of 24 days between the time the owner is informed of the public sale and the date scheduled for the sale. Therefore, the only avenue of constitutional challenge open to the plaintiff is the failure of the statute to mandate a judicial hearing prior to public sale. A mandated judicial hearing, however, is not constitutionally required. To satisfy the hearing requirement of procedural due process, the statute, as construed by the state courts, must provide an opportunity to challenge the basis *320 of the alleged debt. See Coe, supra, 237 U.S. at 423-425, 35 S. Ct. 625, 59 L. Ed. 1027. Where there is a real opportunity to be heard, a statute that provides only for notice prior to authorizing a deprivation of a property right may not be constitutionally defective. See, e. g., Anderson National Bank, supra; Magro, supra. In New York an owner whose property is threatened with a lien sale can seek to enjoin such a sale in state court while at the same time determine the proper amount of the lien if one is found to exist. Dininny, supra, 100 Misc. at 316, 165 N.Y.S. at 98. Moreover, since the challenged statute provides the owner with a minimum of 24 days notice of the proposed lien sale, the owner has ample opportunity to institute an action to assert his objections to the proposed sale. Given adequate notice and a meaningful opportunity to be heard at a judicial proceeding and in light of the realities of a situation where as the length of time increases the costs to the lienor increase while the value of the property that secures the debt owed diminishes, the judgment of the legislature embodied in the summary procedures challenged in this action must not be disturbed. The question before this court is not whether a fairer system can be devised in securing for the garageman what is due him; the only question before the court is whether the system in operation today comports with the due process requirements of the fourteenth amendment. This court finds that it does. Conclusion The plaintiff's motion to convene a three-judge court is denied. The motion of the defendants and intervenors to dismiss the complaint is granted. Further, the order of this court temporarily restraining the sale of the plaintiff's automobile is extended until July 31, 1972 to allow the plaintiff to seek an additional extension of the restraining order from the court of appeals pending appeal of the judgment of this court, or, in the alternative, to seek relief in the appropriate state court to enjoin any future sale. So ordered. NOTES [1] The court granted the plaintiff's ex parte request for the issuance of a temporary restraining order barring the scheduled public sale of the plaintiff's automobile. This order has continued in effect at the consent of all the parties. [2] The plaintiff's claim that no consent to repair was given is controverted by the garage. Axiomatically, since the court is ruling on a motion to dismiss, the averments of the plaintiff's complaint must be deemed true. Interestingly enough, however, under New York law a garageman's lien cannot attach without consent; absent consent the garageman cannot even retain the automobile as security for the debt owed him. Nonetheless, the facts as stated by the plaintiff are consistent with his argument that since the statute itself provides no hearing prior to sale even when, as here, the validity of the debt and lien are challenged the statute is offensive to the Due Process Clause. [3] The plaintiff cites several cases in support of his contention that the auctioneer is a state officer within the meaning of § 2281. His reliance on these cases is misplaced. In Browder v. Gayle, 142 F. Supp. 707 (M.D.Ala.), aff'd per curiam, 352 U.S. 903, 77 S. Ct. 145, 1 L. Ed. 2d 114 (1956), a three-judge court found drivers of buses operated by a private bus company enforcing a state law requiring racial separation on public conveyances to be state officers. But, in addition to the bus drivers, the suit also named as defendants municipal and state officials against whom a request for injunctive relief would clearly support that court's jurisdiction. In fact, Lazarus v. Faircloth, 301 F. Supp. 266 (S.D.Fla. 1969), vacated on other grounds, Shevin v. Lazarus, 401 U.S. 987, 91 S. Ct. 1218, 28 L. Ed. 2d 524 (1971), a case the plaintiff brings to the court's attention because it cites Browder with approval, notes, quite possibly in an attempt to harmonize Browder and the language of the statute, that the bus drivers in Browder were "municipal employees." 301 F. Supp. at 270. The same infirmity plagues Gilmore v. James, 274 F. Supp. 75 (N.D. Tex.1967), aff'd per curiam, 389 U.S. 572, 88 S. Ct. 695, 19 L. Ed. 2d 783 (1968). The defendants in Gilmore were trustees of a Texas junior college. Under Texas law, however, junior colleges are public corporations of the state and their trustees are deemed state administrators. If, as in Gilmore, the junior college was affiliated with a county school division, then under Texas law the trustees were deemed county officers. Here, however, the defendant auctioneer is neither a state nor local official, he is nothing more than a private businessman subject to municipal regulation. [4] The presence of state action, however, would seem to be quite manifest. Though he is a private individual, the lienor through the public auctioneer it has retained is performing a traditionally public function pursuant to a right accorded it by a state statute. See, e. g., Adickes v. S. H. Kress & Co., 398 U.S. 144, 150, 166, 171-173, 90 S. Ct. 1598, 26 L. Ed. 2d 142 (1970); Hall v. Garson, 430 F.2d 430, 439, 442 (5th Cir. 1970); Collins v. Viceroy Hotel Corp., 338 F. Supp. 390, 393 (N.D.Ill.1972).

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/2349724/

496 F. Supp. 697 (1980) Bobby HALL et al., Plaintiffs, v. BOARD OF SCHOOL COMMISSIONERS OF MOBILE COUNTY, ALABAMA, et al., Defendants. Civ. A. No. 79-0117-P. United States District Court, S. D. Alabama, S. D. August 20, 1980. *698 *699 Larry T. Menefee, Mobile, Ala., for plaintiffs. Robert C. Campbell, III and Frank G. Taylor, Mobile, Ala., for defendants. OPINION AND ORDER PITTMAN, Chief Judge. This cause was tried by the court without a jury. The action was filed by Bobby Hall, Leona Brent, and Shirley Banks, for themselves and as representatives of a class composed of "all persons who are now, or may in the future be, employed as teachers by defendants," and of a subclass composed of "all members of the principal class who are also members of the Mobile County Education Association (MCEA), and those who may in the future be eligible for membership in that organization." The defendants are the Board of School Commissioners of Mobile County (Board), Alabama, and the six members of the Board sued in their individual and official capacities. The plaintiffs attack four policies of the Board, two relating to the distribution of literature on school premises, and two relating to visitors on school premises. They contend that the policies contain vague and subjective standards, and violate the First Amendment on their face, and that the policies are applied in an arbitrary and discriminatory fashion so as to inhibit the plaintiffs' exercise of their First Amendment rights. They contend that the policies are applied to permit some organizations and not others to communicate with and among teachers employed by the defendants, to permit the communication of some ideas and not others, and to prevent the MCEA from communicating among its members, in violation of the Equal Protection clause of the Fourteenth Amendment. The plaintiffs request injunctive and declaratory relief pursuant to 28 U.S.C. §§ 2201 and 2202, together with attorneys' fees and costs pursuant to 42 U.S.C. § 1988, for the alleged violations of their First and Fourteenth Amendment rights and of 42 U.S.C. § 1983. In support of these charges, the evidence offered by the plaintiffs consisted of the defendants limiting the: (1) use of school public address systems for announcements; (2) use of mailboxes for dissemination of literature; (3) holding of informal conversations and passing out literature; (4) wearing of "No" buttons; and (5) the inadequacy of administrative appellate review of decisions by principals and superintendents. FINDINGS OF FACT The subject matter which is the genesis of this dispute arises out of the admirable goal of the defendants to upgrade student achievement and teacher competency and the understandable concern of job security by the teachers and their professional organization, MCEA, including the implicit fear that black teachers will by reason of *700 racial discrimination bear the brunt of the burden of improvement by termination. AGREED FACTS The plaintiffs are teachers employed by the defendants, and are members of the MCEA. Ms. Banks is immediate past president of the MCEA and was president of the organization at the time this action was filed. Three of the policies which are the subjects of this action, KIA, KIB, and KM, were adopted by the defendants in their present form on June 26, 1974. Policy GBRBB was adopted in its present form on April 13, 1977. On March 5, 1979, the defendants adopted a procedure expanding the prerogatives of staff administrators pursuant to policy GBRBB. The policies and procedures of the defendants require that anyone wishing to distribute literature or visit a school must first receive written approval from the Deputy Superintendent (Dep. Supt.), formerly described as the Assistant Superintendent for local school administration. Dr. Ed White has served in that capacity during the times relevant to this action. After receiving approval from the Dep. Supt., approval must then be received from each individual school principal. FINDINGS BY THE COURT With regard to the maintenance of this action as a class action, the court incorporates by reference the facts discussed in the recommendation of the magistrate of July 31, 1979, and adopted by the court in its order of August 11, 1979. The defendants have "acted or refused to act on grounds generally applicable to the class, thereby making appropriate final injunctive relief and corresponding declaratory relief with respect to the class as a whole." Fed.R. Civ.P. 23(b)(2). The Mobile County school system consists of approximately 87 schools, with 87 principals, over 3000 teachers, and 66,000 students. The schools range from elementary to high school levels; among the largest of the schools, Murphy High School serves some 2400 students. The system is governed by the defendant Board, consisting of its president and five members. Through policies promulgated by the Board, the day-to-day operation of the system is carried out by the superintendent, several assistant or deputy superintendents, and at the local level by principals. I. DISTRIBUTION OF LITERATURE The two policies relating to the distribution of literature on school campuses are KIA, "Political Campaign Materials," and KIB, "Special Interest Materials." Policy KIA provides: "All material political or sectarian in nature distributed on any school campus shall have prior approval of the Assistant Superintendent of Administration." (Emphasis added.) Policy KIB provides: "Distribution of special interest materials in the local school shall have prior approval of the Assistant Superintendent of Administration." (Emphasis added.) As noted in the Agreed Facts, these policies were administered by Dr. Ed White, Dep. Supt. The superintendent, Dr. Abe Hammons, also has the implied authority to administer the policies, upon his own motion or upon the request of the Dep. Supt. Although formally control of distribution of materials is centralized in the Dep Supt., in practice the principals exercise discretion in determining what may or may not be distributed on their campuses. There are no written criteria, standards or instructions to guide principals in their decisions; as a result, the evaluation of materials, and the types of materials which are in fact permitted, vary significantly from school to school.[1] *701 The standards applied by the administrators are alike in one respect: they rest expressly upon a consideration of the content of the materials sought to be distributed. For Dr. White, as well as the principals questioned, the content of the materials serves not only to identify materials subject to the policies, but also to make choices among them. Dr. White, charged with primary responsibility for approving materials, said that permission depended on how a point of view might be stated, or why it was stated, and from the perspective of the effect on the teacher, whether it was designed to interfere with daily operations, or to cause distraction or disruption. Dr. White defined "political" materials as those tending to cause confrontation in schools; Principal William Michaels defined "sectarian" material as "biased." For purposes of identifying materials subject to the policies, differences also appear in the definitions which the supervisor and principals use of the words "political," "sectarian," and "special interest." "Political," for Dr. White and Principal Sousa, includes material expressing a "point of view" or dealing with teacher competency testing. For Principal Michaels, however, an election form for MCEA elections is not political material. Principal Sousa defines "sectarian" to include material from special groups such as religious groups, the KKK, the NAACP, NOW, or the John Birch Society; Principal Michaels defines special interest material as having a "special purpose" or coming from a "specific organization." Dr. White defines special interest material as that coming from persons in business for personal gain, such as advertisements. Deputy Superintendent Larry Newton, who took over Dr. White's duty of approving materials after the period relevant to this action, defines special interest material as that "benefit[ting] a select few." More generally, Principal Michaels would exempt magazines from the policies based on "good common sense"; Principal Sousa would exempt newspapers for the same reason. One factor prompting this action was the exclusion from many campuses of materials on the subject of teacher competency testing which teachers sought to distribute. This subject has been strongly and bitterly contested since it was first proposed some years ago. The plaintiffs introduced four documents concerning teacher competency testing, two distributed by Board members, and two written by the MCEA. Plaintiffs' Exhibit 8 is a letter of January 30, 1979, to teachers from Board President Alexander expressing his opinion on teacher competency testing. Mr. Alexander goes on to express a further opinion on the representation of teachers by the MCEA: "The only official word that is heard from the teachers, comes from the professional organizations. They have steadfastly opposed any kind of testing and have threatened to "sue us morning, noon and night" if any teachers are dismissed. Most of the teachers that I talked to say they do not support this "stonewall" attitude. The problem is, these teachers never attend their organizations' meetings and allow a handful of members to dictate policy. "For instance, Dr. Hanebuth is able to say he speaks for two thousand teachers and he is able to spend thousands of dollars of membership dues to defend any teacher who is dismissed. If you disagree with the things Dr. Hanebuth is saying and the concept of defending all teachers, then you have a duty to attend the meetings and voice your opposition." Plaintiffs' Exhibit 10 is a "Position Paper" of February 8, 1979, from Board Member Drago. For the most part the paper is a reasoned statement of Ms. Drago's position on teacher competency testing. The paper also contains a challenge to the validity of the contrary argument: "I feel compelled to issue a statement at this time because of the intense emotional state pervading our system, a condition that I believe can be brought under control when the parties involved examine the situation with logic and reason. "Teachers spend a great deal of time and effort helping students learn to apply critical thinking skills. They teach students *702 to distinguish between fact and fiction, to always search for the truth, to resist over-reacting, to weigh both sides of the question, to recognize propaganda, and to beware of inflammatory words. Today I want to encourage those very same teachers to ask themselves if they are applying the same skills to the teacher-testing issue. "I have a feeling that many teachers have fallen victim to partial truths and emotional language. Some have, perhaps, unintentionally, been a party to distribution of rumor." (Emphasis added.) Plaintiffs' Exhibit 5 is an undated flyer prepared by the MCEA between February 8 and 23, 1979. In a combination of pictures, regular, and oversize type, it urges teachers to oppose the imposition of teacher competency testing. The flyer states, "The pressure begins" (illustrated by a line drawing of a head being squeezed by a large C-clamp), "the president speaks" (drawing of an American Indian sending smoke signals). The flyer then quotes what is apparently a news release which discusses the Board's plan to begin testing and the teachers' vote in opposition, and urges teachers to "Stick together." It notes Ms. Drago's position paper, referring to her as "Mom," and in response, states "NO NO NO" in oversize type. Although emphatic and evidently written with a sense of indignation, the flyer does not advocate illegal action, disruption of the educational process, or any action other than opposition to teacher competency testing. It does not suggest any means by which the opposition should be expressed. By referring to Ms. Drago as "Mom," and by implying through the signal fire that Mr. Alexander's statements are hot air or smoke, the flyer could be considered demeaning to those persons. Its random distribution on the school premises invited student participation. Plaintiffs' Exhibit 7 is a memorandum dated February 23, 1979, from Dr. William Hanebuth, Executive Director of the MCEA, to teachers. It reports the efforts of the MCEA in opposing teacher competency testing, lists acts by the Board, supervisors and principals which were perceived as efforts to put "pressure" on teachers, and generally urges teachers to present a united front in opposition to testing. The memorandum does not advocate any action other than opposition to testing, and does not suggest any means of opposition, apart from noting that "your association had advocated before the Board" an improved teacher evaluation system. In tone it lacks some of the rhetoric in the Alexander letter and is scarcely different from the Drago paper. At the time that these documents were prepared, the Board had not made a final decision on teacher testing. The documents were advocating positions in a decision-making process rather than obedience or disobedience to a Board policy or rule. The Alexander letter was distributed on school campuses. The Drago paper was distributed to teachers by means of the schools' mailbox systems. One teacher, Leona Brent, was told that she could not distribute the MCEA flyer on her campus. She had not sought permission to distribute the flyer, because she had only one copy, and did not intend to distribute any flyers. There have been reprimands for distributing MCEA materials. Principal Michaels refused permission for the flyer to be distributed on his campus. Principal Michaels stated that he permitted the Alexander letter and the Drago paper to be displayed or distributed on his campus. He "would have" refused permission for the Hanebuth memorandum, however, because it put "pressure on educators" and "incite[d] professionals to do things that they would not normally do." When asked what things they might do, he stated, "strikes." Principal Michaels went on to note that he would try to avoid controversial literature, which hurt the educational program. He did not feel that the Alexander letter or the Drago paper was controversial. Dr. White similarly would have denied permission to distribute the MCEA flyer. He gave two reasons: first, that the flyer attacked Mr. Alexander, second, that the *703 flyer attempted to avoid Board instructions, and "attempt[ed] to incite teachers" to defy directions. He further noted that the flyer would distract teachers from the responsibility for which they were hired, to teach in the classroom, and cause them "to spend time which the Board is paying for thinking about this," and "to follow directors or outside persons." The "special interest" materials provided for in policy KIB were considered by all witnesses to include brochures and advertisements from persons selling goods and services, such as insurance or pots and pans. Principal Sousa "usually" distributed these materials for salesmen. Ronald E. Smith, a life insurance salesman, was generally able to leave materials in teachers' lounges or to have them placed in teachers' mailboxes. This was an unequal application of the policy. II. VISITORS TO SCHOOL CAMPUSES The two policies relating to visitors on school campuses are GBRBB, "Structuring the School Day," and KM, "Visitors to the Local School." Policy GBRBB provides, in pertinent part: "The school day shall be defined as the time when classes are in session and when faculty and in-service meetings are being held. . . . . . "All persons requesting to visit schools to interpret, sell and/or promote products or services must receive a letter of introduction from the assistant superintendent in charge of local school administration (the assistant superintendent may deny the request for a letter of introduction based upon his investigation of the request) to the local school principal who has the prerogative of approving or denying the request to visit the school. "In emergency situations as determined by the teacher, principal and the Division of Personnel, arrangements can be made for a conference with a representative of a teacher organization. . . . . . "All schools shall have the school doors open for a minimum of eight (8) consecutive hours each work day. The day for professional personnel will include: a. time assigned for instructional situations b. time assigned for planning and conference c. time assigned for student activities d. time assigned for supervisory activities other than classroom instruction e. faculty meetings or in-service meetings after the time students are dismissed and beyond the normal school closing time "All professional faculty members are required to be at their stations of duty no later than fifteen (15) minutes before school begins and to leave no earlier than fifteen (15) minutes after the school day ends." Policy KM provides, in pertinent part: "All persons not assigned to a school shall report directly to the office when visiting in a school. "The local school principal shall within approved systemwide policies develop and disseminate procedures governing individuals visiting in schools. "Final authority in visitation to the local school shall reside within the decision of the principal or responsible designee, keeping in mind the system's obligation is to the safety welfare, and education of children." Taken together, policies GBRBB and KM establish control of school campuses on a 24-hour basis. GBRBB covers the "school day" or "instructional day," roughly from 7:30 a. m. to 3:30 p. m.; KM covers the other hours. A procedure promulgated under policy GBRBB spells out in more detail the process for requesting admission to a campus and for appealing adverse decisions, without time limitations, as well as several unrelated details of school administration. A parallel procedure was adopted on March 5, 1979, under policy KM. The objective is legitimate and worthwhile. *704 The administration of these policies is a "shared responsibility" of the Dep. Supt. or the superintendent and the local school principal. The Dep. Supt. issues a "letter of introduction" to the would—be visitor, who then requests permission of the principal to enter the campus. No principal may grant permission without this letter. With the letter, the principal's discretion to grant or deny permission is very broad. There are no guidelines issued under these policies, and the practice varies from school to school, permission being granted or denied because of special conditions prevailing at the school, but also because of the individual principals' views on the visitor's organization. Dr. White testified that visitors to schools are not permitted to meet with teachers during the instructional day, under policy GBRBB, but that a principal might permit such a meeting at the school after the instructional day under policy KM. Policy GBRBB provides that a representative of a teacher organization may meet with a teacher during the instructional day if there is an emergency. Dr. White further stated that visitors, including sales persons, were not permitted to meet with teachers during the instructional day unless there was an emergency. The policy, according to him, did not authorize visitors to speak with teachers when they are in the teachers' lounge or on their lunch break. The language of policy GBRBB does not expressly provide that visitors may not speak or meet with teachers during the instructional day. It does provide that, "Upon request of the Superintendent through the Division of Local School Administration, the principal shall certify whether any sales persons, persons who are advocates of employee organizations or special groups advocating special causes have been authorized to use any of the instructional time, including faculty or in-service meeting time. "All schools shall have the school doors open for a minimum of eight (8) consecutive hours each work day." Similarly, the procedure promulgated under policy GBRBB provides: "Principals shall keep a log of all persons requesting to visit during the instructional day. The principal may be called upon to certify if anyone or who was given permission, not on the faculty to use any instructional time." The version of policy GBRBB in force prior to April 13, 1977, provided that upon request a principal "shall certify that no sales person, persons who are advocates of employee organizations . . . have been authorized to use any of the instructional time . . .." It further provided that principals could approve the use of certain persons "who are involved in the learning process." The court concludes that the Board policy, insofar as the Board and the central administration were concerned, was that visitors were not to meet with teacher during the instructional day. The custom and usage among principals often varied widely from this policy. The central administration did not follow this policy in one case, which involved unusual circumstances and was apparently a conciliatory gesture. In permitting certain MCEA representatives called "uniserve directors" to enter campuses to speak with teachers, Dr. Hammons, the superintendent, wrote on February 13, 1979: "The bearer of this letter, [blank for name] has permission to visit the individual schools of Mobile County for the purpose of discussing with teachers any professional educational concerns which might be brought to their attention by the individual instructor. Under no circumstances shall conferences with teachers be held during the teachers class time; under no circumstances shall meetings be held during the school day as stated in Board Policy GBRBB." The letter clearly contemplated individual conferences with teachers during the instructional day when the teachers were not in class, although meetings with groups could not be held then. *705 Numerous sales persons were permitted to meet with teachers during lunch periods and "off periods." This included a representative of Lamar Life, an insurance company, and persons selling pots and pans, cancer insurance, and magazines. Ronald E. Smith, an insurance salesman, testified that he was permitted to meet with teachers during lunch and breaks. A representative of Amway made a presentation to teachers in a teachers meeting at Baker High School, a period included in the instructional day." MCEA representatives were not always denied permission to meet with teachers. Dr. Hanebuth was permitted to meet teachers in the lounge, and to have lunch with them. In February 1979, a number of "uniserve directors" were given letters of introduction, and were permitted to visit in some schools. As noted above, principals have broad discretion to permit or deny permission to visit a school. This discretion is so broad and uncontrolled that a principal might refuse permission to a representative of a teacher organization solely on the basis of that principal's opinion that membership in that organization was not helpful to a teacher's professional development or was not otherwise advantageous. Principal Michaels testified that he would never let a representative from the MCEA such as Dr. Hanebuth, or a representative of the American Federation of Teachers, visit on his campus. He stated that the campus was closed on a 24-hour basis, and that any visits during the instructional day were "obstructive." Although this appears on its face consistent with the official policy, Principal Michaels went on to state that insurance salesmen were less disruptive than Dr. Hanebuth, and explained that by virtue of the fact that he was a uniserve director, Dr. Hanebuth was disruptive. It was clear from Principal Michaels' demeanor and tone that the ground of his denial of permission to an MCEA representative was or would be the nature and function of that organization. Another principal, Ms. Ethel McDavid, permitted Dr. Hanebuth to speak with her elementary teachers after school, because she considered that it would be "fair to let them talk with him." Plaintiffs' Exhibit 12 at 28-29. She did not permit visitors to speak with teachers during the instructional day because elementary teachers are required to be with students for the entire day. Id. at 28. She permitted visitors to meet with teachers after school if they provided "something that I think would be helpful to the teachers." Id. at 29. Principal Sousa decides whether or not to permit a visitor to enter the campus based on whether it is worthwhile to the school as a whole, and in considering the effect on the students. Dr. Garfield Bright, former Executive Director of the MCEA, was denied permission to enter some schools when he had a letter of introduction from the Dept. Supt. The circumstances of these denials do not appear. III. OTHER EVIDENCE The plaintiffs offered evidence on the policy with regard to the use of the public address systems at two schools. At Mary Montgomery High School, non-school organizations other than the MCEA are permitted to make announcements over the public address system. Ms. Mary Wooten stated that she was not permitted to use the system to announce MCEA meetings before 3:15 in the afternoon, after most teachers are gone, and some 15 minutes after students have been excused. At John Shaw High School, Mr. William Franklin was suspended for two weeks, one without pay, for making an announcement over the system. He stated that he had had use of the system in the past to make announcements regarding MCEA meetings and elections. On the occasion in question, Mr. Franklin asked permission of Ms. Sadie Smith to use the system. Mr. Franklin referred to Ms. Smith as both an instructional "specialist" and an instructional "supervisor." The precise nature of her authority does not appear. Mr. Franklin told her that he wished to make an announcement of "news of interest to" MCEA members. *706 Mr. Franklin then proceeded to discuss the questions of a teacher's right to have an uninterrupted 35 minutes for lunch, and of teacher competency testing. With regard to the latter issue, Mr. Franklin testified that he felt that the teachers should let themselves be heard, and that they should not allow themselves to be castigated without responding. On several occasions, teachers have been denied permission to distribute literature through teachers' mailboxes. No evidence was offered that the teachers attempted to follow policies KIA and KIB, by requesting permission from the Dep. Supt. Mr. Glenn Burnham was reprimanded for attempting to distribute an announcement of an MCEA meeting. He had not requested permission to distribute the announcement, but stated that he was following the procedure customary at his school. He was told that this was "no longer possible." Ms. Linda Wooten testified that she was not able to distribute MCEA literature at her school. She did not mention specific incidents where permission was refused. In March 1979, Ms. Wooten was denied permission to hold an MCEA meeting at Mary Montgomery High School with other faculty members after school. She stated that such meetings had been permitted in the past, on several occasions. Ms. Cassie W. Jackson, a Title I reading program instructor at Hamilton Elementary School testified that she was present with 12-15 other teachers at the "teachers' station," a central resource room for Title I teachers at 3:10 p. m., some 25 minutes after students had left. Several of the teachers were discussing teacher competency testing; the principal accused Ms. Jackson of calling an unauthorized meeting. As a result, she refrains from speaking to other teachers on MCEA matters while at school, but has them call her at home. Evidence was presented concerning the wearing of "No" buttons by teachers. The buttons refer to opposition to teacher competency testing. Ms. Leona Brent, a teacher at E. R. Dickson Elementary School, was told to remove her button. Principal Sousa, then principal of Theodore High School, wrote a memo to all teachers on February 14, 1979, which stated: "We have a rule at Theodore that no student is to wear any sign or insignia of protest while on this campus. I would hope that teachers can see that if they wear an insignia on campus it is a form of protest and is a poor learning experience for students. On one hand we tell the students not to do something and we do the same thing ourselves. I am hoping that teachers will use good judgment and refrain from setting a poor example for students." He also pointed out to teachers at a teachers' meeting that it was "bad professionally" to wear the buttons in front of students, as it was setting a bad example. It does not appear that any teacher was ordered to remove a button, however, it is clear such action was disapproved. The process of the one appeal under policy GBRBB was very lengthy. There are three steps: (1) a letter to the Dep. Supt.: if denied, (2) a letter to the superintendent or his designee: if denied, (3) a letter to the Board. Dr. Hanebuth employed the process on one occasion regarding an attempt to visit Rain High School. He wrote his first letter on March 8, 1977. His appeal at the Board level was postponed on two or three occasions, and was assigned to a Mr. Sessions for further investigation on August 24, 1977. Dr. Hanebuth's last act was to write to then Assistant Superintendent LoDestro on September 13, 1977. He never received a decision on the appeal, after six months of pursuing it. The procedure and its application are totally inadequate. Throughout the period leading up to this action, it is clear that both the teachers and the Board and administration have been provoked and antagonized, on numerous occasions, by one another. Teacher competency testing has been vigorously debated among teachers, and their views have been made known to the Board and the administration. The MCEA is concerned that Board policy renders it unable to provide service to its members with regard to their *707 employment. The Board is concerned that numerous violations of its policy by teachers and MCEA representatives have an adverse effect upon the climate of schools for education. The Board policies include the concern about securing schools campuses for the protection of students. Administrators have noted that the presence of illegal drugs on campuses and a rape at Toulminville High School may be traced to the presence of unauthorized and uncontrolled visitors. In February and March, 1979, and since, teacher competency testing has been a major issue in the school system. There followed several flagrant violations of acceptable school policy by MCEA, MCESPO, and the teachers. The MCEA requested that the Alabama Education Association and the National Education Association send "uniserve directors" to Mobile to assist in getting information to teachers on the subject of testing. During February six "uniserve directors", through Dr. Hanebuth, requested letters of introduction in order to speak with teachers. Dr. Hammons discussed visitor policies with the directors, and the expectation that there would be no disturbance at the schools. He wrote these "uniserve directors" letters. They were then permitted to enter schools. Dr. Hammons received reports of numerous disturbances at the schools which were visited. The visitors were removed from those campuses. In late February or early March some 16 "uniserve directors" were sent to Mobile to participate in MCEA contact with teachers. They attempted to enter schools without receiving letters of introduction. This occurred at Dodge Elementary School, Grand Bay Elementary, Mae Eanes Middle School, Davidson High School and Theodore High. As a result of these unauthorized attempts to visit schools, the Board called a special meeting, held on March 5, 1979, at which procedures were adopted under policy KM giving the administration control over school campuses on a 24-hour basis. On March 6, 1979, Dr. Hanebuth wrote to Dr. Hammons requesting letters of introduction for some 16 "uniserve directors." None of these persons was introduced personally to Dr. Hammors. Aware of the unauthorized visits, and based upon the Board's action the previous night, Dr. Hammons denied the request for letters. On March 7, 1979, two persons who identified themselves as Shumaker and Ward appeared at Theodore High School and requested to speak with teachers at the faculty meeting scheduled for that afternoon. They did not have letters of introduction. Two persons named Steve Shumaker and Joe Ward are listed in Dr. Hanebuth's request for letters of March 6; it is likely that these are two of that number. Principal Sousa, then principal at Theodore, was involved in getting students onto buses at the end of the day. He tried to explain to the men that letters of introduction were required, and told them that if they would wait until he got the buses off, he would speak with them. He explained that they could not go the faculty meeting. The two men said that they would not leave. Principal Sousa held the faculty meeting. At the end of the meeting, he found the two men in the hallway passing out literature. He asked them what it was, and received no reply. He told them that what they were doing was wrong. Their attitude was belligerent. Mr. Glenn Burnham's distribution of literature and Mr. William Franklin's use of the public address system have already been discussed. It was clearly a violation of Board policy for Mr. Franklin to use the system to argue a position on the public address system on the testing issue. It was clear to the court that he knew that this was a violation before he used the system. Ms. B. C. Terry is a field director for the Mobile County Education Support Personnel Organization (MCESPO), which represents approximately 540 Board employees who work as bus drivers, secretaries, or in food service. In spring 1979 MCESPO received complaints from employees at Mae Eanes Middle School; Ms. Terry was sent to speak with the employees who had grievances. Whether this was before or after the Board had promulgated the procedures *708 under policy KM does not appear. Ms. Terry did not request permission of the principal, Mr. Michaels, before entering the school. She explained that it was after school hours, and that he was not present. She met with the employees in the cafeteria of the school, where they congregated when they saw her drive up. Dr. Garfield Bright, former Executive Director of the MCEA, has distributed literature on school campuses without requesting permission from the Dep. Supt. One of the most flagrant violations of Board policy by teachers has been the practice among some teachers of discussing teacher competency testing with students, of bringing MCEA literature on that subject into the classroom, and of otherwise involving students in the dispute between the Board and the teachers. The topic was discussed in classes whose subject matter bore no relation to testing. A related subject of student competency testing was an important issue among students at the time. Control over distribution of materials and literature on school campuses, control over appeals to students by the wearing of "No" buttons, the use of the loudspeaker system for discussion of issues by teachers, is essential for the maintenance of a climate conducive to education. Control over visitors to campuses, including whether, when, and under what circumstances they will be permitted, is likewise essential not only for the maintenance of a proper educational climate, but also for the protection of students' health and lives. Principals and administrators must have information on the identity of a visitor and the purpose of his visit, for such reasons. CONCLUSIONS OF LAW The court has jurisdiction over the subject matter of this action pursuant to 28 U.S.C. § 1343(3) and (4). Underlying the First Amendment, as well as the Equal Protection Clause of the Fourteenth Amendment where First Amendment rights are concerned, is "a profound national commitment to the principle that debate on public issues should be uninhibited, robust, and wide-open." New York Times Co. v. Sullivan, 376 U.S. 254, 270, 84 S. Ct. 710, 721, 11 L. Ed. 2d 686, 701 (1964). Teachers, like students, do not become subject to unlimited regulation by the state upon entering the school campus. See, e. g., Healy v. James, 408 U.S. 169, 180, 92 S. Ct. 2338, 33 L. Ed. 2d 266, 279 (1972); Tinker v. Des Moines Indep. School Dist., 393 U.S. 503, 506, 89 S. Ct. 733, 736, 21 L. Ed. 2d 731, 737 (1969); Shanley v. Northeast Indep. School Dist., 462 F.2d 960, 967 (5th Cir. 1972). School administrators are themselves charged with "a profound national commitment," the education of young people. A court in delineating the guarantees of the First Amendment on school campuses does not derogate from this important responsibility. It is well established, however, that this responsibility must be exercised within constitutional bounds. Ingraham v. Wright, 525 F.2d 909 (5th Cir. 1976), aff'd, 430 U.S. 651, 97 S. Ct. 1401, 51 L. Ed. 2d 711 (1977); Boykins v. Fairfield Board of Ed., 492 F.2d 697, 702 (5th Cir. 1974), cert. denied, 420 U.S. 962, 95 S. Ct. 1350, 43 L. Ed. 2d 438 (1975). "[T]he Constitution can be no more loosely interpreted because the motivations behind its infringement may be benign." Shanley v. Northeast Indep. School Dist., 462 F.2d at 976. The state has a compelling interest in the proper functioning of its school system, Burnside v. Byars, 363 F.2d 744 (5th Cir. 1966), and the "special characteristics of the school environment" permit reasonable and narrowly defined limitations upon the exercise of First Amendment freedoms. Tinker v. Des Moines Indep. School Dist., 393 U.S. at 506, 89 S. Ct. at 736, 21 L.Ed.2d at 737; see Healy v. James, 408 U.S. 169, 180-81, 92 S. Ct. 2338, 2345-46, 33 L. Ed. 2d 266, 279 (1972). The burden of justifying any limitations falls upon the state. Tinker v. Des Moines Indep. School Dist., 393 U.S. at 509, 89 S. Ct. at 738, 21 L.Ed.2d at 739; Shanley v. Northeast Indep. School Dist., 462 F.2d at 969. *709 I. Policies KIA and KIB Policies KIA and KIB are vague and overbroad, and have been administered in an unconstitutional manner, in violation of the First and Fourteenth Amendments and 42 U.S.C. § 1983. The plaintiffs seek to exercise what has been termed "pure speech." Tinker v. Des Moines Indep. School Dist., 393 U.S. at 505, 89 S. Ct. at 735, 21 L.Ed.2d at 737; Cox v. Louisiana, 379 U.S. 536, 555, 85 S. Ct. 453, 464, 13 L. Ed. 2d 471, 484 (1965); see Lindsey v. Bd. of Regents, 607 F.2d 672, 674 (5th Cir. 1979). The Board has sought to regulate that speech based upon its content: whether it is "political or sectarian," or "special interest material." This is not regulation of "time, place, or manner" of expression. See Police Dep't v. Mosley, 408 U.S. 92, 99, 92 S. Ct. 2286, 2292, 33 L. Ed. 2d 212 (1972). Content regulations are not per se invalid. In a public forum, the state may restrict expression which is obscene, consists of fighting words, or which poses an imminent danger of grave evil. See Terminiello v. Chicago, 337 U.S. 1, 4, 69 S. Ct. 894, 895, 93 L. Ed. 1131, 1134-35 (1949). In the school context, further "reasonable" restraints on expression are permitted, with an increasingly heavier burden as the restraint "focuses on the content of materials that are not obscene, libellous, or inflammatory." Shanley v. Northeast Indep. School Dist., 462 F.2d at 971. "`[C]ontroversy' is, as a matter of constitutional law never sufficient in and of itself to stifle the views of any citizen. . . ." Id. Policies KIA and KIB contain insufficient standards, purposes, or guidelines by which school authorities may be guided in determining what literature may be distributed on school campuses. They fall far short, therefore, of the requirement that a restraint on expression must be "bounded by clear and precise standards" which are susceptible of objective measurement. Southeastern Promotions, Ltd. v. Conrad, 420 U.S. 546, 553, 95 S. Ct. 1239, 1244, 43 L. Ed. 2d 448, 456 (1975); see Keyishian v. Board of Regents, 385 U.S. 589, 603-04, 87 S. Ct. 675, 683-84, 17 L. Ed. 2d 629, 641 (1967). Under these policies there exists an unfettered discretion over the exercise of First Amendment freedoms which is unacceptable. See International Soc'y for Krishna Consciousness v. Eaves, 601 F.2d 809, 822-23 (5th Cir. 1979); Shanley v. Northeast Indep. School Dist., 462 F.2d at 977. A law or policy is unconstitutionally vague if people "of common intelligence must necessarily guess at its meaning and differ as to its application." Connally v. General Constr. Co., 269 U.S. 385, 391, 46 S. Ct. 126, 127, 70 L. Ed. 322, 328 (1926); International Soc'y for Krishna Consciousness v. Eaves, 601 F.2d at 830. Although it is true that a school regulation need not be drawn with the precision of a criminal code, at least where no penalty is involved, Jenkins v. Louisiana St. Bd. of Education, 506 F.2d 992 (5th Cir. 1975), measures affecting First Amendment rights require a greater degree of specificity because of the fundamental rights involved. E. g., Smith v. Goguen, 415 U.S. 566, 573, 94 S. Ct. 1242, 1247, 39 L. Ed. 2d 605 (1974). Here we have college trained educators straying all over the field by their various interpretations of the written policies. The evidence demonstrates that people of common intelligence not only must but in fact have disagreed as to the meaning and application of the words of the policies, "political or sectarian," and "special interest." No indication of the meaning of "distribution" is to be found in the policies. See Baughman v. Freienmuth, 478 F.2d 1345, 1349 (4th Cir. 1973); Eisner v. Stamford Bd. of Ed., 440 F.2d 803, 811 (2d Cir. 1971). The supposed ill to be prevented by the policies, "disruption," is neither stated as a standard for decision nor defined. See Nitzberg v. Parks, 525 F.2d 378, 383 (4th Cir. 1975); Shanley v. Northeast Indep. School Dist., 462 F.2d at 976. Policies KIA and KIB are also overbroad, because they may be applied to, and thus deter protected expression. See Grayned v. Rockford, 408 U.S. 104, 114, 92 S. Ct. 2294, 2302, 33 L. Ed. 2d 222, 231 (1972). Under Shanley, expression may be prohibited only *710 "if it materially and substantially interferes with school activities or with the rights of other students or teachers, or if the school administration can demonstrate reasonable cause to believe that the expression would engender such material and substantial interference." 462 F.2d at 970. Policies KIA and KIB reach all political, sectarian or special interest materials, whether it has or may have such an effect, or not. The policies have been implemented by an unequal application depending on the person or organization applying. Prior submission rules are permissible. This aspect of the policies does not offend the First Amendment. Sullivan v. Houston Indep. School Dist., 475 F.2d 1071, 1076 (5th Cir. 1973); Pervis v. LaMarque Indep. School Dist., 466 F.2d 1054 (5th Cir. 1972). A prior submission rule may not, however, operate to stifle in an unconstitutional manner the contents of the materials submitted. Shanley v. Northeast Indep. School Dist., 462 F.2d at 969. Policies KIA and KIB violate the First and Fourteenth Amendments and 42 U.S.C. § 1983 as they are applied, because they are administered in an arbitrary and inconsistent manner, and have been administered with the effect, if not the intent, of curtailing expression by members of the MCEA. Although substantial interference with the educational process is a basis for restricting the exercise of First Amendment freedoms, disagreement with the philosophy being expressed is emphatically not. See Healy v. James, 408 U.S. at 187-89, 92 S. Ct. at 2349-50, 33 L.Ed.2d at 283-84; Near v. Minnesota ex rel. Olson, 283 U.S. 697, 51 S. Ct. 625, 75 L. Ed. 1357 (1931); Shanley v. Northeast Indep. School Dist., 462 F.2d at 971. The differing treatment by Dr. White and Principal Michaels of Plaintiffs' Exhibits 5, 7, 8, and 10 demonstrates that precisely this type of restriction occurs under the policies. This court can discern, and the Board has shown, no difference between the disruptive effect, actual or potential, of the Board's communications and some of MCEA's communications on the same subject. They differed only in the positions taken. Apart from whether the Board should be able to communicate its opinion on an issue on "its own" property, the differing treatment is not supported by any state interest, and demonstrates that some of the MCEA material has been unconstitutionally restricted based upon its content. The commission of discretion to the various principals to admit or exclude materials from their campuses, without explicit guidelines, has resulted in administration of the policies which is both arbitrary and inconsistent. The policies do not limit a principal's discretion to the standards set forth in Shanley and other cases, but leave him with unlimited discretion. This discretion has been exercised solely on the basis of whether a principal agreed or disagreed with the statements made. This violates the First Amendment and 42 U.S.C. § 1983, as discussed above. The inconsistencies in administration found from school to school violate the Equal Protection Clause of the Fourteenth Amendment and 42 U.S.C. § 1983. See Police Dep't v. Mosley, 408 U.S. 92, 92 S. Ct. 2286, 33 L. Ed. 2d 212 (1972). There is no evidence that the presence of some of the MCEA materials on the school campuses has caused "material and substantial disruption" of the educational process. There is evidence, however, that some materials concerning teacher competency testing have found their way into classrooms, where the subject was discussed notwithstanding that it was unrelated to the subject matter of the course. The wearing of "No" buttons and unrestricted distribution of MCEA flyers invited student attention to a teacher's interested position. The Board clearly may ensure that classrooms are used for teaching the prescribed curriculum, and not as a means of disseminating the MCEA's position on issues concerning their employment. Pred v. Board of Public Instr., 415 F.2d 851 (5th Cir. 1969); see Clark v. Holmes, 474 F.2d 928, 931 (7th Cir. 1972), cert. denied, 411 U.S. 972, 93 S. Ct. 2148, 36 L. Ed. 2d 695 (1973); Mailloux v. Kiley, 448 F.2d 1242 (1st Cir. 1971); Nigosian *711 v. Weiss, 343 F. Supp. 757 (E.D.Mich. 1971); cf. Buckel v. Prentice, 410 F. Supp. 1243, 1247 (S.D.Ohio 1976), aff'd, 572 F.2d 141 (6th Cir. 1978) (use of students as messengers). But cf. Kingsville Indep. School Dist. v. Cooper, 611 F.2d 1109, 1113 (5th Cir. 1980) (certain classroom activity is protected speech). Protection of the curriculum is a legitimate state interest; it may be accomplished, however, by means less intrusive on First Amendment rights than are policies KIA and KIB. Without such a "narrow tailoring" the policy is unconstitutional. Police Dep't v. Mosley, 408 U.S. at 101-02, 92 S. Ct. at 2293-94, 33 L.Ed.2d at 220. II. Policies GBRBB and KM Although physical presence in a public building with a specific public use is not pure speech, it may be protected by the First Amendment. Shanley v. Northeast Indep. School Dist., 462 F.2d at 971 n.8; Hurley v. Hinckley, 304 F. Supp. 704 (D.Mass.1969), aff'd mem. sub nom. Doyle v. O'Brien, 396 U.S. 277, 90 S. Ct. 603, 24 L. Ed. 2d 469 (1970) (per curiam). The problem here is that neither of these policies contains any standards to guide the exercise of discretion by the Dep. Supt. or principals. Under policy GBRBB, the Dep. Supt. "may deny the request for a letter of introduction based upon his investigation of the request"; the local principal "has the prerogative of approving or denying the request to visit the school." Policy KM provides that: "Final authority in visitation to the local school shall reside within the decision of the principal or responsible designee, keeping in mind the system's obligation is to the safety, welfare, and education of children." The statement in policy KM is not sufficiently precise to serve as a guide to administrators in making the determinations required under Shanley and other cases. Beyond the lack of standards, these policies are reasonably clear and understandable, and are therefore not vague. The policies are overbroad, however, as the lack of standards causes them to reach activity protected under the "Material and substantial disruption" rule of Shanley. See 462 F.2d at 976-77. The court concludes that policies GBRBB and KM violate the First Amendment on their faces. The plaintiffs have failed to establish a prima facie case in support of their contention that policies GBRBB and KM violate the constitution as applied. There is evidence which suggests that such violations might have occurred. Principal Michaels, for example, testified that he would not permit MCEA representatives to visit his campus because of the very fact that they were MCEA representatives. Where 87 principals exercise the broad and unlimited discretion permitted under the policies, it becomes more likely that unequal treatment would occur. During the February and March 1979 period, when a number of "uniserve directors" were in Mobile, their requests for letters of introduction and tenure on campuses were handled in a constitutional manner. In his meeting with the six persons who received Dr. Hammons' letter of February 13, 1979, Dr. Hammons explained his expectations that no disruptions should occur on campuses. This is the sort of determination contemplated by Shanley and other cases. The correct standard was later applied, in a deliberative and considered fashion, when the conduct of the "uniserve directors" became "materially and substantially disruptive" of the schools' programs and some proceeded on campus without application to do so. III. Adequacy of Appellate Review Policies restricting the exercise of First Amendment rights must contain a mechanism for appellate review which provides for "a brief and reasonable time" for decision and review; the court in Shanley noted that: "The occasions calling for the exercise of free speech are fleeting, and lack of clarity or a delay in implementation of screening regulations carry [sic] the inherent danger that the exercise of speech might *712 be chilled altogether during the period of its importance." 462 F.2d at 977. The failure of the policies to provide for such an appellate mechanism is a violation of due process. Id. at 977-78; see Baughman v. Freienmuth, 478 F.2d 1345 (4th Cir. 1973); Eisner v. Stamford Board of Ed., 440 F.2d 803, 810 (2d Cir. 1971). Such review should be provided for promptly and acted on promptly. IV. Promulgation of Other Regulations The plaintiffs have requested that the court order the defendants to promulgate constitutional policies for the distribution of literature on and visitors to school campuses. Alabama law does not require the Board to promulgate policies in pursuit of its statutory obligations. See Alabama Code §§ 16-10-1 to 16-10-11 (1975). Further, the court "should not lightly interfere with the day-to-day operation of schools." E. g., Augustus v. School Board, 507 F.2d 152, 155 (5th Cir. 1975); Wright v. Houston Indep. School Dist., 486 F.2d 137 (5th Cir. 1973), cert. denied, 417 U.S. 969, 94 S. Ct. 3173, 41 L. Ed. 2d 1140 (1974). The court is hopeful that the Board, in a redrafting of its policies, will do so in good faith and in conformity with the instructive body of constitutional law which has developed in this area. ORDER It is therefore ORDERED, ADJUDGED, and DECREED: (1) that policies KIA and KIB are violative of the First and Fourteenth Amendments to the Constitution, and 42 U.S.C. § 1983, both on their faces and as they have been applied; (2) that policies GBRBB and KM are violative of the First and Fourteenth Amendments to the Constitution, and 42 U.S.C. § 1983, on their faces; (3) that the defendants, their agents, employees, assigns, successors in office, and any and all others actively participating with them, are hereby enjoined from applying or enforcing policies KIA, KIB, GBRBB, and KM as presently drafted against the plaintiffs or the classes they represent; (4) that the plaintiffs are entitled to costs and reasonable attorneys' fees. Costs are taxed to the defendants. If the parties are unable to agree on a reasonable attorneys' fee, the plaintiffs may file an appropriate motion. NOTES [1] None of the supervisors considers that he has the authority to deny a member of the Board the right to distribute materials on a campus, although the policies do not by their terms exclude members from their application. The superintendent, Dr. Hammons, assumed that the Board had the right to distribute whatever it wished for Board and school business.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1879626/

790 F. Supp. 1456 (1992) Deborah J. KERNS, Plaintiff, v. BENEFIT TRUST LIFE INSURANCE COMPANY, et al., Defendants. No. 89-1591-C-5. United States District Court, E.D. Missouri, E.D. April 22, 1992. *1457 Fairfax Jones, Casserly, Jones & Brittingham, St. Louis, Mo., for plaintiff. James P. Lemonds, Holtkamp, Liese, Beckemeier & Childress, St. Louis, Mo., for defendant William L. Meyer. Clark H. Cole and Keith A. Rabenberg, Armstrong, Teasdale, Schlafly, Davis & Dicus, St. Louis, Mo., for defendant Benefit Trust Life Ins. Co. MEMORANDUM OPINION LIMBAUGH, District Judge. Plaintiff Deborah J. Kerns originally filed this action against Benefit Trust Life Insurance Co. ("Benefit Trust") and William L. Meyer in the Circuit Court of the City of St. Louis, Missouri. Benefit Trust removed the case to federal court based on federal question jurisdiction. Plaintiff seeks recovery under an employee welfare benefit plan as that term is defined in the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1001 et seq. Plaintiff subsequently filed her first amended complaint adding Jerry Spitzer, Elizabeth N. Paul and William Spinks as defendants. Subsequently, the Court granted the Spitzer's and Paul's motions for summary judgment on the basis that plaintiff failed to put forth any evidence that either was a fiduciary with respect to the insurance policy. The Court also granted defendant Benefit Trust's motion for summary judgment on the basis that the policy was not in effect at the time of Mr. Kerns' death and that Benefit Trust was not liable for Mr. Meyer under agency theory. Before trial, plaintiff dismissed Spinks without prejudice and the case proceeded as to Mr. Meyer only. The case was tried before this Court sitting without a jury on July 1 and 2, 1991. This Court, having now considered the pleadings, the testimony of the witnesses, the deposition testimony, the documents in evidence and the stipulation of the parties, and being fully advised in the premises, hereby makes the following findings of fact and conclusions of law as required by Federal Rule of Civil Procedure 52. FINDINGS OF FACT The Court has jurisdiction over this action pursuant to 28 U.S.C. § 1331 and the Employee Retirement Income Security Act ("ERISA"), Title 29 U.S.C. 1132(e)(1). Plaintiff Deborah J. Kerns is a citizen of St. Louis, Missouri. Defendant William L. Meyer is a citizen of St. Louis, Missouri. At all times material to this action, plaintiff was married to Michael S. Kerns. In 1986, Mr. Kerns formed three companies: M.S. Kerns Investments, Inc. ("Kerns Investments"), M.S. Kerns, Inc. and M.S. Kerns Holding Company (the "holding company"). Kerns Investments and M.S. Kerns, Inc. were wholly owned subsidiaries of the holding company. Mr. Kerns was the president and CEO of each company. On September 1, 1987, Benefit Trust issued a group policy of insurance to Kerns Investments, contract number D2260. As an employee of Kerns Investments, Mr. Kerns was insured under the group policy and Benefit Trust issued certificate number XXX-XX-XXX to him. Under the terms of the policy, Benefit Trust insured the life of Mr. Kerns for $50,000.00. In the event of the accidental death of an insured an additional sum of $50,000.00 would become payable to the beneficiary of the policy. The policy further provides that no accidental death benefits are paid for intentionally self-inflicted injury while sane, or for suicide or attempted suicide while sane. Mr. Meyer conducted an insurance brokerage business and sold securities through Kerns' firm. He shared an office with Kerns Investments. The arrangement was that Mr. Meyer was an independent contractor: he paid all of his own expenses, had his own furniture, determined his own working hours and conditions, paid his own employees, and withheld tax on himself and his employees. Kerns *1458 was not involved with any business that Mr. Meyer generated and received no income from that. On business that Mr. Meyer did broker through Kerns, Mr. Meyer would get 90 percent of the commission and Kerns would keep 10 percent. Later, Kerns moved the offices and the arrangement changed somewhat. Mr. Meyer would pay Kerns twenty-five percent of his commissions as rent. At one time, Mr. Kerns considered having an insurance division of one of the Kerns companies. Mr. Meyer was considered as president of the insurance division although there was never any legal establishment of that name. He did, at one time, carry a card which indicated that he was president of the insurance division, although there was no formal legal designation of this. The method of doing business never changed. Mr. Meyer was not an officer or director of any of the Kerns companies. He was not a Kerns' employee nor was he designated as a fiduciary of the plan. Mr. Meyer had no authority to obligate any of the Kerns companies for the corporate debt and was not an insured on any of the Kerns insurance policies. He was not a signatory on any of Kerns' checking accounts and had no authority over Kerns' employees. He did not render investment advice regarding the plan, nor did he have any discretionary authority with respect to purchasing or selling any plan property. Mr. Kerns asked Mr. Meyer to bid the health insurance policy for the Kerns companies. Mr. Meyer made several proposals to different companies, showed them to Mr. Kerns and Mr. Kerns selected Benefit Trust. Mr. Meyer signed the application for the group policy as the writing agent of Kerns Investment, however, he denied being the actual agent of Benefit Trust. The application was actually prepared by Susan Sander, a Benefit Trust employee. Mr. Meyer never received any commissions for that policy. The commission was paid to M.S. Kerns, Inc. Mr. Kerns was solely responsible for causing Kerns Investments to pay the premiums. He exercised discretion as to selecting the plan and as to when or whether to pay the premiums. Mr. Meyer and his assistant, Debbie Castiglioni, helped Kerns employees to fill out their claim forms and tried to answer questions regarding their health insurance. They were not compensated for this assistance. Claims by employees of Kerns Investments under the group policy were submitted either directly to Benefit Trust or through Mr. Meyer and Ms. Castiglioni. Benefit Trust paid for claims covered by the group policy and rejected claims for benefits not provided for by the group policy. Benefit Trust processed health insurance claims under the group policy and implemented the terms of the policy. Mr. Meyer had no authority to issue Benefit Trust checks to pay claims. Kerns Investments was responsible for making the required payments of premiums to Benefit Trust for the group policy. Mr. Kerns, as president and CEO, was the individual at Kerns Investments who was solely responsible for choosing how and when to pay such premiums to Benefit Trust, pursuant to the policy requirements. He had sole authority to pay the premiums. Mr. Meyer had no authority to issue checks to pay premiums. At the time the policy was issued, Mr. Kerns was separated from plaintiff and was personally involved with Elizabeth Kaemmerer (now Elizabeth Paul), another employee of M.S. Kerns Investments. Mr. Kerns initially named Ms. Kaemmerer the beneficiary of his interest in the group life insurance policy. In November 1987, Mr. Kerns was diagnosed with cancer of his jaw. Because of the cancer, he was twice hospitalized and had part of his jaw removed. About the end of 1987, Ms. Kaemmerer broke off her relationship with Mr. Kerns. Mr. Kerns continued to live separately from his wife, the plaintiff. Kerns Investments had a pattern of paying the premiums on the insurance policy late and payments were made to catch up on a monthly basis during the grace period. *1459 Each of Mr. Kerns' hospital stays occurred during the grace period in which the premiums were actually delinquent. On each occasion, Benefit Trust sent a letter to Kerns Investments advising that if overdue premiums were paid prior to the end of the grace period, Benefit would reinstate the policy without any lapse. Kerns Investments paid the premiums and all claims for benefits were paid. After Mr. Kerns left the hospital in January 1988, he "lost his steam." He lost weight, became withdrawn and quiet. He was not his former easygoing and outgoing self. Mr. Kerns continued to conduct his business, although his work habits changed. He was sometimes late, had mood swings and lost his temper. On February 29, 1988, Mr. Kerns executed a change of beneficiary request form and named plaintiff as the beneficiary of the life and accidental benefits under the group policy. Ms. Castiglioni provided the change of beneficiary form and witnessed Mr. Kerns' signature. Prior to his death, Mr. Kerns wrote a series of letters over a period of months in which he proclaimed his feelings for Ms. Kaemmerer, his sadness that she had broken off their relationship, his dissatisfaction with his life and his intentions to end his life. He wrote letters to plaintiff and others explaining his reasons for taking his own life. The letters show Mr. Kerns gave careful deliberation to his actions and was aware of what he was doing. Mr. Kerns died on May 4, 1988, as a result of a self-inflicted gun-shot wound. Within a few days, Mr. Meyer contacted Benefit Trust and advised Ms. Sander at Benefit Trust that Mr. Kerns died as a result of suicide. At the time of Mr. Kerns' death, the payments for Kerns Investments were again delinquent, but in a grace period. The last month for which Kerns Investments paid any premiums was March 1988, although the entire premium due for that month was not paid. The group policy terminated April 1, 1988. The premiums for the months of April and May 1988 were never paid. Shortly after Mr. Kerns' funeral, probably on May 9, 1988, plaintiff went to the Kerns offices with Bertram Shostak and Harry Moline, who are law partners and friends of hers. Mr. Meyer recalled telling plaintiff at that time that he thought there was not any insurance coverage. While they were in the office, Ms. Castiglioni spoke over the telephone with Ms. Sander at Benefit Trust. Ms. Sander told her that there was no coverage, probably because of the suicide. Ms. Castiglioni relayed this to Moline, and he asked her to show him where the policy prevented payment because of the suicide. She called Ms. Sander back and Ms. Sander pointed to some place in the policy. Ms. Castiglioni copied that page with the purported exclusion and gave it to Moline. The exchange in the office was short and tense, partially because Ms. Kaemmerer was still in the office. On May 9, 1988, Ms. Castiglioni drafted a letter to the participants of the group plan advising them that the policy had terminated on April 30, 1988 and that they should obtain other coverage. Mr. Meyer reviewed it and signed it. The letter was not sent to plaintiff. On May 11, 1988, Benefit Trust sent a letter to Ms. Castiglioni notifying Kerns Investments that its group insurance premium had not been paid, but that Benefit Trust would reinstate all coverage, without any lapse, if the overdue payment was made by May 31, 1988. If payment was not made, the policy would be canceled as of April 30, 1988. On about May 11, 1988, Meyer wrote a second letter to the participants of the group insurance policy, correcting the May 9 letter because the termination of the coverage was different than he had previously advised them. Defendant did not send a copy of the letter to plaintiff. In June 1988, plaintiff submitted a claim to Benefit Trust for the life and accidental death benefits under the Group Policy. The claim was rejected for the reason that the group policy terminated prior to Mr. Kern's death. *1460 Plaintiff was able to obtain the money to pay the premium payment in the period allowed by Benefit Trust if she had been notified of the nonpayment of premium. CONCLUSIONS OF LAW Plaintiff's claim is for benefits allegedly due her under an ERISA-governed employee benefit plan, pursuant to 29 U.S.C. § 1132(a). The group policy was purchased by Kerns Investments as a part of a benefit plan for its employees. The benefit plan created by Kerns Investments was an employee welfare plan as defined by 29 U.S.C. § 1002(1), and as such, the plan was covered by the ERISA, 29 U.S.C. § 1001 et seq. This Court has exclusive jurisdiction over civil actions brought under ERISA for breach of fiduciary duty pursuant to 29 U.S.C. § 1132(e). Venue is proper in this district as this is where the claim arose. 28 U.S.C. § 1391(b). Kerns Investments was both the plan sponsor and the administrator of the employee welfare benefit plan. See 29 U.S.C. § 1002(16). Kerns Investments was solely responsible for payment to Benefit Trust of all insurance premiums for the group policy under the plan. Mr. Kerns had the sole authority to issue payment for the insurance premiums. All coverage under the group policy terminated effective April 1, 1988. The first step in determining whether there was a breach of fiduciary duty is to decide whether defendant had a fiduciary duty to plaintiff.[1] The ERISA defines a fiduciary as one who, with respect to an employee benefit plan, exercises any discretionary authority or control over management of a plan or disposition of the assets, renders investment advice for a fee or other compensation with respect to any money or other property of a plan, or has any discretionary authority or discretionary responsibility in the administration of the plan. 29 U.S.C. § 1002(21)(A). In enacting the ERISA, Congress intended to protect participants in employee benefit plans by establishing standards of conduct, responsibility and obligations for fiduciaries of employee benefit plans and by providing for appropriate remedies. See Pilot Life Insurance Co. v. Dedeaux, 481 U.S. 41, 107 S. Ct. 1549, 1550, 95 L. Ed. 2d 39, 45-46 (1987). Congress intended the definition of "fiduciary" under the ERISA to be broadly construed. "[T]he definition includes persons who have authority and responsibility with respect to the matter in question, regardless of their formal title." House Conference Rep. No. 93-1280, 93d Congress, 1974 U.S.Code Cong. and Ad. News 4639, 5038, 5103 (quoted in Donovan v. Mercer, 747 F.2d 304, 308 (5th Cir.1984)). A person's state of mind does not determine his or her fiduciary status. Farm King Supply, Inc. v. Edward D. Jones & Co., 884 F.2d 288, 293 (7th Cir.1989); Donovan, 747 F.2d at 309. Although the term "fiduciary" is liberally construed, there are restrictions. For example, ERISA regulations explicitly reject ministerial functions as being within the scope of § 1002(21)(A). See 29 C.F.R. § 2509.75-8. The regulations show that a person is not a fiduciary because he may perform the following functions: (1) Application of rules determining eligibility for participation or benefits; (2) Calculation of service and compensation credits for benefits; (3) Preparation of employee communications materials; (4) Maintenance of participants' service and employment records; (5) Preparation of reports required by government agencies; (6) Calculation of benefits; (7) Orientation of new participants and advising participants of their rights and options under the plan; (8) Collection of contributions and application of contributions as provided in the plan; (9) Preparation of reports concerning participants: (10) Processing of claims; and *1461 (11) Making of recommendations to others for decision of plan administration. 29 C.F.R. § 2509.75-8, Q & A D-2. Mr. Meyer did not exercise discretionary authority with respect to the management of the plan and the disposition of assets. Donovan, 747 F.2d at 308-09. He did not have the authority to exercise control unilaterally for a portion of the plan assets. Farm King, 884 F.2d at 292. He did not have discretion in deciding whether claims were to be paid. McManus v. Travelers Health Network of Texas, 742 F. Supp. 377, 382 (W.D.Tex.1990). He did not establish the policies and procedures to be followed in evaluating claims. McManus, 742 F.Supp. at 382; Benvenuto v. Conn. Gen. Life Ins. Co., 643 F. Supp. 87, 90-91 (D.N.J. 1986). He did not exercise any power of control, management or disposition of with respect to property of the employee benefit fund. Buehler v. Home Life Ins. Co., 722 F. Supp. 1554, 1562 (N.D.Ill.1989). Mr. Meyer simply did not perform the types of functions that would make him a fiduciary with respect to the ERISA. The types of functions that Mr. Meyer and his assistant[2] performed were merely ministerial. He conducted orientation of new participants and advised participants of their rights and options under the plan. He and his assistant provided claims forms, assisted Kerns employees to complete them and forwarded the forms to Benefit Trust. He notified Kerns employees after Mr. Kerns' death that they should find other insurance coverage. Mr. Meyer merely acted out of courtesy to others with whom he shared office space. These acts did not make him a "fiduciary" with respect to the plan according to the ERISA. Even if Mr. Meyer were a fiduciary with respect to the plan, plaintiff must show he breached a fiduciary duty by failing to notify plaintiff of a nonpayment of insurance premiums. Section 1104 sets forth the duty of a fiduciary under ERISA. 29 U.S.C. § 1104(a)(1). ERISA basically codified the common law "prudent man" standard of care. National Labor Relations Board v. Amax Coal Co., 453 U.S. 322, 101 S. Ct. 2789, 69 L. Ed. 2d 672 (1981). The standards require a fiduciary to: discharge his duties with respect to a plan solely in the interest of the participants and their beneficiaries and ... with the care, skill prudence and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of like character and with like aims.... 29 U.S.C. § 1104(a)(1)(B). Plaintiff claims that Mr. Meyer breached his duty because he failed to notify the beneficiaries (particularly, plaintiff) that Kerns Investments failed to pay premiums for the group policy, which would cause claims to go unpaid (particularly, plaintiff's claim for life insurance benefits). By at least May 9, 1988, Mr. Meyer was aware that Kerns Investments had not paid premiums overdue to Benefit Trust and Mr. Meyer notified Kerns employees that insurance had lapsed and advised them to seek other coverage. At no time, did Mr. Meyer make any effort to contact the individuals that Kerns employees designated as their life insurance beneficiaries. Plaintiff received no written notice that the policy had lapsed. "Several courts have held that at a minimum, the fiduciary under ERISA has an obligation to notify the employees of the employer's failure to contribute to the pension fund as required by the pension agreement." McNeese v. Health Plan Marketing, Inc., 647 F. Supp. 981, 985 (N.D.Ala. 1986). See, e.g., Rosen v. Hotel and Restaurant Employees and Bartenders Union, 637 F.2d 592, 600 (3rd Cir.1981), Aitken v. I.P. & G.C.U.-Employer Retirement Fund, 604 F.2d 1261, 1271 (9th Cir. 1979); Phillips v. Kennedy, 542 F.2d 52, 55 n. 8 (8th Cir.1976); Pension Benefit Guaranty Corp. v. Greene, 570 F. Supp. 1483 (W.D.Pa.1983), aff'd, 727 F.2d 1100 (3rd Cir.1984). However, none of these cases have extended the fiduciary's duty beyond the employees covered by the plan to the *1462 persons they designate as their life insurance beneficiaries. In Coleman v. Nationwide Life Insurance Co., 748 F. Supp. 429, 432 (E.D.Va. 1990), the Court found that an insurance company was obligated to notify insureds under a health insurance plan of the employer's nonpayment of premiums based on breach of fiduciary duty and estoppel. The Court granted summary judgment in favor of plaintiff in her ERISA action against the insurance company. In Coleman, the plaintiff was a participant in the health insurance plan provided by her husband's employer. Plaintiff was pregnant when coverage began and she personally made several inquiries to the defendant to assure herself she would be covered for the expenses she would incur in connection with the delivery of her child. In response, the insurance company sent her a letter informing her of the benefits that she was eligible to receive under the policy. Plaintiff was later "preauthorized" for a hospital stay in connection with the delivery. After plaintiff gave birth, her husband's employer went out of business and canceled its insurance coverage. Because the employer had made no payment other than an initial partial deposit, the defendant insurance company cancelled the policy as of the policy's effective date. The defendant informed plaintiff's husband that it would not pay the hospital bills for plaintiff's hospital stay for childbirth. Coleman is distinguishable from the case now before the Court. First, the plaintiff in Coleman was herself an insured under the health insurance plan provided by her husband's employer. In this case, plaintiff was the named beneficiary of her husband's life insurance policy. While the fiduciary may have a duty to inform employees and other named insureds of an employer's nonpayment of premiums, this Court will not extend that duty so far as to beneficiaries of life insurance policies. The parties have cited no authority which would require the Court to do so and the Court has discovered none. To stretch the fiduciary duty under ERISA that far would require that whenever an employer is late in making a premium payment and is in danger of cancellation, someone — usually, the insurance company, would have to notify each participant and beneficiary of the plan. This would require keeping, and constantly updating, records of every employee, every employee's dependents and every dependent's potential life insurance beneficiaries. The burden, and expense, would be enormous. The fiduciary duty under ERISA is not that broad. Second, the plaintiff in Coleman sought and received express affirmation of her coverage under the plan. The Court found that even if the defendant did not breach any fiduciary duty owed to plaintiff, it was liable under principles of estoppel. That was not the case here. In sum, there was no breach of fiduciary duty by a failure to notify plaintiff of her husband's nonpayment of premiums for the Kern Investments group plan. Finally, in order for plaintiff to recover, plaintiff must show a causal connection between the breach of fiduciary duty and the damages sustained. Plaintiff alleges that if defendant had notified her of Kerns Investments' failure to pay the premium, she could have borrowed the money, paid the premium herself and recovered the death benefits to the policy. Defendant does not dispute that. The group policy provides that a life benefit will be paid in the event an insured dies while covered. If the policy had been in effect at the time of Mr. Kerns death, plaintiff would have collected the life benefit. However, plaintiff would not be entitled to accidental death benefits as Mr. Kerns' death was not an "accident." See Wickman v. Northwestern National Ins. Co., 908 F.2d 1077, 1087-88 (1st Cir.1990) (accidental death is one that was undesigned, unintentional or unexpected). Mr. Kerns intended to kill himself. He was aware of what he was doing and in control of his actions. He was lucid and carefully considered taking his life for several months before doing so. The evidence showed that Mr. Kerns, although perhaps depressed, was not insane. Mr. Kerns' death was by suicide while sane, for which the group policy specifically *1463 excludes coverage for accidental death benefits. The facts surrounding this lawsuit are indeed tragic. Mr. Kerns was the major force behind the Kerns companies. The company was the sponsor of the group policy and Mr. Kerns was solely responsible for making the premium payments. In the months before his death, the companies were having severe difficulties. The premiums went unpaid. In the days after Mr. Kerns' death, there was confusion, if not chaos. Mr. Kerns, who had been in charge, was gone. The future of the companies was uncertain. Plaintiff's position is indeed sympathetic. Nonetheless, the Court must decide the case according to the law, and under the law defendant is entitled to judgment. For the foregoing reasons, the Court enters judgment in favor of defendant and against plaintiff on the merits of plaintiff's complaint. Benefit Trust's Motions for Summary Judgment The Court previously granted summary judgment for defendant Benefit Trust, in part, because Benefit Trust was not a fiduciary with respect to the plan. The Court now sua sponte reconsiders that Order. Assuming that Benefit Trust became a fiduciary by exercising discretion in deciding whether claims were to be paid, McManus, 742 F.Supp. at 382, or by establishing the policies and procedures to be followed in evaluating a claim, Id.; Benvenuto, 643 F.Supp. at 90-91, Benefit Trust nonetheless was entitled to summary judgment. First, if Benefit Trust was a fiduciary, it was a fiduciary only to the extent it exercised discretion with respect to the plan. Leigh v. Engle, 727 F.2d 113, 133 (7th Cir.1984). Second, if Benefit Trust was a fiduciary, it had no duty to notify plaintiff of the nonpayment of insurance premiums for the same reasons as with regard to Mr. Meyer. For these reasons and those set out in the Court's memorandum of June 28, 1991, Benefit Trust was entitled to summary judgment. Spitzer's Motion for Sanctions Defendant Jerry Spitzer filed a motion for sanctions against plaintiff and her attorney pursuant to Rule 11 of the Federal Rules of Civil Procedure for failing to make a reasonable inquiry into the facts and the law before suing him. Rule 11 states that the signature on a pleading certifies that the signer has read the pleading; that to the best of the signer's knowledge, information and belief formed after reasonable inquiry, the pleading is well grounded in fact and is warranted by existent law or a good faith argument for extension of the law; and that it is not entered for any improper purpose. The Court previously granted summary judgment in favor of Mr. Spitzer on the ground that plaintiff failed to put forth evidence that Mr. Spitzer was a fiduciary with respect to the insurance policy. Memorandum and Order of February 28, 1991. Plaintiff's claims against Mr. Spitzer were not frivolous at the time they were filed. As stated above, Congress intended the definition of "fiduciary" under the ERISA to be broadly construed. Donovan v. Mercer, 747 F.2d at 308. At the time plaintiff filed her first amended complaint, she had learned that Mr. Spitzer was the chairman of the board of Kerns Investments, Inc., that he was a financial advisor to Kerns Investments, that he was a director of the holding company and that Mr. Meyer may have discussed the existence of the May 19, 1988 letter from Benefit Trust or the insurance termination with Mr. Spitzer. While insufficient to entitle plaintiff to judgment, these facts satisfy the Court that plaintiff and her counsel made a reasonable inquiry into the law and facts of this case before filing suit against Mr. Spitzer. Accordingly, Mr. Spitzer's motion for sanctions shall be denied. NOTES [1] Defendant Meyer was not the administrator of the plan, which would obligate him to give notice to covered employees of their rights under the plan. 29 U.S.C. § 1166(a)(4). [2] Meyer admits he was responsible for the acts of his employee, Ms. Castiglioni.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1879835/

790 F. Supp. 983 (1991) SOUTHERN PACIFIC TRANSPORTATION CO., et al., Plaintiffs, v. CALIFORNIA (CALTRANS), et al., Defendants. No. CV 91-1428 SVW (JRx). United States District Court, C.D. California. November 15, 1991. Frank Melton, Gordon Goldsmith, Tuttle & Taylor, Los Angeles, Cal., for plaintiffs. Richard Montevideo, Rutan & Tucker, Costa Mesa, Cal., for defendants. ORDER GRANTING SUMMARY ADJUDICATION OF ISSUES WILSON, District Judge. I. INTRODUCTION At the Court's direction, the Defendants filed a Motion for Summary Adjudication of Issues pursuant to Federal Rule of Civil Procedure 56(d). In particular, the motion asked the Court to rule on the scope of CERCLA's "petroleum exclusion," as it impacts the facts of this case. The Court held a hearing to consider the motion on October 7, 1991, and the motion was taken *984 under submission. After considering the arguments of counsel, both written and oral, and the applicable law, both case and statutory, the Court concludes that the Defendants' interpretation of the petroleum exclusion is substantially correct. Accordingly, the Court, as detailed below, hereby ratifies, with a few minor rephrasings, the Defendants' interpretation of the petroleum exclusion as the governing law for this action. II. DISCUSSION A. CERCLA's Petroleum Exclusion Before CERCLA liability may be imposed, it must first be demonstrated that a hazardous substance, as defined under CERCLA, is involved. See 42 U.S.C. § 9607(a). To this end, CERCLA defines at length those substances designated as hazardous. 42 U.S.C. § 9601(14). CERCLA's definition of hazardous substances, however, expressly excludes petroleum. In particular, CERCLA states: The term [hazardous substance] does not include petroleum, including crude oil or any fraction thereof which is not otherwise specifically listed or designated as a hazardous substance under subparagraphs (A) through (F) of this paragraph, and the term does not include natural gas, natural gas liquids, liquefied natural gas, or synthetic gas usable for fuel (or mixtures of natural gas and such synthetic gas). 42 U.S.C. § 9601(14). This exclusion is known as the "petroleum exclusion." B. The Scope of the Petroleum Exclusion In the case at bar, the Defendants filed the present motion so that the Court could rule on the scope of CERCLA's petroleum exclusion, and thereby narrow the issues for trial.[1] In ruling on this matter, the Court does so with the facts of this case in mind. 1. All Forms of Petroleum Covered After examining the law, both statutory and case, the Court concludes that the petroleum exclusion covers all forms of petroleum. In addition, the Court further concludes that the petroleum exclusion applies even though CERCLA-listed hazardous substances are indigenous in the petroleum or are additives normally added to the petroleum during the refining process. These conclusions are rooted in the plain language of CERCLA, the EPA's interpretation of CERCLA, and Ninth Circuit precedent directly on point. First, by its express terms, the petroleum exclusion applies broadly to "petroleum, including crude oil or any fraction thereof." 42 U.S.C. § 9601(14) (emphasis added). Accordingly, the plain language of the statute dictates that all forms of petroleum are excluded from CERCLA's reach. This conclusion comports with the accepted rules of statutory construction. See Perrin v. United States, 444 U.S. 37, 42, 100 S. Ct. 311, 314, 62 L. Ed. 2d 199 (1979) ("A fundamental canon of statutory construction is that, unless otherwise defined, words will be interpreted as taking their ordinary, contemporary, common meaning."). In this case, no resort to Webster's is needed to understand the words of Congress. Moreover, the Court's conclusion is echoed by the EPA and the Ninth Circuit. See Wilshire Westwood Assocs. v. Atlantic Richfield Corp., 881 F.2d 801, 803-05 (9th Cir.1989) (holding that gasoline, a "fraction" of petroleum, is within the petroleum exclusion); 50 Fed.Reg. 13,460 (April 4, 1985) (EPA concluding that the petroleum exclusion applies to all kinds of petroleum products). Second, the petroleum exclusion applies even though CERCLA-listed hazardous substances are indigenous in the petroleum or are additives normally added to the petroleum during the refining process. To hold otherwise would eviscerate the petroleum exclusion because CERCLA-listed hazardous substances — e.g., benzene, toluene, *985 xylene, and ethylbenzene — are constituent elements of petroleum. In addition, sometimes CERCLA-listed hazardous substances — e.g., lead — are added to the petroleum during the refining process. In Wilshire Westwood Assocs. v. Atlantic Richfield Corp., 881 F.2d 801 (9th Cir.1989), the Ninth Circuit specifically held: We rule that the petroleum exclusion in CERCLA does apply to unrefined and refined gasoline even though certain of its indigenous components and certain additives during the refining process have themselves been designated as hazardous substances within the meaning of CERCLA. Wilshire Westwood, 881 F.2d at 810; see also EPA General Counsel Memorandum on "Scope of the CERCLA Petroleum Exclusion Under Sections 101(14) and 104(a)(2)" at 5 (July 31, 1987) [hereinafter 1987 EPA Memorandum] (attached as Ex. 4 to Defs.' Mot. for Summ. Adjud. of Issues) (reaching same conclusion, and relied upon in part by the Ninth Circuit in Wilshire Westwood). As such, the Court's identical conclusion merely follows the rule of law established in this Circuit in Wilshire Westwood. Of note, the Court readily finds meritless the Plaintiffs' argument that the Clean Air Act Amendments of 1990 have altered the scope of the petroleum exclusion. In particular, the Plaintiffs point out that hazardous substances under CERCLA include those substances designated as hazardous air pollutants under the Clean Air Act, and that a 1990 amendment of the Clean Air Act designates "Benzene (including benzene from gasoline)" as a hazardous air pollutant. See CERCLA, 42 U.S.C. § 9601(14)(E); Clean Air Act, 42 U.S.C. § 7412(b)(1). Based on this, the Plaintiffs assert that a necessary consequence is that "benzene from gasoline" is now actionable under CERCLA. This argument rings hollow and is nothing more than a novel reincarnation of arguments rejected by the Ninth Circuit in Wilshire Westwood. 881 F.2d at 804-05 (rejecting the argument that the petroleum exclusion does not apply because petroleum's constituent elements — e.g., benzene — are independently listed as CERCLA-listed hazardous substances). For Plaintiffs to suggest that the 1990 amendment of the Clean Air Act changes CERCLA is unpersuasive. To this end, it should be noted that at the time Wilshire Westwood was decided, benzene (standing alone) was already listed as a hazardous air pollutant under the Clean Air Act, and despite this fact, the Ninth Circuit ruled as it did. See 40 C.F.R. § 61.01 (noting that benzene has been listed as a hazardous air pollutant under the Clean Air Act since June 8, 1977). Accordingly, the Court rejects Plaintiffs' argument that the 1990 amendment of the Clean Air Act requires a new, and narrower, scope for CERCLA's petroleum exclusion.[2] 2. Used Petroleum Covered In Wilshire Westwood, the Ninth Circuit noted that "the EPA's interpretation of the scope of the petroleum exclusion should be accorded considerable deference, especially because of the absence of contemporaneous legislative history." 881 F.2d at 810. With this in mind, the Court observes that the EPA has consistently maintained that used petroleum products are covered by the petroleum exclusion. In 1981, for example, the EPA determined that "petroleum *986 wastes, including waste oil ... are excluded from the definition of `hazardous substance' by the specific language of [CERCLA]." 46 Fed.Reg. 22,145 (April 15, 1981). This determination was reiterated by the EPA in 1987: "[N]o petroleum substance, including used oil, can be a `hazardous substance' except to the extent it is listed as a hazardous waste...." 1987 EPA Memorandum, supra, at 2. Furthermore, the EPA has cautioned that "hazardous substances which are added to petroleum or which increase in concentration solely as a result of contamination of the petroleum during use are not part of the `petroleum' and thus are not excluded from CERCLA." Id. at 5. Given this Circuit's deference to the EPA's interpretations of CERCLA, and the fact that the above interpretations seem consistent with this Court's understanding of CERCLA, the Court is inclined to endorse the EPA's views. In particular, the Court concludes that used petroleum products are covered by the petroleum exclusion, provided that CERCLA-listed hazardous substances have not been added to the petroleum product during its use, nor have the concentrations of CERCLA-listed hazardous substances in the petroleum product been increased by its use.[3] 3. Petroleum-Laden Soil Covered The most critical question before the Court on this motion is whether the petroleum exclusion applies to mixtures of petroleum and soil. This issue is of central importance to the case because the Plaintiffs are seeking CERCLA response costs for soil deposited on their property by the Defendants. Inasmuch as the Defendants will likely assert that their deposited soil contained only petroleum, the Court is asked to determine whether a mixture of petroleum and soil would be actionable under CERCLA. After careful consideration, the Court concludes that the sheltering sweep of the petroleum exclusion is not affected by the presence or absence of soil. In large part, the Court's conclusion is common sensical and based upon the plain language of CERCLA. To this end, the petroleum exclusion unconditionally exempts petroleum products from CERCLA's reach by declaring them nonhazardous. In addition, soil itself is a nonhazardous substance under CERCLA, unless CERCLA-listed hazardous substances dwell in the dirt. Therefore, the union of one nonhazardous substance (petroleum) with another nonhazardous substance ("clean" soil) can only yield a nonhazardous final product of no concern to CERCLA. In so ruling, the Court rejects the Plaintiffs' argument that the mixing of petroleum with soil somehow removes the protection of the petroleum exclusion. Plaintiffs' argument is unconvincing because it ignores the reality that oil spills do not occur in a vacuum; rather, quite often such spills occur into soil. Were the Court to embrace Plaintiffs' reasoning, the petroleum exclusion would be gutted because every underground storage tank that leaked petroleum would produce petroleum-laden soil, and thereby trigger CERCLA. Indeed, if the Plaintiffs' argument were correct, then the Wilshire Westwood court should have found the petroleum exclusion inapplicable because that case involved soil contaminated with gasoline that leaked from underground storage tanks. See 881 F.2d at 802. Yet, the Ninth Circuit held that the petroleum exclusion shielded the defendants from CERCLA liability, despite the presence of "contaminated soils." See id. At best, Plaintiffs argue that the petroleum exclusion applies to mixtures of petroleum and soil only if the mixture remains stationary; that is, the petroleum exclusion does not apply once the mixture is excavated *987 and removed.[4] This argument founders, however, because CERCLA liability hinges upon the presence of a CERCLA-listed hazardous substance on a given property. The origin of the hazardous substance does not affect whether CERCLA may be invoked, rather the origin affects who is liable for the response costs. Therefore, given the structure of CERCLA, the Court rules that a nonhazardous substance — such as petroleum mixed with "clean" soil — remains a nonhazardous substance whether it be found at its origin on Property A, or subsequently after removal to Property B.[5] III. CONCLUSION For the foregoing reasons, the Court GRANTS Defendants' Motion for Summary Adjudication of Issues. In so doing, the Court makes the following Conclusions of Law: 1. The petroleum exclusion of CERCLA covers all forms of petroleum, including crude oil and any fractions thereof and also including petroleum fuels such as gasoline and diesel fuel, petroleum oils, and other refined petroleum products. This is so even if CERCLA-listed hazardous substances are indigenous in the petroleum or are additives normally added to the petroleum during the refining process. 2. The petroleum exclusion of CERCLA also covers used petroleum products, provided that CERCLA-listed hazardous substances have not been added to the petroleum product during its use, nor have the concentrations of CERCLA-listed hazardous substances in the petroleum product been increased by its use. 3. Soil, that is mixed only with petroleum material within the petroleum exclusion of CERCLA (as defined in 1 and 2 supra), is nonhazardous under CERCLA if the soil itself is not a CERCLA-listed hazardous substance. IT IS SO ORDERED. NOTES [1] Although the Defendants' motion is limited to statutory construction of CERCLA, summary judgment — or, more properly, summary adjudication of issues — is appropriate for "pure" issues of law. See Smith v. Califano, 597 F.2d 152, 155 n. 4 (9th Cir.), cert. denied sub nom. Smith v. Harris, 444 U.S. 980, 100 S. Ct. 481, 62 L. Ed. 2d 406 (1979). [2] In so ruling, the Court adheres to the venerable rule that implicit repeals of statutes are disfavored. See United States v. United Continental Tuna Corp., 425 U.S. 164, 168, 96 S. Ct. 1319, 1323, 47 L. Ed. 2d 653 (1976) ("It is, of course, a cardinal principle of statutory construction that repeals by implication are not favored.") To this end, there is nothing in the legislative history of the Clean Air Act Amendments of 1990 to indicate that Congress intended any change whatsoever in the scope of the petroleum exclusion of CERCLA. In Rembold v. Pacific First Fed. Sav. Bank, 798 F.2d 1307, 1310 (9th Cir.1986), cert. denied, 482 U.S. 905, 107 S. Ct. 2480, 96 L. Ed. 2d 373 (1987), the Ninth Circuit held: "In the absence of clear Congressional intention, implied repeal must be based on the fact that the statutes at issue are irreconcilable [citations omitted] or there is `plain repugnance' between them." In this case, however, there is nothing irreconcilable or repugnant about "benzene from gasoline" being subject to the Clean Air Act, but not to CERCLA. To this end, the two statutes at issue address unique environmental hazards. [3] The cases cited by the Plaintiffs finding the petroleum exclusion inapplicable to used petroleum products are distinguishable. In particular, in those cases, the courts expressly based their rulings on the presence of added CERCLA-listed hazardous substances that were not originally a part of the petroleum product. See, e.g., United States v. Alcan Aluminum Corp., 755 F. Supp. 531, 539 (N.D.N.Y.1991); City of New York v. Exxon Corp., 744 F. Supp. 474, 489-90 (S.D.N.Y.1990). This Court's ruling, therefore, is not inconsistent with these precedents. [4] Plaintiffs reliance on United States v. Western Processing Co., 761 F. Supp. 713 (W.D.Wash. 1991), is misplaced. In particular, Western Processing is distinguishable because the transported sludge at issue had been contaminated with petroleum material not within the petroleum exclusion. Id. at 717. As such, the court's finding that the sludge was actionable under CERCLA reflected the fact that the petroleum exclusion does not apply to petroleum contaminated with CERCLA-listed hazardous substances. Therefore, the court's statement that "conceptually there is a difference between releases of petroleum ... and the delivery of petroleum related waste material to a disposal or treatment facility" is arguably dictum unnecessary to the court's decision. Id. at 721. [5] In this regard, the Plaintiffs seem to have confused the solid waste disposal laws, see 42 U.S.C. § 6901 et seq., with CERCLA. Needless to say, these two statutory schemes regulate different, albeit similar, environmental wrongs. Significantly, the solid waste disposal laws were amended in 1984 precisely because spills of petroleum from underground storage tanks were not actionable under CERCLA. 130 Cong. Rec. 3830, 3832 (1984) (statement of Sen. Durenburger introducing 1984 amendments to the solid waste disposal laws) (quoted in Wilshire Westwood, 881 F.2d at 807).

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1880010/

790 F. Supp. 109 (1992) In re GRAND JURY 91-1. File No. 91-4A-R. United States District Court, E.D. Virginia, Richmond Division. May 4, 1992. N. George Metcalf, S. David Schiller, Asst. U.S. Attys., U.S. Attys. Office, Richmond, Va., for plaintiffs. Gordon A. Coffee, Richard A. Hibey, Timothy M. Broas, Anderson, Hibey, Nauheim & Blair, Thomas E. Wilson, Michael B. Hubbard, Seyfarth, Shaw, Fairweather & Geraldson, Washington, D.C., Aubrey R. Bowles, III, Aubrey R. Bowles, IV, Bowles & Bowles, Richmond, Va., for defendant. MEMORANDUM OPINION RICHARD L. WILLIAMS, District Judge. This matter is before the Court on Swank Corporation's and Donald W. Swank's Motion to Disqualify the United States Attorney's Office for the Eastern District of Virginia. An evidentiary hearing on this motion was held on April 28, 1992. For the reasons stated below, this motion is DENIED. I. FACTUAL BACKGROUND At the evidentiary hearing on this matter, the following facts came to light: The U.S. Postal Inspection Service's investigation of the Swank Corporation, and certain members of its management and sales staff, began in approximately late 1990. That investigation required consultation with the United States Attorney's Office for this district. At the time approval was granted, Henry Hudson was the U.S. Atty. for the Eastern District of Virginia. In March, 1991, a search warrant was obtained which resulted in the seizure of documents related to the investigation. Decisions to initiate the investigation, and decisions concerning the scope of the investigation were made by Mr. Hudson, long before Richard Cullen became United States Attorney in this district. Before his appointment as U.S. Attorney, Richard Cullen, as a partner in McGuire, Woods, Battle & Boothe, represented Donald Swank in his separation and divorce from his wife. Mr. Cullen's representation included privileged and confidential information and, of necessity, Mr. Cullen had knowledge of Mr. Swank's relationship with Swank Corporation. In a similar way, before his appointment as an Assistant U.S. Attorney for the Eastern District of Virginia, John G. Douglass, a partner in the law firm of Wright, Robinson, Osthimer & Tatum, represented Samuel Bennett Harper, Administrative Vice *110 President of Swank Corporation, in this investigation. Mr. Douglass's representation included privileged and confidential information and, of necessity, Mr. Douglass had knowledge of Mr. Harper's relationship with Swank Corporation and the full and complete details of how the Corporation functioned. Douglass also entered into a joint defense confidentiality agreement with Swank's former counsel and into a joint defense agreement with successor counsel for Swank. On November 18, 1991, the President formally appointed Richard Cullen as the U.S. Attorney for the Eastern District. In preparation for Mr. Cullen's assuming the position of U.S. Attorney and pursuant to Department of Justice procedures, then acting U.S. Attorney Kenneth Melson reviewed the existence of all pending matters in the Eastern District with Mr. Cullen to identify any pending matters which were in any way connected with either Mr. Cullen or his law firm. That review identified the Swank investigation. Accordingly, prior to assuming his duties, Mr. Cullen recused himself from the investigation, advised the Dept. of Justice of the recusal, directed that he not be informed or consulted on any matter concerning the investigation, appointed A.U.S.A. Justin Williams to supervise on all matters related to the Swank investigation, and appointed A.U.S.A. Kenneth Melson as Acting United States Attorney for all matters Mr. Cullen could not act upon. Mr. Cullen testified that he has had no involvement and will have no involvement whatsoever with the Swank investigation. All decisions concerning it have been made by Mr. Williams or AUSA David Schiller. In a like manner, John Douglass recused himself from this matter prior to joining the office. He states by way of affidavit that he has not divulged any information concerning his prior representation of Mr. Harper and has not been involved in any aspect of the investigation since joining the office. Prior to joining the office, Mr. Douglass negotiated an immunity agreement on behalf of Mr. Harper with the Government and, since then, Mr. Harper has been actively cooperating with the Government's investigators. On June 6, 1991, before Mr. Cullen had been appointed as U.S. Attorney, Swank's former counsel in this investigation, Howard W. Gutman, a partner in the law firm of Williams & Connolly, attended a meeting at the law offices of McGuire, Woods to interview potential witness Robert Patterson concerning business advice he gave to Donald W. Swank over the years. Although he was aware of the likelihood of his upcoming appointment and although Mr. Gutman advised against it, Richard Cullen attended the meeting at the behest of Mr. Patterson. Mr. Cullen, however, assured Mr. Gutman that if Mr. Cullen became U.S. Attorney, he would necessarily recuse himself from any investigation concerning Donald Swank or Swank Corporation. Thus, with the assurance that no confidential information concerning the meeting would leak to the U.S. Attorney's office, Mr. Gutman proceeded with the interview of Mr. Patterson. After he had assumed the office of the U.S. Attorney for the Eastern District of Virginia, on March 11, 1992, Mr. Cullen met with Aubrey Bowles III and his son, Aubrey Russell Bowles IV in Mr. Cullen's Richmond office. Although Mr. Cullen was unaware of this, the law firm of Bowles & Bowles was about to become counsel of record for Mr. Swank and his corporation. The meeting was arranged by the elder Mr. Bowles through Mr. Cullen's secretary, Ms. Gloria Allen. As a result of some miscommunication, Ms. Allen never made a connection between Bowles & Bowles and the Swank investigation. Mr. Cullen did not know what the meeting was to be about, and, at the time, Mr. Cullen was under the impression that Donald Swank and Swank Corporation were represented by the law firm of Williams & Connolly. In fact, Mr. Cullen did not even believe that the elder Bowles, an longtime acquaintance, practiced in the area of criminal law. After engaging in casual conversation for a few minutes, Mr. Bowles III brought up the reason for the meeting. He told *111 Cullen that Bowles & Bowles now represented Swank and that he thought the entire U.S. Attorney's Office for the Eastern District of Virginia should recuse itself from the case. Mr. Cullen immediately told his visitors that he had recused himself from the case long ago and that, if they wanted to seek to disqualify his whole office, they should file an appropriate motion. No substantive, privileged, or confidential information was revealed at the meeting. The three men exchanged some more pleasantries on various subjects and then bid their goodbyes. The entire meeting did not last more than ten minutes. At the evidentiary hearing on this matter, Mr. Donald Swank testified that at his trial, he is inclined to call Mr. Cullen and Mr. Patterson to testify in connection with a possible advice of counsel defense. Mr. Swank stated that he understood that if he did call his former attorneys as witnesses in this regard, he would be waiving the attorney-client privilege as to their representation of him. Due to the fact that Mr. Cullen had recused himself and erected a Chinese wall between himself and the Swank investigation, the U.S. Attorney's office was never informed about Mr. Cullen's meeting the Bowles' or about Mr. Cullen's earlier contact with Mr. Gutman. No evidence came out at trial that any confidentiality has been breached either by Mr. Cullen or Mr. Douglass in connection with their former clients. The only contact Mr. Cullen and Mr. Douglass have had with their colleagues in the U.S. Attorney's Office on this case has been for the very limited purpose of answering the instant motion. II. DISCUSSION OF AUTHORITY The ethical standards relating to the practice of law in this Court are set forth in the ABA Code of Professional Responsibility and the Virginia Code of Professional Responsibility. Local Rules 7(M)(IV)(B); see In re Asbestos Cases, 514 F. Supp. 914, 919 (1981). The ABA Code and Virginia Code Canon 9 states, "A Lawyer Should Avoid Even the Appearance of Impropriety." Disciplinary Rule 9-101(B) states that a "lawyer shall not accept private employment in a matter in which he had a substantial responsibility while he was a public employee." Although neither the ABA Code nor the Virginia Code addresses the obverse situation of DR 9-101(B) (i.e. prohibiting a government lawyer from participating in a matter in which the lawyer participated personally and substantially while in private practice), the Defendants maintain that such a prohibition should be mandated in the name of avoiding the appearance of professional impropriety. Although both Mr. Cullen and Mr. Douglass have erected a "Chinese wall" between themselves and the Swank investigation, because of the continuing danger that an attorney may unintentionally transmit confidential information due to the day-to-day contact an attorney has with other members of his "firm," Swank argues that disqualification of the entire office is required to guard against even the possibility of inadvertent use of confidential information.[1] Swank maintains that this disqualification is required even absent a showing that an attorney expressed explicit confidences which were expressly transmitted to or received by the other member of the law firm. See Trone v. Smith, 621 F.2d 994 (9th Cir.1980). Although it is unnecessary to trigger disqualification, Swank asserts that the Postal Inspection Service and U.S. Attorney were in fact exposed to privileged and confidential information when, pursuant to a valid search, it seized Mr. Swank's file concerning the separation and divorce proceedings. The Government flatly denies this assertion.[2] *112 As support for its argument, the Defendants cite a vast collection of state law cases, interspersed by references to various ethical standards and federal cases applying the standards to private counsel in civil matters. Since Swank has no evidence that confidentiality has been compromised or that the Chinese wall erected by Mr. Cullen and Mr. Douglass has been breached in this case, the Defendants are forced to rely on a "Caesar's Wife" type argument. The following excerpt essentially sums up their position: Not only must evil itself be avoided but any significant appearance thereof must likewise be avoided. The presence of a former leading criminal defense attorney, near the top of a public prosecutor's office, suggests to those of a paranoid and conspiratorial turn of mind the presence of a fox in the hen house. We do not think that such abnormal suspicion has any reasonable basis in fact whatsoever, but since a public prosecutor must perform his functions with the highest degree of integrity and impartiality, and with the appearance thereof for appearance's sake, the basis for this suspicion should be eliminated. Younger v. Superior Court, 77 Cal. App. 3d 892, 144 Cal. Rptr. 34, 37 (1978). This sentiment, however, misstates the law, and it should be noted that movants fail to cite one federal case that supports their argument that whenever an individual who had some connection with an investigation target joins the staff of a U.S. Attorney's Office, that entire office is disqualified from investigating the target. In fact, the federal courts have been uniform in rejecting the Defendants' argument. A number of federal courts have ruled that where an attorney who formerly represented or had a connection with a defendant, joins the U.S. Attorney's Office but has no involvement in the prosecution (by recusal and Chinese wall), then there is no basis to disqualify the entire U.S. Attorney's Office. Basically, the federal courts addressing this issue have recognized that there is quite a difference in the relationship between law partners and associates in private law firms and lawyers representing the government. See, e.g., United States v. Caggiano, 660 F.2d 184, 190 (6th Cir.1981). The Sixth Circuit in Caggiano explained the reason for the distinction: The relationships among lawyers within a government agency are different from those among partners and associates of a law firm. The salaried government employee does not have the financial interest in the success of departmental representation that is inherent in private practice. ... [T]he duty of the public prosecutor is to seek justice, not merely to convict, and the duty of all government lawyers is to seek just results rather than the result desired by a client. Id. at 191 (quoting Formal Opinion 342, 64 A.B.A.J. 517 (1976).[3] The most recent and the most factually similar case on this issue is United States v. Goot, 894 F.2d 231 (7th Cir.1990), cert. denied, ___ U.S. ___, 111 S. Ct. 45, 112 L. Ed. 2d 22 (1990). In Goot, the defendant had been indicted for RICO and conspiracy charges. Pre-indictment, Mr. Goot had been represented by the man who was now the U.S. Attorney and whose office had indicted, prosecuted, and ultimately obtained a conviction of his former client. As in this case, the new U.S. Attorney in Goot recused himself on all cases in which he had a prior involvement, including Mr. Goot's. The Assistant U.S. Attorneys were informed of this decision, and an Assistant was designated to act as U.S. Attorney on *113 all matters concerning Goot's case. Id. at 233. The Seventh Circuit ruled that the entire U.S. Attorney's Office was not required to be disqualified even though the defendant's attorney had been appointed U.S. Attorney. The court found that immediate recusal by the new U.S. Attorney, appointment of an Assistant to act as U.S. Attorney on the particular case, and the absence of discussions concerning the case were sufficient screening mechanisms. Id. at 235. The Goot Court noted that in "deciding questions of disqualification we balance the respective interests of the defendant, the government, and the public." Id. at 236. In regards to the government's interest, the court pointed out that the government has a legitimate interest in attracting qualified lawyers to its service. Furthermore, the convenience of utilizing the office situated in the locus criminis is not to be lightly disregarded. Id. In this case, United States Attorney Cullen recused himself prior to taking office, as did Mr. Douglass. These recusals were communicated to the assistants, and no communications concerning the case have occurred. Assistant U.S. Attorney Williams was appointed to supervise the Swank investigation and has been functioning in that role. In addition, unlike the Goot case, the movants admit that Mr. Cullen did not represent Donald Swank in a related criminal matter, but only in a domestic relations dispute.[4] Finally, the Court is under the impression that Mr. Cullen will not be called as a witness in this case. However, should he in fact be called to testify as to privileged and confidential matters regarding his representation of Donald Swank, the recusal issue would become moot, as Swank will have waived any attorney-client privilege. III. CONCLUSION Under the federal authority cited above, it seems clear that Mr. Cullen and Mr. Douglass did all the things necessary to insure that the entire U.S. Attorney's Office for the Eastern District of Virginia need not be disqualified from investigating and prosecuting this case.[5] The Defendants motion on this issue is, therefore, DENIED. NOTES [1] This result is mandated, according to Swank, by both the Virginia Code and the ABA Code: If a lawyer is required to decline employment or to withdraw from employment under DR 5-105, no partner or associate of his or his firm may accept or continue such employment. Virginia Code DR 5-105(E); ABA Code DR 5-105(D) (same). [2] The Government states that this particular file was not seized. Postal Inspector Sussan conducted the search of Mr. Swank's office on March 5, 1991, noted the divorce file was not responsive to the search warrant, and did not take the file. This was communicated to Mr. Swank's first counsel, Mr. Kaestner, by letter dated March 8, 1991. [3] Other courts have used exactly the same reasoning as the Caggiano court in holding that the disqualification of one U.S. Attorney or Assistant U.S. Attorney, assuming there are proper safeguards enacted, does not serve to disqualify the entire office. See, e.g., In re Grand Jury Investigation (Jackson), 696 F.2d 449 (6th Cir. 1982); United States Ex Rel. Price v. Lane, 723 F. Supp. 1279, 1284-85 (C.D.Ill.1989); United States v. Judge, 625 F. Supp. 901, 902 (D.Ha.1986) (regarding the Federal Defender's Office); United States v. Hubbard, 493 F. Supp. 209 (D.D.C.1979), aff'd sub. nom., United States v. Heldt, 668 F.2d 1238 (D.C.Cir.1981). [4] The Defendants never explain how or why Mr. Swank's separation and divorce, which was handled by Mr. Cullen, would have some bearing on Mr. Swank's criminal activities. The Fourth Circuit has noted that no question of conflict even arises in a case where an attorney for a defendant on a completely separate, unrelated matter (such as a divorce, perhaps), subsequently becomes a prosecutor and participates in the prosecution of his former client. United States v. Schell, 775 F.2d 559, 565-66 n. 5 (4th Cir. 1986). [5] This result is also warranted by a reading of the relevant Fourth Circuit cases. In United States v. Schell, 775 F.2d 559, 565-66 (4th Cir. 1985), the Fourth Circuit ruled that where a former defense counsel joins the U.S. Attorney's Office and then actively participates in a prosecution related to his former client, then the client's due process rights are violated. In so ruling, the court cited the Sixth Circuit's opinion in Caggiano with approval. The court in Schell also distinguished its prior opinion of United States v. Grande, 620 F.2d 1026 (4th Cir.1980), a case in which the U.S. Attorney who had signed the indictment had been a member of a law firm that had for many years represented an unindicted co-conspirator and important government witness and had other minor dealings with persons known to the defendant. Because the U.S. Attorney had recused himself and because the assistants stated that he had not been at all involved in their decisions in the case, the Grande Court stated that "[o]n these facts, we see no evidence of vindictive or selective prosecution. Indeed, we are unable to perceive any evidence of an appearance of impropriety." Id. at 1031. Thus, although neither of these Fourth Circuit cases are directly on point, given the Grande Court's approval of the recusal/Chinese wall approach and the Schell Court's emphasis on the active participation of the conflicted prosecutor, as well as the favorable reference to Caggiano, its seams clear that the Fourth Circuit is in accord with the other federal courts who have addressed this issue.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1880113/

94 F. Supp. 406 (1950) ALCOA STEAMSHIP CO. v. UNITED STATES. Adm. 164-154. United States District Court, S. D. New York. December 5, 1950. Wood, Molloy, France & Tully, New York City (Melville J. France and Henry P. Molloy, Jr., New York City, of counsel), for libelant. Irving H. Saypol, U. S. Atty., New York City (Benjamin H. Berman, Atty., Dept. of Justice, Washington, D. C., of counsel), for respondent. COXE, District Judge. This is an exception to the libel on the ground that the court lacks jurisdiction because of the failure to institute the suit within two years after the cause of action arose, as required by the Suits in Admiralty Act, 46 U.S.C.A. § 745. The suit is for damages alleged to have been sustained as a result of the delivery to the libelant by the respondent, under a demise charter, of the S/S "Stephen W. Gambrill", in which there were latent defects in the propeller shaft of the vessel. The vessel was delivered to the libelant under the charter on September 26, 1946, and the libel was filed on March 16, 1950. The material provisions of the charter are as follows: "Clause 1. Condition of Vessels on Delivery. The vessel on her delivery shall be in Class A-1 American Bureau of Shipping or equivalent, with all required certificates, including but not limited to marine inspection certificates of the Coast Guard, Treasury Department, and so far as due diligence can make her so, tight, staunch, strong and well and sufficiently tackled, appareled, furnished and equipped, and in every respect seaworthy and in good running *407 condition and repair, with clean swept holds and in all respects fit for service." * * * "Clause 2(b). Subject to the foregoing provisions (in Clause 2(a), which are not now material), the delivery of the Vessel by the Owner respondent) and the acceptance thereof by the Charterer shall constitute full performance by the Owner of all the Owner's obligations under clause 1, and thereafter the Charterer shall not be entitled to make or assert any claim against the Owner on account of any agreements, representations or warranties, expressed or implied, with respect to the condition of the Vessel; provided, however, that the Owner shall nevertheless be responsible for the cost and time of repairs or renewals occasioned by latent defects in the Vessel, its machinery or appurtenances or defects due to locked in stresses in the Vessel existing at the time of delivery, not recoverable under the terms and conditions of the American Hull form of policy (American Institute of Marine Underwriters 7/1/ 41) containing no deductible average clause." The libel, after setting forth the foregoing provisions of the charter, alleges that, while the vessel was being properly operated under normal conditions and at a normal speed, the libelant learned that the propeller had been lost and that the loss was occasioned by the breaking of the propeller shaft. The date when the shaft broke does not appear. It is then alleged that the breaking of the propeller shaft was caused by high residual, or locked in, stresses arising in the process of manufacture of the shaft, to the fact that the design and material of the shaft and its liner were faulty and defective, and to a latent defect or defects inherent in the design, material and manufacture of the shaft and liner, which were hidden and unknown to the libelant and existed at the time of the delivery of the vessel. It is further alleged that the cost and time of repairs and renewals occasioned by these locked in stresses and latent defects are not recoverable under the American Hull form of policy containing no deductible average clause. The damages claimed are the cost of making the necessary repairs and the loss of use of the vessel in the meantime, amounting in all to $16,702.80. It is the contention of the respondent that the cause of action is one for breach of the warranty of seaworthiness contained in Clause 1 of the charter, and that it arose at the time of the delivery of the vessel on September 26, 1946. The libelant, on the other hand, insists that no question of warranty is involved; that the suit is one solely to enforce the indemnity agreement contained in Clause 2(b) of the charter, and that the cause of action did not arise until the actual loss or damage indemnified against occurred. The respondent's contention that the cause of action is for breach of warranty is not only at variance with the allegations of the libel, but is unsupported by the provisions of the charter. Under Clause 1 of the charter the vessel, on her delivery, was warranted seaworthy "so far as due diligence can make her so". This was a limited, not an absolute, warranty of seaworthiness, and it relieved the respondent from liability for latent defects unless there was a failure to use due diligence. See Mente & Co. v. Isthmian S. S. Co., D.C.,S.D.,N.Y., 36 F. Supp. 278, 283, affirmed 2 Cir., 122 F.2d 266. But, under the first part of Clause 2(b) even this limited warranty did not survive the delivery and acceptance of the vessel, and thereafter all warranty claims against the respondent were barred. It seems clear, therefore, that up to this point any claim for damages for breach of the warranty of seaworthiness had been effectively released by the delivery and acceptance of the vessel. And as a substitute there was added a separate indemnity agreement giving the libelant specific and limited protection against damage resulting from latent defects. I hold, therefore, that the suit is one solely to enforce the indemnity agreement contained in Clause 2(b), and that the cause of action did not arise until the actual loss or damage indemnified against occurred. *408 The two-year limitation period of the Suits in Admiralty Act is not a mere limitation; it is part of the right itself. Osbourne v. United States, 2 Cir., 164 F.2d 767, 768; Sgambati v. United States, 2 Cir., 172 F.2d 297. And the libelant must allege sufficient facts to show affirmatively that the suit was timely brought, i. e., that it was filed within two years after the cause of action arose. Corporation of Royal Exch. Assur. v. United States, 2 Cir., 75 F.2d 478, 480. That has not been done, for the libel does not allege when the propeller shaft broke. The libel, therefore, fails to show that the court has jurisdiction, and the objection may be raised by exception. United States Shipping Board Emergency Fleet Corp. v. Rosenberg Bros. & Co., 276 U.S. 202, 214, 48 S. Ct. 256, 72 L. Ed. 531. The exception to the libel is accordingly sustained, but the libelant will be given permission to file an amended libel stating the date when the propeller shaft broke. NOTE: This Alcoa case and Alcoa cases Adm. 165-333, Adm. 165-31, Adm. 164-55 and Cosmopolitan Shipping Co. v. US, Adm. 164-89, decided in this one Opinion under Adm. 164-154.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1880211/

94 F. Supp. 113 (1950) NEW BROADCASTING CO., Inc. v. KEHOE. United States District Court S. D. New York. November 24, 1950. *114 Samuel Mezansky, New York City, for plaintiff; Jack M. Perlman, New York City, of counsel. Neuburger, Shapiro, Rabinowitz & Boudin, New York City, for defendant; Leonard B. Boudin, New York City, of counsel. RYAN, District Judge. Plaintiff moves to remand. The issue presented is whether or not the allegations of the complaint disclose that relief is here sought on the basis of rights or claims arising under the Sherman Anti-Trust Act, 15 U.S.C.A. § 1 et seq., or the Labor Management Relations Act of 1947, 29 U.S.C.A. § 141 et seq. If it is determined that the plaintiff seeks relief by virtue of rights or claims arising under either of these statutes, this court has original jurisdiction of the action, 28 U.S.C.A. § 1337, 29 U.S.C.A. § 187(b), and it was properly removed, 28 U.S.C.A. § 1441(a); if the contrary, the motion to remand must be granted. In determining this, we may properly consider only those allegations which are set forth in the complaint itself. Gully v. First National Bank, 1936, 299 U.S. 109, 113, 57 S. Ct. 96, 81 L. Ed. 70. The complaint, in substance, alleges: plaintiff is a corporation, owning and operating a radio broadcasting station known as radio station "WLIB," under license issued by the F.C.C. At the expiration of a collective bargaining agreement with the American Communications Association (hereinafter referred to as the "Union"), the parties were unable to agree on terms of renewal. In an effort to exact compliance with their demands, the Union undertook to destroy plaintiff's business and good *115 will, and it sought and still seeks to effectuate this purpose by coercing and compelling various sponsors to discontinue business relations with the plaintiff. As a result of this campaign various sponsors have cancelled their contracts, and others threaten to do so. Finally, it is alleged that the coercion applied by the Union to the sponsors constitutes a secondary boycott, and that the Union's course of conduct is not a labor dispute within the meaning of Sec. 876-a of the Civil Practice Act, and that as a result of such course of conduct, the plaintiff has been and is being irreparably injured. Plaintiff prays a judgment awarding it damages in the sum of $100,000 and a permanent injunction; and further requests injunctive relief pending the outcome of the action. That the complaint sets forth a good cause of action under state law, is not denied by defendant, as, of course, he need not on this motion; nor, does he assert that federal law would be decisive of the issues raised by the state cause of action. Defendant contends, only, that the allegation of the complaint also set forth claims under the federal anti-trust laws and the Labor Management Relations Act. If the material allegations of the complaint do invoke these laws, this court undoubtedly has original jurisdiction, even though they are at no point alluded to in the complaint and even though the plaintiff expressly disclaims any desire or intention to recover on other than a purely state cause of action. With respect to the alleged anti-trust claim, it is pointed out that plaintiff's declaration that he is operating under F.C. C. license signifies that he is in interstate commerce, 47 U.S.C.A. § 151 et seq. Therefore, it is asserted, plaintiff's further contention that the Union "undertook to destroy * * * (his) business and good will * * *" in effect charges a conspiracy in restraint of trade. The difficulty with this argument is that it fails to take account of recent Supreme Court decisions which have substantially restricted union liability under the anti-trust laws. See, Allen Bradley Co. v. Local 3, Int'al Brotherhood of Electrical Workers, 1945, 325 U.S. 797, 65 S. Ct. 1533, 89 L. Ed. 1939; United States v. Hutcheson, 1941, 312 U.S. 219, 61 S. Ct. 463, 85 L. Ed. 788. It is now settled that a labor organization, engaged in advancing the legitimate aims of its members, may incur liability under the anti-trust laws only by entering into a combination with employers, who are themselves violating the anti-trust laws. Although the complaint asserts that the Union's course of conduct does not constitute a labor dispute under C.P.A. Sec. 876-a, it is clear from the allegations, as a whole, that the Union's primary objective throughout has been to advance the interests of its members, however one might characterize some of the methods it is alleged to have employed. Nor does the allegation that some sponsors have succumbed to the Union's pressure disclose that combination with employers to restrain trade, which the Supreme Court has deemed a prerequisite to union liability for anti-trust violations. The complaint does not present a federal question arising under the anti-trust laws. Defendant's contention that the complaint states a claim arising under the Labor Management Relations Act has reference to Section 303 of the Act, 29 U.S.C.A. § 187, which authorizes a claim for damages against labor organizations guilty of certain violations, and vests the district court with jurisdiction to entertain such claims. There can be no doubt that the complaint charges an effort to induce employers to "cease doing business with any other person", which subsection (a) (1) of the section declares to be an unlawful objective. A claim for damages under this section, however, arises only when a labor organization seeks to achieve such an objective by engaging in, or inducing employees of any employer "to engage in, a strike or a concerted refusal in the course of their employment to use, manufacture, process, transport, or otherwise handle or work on any goods, articles, materials, or *116 commodities or to perform any services * * *." There is no allegation in the complaint that the Union has resorted to such tactics in its effort to dissuade sponsors from continuing business relations with the plaintiff. It is true that the complaint does refer to a campaign to have non-complying sponsors blacklisted and boycotted by various unions, other organizations and their members. But, all this can be reasonably construed to charge is that these groups were urged not to patronize sponsors who persisted in business relationships with the plaintiff. Therefore, the complaint does not state a claim for relief under the Labor Management Relations Act. It has been urged by defendant that the court must accept jurisdiction even if it finds that no valid claim for relief under a federal law was presented by the complaint. The suggested distinction has been drawn in a number of cases see, e. g. Bell v. Hood, 1946, 327 U.S. 678, 66 S. Ct. 773, 90 L. Ed. 939; The Fair v. Kohler Die & Specialty Co., 1913, 228 U.S. 22, 33 S. Ct. 410, 411, 57 L. Ed. 716, but invariably under circumstances decisively different from those here present. Where the complaint has grounded its claim for relief explicitly under a federal statute, federal courts have accepted jurisdiction even though the complaint would be subject to a motion to dismiss. The principle underlying these decisions was expressed by Mr. Justice Holmes when he wrote, "Of course, the party who brings a suit is master to decide what law he will rely upon". See, The Fair v. Kohler Die & Specialty Co., supra. Plaintiff brought the suit initially in a state court. At no point in his complaint does he allude to a federal statute, or indicate a desire to rely upon such law. He has strenuously disavowed any inclination to invoke a federal statute in his behalf. Under these circumstances, the determination that the complaint does not state a valid federal claim for relief is also decisive of the jurisdictional question. Motion to remand is granted.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1880239/

94 F. Supp. 83 (1950) CHICAGO & NORTH WESTERN RY. CO. v. DAVENPORT et al. Civ. No. 1 — 94. United States District Court S. D. Iowa, C. D. November 20, 1950. Order Vacated February 12, 1951. Frank W. Davis of Miller, Davis, Hise & Howland, Des Moines, Iowa, for plaintiff. John J. McKay of McKay & Avery, Austin, Tex., for defendants. Order Vacated February 12, 1951. See 95 F. Supp. 469. SWITZER, District Judge. Defendants, as individuals, a partnership and a corporation, all residents of Texas, challenge the venue of the suit here on the ground that the action has been brought in a district not the residence of either (1) the plaintiff, or (2) the defendants or any of them. Other grounds are set out in the motion itself, namely, that the defendants are not subject to the service of process within the Southern District of Iowa, and that the amount in controversy is less than the jurisdictional amount, but argument was confined to the question of venue alone. On July 20, 1950, the "Dailey Bros. Circus by Bennie Fowler" entered into a written contract with the Chicago and North Western Railway Company, a Wisconsin corporation, plaintiff here, and the Chicago, Saint Paul, Minneapolis, and Omaha Railway Company, whereby the railroads agreed to transport and handle, as a special carrier, 25 cars belonging to the defendant Dailey Bros. Circus, between 12 different stops at cities in Michigan and Wisconsin during the summer of 1950. By this contract either Railway Company acting separately could enforce any right accruing to it thereunder. Provisions of indemnity were included therein whereby the Circus Company agreed to save the railroads harmless from any claim for injury to trainmen engaged in transporting the property of the Dailey Bros. Circus during the period of the contract. On August 16, 1950, at Antigo, Wisconsin, at one of the agreed stopping points, Chester Hugunin, an employee of the plaintiff, Chicago & North Western Ry. Co., while moving one of the cars belonging to the defendant Dailey Bros. Circus, fell and was injured because of an alleged defective grab iron. Mr. Hugunin has asserted a claim against the plaintiff under the Federal Employers' Liability Act, 45 U.S.C.A. § 51 et seq., which claim in turn is the *84 basis of the Railway Company's suit against the owners of Dailey Bros. Circus, under the contract of July 20, 1950. Defendants were notified of the claim of Mr. Hugunin but they would not admit liability therefor or offer to defend in any way. Two material facts in this case also are: (1) that the Chicago & North Western Ry. Co., while incorporated in Wisconsin, is licensed and authorized to do business in Iowa; (2) that service of process was made upon Ben C. Davenport, individually, and through him upon the partnership, Dailey Bros. Circus, and the corporation, Lone Star Circus Properties, Inc., while the circus was at Marshalltown, Iowa, a city in this District. The action is transitory and has been brought in this District where neither of the parties reside nor is this the district in which the cause originated. However, the action as such is maintainable here by reason of the diversity of citizenship of the suitors, thus establishing general jurisdiction under Section 1332, Title 28 U.S.C.A.; but the inquiry here is whether the Code provisions, Sec. 1391, Title 28 U.S.C.A., relating to venue give this court jurisdiction over the person of the defendants in the face of their personal objection thereto. A comment, apposite to this situation, appears in Dean v. Bituminous Casualty Corp., D.C., 72 F. Supp. 801, 803, as follows: "Most advocates do not realize that * * * a citizen of Maine may file a suit against a citizen of California in the Western District of Louisiana, provided it be of jurisdiction as to amount of $3000, and if the California citizen filed no objection (the objections he may file are personal), the Federal court would have jurisdiction. The court on its own motion could not disclaim jurisdiction." The pertinent venue provisions now are Section 1391, subsections (a) and (c), Title 28 U.S.C.A., reading: "(a) 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. * * * "(c) A corporation may be sued in any judicial district in which it is incorporated or licensed to do business or is doing business, and such judicial district shall be regarded as the residence of such corporation for venue purposes." Plaintiff contended at argument (no brief was submitted by it) that as the Chicago & North Western Ry. Co. was licensed to do business in Iowa and service of process having been had upon the defendants while doing business in this District, that venue is properly laid under subsection (c) above. Until recently, the history of venue in the Federal courts has been one of restriction under diversity jurisdiction, with strict tests imposed upon determination of the residence of the parties. Subsection (c) admittedly has relaxed that rule as to corporate defendants to a great extent, but I am not convinced that the door has been thrown as wide open as plaintiff contends. The origin of present Section 1391(a) and (b) is found in the Judiciary Act of 1789, or Sec. 739 of the Revised Statutes. The Judiciary Act of 1888 modified Sec. 739 and the Judicial Code of 1911 adopted it as Section 51, appearing in the statutes as former Section 112, Title 28 U.S.C.A., which read: "no civil suit shall be brought in any district court against any person by any original process or proceeding in any other district than that whereof he is an inhabitant; but where the jurisdiction is founded only on the fact that the action is between citizens of different States, suit shall be brought only in the district of the residence of either the plaintiff or the defendant." And the Supreme Court of the United States repeatedly decided that venue in the federal courts was restricted as to corporate defendants to their residence in the incorporating state, unless a waiver or consent could be invoked against them to be suable in the forum district, in the language of the leading case, Shaw v. Quincy Mining Co., 145 U.S. 444, 12 S. Ct. 935, 36 L. Ed. 768: "a corporation, incorporated in one State only, cannot be compelled to answer, in a Circuit Court of the United States held in another State, in which it has a *85 usual place of business, to a civil suit, at law or in equity, brought by a citizen of a different State." (syllabus) Almost 60 years later this interpretation of Section 51 of the Judicial Code was upheld in Suttle v. Reich Bros. Const. Co., 333 U.S. 163, 68 S. Ct. 587, 92 L. Ed. 614. A notation of the decisions of the Supreme Court over the intervening years in accord is given on page 166 of 333 U.S., on page 587 of 68 S.Ct. thereof. Neirbo Co. v. Bethlehem Shipbuilding Corp., 308 U.S. 165, 60 S. Ct. 153, 84 L. Ed. 167, reiterated an old rule announced in Ex Parte Schollenberger, 96 U.S. 369, 24 L. Ed. 853, that the corporate defendant by designating an agent in another state upon whom service of process might be made, waived its right to object to venue in the latter state. The decisions of the Supreme Court in the respect above discussed show a policy in the past on the part of Congress of severe restriction as to venue involving corporate parties in the district courts. In fact, in 1887, according to Neirbo Co. v. Bethlehem Shipbuilding Corp., 308 U.S. 165, at page 172, 60 S. Ct. 153 at page 156, the House passed an act which "prohibited resort to the federal courts by foreign corporations authorized to do a local business". It is impossible therefore to say that Congress by enacting Section 1391(c) liberalized venue in the district courts to the extent of allowing a corporation to institute litigation against a nonresident defendant in a district where plaintiff is merely licensed to do business on the theory that it was a resident of the district. If Freiday v. Cowdin, D.C., 83 F. Supp. 516, on which plaintiff relies entirely, holds thus, I cannot subscribe to it. To so hold would be imputing something in the language of Congress in Sec. 1391(c) which cannot be found expressly stated therein. It seems to me that 1391(c) has merely clarified by legislation what the courts have been declaring by interpretation as to venue for corporate defendants only, broadened to eliminate any necessity of resort to waiver. If plaintiff were an Iowa corporation in fact, defendants' objection to venue would perhaps be futile, but based in this instance on the lack of proper residence on the part of plaintiff, the objection of the defendants to the venue herein must be sustained. This matter came on for hearing in open court at Des Moines, Iowa, on the motion of defendants to dismiss on the ground of improper venue. Argument was had and the matter submitted on the brief of defendants, and the court being advised; It is Ordered, that the said motion of the defendants be and it is hereby sustained. Plaintiff excepts.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/2491656/

35 F. Supp. 2d 699 (1999) Kevin CHAPMAN, a Minor, by his next friend and Legal Guardian, Cindy CHAPMAN, Cindy and Leonard Chapman, and Family Health Plan, Plaintiffs, v. MUTUAL SERVICE CASUALTY INSURANCE COMPANY, Ralph Green Realtors, Inc., Richard Gurda d/b/a Gurdaco Income Property and Painting Company, ABC Insurance Company and Grace M. Oldenburg, Trustee and/or Personal Representative of the Estate of Laverne E. Mathea, Defendants, No. 94-C-812. United States District Court, E.D. Wisconsin. January 28, 1999. *700 *701 Timothy Cesar, Hausmann-McNally, Milwaukee, WI, for Plaintiff Kevin Chapman and Family Health Plan. Emile H. Banks, Kasdorf, Lewis & Swietlik, W. Ted Tornehl, Borgelt, Powell, Peterson and Frauen, Milwaukee, WI, for Defendant Ralph Green Realtors and Mutual Casualty Ins. Co. Steven J. Snedeker, Hills and Hicks, Brookfield, WI, for Mutual Service Casualty Ins. Co. Richard Gurda, Franklin, WI, Pro Se Defendant. James T. Murray Jr., Attorney Molly C. Feldbruegge, Peterson, Johnson & Murray, Milwaukee, WI, for Defendant Laverne E. Mathea and Grace Oldenburg. Thomas E. Dolan, Dolan Law Offices, Milwaukee, WI, for 3rd Party Defendant James E. Wilkes d/b/a Wilkes Realty. DECISION AND ORDER ADELMAN, District Judge. Plaintiffs Leonard and Cindy Chapman and their son Kevin bring this negligence action against numerous defendants, alleging various tortious acts in connection with the faulty inspection of their home for lead-based paint. Plaintiffs claim that Kevin suffers the effects of lead toxicity caused by the presence of lead-based paint in the house purchased by his parents. The Chapman home was inspected by a government-approved independent appraiser, James Wilkes, during the Federal Housing Administration (FHA) mortgage loan approval process. Pursuant to this inspection, the house was repainted by Richard Gurda of Gurdaco Income Property & Painting Company. The Chapmans moved into the house shortly thereafter. Kevin, who was then about 4½, soon began to experience increased lead levels, allegedly from consuming paint chips or inhaling paint dust around the Chapman home. In addition to Wilkes and Gurda (and after much cross-claiming, intervening and amended pleading), the Chapmans subsequently sued (1) the United States and the U.S. Department of Housing and Urban Development (HUD), alleging that Wilkes was an HUD employee; (2) Security Bank, S.S.B., the lender underwriting the Chapmans' HUD-insured FHA mortgage; (3) Ralph Green Realtors, Inc., the real estate broker for the sale of the Chapman home, who hired Gurda to repaint the house; (4) Grace Oldenburg, the seller of the house and personal representative of the estate of the late owner; (5) and Federal Insurance Company and Mutual Service Casualty Insurance Company, potential liability insurers of Security Bank and Ralph Green Realtor, respectively. With the exception of individual defendants Wilkes and Gurda, all defendants filed dispositive motions. By previous order addressing several motions, the United States, Security Bank and Federal Insurance Company were dismissed as defendants, and the court elected to retain jurisdiction. This order addresses the following motions: (1) Ralph Green Realtor's motion for summary judgment; and (2) Grace Oldenburg's motion for summary judgment. I. FACTUAL BACKGROUND On July 21, 1991, the Chapmans, first-time home buyers, signed an offer to purchase the *702 residential property located at 2165 S. 31st Street, Milwaukee. The property had been put up for sale by Grace Oldenburg on April 4, 1991, in her capacity as personal representative of the estate of the late owner, Laverne Mathea. Ralph Green Realtors ("RGR"), through its sales representative Milton Erdman, had prepared and listed the home for sale. The Chapman's offer was contingent on the plaintiffs obtaining an FHA First Mortgage Loan Commitment. The Chapmans applied for the HUD loan at Security Bank ("Security"), which acted as a Direct Endorsement Underwriter for HUD loans. As part of the required process for obtaining such a loan, Security contacted HUD-approved appraiser Wilkes to do an appraisal and inspection of the property. Wilkes performed his appraisal on August 5, 1991, and completed the required appraisal form and "Attachment A," describing necessary repairs. Attachment A included the following instructions with respect to the garage and home exterior, to be completed before closing: "Remove all chipped or pealing [sic] paint, repaint as needed." (Dentice Aff. Ex. D.) Wilkes mailed the appraisal and Attachment A to Security. The appraisal was initially reviewed by Lee Ann Johnson, a Security loan processor. On August 21, 1991, Johnson faxed a copy of Attachment A and a cover letter to Erdman at RGR, asking Erdman to make the necessary repair arrangements and to contact her with any questions. The letter also instructed Erdman to contact Security when the repairs were done so the bank could arrange a follow-up inspection. According to Erdman and RGR owner Ralph Green, Attachment A was unclear and not sufficiently specific about areas needing repainting. Green asserts that someone from RGR called Johnson to clarify the extent of repairs needed and that Johnson said she would check with Wilkes and call back. According to Green, Johnson later called back and informed him that only the areas that were flaking or in need of paint would have to be repainted. The Security phone logs contain no record of these calls, nor does Johnson appear to recall them. At some point after receiving Attachment A, RGR made arrangements to have the Chapman home repainted. Oldenburg agreed to pay for the external painting of the house, and the Chapmans agreed to paint the interior themselves. According to Erdman, Green suggested Richard Gurda to do the external painting. Erdman contacted Gurda about repainting the house, obtained an estimate, secured Oldenburg's approval of the fee, and ultimately gave Gurda directions on how to proceed. On October 9, 1991, after Gurda had completed his work, Wilkes reinspected the house. Wilkes determined that the house satisfied HUD requirements and forwarded his final compliance inspection report to the bank. The closing took place two days later. Wilkes' report was reviewed and signed by Janet Jandl, a senior underwriter at Security, several weeks after the closing. The Chapman family moved into the house in late October 1991. Kevin's blood was tested for lead toxicity in early December 1991 and on a monthly basis thereafter. According to the Chapmans, his lead levels continued to rise steadily, peaking in July 1992. II. DISPOSITIVE MOTIONS A. Summary Judgment Standard and Negligence Standards Summary judgment is appropriate only where "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c); Celotex v. Catrett, 477 U.S. 317, 322, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986). In weighing a summary judgment motion, courts should construe evidence in the light most favorable to the non-moving party and draw all reasonable and justifiable inferences in its favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986). However, a genuine issue of material fact is not demonstrated by the existence of "some alleged factual dispute between the parties," id. at 247, 106 S.Ct. *703 2505, or by "some metaphysical doubt as to the material facts," Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S. Ct. 1348, 89 L. Ed. 2d 538 (1986). Pointing to the "mere existence of a scintilla of evidence in support of the plaintiff's position will be insufficient" to establish a material factual dispute. Anderson, 477 U.S. at 252, 106 S. Ct. 2505. Rather, a genuine issue of material fact does not exist unless "there is sufficient evidence favoring the non-moving party for a jury to return a verdict for that party." Id. at 249, 106 S. Ct. 2505. Plaintiffs' claims are grounded in negligence law. To maintain a cause of action for negligence in Wisconsin, a plaintiff must show (1) a duty of care on the part of the defendant; (2) a breach of that duty; (3) a causal connection between the conduct and the injury; and (4) an actual loss or damage as a result of the injury. Rockweit v. Senecal, 197 Wis. 2d 409, 418, 541 N.W.2d 742 (1995). Because the existence of negligence is a mixed question of law and fact, generally the question of whether an individual is negligent is for the jury and should be decided by the court as a matter of law only in rare cases. Olson v. Ratzel, 89 Wis. 2d 227, 251-52, 278 N.W.2d 238 (Ct.App.1979). However, where there is no dispute as to the facts alleged to give rise to a duty of care, the existence and scope of that duty is a question of law which the court may decide. Id.; Ceplina v. South Milwaukee Sch. Bd., 73 Wis. 2d 338, 341-42, 243 N.W.2d 183 (1976). B. Claims Against Ralph Green Realtors The Chapmans allege that RGR breached its "warranties and covenants of good faith and fair dealing and/or [was] negligent" in connection with the sale of the Chapman home. (Fourth Am. Compl. ¶ 24.) Specifically, plaintiffs allege that this negligence includes but is not limited to their hiring, supervising and inspecting the work of the paint contractors, Richard Gurda and/or Gurdaco, and the inspector; their failure to warn and/or notify the Chapmans of lead based paint and its hazards; their failure to diligently investigate the material fact of lead base paint; their failure to meet the appropriate standards of care; their failure to comply with Wisconsin Administrative Code Regulations and Licensing, Sec. 24.07, and other acts of negligence and breaches of their warranties and covenants of good faith and fair dealing. (Id.) RGR moves for summary judgment on these claims, raising a number of arguments. First, RGR argues that plaintiffs' negligence suit is barred by the "as is" clause found in the signed offer of purchase for the Chapman home. Second, the realtor argues that plaintiff's have no claims based on RL 24.07 of the Wisconsin Administrative Code because the rule does not create a private cause of action and because, in any event, the RGR did not violate the rule. Finally, RGR maintains that it cannot be held liable for the allegedly negligent hiring and supervising of Gurda because Wisconsin does not recognize the tort of negligent hiring, training and supervision and because, in any event, RGR did not hire or "employ" Gurda. 1. Effect of "as is" clause The offer of purchase signed by the Chapmans included the following language: Buyer is purchasing these premises in an "as is" condition with a full understanding that Sellers obtain these premises through estate, has [sic] never occupied the premises and is making no warranty as to the condition of the premises ... Buyer has had a full opportunity to inspect the premises and is not relying upon seller representations or any of its agent with respect to the condition of the premises. (Banks Aff., Ex. E.) RGR argues that this section effectively precludes plaintiffs' present claims against the realtor. RGR relies on Omernik v. Bushman, 151 Wis. 2d 299, 444 N.W.2d 409 (Ct.App.1989), and Grube v. Daun, 173 Wis. 2d 30, 496 N.W.2d 106 (Ct. App.1992), to support this argument. Omernik was a contract action in which the plaintiffs sought warranty damages for unseen structural defects in a purchased building. The Omernik court held that the presence of an "as is" clause such as the one above in a real estate contract puts the burden on the buyer to determine the condition *704 of the purchased property. Omernik at 303, 444 N.W.2d 409. Grube, on the other hand, was a tort action raising several claims, including negligence and various species of misrepresentation, based on the seller's failure to discover and disclose a gasoline leak on the purchased property. In discussing the misrepresentation claims, the Grube court considered whether an "as is" clause shields the seller only from breach of warranty claims in contract or also from tort claims based on misrepresentation. Grube at 59, 496 N.W.2d 106. The resultant holding was very narrow, describing a limited circumstance in which the scope of an "as is" clause extends outside the warranty context to bar certain claims in tort: [W]hile the "as is" clause is not a complete bar to these causes of action, its affect is to put the burden upon a buyer to determine the condition of the property purchased. Id. This shifting of the burden, with nothing more, protects a seller and his or her agent from claims premised upon nondisclosure. Id. at 61, 496 N.W.2d 106 (emphasis added). Given these holdings and the "as is" clause in the Chapmans' offer of purchase, RGR may be shielded from plaintiffs' claims based on a failure to investigate the presence of lead-based paint and then properly warn the Chapmans. RGR's contention that the "as is" clause should bar all plaintiffs' claims is unavailing. Neither Omernik or Grube alters the basic presumption in Wisconsin, based on public policy, that tort disclaimers in contracts will not be honored unless the disclaimer is specific about the tort being disclaimed. See Phillips Petroleum Co. v. Bucyrus-Erie Co., 131 Wis. 2d 21, 33, 388 N.W.2d 584 (1986) ("The disclaimer must make it apparent that an express bargain was struck to forego the possibility of tort recovery in exchange for negotiated alternate economic advantages ...") The "as is" clause here contains no such specificity with respect to other negligence claims. Conversely, plaintiffs argue that even the claims premised on nondisclosure should not be barred under the above holdings, because of the following exception, established in Grube: "[O]nce the seller or his agent has made an affirmative representation about some aspect of the property, the buyer is entitled to rely upon that statement and expect full and fair disclosure of all material facts related to that aspect of the property." Grube at 61, 496 N.W.2d 106. There is no evidence in the record of such an affirmative representation on the part of RGR. Plaintiffs argue that the affirmative acts of RGR led the Chapmans to reasonably believe that the problem of lead-based paint had been alleviated. The reasoning of the Grube exception, however, reflects a careful balancing of contract and tort principles and springs from the specific nature of misrepresentation claims, which always involve a factual representation. I decline to expand Grube to allow affirmative acts to nullify the effect of an "as is" clause. Although the above analysis suggests that plaintiffs' claims alleging RGR's failure to investigate or warn should be dismissed, the discussion in the following two sections demonstrates why this is not necessarily the case. 2. Claims based on Rule RL 24.07 Chapter RL 24 of the Wisconsin Administrative Code regulates the conduct and ethical practices of real estate licensees. Rule RL 24.07 of this chapter concerns inspection and disclosure duties. Plaintiffs maintain that RGR had a duty, under [Rule RL 24.07] and the circumstances of this case, to disclose the very real possibility of lead-based paint in both the Listing Contract and the Offer of Purchase, a duty to disclose Attachment A to all parties in a timely manner, a duty to insist that an inspection contingency included in the Offer to purchase, and a duty to advise the Chapmans that they should make further investigation on their own regarding the existence of lead-based paint. (Pl.'s Br. at 34.) RGR argues that any claims based on a violation of any part of Chapter RL 24 are barred because no private cause of action can be maintained under this regulatory chapter. I agree with RGR that Chapter RL 24 does not create a private cause of action *705 under the reasoning of Fortier v. Flambeau Plastics Co., 164 Wis. 2d 639, 476 N.W.2d 593 (Ct.App.1991). For an administrative rule to form an independent basis for civil liability, some expression of legislative intent to create such a private right of action must be present in the form and language of the rule. Id. at 658, 660, 476 N.W.2d 593. Nothing in the language of Chapter RL 24 evinces such legislative intent. Rather, as stated in Rule RL 24.01, "[t]he intent of the department in adopting the rules in this chapter is to establish minimum standards of conduct for real estate licensees and to define that conduct which may result in board discipline ..." Wis. Admin. Code § RL 24.01(2). Similarly, because I conclude that Chapter RL 24 was intended to shield the general public from various unethical real estate practices — and not "to protect a certain class of persons from a particular type of harm" — the chapter is not a "safety statute" as defined in Wisconsin case law. Grube v. Daun, 210 Wis. 2d 681, 693, 563 N.W.2d 523 (1997). Accordingly, a violation of Rule RL 24.07 such as plaintiffs allege does not constitute negligence per se in Wisconsin. Id. at 692, 563 N.W.2d 523. This is not to say, however, that Chapter RL 24 is irrelevant to this negligence action. This chapter and Rule RL 24.07 in particular are relevant indicators of the duty of care expected of reasonably competent real estate brokers. See, e.g., Grube, 173 Wis.2d at 52, 496 N.W.2d 106. Plaintiffs appear to rely on Chapter RL 24 for precisely this purpose — "as additional authority on recognized standards of conduct for licensees in order to show that Ralph Green Realtors and its agents breached their duty of care to the Chapmans." (Pl.'s Br. at 35.) This use of the regulations is quite acceptable under Wisconsin negligence law. See also Meas v. Young, 142 Wis. 2d 95, 417 N.W.2d 55 (Ct. App.1987). RGR also moves for summary judgment on plaintiffs' claims based on Rule RL 24.07, arguing that the realtor did not in fact violate the rule. Plaintiffs have demonstrated a factual dispute on this point. The affidavit of real estate expert Martin J. Greenberg alone establishes a genuine issue of material fact as to whether RGR violated various provisions of Chapter RL 24, thereby breaching some duty of care toward the Chapmans. (See Greenberg Aff., ¶ 18.) Greenberg's opinion is in turn based on the deposition transcripts of numerous individuals and other exhibits, all part of the voluminous record in this case. (See Id., ¶ 9.) Summary judgment is therefore not appropriate on plaintiffs' RL 24.07 claims. Celotex at 322, 106 S. Ct. 2548. 3. Claims of negligent hiring, training or supervision RGR argues that, at the time of its allegedly negligent conduct in 1991, Wisconsin had not recognized the tort of negligent hiring, training or supervision in this state, requiring dismissal of plaintiffs' claims based on that theory. Quite recently and after the briefing of RGR's motion, the state supreme court explicitly recognized negligent hiring, training or supervision as a valid tort claim. See Miller v. Wal-Mart Stores, Inc., 219 Wis. 2d 250, 580 N.W.2d 233 (1998). Further, even prior to Miller, both the Wisconsin Supreme Court and the Seventh Circuit had long-assumed the validity of these claims in Wisconsin See Pritzlaff v. Archdiocese of Milwaukee, 194 Wis. 2d 302, 325-26, 533 N.W.2d 780 (1995) ("[F]or purposes of this case we assume, but do not decide, that [such a cause of action exists in Wisconsin.]"). In Midwest Knitting Mills, Inc. v. United States, 950 F.2d 1295 (7th Cir.1991), the Seventh Circuit discussed analogous claims previously sustained by Wisconsin courts, such as claims based on agency law and on the failure to adequately supervise independent contractors. See id. at 1298-1300. Finding that the general tort of negligent supervision of employees "enjoys a secure position in the mainstream of American common law," the court concluded that it had no reason to believe that the claim was invalid in Wisconsin. Id. at 1298. The Miller holding thus represents not a break with precedent but an articulation of what had been assumed to be the state of the law. The Miller court clearly could have specified a prospective application only, as in Sorensen v. Jarvis, 119 Wis.2d *706 627, 350 N.W.2d 108 (1984), but it did not. Further, under the nonretroactivity analysis approved in Kurtz v. City of Waukesha, 91 Wis. 2d 103, 280 N.W.2d 757 (1979), I find no reason to so limit Miller myself. It would be strange indeed if, by explicitly recognizing this cause of action, the court cast doubt on the cognizability of earlier claims of this nature — until now presumptively valid in many Wisconsin courts. Rejecting this illogic, I assume that pre-Miller claims of negligent hiring, training or supervision remain valid and cognizable in Wisconsin. RGR also argues that any claims based on the negligent hiring, training or supervision of Richard Gurda by the realtor should be dismissed because RGR did not "hire" Gurda as an employee to do the exterior painting on the Chapman home. RGR contends that Gurda was an independent contractor and was actually hired by the seller, Grace Oldenburg. (RGR's Br. at 25-26.) The realtor cites the general legal principle that one who contracts with an independent contractor is not liable to others for the torts of the independent contractor. See Snider v. Northern States Power Co., 81 Wis. 2d 224, 232, 260 N.W.2d 260 (1977). Even if the court assumes (without deciding) that Gurda was an independent contractor, RGR is not exempted from liability for Gurda's actions or for its own actions with respect to Gurda under the facts of this case. In theory, the common law independent contractor rule set forth in Snider places limits on the doctrine of respondeat superior. In practice and over time, however, courts have recognized a number of exceptions to this general rule. See Brooks v. Hayes, 133 Wis. 2d 228, 233-34, 395 N.W.2d 167 (1986); Restatement (Second) of Torts § 409 cmt. b (1965). The Restatement identifies two broad categories of exceptions, both of which apply to this fact situation: employers of independent contractors may be liable (1) if negligent "in selecting, instructing or supervising the contractor"; and (2) if there exist "[n]on-delegable duties of the employer, arising out of some relation toward the public or a particular plaintiff." Id. The first category of exceptions clearly echoes the tort officially recognized by Miller. Other Wisconsin courts have impliedly validated claims for negligent supervision, even when the facts involved an independent contractor rather than an employee. See, e.g., A.E. Investment Corp. v. Link Builders, Inc., 62 Wis. 2d 479, 214 N.W.2d 764 (1974). RGR argues that it still did not "hire" Gurda but served as a liaison between Gurda and Oldenburg, who paid Gurda's fees and signed a contract proposal for Gurda to do the painting. The question of who actually hired Gurda — RGR, Oldenburg, or both — does not have the talismanic significance urged by the parties. Tort claims alleging negligent hiring, training or supervision do not premise liability solely on the negligence of the employee or independent contractor under agency principles, for which the question of who hired whom may be more important. Rather, liability under this claim flows from the negligent acts or omissions of the employer itself, under the general analysis of duty and forseeability in Wisconsin negligence law. See, e.g., Miller, 219 Wis.2d at 260-61, 580 N.W.2d 233 ("[I]t is foreseeable that failing to properly train or supervise any employee, but especially a loss prevention associate, would subject shoppers to unreasonable risk, injury or damage.") The second category of exceptions to the independent contractor rule also finds support in Wisconsin law. In Brooks v. Hayes, a real estate broker contracted with landowners to construct a prefabricated home on their land. Id., 133 Wis.2d at 231, 395 N.W.2d 167. The realtor (functioning here as a general contractor) hired an independent contractor to do certain work in constructing the home. The work was negligently performed. The landowners eventually sued both the realtor and the independent contractor under tort and contract theories. Id. at 233, 395 N.W.2d 167. In discussing the plaintiffs' tort claims against the real estate broker, the Brooks court found that the realtor was vicariously liable for the negligence of the independent contractor under the non-delegable duty exception to the independent contractor tort rule. Id. at 247-49, 395 N.W.2d 167. Essentially, the non-delegable duty exception is based on the theory that *707 certain responsibilities are so important that an employer or principal should not be permitted to bargain away the risks involved in performance. Arsand v. City of Franklin, 83 Wis. 2d 40, 54 n. 8, 264 N.W.2d 579 (1978). These responsibilities, or duties, may be imposed by statute, by contract, by franchise or charter, or by common law. Brooks at 247, 395 N.W.2d 167 (citing Prosser & Keaton, Torts, § 71, at 511 (5th ed.1984)). In the present case, both statute and regulation impose arguably relevant duties on RGR toward the Chapmans and toward Oldenburg in the realtor's fiduciary capacity. See, e.g., Wis. Stat. § 452.133 (Duties of brokers); Wis. Admin. Code § RL 24.07 (Inspection and disclosure duties); see also Restatement (Second) of Torts § 424 (1965) (Precautions required by statute or regulation); Restatement (Second) of Agency § 214 (1958) (Failure of principal to perform non-delegable duty). As a matter of public policy, these duties are non-delegable. Additionally, I find that common law imposes a non-delegable duty on RGR under the following rationale, adopted from the Restatement by the Wisconsin Supreme Court in Brooks: One who employs an independent contractor to perform services for another which are accepted in the reasonable belief that the services are being rendered by the employer or by his servants, is subject to liability for physical harm caused by the negligence of the contractor in supplying such services, to the same extent as though the employer were supplying them himself or by his servants. Brooks at 249, 395 N.W.2d 167 (quoting Restatement (Second) of Torts § 429 (1965)). Both the Chapmans and Oldenburg express the reasonable belief that Gurda was, in effect, working for RGR. Gurda himself concurs with this understanding. (Dentice Aff., Ex. Q at 22-24.) That is enough to create a non-delegable duty under the above rationale. In sum, RGR's final argument — that plaintiffs' claims based on negligent hiring or supervision should be dismissed because of Gurda's asserted status as an independent contractor hired by Oldenburg — also fails. 4. Status of claims based on failure to investigate or warn The previous sections have not precisely delineated RGR's duty of care toward the Chapmans, but merely conclude that a duty exists such that summary judgment on plaintiffs' negligence claims is unwarranted. It does appear, however, that certain duties imposed by statute and regulation may be in direct conflict with the exculpatory effect of the "as is" clause, also discussed above. RGR cannot be both shielded from claims alleging a failure to investigate or warn about lead-based paint conditions and obligated by statute or rule to conduct certain inspections and make specific disclosures. As always in a conflict of this nature, statutory terms trump the parties bargained-for positions in contract. "Where the public policy of the state is expressed in acts of the legislature, the statutory provisions step in and control and regulate the mutual rights and obligations of the parties to a contract relating to the subject matter of the statute." Gordie Boucher Lincoln-Mercury v. J & H Landfill, Inc., 172 Wis. 2d 333, 340, 493 N.W.2d 375 (Ct.App.1992) (quotation marks omitted). In this respect, administrative rules also express important public policy and have the same effect as legislative enactments. M & I First Nat'l Bank v. Episcopal Homes Management, Inc., 195 Wis. 2d 485, 506-07, 536 N.W.2d 175 (Ct.App.1995). In light of this principle, plaintiffs' claims against RGR alleging a breach of the duty to investigate and warn about the presence of lead-based paint are barred — but only to the extent that the specific relevant duties are not imposed by statute or regulation. All other negligence claims against RGR remain viable. C. Claims Against Grace Oldenburg The Chapmans allege that Oldenburg hired or contracted with Gurda to paint the Chapman property and that Oldenburg was negligent and such negligence includes the hiring of the above-said contractor, in failing to properly supervise repairs performed by the contractor, failing *708 to inspect repairs performed by the contractor, failing to investigate the subject property for lead base paint and failing to warn Chapmans of the existence of lead base paint. (Fourth Am. Compl. ¶ 31.) In its cross-claims against Oldenburg, RGR makes substantially the same allegations as plaintiffs. (See RGR's Answer to Second Am. Compl. ¶ 9-10.) Oldenburg moves for summary judgment on all claims against her, making four arguments. One argument, that pre-Miller claims of negligent hiring or supervision are not valid, I already rejected in my discussion of the previous motion. A second argument, that any negligence ultimately attributed to Oldenburg was not a cause-in-fact of any injury, is generally not an appropriate basis for summary judgment and particularly not in this multi-defendant case, notwithstanding Oldenburg's unsupported assertion that reasonable people could not differ on the question of causation. See Morgan v. Pennsylvania Gen. Ins. Co., 87 Wis. 2d 723, 735-36, 275 N.W.2d 660 (1979). The two remaining arguments, addressed below, sound familiar but produce a different outcome in the case of Oldenburg: (1) Oldenburg had no duty to independently investigate or warn plaintiffs about the existence of lead-based paint on the premises; and (2) Oldenburg did not hire Gurda and therefore should not be liable for negligently hiring or supervising him. 1. No duty to investigate or warn Based on my analysis of the holdings in Omernik and Grube in the discussion of RGR's summary judgment motion, the seller Oldenburg is shielded from claims based on a failure to investigate the presence of lead-based paint and warn the Chapmans. In the case of Oldenburg, moreover, the exculpatory effect of the "as is" clause in the Chapmans' offer of purchase is not overcome by the imposition of statutory or other non-delegable duties. Therefore, plaintiffs' claims against Oldenburg alleging a failure to investigate or warn will be dismissed. 2. Not liable for negligent hiring or supervision The remaining claims against Oldenburg allege that the seller breached her duty to exercise reasonable care in the hiring and supervision of Gurda. Oldenburg assumes that Gurda was an independent contractor, and plaintiffs do not dispute this legal conclusion; for the purposes of this motion, the court will also make this assumption. Oldenburg argues primarily that she had no duty to take care in hiring and overseeing Gurda because she did not "hire" him. As suggested before, the sole question of who "hired" an independent contractor is not dispositive on the question of duty to supervise the individual's performance. By analogy, the dominant test in determining whether an individual is a "servant" (subjecting the master to vicarious liability) or an independent contractor is the employer's right to control the physical conduct of the worker in performing the hired service. Pamperin v. Trinity Mem'l Hosp., 144 Wis. 2d 188, 198-99, 423 N.W.2d 848 (1988). Many other factors may also be considered, including "the place of work, the time of the employment, the method of payment, the nature of the business or occupation, which party furnishes the instrumentalities or tools, the intent of the parties to the contract, and the right of summary discharge of employees." Id. at 199, 423 N.W.2d 848. Wisconsin jury instructions on this issue also reference the Restatement (Second) of Agency, which includes as relevant factors: whether the work is usually done under the employer's direction, the skill required, and whether it is part of the employer's regular business. See Wis. J I — Civil 4030; Restatement (Second) of Agency § 220 (1958). Similarly, the duty to exercise reasonable care in the selection and supervision of an independent contractor should correspond meaningfully to the employer's degree of control over the performed work, based on all of the above factors. To conclude otherwise would swallow the independent contractor distinction. For example, § 414 of the Restatement (Second) of Torts states the following exception to the general rule that *709 employers are not liable for the negligence of independent contractors: One who entrusts work to an independent contractor, but who retains the control of any part of the work, is subject to liability for physical harm to others for whose safety the employer owes a duty to exercise reasonable care, which is caused by his failure to exercise his control with reasonable care. Restatement (Second) of Torts § 414 (1965). But the comments after this section indicate that in order for this rule to apply the employer must have retained at least some degree of control over the manner in which the work is done. It is not enough that he has merely a general right to order the work stopped or resumed, to inspect its progress or to receive reports, to make suggestions or recommendations which need not necessarily be followed, or to prescribe alterations and deviations. Such a general right is usually reserved to employers, but it does not mean that the contractor is controlled as to his methods of work, or as to operative detail. There must be such a retention of a right of supervision that the contractor is not entirely free to do the work in his own way. Restatement (Second) of Torts § 414 cmt. c (1965). Nothing in the record adduced by plaintiffs supports the reasonable inference that Oldenburg retained such meaningful control over Gurda's work. The relevant facts are undisputed. RGR selected Gurda to paint the house based on Gurda's previous work for the realtor. RGR representative Erdman communicated Gurda's estimate to Oldenburg, giving her no other choices in selecting a painter. Oldenburg signed Gurda's proposal to paint the house and paid half the $400 fee by check. The bill for the second half was sent to RGR, and payment was deducted from the sales proceeds at closing. Oldenburg never spoke to Gurda. RGR alone contacted Gurda, negotiated his price and gave the painter instructions about what needed to be done at the Chapman home. (Feldbruegge Aff. Ex. B at 84-89, 98-99; Ex. J at 11, 23-24.) Plaintiffs argue that in theory Oldenburg "was the boss over the people at Ralph Green Realty [sic], and that she was therefore free to accept or reject Erdman's recommendation of Gurda." (Pl.'s Br. in Opp'n to Oldenburg's Mot. at 6.) They point out that her approval was necessary for the painting to even occur. Plaintiffs also suggest that Oldenburg's general layman's knowledge of the dangers of lead-based paint, and the fact that she possessed a copy of the inspection report requiring removal of chipped and peeling paint, should have alerted her to the importance of Gurda's work and compelled her to supervise it with care. I do not agree that Oldenburg had a duty to personally supervise Gurda's work or to doublecheck the hiring suggestions of her real estate broker, RGR. It is undisputed that Oldenburg had no experience or specific familiarity with the hazards of lead-based paint or proper abatement procedures and standards. Understandably, she relied on her licensed realtor to supervise the home repairs required for closing. (See Bischmann Aff. Ex. A at 53-62.) At most, plaintiffs have shown that Oldenburg had a theoretical right to intervene if she wanted, akin to the "general right" to control deemed insufficient to overcome non-liability under the independent contractor rule. See Restatement (Second) of Torts § 414 cmt. c (1965). Under the circumstances presented here — in which Oldenburg had no contact with Gurda and no realistic ability to provide professional oversight — she was under no legal duty to supplement RGR's choice and supervision of Gurda with her own. Finally, plaintiffs point to several other exceptions to the independent contractor rule, also found in the Restatement. Two fall into the broad category of negligence in selecting, instructing or supervising a contractor, and as such are defeated by the reasoning just presented. See Restatement (Second) of Torts § 409 cmt. b, §§ 411, 413 (1965). Two fall into the broad category of negligence with respect to work which is specially, peculiarly or inherently dangerous. See id. § 416, 427. I agree with Oldenburg that painting and scraping a house is not an inherently dangerous activity of the type *710 meant to be covered by these exceptions. Since Oldenburg is not subject to any other relevant statutory or non-delegable duties, plaintiffs' claims against her based on a failure to exercise reasonable care in hiring or supervising Gurda will also be dismissed. This accounts for the balance of the remaining claims against Oldenburg. THEREFORE, IT IS ORDERED that Ralph Green Realtors' motion for summary judgment is DENIED; however, summary judgment on plaintiffs' claims alleging a breach of RGR's duty to investigate and warn is GRANTED, but only to the extent that specific relevant duties are not imposed by statute or regulation. IT IS FURTHER ORDERED that Grace Oldenburg's motion for summary judgment is GRANTED on all claims against her, and she is DISMISSED as a defendant to this action. Pending motions by Mutual Service Casualty Insurance Company to withdraw or amend discovery responses and for declaratory judgment respecting insurance coverage are resolved by separate order.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1961161/

514 F. Supp. 2d 227 (2007) METAL MANAGEMENT, INC. and Metal Management Connecticut, Inc., Plaintiffs, v. Michael SCHIAVONE, Defendant. Civil Action No. 3:06-cv-2004 (VLB). United States District Court, D. Connecticut. September 13, 2007. *228 *229 *230 Christopher John Hug, Jude Francois, Robinson & Cole, Hartford, CT, Mark R. Ter Molen, Michael P. Rissman, Paul M. Drucker, Richard F. Bulger, Russell R. Eggert, Mayer Brown LLP, Chicago, IL, for Plaintiffs. Brian P. Daniels, Sean M. Fisher, Brenner, Saltzman & Wallman, New Haven, CT, for Defendant. MEMORANDUM OF DECISION AND ORDER DENYING THE DEFENDANT'S MOTION TO DISMISS THE PLAINTIFFS' APPLICATION FOR ORDER PENDENTE LITE AND PREJUDGMENT REMEDY [Doc. # 45] AND DENYING THE PLAINTIFFS' MOTION FOR IMMEDIATE DISCLOSURE OF ASSETS [Doc. # 30] VANESSA L. BRYANT, District Judge, I. Procedural History The plaintiffs, Metal Management, Inc. ("MMI") and Metal Management Connecticut, Inc. ("MMCT"), initiated this action against the defendant, Michael Schiavone ("Schiavone"), by applying for a prejudgment remedy and order pendente lite to secure their rights under a pending arbitration between the parties. Schiavone moves the court to dismiss the plaintiffs' application for lack of subject matter jurisdiction and failure to state a claim upon which relief can be granted. For the reasons hereinafter set forth, Schiavone's motion to dismiss is DENIED. While the plaintiffs' application survives Schiavone's motion to dismiss, their motion for immediate disclosure of assets is also DENIED. II. Factual Background On July 1, 1998, MMI, MMCT[1], Schiavone and Joseph A, Schiavone Corp. ("JASC")[2] executed an Asset Purchase Agreement ("APA") under which MMCT purchased from JASC a scrap metal recycling facility and associated real property. [Doc. # 31, Ex. A] MMCT is a wholly owned subsidiary of MMI, and each company signed the APA separately and in its own capacity. Both MMI and MMCT are defined as "Purchaser Indemnified Parties" in § 1.1 of the APA. In Article IV of the APA, "each of Schiavone and [JASC], jointly and severally, represents and warrants to [MMCT] and [MMI]" that certain conditions existed regarding prior methods of operating the recycling plant and the conditions of the plant and real property at the time of purchase. Within the same article, in § 4.21 Schiavone and JASC make specific representations and warranties to MMCT and MMI regarding the environmental standards utilized by the recycling plant and JASC's past compliance with environmental laws. In Article XIII of the APA Schiavone and JASC agree to indemnify MMCT and MMI. Specifically, § 13.2 reads: *231 Schiavone and [JASC] agree, jointly and severally, to indemnify each of the Purchaser Indemnified Parties against, and agree, jointly and severally, to hold each of them harmless from, any and all Losses incurred or suffered by them or relating to or arising out of or in connection with . . . (a) any breach of or any inaccuracy in any representation or warranty made by [JASC] in this Agreement. The APA also includes an arbitration clause, § 14.16, under which any party can demand that any dispute involving noncompliance with any terms of the agreement be submitted to binding arbitration. The plaintiffs claim that "since closing on the APA, [they] discovered various deleterious preexisting environmental conditions at the Property and learned that JASC had operated the facility in contravention of certain environmental laws and the representations and warranties made by Schiavone and JASC [to them] in the APA." [Doc. # 29, para. 10] On May 8, 2003, the Connecticut Department of Environmental Protection ("CDEP") instituted an enforcement action in Connecticut Superior Court, Judicial District of Hartford, against MMCT, Schiavone and JASC, among others but not including MAIL alleging that the property was environmentally contaminated in violation of Connecticut environmental laws. See Rocque, Comm'r of Env. Prot. v. Schiavone, et al., Docket No. CV-03-0825384, 2005 WL 1434812. The CDEP enforcement action has caused the plaintiffs to incur the cost of defending the enforcement action and potentially exposes MMCT as the property's current owner to liability for JASC's conduct prior to transfer of ownership. On October 13, 2006, MMI and MMCT jointly filed a demand for arbitration in accordance with the APA alleging claims of breach of contract, fraudulent inducement and fraudulent concealment against Schiavone and JASC. On December 15, 2006, MMI instituted this action by filing an application for a prejudgment remedy and order pendente lite against Michael Schiavone and JASC pursuant to Connecticut General Statutes § 52-422 ("§ 422"). [Doc. # 6] On February 23, 2007, MMI amended its application to include MMCT as an additional plaintiff, and remove JASC as a defendant.[3] [Docs. # 29-31] The amended application requests 1) a prejudgment remedy in the amount of $9,760,000 against Schiavone, 2) an order that Schiavone immediately disclose his assets, and 3) that his out of state assets be brought within Connecticut and filed with the court clerk for preservation pending the final outcome of the arbitration. The plaintiffs moved for an immediate disclosure of assets because "the time and expense of holding a probable cause hearing and obtaining a prejudgment remedy may be wasted if Schiavone has insufficient or inaccessible assets." [Doc. # 30] On May 25, 2007, Schiavone filed the subject motion to dismiss. [Doc. # 45] Schiavone first moves pursuant to Federal Rule of Civil Procedure 12(b)(1) to dismiss for lack of subject matter jurisdiction 1) all claims asserted by MMI on the grounds that MMI lacks standing, and 2) any part of the plaintiffs' application for prejudgment relief that relies on Connecticut General Statutes §§ 52-278a et seq. ("§ 278"), because that statute applies only when the underlying dispute is pending as a civil action, not an arbitration. Additionally, Schiavone moves pursuant to Federal Rule of Civil Procedure 12(b)(6) *232 to dismiss for failure to state a claim upon which relief can be granted: 1) the application in its entirety because the relief sought by the plaintiffs is not "necessary" as defined by § 422; 2) the motion for immediate disclosure of assets under § 422, claiming disclosure would violate Schiavone's right to privacy as protected by the Fourteenth Amendment; and 3) the request for an order bringing Schiavone's assets into Connecticut, claiming such relief is injunctive in nature and that the plaintiffs have not shown irreparable injury. III. 12(b)(1) "A case is properly dismissed for lack of subject matter jurisdiction under Rule 12(b)(1) when the district court lacks the statutory or constitutional power to adjudicate it." Makarova v. United States, 201 F.3d 110, 113 (2d Cir.2000). A motion to dismiss for lack of subject matter jurisdiction is the appropriate means to challenge standing as standing concerns whether an application for relief presents a case or controversy upon which a federal court can exercise its Article III powers. Auerbach v. Board of Educ. of the Harborfields, 136 F.3d 104, 108 (2d Cir.1998). To satisfy Article III's standing requirements, a plaintiff must show (1) it has suffered an "injury in fact" that is (a) concrete and particularized and (b) actual or imminent, not conjectural or hypothetical; (2) the injury is fairly traceable to the challenged action of the defendant; and (3) it is likely, as opposed to merely speculative, that the injury will be redressed by a favorable decision. Friends of the Earth, Inc. v. Laidlaw Envtl. Servs. (TOG), Inc., 528 U.S. 167, 180-181, 120 S. Ct. 693, 145 L. Ed. 2d 610 (2000). In considering a motion to dismiss for lack of subject matter jurisdiction, "the court must take all facts alleged in the complaint as true and draw all reasonable inferences in favor of [the] plaintiff." Raila v. United States, 355 F.3d 118, 119 (2d Cir.2004). To successfully defend against a Rule 12(b)(1) motion to dismiss, the plaintiff must establish subject matter jurisdiction by a preponderance of the evidence. Makarova, 201 F.3d at 113. A. MMI's Standing Schiavone claims MMI lacks standing to assert its claims because MMCT is the sole owner of the recycling plant and real property, and MMI is not a party to the CDEP enforcement action. Consequently, MMI has not suffered any injury in fact because it is not directly liable for any environmental remediation of the property, and thus has no basis to claim indemnity from Schiavone under the APA.[4] Schiavone does not contest that MMI is a signatory to the APA, that the APA specifies MMI is a purchaser indemnified party, that purchaser indemnified parties are entitled to indemnity from Schiavone for specified breaches of the APA, nor that MMI asserts claims on its own behalf in the pending arbitration. *233 Through this action, MMI and MMCT seek to secure their rights under the pending arbitration. § 422 reads: At any time before an award is rendered pursuant to an arbitration under this chapter, the superior court . . . in a controversy concerning land, for the judicial district in which the land is situated . . . upon application of any party to the arbitration, may make forthwith such order or decree, issue such process and direct such proceedings as may be necessary to protect the rights of the parties pending the rendering of the award and to secure the satisfaction thereof when rendered and confirmed. Conn. Gen.Stat. § 52-422 The fact that an applicant for relief under § 422 is a party to a pending arbitration is the essential element conferring jurisdiction on the courts under the statute. See Goodson v. State, 232 Conn. 175, 180, 653 A.2d 177 (Conn.1995) ("by its express terms, [§ 422] allows the trial court to issue an order . . . `upon application of any party to the arbitration'"). MMI stated in its pleadings that it is a party to the APA and entitled to indemnification thereunder, that it is a party to a pending arbitration, asserting claims of breach of contract, fraudulent inducement and fraudulent concealment by Schiavone, and is seeking damages as a consequence thereof. [Does. # 29-31] All of MMI's arbitration claims stem from a contract dispute in which MMI and Schiavone are signatories to the underlying contract. The APA also lists MMI as a party entitled to indemnification in the event Schiavone or JASC does not fulfill their contractual obligations. The rights protected by § 422 are those available to parties to an arbitral proceeding, namely fair adjudication of a dispute, redress of injuries found to have been suffered and satisfaction of awards rendered in the party's favor. The court's role in considering an application filed under § 422 is not to determine the amount or apportionment of damages at issue in the underlying arbitration. See Morris v. Cee Dee, LLC, 90 Conn.App. 403, 411-412, 877 A.2d 899 (Conn.App.Ct.2005) ("[p]rejudgment remedy proceedings are not involved with the adjudication of the merits of the action. . . . [t]hey are only concerned with whether and to what extent the plaintiff is entitled to have property of the defendant held in the custody of the law pending adjudication of the merits of that action"). The ultimate issues are more appropriately settled in the pending arbitration itself. Accordingly, this court need not determine the actual damages suffered by MMI separate and apart from those suffered by the co-plaintiff MMCT. The court must only find whether MMI's pleaded facts, drawing all reasonable inferences in MMI's favor, show by a preponderance of the evidence that MMI may have suffered an injury in fact. MMI is a party to the APA, is entitled to indemnification under the APA, is the parent of MMCT, and is a party to a pending arbitration seeking to resolve disputes arising under the APA as a result of an environmental enforcement action initiated by the CDEP, claiming that the defendants violated Connecticut environmental laws triggering the arbitration's outcome. MMI has standing to apply for preliminary relief under § 422 and protect its rights as a party to the pending arbitration. Therefore, Schiavone's motion to dismiss MMI's claims for lack of standing is DENIED. B. § 278 Schiavone moves to dismiss any part of the plaintiffs' application that relies on § 278 because the court does not have *234 subject matter jurisdiction under that statute in the instant case. The plaintiffs did not file their application for preliminary relief under § 278. The plaintiffs clearly state in the first paragraph of their application for a prejudgment remedy and order pendente lite that § 422 is the operative statute. [Does. # 30-31] § 278 is merely cited for reference, as the various parts of that statute define Connecticut's standards and procedures for obtaining a prejudgment remedy. See Insurity, Inc. v. Mut. Group, Ltd., 260 F. Supp. 2d 486, 490 (D.Conn.2003) (§ 278 "may be extremely helpful to a court reasoning by analogy to [§ 422], much the same way a federal court develops federal common law by looking to state law sources that are thoughtful and persuasive, though not binding"); see also Fed.R.Civ.P. 64 ("remedies . . . for the purpose of securing satisfaction of the judgment . . . are available under the circumstances and in the manner provided by the law of the state in which the district court is held"). Accordingly, Schiavone's motion to dismiss for lack of subject matter jurisdiction under § 278 is DENIED. IV. 12(b)(6) "In reviewing a Rule 12(b)(6) motion, this Court must accept the factual allegations of the complaint as true and must draw all reasonable inferences in favor of the plaintiff." Bernheim v. Litt, 79 F.3d 318, 321 (2d Cir.1996). "A court may dismiss a complaint only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations." Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S. Ct. 2229, 81 L. Ed. 2d 59 (1984). "The issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims." Villager Pond, Inc. v. Town of Darien, 56 F.3d 375, 378 (2d Cir.1995) (internal quotation omitted). The pleading shall not be dismissed merely because recovery seems remote or unlikely. Bernheim, 79 F.3d at 321. In deciding a motion to dismiss, the court may consider "only the facts alleged in the pleadings, documents attached as exhibits or incorporated by reference in the pleadings and matters of which judicial notice may be taken." Samuels v. Air Transp. Local 504, 992 F.2d 12, 15 (2d Cir.1993). A. Necessity of a Prejudgment Remedy Rule 64 of the Federal Rules of Civil Procedure reads: At the commencement of and during the course of an action, all remedies providing for seizure of person or property for the purpose of securing satisfaction of the judgment ultimately to be entered in the action are available under the circumstances and in the manner provided by the law of the' state in which the district court is held. Fed.R.Civ.P. 64. "Rule 64 thus authorizes a federal court to borrow relevant state law on provisional remedies. And although the federal civil rules govern the conduct of the action in federal court, state law determines when and how a provisional remedy is obtained." Bahrain Telcoms. Co. v. DiscoveryTel, Inc., 476 F. Supp. 2d 176, 183 (D.Conn.2007) (internal quotation omitted). Under § 422, the court may "at any time before an award is rendered pursuant to an arbitration . . . upon application of any party to the arbitration . . . make forthwith such order or decree, issue such process and direct such proceedings as may be necessary to protect the rights of the parties." Conn. Gen.Stat. § 52-422 (emphasis added). The statute is "designed *235 to vest the court with broad power to provide the parties in arbitration some protection." Insurity, 260 F.Supp.2d at 489. A threshold determination for the court before considering an application for prejudgment relief ancillary to a pending arbitration is whether the prejudgment relief requested "may be necessary" to protect the rights of a party to the pending arbitration. Schiavone claims the Connecticut Supreme Court's definition of necessary under § 422 in New England Pipe Corporation v. Northeast Corridor Foundation, 271 Conn. 329, 336-37, 857 A.2d 348 (Conn. 2004), precludes the court from considering the plaintiffs' application for prejudgment relief given the facts of this case. In New England Pipe, the Connecticut Supreme Court defined necessary under § 422 as: "something that cannot be done without: that must be done or had: absolutely required: essential, indispensable." Id. In other words, "[u]nless a party to an arbitration proceeding affirmatively can establish that its rights will be lost irretrievably in the absence of judicial intervention" the court should not intervene. Id. at 337, 857 A.2d 348 (emphasis added). The question before the court in New England Pipe was whether a party to a pending arbitration was entitled pursuant to § 422 to interlocutory appeal and an order permanently enjoining the arbitral panel from hearing expert testimony offered by the opposing party. The court held "the parties' disagreement regarding the disclosure of experts was nothing more than a run-of-the-mill discovery dispute, the resolution of which had been reserved, under the parties' agreement, to the sound discretion of the panel" and judicial intervention was not "absolutely required to protect the [party]'s rights during the pendency of the arbitration proceeding."[5]Id. In the instant case, the plaintiffs seek a prior attachment or other prejudgment remedy preventing the disposition of Schiavone's assets prior to the arbitration's final outcome. A prejudgment remedy protects a vastly different set of rights with a lesser level of interference than interlocutory review of a run-of-the-mill discovery dispute. "A prejudgment remedy does not interfere with the arbitral process but merely ensures that there will be assets available to satisfy any judgment the arbitrators `themselves may render." Bahrain, 476 F.Supp.2d at 182. Such a protection of the plaintiffs' rights is necessary as defined by New England Pipe in that their ability to collect on a potential award may very well be "lost irretrievably" and would certainly be jeopardized absent a prejudgment remedy. A strong argument can be made that a prejudgment remedy may indeed be necessary. In, the ordinary course of business, as an ongoing concern companies routinely incur actual and contingent liabilities that can impair or otherwise effect its creditors ability to recover a debt owed. A prejudgment remedy simply enables a creditor to get in line at the time its contingent claim arises. If its claim never ripens the lien is of no practical effect; however, if the claim ripens, the priority of that creditor's right of recovery is preserved. *236 A prejudgment remedy is tantamount to a security interest under Article 9 of the Uniform Commercial Code, codified in Connecticut as Title 42a of the Connecticut General Statutes. A secured transaction is one that creates for a creditor an interest in the property of a debtor that secures performance of some obligation. See U.C.C. § 9-102. The secured creditor's rights in the debtor's property are terminated upon satisfaction of the debtor's obligations. Should the debtor default on performance of the obligations, the creditor is entitled to enforce its claim to the property with judicial assistance. See U.C.C. § 9-601. Under the code, "security interests . . . rank according to priority in time of filing or perfection. . . . [and][t]he first security interest . . . to attach or Become effective has priority if conflicting security interests . . . are unperfected." U.C.C. § 9-322(a)(1), (a)(3). Official Comment 3 to § 9-322 explains the provisions "may be regarded as adaptations of the idea, deeply rooted at common law, of a race of diligence among creditors." U.C.C. § 9-322, Official Comment 3. The code essentially provides for payment of creditors in the order in which they register their claims. If a creditor waits to register its claim, any other creditor which registers its claim in the interim period would take priority when the time comes for the debtor to settle all claims. Consequently, if the debtor lacks sufficient funds to settle all claims, the creditors at the end of the line would be left with empty pockets and their claims lost irretrievably. A prejudgment remedy attachment functions in a similar manner to a secured transaction. An attachment secures a plaintiff's interest in the property of the defendant and allows the plaintiff to reserve a level of priority in satisfaction of creditors' claims against the defendant's property. The attachment expires upon resolution of the parties' dispute in favor of the defendant. Should a plaintiff's claims prove meritorious and judgment enter its favor, the plaintiff becomes a creditor which can enforce the judgment by filing and possibly foreclosing a judgment lien on the defendant's property. See Conn. Gen.Stat. § 52-350a (defining Connecticut's postjudgment procedures). Should MMI and MMCT be forced to wait for a final arbitral award and possible subsequent enforcement action before asserting their claim, any creditors getting in the collection line before the plaintiffs would have priority over their claims. In that event, the plaintiffs' right to collect could likewise be lost irretrievably. The Connecticut Supreme Court has spoken as to the necessity of a prejudgment remedy, although not in the context of § 422. In Margolin v. Kleban and Samor, P.C., 275 Conn. 765, 882 A.2d 653 (Conn.2005), the court upheld a legal malpractice damages award against a law firm that failed to apply for a prejudgment remedy on behalf of its client to secure the outcome of the underlying dispute. The client was subsequently unable to collect on its judgment because diligent creditors had taken priority in claiming the defendant's assets, and the defendant lacked sufficient funds to satisfy all claims. Id. at 769-70, 882 A.2d 653. Schiavone claims that MMI and MMCT are not entitled to a prejudgment remedy because they have failed to show that Schiavone is fraudulently concealing his assets. MMI and MMCT are not proceeding under the Uniform Fraudulent Transfer Act. See Conn. Gen.Stat. § 52-552a et seq. (providing relief to creditors when debtors fraudulently transfer assets to avoid or hinder satisfaction of a debt). Schiavone cites no legal authority to support *237 the proposition that the court must find such nefarious conduct before granting an application for a prejudgment remedy of attachment. Indeed, the standard does not require such a finding. In fact, such are not the factors prescribed by § 422 or § 278, nor were these factors considered by the court in Margolin. On the contrary, in Margolin the defendant appeared to have had sufficient assets to satisfy the judgment for which a prejudgment remedy was not sought at the time that application could have been made. Margolin, 275 Conn. at 769-70, 882 A.2d 653. In ordering a prejudgment remedy of attachment, the court must only find that "there is probable cause that a judgment in the amount of the prejudgment remedy sought, or in an amount greater . . . will be rendered in the matter in favor of the plaintiff." Conn. Gen.Stat. § 52-278d(a)(1). "The legal idea of probable cause is a bona fide belief in the existence of the facts essential under the law for the action and such as would warrant a man of ordinary caution, prudence and judgment, under the circumstances, in entertaining it." Three S. Dev. Co. v. Santore, 193 Conn. 174, 175, 474 A.2d 795 (Conn.1984) (quoting Wall v. Toomey, 52 Conn. 35, 36 (Conn.1884)). MMI and MMCT's application for an order that Schiavone immediately disclose his assets and that such assets be brought into Connecticut for preservation are ancillary to the prejudgment remedy and also may be necessary to protect the plaintiffs' rights.[6]See Hamma v. Gradco Systems, Inc., 1992 U.S. Dist. LEXIS 17601, at *10, 1992 WL 336740, at *3 (D.Conn. Nov. 4, 1992) ("federal courts routinely issue ancillary orders in conjunction with prejudgment remedies without finding a likelihood of success on the merits"); see also Inter-Regional Financial Group, Inc. v. Hashemi, 562 F.2d 152 (2d Cir.1977) (district court properly acted in equity in conjunction with prejudgment remedy as authorized by Connecticut law). As such, § 422 confers authority on the district court to consider the plaintiffs' application for prejudgment relief in its entirety. Schiavone's motion to dismiss for failure to state a claim because the prejudgment relief requested is not necessary under § 422 is therefore DENIED. B. Immediate Asset Disclosure In Connecticut v. Doehr, 501 U.S. 1, 111 S. Ct. 2105, 115 L. Ed. 2d 1 (1991), the Supreme Court invalidated Connecticut's prejudgment remedy statute as violating due process because it allowed for ex parte prejudgment remedies without a probable cause hearing. The Supreme Court found "even the temporary or partial impairments to property rights that attachments, liens, and similar encumbrances entail are sufficient to merit due process protection." Id. at 12, 111 S. Ct. 2105. Explaining that "the property interests that attachment affects are significant. . . . [because] attachment ordinarily clouds title; impairs the ability to sell or otherwise alienate the property; taints any credit rating; reduces the chance of obtaining a home equity loan or additional mortgage; and can *238 even place an existing mortgage in technical default where there is an insecurity clause," the Supreme Court held due process requires a defendant have the opportunity to be heard before assets can be encumbered by an attachment. Id. at 11, 111 S. Ct. 2105. The plaintiffs do not seek to attach Schiavone's assets prior to a probable cause hearing. Instead, the plaintiffs move for a disclosure of assets prior to a probable cause determination without causing any of the "cloud[ing]," "impair[ing]," or "taint[ing]" effects an attachment can have on property.[7] "Not only may the court issue an order for disclosure of assets under P§ 4221, it may do so prior to, and independent of a probable cause determination." Insurity, 260 F.Supp.2d at 491 (emphasis in original); see also Lyons Hollis Assocs. v. New Tech. Partners, Inc., 278 F. Supp. 2d 236, 247 (D.Conn.2003) (citing Insurity with approval).[8] Schiavone moves to dismiss the plaintiffs' application for immediate disclosure of assets on the grounds that issuance of such an order prior to a hearing on the merits would violate Schiavone's right to keep personal financial information private as protected by the Fourteenth Amendment. Courts apply intermediate scrutiny when analyzing a case invoking privacy rights protected by the Fourteenth Amendment. See Barry v. City of New York, 712 F.2d 1554, 1558-59 (2d Cir.1983). "Under intermediate scrutiny, if the [f]inancial [d]isclosure Mule is designed to further a substantial governmental interest and does not land very wide of any reasonable mark in making its classifications, it must be upheld." Statharos v. New York City Taxi & Jimousine Comm'n, 198 F.3d 317, 324 (2d Cir.1999) (internal quotation omitted). Undoubtedly there is a substantial governmental interest in promoting the "just, speedy, and inexpensive determination of every action" before the federal courts. Fed.R.Civ.P. 1. Both the federal courts and Connecticut Supreme Court have articulated a strong policy favoring arbitration as an alternative means of dispute resolution. See Bank Julius Baer & Co. v. Waxfield Ltd., 424 F.3d 278, 281 (2d Cir. 2005); AFSCME, Council 4, Local 704 v. Dep't of Pub. Health, 272 Conn. 617, 626, 866 A.2d 582 (Conn.2005). As such, there exists a substantial governmental interest in the court exercising its statutory authority in support of party agreed upon arbitration. The question then becomes whether a court order to disclose assets prior to a prejudgment remedy probable cause hearing lands very wide of the government's *239 substantial interest in a just, speedy and inexpensive adjudication of disputes through arbitration. It is difficult to imagine how an order to disclose the very assets that will satisfy a potential arbitral award would not be specifically targeting the governmental interest in supporting the arbitration itself. The Second Circuit in Barry "recognize[d] that public disclosure of financial information may be personally embarrassing and highly intrusive." Barry, 712 F.2d at 1561. However, the court in Barry upheld the financial disclosure requirement because "the statute's privacy mechanism adequately protects plaintiffs' constitutional privacy interests." Id. Under that statute a person complying with the financial disclosure rule could file a claim of privacy in writing with respect to the information requested. Id. An order for disclosure of assets absent an adjoining prejudgment remedy authorizing attachment of those assets — the practical result of an order to disclose assets prior to a prejudgment remedy probable cause hearing — is akin to discovery in an ordinary civil case. Federal Rule of Civil Procedure 26 allows the parties "may obtain discovery regarding any matter, not privileged, that is relevant to the claim or defense of any party." Fed.R.Civ.P. 26(b)(1). This standard is liberally construed "to encompass any matter that bears on, or that reasonably could lead to other matter that could bear on, any issue that is or may be in the case." Oppenheimer Fund v. Sanders, 437 U.S. 340, 351, 98 S. Ct. 2380, 57 L. Ed. 2d 253 (1978). A party's financial information can be relevant for discovery purposes if it implicates specific elements of a claim or defense asserted in the dispute. See Daval Steel Products, Div. of Francosteel Corp. v. M/V Fakredine, 951 F.2d 1357, 1367-68 (2d Cir.1991) (plaintiff entitled to discovery of financial information to establish "alter ego" theory of liability).[9] Federal Rule 26(c) contemplates disclosure of potentially private or embarrassing information. Under that rule, the court has authority to address privacy concerns upon application of a party through various methods of specifying the terms and conditions by which private information can be accessed. Fed.R.Civ.P. 26(c). Similar to the privacy mechanism contemplated by the court in Barry, Schiavone can petition the court for relief in the form of a protective order or confidentiality order to address his privacy concerns if the court orders the immediate disclosure of his assets. Schiavone's motion to dismiss the plaintiffs' application for immediate disclosure of assets if therefore DENIED. The court possesses the authority to issue an order to disclose assets prior to a probable cause hearing so long as that information could be relevant to the merits of an application for a prejudgment remedy. Such an order would not violate Schiavone's constitutionally protected right to privacy, and he would have the means to petition the court to restrict access to his personal financial information. In this case, however, the plaintiffs have made no showing that Schiavone's current financial condition or net *240 worth bears any relation to their application for relief. The plaintiffs want to know nothing more than if Schiavone possesses any assets to attach should they succeed in obtaining a prejudgment remedy, and if securing a prejudgment remedy would be worth their time and effort. These self-serving interests have no relevance on the success of the plaintiffs' application for prejudgment relief and are insufficient to require disclosure of Schiavone's personal financial information prior to a probable cause hearing. See Bahrain, 476 F.Supp.2d at 188 (inappropriate to order immediate disclosure of assets "merely because [the plaintiff] wishes to know whether it is worth its while to pursue the hearing that it has demanded"). The plaintiffs' motion relies on this court's order to disclose assets prior to a probable cause hearing in Insurity. In that case, the parties jointly sought a disclosure of assets and the defendant effectively waived its right to a hearing. Insurity, 260 F.Supp.2d at 488. As such, Insurity can be read only to mean § 422 confers authority on the court to order disclosure prior to a hearing. It does not imply, as is the plaintiffs' contention, that an immediate disclosure of assets can be ordered as a matter of right even when a party contests the propriety of that order, which Schiavone does in this case. The plaintiffs' motion for immediate disclosure of assets must also be DENIED. This denial is without prejudice to the plaintiffs' right to move for a disclosure of Schiavone's assets in the event they obtain a prejudgment attachment after a probable cause hearing. See Conn. Gen.Stat. § 52-278n(c). C. Transfer of Assets Into Connecticut As a final matter, Schiavone moves to dismiss the plaintiffs' application that assets sufficient to satisfy the prejudgment remedy be brought within the state and filed with the clerk of this court for preservation pending the final outcome of the arbitration. An order of this type is injunctive in nature and requires a showing of irreparable harm, which' the plaintiffs' have not pled. The district court possesses the authority to transfer Schiavone's assets into Connecticut to effect a prejudgment remedy. See Sec. Ins. Co. v. Trustmark Ins. Co., 221 F.R.D. 300, 303 (D.Conn. 2003) (Federal Rule of Civil Procedure 64 and prejudgment remedies available under Connecticut law enable the district court to bring assets into the state to satisfy a prejudgment remedy). "It is within this court's power to effectuate a [prejudgment remedy] issued under Connecticut law by ordering the parties over whom the court has in personam jurisdiction to bring such assets into Connecticut for purposes of attachment." Lyons Hollis, 278 F.Supp.2d at 246 (internal quotation omitted). The court must process the plaintiffs' application as that for an injunction. See S. New Eng. Tel. Co. v. Global Naps, Inc., 2006 WL 3388393, 2006 U.S. Dist. Lexis 84654 (D.Conn. Nov. 21, 2006). "The basic requirements to obtain injunctive relief have always been a showing of irreparable injury and the inadequacy of legal remedies." Ticor Title Ins. Co. v. Cohen, 173 F.3d 63, 68 (2d Cir.1999). "If an injury can be appropriately compensated by an award of monetary damages, then an adequate remedy at law exists, and no irreparable injury may be found." Register.com, Inc. v. Verio, Inc., 356 F.3d 393, 404 (2d Cir.2004). The plaintiffs' application to have Schiavone's assets brought inside Connecticut is conditioned upon the court first granting a prejudgment remedy in their favor following a probable cause hearing. See Doehr, 501 U.S. at 12, 111 S. Ct. 2105 ("even the *241 temporary or partial impairments to property rights that attachments, liens, and similar encumbrances entail are sufficient to merit due process protection"). The court DENIES Schiavone's motion to dismiss and reserves judgment as to the need to act in equity until further evidence can be presented at a probable cause hearing. V. Conclusion Based on the foregoing, Schiavone's motion to dismiss is DENIED. The court has subject matter jurisdiction to entertain the claims of both the plaintiffs under 422. This ruling does not entitle the plaintiffs to a prejudgment remedy, disclosure of Schiavone's assets or transfer of those assets into Connecticut. However, as those forms of relief may be necessary to protect the plaintiffs' rights in the pending arbitration, the plaintiffs have stated claims upon which relief can be granted. The court finds the plaintiffs are entitled to a probable cause hearing regarding their application for a prejudgment remedy. Should they successfully obtain a prejudgment remedy of attachment, and after presentation of evidence relevant to a showing of irreparable harm, the court will consider the plaintiffs' request that Schiavone's assets be transferred within the state and filed with the court clerk for preservation. The plaintiffs' motion for an immediate disclosure of assets is DENIED. Schiavone's current financial condition is irrelevant to this action unless a prejudgment remedy is first awarded to the plaintiffs. A hearing on the application for a prejudgment remedy is scheduled for September 26, 2007, at 10:00 am, at Courtroom two, 450 Main Street, Hartford, CT. IT IS SO ORDERED. NOTES [1] In 1998, MMCT conducted business as 1 MS Acquisition, Inc. For purposes of this discussion, references to MMCT include those instances where the company was named 1 MS Acquisitions, Inc. [2] In 1998, JASC conducted business as Michael Schiavone & Sons, Inc. For purposes of this discussion, references to JASC include those instances where the company was called Michael Schiavone & Sons, Inc. [3] By early 2007 JASC had declared bankruptcy and been dissolved. [4] Schiavone also claims MMI lacks standing under Connecticut state law. See Mid-Hudson Catskill Rural Migrant Ministry, Inc. v. Fine Host Corp., 418 F.3d 168, 173 (2d Cir. 2005) (plaintiffs in federal court through diversity jurisdiction must have standing under federal and state law). The Connecticut Supreme Court has ruled standing requires "a colorable claim of a direct injury to the plaintiff . . . and [the plaintiff] must be a proper party to request adjudication of the issues." Ganim v. Smith & Wesson Corp., 258 Conn. 313, 346-47, 780 A.2d 98 (Conn.2001). This standard is similar to the Article III requirements of injury in fact, causation and redress. The court's discussion of MMI's standing herein is applicable to both the federal and state standard. [5] Schiavone further claims this court's ruling in Bahrain applied New England Pipe's definition of necessary under § 422 directly to a prejudgment remedy attachment. That interpretation misconstrues Bahrain. In fact, the court in Bahrain made no finding as to the necessity of a prejudgment remedy, instead postponing that decision until after a hearing. Bahrain, 476 F.Supp.2d at 186. Bahrain merely reiterated New England Pipe's's definition of necessary, without a final application. Id. [6] Schiavone relies on Bahrain to separately challenge the necessity of the plaintiffs' application for immediate disclosure of assets. Specifically, Schiavone interprets Bahrain to mean orders to disclose assets prior to a prejudgment remedy probable cause hearing are per se not necessary. However, in dismissing the plaintiff's application for immediate disclosure of assets without prejudice the court in Bahrain stated "the Court does not discount the possibility that events could occur . . . that would add sufficient urgency" rendering an order for immediate disclosure of assets necessary. Bahrain, 476 F.Supp.2d at 188. [7] While Schiavone does not contest the constitutionality of a pre-hearing order for disclosure of assets under the Doehr line of cases, it is worth noting that absent encumbrances of property such an order does not run afoul of procedural due process jurisprudence. [8] Schiavone refers to Connecticut General Statutes § 52-278n(c) as to the appropriateness of an order to disclose assets prior to a probable cause hearing. [Doc. # 46] That statute provides that "the court may order disclosure at any time prior to final judgment after it has determined that the party filing the motion for disclosure has . . . probable cause sufficient for the granting of a prejudgment remedy." Conn. Gen.Stat. § 52-278n(c). The plaintiffs' are proceeding under § 422 and not § 278. Schiavone does not contest that § 422 authorizes the court to order a disclosure of assets prior to a probable cause hearing so long as it is necessary under that statute. See supra Ill, A. Schiavone only argues that such an application of the statute would violate his constitutionally protected right to privacy. [9] Courts have found that Rule 26 also allows for disclosure of a party's financial condition in other situations of less relevance to the current action, most notably when a party's net worth directly effects a calculation of damages and where punitive damages are available. See generally 6 James Wm. Moore, et al., Moore's Federal Practice, § 26.41[8] (3d ed.2007) (citing cases).

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1880297/

94 F. Supp. 946 (1951) PERKINS v. LOUISVILLE & N. R. CO. et al. No. 11883-C. United States District Court S. D. California, Central Division. January 8, 1951. *947 Sampson H. Miller, Los Angeles, Cal., for plaintiff. C. W. Cornell, O. O. Collins, John R. Allport, Los Angeles, Cal., appearing specially for defendant Louisville & N. R. Co. JAMES M. CARTER, District Judge. This case presents the question as to whether or not the solicitation of business within the State of California by a foreign corporation maintaining an office in the city of San Francisco, California, constitutes doing business so as to render the corporation subject to the jurisdiction of *948 the state courts. The action was brought by a California resident against a Kentucky railroad corporation for personal injuries incurred while alighting from the defendant's train in Tennessee. The suit was initially filed in the Superior Court of California. Service of summons and complaint upon the defendant, Louisville & Nashville Railroad Co., was made by delivering a copy of both to one, George W. Phelps, at the office of the defendant in San Francisco, California. The suit was then removed to this court by the Southern Pacific Railway Co., a co-defendant. Subsequently this court dismissed the action as to the Southern Pacific Railroad Co., upon the ground that the plaintiff had failed to state a claim against that company upon which relief could be granted. The remaining defendant, the Louisville & Nashville Railroad Company, then moved to quash service of summons upon it on the ground that process was not served upon a managing or general agent, or on any other agent authorized by appointment or by law to receive service of process as required by Rule 4(d) (3) of the Rules of Civil Procedure, 28 U.S.C.A. In order for this court to entertain an in personam action against a foreign corporation, two requisites must be satisfied. The first and most important is that the foreign corporation must be present within the jurisdictional limits of the court through the activities of its agents or officers, and secondly, the corporation must be apprised of the action by proper service of process. The defendant's memorandum in support of its motion to quash attacks the court's jurisdiction mainly upon the alleged insufficiency of the service of process. Little is said concerning the presence of the defendant in a jurisdictional sense within this state. However, it is this latter point which is the crux of this motion and it is to that point which we shall direct most of this opinion. The factual situation showing the accident to have happened in Tennessee, and the plaintiff to be a resident of California, does not present a problem. We are not here concerned with venue but only with the question of jurisdiction. If the defendant desires to question venue, it has as its remedy under Sec. 1404(a), Title 28 U.S.C.A., which permits a transfer on the basis of the convenience of parties and witnesses in the interest of justice. Whether the corporation was present or doing business within the state so as to make it amenable to the state's process, is undoubtedly a question of substantive law and is to be decided primarily by the decisions and statutes, if any, of the state of California. Erie R. Co. v. Tompkins, 1938, 304 U.S. 64, 58 S. Ct. 817, 82 L. Ed. 1188.[1] The record shows that the Louisville and Nashville Railroad Company is a Kentucky corporation, authorized to do business in the state of California. It has no railroad tracks in California but it maintains a two-room business office in San Francisco, occupied by a staff of four employees. One of them, George H. Phelps, is a General Agent of the Traffic Department of the railroad, and is the person in charge of the San Francisco office. His affidavit states that his sole duties are limited to soliciting freight business for the railroad; that he does not disburse or receive money; that he has no authority to contract or to lease, nor any power to act on any claims. He also states that the railroad does not sell any tickets or issue bills of lading in California. The railroad has maintained such a business establishment for a number of years. The office is listed in both the classified and alphabetical sections of the San Francisco telephone directory and Phelps is there listed as a general agent. The listing also appears *949 in a recent issue of the Official Guide of the Railways and Transportation companies of the United States, and the Guide shows that the defendant maintains at least twenty-three other such offices in fifteen states, in addition to Kentucky and the District of Columbia. The California courts have had numerous occasions to pass upon the question now before us. It has been said that to be doing business in California in a jurisdictional sense, a foreign corporation must transact in this state some substantial part of its ordinary business through its agents or officers selected for that purpose. Jameson v. Simonds Saw Co., 1906, 2 Cal. App. 582, 84 P. 289; Milbank v. Standard Motor Const. Co., 1933, 132 Cal. App. 67, 22 P.2d 271; Charles Ehrlich & Co. v. J. Ellis Slater Co., 1920, 183 Cal. 709, 192 P. 526; Davenport v. Superior Court, 1920, 183 Cal. 506, 191 P. 911. A California Court has recently held that a foreign manufacturing corporation was present within the state through the activities of its distributors who acted as agents although not intended to be such. Thew Shovel Co., v. Superior Court, 1939, 35 Cal. App. 2d 183, 95 P.2d 149. See also West Pub. Co. v. Superior Court, 1942, 20 Cal. 2d 720, 128 P.2d 777. From these cases it is apparent that California courts take a broad view of the concept of doing business by a foreign corporation, and although no California case has been found which involved mere solicitation, it is the view of this court that under California law the continued solicitation of business by a foreign corporation maintaining a regular office within this state constitutes doing business and renders the foreign corporation present in the state of California and amenable to its process.[2] The federal courts have also discussed the problem at length. The question of whether "mere solicitation" of business by an agent is such an activity as would render a foreign corporation amenable to suit within the forum state was answered in the negative by the Supreme Court in Green v. Chicago B. & Q. Ry. Co., 1907, 205 U.S. 530, 27 S. Ct. 595, 51 L. Ed. 916. It was in this case that the Supreme Court set out the "mere solicitation" rule which held that where a foreign corporation merely solicits business through an agent in the forum state, it is not engaged in such business activity as will bring it within the jurisdiction of the state courts. But seven years later the Supreme Court labelled the Green case as "extreme" in International Harvester Co. of America v. Com. of Kentucky, 1914, 234 U.S. 579, 34 S. Ct. 944, 58 L. Ed. 1479, and held that a continuous course of business by salesmen in Kentucky who solicited orders which were sent to another state and in response to which machines were shipped into Kentucky constituted a doing of business sufficient to render the International Harvester Company amenable to the process of the Kentucky courts.[3] The court found more than "mere solicitation" in the activities of the salesman. In Hutchinson v. Chase & Gilbert, 2 Cir., 1930, 45 F.2d 139, 141, Judge Hand said, in discussing what activity a foreign corporation must carry on within a state before rendering itself amenable to the state's jurisdiction: *950 "Possibly the maintenance of a regular agency for the solicitation of business will serve without more. The answer made in (the Green case) and People's Tobacco Co. v. Amer. Tobacco Co., 246 U.S. 79, 38 S. Ct. 233, 62 L. Ed. 587, Ann.Cas. 1918C, 537, perhaps becomes somewhat doubtful in the light of (the International Harvester case) and, if it still remains true, it readily yields to slight additions." An enlightened analysis of the principles of personal jurisdiction over a foreign corporation and a review of the trend of modern decisions may be found in Frene v. Louisville Cement Co., 1943, 77 U.S.App. D.C. 129, 134 F.2d 511, 146 A.L.R. 926. Justice Rutledge said in that case, 134 F.2d at page 515: "In other words, the fundamental principal underlying the `doing business' concept seems to be the maintenance within the jurisdiction of a regular, continuous course of business activities, whether or not this includes the final stage of contracting." And in 134 F.2d on page 516: "In general the trend has been toward a wider assertion of power over nonresidents and foreign corporations than was considered permissible when the tradition about `mere solicitation' grew up." He recommended the abandonment of the "mere solicitation" rule when the soliciting activity is a regular, continuous and sustained course of business. Recent district court decisions have not considered the "mere solicitation" rule of the Green case binding. It was held in Western Smelting & Refining Co. v. Pennsylvania R. Co., D.C. 1948, 81 F. Supp. 494, that the test of whether a foreign corporation is within a state for jurisdictional purposes is whether traditional notions of fair play and substantial justice would be offended by finding the defendant subject to local jurisdiction.[4] In cases sustaining jurisdiction upon the "slight additions" of which Judge Hand spoke, the soliciting agent also sold tickets, or issued bills of lading or handled claims.[5] An interesting recent case sustained service on a sales engineer who was in charge of the branch office in New York of a California corporation. Pan American Airways, Inc., v. Consolidated Vultee Aircraft Corp., D.C.1949, 87 F. Supp. 926. The sales engineer's duties were limited to the solicitation and forwarding orders to the home office. On the other hand there are recent cases which have adhered closely to the "mere solicitation" rule first set out in the Green case.[6] The plaintiff in the case before us relies heavily on the case of Denver & R. G. Ry. Co. v. Roller, 9 Cir., 1900, 100 F. 738, 49 L.R.A. 77. The facts in that case are remarkably similar to the one at hand with the exception that there the soliciting agent had the power to contract and issue bills of lading.[7] The Supreme Court took cognizance of that case in the Green decision, supra, and after admitting the facts were similar in both cases, distinguished the Roller case on the ground that the action was originally brought in the state court and the question was of the interpretation of a state statute and the jurisdiction of the state courts. The Ninth Circuit had held in the Roller case that the solicitation of business by the railroad's agent was sufficient to constitute the railroad's presence within the state and that service of process upon a general agent was sufficient under the California statute to give the state court jurisdiction over the railroad in a personal injury case. The Roller case is still good law today, and is in agreement with the general trend of recent decisions. *951 As the courts have never developed any definition of the term "doing business", nor any standard by which to measure a corporation's activities, each case, in the final analysis, must be decided on its own facts. Concerning cases of this character, the Supreme Court has said: "In a general way it may be said that the business must be such in character and extent as to warrant the inference that the corporation has subjected itself to the jurisdiction and laws of the district in which it is served, and in which it is bound to appear when a proper agent has been served with process." St. Louis S. W. Ry. Co. of Texas v. Alexander, 1913, 227 U.S. 218, 227, 33 S. Ct. 245, 248, 57 L. Ed. 486. Solicitation is an activity which is the first step in operating the business for which the railroad was incorporated, namely the carriage of freight and passengers. The Supreme Court has recognized the necessity of the solicitation of business by a railroad: "As incidental and collateral to that business it was proper, and, according to the business methods generally pursued, probably essential, that freight and passenger traffic should be solicited in other parts of the country than those through which the defendant's tracks ran." Green v. Chicago B. & Q. Ry. Co., 1907, 205 U.S. 530, 532, 27 S. Ct. 595, 596, 51 L. Ed. 916. [Emphasis added.] Solicitation of freight traffic is an integral part of the operation of a railroad. In the eyes of the commercial world such an activity is undeniably "doing business." Justice Rutledge observed in the Frene case, supra, 134 F.2d at page 516: "Solicitation is the foundation of sales. Completing the contract often is a mere formality when the stage of `selling' the customer has been passed. No business man would regard `selling,' the `taking of orders,' `solicitation' as not `doing business.' The merchant or manufacturer considers these things the heart of business." In a minority opinion, Chief Justice Stone and Justices Roberts, Frankfurter and Jackson said in the case of State of Georgia v. Pennsylvania R. Co., 324 U.S. 439, 471; 65 S. Ct. 716, 732, 89 L. Ed. 1051: "A corporation both is `found' and `transacts business' in a district in which it operates a railroad or in which it maintains an office for the solicitation of freight or passenger traffic." Whether the defendant is doing business or may be "found" in this state for jurisdictional purposes must be decided on the basis of realities and not fiction.[8] The maintenance of an office and the solicitation of business, when judged by common knowledge and experience, constitutes an activity which requires a foreign corporation's presence within the state. The corporation is there transacting one of the important phases of its business, and common sense compels the conclusion that it is there doing business in the jurisdictional sense. We are in agreement with the conclusion reached by Justice Rutledge and the trend of the courts in the more recent cases that mere solicitation, without more, constitutes doing business within a state when the solicitation is a regular, continuous and substantial course of business. Having determined that the first requirement of jurisdiction over the defendant has been shown, we have next for consideration the sufficiency of service of process upon the railroad's agent. The defendant contends that service of process was not made upon the proper party as required by Rule 4(d) (3) of the Rules of Federal Procedure. That Rule would be controlling if this action had been originally brought in the Federal Court but this cause is before us on removal from the state court and Rule 4(d) (7) is applicable *952 in this situation. That rule provides that service upon a foreign corporation is sufficient if made "* * * in the manner prescribed * * * by the law of the state in which the service is made for the service of summons or other like process upon any such defendant in an action brought in the courts of general jurisdiction of that state." Section 411(2) of the Code of Civil Procedure of the State of California provides that service of summons in actions against foreign corporations shall be in the manner provided by Section 6500, et seq. of the Corporation Code of that state. Section 6500 provides for service on "* * * the president or other head of the corporation, a vice president, a secretary, an assistant secretary, the general manager in this State, * * *." It is the opinion of this court that service of process on George W. Phelps was sufficient and proper under Rule 4(d) (7) of the Federal Rules of Civil Procedure. Phelps was a General Agent of the railroad. In that capacity he exercised control and management of the San Francisco office. The personnel therein were under his supervision and direction. He was in every sense the general manager or managing agent upon whom service could be made in compliance with section 6500 of the Corporations Code of the State of California. See Doe v. Springfield Boiler & Mfg. Co., 9 Cir., 1900, 104 F. 684. The motion of the defendant to quash service and to dismiss the action is denied. Counsel will prepare formal order within ten days in accordance with this opinion. NOTES [1] Older cases decided prior to Erie R. Co. v. Tompkins, hold that as to the service of process, the Federal Courts would not follow the state decisions in determining whether the corporation was jurisdictionally present and subject to service. Cyc. Fed. Procedure, 2d Ed., Sec. 974, p. 183, note 87, and cases cited therein. The case of Leakley v. Canadian Pacific Express Co., D.C.Alaska, 1949, 82 F. Supp. 906, seems to have ignored the holding of the Erie R. Co. case. [2] Research disclosed the case of Dunn v. Cedar Rapids Eng. Co., 9 Cir., 1945, 152 F.2d 733, involving an in personam action against two foreign corporations on a cause arising outside the state of California. The court said in granting the motion to quash service, 152 F.2d at page 734: "Unless states authorize their courts to entertain actions arising wholly outside the state, they have no jurisdiction to entertain them." Upon further study we have determined that what the court meant was that where a foreign corporation has consented to service upon a designated person or the Secretary of State as a condition to doing intrastate business, it is a qualified consent to be sued only on causes of action arising out of its intrastate business and not on causes arising outside the state. The rule is well established that courts have jurisdiction of transitory actions if they secure jurisdiction of the person of the defendant. [3] Compare: International Shoe Co. v. Washington, 1945, 326 U.S. 310, 66 S. Ct. 154, 90 L. Ed. 95; and People's Tobacco Co. v. American Tobacco Co., 1918, 246 U.S. 79, 38 S. Ct. 233, 62 L. Ed. 587. [4] See also Snyder v. J. G. White Eng. Corp., D.C.1945, 60 F. Supp. 789. [5] Jacobowitz v. Thomson, 2 Cir., 1944, 141 F.2d 72; Barnett v. Texas & P. Ry. Co., 2 Cir., 1944, 145 F.2d 800; Mauser v. Union Pac. R. Co., D.C.1917, 243 F. 274. [6] Cancelmo v. Seaboard Air Line Ry. Co., 1926, 56 App.D.C. 225, 12 F.2d 166; Livingston v. Chesapeake & Ohio Ry. Co., D.C.1937, 18 F. Supp. 863; Sowl v. Union Pac. R. Co., D.C.1947, 72 F. Supp. 542; Zuber v. Pennsylvania R. Co., D.C.1949, 82 F. Supp. 670; Goldstein v. Chicago, R. I. & P. R. Ry. Co., D.C.1950, 93 F. Supp. 671. [7] Compare West v. Cincinnati, N. O. & T. P. Ry. Co., C.C.1909, 170 F. 349. [8] As Washington, Circuit Judge, said in Goldberg v. Southern Builders, Inc., D. C.Cir., 1950, 184 F.2d 345, 346: "* * * The law as to when foreign corporations are subject to suit outside of their state of incorporation was for a long time possessed of a mystic quality which had evolved from the piling of additional fictions upon the base of the original corporate fiction. As a result corporations were able to engage in activity in many states and yet all too often escape liability for such activity because they could not be sued in local forums. * * *"

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/2363398/

259 F. Supp. 2d 1213 (2003) Amy NICHOLS Plaintiff, v. WAL-MART STORES, INC. ASSOCIATES' HEALTH AND WELFARE PLAN; and Administrative Committee of Wal-Mart Stores, Inc. Associates Health and Welfare Plan Defendants. No. 2:00-CV-00010 PGC. United States District Court, D. Utah, Central Division. February 26, 2003. Order Altering Judgment in Part, March 26, 2003. *1214 Marcie E. Schaap, Nicole T. Durrant, King Burke & Schaap, Brian S King, Mr., Salt Lake City, for Amy Nichols, plaintiff. W. Waldan Lloyd, Mr., Callister Nebeker & McCullough, Christopher G. Jessop, Corbridge Baird & Christensen, Salt Lake City, Michael T. Graham, Peter R. Bulmer, Jackson Lewis Schnitzler & Krupman, Chicago, IL, Thomas H. Lawrence, Jennifer Ann Harris, Lawrence & Russell LLP, Memphis, TN, for Wal-Mart Stores, Inc., Associates' Health and Welfare Plan, Administrative Committee of Wal-Mart Stores, Inc. Associates Health and Welfare Plan, defendants. MEMORANDUM OPINION AND ORDER GRANTING PARTIAL SUMMARY JUDGMENT AND REMANDING FOR FURTHER PROCEEDINGS CASSELL, District Judge. This matter is before the court on cross-motions for summary judgment. The essence of the dispute is over whether the plaintiff, Amy Nichols, was entitled to insurance coverage under defendant Wal-Mart's Health and Welfare plan for procedures that occurred at the end of her pregnancy. The court held a hearing on this matter and requested supplemental briefing from the parties. Being fully advised, the court grants partial summary judgment for Ms. Nichols and remands for further proceedings. *1215 FACTUAL BACKGROUND Amy Nichols was a beneficiary of the Wal-Mart Associates' Health and Welfare Plan (the "Plan") and eligible for benefits under the Plan. Ms. Nichols's husband Tory was a Wal-Mart employee in May of 1995. The Plan is a group medical benefits plan sponsored by Wal-Mart Stores, Inc., for the benefit of its employees and their dependents. The Plan is self-funded, and the Administrative Committee of the Plan (the "Committee") was the plan administrator. The Committee was the named fiduciary of the Plan. Wal-Mart Stores, Inc. sponsors the Plan, and pays the plan administrator. Medical History In mid-December 1994, Ms. Nichols became pregnant. At 17½ weeks, Dr. Geral Mortimer (Ms. Nichols's obstetrician) performed an ultrasound that demonstrated poor visualization of the fetus such that the fetal sex could not be determined. On May 17, 1995, Dr. Mortimer performed another ultrasound which caused him concern because of ogliohydramnios. Ogliohydramnios is a deficiency of amniotic fluid sometimes resulting in an embryonic defect through adherence between embryo and amnion. Dr. Mortimer referred Ms. Nichols to the University of Utah Medical Center (UUMC), in Salt Lake City, for additional testing. On May 19, 1995, Ms. Nichols had an abnormal obstetrical sonogram at UUMC which showed that the fetal size was equivalent to 22.7 weeks. Multiple cysts were seen on both fetal kidneys. No definite fetal bladder of amniotic fluid was seen. The fetus had bilateral mulitcystic [polycystic] dysplastic kidneys indicating abnormal growth or development of the kidneys. Plycystic kidney disease can be either one of two hereditary diseases characterized by gradual enlarging bilateral cysts of the kidney which lead to reduced renal function. It is a disease that is inherited as an autosomal recessive trait. It usually affects infants or children and results in renal failure. Ms. Nichols was not admitted to the UUMC at this time. Instead, she returned home. On May 24, 1995, at approximately 23½ weeks into her pregnancy, Ms. Nichols was admitted to UUMC and treated for complications in her pregnancy. Ms. Nichols' diagnosis upon admission was for fatal fetal anomalies, premature rupture of membranes, and breech presentation. An amniotic infusion was attempted at UUMC, but this attempt failed. The fetus had "grave and fatal fetal anomalies" and was non-viable. Ms. Nichols consulting with her husband and her physician. She also consulted her uncle—Dean of the University of Florida College of Medicine—as to the best course of action for Ms. Nichols and her baby. Her uncle confirmed the lethality of the condition to both mother and baby. Based on these consultations, the decision was made to induce labor due to grave fetal anomalies. At 2:53 a.m. on May 25, 1995, Matthew Lynn Nichols was born still born. He weighed 700 grams and had Apgar scores of zero, one minute after birth, and zero, five minutes after birth. There were no contractions or fetal heart monitoring. An autopsy was performed and the cause of Matthew's death was determined to be intrauterine fetal demise, fatal fetal polycystic dysplastic kidneys, and bilateral severe ogliohydramnios. Plan Language The Plan specified generally what procedures it would cover and those it would not. Specifically, the plan stated: Pregnancy The benefit for expenses due to pregnancy, including birthing centers, licensed doctors, nurses, or midwives operating under state guidelines, is eligible *1216 for payment the same as for any other illness, after the services are performed. Hospital Expenses— For each hospital confinement, whether inpatient or outpatient, your Medical coverage will pay for the following eligible hospital expenses for the described limits: Room and Board—Charge for room and board will be allowed at the prevailing semi-private room rate. In the event the institution has only private rooms, 90% of the hospital's lowest private room rate for the hospital will be covered. Intensive Care, Cardiac Care, and Other Critical Care Other Hospital Services—Expenses incurred for services and supplies furnished by the hospital for medical care such as operating room, x-ray, laboratory tests, medicines, etc., administration of anesthetics, and local ambulance service. Other Covered Expenses Doctors' Services Charges Not Covered Benefits shall not be payable for treatment or services for the following: Charges for, or relating to, any treatment or service for abortions, sexual dysfunction, infertility, birth control, sex transformations, sterilization or reversal of sterilization procedures, artificial inseminations, in-vitro fertilizations or embryo transfers, and any complications arising therefrom (whether or not a doctor indicates medical necessity). . . . Charges for routine ultrasounds for pregnancy. . . . Charges for elective (non-emergency), (non-urgent) hospital confinements outside the United States without prior approval. The Plan further outlined the plan participant's rights under the Employee Retirement Income Security Act of 1974 (ERISA). It stated: ... plan participants shall be entitled to: 1. Examine, without charge, at the Plan Administrator's office, all plan documents including insurance contracts, collective bargaining agreements and copies of all documents filed by the plan with the U.S. Department of Labor, such as detailed annual reports and plan descriptions. 2. Obtain copies of all plan documents and other plan information upon written request to the Plan Administrator. The Plan Administrator may make a reasonable charge for the copies. Claims Process On May 25, 1995, Marj Brown, an employee of UUMC, spoke to Jamie Pendergraft, an employee of the Plan to obtain insurance benefit verification for Ms. Nichols. Ms. Pendergraft indicated that UUMC was a network facility. She further stated that there was a $250 policy deductible, a $150 hospital admission deductible, and that the claims would be payable at an 80% co-insurance rate (with an out of pocket maximum of $1250). On June 6, 1995, UUMC billed the Plan for expenses incurred in Ms. Nichols's treatment. The Plan did not pay for the May 17, 1995 ultrasounds. They did pay for other expenses related to these events, including the anesthesiology for the procedure. The Plan paid neither the $1,100 claim from the UUMC obstetrics department, the $4069.88 claim for fetal abnormalities, nor claim for the delivery with the diagnosis of "ogliohydramnios." The Plan took the position that the procedure *1217 was "elective surgery" and that abortions were not covered. Administrative Appeal On June 22, 1995, UUMC personnel called the Plan to follow up on pending claims for treatment. The Plan indicated they had not received any hospital claims. On July 20,1995, UUMC again followed up on the claims, and Barbara with the Plan indicated she needed additional information from Ms. Nichols. On August 8, 1995, UUMC personnel again called to follow up on the pending claims, they were put on hold for five minutes and eventually hung up. On September 27, 1995 UUMC again called the Plan to follow up on the pending claims. Barbara McCarty from Wal-Mart indicated they would deny Ms. Nichols's claims because the condition was preexisting. On January 9, 1996, UUMC again called the Plan and spoke with Janie Allmendinger. Ms. Allmendinger indicated that no payment would be forthcoming if there was a fetal heartbeat prior to delivery. On June 17, 1996, Amy Nichols' husband, Tory Nichols, called the Plan again to follow up on the claims. He was told there would be no payment if there was a fetal heartbeat before delivery. On June 27, 1996, UUMC called the Plan again to determine the status of claims. Linda Tunnell from the Plan indicated the claim had been denied because the pregnancy termination was elective surgery. She said that someone had put in the wrong procedure code. She apologized and indicated it would take three to four weeks to process the claim. On October 21, 1997, UUMC called the Plan again and spoke to Isabel Estrada. She indicated she would pull the file and call the next day. On October 22, 1997, UUMC called the Plan again and spoke to Jennifer Hurless. Ms. Hurless agreed to send the explanation of benefits to the Hospital. On October 23, 1997, UUMC again called the Plan and spoke with Brandie Van Sickle. Ms. Van Sickle indicated she had sent the claim over for reconsideration but it was never received. She said she would do a "hot claim" to expedite matters. On October 27, 1997, UUMC called the Plan and spoke with Lynn Vanhook. Ms. Vanhook indicated the claim would not be reprocessed. It would remain denied for elective surgery. She confirmed as long as the baby had a heartbeat, it would be considered an elective abortion. On January 28,1998 Claims Management, Inc. ("CMI"), a Utah corporation assisting families and health care providers in obtaining review of denied claims and assisting with the administrative appeal of denied claims, wrote to the Appeals Department requesting an appeal of the denied claims for the UUMC services. CMI explained that the primary diagnosis for Ms. Nichols, pursuant to the Current Procedural Terminology ("CPT") was: 1. Fetal abnormality affecting the management of the mother 2. premature rupture of the membranes 3. breech presentation. CMI requested that, if the Plan maintained its denial, it send a copy of its reasons for denial. CMI enclosed a copy of authorization signed by UUMC. On February 17, 1998, Terri Harral, Appeals Coordinator for Wal-Mart Claims Administration sent a letter to CMI indicating that only the participant could appeal a denial of benefits and denied CMI's request for an appeal. The plan indicated that the requested documents would not be provided without a subpoena. *1218 Prior Litigation On May 21, 1998, UUMC filed a small claims action for the payment of benefits due for $2935.90. On July 22, 1998, the Plan removed the small claims case to Federal court as case # 2-.98-CV-00552-C. On July 22, 1999, Judge Tena Campbell dismissed the case and remanded it to the plan administrator for further administrative appeal. Judge Campbell concluded that the Nichols had not fully exhausted their administrative remedies. On July 29, 1999, the law firm of King & Schaap, representing Ms. Nichols, sent a letter to the Plan further appealing the claim denial for Ms. Nichols's treatment at UUMC. On August 18, 1999, Andrea Lawrence, a representative of the Plan, responded maintaining the denial of claims based on the exclusion for abortions contained in the 1996 Plan. Ms. Nichols's treatment was in 1995. On September 14, 1999, counsel for Ms. Nichols sent a letter to Ms. Lawrence requesting fifteen very specific pieces of information from the Plan. The information concerned the definition of abortions and elective surgery and the like. On October 8, 1999, the Committee responded by indicating the claims would be reconsidered at the Committee's November 8, 1999 meeting. On November 8,1999, the Committee discussed the September 14, 1999, letter it received from Ms. Nichols' counsel. The Committee acknowledged the possibility a physician should review the claims. On November 22, 1999, the Committee again considered Ms. Nichols' claim. The administrative record contains neither a summary of that meeting nor any indication of what was discussed. The next day, on November 23, 1999, the Committee sent a letter to Ms. Nichols' counsel maintaining denial of the benefits based on the exclusion for abortions contained in the 1995 plan. On December 14, 1999, Ms. Nichols' counsel sent another letter to the Committee asking why it had not responded to the fifteen questions posed in the September 14, 1999 letter. On December 21, 1999 Michael Graham, counsel for the Plan, asserted that the Committee had no obligations to respond to the questions. Current Litigation On January 6, 2000, Ms. Nichols filed this lawsuit seeking payment of the outstanding medical bills related to her pregnancy termination. The Plan answered and, on October 3, 2001, filed a motion to affirm the Committee's decision. On December 4, 2001, Judge Alba ordered the Plan to respond to the fifteen questions posed by Ms. Nichols. On December 11, 2001, the Plan lodged a timely objection to Judge Alba's ruling. On May 2, 2002, Judge Stewart reversed Judge Alba's order but allowed restricted discovery on the issue of any conflict of interest of members of the Committee. On July 9, 2002, this case was transferred to the undersigned judge as part of the initial allocation of cases to a new judge. By stipulation, the parties agreed that responses to Ms. Nichols' discovery requests were due by July 10, 2002. On July 10, 2002, the Plan responded to Ms. Nichols' interrogatories and requests for production of documents, but not her requests for Admission. On July 12, 2002, Ms. Schaap deposed Kris Howard, Director of Benefits for Wal-Mart Stores. During the deposition the attorney for the Plan refused to allow Ms. Howard to answer questions regarding her ownership of Wal-Mart stock. On August 13, 2002, Ms. Schaap sent the Plan a letter asking for additional information they did not have available at the deposition—specifically the names of the *1219 Committee members who considered Ms. Nichols's claim and the disclosure of each individuals' financial interest in Wal-Mart Stores, Inc. On August 14, 2002, the Plan responded stating they would not provide this information. DISCUSSION Ms. Nichols brought this action under Employee Retirement Income Security Program ("ERISA"), 29 U.S.C. § 1001 et seq. This Court has jurisdiction over the complaint under 29 U.S.C. § 1132(e)(1). Ms. Nichols complaint seeks recovery of benefit plans under 29 U.S.C. § 1132(a)(1)(B); alleges breach of 29 U.S.C. § 1133 for failing to provide plaintiff with a "full and fair review"; and of 29 U.S.C. § 1022 for failure to include in the Plan certain language in the summary description of plan benefits. Ms. Nichols also seeks associated recovery of costs, damages, and attorneys fees under 29 U.S.C. § 1031,1024, and 1132(c)(1). Full and Fair Review Though the parties have argued several issues in their motions for summary judgment, this court's resolution turns solely on the question of full and fair review. Congress has directed that a plan must follow certain procedural safeguards when denying benefits to a plan participant. As the Tenth Circuit has summarized these steps: First, the plan must provide the participant with written notice of the denial which sets for the specific reasons underlying the decision. Second, the plan must afford a reasonable opportunity for a full and fair review by the appropriate named fiduciary of the decision denying the claim .... [T]he review procedure must permit the claims to (i) request a review upon written application to the plan; (ii) review pertinent documents; and (iii) submit issues and comments in writing.[1] In its decision in Sandoval v. Aetna Life and Casualty Insurance Co., the Tenth Circuit explained that a full and fair review requires: "knowing what evidence the decisionmaker relied upon, having an opportunity to address the accuracy and reliability of the evidence, and having the decisionmaker consider the evidence presented by both parties prior to reaching and rendering his decision."[2] In Sandoval, the Tenth Circuit affirmed a District Court ruling affirming a denial of benefits.[3] In that case, the Circuit noted that counsel for the plaintiff failed to present any additional evidence to the Administrator, after repeated invitations to do so. Furthermore, the plaintiff did not submit any additional relevant evidence to the committee for purposes of its review.[4] In light of the plaintiffs choice not to participate fully in the review process, the denial of benefits was appropriate.[5] In this case, Wal-Mart argues, not surprisingly, that the same result as Sandoval is appropriate—that is, affirmance of the plan administrator's decision. But this case stands in a vastly different posture. In fact, it is clear under Sandoval that reversal is appropriate. In contrast to the *1220 plaintiff in Sandoval, Ms. Nichols repeatedly asked the Committee to look at additional evidence. For example, Ms. Nichols repeatedly asked for Wal-Mart to discuss this matter with Tory Nichols' uncle, Chief of Obstetrics at the University of Florida, who was consulted in this case. So far as the court can determine from reviewing the record before it, Wal-Mart did not do so. Furthermore, it appears that Wal-Mart may have ignored the evidence it did have before it. The administrative record filed with this court indicates that the Committee only looked at Ms. Nichols medical records, which never once describe Ms. Nichols' pregnancy termination as a "elective abortion." In fact, the medical records specifically define the procedure as "fetal abnormalities affecting the management of the mother," or "fetal abnormalities," or "ogliohydramnios."[6] Finally, the Plan even ignored its own instincts to have an outside physician review the claim, as is frequently done in complicated cases.[7] After three years of persistence by Ms. Nichols to resolve this matter with the Plan, the Plan chose to label what happened to Ms. Nichols an "elective abortion." When the Nichols sought further explanation of the denial of benefits, they received a series of unilluminating "form letters" from Wal-Mart. In response to Ms. Nichols' request for a specific explanation of their denial of benefits, an attorney responded with little more than unspecific and generic "legalese." The Plan's brief letter cited an unpublished district court opinion from the Southern District of Illinois that concluded elective abortions were not covered under the Plan, without explaining how that situation was analogous to Ms. Nichols' situation.[8] The letter further stated Wal-Mart had no obligation to answer the questions posed to them by Ms. Nichols' counsel. Finally, the letter merely recited the procedural requirements of Sandoval[9] without any explanation of how the Plan had met or planned to meet these requirements in Ms. Nichols' case. Perhaps the plan administrator undertook a more thorough review of the claim than is revealed in the terse letter from counsel. But with the record before it, the court has no evidence supporting Wal-Mart's denial, producing a clear violation of 29 U.S.C. § 1133(1), which requires the plan to set forth the specific reasons underlying their decision. When asked about these deficiencies in the record at the hearing on this matter, counsel for the Plan essentially argued that, because the decision to deny benefits was correct on the merits, the court should conclude that the review of the claim was full and fair. While counsel's candor is commendable, the court cannot proceed in this fashion. It is not for the court to determine, in the first instance, whether a denial is appropriate. That is for the plan administrator. The court's task is to make sure that a review of a claim is full and fair. On this record, the court has little more than a "black box" in front of it—a Committee that has denied benefits without any clear articulation of the reasons behind that denial. ERISA demands that the Plan be more forthcoming. Indeed, were the court to venture into the issue of the correctness of the denial, it is not immediately clear that the decision is correct. The Plan must act in a consistent *1221 manner.[10] An administrator's interpretation of a plan must be "consistent with goals of the plan" and "applied consistently." [11] Here—almost incomprehensibly—the Plan authorized payment of the anesthesiologist that provided anesthesia to Ms. Nichols during the procedure but denied payment for the underlying procedure itself. At oral argument, counsel for the Plan candidly admitted that he saw little sense for the different treatment. He gamely tried to argue that the anesthesiologist was properly paid as "preparation" for the procedure at issue, while the procedure itself involved a different professional. That kind of fine distinction would make the medievalists who counted angles on pinheads proud. In sum, the court has little more than the Plan's "trust us" representations that a full and fair review took place. Congress mandates more—the court must insure that the Plan has fulfilled its obligations to "consider the evidence presented by both parties." [12] While Congress did not intend ERISA reviews to be costly hearings,[13] Congress did intend them to be fair to provide answers to plan participants regarding their claims. So far as the court can determine in this case, the Plan chose to ignore relevant medical evidence, ignore the evidence in the records before it, and to decline to clearly explain its denial of benefits to Ms. Nichols. As a result, this court must remand this matter back to the Committee to provide Ms. Nichols with the full and fair review of her claim to which she is entitled. Discovery Issues Because the court is remanding this matter for further proceedings, it is appropriate to address a discovery issue that has led to dispute. On remand, the issue of a potential conflict of interest between the plan administrator's fiduciary obligations to plan participants and personal self-interest becomes relevant. A court reviewing a denial of employee benefits under 29 U.S.C. § 1132(a)(1)(B), applies an "arbitrary and capricious" standard of review to a plan administrator's actions if the plan grants discretionary authority to determine eligibility for benefits or to construe the plan terms.[14] However, if a party contends that the administrator operated under a conflict of interest, this court grants less deference to the administrator's decision.[15] On May 2, 2002, Judge Stewart ordered limited discovery regarding any such conflict of interest. This order was quite appropriate. The Tenth Circuit has held repeatedly that determination of the financial interest of the plan administrator in their employers is a relevant consideration when considering a denial of a claim by a self-funded plan.[16] Here, Judge Stewart specified in his order: Plaintiff is permitted, if she so desires, to seek discovery on the narrow issue of whether a conflict of interest exists between *1222 the Plan Administrator of the plan and Wal-Mart Stores, Inc., the plan sponsor. Plaintiff is precluded from any other discovery, including, but without limitation, any discovery relating to whether any purported conflict of interest tainted the benefit determination made by the Plan Administrator in this case.[17] In light of this order, the Plan's refusal to allow Kris Howard to answer questions regarding her financial stake in Wal-Mart was inappropriate. The Plan's further refusal to provide even the names of the members of the Committee likewise clearly violates this order. Confirming this conclusion, at oral argument current counsel for Wal-Mart candidly (and commendably) conceded he would have chosen a different course of action had he been present at the deposition. Counsel for Wal-Mart further argued that, given the huge size of Wal-Mart, any financial holdings by Committee members would be de minimis. The court is not blind to that possibility, and this assertion may well turn out to be correct. But the way to resolve this issue is through discovery of the facts, not speculation about conclusions. Accordingly, to resolve this discovery dispute, the court orders the Plan to provide Ms. Nichols' counsel the name of the members of the Committee who will review Ms. Nichols' claim and the approximate size (to the nearest $10,000) of their financial stake in Wal-Mart Stores, Inc. To protect the privacy interests of Committee members, the court will allow this discovery to occur under a protective order limiting the use of the materials to counsel in this matter for this matter only. Counsel for both sides are directed to meet and confer promptly to draft an appropriate order for the court's approval. Remand At the direction of the court, the parties briefed the issue of the scope of the remand order. The court has carefully reviewed those supplemental briefs. To be sure, in a normal remand without further instructions might well suffice to resolve the matter. But this case seems to be quite unusual. Not only are the medical facts relatively complicated, but the court has already remanded it once and the parties seem to be at odds about how the remand ought to proceed. In the interest of facilitating an expeditious conclusion to this case, the court will therefore provide detailed guidance to the parties. The court directs the following procedures for the remand (in addition, of course, to compliance with all applicable ERISA requirements for a full and fair review): 1. This matter is remanded to the Plan for a full and fair review under the following conditions: A. The Plan shall have 90 days from the entry of this order (the "Review Deadline Dale") to complete the administrative appeal process for Ms. Nichols' claims. B. By the Review Deadline date, the Plan shall communicate the final results of their review and decision regarding Ms. Nichols claims. C. During the 90 days, the Plan's Committee shall comply with ERISA requirements and: 1) Perform a careful review and give consideration to all materials previously submitted to the Plan by Ms. Nichols in all prior administrative reviews and prior litigation; 2) To the extent practical, minimize the cost of claims settlement for both parties; *1223 3) Address any substantial conflicts of interest within the Committee; 4) Request from Ms. Nichols' counsel any additional information the Committee needs to make a reasoned decision; 5) Respond in writing within 21 days of the entry of this order to Ms. Nichols' counsel to the following questions: a) Where can definitions of the terms "elective abortions," "elective surgery," or "elective termination of pregnancy" be found in the 1995 Summary Plan Description (SPD) or related documents? b) Provide the definition of, or criteria for what constitutes, an "abortion" as that term is used in the 1995 SPD, and any supporting materials for that definition. c) Does the definition of "abortion" include "miscarriage"? d) If the answer to the previous question is no, identify what is the difference between an "abortion" and a "miscarriage." e) How does the Plan distinguish between "elective abortions" and "miscarriages"? f) Does the definition of "abortion" include an analysis of fetal viability and, if so, how does the Plan determine viability? g) In evaluating Ms. Nichols' claim, did the Plan consider her fetus viable? Why or why not? h) Finally, why did the Plan pay benefits to the anesthesiology department for Ms. Nichols treatment, yet refuse to pay benefits to the hospital and treating physician for the same treatment. 6) Respond within 21 days to the following questions to Ms. Nichols' counsel, or explain promptly to the court why it is not practical to do so. a) Has the Plan ever paid benefits for treatment involving complications in pregnancy of the type suffered by Ms. Nichols under the 1995 SPD language or similar language? If so, on how many occasions? b) Has the Plan ever paid benefits for treatments that involve fetal abnormalities that threaten the health of the mother? If so, on how many occasions? 7) Disclose any information not previously disclosed to Ms. Nichols that the Plan relied upon in making their decision; and 8) Communicate actively with Ms. Nichols, and her counsel, regarding the status of these claims. D. If the Plan's decision is to maintain a denial, provide Ms. Nichols with a list of all materials and evidence relied upon by the Plan in making its decision. This list must be provided to Ms. Nichols' counsel in sufficient time to allow her to address the accuracy and reliability of this evidence no less than five days prior to the Review Deadline Date. E. The entire review process must be completed by the Review Deadline Date. The plan must provide a written explanation of its decision, the evidence considered in making the decision, and the underlying rationale for the decision. F. If the Plan has not communicated its final decision to Ms. Nichols' counsel by the Review Deadline Date, judgment shall be entered in favor of Ms. Nichols on her 29 U.S.C. § 1132(a)(1)(B) claim for benefits. Ms. Nichols may then request that the Court render a decision on the issues of prejudgment interest, attorneys' fees; and statutory damages under 29 U.S.C. § 1132(c)(1). G. If the Plan's decision on the Review Deadline Date is to maintain its denial of *1224 Ms. Nichols' claims, Ms. Nichols' may request that the Court review the Plan's decision. Any such request for review shall be filed with 30 days of the Review Deadline Date. H. This court shall have continuing jurisdiction over this matter, and the case shall remain open pending final disposition of all issues in the case, including any subsequent request for attorneys fees under 29 U.S.C. § 1132(g), statutory damages under 29 U.S.C. § 1132(c)(1), and interest. Any such request shall be filed within 30 days of the Review Deadline Date. Attorneys Fees Without ruling on the merits of Ms. Nichols' requests, the court denies Ms. Nichols Nichol's motion for attorneys fees, costs, prejudgment interest and statutory damages under 29 U.S.C. § 1132(c)(1) at this time. Ms. Nichols may well be entitled to some of these things, but it makes sense to handle these matters in one consolidated proceeding at the conclusion of the case. At the time, the court will have before it all relevant information necessary to make an appropriate decision. Ms. Nichols shall file any such request within 30 days of the Review Deadline Date, and include appropriate supporting materials. CONCLUSION The court GRANTS in part Ms. Nichols' motion for summary judgment on the issue of lack of "full and fair review" only (# 63-1) and remands for further proceedings. In light of this disposition, the court DENIES Ms. Nichols' motion for summary judgment with respect to the payment of her claim and, concomitantly, DENIES the Plan's motion for summary judgment (# 35-2) and the Plan's motion to affirm the decision of the administrative committee (# 35-1). The court DENIES without prejudice Ms. Nichols' motion for summary judgment regarding attorney's fees, costs, prejudgment interest and statutory damages, at this time, with leave to raise this issue again after remand (# 63-1). The court REMANDS this case to the Wal-Mart Plan Administrative Committee for proceedings consistent with this order, as explained in detail above, and retains jurisdiction over this matter to insure compliance with its order. The case will, therefore, remain open. SO ORDERED ORDER DENYING IN PART AND GRANTING IN PART DEFEDANT'S MOTION TO ALTER JUDGMENT This matter is before the court on the motion of the defendant ("the Plan") to alter or amend judgment pursuant to Fed. R.Civ.P. 59(e). Under Rule 59(e) a court may grant a motion to alter or amend judgment if the moving party can establish the need to correct "clear error" or to prevent "manifest injustice."[1] In this case, the Plan argues that the court's previous opinion contains two errors that should be corrected. The court will discuss each of these alleged errors in turn. Discovery Production The Plan first contends that the court's previous opinion incorrectly stated that it did not timely respond to Ms. Nichols's request for admission. This dispute centers around the exact date on which Plan mailed its responses and the address to which the responses were sent. In light of the court's previous rulings in favor of plaintiff on other grounds, it is unnecessary for the court to resolve this issue at this time. Therefore, the court will amend judgment to the extent of reflecting the *1225 Plan mailed responses to the request for admissions, and it remains disputed whether the response was timely and mailed to the correct address. Committee Membership The court also indicated in its opinion that the Plan refused to provide the names of the members of the Administrative Committee. To clarify, the court was referring to the Plan's unwillingness to provide the names of the Committee members at the deposition of Ms. Howard, despite the fact Judge Stewart's ruling had previously stated that this information was discoverable. The court notes it took the Plan 88 days to finally provide the list of names to Ms. Nichols' counsel. But, in the interest of clarity, the court will amend judgment to acknowledge that the Plan did ultimately, though not in a timely fashion, provide the list of members of the Administrative Committee to opposing counsel. To be clear, neither of these points changes the court's ruling or alter any of the deadlines currently set in this matter. CONCLUSION The court GRANTS the Plan's motion to amend its ruling regarding production of Discovery Requests, as explained above. The court GRANTS the Plan's motion regarding providing the names of the members of the Committee, but notes that these names were not provided in a timely fashion. SO ORDERED. NOTES [1] Sandoval v. Aetna Life and Cas. Ins. Co., 967 F.2d 377, 381 (10th Cir.1992) (internal quotations and citations omitted). [2] Sandoval, 967 F.2d 377, 382, citing Sage v. Automation, Inc. Pension Plan & Trust, 845 F.2d 885, 893-94 (10th Cir.1988), quoting Grossmuller v. International Union, United Auto., Aerospace & Agr. Implement Workers of America, UAW, Local 813, 715 F.2d 853, 858 n. 5 (3rd Cir. 1983) (emphasis added). [3] 967 F.2d at 381. [4] 967 F.2d at 381. [5] Id. [6] CPT Code 65581. [7] See Kimber v. Thiokol Corp., 196 F.3d 1092, 1098 (10th Cir.1999); Sandoval 967 F.2d at 382; Chambers v. Family Health Plan Corp., 100 F.3d 818, 827 (10th Cir.1996). [8] Case No. 98-CV 4301 (S.D.Ill. July 21, 1999). [9] See 967 F.2d 377. [10] See Jones v. Kodak Medical Assistance Plan, 169 F.3d 1287, 1292 (10th Cir. 1999) citing Sheppard & Enoch Pratt Hosp., Inc. v. Travelers Ins. Co., 32 F.3d 120, 126 (4th Cir. 1994). [11] Id. [12] Sandoval, 967 F.2d at 382 internal citations omitted. [13] Sandoval, 967 F.2d at 380 internal citations omitted. [14] Charter Canyon Treatment Center v. Pool Co., 153 F.3d 1132, 1135 (10th Cir.1998) citing Firestone Tire & Rubber v. Bruch, 489 U.S. 101, 115, 109 S. Ct. 948, 103 L. Ed. 2d 80 (1989). [15] Kimber v. Thiokol Corp., 196 F.3d 1092, 1097 (10th Cir. 1999); see also Chambers v. Family Health Plan Corp., 100 F.3d 818, 825 (10th Cir. 1996). [16] See Kimber, 196 F.3d at 1097; Jones, 169 F.3d at 1290; Chambers, 100 F.3d at 825. [17] J. Stewart's order, May 2, 2002. [1] Brumark Corp. v. Samson Resources Corp., 57 F.3d 941, 948 (10th Cir. 1996).

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1903024/

182 F. Supp. 143 (1960) UNITED STATES of America v. Gilbert D. KORITAN a/k/a Gilbert Goldberg, Paul Lee Adams and Wallace Trusty. Cr. No. 20019. United States District Court E. D. Pennsylvania. March 29, 1960. Walter E. Alessandroni, U. S. Atty., James P. Dornberger, Asst. U. S. Atty., Philadelphia, Pa., for plaintiff. George, Gershenfeld, Philadelphia, Pa., for defendant Wallace Trusty. Nathan Berlant, Philadelphia, Pa., for defendant Paul Lee Adams. *144 CLARY, District Judge. Gilbert D. Koritan (also known as Gilbert Goldberg), Paul Lee Adams and Wallace Trusty were indicted as of the above number, charged in Count I with conspiracy and in Counts II to VII inclusive with substantive offenses in connection with false statements made to the Veterans Administration for the purpose of securing an Insured Loan. Koritan pleaded guilty to two substantive counts of causing false statements to be submitted to the Veterans Administration in connection with the transaction involved, and pleaded not guilty to the conspiracy count and the remaining substantive counts. The United States Attorney listed the case for trial only as to Paul Lee Adams and Wallace Trusty, both represented by the same counsel, George Gershenfeld, Esquire. When the case was called for trial, a jury trial was waived. The Court proceeded to hear the case. In the midst of the testimony by the final government witness, being number fifteen in its list of witnesses, Mr. Gershenfeld advised the Court that he could not properly continue since there was an evident conflict of interest between his clients. The Court granted the motion to terminate the trial after both defendants, on the record, waived any possible defense of double jeopardy and requested the Court to start anew. At the request of the Court, Nathan Berlant, Esquire, who had previously appeared in the case for both defendants and had been allowed on petition to withdraw, agreed to represent Paul Lee Adams with the complete approval of Wallace Trusty, the second defendant. The Court then proceeded again to hear the case and at the conclusion of the trial found Trusty guilty on Counts I, II, V and VI, and not guilty on Counts III, IV and VII. The Court found Paul Lee Adams not guilty on Counts I, III, IV, V, VI, and VII, and reserved decision as to count II.[1] Wallace Trusty has now moved for a new trial, basing his motion primarily on two alleged errors. Agent Scoville of the Federal Bureau of Investigation when testifying about an interview with Trusty used a typewritten memorandum which he had dictated from rough notes on February 4, 1959, the day of the interview. These notes had been transcribed on February 16, 1959, returned to Agent Scoville, who checked them for their accuracy and then placed them in his file. The defendant argues that it was error for the Court to permit him to use them, citing United States v. Riccardi, 3 Cir., 1949, 174 F.2d 883. Since the holding in the Riccardi case does not support his theory and we are satisfied that their use under the circumstances was not improper, this objection will be dismissed. The second important reason assigned is that Trusty cannot be found guilty of the crime of conspiracy, since Adams was acquitted on that Count and Koritan was not tried: particularly since the Government made no motion for a severance. A brief résumé of the facts is necessary to place this objection in proper focus. The facts adduced and as found by the Court are as follows: Koritan, who traded as Sun Realty Company, bought a house for $3,800. He attempted to find a G.I. interested in purchasing the property and in this regard talked to Trusty, a real estate salesman. Trusty produced Adams, an honorably discharged veteran. A certificate of valuation in the amount of $7,000 was secured from the Veterans Administration. The loan was to be processed by the Walnut Street Federal Savings & Loan Association. Koritan testified for the Government. He stated that when Trusty informed him Adams had no money for a down payment he agreed to waive the down payment and give Adams credit for a down payment of $550, which was never intended to be paid, although the Veterans Administration was to be informed that it had been paid. *145 It was also necessary to secure verification of employment and wages for Adams. Trusty either wrote or typed up all of these verifications which eventually ended up in the Veterans Administration as part of the application for the loan, after Trusty had personally delivered them to the Walnut Street Federal Savings & Loan Association. They were completely false. Adams never averaged more than $50 a week, while the verifications indicated that he earned $75 a week at a steady job plus $40 a week at a part-time job. Trusty testified that Koritan had told him to submit these statements. Eventually the loan was made by the West Philadelphia Federal Savings & Loan Association after the assignment of the letter of commitment to it by the Walnut Street Federal Savings & Loan Association. At the settlement both Koritan and Adams certified to the correctness of the figures on the settlement sheet and the West Philadelphia Federal Savings & Loan Association certified that document, together with its disbursement of loan, to the Veterans Administration. Adams never received a penny. It was evident to the Court that Adams was completely naïve and understood little, if anything, of what was going on. Trusty, who told Adams he would take care of everything, was supposed to collect rents and make the mortgage payments. None were ever made, although he did collect some rents. Foreclosure followed with a resulting loss to the Government in excess of $4,000. From all of the testimony adduced at trial, it is clear that Koritan and Trusty, together, intended to and did defraud the United States and they worked together to accomplish this end. Koritan made his profit and Trusty received from Koritan his cut of $425 which had been promised him. There is no doubt that the evidence overwhelmingly established that Trusty was guilty both of conspiracy and of causing the Walnut Street Federal Savings & Loan Association and the West Philadelphia Federal Savings and Loan Association to certify false information to the Veterans Administration as the basis of the loan. Defendant Trusty's attorney now advances the somewhat nebulous theory, unsupported by any cited case, that since Koritan was not tried on the charge of conspiracy and there was no formal severance that Trusty cannot be convicted on the crime of conspiracy. He bases his proposition on the fact that where two people only are charged with the offense of conspiracy, an acquittal of one necessarily requires the acquittal of the other. While agreeing to that stated proposition of law, it does not have bearing upon the facts of this case. In a similar situation in People v. Bryant, 1950, 342 Ill.App. 90, 95 N.E.2d 620, affirmed 409 Ill. 467, 100 N.E.2d 598, the Illinois court held that where two persons are charged with conspiracy and only one is tried and the other defendant's case is undisposed of, the remaining defendant cannot take advantage of any rights of his codefendant in the matter. The conviction of the individual defendant was sustained. See also Vannata v. United States, 2 Cir., 1923, 289 F. 424, which held that one conspirator may be singly indicted and convicted, if it appears the basis of a charge remains against a plurality which includes the accused. See also West v. United States, 5 Cir., 1947, 161 F.2d 452; Bryant v. United States, 5 Cir., 1941, 120 F.2d 483. In view of what has been said above and in the absence of any objection on the part of Trusty (either at the original trial or the retrial) against proceeding to trial without the formal severance being made, it would appear that his objection is without merit. Trusty's counsel had not one but two opportunities to raise this question and failed to do so. Any error, if error it was, was waived by his counsel, an experienced practitioner in the Federal courts. The motion for a new trial is denied. NOTES [1] Concurrent with this Opinion and Order, the Court has entered a Judgment of Acquittal as to Count II of the Indictment against defendant Paul Lee Adams.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1907948/

784 F. Supp. 439 (1989) Kenneth CRAWFORD, et al., Plaintiffs, v. NATIONAL LEAD COMPANY, et al., Defendants. No. C-1-85-0149. United States District Court, S.D. Ohio, W.D. February 13, 1989. *440 *441 Stanley M. Chesley, Louise Roselle, Cincinnati, Ohio, for plaintiffs. Jake J. Chavez, Russell M. Young, U.S. Dept. of Energy, Washington, D.C., Donetta D. Wiethe, Asst. U.S. Atty., Cincinnati, Ohio, for defendants. ORDER ON CROSS-MOTIONS FOR SUMMARY JUDGMENT SPIEGEL, District Judge. This matter is before the Court after a hearing on plaintiffs' motion for partial summary judgment (doc. 108), defendants' response in opposition thereto (doc. 130), and plaintiffs' reply memorandum (doc. 131). The Court also heard argument on defendants' motion for summary judgment (doc. 115), plaintiffs' response (doc. 125), defendants' reply (doc. 143), and plaintiffs' surreply (doc. 145). Both motions are decided by this Order. This case involves the operation of a federally-owned uranium metals production plant located near Fernald, Ohio. The Feed Materials Production Center (FMPC) provides the uranium in various forms to nuclear facilities throughout the country for use in the production of nuclear weapons and energy. Defendants herein are NLO, Inc. (NLO), the contractor that operated the FMPC for the government from 1951 through 1985, and NL Industries, Inc. (NLI), NLO's parent corporation. Plaintiffs are the neighbors of the FMPC.[1] They alleged that defendants failed to prevent the emission of uranium and other harmful materials from the FMPC and that such failure caused emotional distress and diminished property values. Plaintiffs proceed under six theories of liability—negligence, strict liability, nuisance, willful or wanton misconduct, breach of contract, and violation of the Price-Anderson Act (42 U.S.C. § 2210)—and seek damages and injunctive relief. I The FMPC is a 1,050 acre facility owned by the United States Department of Energy (DOE). In 1951, NLO contracted with the Atomic Energy Commission (AEC), the predecessor agency of the DOE, to operate the plant. NLI was required to ratify the contract as guarantor of NLO's performance. This contractual arrangement between NLI, NLO and AEC/DOE empowered defendants to operate and maintain the FMPC, and required them to procure all necessary permits and to comply with all applicable regulations, laws and requirements relating to health and safety. The extent and nature of defendants' work under the contract was subject to the supervision of the government's Contracting Officer. Defendants operated the FMPC from 1951 through 1985. They admit that during those years the FMPC discharged uranium into the Great Miami River,[2] into the *442 soil, and into the atmosphere. However, defendants contend that they are not liable for damages allegedly suffered by plaintiffs as a consequence of such emissions. Assuming arguendo that liability exists, defendants argue that they are immune from liability under the "government contractor defense." Plaintiffs contend that defendants are liable as a matter of law under the theories of strict liability and nuisance, and that the government contractor defense does not apply to the facts in this case. II Rule 56(c), Fed.R.Civ.P., provides that summary judgment shall be granted if there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. The moving party has the burden of proof, and "the evidence together with all inferences to be drawn therefrom must be read in the light most favorable to the party opposing the motion." Smith v. Hudson, 600 F.2d 60, 63 (6th Cir.), cert. denied, 444 U.S. 986, 100 S. Ct. 495, 62 L. Ed. 2d 415 (1979). Summary judgment is appropriate "against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case and on which that party will bear the burden of proof at trial...." Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S. Ct. 2548, 2552, 91 L. Ed. 2d 265 (1986). Further, summary judgment may be granted on the issue of liability alone although there is a genuine issue as to the amount of damages. Hudson, 600 F.2d at 63, quoting Rule 56(c), Fed.R.Civ.P. III Defendants do not dispute that their operation of the FMPC has caused the emission of uranium and other harmful materials into the environment surrounding the plant. Indeed, the government's studies have documented contamination of offsite air, soil, surface water and ground water. Therefore, in compliance with Celotex, we must determine whether plaintiffs have established the essential elements of liability under the theory of strict liability or nuisance. The Restatement (Second) of Torts § 519 (1977) establishes the elements of strict liability for harm caused by abnormally dangerous activity as follows: (1) One who carries on an abnormally dangerous activity is subject to liability for harm to the person, land or chattels of another resulting from the activity, although he has exercised the utmost care to prevent the harm. (2) This strict liability is limited to the kind of harm, the possibility of which makes the activity abnormally dangerous.[3] The following factors are relevant to determining whether an activity is abnormally dangerous: (a) existence of a high degree of risk of some harm to the person, land or chattels of others; (b) likelihood that the harm that results from it will be great; (c) inability to eliminate the risk by the exercise of reasonable care; (d) extent to which the activity is is not a matter of common usage; (e) inappropriateness of the activity to the place where it is carried on; and (f) extent to which its value to the community is out-weighed by its dangerous attributes. Restatement (Second) of Torts § 520. We have little difficulty in concluding that the operation of the FMPC is an abnormally dangerous activity. The comments to the factors (a), (b), and (c), section *443 520, listed above, note that these factors are satisfied by activities involving atomic energy, and we agree with the reasoning of the American Law Institute as expressed in these comments. The production of uranium is clearly not a matter of common usage, as it is not "customarily carried on by the great mass of mankind or by many people in the community." Restatement (Second) of Torts § 520, Comment on Clause (d). The production of uranium metals at the FMPC is inappropriate to the place where it is carried on, because the government and defendants recognized when the plant was built that some hazardous materials would seep into property, springs, rivers, and wells owned or utilized by the neighboring public, and such production is clearly within the meaning of "non-natural use" as described in Rylands v. Fletcher.[4] Finally, there is no indication that the FMPC's value to the Fernald community is greater than the danger it represents. Accordingly, we have no doubt that Ohio courts would consider the production of uranium at the FMPC an abnormally dangerous activity. See Silkwood v. Kerr-McGee Corp., 667 F.2d 908, 921 (10th Cir. 1981), rev'd on other grounds, 464 U.S. 238, 104 S. Ct. 615, 78 L. Ed. 2d 443 (1984); Carolina Environmental Study Group v. United States, 431 F. Supp. 203, 223 (W.D.N.C.1977), rev'd on other grounds, 438 U.S. 59, 98 S. Ct. 2620, 57 L. Ed. 2d 595 (1978). Having concluded that defendants engaged in abnormally dangerous activity at the FMPC, we consider whether plaintiffs have established each element of strict liability under section 519, Restatement (Second) of Torts. Again, section 519 provides that: (1) One who carries on an abnormally dangerous activity is subject to liability for harm to the person, land or chattels of another resulting from the activity, although he has exercised the utmost care to prevent the harm. (2) This strict liability is limited to the kind of harm, the possibility of which makes the activity abnormally dangerous. Defendants argue strenuously that no finding of liability is proper absent a showing of cognizable injury and that emotional distress and diminished property values are not cognizable injuries compensable under the Rylands v. Fletcher strict liability doctrine. Further, they contend that emotional distress and diminished property values are not the "kind of harm, the possibility of which makes the activity abnormally dangerous." Restatement (Second) of Torts § 519(2). Emotional distress will support a claim of strict liability in Ohio. See Lavelle v. Owens-Corning Fiberglas Corp., 30 Ohio Misc.2d 11, 507 N.E.2d 476 (C.P.1987) (court denied motion to prohibit introduction of evidence regarding emotional distress resulting from increased fear of cancer in a personal injury case based upon exposure to asbestos and premised on Restatement (Second) of Torts § 402A). Our decision in Cincinnati Gas & Electric Co. v. General Electric Co., 656 F. Supp. 49 (S.D.Ohio 1986), which defendants cite for the contrary proposition, is inapposite. CG & E v. GE involved the sale of an allegedly defective nuclear steam supply system, which alleged defect cost the buyer millions of dollars for redesign and reconstruction. We refused to permit buyer to recover those costs under § 402A, Restatement (Second) of Torts, holding that Ohio courts would not permit recovery under a strict liability theory for such purely economic loss where the parties were in privity of contract and there was no property damage or personal injury. CG & E v. GE, 656 F.Supp. at 58. The instant action does not involve a defective product. It concerns loss directly attributable to defendants' abnormally dangerous activities at the FMPC; activities which allegedly damaged plaintiffs' emotional states and their property *444 values.[5] We decline to graft the holding of a case primarily sounding in contract, see CG & E v. GE, 656 F.Supp. at 56, onto a case arising under the tort-based doctrine of Rylands v. Fletcher, and accordingly find that plaintiffs have alleged a cognizable injury compensable under the strict liability theory of section 519, Restatement (Second) of Torts. Property damage will also support a claim of strict liability in Ohio. Walczesky v. Horvitz Co., 26 Ohio St. 2d 146, 269 N.E.2d 844 (1971) (holding the user of explosives strictly liable for damages proximately caused to adjoining property; petition for relief included claim of "deprivation" of property value). Contamination by uranium, diminishing the value of one's property, constitutes compensable property damage. See Sterling v. Velsicol Chemical Corp., 855 F.2d 1188, 1212 (6th Cir. 1988) (allowing damages, inter alia, for diminution in property values due to contamination from hazardous chemicals). Again, we conclude that plaintiffs have alleged a cognizable injury compensable under the doctrine of strict liability. Finally, defendants cite CG & E v. GE as support for their argument that plaintiffs cannot recover because their injuries are not "the kind of harm, the possibility of which makes the activity abnormally dangerous." Restatement (Second) of Torts § 519(2). However, as stated above, CG & E v. GE is inapposite. The CG & E plaintiffs sought recovery of the cost of repair and/or redesign incurred due to defendants' defective product. Such economic loss was not the kind of harm which would have made operation of the nuclear plant at issue abnormally dangerous. Conversely, the seepage of uranium and other dangerous materials onto surrounding property, as alleged in the instant case, is the kind of harm which renders operation of the FMPC abnormally dangerous. Imposition of strict liability under these circumstances is justified. Accordingly, defendants' motion for summary judgment is denied insofar as it concerned plaintiffs' strict liability claims. Further, we conclude that plaintiffs' motion for summary judgment on their strict liability claim should be denied as there is a genuine issue of material fact regarding the existence of emotional distress or diminished property values. If the evidence of emotional distress and/or diminution in property values was undisputed, we would grant plaintiffs' motion for partial summary judgment. However, because harm is an element of plaintiff's strict liability claim and is not solely relevant to the damages issue, summary judgment as to liability is not appropriate here. Celotex Corp. v. Catrett, 477 U.S. at 322, 106 S. Ct. at 2552. IV Plaintiffs also seek summary judgment on grounds that defendants maintained a private, absolute and permanent nuisance. The Restatement (Second) of Torts § 822 defines the elements of a private nuisance as follows: One is subject to liability for a private nuisance if, but only if, his conduct is a legal cause of an invasion of another's interest in the private use and enjoyment of land, and the invasion is either (a) intentional and unreasonable, or (b) unintentional and otherwise actionable under the rules controlling liability for negligent or reckless conduct, or for abnormally dangerous conditions or activities. Restatement (Second) of Torts § 822 (1979) (emphasis added). Similarly, Ohio courts impose strict liability for creating an absolute nuisance caused by the escape of inherently dangerous material from one's land onto the land of another which injures the other's legal rights. Taylor v. City of Cincinnati, 143 Ohio St. 426, 55 N.E.2d 724 (1944), citing Rylands v. Fletcher. We have already determined that defendants are engaging in abnormally *445 dangerous activity at the FMPC. Plaintiffs allege that defendants' acts at the FMPC constitute a nuisance that has caused them emotional distress and diminished the value of their property. Emotional distress and diminished property values are cognizable injuries giving rise to a cause of action for nuisance. See Widmer v. Fretti, 95 Ohio App. 7, 17, 116 N.E.2d 728, 735 (1952) (recognizing that "[t]he personal inconvenience, annoyance or discomfort to the occupant of real estate caused by the maintenance of a nuisance in the immediate vicinity is a separate and distinct element of damage from that of the depreciation of the real estate itself"). However, as with strict liability, harm is an element of plaintiffs' nuisance claim; there can be no liability without significant harm. Restatement (Second) of Torts § 821D comment d; see Taylor, 143 Ohio St. at 440, 55 N.E.2d 724; Rautsaw v. Clark, 22 Ohio App. 3d 20, 488 N.E.2d 243 (1985). Because there are contested issues of fact regarding this element of plaintiffs' claim, plaintiffs' motion for partial summary judgment on this issue must also be denied. Celotex Corp. v. Catrett, 477 U.S. at 322, 106 S. Ct. at 2552. Defendants seek summary judgment on the nuisance claims on grounds that work which is "authorized by competent legal authority cannot constitute a nuisance." Ware v. City of Cincinnati, 93 Ohio App. 431, 111 N.E.2d 401 (1952). Although what is authorized by law cannot be a public nuisance, "it may nevertheless be a private nuisance, and the legislative authorization does not affect any claim of a private citizen for damages for any special inconvenience and discomfort caused by the authorized act not experienced by the public at large...." 72 O.Jur.3d Nuisances § 14 (1987) (emphasis added); see Walczesky, 26 Ohio St.2d at 149, 269 N.E.2d at 846 (holding, in a case brought under the Rylands doctrine, that authorization to do an act could not be said to include authorization to damage adjoining property when performing said act). Because defendants' actions, if proven, would give rise to a private nuisance,[6]see generally Restatement (Second) of Torts §§ 821B and 821D; 72 O.Jur.3d Nuisances § 6, defendants' argument fails. Accordingly, their motion for summary judgment with regard to the nuisance claim is denied. V Having concluded that plaintiffs have stated cognizable state law claims, we turn to defendants' argument that the Government Contractor Defense bars those state law tort claims. The Government Contractor Defense immunizes from liability a contractor who performed an act pursuant to instructions from the federal government, which act would render the contractor liable under state law. In Boyle v. United Technologies Corp., 487 U.S. 500, 108 S. Ct. 2510, 101 L. Ed. 2d 442 (1988), the Supreme Court held that state law, which would hold the contractor liable, will be displaced when (1) the subject matter involves "uniquely federal interests"; and (2) "a `significant conflict' exists between an identifiable `federal policy or interest and the [operation] of state law' ... or the application of state law would `frustrate specific objectives' of federal legislation. ..." Id. 108 S.Ct. at 2515 (citations omitted). If these two threshold requirements for displacement are met, the scope of such displacement is determined by considering the following three limiting factors: 1. government approved specifications, 2. conformity to specifications, and 3. contractor warning of dangers it knew of which were unknown to the government. Id. at 2517.[7] Plaintiffs argue that defendants cannot satisfy the threshold requirements for displacement *446 of state law. Although conceding that operation of the FMPC involves a uniquely federal interest, that of national defense, plaintiffs contend that there is no significant conflict between federal and state laws or interests. Specifically, they claim that defendants' actions giving rise to the state law tort claims also violated applicable environmental laws, and therefore the "significant conflict between federal interest and state law," required for displacement of state law under Boyle, 108 S.Ct. at 2517, does not exist. Defendants agree that if plaintiffs prove that actions undertaken by defendants which are relevant to plaintiffs' claims also violated applicable environmental laws, the government contractor defense would not apply to shield defendants from tort liability for those actions. Defendants' reply brief, doc. 143, p. 7. We agree with the parties' analysis,[8] and therefore consider the laws pertinent to defendants' operation of the FMPC. The evidence adduced at the hearing demonstrated that uranium contamination was and is present in the soil, air and water surrounding the FMPC. Plaintiffs contend that this pollution violates the Refuse Act of 1899, 33 U.S.C. § 407, Standards for Protection Against Radiation, 10 C.F.R. Part 20 (1988), and the Atomic Energy Commission's ALARA ("as low as reasonably achievable") policy. The Refuse Act of 1899 provides in part as follows: It shall not be lawful to throw, discharge, or deposit, or cause, suffer, or procure to be thrown, discharged, or deposited ... from the shore, wharf, manufacturing establishment, or mill of any kind, any refuse matter of any kind or description whatever other than that flowing from streets and sewers and passing therefrom in a liquid state, into any navigable water of the United States, or into any tributary of any navigable water from which the same shall float or be washed into such navigable water.... 33 U.S.C. § 407. Section 407 imposes a flat bar on the unauthorized deposit of foreign substances in navigable waters, regardless of the effect on navigation. United States v. Pennsylvania Indus. Chemical Corp., 411 U.S. 655, 93 S. Ct. 1804, 36 L. Ed. 2d 567 (1973). Defendants concede that "waste water" containing uranium was discharged from the plant into the Great Miami River through a discharge pipeline and a storm sewer system. They contend that these emissions fall under the streets and sewers exception embodied in the Act. The streets and sewers exception is narrowly construed to mean only domestic sewage. See United States v. Colgate-Palmolive Co., 375 F. Supp. 962, 968 (D.Kan.1974), citing United States v. Republic Steel Corp., 362 U.S. 482, 80 S. Ct. 884, 4 L. Ed. 2d 903 (1960). Industrial waste is excluded from the exception. United States v. Genoa Cooperative Creamery Co., 336 F. Supp. 539, 541 (W.D.Wis.1972), citing Republic Steel, 362 U.S. at 491 n. 6, 80 S. Ct. at 890 n. 6. Thus, defendants violated the Refuse Act when they discharged uranium into the Great Miami River.[9] *447 The AEC has established by regulation maximum permissible releases of source materials[10] into the environment. 10 C.F.R. § 20.106 and App. B, Table II;[11]see Train v. Colorado Pub. Interest Research Group, 426 U.S. 1, 6, 96 S. Ct. 1938, 1940, 48 L. Ed. 2d 434 (1975). This regulatory scheme is pervasive, and is intended to exclusively regulate the discharge of radioactive effluents from nuclear plants. See Northern States Power Co. v. Minnesota, 447 F.2d 1143 (8th Cir.1971), aff'd, 405 U.S. 1035, 92 S. Ct. 1307, 31 L. Ed. 2d 576 (1972). The evidence in the instant case shows that defendants exceeded the dose limits set by the applicable regulations. For example, the DOE recognized that airborn uranium from the FMPC had travelled offsite in heavy concentrations, thereby violating the "as low as reasonably achievable" (ALARA) requirement codified at 10 C.F.R. 2.0.1. The DOE's own reports verify that it was aware of radon releases from storage silos which exceeded limits set by the Environmental Protection Agency (EPA). See 40 C.F.R. 61. Further, internal reports at the FMPC reflect that above background concentrations of uranium were present in offsite wells, surface water, and ground water. See 10 C.F.R. 20.106 and App. B, Table II. Under these circumstances, we conclude that defendants also violated applicable AEC emission regulations. Because defendants violated pertinent environmental laws by discharging radioactive material into the environment surrounding the FMPC,[12] there is no conflict between state tort law and the federal interests at issue here. Therefore, the government contractor defense does not apply to shield defendants from liability for those emissions, and their motion for summary judgment hereby is denied.[13] VI Finally, defendants move for summary judgment on plaintiffs' claims for punitive damages. Defendants claim that recent amendments to the Price-Anderson Act, Pub.L. No. 100-408, 102 Stat. 1067 (1988), prohibit punitive damages in cases such as this. Section 14 of the Act provides that "no court may award punitive damages in any action with respect to a nuclear incident or precautionary evacuation against a person on behalf of whom the United States is obligated to make payments under an agreement of indemnification covering such incident or evaluation." However, section 14 applies to nuclear incidents occurring on or after the date of enactment of the Price-Anderson Amendments Act of 1988. Price-Anderson Amendments Act of 1988 § 20. Because the Act became effective on August 20, 1988, section 20 has no application to the instant case. Accordingly, defendants' motion for summary judgment on the punitive damages claim is denied. VII For the foregoing reasons, defendants' motion for summary judgment hereby is denied. Plaintiffs' motion for partial summary judgment also is denied, as the existence of harm is a disputed factual element of plaintiffs' case. However, given our disposition of the parties' cross-motions, the case shall proceed to trial only on the issues of harm and damages. No evidence need be introduced on other issues concerning *448 liability or on the government contractor defense. SO ORDERED. NOTES [1] Plaintiffs were conditionally certified as a class by order of this Court (doc. 41). The class is comprised of two subclasses. Subclass I relates to plaintiffs' claims of diminished property value and is limited to owners of real property within a five-mile radius of the FMPC. Subclass II, which concerns plaintiffs' claims of emotional distress, consists of persons who resided or were employed within a five-mile radius of the plant during the relevant time period. A motion for decertification is currently pending (doc. 102). [2] The Great Miami River, located to the east of the FMPC, flows in a South-westerly direction into the Ohio river. One of the Great Miami's tributaries is Paddy's Run, a creek which runs through the FMPC itself. [3] The doctrine of strict liability for abnormally dangerous conditions and activities was derived from Rylands v. Fletcher, L.R. 3 H.L. 330 (1868), which held a defendant liable for the damage his "non-natural" use of his land caused to the plaintiffs' adjoining land, despite the fact that defendant was not negligent. See W. Prosser, Law of Torts § 78, at 505 (1978). This principle has been adopted in Ohio. Bradford Glycerine Co. v. The St. Mary's Woolen Mfg. Co., 60 Ohio St. 560, 54 N.E. 528 (1899). We agree with Professor Prosser that claims based on use of nuclear energy are subject to analysis under the Rylands v. Fletcher doctrine, Prosser, § 78, at 516, and apply the Restatement of that doctrine as articulated in section 519. [4] Further, as the Restatement makes clear, the "use of atomic energy" is among the few activities which "necessarily and inevitably involve major risks of harm to others, no matter how or where they are carried on." Restatement (Second) of Torts § 520, Comment on Clauses (a) and (b) (emphasis added). [5] We are not commenting on plaintiffs' claims for negligent infliction of emotional distress. Those claims require findings of fact that are to be left to the jury. Paugh v. Hanks, 6 Ohio St. 3d 72, 80, 451 N.E.2d 759, 767 (1983). [6] A public nuisance is an unreasonable interference with a right common to the general public. Restatement (Second) of Torts § 821B. It arises out of a violation of public rights or the doing of unlawful acts. 72 O.Jur.3d Nuisances § 6. A public nuisance may also constitute a private nuisance. Id. [7] Although the Boyle court discussed the government contractor defense within the context of a procurement contract, the defense is viable with regard to performance contracts. See Boyle, 108 S.Ct. at 2514; Yearsley v. W.A. Ross Construction Co., 309 U.S. 18, 60 S. Ct. 413, 84 L. Ed. 554 (1940). [8] The Supreme Court defined the parameters of the "significant conflict" requirement by reference to the discretionary function exemption to the Federal Tort Claims Act (FTCA), 28 U.S.C. § 2680(a). Thus, for the government contractor defense to apply, the court must find that the discretionary function exception to the FTCA would bar any liability on the part of the United States. We agree that the operation of the Fernald plant required an exercise of government discretion in balancing safety concerns against security considerations. However, there is no discretion to violate specific environmental standards, Berkovitz v. United States, 486 U.S. 531, 108 S. Ct. 1954, 100 L. Ed. 2d 531 (1988), and if such violations occurred, the defense does not apply. [9] Regardless of whether the Great Miami River is navigable water, see United States v. Appalachian Elec. Power Co., 311 U.S. 377, 61 S. Ct. 291, 85 L. Ed. 243 (1940), it flows into the Ohio River, and as such is a tributary of navigable water under the Act. [10] "The term `source material' means (1) uranium ... or (2) ores containing [uranium], in such concentration as the [Atomic Energy] Commission may by regulation determine from time to time." 42 U.S.C. § 2014(z). [11] Although 10 C.F.R. Part 20 explicitly applies to licensees, it applies by Executive Order to government owned, contractor operated facilities. Executive Order 11752, 3 C.F.R. 833 § 4(a)(6) (1971-1975). [12] Given our finding concerning emissions of radioactive material, we do not consider the arguments advanced by both sides regarding non-radioactive discharges. [13] If the Boyle threshold requirements were met, the contractor defense could be defeated on grounds that NLO/NLI did not conform to government approved specifications for operation of the FMPC. However, we will not decide this question, as we are firmly convinced that the defense must be disallowed on the grounds explained above.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1900306/

(2008) UNITED STATES of America, Plaintiff, v. Henry T. NICHOLAS, III and William J. Ruehle et al., Defendants. Case No. SACR 08-00139 CJC. United States District Court, C.D. California, Southern Division. December 29, 2008. ORDER DENYING DEFENDANT'S MOTION TO SUPPRESS PRIVILEGED EMAIL AND GRANTING GOVERNMENT'S APPLICATION TO DISCLOSE PRIVILEGED EMAIL CORMAC J. CARNEY, District Judge. INTRODUCTION Defendant Henry T. Nicholas, III ("Dr. Nicholas") and the government have filed competing motions regarding an email entitled Brett's Home Run ("Email") that Dr. Nicholas sent to his estranged wife, Stacey, from his Broadcom email account. In the Email, Dr. Nicholas admits to engaging in certain misconduct and making various misrepresentations in his capacity as CEO of Broadcom. Five years after Dr. Nicholas sent the Email, the government became aware of the Email during its 2007 criminal investigation of Dr. Nicholas and the stock option granting practices at Broadcom. In the course of the government's investigation, Broadcom representatives provided the Email to the government. Soon after learning that the government had a copy of the Email, Dr. Nicholas asserted that the Email was a privileged marital communication and demanded that the government return the Email to him. The government refused and maintained that the Email was not a privileged communication. Ultimately, the parties requested that the Court resolve this dispute, and the Court found that the Email was not a privileged communication. However, the Ninth Circuit reversed, holding that the Email was a privileged marital communication, but did not require that the government return the Email to Dr. Nicholas. Dr. Nicholas now moves to preclude the government from disclosing the Email to Dr. Nicholas' co-defendant William J. Ruehle ("Mr. Ruehle") and from using the privileged Email for cross-examination or impeachment of Dr. Nicholas should he testify at trial. The government opposes Dr. Nicholas' motion and moves for permission to disclose the Email to Mr. Ruehle so he can prepare his defense to the charges against him. The government also believes the Court's ultimate decision regarding the parties' competing motions should be made public. After carefully considering the evidence presented by the parties and the arguments of their counsel, the Court believes that the Email must be disclosed to Mr. Ruehle. As the Ninth Circuit recognized, the Email may be admissible at trial notwithstanding the privilege. The government may be able to use the Email to impeach Dr. Nicholas should he give exculpatory testimony at trial that contradicts the incriminating statements in the Email. The Court may allow the government to use the Email for impeachment purposes as the jury's interest in finding the truth may outweigh Dr. Nicholas' confidentiality in a troubled marriage. The incriminating statements in Dr. Nicholas' Email may also be admissible against Mr. Ruehle as a co-conspirator admission should the government establish that Dr. Nicholas made the incriminating statements during and in furtherance of the alleged conspiracy charged against Dr. Nicholas and Mr. Ruehle. Under Rule 801(d)(2)(E) of the Federal Rules of Evidence, statements made by one co-conspirator to conceal an ongoing conspiracy are deemed to be in furtherance of the conspiracy and are imputed admissions of another co-conspirator. Given the possibility that Dr. Nicholas' incriminating statements in the Email may be admissible at trial, Mr. Ruehle must be advised of that possibility and be provided a copy of the Email so he can adequately prepare his defense. The Court also believes that this order regarding the Email should be made public. Transparency is the hallmark of a fair and equitable system of justice, and as the Ninth Circuit has held, "[t]he presumption of openness ... is at the foundation of our judicial system." CBS, Inc. v. District Court, 765 F.2d 823, 825 (9th Cir.1985). Numerous people at Broadcom and within the government know of the Email's existence and its contents. Likewise, the Orange County Register has publicly reported on the Email and disclosed many of its contents. Under these circumstances, there is no compelling interest to keep the Court's order regarding the Email under seal. The Court cannot keep secret what is already public. BACKGROUND[1] A. The Email In April 2002, Dr. Nicholas composed and sent the Email to his then-wife, Stacey, from his Broadcom email account, using his company laptop. (Decl. of Robb Adkins, Nov. 10, 2008 ("Adkins Decl.") Ex. A.) The eighteen-paragraph email discusses the Nicholas' children, the breakup of the Nicholas' marriage, Dr. Nicholas' drug use, and various issues related to Broadcom. (Id.) Dr. Nicholas details business decisions made in his capacity as CEO of Broadcom. In one paragraph, Dr. Nicholas admits: I am still suffering the effects of going "cold turkey" [off drugs] but I'm getting better. The worst part is seeing the company falling apart because I am not fully functioning. However, I don't care about Broadcom anymore, I just feel like a liar to the people I am recruiting into new positions ... because I am potentially fucking some things up this week that will be irreparably damaging. Fortunately, those results take at least a year to show up on our financial performance. However, I am willing to lie and bullshit to get key people in place so that I can extract myself from Broadcom as soon as possible. (Id.) Dr. Nicholas also details his drug use and the effects thereof. (Id.) After ending his drug use "cold turkey," Dr. Nicholas writes that he experienced "`panic attacks'" and "`electric shock' like flashes" before and during a "wall-street conference call." (Id.) The Email concludes with a postscript in which Dr. Nicholas states that he will "not need [his then-wife's] help," but admonishes that "the things that effect [sic] my emotional fragility [around the time of the board and shareholder meetings] will affect a lot of other people (even you as a large shareholder)." (Id.) Dr. Nicholas sent the Email from his Broadcom email account through the company server, using his company laptop. (Decl. of Robb Adkins and Andrew Stolper, Sept. 10, 2007 ("Adkins/Stolper Decl.") ¶ 6.) Dr. Nicholas chose not to apply password protection to his Broadcom laptop or otherwise limit unauthorized access, and approximately ten Information Technology ("IT") staff members had the capacity to access Dr. Nicholas' laptop. (Id. ¶ 9.) Dr. Nicholas also engaged in a regular practice of handing a cloned, unprotected copy of his laptop to his traveling staff, including his limousine driver, airplane pilot, and secretary. (Id. ¶¶ 11, 15.) Dr. Nicholas authorized several Broadcom employees to create back-up copies of his emails, which required the employee to open and compare emails with the back-up copy. (Id. ¶¶ 8-11; Def.'s Mot. Ex. 2 at 14.) Although emails sent from Dr. Nicholas' company laptop were not stored on the Broadcom server, Dr. Nicholas' sent items were backed up at regular intervals by Broadcom's IT staff. (Adkins/Stolper Decl. ¶¶ 8-10.) In 2002, Timothy Duchene, a member of Broadcom's IT department, found the Email on Dr. Nicholas' laptop while he was engaged in the authorized maintenance and back-up of Dr. Nicholas' email account. (Id. ¶ 15.) Around the same time, Scott Smith, another member of Broadcom's IT department who worked closely with Dr. Nicholas, became concerned about Dr. Nicholas' erratic conduct and possible drug abuse. (Id. ¶ 5.) Mr. Smith brought these issues to the attention of Henry Samueli, Broadcom's Co-Chairman of the Board of Directors, who asked Mr. Smith to obtain more proof of Dr. Nicholas' conduct. (Id.) According to Mr. Smith, Dr. Samueli authorized Mr. Smith to obtain this information by "any means necessary"—including searching emails sent on the Broadcom server. (Id.) Mr. Smith, who knew of the existence of the Email, asked Mr. Duchene to retrieve a copy of it from a back-up of Dr. Nicholas' laptop. (Id.) Per Mr. Smith's request, Mr. Duchene retrieved the Email and gave a copy of it to Mr. Smith. (Id.) (Mr. Duchene also shared the Email with Bryan Maine, another member of Broadcom's IT staff. (Id. ¶ 15)) Mr. Smith returned the copy of the Email to Mr. Duchene, but notified Broadcom's General Counsel, David Dull, of the existence of the Email. Mr. Dull then asked Dave Shaw, another member of the IT department, to retrieve a copy of the Email for him. (Id. ¶ 5.) Mr. Shaw provided Mr. Dull with a copy of the Email as well. (Id. ¶ 6.) Mr. Dull then gave Mr. Smith a copy of the Email, and Mr. Smith provided the Email to Dr. Samueli, a person identified as Aranoff, and another unidentified individual. (Id.) Mr. Smith also retained an electronic copy of the Email for his own personal records. (Id.) Upon reading the Email, Dr. Samueli became very concerned and asked Mr. Smith to make additional copies of the Email. (Id.) During the summer of 2002, Broadcom's Director of Human Resources, Nancy Tullos, also learned of the Email's existence and directed Mr. Smith to retrieve the Email for her records. (Def.'s Mot. Ex. 2 at 17, Ex. 1 at 5.) Per Ms. Tullos' request, Mr. Smith sent a copy of the Email to Mr. Dull and Ms. Tullos. (Id.) Ms. Tullos then saved a copy of the Email to her hard drive. (Id. Ex. 2 at 17.) Several Broadcom executives and employees subsequently learned of and saw the Email, including Alan "Lanny" Ross, Werner Wolfen, Timothy Langan. (Adkins/Stolper Decl. ¶¶ 20, 22, 25.) The Email remains in the possession of Broadcom. (Adkins Decl. Ex. B (Decl. of Kenneth R. Heitz ("Heitz Decl.") ¶ 5).) On June 1, 2007, in the course of the government's investigation of Dr. Nicholas and Broadcom's stock option granting practices, Ms. Tullos' attorneys met with the government and provided the government with a copy of the Email. (Adkins Decl. ¶ 4.) The government had never seen the Email, did not know of its existence, and did not request it. (Id.) However, Ms. Tullos had previously provided the Email to the Securities and Exchange Commission ("SEC") pursuant to an administrative subpoena. (Id.) Dr. Nicholas was aware that Broadcom possessed the Email and that many employees had access to it, but took no efforts to maintain its privacy until he first raised the claim of privilege in July of 2007. Dr. Nicholas' attorneys contacted the Office of the United States Attorney ("USAO") and demanded the return of the Email, claiming that the Email was a privileged marital communication. (Def.'s Mot. Ex. 2 at 16-19.) The USAO responded that the assertion of privilege was not well taken. (Id. at 23-24.) However, the USAO proposed that it would preserve the issue of privilege for presentation to the criminal duty judge within 60 days and agreed not to use the Email in its continuing investigation. (Id. at 30-31.) Subsequently, Dr. Nicholas filed a motion for a protective order with this Court. B. Procedural History In his motion for a protective order, Dr. Nicholas claimed that the Email was a privileged marital communication. Dr. Nicholas requested a court order prohibiting the use of the Email in the government's investigation and requiring the government to return the Email to him. The Court held that the Email was not a privileged marital communication "because (1) the Nicholas' marriage had failed at the time of the communication; (2) Dr. Nicholas had no reasonable expectation of privacy in the email; and (3) Dr. Nicholas waived any privilege he may have asserted over the email by failing to take reasonable steps to secure its confidentiality." In re Grand Jury Investigation, Order at 2 (C.D.Cal. Sept. 25, 2007). Dr. Nicholas then appealed the Court's ruling to the Ninth Circuit. The Ninth Circuit stayed the Court's order and ordered briefing by the parties. On November 27, 2007, the Ninth Circuit vacated the Court's order, holding that the Email was a privileged communication, and ordered the Court to enter a protective order "precluding the introduction of the privileged communication in judicial or grand jury proceedings." In re Grand Jury Investigation, Slip Op. at 15 (9th Cir. Nov. 27, 2007). However, the Ninth Circuit declined to preclude the government from "using or retaining the email for any purpose." Id. Per the Ninth Circuit's instructions, the Court entered a protective order. Believing that the Court's protective order was deficient, Dr. Nicholas filed a motion for clarification with the Ninth Circuit. In his motion, Dr. Nicholas requested that the Ninth Circuit clarify that the Email could not be used for "impeachment, rebuttal, and other purposes." In re Grand Jury Investigation, Slip Op. at 3 (9th Cir. Apr. 30, 2008). The Ninth Circuit declined to afford Dr. Nicholas the relief he sought. Id. at 4. Rather, the Ninth Circuit reiterated that "the only holding of our [prior] disposition" was that the "electronic communication is privileged as a marital communication." Id. The Ninth Circuit went on to hold: In order to ensure that Nicholas gets the benefit of the marital communications privilege to which he is entitled, the district court may be required to undertake an individualized assessment of the specific facts and circumstances and exercise its discretion within the context of a trial, if there is one. The district court is best situated to make such determinations and exercise its discretion in the first instance to ensure the appropriate scope of protection for Nicholas' privileged communication pursuant to our case law and the spirit of our ruling. Id. (internal citations omitted). The Court entered a revised protective order on May 20, 2008. Consistent with the Ninth Circuit's ruling, the Court's revised protective order provides that the Email may not be disclosed "in judicial or grand jury proceedings to the full extent of the marital communications privilege." In re Grand Jury Investigation, Order at 2 (C.D.Cal. May 20, 2008). On June 4, 2008, the grand jury returned an indictment against Dr. Nicholas and Mr. Ruehle for an alleged conspiracy related to stock options granting practices at Broadcom. On October 20, 2008, after notification from the government that it intended to use the Email in preparation for trial and to disclose the Email to Mr. Ruehle, Dr. Nicholas brought the instant motion to suppress, again requesting that the Court preclude the use of the Email for trial preparation, cross-examination, or impeachment and prohibit its disclosure to Mr. Ruehle. On October 28, 2008, the government filed its ex parte application to unseal the documents filed in connection with the pre-indictment litigation regarding the issue of privilege or, in the alternative, provide these documents to Mr. Ruehle. C. Publication of the Email in the Orange County Register On November 15, 2008, the Orange County Register ran a story that disclosed the existence of the Email, detailed its contents, and included excerpts from the Email. John Gittelsohn, Ex-Broadcom CEO: Drugs Meant He Was `Not Fully Functioning,' ORANGE COUNTY REG., Nov. 15, 2008. In addition to providing a context for and overview of the Email, the story included the following direct quotations from the Email: • "I deserve everything that is happening to me. I just wish I didn't have other people who depend on me and look to me to be their leader." • "The worst part is seeing the company falling apart because I am not fully functioning." • "However, I don't care about Broadcorn anymore. I just feel like a liar to the people I am recruiting into new positions." • Nicholas was "potentially [messing] some thing up that will be irreparably damaging. Fortunately, those results take at least a year to show up on our financial performance. However, I am willing to lie ... to get key people in place so that I can extract myself from Broadcom as soon as possible." • "I had left the `Easter torture session' in Beaver Creek and was immediately subjected to 40 different disasters at once." • "I have never had so many things converge at once, and never after such a physically and emotionally debilitating one as the 26 hour Easter Day Ericsson/Mobilink call. During that week, I got only a few hours of sleep, and sustained myself by alternating huge quantities of caffeine and ephedrine. I also alternated smaller amounts of coke and crystal [methamphetamine]." • Dr. Nicholas was recovering from "a violent and scary reaction" to drug withdrawal that included "`electric shock' flashes." • "During my call I was experiencing `panic attacks' and my hands were shaking." • The article mentions an "event from hell" at the "warehouse," after which his wife left him. • "It was 3:00 a.m. I was exhausted, depressed, suffering from ecstasy come-down, and at the end of my capacity to rationally think." • "I did mention that you saw me with another woman in `bed' and that I had spent a solid week abusing drugs after my Easter `all nighter' to prepare for a huge acquisition." • "Things unfortunately do not abate for me over the next two weeks." • The article refers to "potentially very adversarial" meetings with shareholders and directors on April 27. • "I will not need your help but if you could be aware that things that effect [sic] my emotional fragility around those dates will affect a lot of other people (even you as a large shareholder) it will help me do my job." • Dr. Nicholas referred to "the lifestyle that Broadcom had forced me into." Id. The Register obtained the Email from Mr. Smith. Id. Mr. Smith previously had provided the Email to several Broadcom executives and also retained an electronic copy of the Email for his personal records. Id. (He subsequently gave a copy of the Email to the SEC and was asked about the Email by the FBI. Id.) Mr. Smith told the Register that he disclosed the Email in an effort to "stand[ ] strong for truth ... and also to protect the interests of Broadcom and its shareholders."[2]Id. Before publishing the Email, John Gittelsohn, the author of the story, contacted Dr. Nicholas' lawyers to inform them that the Register would be running the story. (Decl. of Tobin Romero, Nov. 24, 2008, Ex. A.) Brendan Sullivan, Jr., one of Dr. Nicholas' lawyers, responded to the editor of the Register, Ken Brusic, in a letter dated October 29, 2008. (Id.) In his letter, Mr. Sullivan informed Mr. Brusic that the Email was sent by Dr. Nicholas to "his wife at the time," and the contents of the Email were "protected by the spousal privilege" and "privileged." (Id.) Mr. Sullivan objected to the Register running any story on the Email. (Id.) Believing Dr. Nicholas' incriminating statements in the Email to be newsworthy and a matter of significant public concern, the Register went forward with its story on November 15, 2008, despite Mr. Sullivan's objection. ANALYSIS As the Ninth Circuit recognized, the Email may be admissible at trial notwithstanding the privilege. The Court will have to make the ultimate determination of the Email's admissibility at trial after considering all of the facts and circumstances at that time. Because the Email may be admissible at trial, in fairness, the Email must now be disclosed to Mr. Ruehle. Finally, in light of the disclosure of the contents of the Email by the Orange County Register, the Court finds no compelling interest in keeping this order under seal. A. The Email May Be Admissible at Trial The marital communications privilege, like all evidentiary privileges, is not absolute and is construed narrowly because "[p]rivileges obstruct the search for the truth." United States v. Roberson, 859 F.2d 1376, 1378 (9th Cir.1988). Even the most sacrosanct privileges must give way to the jury's obligation to find the truth in some circumstances. In this case, the Email may be admissible to impeach Dr. Nicholas if he gives exculpatory testimony at trial that contradicts the incriminating statements in the Email. The Email may also be admissible against Mr. Ruehle as an admission of a coconspirator. The Court holds only that there is a possibility that the Email may be admissible against Dr. Nicholas or Mr. Ruehle, but the Court cannot make the ultimate determination of whether the Email will, in fact, be admissible against either defendant outside of "the context of a trial, if there is one." In re Grand Jury Investigation, Slip Op. at 4 (9th Cir. Apr. 30, 2008). 1. The Email May Be Admissible to Impeach Dr. Nicholas The Ninth's Circuit's ruling on the issue of privilege recognizes that the Email may be admissible to impeach Dr. Nicholas if he gives exculpatory testimony that contradicts his incriminating statements in the Email. The Ninth Circuit held that the privilege afforded the Email is not absolute and recognized the possibility that the Email may be used at trial. In its first ruling, the Ninth Circuit refused to preclude the government from "using or retaining the email for any purpose," as Dr. Nicholas requested. In re Grand Jury Investigation, Slip Op. at 15 (9th Cir. Nov. 27, 2007). And in response to Dr. Nicholas' request for clarification that the Email could not be used for impeachment, the Ninth Circuit declined to restrict the use of the Email in this way. Instead, it held simply: "[i]n order to ensure that Nicholas gets the benefit of the marital communications privilege to which he is entitled, the district court may be required to undertake an individualized assessment of the specific facts and circumstances and exercise its discretion within the context of a trial, if there is one." In re Grand Jury Investigation, Slip Op. at 4 (9th Cir. Apr. 30, 2008). Thus, for a second time, the Ninth Circuit specifically declined to hold that the Email could not be used for any purpose, including impeachment or rebuttal. Id. Rather, the Ninth Circuit held that the "appropriate scope of protection for Nicholas' privileged communication" must be determined pursuant to the relevant "case law." Id. at 3. Relevant precedent confirms that precluding the use of the Email for any purpose would exceed the "appropriate scope of protection" to which the Email is entitled. Evidentiary privileges are not absolute, and the jury's obligation to consider relevant, probative evidence may outweigh any interest in keeping privileged information from it. In Harris v. New York, the United States Supreme Court held that statements obtained in violation of a defendant's Miranda rights, while inadmissible in the government's case-in-chief, can be used to impeach a defendant, if he testifies. The Supreme Court held: Every criminal defendant is privileged to testify in his own defense, or to refuse to do so. But that privilege cannot be construed to include the right to commit perjury.... The shield provided by Miranda cannot be perverted into a license to use perjury by way of defense, free from the risk of confrontation with prior inconsistent utterances. Harris v. New York, 401 U.S. 222, 225-26, 91 S. Ct. 643, 28 L. Ed. 2d 1 (1971). The Supreme Court recognized that the Miranda right, while fundamental and constitutionally based, is not a license to lie. Likewise, the Ninth Circuit has recognized that the attorney-client privilege can be waived when a defendant testifies about the substance of privileged communications. See United States v. Plache, 913 F.2d 1375, 1379-80 (9th Cir.1990) (holding that voluntary disclosure of privileged communication during the course of testimony constitutes waiver of the privilege). Mathison v. Hillhaven Corp., 895 F.2d 1417 (9th Cir.1990) (unpublished table decision) (recognizing that "otherwise privileged testimony is admissible for impeachment"). The marital communications privilege does not preclude the introduction of privileged communications for impeachment insofar as the defendant's testimony constitutes waiver of the privilege. The Tenth Circuit noted that Harris "supports the trial court's ruling that otherwise inadmissible testimony involving the martial communications privilege can be used to impeach a defendant who testifies on his own behalf." United States v. Neal, 743 F.2d 1441, 1448 (10th Cir.1984) (Logan, J., concurring).[3] In United States v. Benford, the defendant planned to testify on his own behalf, and sought to assert the privilege to prevent his spouse from testifying and contradicting the exculpatory statements he planned to make.[4] 457 F. Supp. 589, 597 (E.D.Mich.1978). The district court ruled that if the defendant's wife "were willing to testify she would be permitted to testify as to matters directly involved in his testimony" notwithstanding the privilege. Id. The defendant argued that the district court's ruling denied him the right to testify in his own defense. Id. The district court disagreed and noted that defendant sought "to take advantage of his wife's forced silence" and to invoke the privilege "for a purpose it was never meant to cover." Id. Thus, the district court held that the defendant's testimony, should he take the stand, would "open[ ] the door to a probing of the incidents he discusse[d]. In so doing, he [would] waive[ ] his marital privilege surrounding the substance of his testimony." Id. at 598. The district court also emphasized that it "should not lightly cast aside the benefits one is entitled to from the exercise of the privilege, but in the rare case in which that benefit is clearly outweighed by the cost involved, the privilege should not be unfairly extended." Id. at 597. Dr. Nicholas particularly relies on United States v. Hall in support of his argument that the Email may not be used for purposes of impeachment or cross-examination, but this authority is inapposite.[5] In United States v. Hall, after the defendant testified on his own behalf, the prosecutor used an out-of-court statement of the defendant's wife to impeach his testimony. 989 F.2d 711 (4th Cir.1993). The Fourth Circuit held that the wife's statement was inadmissible hearsay, and the use of this evidence to impeach the defendant implicated the defendant's rights under the Sixth Amendment's Confrontation Clause. Id. at 716. Although the Fourth Circuit noted that the admission of the statement implicated the marital communications privilege as well, the Fourth Circuit cautioned: "[o]f course, [the defendant] had an obligation to testify truthfully on crossexamination. However, even when the government believes a witness is lying, its methods of impeachment are constrained by the requirements of the Confrontation Clause." Id. at n. 10 (internal citations omitted). Here, the Email consists of Dr. Nicholas' own statements; it is not hearsay nor does its admission implicate Dr. Nicholas' rights under the Confrontation Clause. Nonetheless, Dr. Nicholas seizes on the fact that the Fourth Circuit, in dicta, noted that a prosecutor may not divulge the substance of inadmissible evidence under the guise of "`artful crossexamination.'" Id. at 716. Dr. Nicholas overstates the significance of this language, and his reliance on it is misguided. Contrary to Dr. Nicholas' suggestion, the Fourth Circuit did not hold that an otherwise privileged communication could not be used to impeach a defendant who waives the privilege by giving exculpatory testimony that contradicts his own prior statements. Rather, the court's holding relies primarily on the hearsay and Confrontation Clause issues presented by the admission of the defendant's wife's statement. Where the privilege is waived by giving exculpatory testimony that contradicts the defendant's own prior statements, impeaching the defendant with his prior statements is legitimate. The Court will not speculate at this time as to whether the Email will be admissible at trial. As the Ninth Circuit recognized, the Court may only make an assessment regarding the admissibility of the Email in "the context of a trial, if there is one." In re Grand Jury Investigation, Slip Op. at 4 (9th Cir. Apr. 30, 2008). The Court must wait to see if there is a trial, if Dr. Nicholas testifies, if Dr. Nicholas gives exculpatory testimony that contradicts his incriminating statements in the Email, and if the government seeks to impeach Dr. Nicholas with the Email.[6] Should Dr. Nicholas waive the privilege, the jury's interest in finding the truth may outweigh Dr. Nicholas' interest in protecting the confidentiality of his troubled marriage. 2. The Email May Be Admissible Against Mr. Ruehle as a CoConspirator Admission The Email may be admissible against Mr. Ruehle as an admission of a coconspirator. Under the Federal Rules of Evidence, "a statement by a coconspirator of a party during the course and in furtherance of the conspiracy" is admissible against the party. FED. R. EVID. 801(d)(2)(E). As a threshold issue, Mr. Ruehle does not have standing to assert the marital privilege because Dr. Nicholas and his wife alone are the holders of the privilege. United States v. Montgomery, 384 F.3d 1050, 1058-59 (9th Cir.2004). Suppression of evidence can only be asserted by a party whose rights are implicated, and thus it is well settled that although the introduction of evidence may violate one party's rights, it may nonetheless be admissible against a party who lacks standing to object.[7]Alderman v. United States, 394 U.S. 165, 172, 89 S. Ct. 961, 22 L. Ed. 2d 176 (1969) (holding that co-conspirators and co-defendants do not have standing to object to the introduction of communications obtained in violation of another co-conspirator's or codefendant's rights); Simmons v. United States, 390 U.S. 377, 88 S. Ct. 967, 19 L. Ed. 2d 1247 (1968) (holding that evidence gathered in violation of one party's rights under the Fourth Amendment may be introduced against a co-defendant whose rights are not implicated notwithstanding the exclusionary rule). Dr. Nicholas' statements in the Email arguably qualify as admissions of a coconspirator because Mr. Ruehle and Dr. Nicholas have been indicted as co-conspirators, (Indictment ¶¶ 2, 3), Dr. Nicholas wrote and sent the Email in April 2002, which was during the course of the alleged conspiracy, (Indictment ¶ 15), and Dr. Nicholas may have made the statements in the Email in furtherance of the alleged conspiracy. "[T]o be `in furtherance' the statements must further the common objectives of the conspiracy or set in motion transactions that are an integral part of the conspiracy." United States v. Kearns, 61 F.3d 1422, 1426 (9th Cir.1995). The Ninth Circuit has recognized that statements need not be made to co-conspirators in order to further the objectives of the conspiracy. United States v. Zavala-Serra, 853 F.2d 1512, 1516 (9th Cir.1988). Statements made by a conspirator to his girlfriend informing the girlfriend of conspirator's "efforts to conceal the conspiracy" are statements in furtherance of the conspiracy. See United States v. Bowman, 215 F.3d 951, 961 (9th Cir.2000). A statement made by a conspirator to his girlfriend "in an effort to conceal the conspirators' illegal activities" is one made in furtherance of the objectives of the conspiracy. United States v. Williams, 989 F.2d 1061, 1069 (9th Cir.1993). Likewise, statements made by a conspirator to his wife "intended to preserve the conspiracy by frightening [her] in order to dissuade her from informing the authorities" about the scheme are made in furtherance of the conspiracy. United States v. Westmoreland, 312 F.3d 302, 310 (7th Cir.2002). Finally, statements a conspirator makes to his wife—even amidst "banter about paying bills, changing furnace filters, and car trouble"—that are intended to "assure [the spouse] of the conspiracy's viability" constitute statements that further the objectives of the conspiracy. United States v. Roberts, 14 F.3d 502, 515 (10th Cir.1993). Dr. Nicholas' postscript in which he warns his wife to be mindful that she, as a large shareholder in Broadcom, may be affected by Dr. Nicholas' actions, arguably suggests that Dr. Nicholas sent the Email in furtherance of the conspiracy. (Adkins Decl. Ex. A.) The Court has insufficient evidence at this time to determine conclusively if the Email falls within the scope of Rule 801(d)(2)(E). Such a determination, however, is unnecessary at this time. What is necessary at this time is a determination of whether the Email could be admissible at trial against Mr. Ruehle as a co-conspirator admission. The Court can make this determination and finds that the Email definitively may be admitted at trial against him as such an admission.[8] B. The Email and the Court's Order Must Be Disclosed to Mr. Ruehle Since the Email may be admissible at trial—either to impeach Dr. Nicholas if he waives the privilege or as a co-conspirator admission against Mr. Ruehle—the Email must be disclosed to Mr. Ruehle. If he did not learn about the Email while he was at Broadcom, Mr. Ruehle presumably now knows about the Email in light of its publication in the Orange County Register. In any event, he is entitled to access the Email in its entirety in order to understand Dr. Nicholas' statements in context. More importantly, he must be apprised of the Court's order and the fact that the Email may be admissible at trial. The Email and the fact that it may be admissible at trial are critical pieces of information to consider as Mr. Ruehle prepares for trial and crafts his defense strategy. Mr. Ruehle cannot learn of the possible admissibility of this significant piece of evidence in the midst of trial. That is simply not fair. Contrary to Dr. Nicholas' assertion, disclosure of the Email and the Court's order to Mr. Ruehle is not inconsistent with the Ninth Circuit's ruling on the issue of privilege. The Court's protective order, which tracks the language of the Ninth Circuit's ruling, prevents the disclosure of the Email "in judicial or grand jury proceedings to the full extent of the marital communications privilege." In re Grand Jury Investigation, Order at 2 (C.D.Cal. May 20, 2008). The Ninth Circuit's ruling does not prohibit the use of the Email for impeachment or trial preparation. Moreover, under the Federal Rules of Criminal Procedure, Mr. Ruehle has a right to discover the Email. Rule 16 provides that the government must disclose documents that are "material to preparing the defense" or that "the government intends to use ... in its case-in-chief at trial." FED.R.CRIM.P. 16(a)(1)(E)(i)-(ii). The Email is certainly material to the preparation of Mr. Ruehle's defense and Dr. Nicholas' statements in the Email may be used against Mr. Ruehle as admissions of a co-conspirator. Even more to the point, however, Mr. Ruehle has a right to a fair trial. Denying Mr. Ruehle access to the Email and keeping him in the dark regarding its potential admissibility— against either him or Dr. Nicholas—would be patently unfair to Mr. Ruehle. Dr. Nicholas' statements in the Email are incriminating. Mr. Ruehle must be given the opportunity to devise a strategy that minimizes the statements or distance himself from them. Both the Federal Rules of Criminal Procedure and the constitutional requirements relating to a defendant's pretrial rights recognize the importance of providing a criminal defendant with sufficient notice of the evidence against him so he may fairly defend against the government's charges. Mr. Ruehle needs to see the Email and be told of its potential admissibility at trial, and he needs to see it and be told of that potential admissibility now. Dr. Nicholas suggests that because the Email is privileged it may not be disclosed to Mr. Ruehle. Dr. Nicholas argues that privileged documents may not be disclosed to third parties.[9] Dr. Nicholas has not, however, provided any authority to suggest that his interest in confidentiality trumps Mr. Ruehle's rights to access information critical to the preparation of his defense. Furthermore, Mr. Ruehle has already learned about the existence of the Email as well as many of the statements contained therein after its publication in the Orange County Register. Mr. Ruehle is only unaware that the Email may be used to impeach Dr. Nicholas at trial and that the Email may be admissible as evidence against Mr. Ruehle at trial as a coconspirator admission. Accordingly, Mr. Ruehle must be informed of these trial possibilities. C. The Court's Order Cannot Be Maintained Under Seal The United States Supreme Court has held that the right to attend criminal proceedings "is implicit in the guarantees of the First Amendment." Richmond Newspapers, Inc. v. Virginia, 448 U.S. 555, 556, 100 S. Ct. 2814, 65 L. Ed. 2d 973 (1980). In extending this right to include not only access to criminal trials, but voir dire proceedings as well, the Supreme Court noted that "[t]he value of openness lies in the fact that people not actually attending trials can have confidence that standards of fairness are being observed; the sure knowledge that anyone is free to attend gives assurance that established procedures are being followed and that deviations will become known." Press-Enterprise Co. v. Superior Court, 464 U.S. 501, 508, 104 S. Ct. 819, 78 L. Ed. 2d 629 (1984). Moreover, "[o]penness thus enhances both the basic fairness of the criminal trial and the appearance of fairness so essential to public confidence in the system." Id. at 508, 104 S. Ct. 819. The importance of allowing access to court records and proceedings is rooted in the understanding that "public examination, study, and comment" are "essential" to the proper functioning of the criminal justice system. CBS, Inc. v. District Court, 765 F.2d 823, 826 (9th Cir.1985). "Publishing sufficient information to allow the public to join in a dialogue about the courts and the treatment of defendants can only have a positive impact on the public's perception of our judicial system. If the system has flaws, it is all the better that these flaws be exposed and subjected to public comment." United States v. Schlette, 842 F.2d 1574, 1583 (9th Cir.1988). As the Ninth Circuit reminded, "[p]eople in an open society do not demand infallibility from their institutions, but it is difficult for them to accept what they are prohibited, from observing." Oregonian Publ'g Co. v. U.S. Dist. Court, 920 F.2d 1462, 1465 (9th Cir. 1990) (quoting Richmond Newspapers, 448 U.S. at 572, 100 S. Ct. 2814). Understanding the importance of the public's right to access criminal proceedings, the Ninth Circuit has held that the First Amendment's qualified right of access extends to certain pre-trial hearings, including hearings on motions to suppress. United States v. Brooklier, 685 F.2d 1162, 1167 (9th Cir.1982). Thus, the Court must "begin with the presumption that the public and the press have a right to access" hearings on motions to suppress and "documents filed therein." CBS, 765 F.2d at 825. "The presumption of openness may be overcome only by an overriding interest based on findings that the closure is essential to preserve higher values and is narrowly tailored to serve that interest." Id. Closure of court records and proceedings, "although not absolutely precluded, must be rare and only for cause shown that outweighs the value of openness." Press-Enterprise, 464 U.S. at 509, 104 S. Ct. 819. Accordingly, criminal proceedings and documents may only be closed to the public consistent with the First Amendment if: "(1) closure serves a compelling interest; (2) there is a substantial probability that, in the absence of closure, this compelling interest would be harmed; and (3) there are no adequate alternatives to closure that would adequately protect the compelling interest." Oregonian Publ'g, 920 F.2d at 1466. Where the First Amendment supplies the right of access, "the burden is upon the proponent of closure to justify a closure order." Id. at 1467. Neither the assertion of the privilege nor the fact that information is confidential alone is sufficiently compelling to justify sealing a court proceeding or record. A defendant's stated interest in "`[c]onfidentiality' is not some talismanic utterance that can justify a refusal to disclose the contents" of a court document. Schlette, 842 F.2d at 1583.[10] The assertion of the privilege, in the abstract, does not "trump" the First Amendment. United States v. Hawkins, No. 04-106, 2005 WL 3234509, at *3 (N.D.Cal. Jan. 10, 2005). The Ninth Circuit has recognized that where information a party seeks to keep confidential is "already in the public record," a party's interest in confidentiality does not "override the presumption of openness that is at the foundation of our judicial system." CBS, 765 F.2d at 825-26. In this case, the public has a presumptive right of access to the Court's order, and the public's strong interest in the openness of this judicial record can only be overcome by a compelling interest in closure. Dr. Nicholas asserts that his interest in preventing the further publication of the contents of his privileged Email is sufficiently compelling to warrant keeping the Court's order under seal.[11] He is mistaken. To the extent that the Court's order refers to privileged information, all of this information has already been made a matter of public record. The contents of the Email have been disclosed to, and published by, the Orange County Register. The Court's order does not quote any language from the Email that was not included in the Register's story. Furthermore, numerous current and former employees and executives at Broadcom are aware of, and have read, the Email, including Henry Samueli, Nancy Tullos, David Dull, Alan "Lanny" Ross, Werner Wolfen, Timothy Langan, Scott Smith, and at least three additional members of the IT staff. (Adkins/Stolper Decl. ¶¶ 6, 7, 17, 20, 22, 25.) The Email has also been produced to the SEC. (Adkins Decl. ¶ 4.) Even if it were confidential at one time, the Email is no longer a secret: Broadcom employees, numerous branches of government, the lawyers involved in this case, the parties, the press, and the public know its contents. The Court cannot keep secret what is already public. Because the contents of the Email are now a matter of public record, no compelling justification exists for keeping the Court's order under seal. Dr. Nicholas' interest in preventing further dissemination of the already public information contained in the Email is not sufficient to override the public's constitutional right to understand the analysis of the legal issues presented to the Court regarding the Email. The public has a right to understand and scrutinize the Court's legal analysis and conclusions. The Court understands that Dr. Nicholas has not waived the privilege, and the Court will afford Dr. Nicholas the full protection of the marital communications privilege to which he is entitled at trial. However, insofar as the confidential information Dr. Nicholas seeks to keep under seal has been made public, the privilege does not justify shielding the Court's order from meaningful review and comment by the public. CONCLUSION For the foregoing reasons, Dr. Nicholas' motion to suppress and for an evidentiary hearing is DENIED, and the government's application is GRANTED in part. The Court will unseal this order and make it a matter of public record in ten days unless otherwise directed by the United States Court of Appeals for the Ninth Circuit. NOTES [1] The facts presented in this section are based, in part, on a declaration initially submitted by the government in camera and under seal, prior to the grand jury's return of the indictment. Dr. Nicholas may be unaware of many of these facts. Given the Court's ruling on the potential admissibility of the Email at trial, in fairness, Dr. Nicholas must be apprised of the facts surrounding the discovery and subsequent disclosure of the Email. As an indictment has been returned, the government does not object to the disclosure of this information. [2] To the Court's knowledge, Broadcom has never disclosed the Email or its contents to its shareholders. [3] The Ninth Circuit, noting that "otherwise privileged testimony is admissible for impeachment," cited this opinion in Neal approvingly. Mathison v. Hillhaven Corp., 895 F.2d 1417 (9th Cir.1990) (unpublished table decision). [4] The defendant in Benford sought to assert the marital testimonial privilege. Although the testimonial privilege is generally only held by the testifying spouse, in Benford, the testimonial privilege was held jointly because of the nuances of Michigan law. Accordingly, the court concluded that "the waiver rule applies to testimonial as well as communications privileges." 457 F. Supp. at 598. [5] Dr. Nicholas also cites United States v. Sanchez, 176 F.3d 1214 (9th Cir.1999), in which the Ninth Circuit held that the admission of the defendant's wife's statement was improper because the statement was inadmissible hearsay and its admission violated the defendant's rights under the Confrontation Clause. Here, the Email is Dr. Nicholas' own statement. Thus, it is not inadmissible hearsay and its admission would not implicate Dr. Nicholas' rights under the Confrontation Clause. [6] These are precisely the circumstances Dr. Nicholas' counsel previously argued could lead to the admission of the Email: "If Dr. Nicholas is charged and if he testifies and if, in that testimony, he waives the privilege protecting [the Email], nothing in Dr. Nicholas' proposed protective order would prevent the court from reevaluating potential uses of the privileged communication at that time." (Mem. in Support of Petitioner's Proposed Protective Order, Jan. 22, 2008 at 4) (emphasis in original). [7] Dr. Nicholas would be entitled to a separate trial if the Email is admitted against Mr. Ruehle as a coconspirator admission in the government's case-in-chief. [8] The potential use of the Email at trial as a co-conspirator admission does not implicate Mr. Ruehle's rights under the Confrontation Clause. Crawford v. Washington, 541 U.S. 36, 124 S. Ct. 1354, 158 L. Ed. 2d 177 (2004); Bourjaily v. United States, 483 U.S. 171, 183-84, 107 S. Ct. 2775, 97 L. Ed. 2d 144 (1987) ("[W]e hold that the Confrontation Clause does not require a court to embark on an independent inquiry into the reliability of statements that satisfy the requirements of Rule 801(d)(2)(E)."). [9] The legal basis for this argument is not as strong as Dr. Nicholas suggests, however. The Ninth Circuit, in denying a protective order prohibiting interrogation of a defendant's wife, explained that the "privilege relates only to testimony in judicial or grand jury proceedings." In re Grand Jury Investigation of Hugle, 754 F.2d 863, 866 (9th Cir. 1985). Although the defendant's assertion of the privilege required a protective order that would bar the presentation of compelled testimony protected by the marital communications privilege to the grand jury, the privilege itself was not an absolute bar to discovery. [10] In Schlette, the Ninth Circuit relied on the common law right of access in reaching its holding and did not reach the constitutional issue. However, the Ninth Circuit's reasoning is equally apposite with respect to the more protective standard under the First Amendment. See United States v. Kaczynski, 154 F.3d 930, 932-33 (9th Cir.1998) (Reinhardt, J., concurring). [11] Further adverse publicity four months before trial is also not a sufficiently compelling justification to keep this order under seal. The Court will endeavor to limit the effects of pre-trial publicity in jury selection and ensure that Dr. Nicholas gets the impartial jury to which he is entitled under the Sixth Amendment.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1936836/

335 B.R. 910 (2005) In re PACIFIC FOREST PRODUCTS CORP., Debtor, Colonial Bank, Appellant, v. Lewis B. Freeman, etc., Appellee. Suntrust Bank, Appellant, v. Lewis B. Freeman, etc. Appellee. No. 05-22061-CIV. United States District Court, S.D. Florida. October 17, 2005. *911 *912 *913 Ben H. Harris, III, Mobile, AL, Mark R. Kings, Miami, FL, for Colonial Bank, N.A. Elliott Scherker, Miami, FL, Richard Bergman, Ft. Lauderdale, FL, Steven Mishan, Miami, FL, for Suntrust Bank. David C. Cimo, Miami, FL, for Lewis B. Freeman. ORDER GRANTING APPELLANTS' MOTIONS FOR LEAVE TO APPEAL GOLD, District Judge. THIS CAUSE is before the Court upon Appellants' Motions for Leave to Appeal [DE 1 and 4] the Bankruptcy Court's May 3, 2005 interlocutory order granting Trustee's motion for partial summary judgment. In granting partial summary judgment, Bankruptcy Judge Barry S. Schermer ruled that the Debtor acted with "actual intent to hinder, delay or defraud its creditors."[1] Appellants seek interlocutory review of this ruling. I held oral argument on the Motions for Leave to Appeal on September 30, 2005. Upon review of the parties' arguments, the record, relevant statutes, and case law, I grant Appellants' Motions for Leave to Appeal. I. Background Pacts On February 14, 2001, three creditors of Pacific Forest Products Corp. (the "Debtor") filed an involuntary petition for bankruptcy relief under Chapter 7 of the Bankruptcy Code. On April 5, 2001, the Bankruptcy Court converted the case to a Chapter 11 Reorganization. On July 10, 2002, the Bankruptcy Court entered an Order confirming the Debtor's Amended Liquidating Plan, and appointing Lewis B. Freeman ("Trustee") as the Liquidating Trustee. The Plan transferred to the Trustee the right to bring avoidance actions under the Bankruptcy Code. On February 11, 2003, the Trustee commenced an adversary proceeding against, among others, Appellants Colonial Bank ("Colonial") and SunTrust Bank ("SunTrust") (Colonial and SunTrust shall be *914 referred to collectively as "Appellants"). The Complaint, as amended (the "Complaint"), alleges, inter alia, claims against Appellants for the avoidance and recovery of fraudulent transfers under sections 544 and 548 of the Bankruptcy Code, as well as under applicable Florida statutes. The Trustee's theory of recovery includes, inter alia, that the Debtor had engaged in a massive check-kiting scheme, and that any transfers made to Appellants pursuant to that scheme were with an actual intent to defraud the Debtor's creditors, and therefore subject to avoidance by the Trustee. On June 23, 2004, the Trustee filed a Motion for Partial Summary Judgment Regarding Debtor's Actual Intent to Hinder, Delay, or Defraud Creditors (the "Motion for Summary Judgment"). Through the Motion for Summary Judgment, the Debtor sought a declaration that no material facts remained as to the issue of the Debtor's actual intent to hinder, delay or defraud creditors through operating the extensive check-kiting scheme. In support of its Motion for Summary Judgment, and in response to the Bankruptcy Court's request for clarification, the Debtor submitted proposed findings of fact and conclusions of law. On April 13, 2005, the Bankruptcy Court held a hearing on the Motion for Summary Judgment, and on May 3, 2005, entered findings of fact and conclusions of law that established that the Debtor acted with "actual intent to hinder, delay or defraud creditors" by engaging in an extensive check-kiting scheme (the "Bankruptcy Court Order"). The Bankruptcy Court Order was entered on the docket on May 6, 2005. On May 16, 2005, Appellants each filed a motion for rehearing and reconsideration (the "Motions for Rehearing") of the Bankruptcy Court's Order, contesting a number of the Bankruptcy Court's findings of fact and conclusions of law, including the Bankruptcy Court's finding that the check kiting scheme at issue in this case was, per se, fraudulent. On May 25, 2005, the Bankruptcy Court denied Appellants' Motions for Rehearing. On June 3, 2005 and June 6, 2005, Appellants SunTrust and Colonial, respectively, filed motions for leave to appeal the Bankruptcy Court's Order (collectively, the "Motions for Leave to Appeal"). On August 2, 2005, this Court consolidated both actions under Case Number 05-22061-CIV-GOLD/TURNOFF because they raise the same issues. [DE 4]. The Trustee filed responses to Appellants' Motions for Leave to Appeal on August 30, 2005. [DE 6].[2] In the Opposition, the Trustee argues that the Motions for Leave to Appeal were untimely, and that the Appellants have not satisfied the standard for interlocutory review. On September 1, 2005, SunTrust filed a reply in support of its Motion for Leave to Appeal. [DE 9]. II. Jurisdiction Before I address Appellants' dual grounds for appeal, I must first consider whether this Court has subject matter jurisdiction over the instant appeal. *915 28 U.S.C. § 158(a) imparts upon the district courts jurisdiction to hear appeals from: (1) final judgments, orders, and decrees: (2) interlocutory orders and decrees issued under section 1121(d) of title 11 increasing or reducing the time periods referred to in section 1121 of such title; and (3) with leave of the court, from other interlocutory orders and decrees; and, with leave of the court, from interlocutory orders and decrees, of bankruptcy judges entered in cases and proceedings referred to the bankruptcy judges under section 157 of this title. An appeal under this subsection shall be taken only to the district court for the judicial district in which the bankruptcy judge is serving. Appellants recognize that the Bankruptcy Court Order is interlocutory and request the Court to assert jurisdiction under 28 U.S.C. § 158(a)(3). For the reasons set forth below, I conclude that this Court has jurisdiction to consider an immediate appeal of the Bankruptcy Court Order, and I grant Appellants' Motions for Leave to Appeal. Valley Drug Co. v. Geneva Pharms., Inc., 344 F.3d 1294, 1295 (11th Cir. 2003) (partial summary judgment on interlocutory appeal), reh'g and reh'g en banc denied 88 Fed. Appx. 388 (11th Cir. 2003), cert. denied 543 U.S. 939, 125 S. Ct. 308, 160 L. Ed. 2d 248 (2004); Foothill Capital Corp. v. Official Unsecured Creditors' Cmty. of Midcom Commc'ns Inc., 246 B.R. 296, 299 (E.D. Mich. 2000) (exercising discretion to allow interlocutory appeal of bankruptcy court order granting partial summary judgment pursuant to 28 U.S.C. § 158(a)(3)). III. Appellants' Motions for Leave to Appeal Were Timely In reviewing the timeliness of Appellants' motions for leave to appeal, I must consider Federal Rule of Bankruptcy Procedure ("FRBP") 8002.[3] Rule 8002(a) requires a party to file a notice of appeal with the clerk of the bankruptcy court "within 10 days of the date of the entry of the judgment, order, or decree appealed from." But if the party moving for appeal files one of a number of enumerated motions, the time for appeal "runs from the entry of the order disposing of the last such motion outstanding." Fed. R. Bankr. P. 8002(b). The list of motions that toll the time to appeal include motions: (1) to amend or make additional findings of fact under Rule 7052, whether or not granting the motion would alter the judgment; (2) to alter or amend the judgment under Rule 9023; (3) for a new trial under Rule 9023; or (4) for relief under Rule 9024 if the motion is filed no later than 10 days after the entry of judgment. Fed. R. Bankr. P. 8002(b). If an appeal is not timely filed, the district court has no jurisdiction over it. In re Davis, 237 B.R. 177, 180 (Bankr. M.D. Ala. 1999) (citing In re Morrow, 564 F.2d 189, 190 (5th Cir. 1977)), remanded to 243 B.R. 127 (Bankr. M.D.Ala. 1999). Appellants assert that their Motions for Rehearing were motions under Rule 59(e) of the FRCP, as incorporated into Rule 9023 of the FRBP, and therefore tolled the appellate clock from ticking until disposition of the Motions for Rehearing under FRBP 8002(b)(2).[4] Accordingly, Appellants *916 contend that their Motions for Leave to Appeal, filed within ten days of the Bankruptcy Court's order denying their Motions for Rehearing, are timely. The Bankruptcy Court Order was signed on May 3, 2005, and entered on the Bankruptcy Court docket on May 6, 2005. Appellants filed their Motions for Rehearing on May 16, 2005. The Trustee initially contends that the Motions for Rehearing were untimely because they were filed more than ten days after the Bankruptcy Court ruled, which was on May 3, 2005. This Court finds, however, that an order is entered when it appears on the clerk's docket, and thus Appellants' Motions for Rehearing were timely because they were filed within ten days of the Bankruptcy Court Order's appearance on the docket. United States v. Henry Bros. P'ship (In re Henry Bros. P'ship), 214 B.R. 192, 195 (B.A.P. 8th Cir. 1997); Williams v. EMC Mortgage Corp. (In re Williams), 216 F.3d 1295, 1296 (11th Cir. 2000) (signifying entry of the bankruptcy court's order on the docket as the starting point for the ten-day period for appeal); Balcor Pension Invs. v. Wiston XXIV, Ltd. P'ship (In re Wiston XXIV, Ltd. P'ship), 172 B.R. 647, 652 (D. Kan. 1994) (ten-day period for appeal runs from time clerk enters bankruptcy order).[5] In any event, it does not appear that Appellants' Motions for Rehearing would be untimely under any circumstances. It is well-established that it is within a bankruptcy judge's discretion to reconsider any interlocutory order made prior to the entry of final judgment. Piper Aircraft Corp. v. Calabro (In re Piper Aircraft Corp.), 169 B.R. 766, 771 (Bankr. S.D. Fla. 1994), aff'd 168 B.R. 434 (S.D. Fla. 1994), aff'd as modified sub nom. Epstein v. Official Comm. of Unsecured Creditors of Estate of Piper Aircraft Corp., 58 F.3d 1573 (11th Cir. 1995). Accordingly, a party who seeks reconsideration of an interlocutory bankruptcy order need not move for rehearing within ten days because "the ten-day limitation of Rule 59(e) does not apply." See United States v. Martin, 226 F.3d 1042, 1047-48 (9th Cir. 2000). The Trustee seizes on this language in making his next point, arguing that Rule 59(e) does not apply to "motions for reconsideration of interlocutory orders from which no immediate appeal may be taken," and that therefore the tolling benefits supplied by Bankruptcy Rule 8002(b)(2) do not apply to the appeal of the *917 non-final Bankruptcy Court Order (Opposition, p. 6).[6] The Trustee relies upon a number of cases from outside the bankruptcy context in support of this contention. See e.g., Martin, 226 F.3d at 1048 (affirming the trial court's decision that the Government's motion for reconsideration of an order granting a prisoner's §2255 motion to vacate sentence, filed eighty-three days after the order granting the motion to vacate, was timely because the order was not final); Dayoub v. Penn-Del Directory Co., 90 F. Supp. 2d 636, 637 (E.D. Pa. 2000) (recognizing that Rule 59(e) does not apply to review of interlocutory orders because district courts have the "inherent power to reconsider interlocutory orders. . . .") (citations omitted); Wagoner v. Wagoner, 938 F.2d 1120, 1122 n. 1 (10th Cir. 1991) (stating that "motion for reconsideration was nothing more than an interlocutory motion invoking the district court's general discretionary authority to review and revise interlocutory rulings prior to entry of final judgment."). However, these cases, and other ones cited by the Trustee, are limited to a consideration of whether a party violated Rule 59(e)'s prohibition on moving for reconsideration of an order more than ten days after that order was entered. For example, the Trustee cites Riggs v. Scrivener, Inc., for the proposition that Rule 59(e) "does not call into play the timing and tolling considerations attendant upon motions to alter or amend judgment under Fed. R. Civ. P. 59(e)." 927 F.2d 1146 (10th Cir. 1991) (Opposition, p. 7). This statement mischaracterizes the Riggs decision. Riggs merely held that a party may move for reconsideration of any interlocutory order without offending the portion of Rule 59(e) that requires such a motion to be filed within ten days after entry of a judgment. Id. at 1148. It says nothing about Rule 59(e)'s effect on foiling the time for appeal of an interlocutory order. Indeed, that issue was not even raised in the Riggs case. Likewise, the only other case cited by the Trustee on this specific point, Anderson v. Deere & Co., 852 F.2d 1244, 1246 (10th Cir. 1988), is also limited to the discrete issue of whether a motion for rehearing of an interlocutory order must be filed within ten days of the order's entry. It, too, is silent as to Rule 59(e)'s role in tolling the time for filing a motion for leave to appeal. None of the Trustee's cases address the issue here, which is whether the filing of a motion for rehearing tolls the time for appealing the decision being reheard. Indeed, federal case-law cited by Appellants, and additional authority that I have reviewed, demonstrate that courts routinely characterize motions to rehear/reconsider interlocutory orders as Rule 59(e) motions. Public Serv. Co. of N.H. v. Hudson Light & Power Dep't, 938 F.2d 338, 340 n. 5 (1st Cir. 1991) (acknowledging in a footnote that the defendants' motion for reconsideration of the bankruptcy court's order granting partial summary judgment was a 59(e) motion); Martinez v. Bohls Equip. Co., 2005 U.S. Dist. LEXIS 14721, No. SA-04-CA-0120-XR, 2005 WL 1712214, at *1 (W.D. Tex. July 18, 2005) (applying Rule 59(e) standards to motions for reconsideration of interlocutory orders); Citizens Fed. Bank v. Cardian Mortgage Corp. (In re Cardian Mortgage Corp.), 122 B.R. 255, 262 (Bankr. E.D. Va. 1990) (accepting review of defendant's Rule 59(e) motion for rehearing of the court's own order partially granting/partially denying summary judgment). Such motions automatically toll the time to appeal pending resolution. Abraham v. Aguilar (In re Aguilar), 861 F.2d 873, 875 (5th Cir. 1988) (per curiam) *918 (finding that motion to reconsider pursuant to FRCP 59(e) tolls the time for appeal through operation of FRBP 9023). Undoubtedly, the Rules themselves create some confusion as to precisely when a party must seek leave to appeal an interlocutory order when that order is pending on rehearing. On the one hand, case-law cited by the Trustee suggests that Rule 59(e) does not apply to motions to reconsider non-final, or interlocutory judgments. From this finding, the Trustee concludes that the filing of a motion to rehear an interlocutory order does not toll the time for appeal through operation of FRBP 8002(b) and 9023. On the other hand, courts have treated motions to reconsider interlocutory orders as tolling the time for appeal of those orders pursuant to Rule 59(e) itself. I reject the analysis put forth by the Trustee not only because it is unsupported by legal authority, but also because it lacks credibility from a policy standpoint. Were the Court to adopt the Trustee's analysis, then a party would be forced to move for both rehearing and leave to appeal within ten days of entry of an interlocutory order. The party would essentially lose the procedural right to rehearing unless it could somehow compel the lower court to rule before the tenth day after entry of its order. This result is not only illogical, but, as explained above, devoid of legal merit. By contrast, the approach advanced by Appellants is more sensible. It allows a lower court to review its own decision before a party can seek relief from that decision on appeal. It reinforces the Aguilar declaration that there is "no useful purpose in requiring an appeal to be filed where a motion for reconsideration, which may obviate the need for an appeal, has been brought within the time period to take an appeal." 861 F.2d at 875. Any other conclusion would result in the unnecessary waste of litigant and court resources, while at the same time rendering the moving party's right to rehearing a virtual nullity.[7] I conclude that Appellants' Motions for Rehearing of the Bankruptcy Court Order appropriately tolled the time for Appellants to move for leave to appeal until ten days from the Bankruptcy Court's ruling *919 on those Motions. In re Mike, 796 F.2d at 383; In re Aguiar, 311 B.R. 129, 134 (B.A.P. 1st Cir. 2004) (noting that "a motion for relief from judgment tolls the appeal period and relates back to the underlying order when filed within the ten-day appeal period."); Balcor Pension Invs. 172 B.R. at 651 (reasoning that where a motion to reconsider calls into question issues to be raised on appeal, the time for appeal is stayed until resolution of the motion for reconsideration). Since Appellants moved for leave to appeal the Bankruptcy Court Order within ten days of the Bankruptcy Court's order denying rehearing, the Motions for Leave to Appeal are timely. IV. Motions for Leave to Appeal are Granted Interlocutory review is generally disfavored for its piecemeal effect on cases. United States v. MacDonald, 435 U.S. 850, 853, 98 S. Ct. 1547, 1549, 56 L. Ed. 2d 18 (1978); Prado-Steiman ex rel. Prado v. Bush, 221 F.3d 1266, 1276 (11th Cir. 2000). However, a district court may grant interlocutory review of a bankruptcy order if the subject issue (1) involves a controlling question of law, (2) as to which there is a substantial ground for difference of opinion, and (3) is such that an immediate appeal would advance the ultimate termination of the litigation. Babic v. Ford Motor Credit Corp. (In re Ashoka Enters., Inc.), 156 B.R. 343, 346 (S.D. Fla. 1993); Auto Dealers Group v. Auto Dealer Servs., Inc. (In re Auto Dealer Servs., Inc.), 81 B.R. 94, 96 (M.D. Fla. 1987); American Cabinets & Woodcrafting Corp. v. Polito Enters., Inc. (In re American Cabinets & Woodcrafting Corp.), 159 B.R. 969, 971 (M.D. Fla. 1993).[8] If the party moving for leave to appeal fails to establish any of these three elements, then leave must be denied. Celotex Corp. v. AIU Ins. Co. (In re Celotex Corp.), 187 B.R. 746, 749 (M.D. Fla. 1995) (citing Foster Sec., Inc. v. Sandoz (In re Delta Servs.), 782 F.2d 1267, 1272 (5th Cir. 1986)). After applying the elements to this case, I conclude that leave to appeal should be granted. A. Controlling Question of Law To satisfy this portion of the standard, the movant must demonstrate that there is a question of law, and it is controlling. Ahrenholz v. Bd. of Tr. of the Univ. Of IL, 219 F.3d 674, 675 (7th Cir. 2000) (emphasis in original). Indeed, an issue meets this exacting standard if it deals with a question of "pure" law, or matters that can be decided "quickly and cleanly without having to study the record." McFarlin v. Conseco Servs., LLC, 381 F.3d 1251, 1258, 1260-62 (11th Cir. 2004) (finding that because the issues presented involved application of the facts to the law, the movant could not prove a "controlling question of law") (quoting Ahrenholz v. Bd. of Tr. of the Univ. of IL, 219 F.3d 674,677 (7th Cir. 2000)); see also Allapattah Servs., Inc. v. Exxon Corp., 333 F.3d 1248, 1252-53 (11th Cir. 2003) (granting interlocutory review of whether the district court had supplemental jurisdiction over class members who did not meet amount in controversy benchmark), aff'd, 543 U.S. 924, 125 S. Ct. 317, 160 L. Ed. 2d 221 (2005); Tucker v. Fearn, 333 F.3d 1216, 1218 (11th Cir. 2003) (granting interlocutory review of whether a nondependent parent may recover loss of society damages for the wrongful death of his minor *920 child under general maritime law), reh'g and reh'g en banc denied, 82 Fed. Appx. 216 (11th Cir. 2003), cert. denied, 540 U.S. 1149, 124 S. Ct. 1147, 157 L. Ed. 2d 1043 (2004). The "antithesis of a proper § 1292(b) appeal is one that turns on whether there is a genuine issue of fact or whether the district court properly applied settled law to the facts or evidence." 381 F.3d at 1259. Instead, a controlling question is one that rises from the details of the case to a place of relevance among similar cases. Id.; see also Auto Dealer Servs., Inc., 81 B.R. at 96 (advising that a question is controlling not just because it determines the case at issue, but it must also dispose of a "wide spectrum of cases."); (quoting Federal Deposit Ins. v. First Nat'l Bank of Waukesha, 604 F. Supp. 616, 620 (E.D. Wis. 1985)). Appellants argue that the Bankruptcy Court Order raises a question of pure law: namely, whether a check kite demonstrates, per se, an intent to defraud. The Trustee counters that the Bankruptcy Court's ruling was broader than Appellants suggest, and was not dependent upon a wholly legal conclusion; instead, the Trustee contends that the Bankruptcy Court considered a number of facts before entering summary judgment in the Trustee's favor as to the element of the debtor's "actual intent to hinder, delay or defraud its creditors." In support of its position, the Trustee highlights the sheer breadth of the Bankruptcy Court's Findings of Fact (seventeen full pages), including, for example, the significant deterioration of the Debtor's financial situation. In its own words, the Trustee argues that the Bankruptcy Court made a general finding that the Debtor "was engaged in a check kiting scheme to hinder, delay or defraud its creditors, not simply that because it was engaged in a check kiting scheme it must have intended to defraud its creditors." (Opposition, p. 15). As explained more fully below, the Trustee's position is belied by the analysis in the Bankruptcy Court Order itself, which clearly establishes a legal determination that the operator of a check kiting scheme acts, per se, with an actual intent to defraud its creditors. I find that the Bankruptcy Court Order articulates two pure legal conclusions: namely, whether a Ponzi scheme is the equivalent of a check kiting scheme, and whether a check kite establishes, per se, an intent to defraud.[9] A number of examples from the Bankruptcy Court Order demonstrate the legal nature of both inquiries, including its reliance upon numerous decisions in which courts have found that a check kiting scheme is essentially a Ponzi scheme. (Bankruptcy Court Order, p. 22). Further, the Bankruptcy Court used a heading titled, "A Check Kite Is Per Se A Fraudulent Scheme." Id. The Bankruptcy Court analyzed the case using legal principles, instead of searching for factual disputes, before reaching summary judgment. First, the Bankruptcy Court analogizes the Debtor's check-kiting scheme to a Ponzi scheme. (Bankruptcy Court Order, pp. 22-25).[10] Second, it acknowledges *921 the body of case law finding that fraudulent intent may be inferred when a debtor engages in a Ponzi scheme or other "highly questionable conduct." (Bankruptcy Court Order, p. 22) (citing In re World Vision Enter., Inc., 275 B.R. 641, 656 (M.D. Fla. 2002)). Having taken these two analytical steps, the Bankruptcy Court concludes that, "the Debtor acted with actual intent to hinder, delay or defraud its creditors in effectuating all transfers [to Appellants] in furtherance of the check kiting scheme." (Bankruptcy Court Order, p. 27). In other words, the Bankruptcy Court ruled that a check kiting scheme is essentially a Ponzi scheme, and that a debtor engaged in a check kite is acting with the intent to defraud creditors, as a matter of law.[11] Moreover, the Bankruptcy Court Order does not address the factual disputes raised by Appellants in opposing the Trustee's Motion for Summary Judgment. For example, SunTrust disputed each of the "badges of fraud" raised by the Trustee in an attempt to defeat summary judgment by identifying genuine issues of material fact.[12] The Bankruptcy Court Order did not analyze any of these issues in entering summary judgment for the Trustee, which *922 reinforces the conclusion that the Bankruptcy Court relied upon law only in reaching its ruling. Finally, it is clear that resolution of the legal issues presented would not only impact the parties in this case, but a whole range of cases in which a debtor is accused of operating a check kite. Indeed, if the Bankruptcy Court Order is affirmed, a trustee will automatically meet its burden of proof as to actual intent to defraud in connection with avoidance actions where the debtor operated a check kite. All indications are that the Bankruptcy Court intended its Order to stem from a legal, as opposed to a factual analysis. The Trustee's arguments to the contrary are not supported by the Bankruptcy Court's own words, or the manner in which the Bankruptcy Court analyzed the issues. Therefore, I conclude that Appellants have presented a controlling issue in support of their Motions for Leave to Appeal. B. Substantial Ground for Difference of Opinion To satisfy this element of the analysis, a movant must normally demonstrate that at least two courts interpret the relevant legal principle differently. In re Auto Dealer Servs., Inc., 81 B.R. at 97. It is simply not enough for interlocutory review that the order for which appeal is sought presents a difficult ruling; nor is it sufficient that the movant can demonstrate a lack of authority on the issue. Id. at 96; Carbotrade SpA v. Bureau Veritas, 1993 U.S. Dist. LEXIS 2428, No. 92 CIV. 1459 (RPP), 1993 WL 60567, at *1 (S.D.N.Y. Mar. 2, 1993) (ruling that an issue of first impression is insufficient to establish that there are substantial grounds for difference of opinion). And where there is controlling authority in the jurisdiction where the order was rendered, there cannot be a substantial difference of opinion. In re Managed Care Litig., Nos. MDL 1334, 00-1334MDMORENO, 2002 WL 1359736, at *2 (S.D. Fla. Mar. 25, 2002). In fulfilling its inquiry, a court may consider authority from within and beyond the circuit in which it sits. Masters, Mates & Pilots Plans v. Lykes Bros. Steamship Co. (In re Lykes Bros. Steamship Co.), 200 B.R. 933, 938 (M.D. Fla. 1996) (finding substantial ground for difference of opinion based upon cases cited in appellants' briefs and case law identified from other jurisdictions); Managed Care Litig., 2002 WL 1359736, at *2 (finding a substantial ground for difference of opinion after considering contradictory decisions "reached by this court and by courts in other circuits."). For example, the District Court for the District of Columbia found substantial ground for difference of opinion on the issue of the scope of disgorgement under the RICO statute after identifying a contrary ruling rendered by the Second Circuit Court of Appeals. United States v. Phillip Morris USA Inc., 2004 U.S. Dist. LEXIS 27026, No. 99-2496 (GK), 2004 WL 1514215, at *2 (D.D.C. June 25, 2004). After a thorough search, I have found no case law from the Eleventh Circuit on the particular legal issues of whether a check kite is a Ponzi scheme, or whether a check kite demonstrates, per se, an intent to defraud creditors; indeed, they are both issues of first impression for the Eleventh Circuit. Therefore, I must first determine whether "at least two courts interpret the law differently," In re Auto Dealer Servs., Inc., 81 B.R. at 97, and then weigh the strength of those arguments against the decision by the Bankruptcy Court. Flor v. Bot Fin. Corp. (In re Flor), 79 F.3d 281, 284 (2d Cir. 1996). Appellants can satisfy their burden on this element if they can prove that there is a substantial difference of opinion between the Bankruptcy Court's ruling, and the *923 rulings of other courts. Philip Morris, 2004 U.S. Dist. LEXIS 27026, 2004 WL 1514215, at * 2 (finding a substantial ground for difference of opinion where one circuit court opinion conflicted with the district court's own ruling, and reflecting that, "[w]hile this Court believes that its analysis is correct, it is obvious that the arguments to the contrary in Carson are neither insubstantial nor frivolous.") (emphasis added). The McFarlin court noted that the court must ask itself whether there is a "substantial dispute about the correctness" of the pure legal issue considered by the lower court. 381 F.3d at 1259. To meet its burden, SunTrust references one case that wholly rejects both issues raised before this Court.[13] In Barber v. Union Nat'l Bank of Macomb (In re KZK Livestock, Inc.), 190 B.R. 626, 627 (Bankr. C.D. Ill. 1996), the trustee brought an avoidance action against the defendant, who had loaned money to the debtor. The debtor's principal operated a check kiting scheme, and he eventually pled guilty to check kiting charges. Id. at 627-28. The trustee argued in a motion for summary judgment that the debtor's principal's plea established prima facie evidence of the debtor's intent to "hinder, delay or defraud the Debtor's creditors." Id. at 628. The court rejected the trustee's argument, reasoning that while the debtor's guilty plea may have stood as prima facie evidence of the debtor's intent to defraud the banks being used for the kiting, it had no bearing on the analysis of whether the kiting was intended to defraud the debtor's other creditors. Id. at 629.[14] Appellants contend that KZK establishes a difference of opinion as to the issues addressed in the Bankruptcy Court Order. Appellants have cited no other authority directly related to the issues raised below. Given the dearth of case-law in the Eleventh Circuit, and the degree to which KZK Livestock is on point with this case and is neither insubstantial nor frivolous, I find that there is a substantial ground for difference *924 of opinion sufficient to warrant interlocutory review. In re Pacific Gas & Elec. Co., 280 B.R. 506, 515 (N.D. Cal. 2002) (finding substantial ground for difference of opinion where appellant cited the most relevant case in support of reversal), rev'd, 283 B.R. 41 (N.D. Cal. 2002), rev'd, 350 F.3d 932 (9th Cir. 2003), cert. denied, ___ U.S. ___, 125 S. Ct. 454, 160 L. Ed. 2d 318 (2004); Hall v. Synalloy Corp., 540 F. Supp. 263, 276 (S.D. Ga. 1982) (determining that there was a substantial ground for difference of opinion "given the dearth of Georgia case law on point, . . . "). C. Advance Ultimate Termination of the Litigation Interlocutory appeal is appropriate if determination of the appellate issue will advance the ultimate termination of the litigation. McFarlin, 381 F.3d at 1259; Lykes Bros. Steamship Co., 200 B.R. 933, 938 (M.D. Fla. 1996). Returning to McFarlin again, this requirement means that "resolution of a controlling legal question would serve to avoid a trial or otherwise substantially shorten the litigation." 381 F.3d at 1259. Relevant to that analysis is whether a decision on the merits will clarify the issue for other bankruptcy litigants, and otherwise "preclude the need for further appeals of this type which delay the bankruptcy proceedings," Id. Following this principle to its logical end, the most compelling grounds for interlocutory review exist when the reversal of an appellate issue would dispose of the entire case. Stong v. Bucyrus-Erie Co., 476 F. Supp. 224, 225 (D.C. Wis. 1979) (granting interlocutory review of an order granting partial summary judgment on liability). A court considering interlocutory review must also evaluate the stage of litigation and weigh the disruptive effect of an immediate appeal on the Bankruptcy Court proceedings against the probability that resources will be wasted in allowing those proceedings to go forward. In re Auto Dealer Servs., Inc., 81 B.R. at 97 (citing Lorentz v. Westinghouse Elec. Corp., 472 F. Supp. 954, 956 (W.D. Pa. 1979) (declining interlocutory review where discovery had been completed, and four claims still remained to be tried)); see also McFarlin, 381 F.3d at 1262 (finding that interlocutory appellate decision would not advance litigation as other claims remained pending). For instance, in the In re Auto Dealer Servs., Inc. case, the court declined to take interlocutory review because, among other reasons, an appeal then would not advance resolution of the litigation. 81 B.R. at 97. Instead, the court found that an interlocutory appeal would delay litigation and prove more costly than proceeding to trial because discovery and other pretrial matters were completed. Id. Here, the Trustee argues that interlocutory review is unwarranted because numerous other issues remain to be tried. Appellants concede that this Court's interlocutory review of the Bankruptcy Court Order would not end the litigation entirely regardless of my ultimate decision on the merits. In other words, if I take this appeal and reverse the Bankruptcy Court Order, the Trustee is still entitled to prove actual intent to defraud in some other manner. But I still find that an immediate appeal would hasten the ultimate disposition of this case. The discovery period in the case below is still open, and trial is scheduled for April of 2006. In short, there remains much work to be done between the parties before this case goes to trial. Further, without intervention at this point, resolution of the appellate issues raised herein would be extremely prolonged. As Appellants acknowledge, they retain the right to assert these and any other appellate grounds at a full plenary *925 appeal following a trial on the merits. This Court will be forced to consider the merits of these appeals at some point. But consideration now bears the benefit of crystallizing the issues at trial, and, importantly, staving off a potential re-trial should this Court reverse the Bankruptcy Court Order later. The ultimate litigation between the parties will be hastened by this Court's grant of interlocutory appeal. Based on the foregoing, it is hereby ORDERED AND ADJUDGED that: (1) Appellants' Motions for Leave to Appeal the Bankruptcy Court Order are GRANTED. (2) The parties shall file their briefs in accordance with Federal Rule of Bankruptcy Procedure 8009. (3) The Bankruptcy Court proceedings are hereby STAYED pending resolution of the instant appeal. NOTES [1] The Bankruptcy Court Order can be found at Appendix 1 to SunTrust's Motion for Leave to Appeal [DE 1 to Case Number 05-22062-CIV-GOLD/TURNOFF]. [2] The Trustee filed separate oppositions to Appellants' Motions for Leave to Appeal. The only distinction between the two oppositions relates to the Appellants' separate filing dates for moving for leave to appeal. I address that issue briefly in footnote five below. Given the similarities between the arguments raised in both responses, I will address them in omnibus fashion. For simplicity's sake, where the term "Opposition" is used, it shall refer to the Trustee's opposition to SunTrust's Motion for Leave to Appeal, but apply as to both Appellants. [3] The Federal Rules of Civil Procedure may be denoted as "FRCP" throughout this Order. [4] FRCP 59(e) provides that, "[a]ny motion to alter or amend a judgment shall be filed no later than 10 days after entry of the judgment." [5] The Trustee challenges Colonial's Motion for Leave to Appeal as untimely because it was allegedly filed "more than ten days after entry of the Order Denying Rehearing, . . ." (Trustee's Opposition to Colonial's Motion for Leave to Appeal, p. 6) (emphasis in original). As noted above, an order is entered when it appears on the docket. The Bankruptcy Court's Order denying Colonial's Motion for Rehearing was entered on May 25, 2005. Pursuant to Federal Rules of Appellate Procedure, which govern here, Colonial's Motion for Leave to Appeal was due on June 8, 2005. Fed. R. App. P. 26(a) (when "computing any period of time specified in these rule or in any local rule, court order, or applicable statute: (1) Exclude the day of the act, event, or default that begins the period. (2) Exclude intermediate Saturdays, Sundays, and legal holidays when the period is less than 11 days, unless stated in calendar days. (3) Include the last day of the period, unless it is a Saturday, Sunday, legal holiday, or—if the act to be done is filing a paper in the court—a day on which the weather or other conditions make the clerk's office inaccessible."); Abraham v. Volkswagen of America, Inc., No. Civ-90-725T, 1991 WL 89913, at *1 (W.D.N.Y. May 28, 1991) (applying Federal Rule of Appellate Procedure 26(a) to a motion for leave to appeal pursuant to 28 U.S.C. § 1292(b)). Therefore, Colonial's Motion for Leave to Appeal, filed on June 6, 2005, was timely. [6] The parties agree, and it is reasonable to do so, that the Bankruptcy Court Order granting partial summary judgment is interlocutory. Valley Drug Co., 344 F.3d at 1295. [7] The Trustee takes issue with the form of Appellants' Motions for Rehearing, arguing that they are not substantively proper Rule 59(e) or 60(b) motions. It is clear in this Circuit that a motion to reconsider will not lose its Rule 59(e) characterization based upon mere formalities. In United States v. Eastern Air Lines, Inc., 792 F.2d 1560, 1562 (11th Cir. 1986). the Eleventh Circuit held that a notice of appeal filed sixty days after entry of a summary judgment order was not untimely due to a pending motion to reconsider that order. The court dismissed arguments that the motion to reconsider was ineffective to toll the appellate time frame because it was not titled as a Rule 59 "motion to amend judgment," and because it did not raise new legal theories. Id. The court simply said that for a motion to reconsider to toll the time for filing a notice of appeal, the motion need only "request relief which may be granted." Id. (citing Harcon Barge Co., Inc. v. D&G Boat Rentals, Inc., 784 F.2d 665, 667 (5th Cir. 1986) (en banc) (noting that any post-judgment motion to alter or amend, other than a motion directed at clerical errors, is timely if filed within ten days of entry of judgment, and is properly categorized as a Rule 59(e) motion)), cert. denied 479 U.S. 930, 107 S. Ct. 398, 93 L. Ed. 2d 351 (1986). Nor is it relevant to a tolling analysis that a motion for reconsideration is filed in bad faith. Even then, a court should not sanction the moving party by finding that the motion fails to toll the time on appeal; rather, the court should, if necessary, impose the typical sanctions available under the FRCP and other applicable federal law. Law Offices of Geraci v. Bryson (In re Bryson), 131 F.3d 601, 603-04 (7th Cir. 1997) (reversing district court's ruling that motion for reconsideration filed in bad faith did not toll the time for appealing the underlying order). [8] This three-part standard is analogous to that set forth in 28 U.S.C. § 1292(b), which governs appeals from the district court to the circuit court of appeals. In re Auto Dealer Servs., Inc., 81 B.R. at 96; Celotex Corp., 187 B.R. at 749 (M.D. Fla. 1995) ("[i]n determining when to exercise this discretionary authority, a district court will look to the standards which govern interlocutory appeals from the district court to the court of appeals pursuant to 28 U.S.C. § 1292(b).")). [9] At oral argument, counsel for SunTrust presented these two legal issues as one; nevertheless, I find that the Bankruptcy Court expressly relied upon the preliminary legal conclusion that a Ponzi scheme is equivalent to a check kiting scheme before reaching its ultimate conclusion that a check kite demonstrates, per se, an actual intent to defraud. [10] The Supreme Court explains by the example that follows the circumstances surrounding a check kite: The check kiter opens an account at Bank A with a nominal deposit. He then writes a check on that account for a large sum, such as $50,000. The check kiter then opens an account at Bank B and deposits the $50,000 check from Bank A in that account. At the time of deposit, the check is not supported by sufficient funds in the account at Bank A. However, Bank B, unaware of this fact, gives the check kiter immediate credit on his account at Bank B. During the several-day period that the check on Bank A is being processed for collection from that bank, the check kiter writes a $50,000 check on his account at Bank B and deposits it into his account at Bank A. At the time of the deposit of that check, Bank A gives the check kiter immediate credit on his account there, and on the basis of that grant of credit pays the original $50,000 check when it is presented for collection. By repeating this scheme, or some variation of it, the check kiter can use the $50,000 credit originally given by Bank B as an interest-free loan for an extended period of time. In effect, the check kiter can take advantage of the several-day period required for the transmittal, processing, and payment of checks from accounts in different banks. Williams v. U.S., 458 U.S. 279, 281, 102 S. Ct. 3088, 3090, 73 L. Ed. 2d 767 (1982). A check kiting is accomplished "by taking advantage of the float—that is, the time required for a check deposited in one bank to be physically presented for payment at the bank on which it was drawn." Federal Sav. Bank v. Union Planters Nat'l Bank (In re Brown), 209 B.R. 874, 876 (Bankr. W.D. Tenn. 1997). A Ponzi scheme is defined as: [A] fraudulent investment arrangement in which returns to investors are not obtained from any underlying business venture but are taken from monies received from new investors. Typically, investors are promised high rates of return, and initial investors obtain a greater amount of money from the ponzi scheme than those who join the ponzi scheme later. As a result of the absence of sufficient, or any, assets able to generate funds necessary to pay the promised returns, the success of such a scheme guarantees its demise because the operator must attract more and more funds, which thereby creates a greater need for funds to pay previous investors, all of which ultimately causes the scheme to collapse. In re McCarn's Allstate Fin., Inc. 326 B.R. 843, 850 (Bankr. M.D. Fla. 2005) (quoting In re Taubman, 160 B.R. 964, 978 (Bankr. S.D.Ohio 1993) (citations omitted)). [11] The Bankruptcy Court's conclusion relied upon a preliminary finding that Appellants operated a check kite. At oral argument, SunTrust conceded this point for purposes of framing the legal issue in support of its Motion for Leave to Appeal, but it reserved the right to challenge that determination if and when this Court granted leave to appeal. For purposes of this Order, I have assumed that the Debtor engaged in a check kiting operation. [12] The Trustee's Motion for Summary Judgment raises the argument that a check kite is, per se, a fraudulent scheme. In fact, the Trustee's Motion for Summary Judgment uses the same heading, "A Check Kite Is a Per Se Fraudulent Scheme," that the Bankruptcy Court employs in its Order. [13] SunTrust also cites a number of cases in which courts have addressed the more general issue of whether a check kite, or similar scheme, is a fraudulent device. Importantly, none of those cases address the central issue in this case, that is, whether a check kite operation establishes, per se, an intent to defraud in connection with an avoidance action. See e.g., In re Model Imperial, Inc., 250 B.R. 776, 792 (Bankr. S.D. Fla. 2000) (finding after trial that an improper scheme by the debtor, not involving a check kite, to avoid its lender's credit restrictions by overstating revenues established the debtor's actual intent to defraud); In re Vitanovich, 259 B.R. 873, 878 (6th Cir. 2001) (finding that a debtor could not discharge the debt of a bank that had been subject to its check kiting scheme because the check kite fit within the definition of actual fraud necessary for a nondischargeability analysis) (citing United States v. Stone, 954 F.2d 1187, 1190 (6th Cir. 1992)). [14] Appellants also cite Marine Midland Bank v. Drayer (In re Drayer), 29 B.R. 831, 834 (Bankr. D. Mass. 1983) as demonstrating a difference of opinion from the Bankruptcy Court's decision. In that case, a bank tried to argue that its debt was nondischargeable because the debtor had operated a check kiting scheme. To establish the requisite fraudulent intent to deceive, the bank relied upon a prior state court judgment in which the debtor was held liable for overdrafts. Id. at 834. The bankruptcy court ruled that collateral estoppel did not apply to save the bank from having to prove fraudulent intent to deceive because the state court judgment did not make a finding of fraudulent intent. Id. at 834. Importantly, the court noted that: While it may be true that check kiting is commonly found to be fraudulent conduct, such a determination was neither made nor was it essential to the finding of liability, and is an issue of fact which has not yet been determined. Because the state court did not make the finding of fraud in fact, collateral estoppel is not appropriate: Id. Appellants cannot rely upon the Drayer decision because it admittedly did not reach the issues here.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1934535/

33 B.R. 374 (1983) In re INTERNATIONAL TITANIUM CORPORATION, Debtor. UNSECURED CREDITORS' COMMITTEE FOR INTERNATIONAL TITANIUM CORPORATION, Plaintiff, v. EQUIBANK, Defendant, v. ALGEMENE BANK NEDERLAND, N.V., Intervenor. Bankruptcy No. 83-160. United States District Court, W.D. Pennsylvania. February 18, 1983. MEMORANDUM OPINION AND ORDER MANSMANN, District Judge. This is a request by the Unsecured Creditors Committee ("Committee") for International *375 Titanium Corporation (ITC) for a Preliminary Injunction seeking to enjoin Equibank from honoring a letter of credit which Equibank issued at the request of its customer, International Titanium (Europe) Trading Company Limited ("ITE"), a subsidiary of ITC, in favor of the beneficiary, Algemene Bank Nederland ("ABN"). The real dispute is whether the demand is fraudulent under U.C.C. Sec. 5-114 whereby the issuer is not bound to honor the request because of fraud in the transaction. The parties agree that Pennsylvania law supports this, Intraworld Industries, Inc. v. Girard Trust Bank, 461 Pa. 343, 336 A.2d 316 (1975) but disagree as to the interpretation of Intraworld to the facts of this case. * * * * * * JURISDICTION OF THE COURT This matter is before the Court on an Appeal from the Order of February 14, 1983 of the Bankruptcy Court of this District in the matter of International Titanium Corp., Debtor, Unsecured Creditor Committee for International Titanium Corporation v. Equibank v. Algemene Bank Nederland, N.V., 33 B.R. 374 (D.C.Pa.1983). After consideration of the Committee's Petition for Injunction, the Bankruptcy Judge found the case to be governed by the U.S. Supreme Court's decision in Northern Pipeline Construction Co. v. Marathon Pipeline, 458 U.S. 50, 102 S. Ct. 2858, 73 L. Ed. 2d 598 (1982) and that the Bankruptcy Court was without jurisdiction to entertain the complaint for an injunction. Petitioner requests that this Court return the matter to the Bankruptcy Court for findings of fact and conclusions of law, citing the Emergency Order of December 27, 1982. This Court finds that pursuant to the Emergency Order of December 27, 1982 that it has jurisdiction to entertain this matter. IN RE: Bankruptcy Resolution, Order dated December 27, 1982. The Bankruptcy Resolution has been found constitutional in the case of Northland Paint Partners, Debtors, The Prudential Insurance Co. of America v. The Stouffer Corp., 26 B.R. 1019 (D.C.E.D.Mich.1983). Under this Resolution the District Court may withdraw the reference to a Bankruptcy Court sua sponte. The Court is retaining this matter because we feel strongly that this case deals with the plenary jurisdiction of the federal district court. This Court wishes to emphasize that we are withdrawing the referral only in this one particular case. We do this because there is a continuing injury and to avoid circuitous litigation whereby this lawsuit may possibly be transferred between courts, delaying a resolution on the ultimate issue. A challenge to the subject matter jurisdiction of this Court has been presented by Algemene, who was given permission by the Bankruptcy Court to intervene in this matter. This Court has authority to entertain this matter pursuant to the fundamental power of equity to hear bankruptcy matters. This authority of the federal district court is not diminished by the U.S. Supreme Court decision in Northern Pipeline Construction Co. v. Marathon Pipeline, supra. We note here a stipulation by the parties that this Court has in personam jurisdiction over all the parties. In order for the district court to grant a preliminary injunction the moving party must show (a) reasonable probability of eventual success in the litigation, and that (b) he will be irreparably injured pendente lite if relief is not granted. Moreover, while the burden rests upon the moving party to make these two requisite showings, the district court "should take into account when they are relevant": (c) the possibility of harm to other interested persons from the grant or denial of the injunction and (d) the public interest Arthur Treacher's Fish & Chips, Inc. v. A & B Management Corp., slip op. (3d Cir. Mar. 18, 1982). With respect to the U.C.C. the parties are in agreement that there has been compliance *376 with the standby letter of credit in regard to Sec. 5-114(1) which reads: (1) An issuer must honor a draft or demand for payment which complies with the terms of the relevant credit regardless of whether the goods or documents conform to the underlying contract for sale or other contract between the customer and the beneficiary. * * * * * * FINDINGS OF FACT This Court makes the following findings of fact: 1. ITE, through Consolidated Trading & Finance Corporation (Mohammed S. Huque, President), creating a credit facility with ABN for ITE, signed a letter of acceptance as part of the agreement between ITE and ABN. 2. A line of credit for $500,000 was established with Equibank in Pittsburgh through a standby letter of credit. Equibank, pursuant to Federal Banking Regulations, was permitted to issue a standby letter of credit for a period of one year only. 3. The credit facility was provided for a period of approximately two years, subject to annual review by ABN to determine, inter alia, if another letter of credit would be requested. Monies borrowed would be repaid "upon demand." 4. The credit facility of $500,000 with ABN was drawn upon in the amount of $450,000. To be effective under the terms of the irrevocable letter of credit with Equibank, ABN had to make demand upon Equibank on or before February 11, 1983. 5. The demand was so made. All parties agree that the demand itself was in conformity with the requirements of the letter of credit documents. 6. The dispute between the parties concerns whether ABN was required to make a demand for repayment to ITE prior to notification to Equibank and if so required, did it give such notice to ITE. 7. We find that irrespective of whose law applies on the legal issue (the Isle of Jersey or the Commonwealth of Pennsylvania) and the question of the content thereof, that actual notice of the request for repayment and the intention of ABN to notify Equibank was received by ITE through its Managing Director Tibor Borsos. 8. This notice was received by ITE by virtue of a letter sent by ABN to Mr. M.S. Huque who forwarded it to Mr. Borsos. 9. ITE did not and has not to date tendered repayment of the amount due and owing from ITE to ABN. 10. That previous communiques by ABN to David St. C. Morgan, allegedly the solicitor of ITE in Jersey either remained unanswered or were not fruitful in effectuating a return of the requested information. 11. Indeed, ABN would have been justified in concluding that David Morgan did not have authority from the principals of ITE to represent them. * * * * * * CONCLUSIONS OF LAW Under the Uniform Commercial Code, Sec. 5-114, dishonor of a letter of credit herein may only occur if there is a fraud in the transaction. The Petitioner has not met its burden of proof in showing the first prerequisite for a preliminary injunction, i.e., reasonable probability of eventual success in the litigation, because it has not demonstrated fraud either in the demand itself or in the underlying obligation or transaction. Since a solid factual basis exists for the demand declaration from ABN to Equibank, an injunction should not issue to permit dishonor of the letter of credit. Consequently, the request for the preliminary injunction shall be denied and the supersedeas granted by the Bankruptcy Court shall be dissolved. An appropriate Order shall issue.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1932068/

196 B.R. 167 (1996) In re Raymond KONG, Debtor. In re Yee Nor KONG, Debtor. Robert M. DAMIR, Plaintiff-Appellant, v. TRANS-PACIFIC NATIONAL BANK, a banking corporation, Defendant-Appellee. Nos. C-95-3911 CAL, C-95-3912 CAL. United States District Court, N.D. California. May 7, 1996. *168 *169 Robert L. Hughes, Timothy A. Colvig, Terri Ann Kim, Lempres & Wulfsberg, Oakland, CA, for Robert M. Damir. Joseph N. Demko, David M. Wiseblood, Frandzel & Share, San Francisco, CA, for Trans-Pacific National Bank. ORDER AFFIRMING BANKRUPTCY COURT JUDGMENTS LEGGE, District Judge. This is a consolidated appeal from summary judgments granted by the Bankruptcy Court in an adversary proceeding in the above two bankruptcies.[1] The appeal was briefed, argued and submitted for decision. The court has reviewed the decisions of the Bankruptcy Court, the records on appeal, the briefs, the arguments of counsel, and the applicable authorities. This court affirms the judgments of the Bankruptcy Court. I. Appellant Robert Damir is the trustee of the bankruptcy estates of Mr. Raymond Kong and Mrs. Yee Nor Kong. Mr. Damir initiated an adversary proceeding in the Bankruptcy Court, seeking to avoid alleged preferential transfers made by the Kongs to the appellee Trans-Pacific National Bank (the "bank"). The action alleged two claims for relief. The first was to avoid alleged preferential transfers totaling approximately $1,000,000 made to the bank by the Kongs between ninety days and one year before the date of their bankruptcy petitions. One of the issues in that claim is whether the bank was an "insider." The second claim was to avoid an alleged preferential transfer payment of $5,000 made within ninety days of the filing of the bankruptcy petitions. The bank moved for summary judgment. The Bankruptcy Court first ruled on the statute of limitations defense raised by the bank against both claims. The court held that the statute of limitations barred both of the claims by Yee Nor Kong, but not the claims by Raymond Kong. The Bankruptcy Court then considered the merits of Raymond Kong's claims. It ruled that the trustee had failed to demonstrate a genuine issue of material fact that the bank was an "insider" of the Kongs, for the purpose of enlarging the applicable preference period under Bankruptcy Code Section 547(b)(4)(B). The result was that the transfers made by the Kongs to the bank during the period between ninety days and one year prior to the petition date were not voidable. On the second claim by Raymond Kong, the Bankruptcy Court denied the bank's motion for summary judgment. The trustee appeals from the decisions against Mr. and Mrs. Kong's estates. II. The standard for this court's review of the Bankruptcy Court decisions is "clearly erroneous" on questions of fact, and de novo on questions of law. A grant of summary judgment is generally reviewed de novo. *170 III. During 1990 and into 1991, the Kongs were indebted to the bank in excess of $1,000,000. The indebtedness resulted from overdrafts in the Kongs' demand checking accounts with the bank. The nature of those overdrafts is in dispute, but the court will assume for the trustee's benefit here that they involved check kiting operations of which the bank was aware. Starting in January 1991, the bank began pressuring the Kongs to cure the kites. Near the end of March 1991, the bank told Mrs. Kong that if they did not cure the kites, that she and the bank's officers might be arrested. Between March 28, 1991 and April 3, 1991, the Kongs deposited sufficient monies into their accounts at the bank to cover the overdrafts. All of the Kongs' accounts at the bank were closed on April 12, 1991. Creditors of the Kongs filed involuntary Chapter 7 bankruptcy petitions against them on July 19, 1991. This was more than ninety days after the last date on which the Kongs cured their overdrafts with the bank. Mr. Damir was appointed the interim trustee of both debtors' estates on July 30, 1991. IV. The Bankruptcy Court's summary judgment did not resolve all of the claims in the adversary proceeding between the trustee and the bank. The decisions were therefore interlocutory. Interlocutory decisions are not appealable of right, and an appellant is required to have leave to appeal. 28 U.S.C. § 158(a)(3); F.R.Bankr.P. 8003. This court will exercise its discretion to hear this appeal. The appeal involves controlling issues of law. That is, (1) when the statue of limitations begins to run in a Chapter 7 proceeding when no permanent trustee is elected, and (2) the legal standard for the determination of insider status. Those issues affect not only this case but other proceedings involving these debtors. The issues are not well settled. Judicial decisions in both the Ninth Circuit and other circuits do not provide clear rules of law. And, judicial economy will be served by determining the issues raised in this appeal at this time. Decisions will materially advance the ultimate litigation. The Bankruptcy Code contains a statute of limitations for preference actions. Until its amendment in 1994,[2] Section 546(a) provided that any such action must be filed within "two years after the appointment of a trustee under Section 702...." In the context of the present case, the question is when the trustee was appointed under Section 702. An interim trustee under Section 701 is appointed by the United States Trustee promptly after the order for relief. But it was only the appointment of the permanent trustee under Section 702 that triggered the Section 546(a) statute of limitations in effect prior to 1994. The creditors may elect the permanent trustee at the meeting of creditors. But if the creditors do not elect a permanent trustee, the interim trustee becomes the permanent trustee. 11 U.S.C. § 702(d). In this case, the creditors did not elect a permanent trustee, so the question became one of when the creditors "did not elect" the permanent trustee. The Bankruptcy Court carefully analyzed the relevant cases on the issue in this circuit and around the United States. For cases in this circuit, see In re Conco Building Supplies, Inc., 102 B.R. 190 (9th Cir. BAP 1989); In re San Joaquin Roast Beef, 7 F.3d 1413 (9th Cir.1993); In re Softwaire Centre Int'l, Inc., 994 F.2d 682 (9th Cir.1993); In re Sahuaro Petroleum & Asphalt Co., 170 B.R. 689 (C.D.Cal.1994). And for the decisions subsequent to the Bankruptcy Court's decision here, see In re Hanna, 72 F.3d 114 (9th Cir.1995) and In re Lucas Dallas, Inc., 185 B.R. 801 (9th Cir. BAP 1995). The Bankruptcy Court concluded that the interim trustee should be deemed to be the Section 702 permanent trustee on the first date set for the meeting of creditors, unless within a reasonable period of time thereafter the creditors elected a permanent trustee (which did not occur in this case). This court agrees with and affirms that legal conclusion *171 reached by the Bankruptcy Court, for the reasons set forth on pages 3-9 of the Bankruptcy Court's Memorandum decision. In the Yee Nor Kong case, the Bankruptcy Court concluded that the first-date-set rule would result in an accrual date of September 30, 1991. The Section 546(a) statute of limitations would then have expired on September 30, 1993, and the adversary action was not filed by Mrs. Kong's trustee until March 1994. The first date set in the Raymond Kong case was March 20, 1992, so his trustee's action filed on March 18, 1994 was within the two-year period. This court agrees with the analysis and decisions of the Bankruptcy Court.[3] The court concludes that the action by Yee Nor Kong is barred by the statute of limitations, but the action by Raymond Kong is not barred. V. As stated, the Bankruptcy Court granted summary judgment to the bank on Raymond Kong's first claim, on the ground the trustee had failed to demonstrate a genuine issue of material fact that the bank was an insider. A trustee may avoid transfers made by a debtor if they constitute preference payments under Section 547(b) of the Bankruptcy Code. As noted, the transfers at issue here occurred more than ninety days prior to the filing of the bankruptcy petition. Section 547(b)(4)(B) provides that transfers between ninety days and one year before the filing of the petition may be set aside only if the creditor "at the time of such transfer was an insider." The Bankruptcy Code includes a partial enumeration of the term "insider" in Section 101(31)(A). There is no dispute that the bank is not within that enumeration. However, the code says the term "insider" includes that defined enumeration. And the word "includes" indicates the term "insider" is not limited to those enumerations. A creditor can also be an insider of the debtor if the creditor had sufficient influence or control over the debtor's operations. That control must be more than that attendant to the usual financial control inherent in a debtor-creditor relationship. The test has been variously defined by the decided cases, which have necessarily dealt with the specific facts before them. See In re Friedman, 126 B.R. 63, 69-70 (9th Cir. BAP 1991); In re Schuman, 81 B.R. 583, 586 (9th Cir. BAP 1987); In re Anderson, 165 B.R. 482 (Bankr. D.Ore.1994); In re Standard Stores, Inc., 124 B.R. 318 (Bankr.C.D.Cal.1991); In re Henderson, 96 B.R. 820, 825-26 (Bankr. E.D.Tenn.1989); In re Huizar, 71 B.R. 826 (Bankr.W.D.Tex.1987); In re Hartley, 52 B.R. 679 (Bankr.N.D.Ohio 1985); In re Schick Oil & Gas, Inc., 35 B.R. 282 (Bankr. W.D.Okla.1983). What the courts have examined under the facts of each case has been the nature of the relationship between the debtor and the creditor, and whether that relationship, defined in terms of control or undue influence, gave the creditor the power to have its debts repaid. But the cases agree that the relationship and power must be more than the debtor-creditor relationship itself. The finding of an "insider" is generally a question of fact, and it is one on which the trustee bears the burden of proof. 11 U.S.C. § 547(g). However, the issue can in appropriate cases be resolved by summary judgment. In reference to the bank's summary judgment motion, the trustee had to produce evidence sufficient to meet the shifting burdens defined in Celotex Corp. v. Catrett, 477 U.S. 317, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986). The trustee's evidence does not sustain his burden of proof. The most that he has shown are the following facts: The bank was of course the Kongs' commercial bank. Two officers of the bank had known the Kongs since 1984. The Kongs had a substantial overdraft at the bank, as a result of their check kiting, and this court will assume that the bank knew that the overdraft resulted *172 from check kites. And the bank put almost daily pressure on Mrs. Kong to cover the overdraft, including threats of criminal prosecution. This court has conducted a de novo review of the evidence before the Bankruptcy Court, and some evidence submitted by the trustee which may not have been before the Bankruptcy Court. However, that evidence does not establish sufficient control to render the bank an insider of the Kongs. All of the pressure which the bank exerted on the Kongs was in connection with its debtor-creditor relationship. The bank had no authority to make business decisions for the Kongs or even help them do so. While the bank clearly imposed pressure on the Kongs, including threatening criminal prosecution, it did so solely in its role as their creditor. This Court concludes that the Bankruptcy Court was correct in finding, by the standard of Rule 56 of the F.R.C.P., that the trustee had not demonstrated a genuine issue of material fact. The trustee's first claim therefore failed, and the Bankruptcy Court's decision in that regard is AFFIRMED. VII. The trustee also argues that the Bankruptcy Court should have granted the trustee a continuation for further discovery before ruling on the bank's motion.[4] The request for a continuance of a summary judgment motion, in order for the opposing party to conduct discovery, is measured by the standard of Rule 56(f). The party seeking the continuance must state by affidavit why he is unable to present the required opposing material, what facts he hopes to discover, and that the evidence which he seeks exists. The Bankruptcy Court's decision in that regard is within its discretion, and this court can review that decision only for an abuse of the discretion. The trustee's request for a continuance did not meet the required standard. It was contained only on page 23 of the trustee's opposition to the summary judgment motion on the merits. It was only a general statement and merely said that additional discovery would "corroborate Mrs. Kong's testimony." The Bankruptcy Court had before it the testimony of Mrs. Kong in her Section 2004 examination, and it is questionable whether mere corroboration would have been helpful to the Bankruptcy Court in its determination of the summary judgment motion. For purposes of this appeal, this court will assume that the testimony of the bank officers would have corroborated Mrs. Kong. But that would not have altered the known facts discussed above or changed the result. The trustee's request did not meet the specificity required by the standard of Rule 56(f), and the Bankruptcy Court did not abuse its discretion by deciding the motion on the record before it. VIII. For the reasons discussed above, the decisions of the Bankruptcy Court are AFFIRMED. The judgment in favor of the bank on all claims brought against it by Yee Nor Kong is AFFIRMED. The judgment in favor of defendant on the first claim for relief by Raymond Kong is AFFIRMED. The Bankruptcy Court was also correct in its denial of judgment in favor of defendant on the second claim for relief brought by Raymond Kong. IT IS SO ORDERED. NOTES [1] The Bankruptcy Court's decision is Memorandum, December 16, 1994, in Adv. No. 94-3-150-T.C. [2] The amendment is not applicable to this action. [3] Parenthetically, that decision is also similar to Congress' 1994 amendment to Section 546(a). Although that amendment does not apply to this case, it would impose an earlier accrual date than the trustee seeks here. [4] This court notes that it is not clear from the record if or when the Bankruptcy Court made this ruling. But the court will assume for the trustee's benefit that there was such a denial.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1937183/

420 B.R. 915 (2009) RAYONIER WOOD PRODUCTS, L.L.C., Plaintiff/Appellee, v. SCANWARE, INC. and FinScan OY, Defendants/Appellant. No. 609CV028. United States District Court, S.D. Georgia, Statesboro Division. November 30, 2009. *917 James B. Durham, Durham, McHugh & Duncan, PC, Brunswick, GA, for Plaintiff/Appellee. J. Franklin Edenfield, Spivey, Carlton & Edenfield, PC, Swainsboro, GA, Robert S. Glenn, Jr., Hunter, MacLean, Exley & Dunn, PC, David W. Adams, Drew K. Stutzman, Paul W. Painter, Jr., R. Clay Ratterree, Ellis, Painter, Ratterree & Adams, LLP, Savannah, GA, for Defendants/Appellant. ORDER B. AVANT EDENFIELD, District Judge. I. INTRODUCTION This lawsuit arises from the sale of a lumber grading system to plaintiff/appellee Rayonier Wood Products ("Rayonier") by debtor/defendant ScanWare, Inc. Rayonier sought damages for breach of contract against both ScanWare and defendant/appellant FinScan OY (ScanWare's owner) in Emanuel County Superior Court. ScanWare subsequently petitioned for Chapter 11 reorganization in the District of Oregon (the "Oregon bankruptcy court"). FinScan then removed the state court action to the bankruptcy court for the Southern District of Georgia (the "Georgia bankruptcy court"), and Rayonier moved that court to remand and/or abstain. The Georgia bankruptcy court granted Rayonier's motion and remanded the action to Emanuel County Superior Court. FinScan now appeals that decision to this Court. II. BACKGROUND In May 2006, Rayonier and ScanWare entered into a contract (the "Contract") under which ScanWare was to provide Rayonier, at its wood products facility in Emanuel County, Georgia, a planer mill trimmer optimization system. Doc. # 1-14 at 2. This system was intended to perform *918 better than ninety five percent on grade performance pursuant to industry standards. Id. The Contract contained a choice of law provision,[1] requiring any dispute arising under and in connection with the Contract be litigated before the courts of Emanuel County, Georgia. Id. at 2-3. FinScan, a Finnish company and then minority owner of ScanWare,[2] was not a signatory to the Contract. Id. at 3. On 7/17/08, Rayonier filed a complaint in Emanuel County Superior Court against ScanWare and FinScan. Id. The Complaint alleged, inter alia, that Defendants breached the Contract when the lumber grading system failed to perform to industry standards. Id. at 3-4. On 10/29/09, ScanWare petitioned for Chapter 11 reorganization in the Oregon bankruptcy court,[3] and FinScan filed a Notice of Removal in the Georgia bankruptcy court. Id. at 4-5; see 28 U.S.C. § 1452(a) ("A party may remove any claim or cause of action in a civil action ... to the district court for the district where such civil action is pending, if such district court has jurisdiction of such claim or cause of action under [28 U.S.C. § 1334]."). On 11/21/08, Rayonier, citing the Contract's choice of law provision, filed a motion to remand the litigation to state court and/or abstain from hearing the case. Id. at 5; see 28 U.S.C. §§ 1334(c)(1) ("[A] district court in the interest of justice, or in the interest of comity with State courts or respect for State law, [may abstain] from hearing a particular proceeding arising under title 11 or arising in or related to a case under title 11."), 1452(b) (providing court with discretion to remand on any equitable ground). On 12/19/08, ScanWare filed a motion to transfer venue of the removed action to the Oregon bankruptcy court. Id.; see 28 U.S.C. § 1412 (providing district court with discretion to transfer title 11 proceeding to a more convenient venue); F.R.Bank.P. 7087 ("On motion and after a hearing, the court may transfer an adversary proceeding or any part thereof to another district pursuant to 28 U.S.C. § 1412...."). The Georgia bankruptcy court never reached the merits of the venue transfer question and instead granted Rayonier's motion to remand and/or abstain. Doc. # 1-14 at 16-17. FinScan's appeal of that decision is presently before the Court. Doc. # 1-15. FinScan contends that the Georgia bankruptcy court erred by (1) declining to transfer venue and (2) abstaining and remanding the suit to Emanuel County Superior Court. The Court will address these two issues in turn. Doc. # 3 at 5. III. STANDARD OF REVIEW Decisions to abstain under 28 U.S.C. § 1334(c)(1) are reviewed under an abuse of discretion standard. Fl. Dept. of Fin. *919 Servs. v. Poe Fin. Group, Inc., 2008 WL 2704386, *2 (M.D.Fla.2008) (unpublished). "A court abuses its discretion if it applies the wrong legal standard, uses improper procedures to reach its result, or makes factual findings that are clearly erroneous." Id. (citing In re Bayshore Ford Truck Sales, Inc., 471 F.3d 1233, 1251 (11th Cir.2006)). The Court reviews a bankruptcy court's conclusions of law de novo. See In re Thomas, 883 F.2d 991, 994 (11th Cir.1989). IV. TRANSFER OF VENUE FinScan contends that the Georgia bankruptcy court should have transferred venue to the Oregon bankruptcy court before considering the merits of abstention and/or remand, noting that the Oregon bankruptcy court oversees ScanWare's bankruptcy proceeding and will resolve the claims of similarly situated creditors who, like Rayonier, purchased equipment from ScanWare. Doc. #3 at 9. FinScan thus urges this Court to follow a line of cases that hold that the home bankruptcy court (i.e., the bankruptcy court where the debtor filed his petition) is best situated to make the abstain/remand decision. See id. at 9-10 (referencing Everett v. Friedman's Inc., 329 B.R. 40 (S.D.Miss.2005); Tallo v. Gianopoulos, 321 B.R. 23 (E.D.N.Y.2005); In re Aztec Indus., Inc., 84 B.R. 464 (N.D.Ohio 1987)). In its Memorandum and Order, however, the Georgia bankruptcy court expressly recognized that courts are divided on the proper sequence for ruling on competing motions to transfer venue or remand. Doc. # 1-14 at 10. Some jurisdictions, as FinScan now reminds the Court, hold that the home bankruptcy court should determine the issues underlying motions to abstain or remand. Id. The theory underlying this argument is often referred to as the "conduit" court theory because it treats the local bankruptcy court (the bankruptcy court to which the state action is removed—here, the Georgia bankruptcy court) as a mere conduit with little role in determining where the removed lawsuit should be heard. Id. Other jurisdictions, by contrast, hold that the local bankruptcy court should rule on pending motions to abstain/remand. Id. at 11. The Georgia bankruptcy court, to FinScan's chagrin, adopted the latter holding because of its "strong statutory and logical support." Id. at 12. The court noted that the discretionary language of 28 U.S.C. §§ 1412 (change of venue) & 1452 (removal of bankruptcy claims) suggests that the local bankruptcy court, does not act merely as a conduit, but actually plays a more active role in the abstain/remand question. See 28 U.S.C. §§ 1412 ("A district court may transfer a case or proceeding under title 11 to a district court for another district, in the interest of justice or for the convenience of the parties.") (emphasis added), 1452(b) ("The court to which such claim or cause of action is removed may remand such claim or cause of action on any equitable ground.") (emphasis added). The Court agrees and sees no reason to disturb the well-founded decision of the Georgia bankruptcy court on this issue. The court was not bound to follow the line of cases advocated by FinScan, and the court indeed selected the approach that best comports with the text of the relevant statutes. Because the Georgia bankruptcy court was correct in deciding the abstain/remand question before reaching the merits of venue transfer, this Court will now consider whether the Georgia bankruptcy court erred by remanding this case to Emanuel County Superior Court. V. ABSTENTION/REMAND As noted by the Georgia bankruptcy court and mutually agreed upon by the *920 parties, discretionary abstention and equitable remand are "kindred statutes," as both favor "comity and the resolution of state law questions by state courts." Id. at 14. When deciding upon the question of abstention or remand, courts will often employ a similar multi-factor test, considering: (1) the effect of abstention on the efficient administration of the bankruptcy estate; (2) the extent to which state law issues predominate over bankruptcy issues; (3) the difficulty or unsettled nature of the applicable law; (4) the presence of a related proceeding commenced in state court or other non-bankruptcy court; (5) the basis of bankruptcy jurisdiction, if any, other than 28 U.S.C. § 1334; (6) the degree of relatedness or remoteness of the proceeding to the main bankruptcy case; (7) the substance rather than form of an asserted "core" proceeding; (8) the feasibility of severing state law claims from core bankruptcy matters to allow judgments to be entered in state court with enforcement left to the bankruptcy court; (9) the burden of the bankruptcy court's docket; (10) the likelihood that commencement of the proceeding in bankruptcy court involves forum shopping by one of the parties; (11) the existence of a right to a jury trial; (12) the presence in the proceeding of non-debtor parties; (13) comity; and (14) the possibility of prejudice to other parties in the action. Id. at 15 (citing In re United Container LLC, 284 B.R. 162, 176-77 (Bankr.S.D.Fla.2002) (citations omitted)). FinScan argues that the Georgia bankruptcy court misapplied the above test, and that the relevant factors instead "tip decidedly in favor of retaining this case in bankruptcy court." Doc. # 3 at 10. A. Comity and Choice of Law Provision FinScan devotes much of its opening brief to challenging the Georgia bankruptcy court's focus on comity and respect for state jurisdiction, which the court reasoned were "compelling considerations in this case." Doc. # 1-14 at 16. FinScan suggests that comity is not a concern in this case because the Contract's choice of law provision favoring the state court system in Emanuel County is unenforceable to begin with. Doc. # 3 at 11-17. 1. Enforcement of Choice of Law Provision and Public Policy FinScan first argues that a choice of law provision should not be enforced when doing so violates a strong public policy. Doc. # 3 at 11. It contends that enforcement of the Contract's choice of law provision—limiting venue to Emanuel County Superior Court—would violate the policy in favor of centralizing claims against a debtor (here, ScanWare) in the bankruptcy courts. The Court disagrees. The public policy FinScan alludes to is normally protected by other provisions of the bankruptcy code, namely the automatic stay provision of 11 U.S.C. § 362. Under that provision, a bankruptcy petition operates as a stay of "the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title...." 11 U.S.C. § 362(a)(1). Rayonier's claim against ScanWare was commenced before ScanWare petitioned the Oregon bankruptcy court for Chapter 11 relief, so proceedings in the Emanuel County Superior Court were stayed as soon as ScanWare sought bankruptcy protection. Because Rayonier's *921 suit against ScanWare will not proceed upon remand to the state court,[4] the policy of centralizing claims in bankruptcy courts is never really a concern. Naturally then, enforcement of the Contract's choice of law provision does nothing to violate that policy.[5][6] 2. ScanWare as Alter Ego of FinScan FinScan next argues that even if the Contract's choice of law provision is not violative of public policy, FinScan was not a signatory to the Contract and therefore cannot be bound by its terms. Doc. # 3 at 12. The Georgia bankruptcy court decided otherwise, reasoning that FinScan was "closely related" to ScanWare, making it "foreseeable [that] it would be bound" by the Contract's terms. Doc. # 1-14 at 16. FinScan begins with a somewhat halfhearted argument that the Georgia bankruptcy court erred because it never concluded that FinScan and ScanWare were instrumentalities or alter egos of one another, doc. # 3 at 12, a precondition to bind a nonparty to contractual terms. Even though the Georgia bankruptcy court's analysis of the issue is markedly thin, it should be obvious to any reader of the Memorandum and Order that the court indeed concluded that ScanWare was an instrumentality/alter ego of FinScan, even if the court did not use those exact words.[7] The more intriguing issue here is whether the Georgia bankruptcy court erred by concluding that ScanWare was in fact an instrumentality or alter ego of FinScan, and thus bound to the Contract's choice of law provision. The Eleventh Circuit, drawing from decisions by the Third and Seventh Circuits, has summarized the relevant law on this issue: "In order to bind a non-party to a forum selection clause, the party must be `closely related' to the dispute such that it becomes `foreseeable' that it will be bound." Hugel v. Corporation of Lloyd's, 999 F.2d 206, 209 (7th Cir.1993).... In Hugel, which involved a suit brought by a Name against Lloyd's, the Seventh Circuit affirmed the district court's finding that two nonsignatory corporations were bound by the Name's assent to the Lloyd's choice clauses. See 999 F.2d at 209-10. The district court based its finding upon the fact that the Name owned 99% of one corporation, which owned 100% of the other. See id. The court of appeals noted that "[w]hile it may be true that third-party beneficiaries to a contract would, by definition, satisfy the `closely related' and `foreseeability' requirements, a third-party beneficiary status is not required." *922 Id. at 209-10 n. 7; cf. Dayhoff Inc. v. H.J. Heinz Co., 86 F.3d 1287, 1297 (3d Cir.1996) (holding that a sister corporation that did not sign an arbitration agreement could not be bound by the agreement, but noting that if the "corporation's interests were directly related to, if not predicated upon, the [signatory's] conduct," the corporation would have been subject to agreement). Lipcon v. Underwriters at Lloyd's, London, 148 F.3d 1285, 1299 (11th Cir.1998). Georgia law does not precisely mirror the "closely related" language used by the Eleventh Circuit in Lipcon, but the underlying premise remains the same. In Georgia, as is true in every state, "[a] corporation is a separate legal entity, and great caution should be exercised before disregarding this separateness." Garrett v. Women's Health Care of Gwinnett, 243 Ga.App. 53, 55-56, 532 S.E.2d 164 (2000). "Georgia courts will pierce the corporate veil `to remedy injustices which arise where a party has overextended [her] privilege in the use of a corporate entity in order to defeat justice, perpetrate fraud or to evade contractual or tort responsibility.'" Id. at 56, 532 S.E.2d 164 (quoting J-Mart Jewelry Outlets v. Standard Design, 218 Ga.App. 459, 460, 462 S.E.2d 406 (1995) (emphasis added)). Before proceeding, the Court pauses to recognize that FinScan and ScanWare are indeed separate legal entities. The Court, therefore, continues with an abundance of caution, understanding that a decision to bind FinScan to the Contract's choice of law provision effectively pierces the corporate veil dividing ScanWare from its owner, FinScan. FinScan has maintained throughout this litigation that it is a legal entity separate and distinct from ScanWare. Whether Defendants were so "closely related" that it became foreseeable that FinScan would be bound by the Contract's terms is a question that can only be answered by an assessment of all relevant facts in this case. In doing so, the Court is reminded of the old adage: "Where there is smoke, there is fire," and FinScan's continued and considerable involvement in ScanWare's business has created plenty of smoke here. FinScan asserts that its minority interest in ScanWare (at the time the Contract was signed) is irrelevant since it lacked "the power to control or bind ScanWare." Doc. # 3 at 15-16. This assertion is incorrect. Although the facts here are not as straightforward as they were in Hugel, where the non-signatory corporations were bound by the forum selection clause by virtue of the signatory's near-total ownership of the companies, FinScan's minority ownership is nonetheless relevant—albeit non-dispositive—evidence of the two parties' close relatedness. There is, on the other hand, abundant evidence indicating that FinScan has been continuously and pervasively involved with ScanWare's business, which weighs heavily in favor of the finding that ScanWare was an instrumentality or alter ego of FinScan during the time in question. For instance, Rayonier directly communicated with FinScan employees from the very beginning of the relevant business deal, doc. # 1-4 at 57-59 (email exchange between Rayonier and FinScan employees), and it was FinScan's president (who has also served as ScanWare's president following its acquisition) who attempted to smooth things over with Rayonier when the lumber grading system did not perform as warranted. Id. at 60, 63-65 (email exchange between FinScan's president and Rayonier employees). A third relevant consideration is whether the systems sold by ScanWare were, in *923 fact, nothing more than FinScan machines. See doc. ## 3 at 16; 5 at 11. The parties agree that ScanWare produced equipment (such as the lumber grading system sold to Rayonier) incorporated several components manufactured by FinScan. Doc. # 3 at 16. FinScan argues that this undisputed fact should not be used as evidence of an alter ego relationship because doing so would yield "remarkable" results. See id. ("General Motors would suddenly be deemed the alter ego of each and every supplier of parts which are incorporated into one of its cars."). True as this may be, there are other substantial circumstances at play here. The user manual for the lumber grading system—a copy of which was provided to Rayonier—displayed FinScan's logo and slogan, identified the machine as a FinScan system, and even presented a narrative describing FinScan Oy's company history. Doc. # 1-4 at 67. The footer of every page in the user manual displayed FinScan's address in Epsoo, Finland and its telephone and fax numbers. Id. The installation and service manual, moreover, displayed similar contact information in the footer of its pages. Id. at 75. Thus, continuing with FinScan's "remarkable" hypothetical, had General Motors incorporated a Toyota engine in one of its trucks, identified the truck as a Toyota vehicle, and prominently displayed Toyota trademarks and contact information on all of its documentation, suddenly the proposition that General Motors is an alter ego of Toyota would not seem so farfetched. Perhaps FinScan did not actually intend to be identified with the product this way and is simply a victim of its own mismanagement of the use of its intellectual property, but, based on all of the foregoing facts, it is reasonable to conclude that ScanWare was selling FinScan machines. The Court therefore concludes that ScanWare was an instrumentality or alter ego of FinScan when the Contract was signed. Although it was not a signatory to the Contract, FinScan is bound by the terms of the Contract, including the choice of law provision limiting venue to the Emanuel County Superior Court. B. Other Factors Favoring Remand Comity and respect for state jurisdiction are undoubtedly the more compelling reasons to remand this case back to state court. That is why the parties devoted much of their briefs to that issue and why the Court allots considerable weight to this, the thirteenth factor of the multi-factor test described in United Container. 284 B.R. at 176-77. Most of the other relevant factors, however, also support the Georgia bankruptcy court's decision to remand this case to state court. Abstention would have no effect on the administration of the bankruptcy estate (factor 1), as Rayonier will be stayed from proceeding against ScanWare upon remand. State law issues will likely predominate over bankruptcy issues (factor 2) since Rayonier seeks damages for breach of contract and has all but abandoned its efforts to recover from ScanWare (the debtor). There is, of course, a proceeding that has been commenced against FinScan in state court (factor 4). There is no basis for bankruptcy jurisdiction, other than 28 U.S.C. § 1334, as the parties agreed to litigate in the Emanuel County Superior Court (factor 5). See supra section V.A. It will be feasible to sever state law claims from bankruptcy matters (assuming ScanWare successfully petitions for relief from the automatic stay), permitting a judgment to be entered in state court with enforcement left to the bankruptcy court (factor 8). There remains a lingering suspicion that FinScan removed the case to the *924 Georgia bankruptcy court to avoid litigating in Emanuel County (factor 10). A jury trial can be more easily obtained if the case is remanded to state court (factor 11). Finally, there is the presence of a non-debtor party (FinScan) in this proceeding (Factor 12). Because most of the relevant factors in this case favor remand to state court, the Georgia bankruptcy court did not abuse its discretion in abstaining and remanding this case to Emanuel County Superior Court. VI. EFFECT OF REMAND As noted earlier, the Georgia bankruptcy court's decision to remand has minimal (if any) effect on the administration of ScanWare's bankruptcy estate by reason of the automatic stay. See supra sections V.A.I, V.B. Rayonier will be unable to proceed against ScanWare unless it successfully petitions the Oregon bankruptcy court for relief from the automatic stay. The Court, however, suspects that Rayonier will have little desire to do so since ScanWare's unsecured creditors seek more than $5.2 million from ScanWare's $1 million bankruptcy estate. See doc. ## 1-14 at 6; 3 at 7-8. Rayonier would obviously prefer to recover from non-bankrupt FinScan in state court. Until 2005, Rayonier may have been able to do so.[8] Since then, however, the Georgia Supreme Court has determined that, where an automatic stay against actions by creditors is in place, a debtor corporation (ScanWare) has the exclusive right to bring an alter ego claim against its owner (FinScan). See Baillie Lumber Co. v. Thompson, 279 Ga. 288, 292, 612 S.E.2d 296 (2005) (answering certified question from Icarus Holding, 391 F.3d 1315). The alter ego claim is deemed property of the estate, and, as a result, "all creditors are prevented by the automatic stay from prosecuting individual alter ego claims, thus affording equal treatment to all." Id. at 291, 612 S.E.2d 296 (citing In the Matter of S.I. Acquisition, 817 F.2d 1142, 1153 (5th Cir.1987)). Rayonier, therefore, will be unable to proceed against FinScan upon remand because the automatic stay created by ScanWare's bankruptcy applies to claims not just against ScanWare, but also against its alter ego. This, however, in no way relieves FinScan from liability if it indeed breached the Contract. See id. at 301, 612 S.E.2d 296 ("[I]t is readily apparent that where the corporate entity is disregarded, a principal found liable under an alter ego theory should be liable for the entirety of the corporation's debt."). Rather, any recovery from an owner under an alter ego theory is added to the debtor's bankruptcy estate, which will ultimately be distributed equitably among the creditors. Here, Rayonier can still proceed directly against FinScan if the Oregon bankruptcy court agrees to lift the automatic stay. If Rayonier is able to recover from FinScan in the Emanuel County Superior Court, the amount recovered will be added to ScanWare's bankruptcy estate. The Oregon bankruptcy court will then distribute *925 the recovered amount along with the rest of the bankruptcy estate. The Court, therefore, recommends that the automatic stay in this case be lifted or modified as it applies to non-debtor FinScan. Lifting the automatic stay as described will have relatively little (if any) interference with ScanWare's pending bankruptcy case. See S.Rep. No. 989, at 52, reprinted in 1978 U.S.C.C.A.N. 5787, 5838. ("The lack of adequate protection of an interest in property is one cause for relief, but is not the only cause. Other causes might include the lack of any connection with or interference with the pending bankruptcy case.") (emphasis added). FinScan, moreover, as ScanWare's alter ego, agreed to litigate all disputes arising from the Contract in Emanuel County Superior Court. See supra section V.A.2. The Court, however, recognizes that any decision regarding relief from the automatic stay must originate from the District of Oregon. The Court, therefore, respectfully defers to the Oregon bankruptcy court on this issue. VII. CONCLUSION The Georgia bankruptcy court correctly decided that the abstention/remand question should be addressed before the merits of venue transfer are considered. Moreover, the bankruptcy court did not abuse its discretion in remanding this case to state court. The Memorandum and Order of the bankruptcy court is thus AFFIRMED. Doc. #1-14. This case is therefore REMANDED to the Superior Court of Emanuel County. NOTES [1] The relevant text of the Contract's choice of law provision states: "All disputes ... arising under, in connection with, or incidental to [the Contract] shall be litigated ... before the courts of the county and state in which the goods or services were ultimately delivered or performed, as applicable, to the exclusion of other courts of other states, the United States, or countries and in the exclusion of other venues. The parties express consent to the exclusive jurisdiction of this court and agree that this venue is convenient and not to seek a change of venue or to dismiss the action on the grounds of forum non conveniens and not to remove any litigation from the court to a federal court." Doc. # 1-4 at 47. [2] FinScan did not acquire 100% ownership of ScanWare until October 2007. Doc. # 1-9 at 7. [3] The Oregon bankruptcy court has since converted ScanWare's Chapter 11 case to a case under Chapter 7. Doc. # 4-2 at 2-3. [4] The stay of an act under § 362(a) continues until "the time the [bankruptcy] case is closed" or "the time the case is dismissed," whichever is earlier. 11 U.S.C. § 362(c)(2). [5] Although it may seem odd that the Court is willing to remand this case to a court where the proceedings are stayed, the Court will later recommend in this Order that the automatic stay be lifted as it applies to non-debtor FinScan. See infra Section VI. [6] Non-enforcement of the Contract's choice of law provision would defeat the separate and competing policy in favor of enforcing contractual obligations. See Daniel v. Daniel, 250 Ga. 849, 851, 301 S.E.2d 643 (1983) (observing "a strong public policy in favor of enforcing contracts as written and agreed upon"). [7] The flaw in FinScan's argument here becomes even more evident later in its opening brief, when it points out that "Judge Davis noted that ScanWare and FinScan use the same slogan as evidence of an alter ego relationship." Doc. # 3 at 16 (emphasis added). [8] See In re Icarus Holding, LLC, 391 F.3d 1315, 1322 (11th Cir.2004) ("The only courts in Georgia to address this issue directly are the federal bankruptcy courts, but they are divided on whether Georgia law allows a corporation to bring this type of alter ego action. Compare [In re Adam Furniture Indus., Inc., 191 B.R. 249, 255 (Bankr.S.D.Ga.1996) ] (considering the corporation's alter ego claim as property of the estate under Georgia law), and [In re City Comm'ns, Ltd., 105 B.R. 1018, 1022 (Bankr.N.D.Ga.1989)] (interpreting Georgia law to allow corporations to bring alter ego claims), with In re Mattress N More, Inc., 231 B.R. 104, 109 (Bankr.N.D.Ga.1998) (holding that Georgia law does not allow a corporation to bring alter ego actions).")

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1939134/

185 B.R. 46 (1995) In re DORROUGH, PARKS & COMPANY, Debtor. Ann MOSTOLLER, Trustee, Plaintiff, v. ASPEN MARINE GROUP, Bank of East Tennessee, Union Planters Bank, and The United States of America, Defendants. No. 3:94-cv-732. Bankruptcy No. 92-3209. Adv. No. 92-3213. United States District Court, E.D. Tennessee, at Knoxville. June 2, 1995. Carol C. Priest, U.S. Dept. of Justice, Tax Div., Washington, DC, for U.S. John A. Lucas, Hunton & Williams, Knoxville, TN, for First American Nat. Bank. *47 Doris C. Allen, Bernstein, Stair & McAdams, Knoxville, TN, for Union Planters Nat. Bank. Ann Reilly Mostoller, Trustee, Mostoller and Stulberg, Oak Ridge, TN. MEMORANDUM OPINION JARVIS, Chief Judge. This is an appeal from an order of the Bankruptcy Court. The appeal arises out of an involuntary Chapter 7 case commenced against the debtor, Dorrough, Parks & Company ("Dorrough Parks"), on April 27, 1992. Jurisdiction is based on 28 U.S.C. § 158(a) and is not in dispute. The Bankruptcy Court held that a federal tax lien asserted by the appellant, the Internal Revenue Service ("IRS"), did not take priority over a security interest asserted by appellee, Union Planters National Bank ("Union Planters"). For the reasons that follow, the order of the Bankruptcy Court will be affirmed. The material facts in this case are contained in stipulated facts, exhibits, and deposition transcripts submitted to the Bankruptcy Court. Dorrough Parks was an accounting firm that provided general accounting services to clients until early 1992. As noted, an involuntary Chapter 7 petition was commenced against Dorrough Parks on April 27, 1992, and an order for relief was granted under Chapter 7 on June 18, 1992. The bankruptcy trustee subsequently brought an adversary proceeding in the Bankruptcy Court. The trustee alleged that between the filing of the involuntary petition and the entry of the order for relief, Steven Dorrough, then the managing partner of the debtor, on behalf of the debtor, settled a $285,000 account receivable for professional fees owed to the debtor by defendant Aspen Marine Group ("Aspen Marine"). Specifically, the trustee alleged that Mr. Dorrough collected only $250,000 of the receivable and forgave the balance. Of the amount collected, a significant portion, approximately $235,603, remained subject to a resolution of the Union Planters/IRS lien priority issue raised by the trustee's complaint. The Bankruptcy Court's resolution of this competing priority issue is the subject of this appeal. Union Planters, as the successor to the Bank of East Tennessee, is the owner and holder of three promissory notes in the original principal amounts of $135,000, $300,000, and $250,000, respectively. These promissory notes are secured according to a security agreement entered into on December 5, 1988, the date the original $135,000 note was executed. The security agreement encumbers all of the personal property of Dorrough Parks and is perfected by UCC-1 Financing Statements filed with the Tennessee Secretary of State and with the Knox County Register's Office. On October 14, 1992, Union Planters' predecessor filed a proof of claim in this matter indicating a total indebtedness owed to it by Dorrough Parks of $1,061,323.96. As of May 7, 1993, the balance due by Dorrough Parks on Union Planters' notes was $749,535.74. On February 14, 1992, the IRS filed a Notice of Federal Tax Lien, asserting a statutory tax lien on all property and rights to property belonging to Dorrough Parks in the total amount of $64,704.32, plus interest. A proof of claim was filed by the IRS on July 30, 1992, indicating a secured indebtedness owed to it by Dorrough Parks in the amount of $74,268.12. The parties acknowledge that the issue in this case turns on the legal nature of the account receivable — i.e., whether or not it arose pursuant to a pre-existing contract — that was due, owing and ultimately paid by Aspen Marine. In order to resolve this issue, the Bankruptcy Court thoroughly reviewed the evidence in this case, including the parties' stipulations, and made findings in its opinion regarding the deposition testimony of Mr. Dorrough and Ella Bautwell Chesnutt.[1] Ms. Chesnutt began work as an employee *48 of Aspen Marine about the time Dorrough Parks began the transactional work that resulted in the $285,000 receivable.[2] Before she joined Aspen Marine, Ms. Chesnutt provided legal services to Aspen Marine in her capacity as a private attorney. Mr. Dorrough held the initial discussions with Aspen Marine that led to his firm's engagement for the transactional work. Ms. Chesnutt, after she joined Aspen Marine, ultimately negotiated the final price for the public offering work. Thus, the Bankruptcy Court correctly held that Ms. Chesnutt could not testify about the routine accounting work that the debtor performed for Aspen Marine and could only speculate about the substance of the parties' initial discussions that occurred when the debtor was hired for the securities offering.[3] Indeed, when Aspen Marine first hired Dorrough Parks, the parties did not agree to a specific hourly or monthly rate, and left the final price open in accordance with the "customary practice" of determining the price at the close of the transaction. However, Mr. Dorrough eventually agreed to cap his rate at $15,000 per month.[4] Thus, as the Bankruptcy Court recognized, the parties agreed that Dorrough Parks was to be employed as a transactional accountant and viewed the work as an oral contract to complete a transaction. Discussion Rule 8013, Federal Rules of Bankruptcy Procedure, governs the standard of appellate review of a bankruptcy court's decision. In a bankruptcy proceeding, the bankruptcy court is the finder of fact. Although bankruptcy rule 8013 provides that "[o]n an appeal the district court or the bankruptcy appellate panel may affirm, modify, or reverse a bankruptcy judge's judgment, order, or decree or remand with instructions for further proceedings," the rule also mandates that "[f]indings 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." Hardin v. Caldwell (In re Caldwell), 851 F.2d 852, 857 (6th Cir.1988). The Bankruptcy Court's "findings of fact [then] should not be disturbed by [this] court . . . unless there is `most cogent evidence of mistake or miscarriage of justice.'" Slodov v. United States, 552 F.2d 159, 162 (6th Cir.1977) (quoting McDowell v. John Deere Indus. Equip. Co., 461 F.2d 48, 50 (6th Cir.1972)), rev'd on other grounds, 436 U.S. 238, 98 S. Ct. 1778, 56 L. Ed. 2d 251 (1978). By statute, a federal tax lien is invalid against a security interest arising within 45 days after a tax lien is filed in qualified property covered by a written commercial transaction financing agreement executed prior to the tax filing. 26 U.S.C. § 6323. Specifically, § 6323(c) states in part that a tax lien shall not be valid with respect to a security interest which came into existence after tax lien filing but which — (A) is in qualified property covered by the terms of a written agreement entered *49 into before tax lien filing and constituting — (i) a commercial transactions financing agreement, [and] * * * * * * (B) is protected under local law against a judgment lien arising, as of the time of tax lien filing, out of an unsecured obligation. In other words, collateral that constitutes qualified property acquired by a borrower within 45 days after the filing of a federal tax lien is protected from the tax lien. See State Bank of Fraser v. United States, 861 F.2d 954, 963-65 (6th Cir.1988). Such qualified property "includes only security acquired by the taxpayer before the 46th day after the date of the lien filing." See 26 U.S.C. § 6323(c)(2)(B). It is undisputed that Union Planters had a valid "commercial transactions financing agreement" pursuant to § 6323(c)(2), and that it was an agreement to furnish loans that were secured by commercial financing security acquired by the taxpayer in the ordinary course of its trade or business. However, pursuant to § 6323(c), because the federal tax lien was filed on February 14, 1992, the IRS is entitled to all assets or rights acquired by Dorrough Parks after March 3, 1992, unless the account receivable proceeds arose pursuant to a pre-existing contract. The IRS acknowledges that if the disputed funds were received by the debtor as payment for work performed under a pre-existing contract, then Union Planters' security interest should prevail over its tax lien. However, the IRS contends that the work performed by the debtor was not performed pursuant to a contract. Rather, it argues that Aspen Marine's payment obligation arose only after the actual work was performed and not pursuant to a pre-existing enforceable contract. On this issue, the Bankruptcy Court held that "there was a meeting of the minds when Aspen Marine hired the debtor: the debtor would provide accounting services to Aspen Marine and Aspen Marine would pay a reasonable fee, determinable at the end of the project, to the debtor." Furthermore, the Bankruptcy Court held that this meeting of the minds, which included provision for a reasonable fee, was enforceable as a contract and did not fail for lack of definiteness or for the lack of a price term. Under the circumstances, I am constrained to agree with the Bankruptcy Court. Ms. Chesnutt testified that the final price was negotiated after the transactional work was completed because "that's the way the transactions are done." In Tennessee, "`[a] contract is simply an agreement between two parties, based on adequate consideration, to do or not to do a particular thing.'" Newton v. Gibalski (In re Gatlinburg Motel Enterprises), 127 B.R. 814, 817 (Bankr.E.D.Tenn. 1991) (quoting Bill Walker & Assoc. v. Parrish, 770 S.W.2d 764, 771 (Tenn.Ct.App.1989)). Tennessee courts further hold that a contract need not specify a duration, and in such a case, a court can construe the contract as either "`perpetual or terminable at will.'" APCO Amusement Co. v. Wilkins Family Restaurants, Inc., 673 S.W.2d 523, 528 (Tenn.Ct.App.1984) (quoting 17 Am.Jur.2d Contracts § 80 (1964)). Thus, the IRS's reliance on In re May Reporting Services, Inc., 115 B.R. 652 (Bankr.D.S.D.1990) is misplaced. The May case involved a court reporting agency that provided services both to individual clients and to a court. Those services were provided by agreement between the parties, but both parties to the agreement could withdraw at will. The reporting agency billed clients after the services were performed and awaited future payment. The May court held that "[n]o evidence admitted established May entered into any definite contracts" to provide court reporting services. 115 B.R. at 660. Instead, clients called May on a sporadic basis and its "lengthy relationship with several clients is insufficient to prove binding enforceable contracts," especially because "[a]ny amounts under such informal agreements would be mere speculation, insufficient to set a specific dollar amount upon." Id. By contrast, Union Planters presented evidence of the lengthy relationship between the debtor and Aspen Marine, as well as evidence that the debtor agreed to perform extensive, technical, and specialized work for *50 Aspen Marine's public securities offering in return for a reasonable fee. Consequently, the contract was tied to one specific, difficult project, as opposed to the alleged contracts in the May case that were apparently mere blanket contracts for the life of the debtor's relationship with its client. In this case, the disputed funds were received by the debtor for work performed pursuant to an oral contract that was entered into in 1991 when the debtor agreed to perform the transactional work for Aspen Marine's public offering. Because Union Planters thus acquired a security interest in 1991 in the contract rights and subsequent proceeds arising from the debtor's oral contract, Union Planter's lien takes priority over the IRS's lien. Order accordingly. ORDER For the reasons set forth in the Memorandum Opinion this day passed to the Clerk for filing, it is hereby ORDERED that the judgment of the Bankruptcy Court is AFFIRMED, and this appeal is DISMISSED. NOTES [1] The parties vigorously dispute the application of the law to the facts found by the Bankruptcy Court. In its brief, the IRS sets forth certain stipulations of fact purportedly made to the Bankruptcy Court. However, as noted by Union Planters, the stipulation of facts that was ultimately agreed to and filed with the court contained four stipulations, not including those alleged by the IRS regarding the substance of Mr. Dorrough's and Ms. Chesnutt's deposition testimony. Rather, the stipulations relied upon by the Bankruptcy Court merely noted that the depositions of these two individuals fully set forth their testimony with regard to this matter, and are admissible in this proceeding. The Bankruptcy Court considered this testimony and concluded, as noted below, that much of Ms. Chesnutt's testimony regarding the ultimate issue in this case was mere speculation. [2] Before that time, beginning in the mid-1980's, Dorrough Parks provided routine accounting services to Aspen Marine, which consisted of two subsidiaries, Supra Sports, Inc. and Marine Sports, Inc. The transactional work related to a proposed public securities offering involving a reverse merger between Marine Sports, Inc. and Aspen Wind, Inc. [3] Ms. Chesnutt admitted on cross-examination that her testimony regarding the parties' original agreement amounted to nothing more than speculation and that she did not, in fact, know the terms of that agreement. The Bankruptcy Court considered Ms. Chesnutt's testimony on this issue. Thus, its findings regarding her testimony may not be disturbed unless clearly erroneous. See Rule 8013, Federal Rules of Bankruptcy Procedure. [4] It is important to note, however, that fees were not in fact paid on a monthly basis. Rather, although they were incurred on an on-going basis and capped at a rate of $15,000 per month, all fees were paid only after the transactional work had ceased.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1875246/

148 F.Supp. 373 (1957) SHELL DEVELOPMENT CO., et al., Plaintiffs, v. Robert C. WATSON, Commissioner of Patents, Defendant. Civ. A. 3264-54, 3386-56. United States District Court District of Columbia. February 14, 1957. *374 Edward B. Beale, Washington, D. C., Leonard S. Lyon, and Earl L. Martin, Los Angeles, Cal., and John Colvin, San Francisco, Cal., on behalf of the plaintiffs. Joseph Schimmel, Washington, D. C., on behalf of the defendant. HOLTZOFF, District Judge. The Court has before it two actions under 35 U.S.C. § 145, which have been consolidated for trial, against the Commissioner of Patents, to secure an adjudication that the plaintiff is entitled to receive a patent for inventions owned by it as specified in the claims involved in the two actions, each action having been brought in respect to a separate application for a patent. The invention consists of a compound of fuel gasoline used for internal combustion engines, with a chemical, the purpose of which is to do away with the fouling of spark plugs. The problem to which the inventor directed his efforts was an important one in the field of operation of airplane and automobile engines. Subsequent to the advent of fuels for such engines, to which there were added lead compounds, the purpose of which was to increase the efficiency of the fuel, especially to eliminate or reduce knocking, it appeared that an adverse effect of the use of lead compounds arose in that they caused spark plugs to foul. This difficulty was particularly vital in connection with airplane engines. The two inventors in this case were research engineers in the laboratories of the principal plaintiff, the Shell Development Company. They became apprized of this problem and were authorized by their employer to endeavor to solve it. After a considerable amount of research and experimentation, which comprised a couple of years, they finally arrived at a solution, which consisted in adding to the gasoline fuel containing lead compounds another chemical in minute quantities. This additive is of the alkyl aryl phosphate or phosphite type. They refer to a particular embodiment of their invention involving the use of a specific chemical of that genus known as tricresyl phosphate. After the development of this composition, numerous tests were made, both in airplane engines and in automobile engines. It was demonstrated that the use of this chemical substantially reduced the fouling of spark plugs and helped cure some of the difficulties, especially in connection with airplane engines. The inventors and their employer, as assignee, then filed the application involved in the first action, Serial No. 300,337, filed on July 22, 1952. The application was denied by the Primary Examiner and his decision was affirmed by the Board of Appeals of the Patent Office. Subsequently, another application was filed, Serial No. 536,771, involving the same basic invention but containing narrower *375 claims. This application was likewise denied, but solely on the ground that its claims were not patentable over the claims of the earlier application. The first of the applications was denied because of prior art. After the successful tests were completed, the corporate plaintiff placed the composition on the market. It promptly received widespread commercial acceptance. Large quantities were purchased by the United States Air Force for use in airplanes. Large quantities were purchased by other concerns interested in the operation of internal combustion engines. The commercial acceptance, so the evidence shows without contradiction, was not limited to the United States but became worldwide. The prior art did not deal with this problem but was directed to other matters entirely. There would seem to be no doubt that the inventors in this case made an important discovery, namely, the ability to eliminate or at least substantially to reduce the fouling of spark plugs by the addition of this chemical to gasoline fuels containing lead compounds. The Government claims, however, that a new use is not patentable, if the compound or the article involved is in itself old. To discuss this contention adequately, it is necessary to consider the principal items of the prior art on which the Government relies. First is the United States patent to Campbell, issued on August 13, 1946, No. 2,405,560. The problem to which Campbell directed his attention was the prevention of preignition in internal combustion spark ignition engines, a problem that is entirely different from that with which the present inventors dealt. Campbell discloses the use of a specified member of the alkyl phosphite class in connection with fuels in order to prevent preignition. The chemical disclosed in the Campbell patent is substantially different from that involved in the application in the case at bar as it is of the alkyl class, whereas the chemical described in this case is of the alkyl aryl group, which is an entirely distinct genus. The second item of the prior art is a patent to Withrow, No. 2,427,173, issued on September 9, 1947. That patent dealt with the problem of preignition, also entirely different from that to which the inventors in this case directed their attention. The chemical described in the Withrow patent was alkyl phosphate, again distinguishable from the ingredient used in this case which, as has been stated, is of the alkyl aryl group. The Government further relies on the British patent to Duckham, No. 600,191, issued on April 2, 1948. The patent endeavored to attack the problem of corrosion, again a subject entirely different from that in which the inventors in this case were interested. In the Duckham patent the chemical used was an alkyl phosphate or phosphite and not a chemical of the alkyl aryl group, as is the case in the two applications confronting the Court in these two actions. The final item of prior art on which the Government places its principal reliance is a Canadian patent, issued to the Standard Oil Development Company, as assignee of Sweeney, on July 18, 1944, No. 421,568. The Canadian patent was also directed to a field different from that in which the inventors in these two cases were working. There the purpose was prevention of corrosion in storage tanks and was not connected with the operation of an engine. The composition described resembles to some extent the composition involved in the two cases now before the Court, because the Canadian patent discloses the use of an alkyl aryl phosphate or phosphite, as is done by the two inventors here. It should be repeated and emphasized, however, that the inventor in the Canadian patent did not conceive the possibility of the use of this composition for the purpose of eliminating or reducing the fouling of spark plugs. In addition, there is a distinction between the two compounds. The inventors in the two cases at bar, in addition to using a chemical to which reference has been made, also employed an additional ingredient operating as a scavenger. No *376 such element is disclosed in the Canadian patent. To that extent the combination disclosed in the Canadian patent is different from that of the applications in suit. Moreover, the Canadian patent does not disclose the precise formulas that are shown in the patents in suit. The Government relies upon the well known principle that a new use of a known device or material may not be the subject matter of a valid patent. It argues that what the inventors in these two cases have done is to discover a new use for the composition described in the Canadian patent. In dealing with this argument, it is well to refer to the opinion of Judge Learned Hand in Traitel Marble Co. v. U. T. Hungerford Brass & Copper Co., 2 Cir., 18 F.2d 66, 68. The same argument was advanced in that case. There the device of the prior art was very similar to that of the patent in suit, but the purposes for which the two inventions were used and the results that they obtained were entirely different and distinct. Judge Learned Hand made the significant remark: "* * * but in view of the fact that McKnight's purpose and his result were quite different, structural distinctions which might be trivial became crucial. "Assuming, for argument, that the law is absolute that there can be no patent for the new use of an old thing, that is because the statute allows no monopolies merely for ideas or discoveries. If the thing itself be new, very slight structural changes may be enough to support a patent, when they presuppose a use not discoverable without inventive imagination. We are to judge such devices, not by the mere innovation in their form or material, but by the purpose which dictated them and discovered their function." We cannot close our eyes to the fact that many great discoveries involve merely the development of a new and unforeseen use or result of an existing structure. While the law forbids the granting of a patent for such new use on the theory that patents are granted not for intellectual discoveries but for physical embodiments of such discoveries nevertheless, as is indicated by Judge Learned Hand, when a new purpose is discovered, slight changes in the pre-existing device or composition of material may be sufficient to establish patentability, even if a similar difference without a change of use or purpose might not be sufficient. The Court is of the opinion that the forward step taken by these inventors was far from obvious. The testimony establishes the fact that a very serious problem existed in the industry and that interested parties were looking for a solution; that the two inventors, who were experienced research engineers, undertook to try to find a means to solve the problem and that it took a couple of years of experimental work on the part of a group of trained men to arrive at a solution. The industry promptly accepted the result and has used it on a wide scale. Manifestly it cannot be said that the invention was obvious in the light of the prior art. In view of these considerations, although the Court has a great deal of respect for the thorough work done by the Patent Office, it feels that the plaintiffs have established by a preponderance of evidence their right to a patent on the claims involved in these two cases. Consequently, the Court will render judgment for the plaintiffs. A problem of procedure arises, however, due to the fact that the second application with its narrower claims was filed subsequently to the first one and that the claims of the second were held unpatentable over those of the first. Obviously, two patents cannot be issued for the same invention, nor can claims be added to a pending application unless there is a disclosure on which to base them contained in the application as originally filed. The details of the disposition of this matter will be taken up in the framing of the final judgment. The Court will hear the views of counsel on that point at the proper time. *377 Counsel may submit proposed findings of fact and conclusions of law and a proposed judgment. The Court will request that findings be submitted very promptly, within the next two or three days. Before concluding this case, the Court wishes to thank all counsel on both sides for a very able and helpful presentation.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1907781/

784 F.Supp. 78 (1992) GESTETNER HOLDINGS, PLC, Petitioner, v. NASHUA CORPORATION, Respondent. No. 91 Civ. 7293 (WCC). United States District Court, S.D. New York. February 10, 1992. Debevoise & Plimpton, New York City, for petitioner; Steven Klugman, Marianne Consentino, Frances L. Kellner, of counsel. Wachtell, Lipton, Rosen & Katz, New York City, for respondent; William C. Sterling, Jr., Paul Vizcarrondo, Jr., George S. Canellos, Scott E. Eckas, McLane, Graf, Raulerson & Middleton, P.C., Manchester, N.H., of counsel. OPINION AND ORDER WILLIAM C. CONNER, District Judge: This petition to compel arbitration (the "Petition") is brought pursuant to Sections 4 and 201 of the Federal Arbitration Act, 9 U.S.C. §§ 4, 201, pursuant to an arbitration provision in the Purchase Agreement between petitioner Gestetner Holdings PLC *79 ("Gestetner") and respondent Nashua Corporation ("Nashua").[1] BACKGROUND Gestetner is a company incorporated under the laws of England and Wales, with its principal place of business in London, England. Gestetner is engaged in, inter alia, the business of selling office machines and office products. Petition ¶ 3. Nashua is a corporation organized under the laws of the state of Delaware, with its principal place of business in Nashua, New Hampshire. Nashua is engaged in manufacturing coated products and photographic processing. Petition ¶ 4. The Petition alleges that since December 1990, Gestetner and Nashua have had a dispute about what adjustment should be made in the purchase price under the Purchase Agreement. Petition ¶ 2. Pursuant to the Purchase Agreement, Gestetner purchased from Nashua the stock or assets relating to office machine and office product businesses in 16 foreign countries (the "Foreign Businesses") for $148.1 million in cash, plus other consideration, for a total price of $152.2 million, exclusive of net debt. Petition ¶¶ 7, 9. Pursuant to Section 1.5(a) of the Purchase Agreement, Nashua had delivered to Gestetner an unaudited December 31, 1989, balance sheet before the Purchase Agreement was signed (the "Unaudited Balance Sheet"). Petitioner alleges that the initial $152.2 million purchase price was based on the net book value of the Foreign Businesses as shown on the Unaudited Balance Sheet plus $30 million. Petition ¶ 9. Pursuant to Section 1.5 of the Purchase Agreement, the purchase price was subject to adjustment after the closing of the sale of the Foreign Businesses and the preparation of an audited balance sheet. Petition ¶ 19. Pursuant to Section 1.5(b), within 90 days after the closing, Nashua was required to deliver to Gestetner a balance sheet as of the closing date, audited with respect to the Foreign Businesses by Nashua's independent accountants, Price Waterhouse. Section 1.5(c) provides that the difference between the net book value of the Foreign Businesses as shown in the Closing Balance Sheet (the "Closing Date Net Book Value") and the net book value as shown in the Unaudited Balance Sheet is to be added to or subtracted from the purchase price. Petition ¶ 11. Thus, the final purchase price would be the Closing Date Net Book Value plus $30 million. Under Section 1.5(b), Gestetner had the right to object to the Closing Date Net Book Value before the purchase price adjustment was finalized. Section 1.5(b) requires the Closing Balance Sheet to be prepared in accordance with United States generally accepted accounting principles ("GAAP"), and consistent with the accounting principles applied in the preparation of the Unaudited Balance Sheet. GAAP compliance is not required, however, with respect to non-GAAP matters that were disclosed both in the notes to the Unaudited Balance Sheet as of year-end 1989 and in the notes to the Closing Balance Sheet. Petition ¶ 12. The Purchase Agreement provides that if Gestetner asserted objections, the parties would have 15 days to reach agreement on the objections. If the parties did not resolve *80 the objections in 15 days, the dispute was to be submitted to the accounting firm of Peat Marwick Main & Co., which is now KPMG Peat Marwick, ("Peat Marwick"), for a final and binding determination. Petition ¶ 14. The closing date of the sale of the Foreign Businesses was April 2, 1990. Nashua delivered the Closing Balance Sheet to Gestetner on or about September 10, 1990. It showed a Closing Date Net Book Value for the Foreign Businesses of $124,188,000, or $1,961,000 more than the net book value of $122,227,000 in the Unaudited Balance Sheet. Petition ¶ 17. By agreement of the parties, Gestetner's 90-day period to deliver its objections began to run on September 24, 1990, so that Gestetner had until December 8, 1990, to make its objections. On December 7, 1990, Gestetner delivered to Nashua extensive objections to the Closing Balance Sheet, including 187 objections in 18 categories, totalling $24,313,000. Petition ¶ 19. The objections raise numerous technical accounting issues. Certain of the objections have been revised, based on further inquiry, with the net effect of reducing the total objections by $3,349,000, to $20,964,000. Petition ¶ 20. During the 15 days after Nashua received the objections, the parties did not resolve any of them. Therefore, Gestetner contends that, as of December 21, 1990, the parties had, and continue to have, a dispute that is to be arbitrated before Peat Marwick pursuant to Section 1.5(b) of the Purchase Agreement. Petition ¶ 21. Gestetner did not commence arbitration when the 15-day contractual period expired on December 21, 1990. Instead, from December 1990 through October 2, 1991, Gestetner and Nashua met, corresponded and had telephone conversations in an effort to settle all or part of their dispute. Petitioner alleges that throughout this period of settlement negotiations, Nashua repeatedly asserted that the matter would be brought to arbitration if the parties failed to reach agreement. Petition ¶ 25. Petitioner further alleges that it was not until August, 1991, that Nashua even intimated that it would contend that some of Gestetner's objections were beyond the scope of the arbitration provision in the Purchase Agreement. Petitioner alleges lastly that Nashua has gone to great lengths to delay defending Gestetner's claim in arbitration and has succeeded in extending the time before arbitration from the contractual 15-day period to 10 months. Accordingly, Gestetner seeks an order directing Nashua to proceed forthwith to arbitration in New York City before Peat Marwick and an award of its costs and disbursements of this action. DISCUSSION Both parties agree that the Petition is governed by the Federal Arbitration Act ("FAA"), 9 U.S.C. § 1 et seq. The Supreme Court has consistently recognized that the FAA "establishes a federal policy favoring arbitration." See, e.g., Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 226, 107 S.Ct. 2332, 2337, 96 L.Ed.2d 185 (1987). Thus, "`questions of arbitrability must be addressed with a healthy regard for the federal policy favoring arbitration ... [A]ny doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration....'" Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626, 105 S.Ct. 3346, 3353, 87 L.Ed.2d 444 (1985) (quoting Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 24-35, 103 S.Ct. 927, 941-47, 74 L.Ed.2d 765 (1983)). Of course, this does not imply that courts will force arbitration when it was clearly not the intention of the parties to place a given matter within the ambit of an arbitration agreement. See Chevron U.S.A. Inc. v. Consolidated Edison Co., 872 F.2d 534, 537 (2d Cir.1989). Thus, "the first task of a court asked to compel arbitration of a dispute is to determine whether the parties agreed to arbitrate that dispute.... [A]s with any other contract, the parties' intentions control, but those intentions are generously construed as to issues of arbitrability." Mitsubishi, 473 U.S. at 626, 105 S.Ct. at 3354. *81 In determining the scope of arbitration provisions, courts have "at times distinguished between `broad' clauses that purport to refer to all disputes arising out of a contract to arbitration and `narrow' clauses that limit arbitration to specific types of disputes." McDonnell Douglas Fin. Corp. v. Pennsylvania Power & Light Co., 858 F.2d 825, 832 (2d Cir.1988). "When `dealing with a narrower arbitration clause, ... it will be proper to consider whether the conduct in issue is on its face within the purview of the clause.'" McAllister Bros., Inc. v. A & S Transp. Co., 621 F.2d 519, 522 (2d Cir.1980) (quoting Rochdale Village, Inc. v. Public Serv. Employees Union, 605 F.2d 1290, 1295 (2d Cir.1979)). "Thus, even though even a narrow arbitration clause must be construed in light of the presumption in favor of arbitration, the court is not free to disregard the explicit boundaries set by the agreement between the parties." Chevron, 872 F.2d at 537-38 (citing McDonnell Douglas, 858 F.2d at 832). Here the explicit boundaries set by the parties are articulated in Section 1.5(b) of the Purchase Agreement, which provides that the Closing Balance Sheet shall be consistent with GAAP and with the accounting principles applied in the preparation of the Unaudited Balance Sheet. Section 1.5(b) further provides that: The Purchaser [Gestetner] and its representatives shall have the right to review all work-papers and procedures used to prepare the Closing Balance Sheet and the calculation of the Closing Date Net Book Value and shall have the right to perform any other reasonable procedures to verify the accuracy thereof. Unless the Purchaser, within 75 days after the receipt of the Closing Balance Sheet and the Closing Date Net Book Value, notifies the seller in writing that it objects to the Closing Date Net Book Value and specifies the basis for its objection, the Closing Date Net Book Value shall become final and binding on the Parties for purposes of this Agreement. If the Purchaser and Seller are unable to resolve such objection within 15 days after any such notification has been given, the dispute shall be submitted to Peat Marwick Main & Co.... Such accounting firm shall make a final and binding determination as to the matter or matters in dispute. While this provision is technically a "narrow" one in that it does not provide for arbitration of all disputes between the parties, it is "broad" insofar as it does not restrict the scope of objections to the Closing Net Book Value that may be brought before Peat Marwick. In the instant case, petitioner objected to the Closing Date Net Book Value on the grounds, among others, that the Closing Balance Sheet failed to comply with GAAP. This objection, petitioner avers, is precisely the type that Section 1.5(b) contemplates for arbitration. Nashua offers a different interpretation of Section 1.5(b). According to Nashua, Gestetner's objections are not properly subject to determination by Peat Marwick under Section 1.5(b) because Gestetner's objections are covered by other provisions of the Purchase Agreement. Nashua's argument may be summarized as follows: (1) the Closing Balance Sheet is required to be consistent with the Unaudited Balance Sheet; (2) the Unaudited Balance Sheet is required to comply with GAAP; (3) therefore, a contention that the Closing Balance Sheet fails to comply with GAAP is actually a contention that the Unaudited Balance Sheet fails to comply with GAAP; and (4) because the Purchase Agreement provides that indemnification is the exclusive remedy for claims that the Unaudited Balance Sheet fails to comply with GAAP, it is also the exclusive remedy for contentions that the Closing Balance Sheet fails to comply with GAAP. Nashua's argument is unpersuasive. First, Nashua fails to appreciate the significance of the Second Circuit's recent decision in Chung v. President Enters. Corp., 943 F.2d 225 (2d Cir.1991). In Chung, a buyer and seller had agreed to arbitrate only breach of warranty disputes. When the buyer sought to compel arbitration, the seller argued that the buyer's claims, although presented as warranty claims, were in fact claims based on a failure to achieve *82 projected revenues and therefore were not covered by the narrow arbitration agreement. The Second Circuit rejected this argument, characterizing it as one "directed at the merits of the dispute rather than the issue of arbitrability." 943 F.2d at 230. The court noted that "to determine arbitrability we need only consider whether there exists an interpretation of the parties' agreement that covers the disputes at issue." The court held that because the buyer's claims could be interpreted as warranty claims, arbitration was required, even though an arbitrator might "subsequently agree with [seller's] interpretation of the agreement." Id. Chung makes it clear that where claims may be understood to raise an arbitrable issue, arbitration must be compelled, even if the claims can also be characterized another way. Here, the question is not even close. Gestetner's objections are objections to the Closing Date Net Book Value. Section 1.5 of the Purchase Agreement certainly may be understood to make such objections arbitrable. Section 1.5(b) provides that disputes over Gestetner's objections are to be submitted to Peat Marwick and in no way limits the nature of objections Gestetner may bring. Thus, not only may Gestetner's objections be understood to be arbitrable, but also Gestetner's objections appear, after facial consideration, to be clearly within the scope of the arbitration agreement, notwithstanding Nashua's attempt to portray them otherwise. Here, as in Chung, respondent's arguments relate to the merits[2] of Gestetner's objections — whether they are defective under the Purchase Agreement itself—and are thus more appropriately brought before the arbitrator.[3] Second, Nashua's attempt to rebut the plain meaning of the arbitration provision in Section 1.5(b) is undercut by *83 Nashua's own behavior prior to litigation.[4] The parties' practical interpretation of their contract prior to litigation provides "compelling evidence of the parties' intent." Ocean Transport Line, Inc. v. American Philippine Fiber Industries, Inc., 743 F.2d 85, 91 (2d Cir.1984).[5] As the Supreme Court has observed: "Generally speaking, the practical interpretation of a contract by the parties to it for any considerable period of time before it comes to be the subject of controversy is deemed of great, if not controlling, influence." Old Colony Trust Co. v. Omaha, 230 U.S. 100, 118, 33 S.Ct. 967, 972, 57 L.Ed. 1410 (1913). See also Viacom International, Inc. v. Lorimar Productions, Inc., 486 F.Supp. 95, 98 & n. 3 (S.D.N.Y.1980) (applying the rule that the parties' practical interpretation is entitled to great if not controlling weight). Here, Nashua's conduct demonstrates that it shared Gestetner's understanding that this dispute is within the arbitration agreement. From December 1990 until at least June of 1991, Nashua appears to have acknowledged that the dispute over Gestetner's objections was subject to arbitration. For example, on December 13, 1990, one week after Nashua received Gestetner's objections, William Luke, Nashua's vice-president of finance and chief financial officer, stated the following in a letter to Gestetner: "Pursuant to the Agreement, if Gestetner and Nashua are unable to resolve Gestetner's objections within 15 days of notification, the dispute shall be submitted to arbitration." Copsey Ex. C. On June 11, 1991, more than six months after Nashua had received Gestetner's objections, Luke stated in a letter to Gestetner that "we believe that it is appropriate at this time to start the arbitration process." Later in the same letter he proposed that Peat Marwick "be contacted so that the parties can begin the process of selecting an arbitrator and so that we can begin discussing the appropriate scope of the arbitration...." Copsey Ex. G.[6] Luke included with his June 11, 1991, letter a proposed joint letter to Peat Marwick from Nashua and Gestetner. The proposed joint letter stated: "Pursuant to Section 1.5 of the Purchase Agreement ... any disputes relating to the audited net book value of the [Foreign Businesses]that the parties are not able to resolve shall be submitted to KPMG Peat Marwick for arbitration." Id. The Court finds these statements reflecting the parties' practical interpretation of the contract to be highly probative of the intended meaning of Section 1.5(b), notwithstanding Nashua's insistence that it consistently expressed concern about the scope of the arbitration.[7] *84 CONCLUSION For the above stated reasons, the Court grants Gestetner's petition to compel arbitration and directs the parties to proceed forthwith pursuant to Section 1.5(b) of the Purchase Agreement. SO ORDERED. NOTES [1] Petitioner brought the present action in this Court after respondent had commenced an action in the U.S. District Court for the District of New Hampshire seeking, inter alia, a declaratory judgment that Gestetner is not entitled to submit the dispute concerning Gestetner's objections to the Closing Balance Sheet to arbitration except to the extent that Gestetner may claim that the Closing Balance Sheet was not prepared in all respects consistent with the accounting principles applied in the preparation of the Unaudited Balance Sheet. In the proceeding before this Court, respondent moved to dismiss or for a stay, arguing that this Court should defer to the earlier-filed New Hampshire action and should not reach the merits of the petition to compel. In the New Hampshire action, petitioner moved for a stay and for transfer to this Court pursuant to 28 U.S.C. § 1404(a). In an order dated January 28, 1992, Judge Devine granted petitioner's motion to transfer the New Hampshire action to this Court. In light of Judge Devine's decision, respondent's motion to dismiss or for a stay is moot, and this Court now decides only the issue of arbitrability. [2] In addition to its argument that Gestetner's objections violate the exclusivity provision of the Purchase Agreement, Nashua contends that Gestetner's objections are not arbitrable because they are not within the context of the Section 1.5, which Nashua avers is intended only to measure any changes in the net asset value of the Foreign Businesses from December 31, 1989 to the Closing Date. Like Nashua's exclusivity clause argument, this argument relates to the merits of Gestetner's objections and would be more appropriately resolved by the arbitrator. Nor is Melun Industries, Inc. v. Strange, 1990 WL 180534, 1990 U.S. Dist. LEXIS 15213, 90 Civ. 2027 (S.D.N.Y. Nov. 13, 1990), to the contrary. Melun is distinguishable from the present action on a number of different points. Most significantly, the price adjustment clause in Melun explicitly provided that the clause was to measure only the change in book value during a defined period. Thus, the arbitrator exceeded his authority by taking into consideration factors not solely intervening during the specified period. Here Section 1.5 provides no such specified period of limitation and the Court therefore cannot rule that Gestetner's objections, which allegedly consider inaccuracies that occurred prior to December 31, 1989, are beyond the scope of arbitration. [3] Also noteworthy in this context is Stena Line (U.K.) Ltd. v. Sea Containers, Ltd., 758 F.Supp. 934 (S.D.N.Y.1991). Like the instant case, Stena Line was a purchase price adjustment case involving balance sheets as of two dates. Both balance sheets were required to comply with UKGAAP, applied on a consistent basis. The latter balance sheet was also required to be consistent with the policies set forth in the notes to the earlier balance sheet. As here, the parties contested the roles of GAAP and consistency. Although both balance sheets in Stena Line were subject to arbitration, the first balance sheet was fixed and could not be attacked in the arbitration because the conditions precedent to arbitration had not been fulfilled. Thus, while it is true, as Nashua asserts, that the contract at issue in Stena Line lacked the exclusivity clause found here, the facts of Stena Line are remarkably close to the facts of the instant case. In compelling arbitration, the court observed that the contract's consistency provision did "not necessarily mandate that all procedures used in preparing the [earlier] balance sheet be slavishly followed in preparing its successor, to the exclusion of all other requirements." 758 F.Supp. at 938. The court further held: [T]here may be an internal tension in the requirements of the Agreement. For example, if the [earlier] balance sheet did not comport with UKGAAP, there may be difficulty in assessing the [later] balance sheet because of the requirements of both UKGAAP standards and `consistency.' However, it is for the arbitrator to determine the requirements of the Agreement as they concern the [later] balance sheet. Id. at 939 n. 4. Even assuming, as Nashua suggests, that there is tension between the requirements of GAAP and consistency in the Purchase Agreement, here, as in Stena Line, such tension is to be resolved by the arbitrator. [4] Nashua contends that in assessing its pre-litigation conduct, this Court may not make use of materials that were allegedly part of settlement negotiations between the parties. Nashua's contention is based on a misinterpretation of Federal Rule of Evidence 408, which prohibits the use of settlement discussions only if "used to prove liability for or invalidity of the claim or its amount." Gestetner makes no such use of settlement discussions here; instead, Gestetner has used the discussions only to show Nashua's practical, pre-litigation understanding of Section 1.5(b). [5] Nashua's argument that its communications with Gestetner occurred after a controversy had arisen is unpersuasive since the standard typically employed by courts is that these acts precede litigation. See Ocean Transport Line, Inc. v. American Philippine Fiber Industries, Inc., 743 F.2d 85, 91 (2d Cir.1984). [6] Nashua interprets this portion of the letter as supporting its position that Nashua disputed the scope of arbitration all along. Nashua's argument is wholly unconvincing, however, when the letter is considered as a whole. As Gestetner notes, the proposed discussion of the "appropriate scope of the arbitration" was to occur after the parties had advised Peat Marwick that any disputes as to the Closing Date Net Book Value were to be arbitrated. Thus Luke's words apparently referred to matters such as the nature and scope of discovery and the length of time of the arbitration — and certainly not to non-arbitrability, which would have been wholly inconsistent with the letter and its attachments. [7] While it may be true that Nashua expressed concern about the scope of the arbitration just prior to the commencement of litigation, this is not enough to rebut Gestetner's showing that Nashua's behavior in the eight previous months indicated its acceptance of the arbitrability of Gestetner's objections.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1914883/

121 B.R. 403 (1990) In re SUNCOAST AIRLINES, INC., Debtor. ATKINSON & MULLEN TRAVEL, INC., d/b/a Apple Vacations, Plaintiff, v. SUNCOAST AIRLINES, Defendant. No. 89-6925-CIV. United States District Court, S.D. Florida, Miami Division. November 8, 1990. *404 Andrew J. Nierenberg, Coral Gables, Fla., for Suncoast Airlines, Inc. Lawrence A. Kellogg, Miami, Fla., for Atkinson & Mullen Travel, Inc. MEMORANDUM ORDER AND OPINION MORENO, District Judge. Suncoast Airlines appeals from a bankruptcy court order in which Judge A.J. Cristol denied Suncoast's motion to vacate an order dismissing appeal and for extension of time in which to file the designation of record and statement of issues. FACTS Following bankruptcy proceedings, Judge A.J. Cristol entered a final order on April 12, 1989 in favor of the appellees, Atkinson & Mullen Travel, Inc. d/b/a Apple Vacations. The Appellant filed for extensions of time in which to file its appeal of the bankruptcy proceedings. Ultimately, an appeal was filed on May 30, 1989.[1] Appellant, however, did not file the supplemental documents within the ten days prescribed by the rule nor did they seek an extension of time within the ten days in which to file the documents.[2] Rule 27 of the Local Rules of the Southern District of Florida authorize the Bankruptcy Courts to dismiss an appeal for failure to file such documents. On June 19, 1989 (20 days after the notice of appeal was filed), the Bankruptcy Court entered the order dismissing the appeal. The Appellants thereafter filed a motion to vacate the order of dismissal and filed for an extension of time in which to file the designation of the record and statement of the *405 issues. The supplemental documents were filed prior to the court hearing argument on the motions on July 7, 1989 (over 1 month after the notice of appeal was filed). The court denied both the motion to vacate and the motion for an extension on August 7, 1989, serving to finally dismiss the appeal from the May bankruptcy proceedings. Appellant argues that the Bankruptcy Court erred in dismissing the appeal for failure to timely file a designation of the record and statement of issues. It further argues that the local rule upon which the bankruptcy court dismissed the appeal allows the court to dismiss an appeal on the merits without ever providing the claimants notice of the impending dismissal. Finally, the appellant argues that the Bankruptcy Court erred in determining that it had no jurisdiction to hear an appeal of an order dismissing a cause pursuant to Local Rule 27. DISCUSSION I The appellant argues that a dismissal based upon the failure to file the documents would be contrary to In re Beverly Manufacturing Corp.; Brake v. Tavormina, 778 F.2d 666 (11th Cir.1985), where the Court held that the District Court abused its discretion in dismissing a case for an appellant's failure to timely file his brief. There, the appellant timely filed his notice of appeal and the designation of the record, but failed to timely file his brief. The appellant argued that the dismissal was neither mandatory nor appropriate under the rule and the circumstances. Searching for the best approach to take in reviewing dismissals based upon the failure to file briefs, the court adopted a standard which required a finding of bad faith, negligence or indifference. Such flexible standard is consistent with the policy of encouraging swift prosecution of appeals. In re Sasson Jeans, Inc., d/b/a Sasson Industries and Sasson, 90 B.R. 608 (S.D.N.Y.1988). Such standard should not be as harsh as the standard used in dismissing appeals for failure to file notices of appeal. Filing a notice confers jurisdiction while the filing of subsequent documents does not determine jurisdiction. Since the issue at hand is limited to the filing of subsequent documents, the more flexible standard is to be applied. Thus, if the appellant acted in bad faith or was negligent or indifferent, the order of dismissal is within the court's discretion. Appellant argues lack of bad faith, negligence or indifference. He argues that the failure to timely file was due to excusable neglect consisting of the combination of the law office's unfamiliarity with federal court proceedings, including notice requirements, and the attorney's busy schedule as a solo practitioner. In In re South Atlantic Financial Corp, 767 F.2d 814 (11th Cir.1985), the court provided examples of excusable neglect such as a lawyer mailing notice to an incorrect address which delayed the filing by three days; or where because of no fault of his own, the lawyer had no notice of the bar date. Chief Judge Tjoflat cited as examples of circumstances which do not amount to excusable neglect: reliance on misinformation obtained from bankruptcy court clerk regarding duty to file proof of claim; misunderstanding between a creditor and its lawyers which caused late filing of proof of claim; failure to demonstrate that necessary records could not easily have been obtained where creditor failed to obtain records necessary to timely file proof of claim. None of the reasons offered by the appellant is recognized as "excusable". A solo practitioner's busy schedule, simple inadvertence or mistake regarding the content of the rules or, unfamiliarity with the rules do not qualify as excusable neglect. The court is required to find that any inadvertence was due to something beyond the control of the person sought to be excused. In re: South Atlantic Financial Corp, 767 F.2d at 818. The court finds no support for such finding in the record. II Local Rule 27 clearly states that the District Courts may review Bankruptcy *406 Court orders issued under the purview of that statute. It specifically details time schedules to be adhered to. In this case, the Bankruptcy Court correctly deferred the appeal of its own order to the District Court. Furthermore, Local Rule 27(F) mandates that the clerk of the bankruptcy court provide parties with a copy of the rule upon filing the appeal. In this district, the bankruptcy court provides such copies within 24 hours of the notice of appeal being filed. In the absence of any evidence that the copy was not sent, this court will assume that the copy was provided. In re Colombian Coffee, 71 B.R. 258 (Bkrcy.S.D. Fla.1987). Therefore, the court finds no due process violation. Accordingly, the denial of the motions to vacate the order dismissing the appeal is AFFIRMED. DONE AND ORDERED. NOTES [1] Although the Bankruptcy Rules for Appeal dictate that appeals from all orders, judgments or decrees shall be filed within 10 days from entry by the Clerk of the bankruptcy court, the rule allows for an extension of time, by leave of court, for a time not to exceed 20 days from the expiration of the 10 day deadline. Bankruptcy Rule 8002(a)-(c). [2] Within 10 days of the filing of the notice of appeal, the appellants shall file with the clerk of the bankruptcy court a designation of the record and statement of issues. Bankruptcy Rule 8006.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1875846/

458 F.Supp. 379 (1978) Kenneth BAKER, Arthur Bartniczak, Hanson Bratton, Patrick Jordan, Frank Krezsowik, Elbert McVay and Roger Scally, Plaintiffs, and Hanson Bratton, Gale Bogenn, William Shell, Patrick Jordan, Charles Mahoney, Individually and on behalf of all others similarly situated, and the Detroit Police Lieutenants and Sergeants Association, Plaintiffs, v. CITY OF DETROIT, a Michigan Municipal Corporation, Detroit Board of Police Commissioners, Coleman Young, Mayor, City of Detroit, Philip G. Tannian, Chief of Police, City of Detroit, jointly and severally, Defendants, and Guardians of Michigan, David L. Simmons, Arnold D. Payne, James E. Crawford, Clinton L. Donaldson, Willie Johnson, Kenneth M. Johnson and Alfred Brooks, Intervening Defendants. Civ. Nos. 5-71937, 5-72264. United States District Court, E. D. Michigan, S. D. July 31, 1978. *380 James P. Hoffa, Detroit, Mich., for Kenneth Baker, Arthur Bartniczak, Hanson Bratton, Patrick Jordan, Frank Krzesowik, Elbert McVay and Robert Scally. Bernard Friedman, Marc G. Whitefield, Preston Oade, Jr., Southfield, Mich., H. Barry Woodrow, Detroit, Mich., for Hanson Bratton, Gale Bogenn, William Shell, Patrick Jordan, Charles Mahoney and Detroit Police Lieut. & Sergeants Association. Roger Craig, Corp. Counsel, James R. Andary, Sp. Asst. Corp. Counsel, Detroit, Mich., O. Peter Sherwood, New York City, Lowell Johnston, San Francisco, Cal., for City of Detroit, Detroit Board of Police Commissioners, Coleman Young and Philip G. Tannian. Warren J. Bennia, Washington, D. C., John R. Runyan, Jr., Detroit, Mich., for intervening defendants-guardians of Michigan et al. MEMORANDUM OPINION AND ORDER DAMON J. KEITH, Circuit Judge, sitting by designation. These two consolidated cases were brought by white officers of the Detroit police department. They challenge the legality of Detroit's affirmative action promotion program[1] by which equal numbers *381 of white and black police sergeants were promoted to the rank of lieutenant. Plaintiffs allege that they were better qualified than the minority officers promoted, and that the affirmative action program thus discriminated against them solely because they were white. Plaintiffs' cause of action is based on alleged violations of 42 U.S.C. §§ 2000e, 2000d, 1981, 1983, 1985 and the Fourteenth Amendment to the United States Constitution. In addition, violations of state law are alleged. Plaintiffs seek actual damages, exemplary damages, back pay and injunctive relief. Plaintiffs have demanded that a jury try all factual issues.[2] Defendants deny that a right to trial by jury exists in this case. The issue has been fully briefed and the matter was referred to United States Magistrate Paul Komives who held lengthy hearings on the matter. The Seventh Amendment guarantees the right to a jury trial in all actions at common law where the amount in controversy exceeds twenty dollars. See Curtis v. Loether, 415 U.S. 189, 94 S.Ct. 1005, 39 L.Ed.2d 260 (1974); Ross v. Bernhard, 396 U.S. 531, 90 S.Ct. 733, 24 L.Ed.2d 729 (1970). There is no requirement that a jury try equitable issues, but where a case involves both legal and equitable claims, the right to trial by jury must be preserved. Dairy Queen, Inc. v. Wood, 369 U.S. 469, 82 S.Ct. 894, 8 L.Ed.2d 44 (1962); Beacon Theatres v. Westover, 359 U.S. 500, 79 S.Ct. 948, 3 L.Ed.2d 988 (1959). Determining whether a claim is legal or equitable is not always easy. Even a money damages claim may not always be deemed "legal" relief. See Curtis v. Loether, supra, 415 U.S. at 196, 94 S.Ct. 1005. In actions brought for back pay and injunctive relief under Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq., the courts of appeals have uniformly held that no right to trial by jury attaches. See, e. g. Slack v. Havens, 522 F.2d 1091, 1094 (9th Cir. 1975); EEOC v. Detroit Edison Co., 515 F.2d 301, 308 (6th Cir. 1975), vacated and remanded on other grounds, 431 U.S. 951, 97 S.Ct. 2669, 53 L.Ed.2d 267 (1977); Robinson v. Lorillard Corp., 444 F.2d 791, 802 (4th Cir.), cert. dismissed, 404 U.S. 1006, 92 S.Ct. 573, 30 L.Ed.2d 655 (1971); King v. Laborers Int. Union, 443 F.2d 273, 279 (6th Cir. 1971) (dicta); Johnson v. Georgia Highway Express, Inc., 417 F.2d 1122, 1125 (5th Cir. 1969). It is the discretionary aspect of the back pay award, coupled with its restitutionary nature, designed to "make whole" the victims of employment discrimination, which distinguishes a claim for back pay from an ordinary legal damages claim. See Lorillard v. Pons, 434 U.S. 575, 582, 98 S.Ct. 866, 55 L.Ed.2d 40 (1978); Albemarle Paper Co. v. Moody, 422 U.S. 405, 441-444, 95 S.Ct. 2362, 45 L.Ed.2d 280 (Rehnquist, J., concurring); Slack v. Havens, supra at 1094; EEOC v. Detroit Edison Co., supra at 308; Johnson v. Georgia Highway Express, Inc., supra at 1125. Pointing to Lorillard v. Pons, 434 U.S. 575, 98 S.Ct. 866, 55 L.Ed.2d 40 (1978) and Curtis v. Loether, 415 U.S. 189, 94 S.Ct. 1005, 39 L.Ed.2d 260 (1974), plaintiffs state that it is "unsettled" whether one has the right to a jury trial under Title VII. They further urge that even if a jury trial is ordinarily unavailable, it should be provided in the instant case because trial on the issues of liability and damages has been bifurcated. Finally, they argue that even if a jury trial is unavailable under Title VII, it should be available to them under the damage claims based upon 42 U.S.C. §§ 1981, 1983, 1985 and various pendent state claims. *382 It is true that the Supreme Court in Lorillard and Curtis reserved the issue of whether the Seventh Amendment mandates a jury trial for any or all money damages awards under Title VII. However, as indicated above, the Courts of Appeals have spoken with one voice on the question. This Court is unwilling to disregard this clear and well-reasoned mandate. Plaintiffs' argument that bifurcating the trial entitles them to a jury trial has no merit. Actions seeking injunctive relief only are commonly divided into a trial on the merits and then a separate hearing on the injunctive remedy, yet, clearly, no jury trial rights attach there. Plaintiffs in no way indicate why bifurcation makes any difference here. Plaintiffs' third argument has facial appeal. At first glance, it appears that legal issues, triable to a jury, exist here since plaintiffs seek actual and punitive damages[3] in addition to back pay and injunctive relief. See Curtis v. Loether, supra at 195-196, 94 S.Ct. 1005. Plaintiffs particularly point to 42 U.S.C. § 1983, claiming that actual and punitive damages claims are allowable and must be tried to a jury. There is direct support for their argument in this Circuit. Amburgey v. Cassady, 507 F.2d 728 (6th Cir. 1974). See also Burt v. Board of Trustees of Edgefield City School District, 521 F.2d 1201 (4th Cir. 1975). At the same time this Circuit has held that a § 1983 action seeking reinstatement and back pay is equitable and no jury trial rights attach. McFerren v. County Board of Ed. of Fayette Co., Tenn., 455 F.2d 199 (6th Cir. 1972), Accord Smith v. Hampton Training School for Nurses, 360 F.2d 577, 581 n.8 (4th Cir. 1966) (en banc). The question remains whether adding actual and punitive damages claims to the complaint (as the Plaintiffs have done here) converts an equitable employment discrimination action to a legal one, requiring a jury trial. The Fifth Circuit has said no. A plaintiff cannot, by framing his complaint under § 1981 "or by making unsupported allegations for compensatory and punitive damages — unilaterally alter the [equitable] genre of the proceeding." (emphasis added) Lynch v. Pan American World Airways, Inc., 475 F.2d 764 (5th Cir. 1973). This Court agrees with the Fifth Circuit. Congress' determination that no jury trial be afforded in Title VII cases[4] cannot be evaded by appending additional claims under §§ 1981 or 1983 or other related statutes. This is especially true in a situation, such as here, where an express employment discrimination claim has been made by plaintiffs under Title VII and joined with claims under §§ 1981, 1983 and 1985. "In fashioning a substantive body of law under § 1981 the courts should, in an effort to avoid undesirable substantive law conflicts, look to the principles of law created under Title VII for direction." Patterson v. American Tobacco Co., 535 F.2d 257, 270 (4th Cir. 1976) quoting Waters v. Wisconsin Steel Works of Int'l Harvester Co., 502 F.2d 1309, 1316 (7th Cir. 1974). See Johnson v. Railway Express Agency, Inc., 421 U.S. 454, 459-60, 95 S.Ct. 1716, 44 L.Ed.2d 295 (1975); Detroit Edison, supra at 309. These salutory principles are directly applicable to the case at bar. Nor is there any reason to *383 distinguish claims under § 1983. The only reason § 1983 is applicable here is because defendants act on behalf of the state.[5] An outcome mandating jury trials in employment discrimination cases against state defendants under § 1983, but not private or state defendants under § 1981 or Title VII, would be irrational. Title VII should provide the guidance here, not plaintiff's ingenuity in adding additional causes of action.[6] The facts of this case present additional, compelling grounds for denying a jury trial. The gravamen of this action is injunctive relief and back pay for alleged employment discrimination. Making bald assertions of malice, plaintiffs ask for additional relief in the form of actual damages for mental anguish and for punitive damages. Yet it is clear that in a § 1983 action for money damages, public officials have qualified immunity if they acted in good faith. Procunier v. Navarette, 434 U.S. 555, 98 S.Ct. 855, 55 L.Ed.2d 24 (1978) (prison officials); O'Connor v. Donaldson, 422 U.S. 563, 95 S.Ct. 2486, 45 L.Ed.2d 396 (1975) (state hospital superintendent); Wood v. Strickland, 420 U.S. 308, 95 S.Ct. 992, 43 L.Ed.2d 214 (1975) (school board members). The standard applied to test good faith is two pronged: 1) Whether the constitutional right allegedly infringed was clearly established and defendants knew or should have known that their conduct violated the right, or, 2) whether the public official acted with malicious intention to deprive the plaintiff of a constitutional right or to cause him other injury. See Procunier v. Navarette, supra, 434 U.S. at 560-564, 98 S.Ct. 855. Since the good faith immunity test is based on broad policy considerations, see Wood v. Strickland, supra 420 U.S. at 318-322, 95 S.Ct. 992, it should also apply to causes of action for money damages other than § 1983. Cf. Procunier v. Navarette, supra 434 U.S. at 556, 98 S.Ct. 855 (alleged violations of § 1985 and § 1983). Although defendants have inexplicably failed to raise this issue in a motion for summary judgment, the Court notes the total lack of evidence in the record showing anything other than good faith on the part of the city officials under the two-pronged standard outlined above. Plaintiffs' case has yet to be tried on the merits. Nevertheless, the affidavits and depositions filed in this matter reveal that city officials acted out of genuine concern to more fully integrate the police department, in accord with what they thought the law required. There is not a shred of evidence that defendants sought to cause plaintiffs "`intentional injury', contemplating that the actor intends the consequences of his conduct", Procunier v. Navarette, supra 43 U.S. at 566, 98 S.Ct. at 862. Nor can the city officials be said to have infringed a "clearly established" constitutional right, the existence of the right plaintiffs allege is the crux of this litigation! Despite its inclination to do so,[7] this court has no authority to grant even partial summary judgment sua sponte; the parties must be accorded notice and the right to be heard. Kistner v. Califano, 579 F.2d 1004 (6th Cir. 1978); Bowidge v. Lehman, 252 F.2d 366 (6th Cir. 1958). Although the Court feels that a later grant of summary judgment on this issue would effectively *384 moot the jury demand,[8] it need not delay its decision. Great care must be taken in examining the complaint and the nature of the remedy sought so that a complaint which seeks essentially equitable relief is not subverted by the addition of damage claims to obtain a jury trial where none is justified under the law. Like the Fifth Circuit in Lynch v. Pan American World Airways, supra, the Court does not think that unsupported allegations should be allowed to obscure the fundamentally equitable nature of the claim which plaintiffs have brought. It is, therefore, ORDERED that plaintiffs' demand for a jury be DENIED. It is further ORDERED that Plaintiff's motion for certification of this issue under 28 U.S.C. 1292(b) be denied. The parties are requested to brief and give their views on the proposed grant of summary judgment as to plaintiff's claims for money damages other than back pay. NOTES [1] This program was adopted pursuant to the following resolution by the City's Board of Police Commissioners: RESOLUTION AFFIRMATIVE ACTION STATEMENT It has been determined that the Detroit Police Department has submitted facts and statistics that would indicate that de facto discrimination exists in the hiring of Blacks and other minority groups as police officers contrary to the U.S. and Michigan Constitutions, the Charter of the City of Detroit, and the Civil Rights Acts. It has also determined from those facts that de facto discrimination exists in the promoting of Blacks and other minority groups to supervisory positions in the Detroit Police Department contrary to U.S. and Michigan Constitutions, the Charter of the City of Detroit, and the Civil Rights Acts. It is necessary because of past and present discrimination in the hiring and promotional policies of the Detroit Police Department that this Board establish an Affirmative Action policy that will guarantee to every individual who is now a police officer or who intends to pursue a career as a police officer, a policy of equality in hiring and in promotion and most importantly, an Affirmative Action Program of enforcement to support that policy. The U.S. Constitution, the Michigan Constitution, the Charter of the City of Detroit, the Civil Rights Acts, and the overwhelming moral principle of equality compels this Board to take Affirmative Action to guarantee to all persons equality in their promotional and hiring rights. THEREFORE, BE IT RESOLVED, that the Chief of Police is instructed to take immediate Affirmative Action to eliminate any discriminatory hiring practices that systematically exclude minority groups from being appointed as Detroit Police Officers, and BE IT FURTHER RESOLVED, that the Chief of Police take Affirmative Action to promote minorities from the existing promotional lists, and BE IT FURTHER RESOLVED, that the Chief of Police establish criteria, with weighted component parts, used to establish promotional lists that are nondiscriminatory with respect to minority groups and BE IT FURTHER RESOLVED, that the Chief of Police shall regularly report to the Board of Commissioners on the effectiveness of this Affirmative Action policy in order that this Board may re-evaluate and, if necessary, order additional action that may have to be taken. ADOPTED JULY 31, 1974 BOARD OF POLICE COMMISSIONERS City of Detroit [2] A question exists as to whether a timely jury trial demand was filed by the Bratton plaintiffs. There is no need to decide this issue. The Court will assume that all parties filed a timely demand for a jury trial. [3] The Hanson plaintiffs seek "all actual and exemplary damages, including but not limited to loss of wages, benefits, time and efforts expended in preparing for examinations, mental anguish, loss of standing in the community by reason of denial of promotions, and such other damages as Plaintiffs may show that they have suffered up to the date of trial." Pl. First Amended Complaint ¶ 5. The Baker plaintiffs allege that because they were denied promotion, they suffered "unmeasured mental anguish, including the mental anguish of their families," and that they spent "unmeasured sums" in striving for promotion. Punitive damages are requested because it was "well known" to defendants that they were violating the law. Pl. Complaint §§ 23, 24, 25. [4] See Lorillard v. Pons, 434 U.S. 575, 582, 98 S.Ct. 866, 55 L.Ed.2d 40 (1978). A proposed amendment to Title VII of the Civil Rights Act of 1964 would have provided a jury trial on request. The Senate rejected this proposal. See 118 Cong.Rec. 5-2277, 2278 (Daily Ed., Feb. 22, 1972). [5] Section 1983 provides: "Every person who, under color of any statute, ordinance, regulation, custom, or usage, of any State or Territory, subjects or causes to be subjected, any citizen of the United States or other person within the jurisdiction thereof to the deprivation of any rights, privileges, or immunities secured by the Constitution and laws, shall be liable to the party injured in an action at law, suit in equity, or other proper proceeding for redress." [6] Amburgey v. Cassady, 507 F.2d 728, 730 (6th Cir. 1974) (dicta) is not to the contrary. Amburgery involved a First Amendment complaint, not one for employment discrimination; nor was the § 1983 claim there joined with a Title VII complaint. [7] The Supreme Court has recently spoken strongly of the usefulness of summary judgment on grounds of immunity when public officials are sued for money damages. Butz v. Economou, ___ U.S. ___, ___, 98 S.Ct. 2894, 57 L.Ed.2d 895 (1978). [8] Granting summary judgment on the damages counts would only leave the equitable issues of back pay and injunctive relief to be tried. But see Rogers v. Loether, 467 F.2d 1110, 1118-19 (7th Cir. 1972), aff'd on other grounds sub nom. Curtis v. Loether, 415 U.S. 189, 94 S.Ct. 1005, 39 L.Ed.2d 260 (1974) (jury demand should be decided on the allegations and relief sought in the complaint).

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1939018/

185 B.R. 497 (1995) In re PHAR-MOR, INC. SECURITIES LITIGATION. OFFICIAL COMMITTEE OF UNSECURED CREDITORS OF PHAR-MOR, INC. and Fifteen Affiliated Companies, Plaintiff, v. ACTION INDUSTRIES, INC., et al., Defendants. OFFICIAL COMMITTEE OF UNSECURED CREDITORS OF PHAR-MOR, INC. and Fifteen Affiliated Companies, Plaintiff, v. PNC VENTURE CORP., et al., Defendants. Civ. A. Nos. 92-1938, 94-2077 and 94-2076. MDL No. 959. Master File No. Misc. 93-96. United States District Court, W.D. Pennsylvania. August 22, 1995. *498 David Murphy, Pepper, Hamilton & Scheetz, Detroit, MI, Harry W. Greenfield, Cleveland, OH, for Official Committee and Unsecured Creditors. Edwin L. Klett, Pittsburgh, PA, for Westinghouse. James H. McConomy, Pittsburgh, PA, for DeBartolo. OPINION ZIEGLER, Chief Judge. Plaintiff, Official Committee of Unsecured Creditors of Phar-Mor, Inc. and Fifteen Affiliated Companies (the "Committee"), brings these actions on behalf of the debtor, Phar-Mor, Inc., and its creditors to recover from defendants, who are or were Phar-Mor shareholders, approximately $72.2 million that Phar-Mor paid to defendants in August of 1991 to repurchase shares of Phar-Mor stock. Pending before the court are cross-motions for summary judgment filed by the parties. These actions, which allege that defendants were the beneficiaries of fraudulent transfers in violation of the Bankruptcy Code and certain state fraudulent conveyance laws, were initially filed in the United States Bankruptcy Court for the Northern District of Ohio before being transferred to this court by the Judicial Panel on Multidistrict Litigation for inclusion in In re Phar-Mor, Inc. Securities Litigation, MDL No. 959 (W.D.Pa.). Phar-Mor, a deep discount drugstore chain, filed for bankruptcy on August *499 17, 1992, shortly after publicly revealing that certain of its high-level management employees had engaged in a fraud at the company. Summary judgment is appropriate when there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56; Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). In considering a motion for summary judgment, we must examine the evidence in the light most favorable to the non-moving party and draw all reasonable inferences in favor of that party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 2513-14, 91 L.Ed.2d 202 (1986). The facts underlying the Committee's claims are generally undisputed and are as follows. Phar-Mor, a privately-held company, was formed in 1982 as a wholly-owned subsidiary of Giant Eagle, Inc. Almost from the time of its inception and until it filed for bankruptcy, Phar-Mor engaged in an aggressive expansion program whereby it grew from 12 stores in 1985 to 311 stores at the time of the bankruptcy filing. To finance this expansion, Phar-Mor often obtained capital by, inter alia, selling shares of its stock to accredited investors. In the spring of 1991, Phar-Mor decided to attempt to raise approximately $125 million in new capital by selling its stock to qualified institutional investors through the mechanism of a private placement offering. In early May 1991, Phar-Mor issued a private placement memorandum seeking to place 4.5 million shares of stock at a price of $28 share, for total net proceeds of approximately $122,400,000.00. In April of 1991, David Shapira, Phar-Mor's Chairman and Chief Executive Officer, met with Corporate Advisors, L.P., the general partner of the Corporate Partners investment fund, to determine whether Corporate Partners would be interested in investing in Phar-Mor. After performing an investment analysis of Phar-Mor, Corporate Partners agreed to purchase the entire $125 million of equity that Phar-Mor was planning to sell in the May offering. The draft stock purchase agreements reveal that Corporate Partners contemplated purchasing $125 million in stock directly from Phar-Mor plus an additional $75 million worth of shares from two of Phar-Mor's shareholders who had expressed an interest in selling part of their equity in the company, namely, Westinghouse Credit Corporation and the Edward J. DeBartolo Family Limited Partnership ("DeBartolo"). The structure of the deal that was eventually executed between Corporate Partners and Phar-Mor was modified from the original draft agreements to provide that Corporate Partners would pay $200 million directly to Phar-Mor and Phar-Mor would then use $75 million of that amount to repurchase shares from its existing shareholders by way of a tender offer. A number of factors were responsible for the modification, including Shapira's belief that all of Phar-Mor's shareholders should have an opportunity to participate in the liquidity opportunity and Corporate Partners' desire to avoid any possible liability that could arise from a direct purchase under the securities laws due to the relatively superior knowledge that Corporate Partners' gained of Phar-Mor's financial condition during its due diligence efforts. In addition, Corporate Partners wanted its entire investment protected by the representations and warranties made by Phar-Mor in the stock purchase agreement. In light of these concerns, the stock purchase agreement that was executed on June 27, 1991 provides that: The Company [Phar-Mor] hereby covenants to the purchasers that, promptly after the Closing Date (and in no event later than July 23, 1991), it shall commence an offer to purchase Company Units and/or shares of Common Stock, upon the terms and subject to the conditions set forth below . . .; it being acknowledged and agreed that the Company shall not purchase pursuant to the Company Offer a number of Company Units and/or shares of Common Stock which shall require the payment of more than $75,000,000 in the aggregate (the "Offer Limit"). Stock Purchase Agreement, § 8 (bracket *500 supplied).[1] The agreement also required Phar-Mor to: use the proceeds from the issuance and sale of the shares of the Common Stock and Warrants hereunder solely for the following purposes: (1) to pay down such portion of its outstanding indebtedness and obligations under the Credit Agreement as the Company shall reasonably determine; (2) for working capital and general corporate purposes; (3) to pay all fees, costs and expenses related to this Agreement and the Ancillary Agreements and the consummation of the transactions contemplated hereby and thereby . . .; and (4) to fund the Company Offer referred to in Section 8(a) hereof, and all fees and expenses thereof. . . . Stock Purchase Agreement, § 5(e) (emphasis supplied). The preamble of the stock purchase agreement provides that Phar-Mor's covenant to conduct the tender offer was a "material inducement" to Corporate Partners' decision to invest in Phar-Mor. Indeed, the agreement contained a provision which, in the event that Phar-Mor would have failed to repurchase at least $50 million worth of shares in the tender offer, gave Corporate Partners the right to sell up to $50 million worth of stock back to Phar-Mor. Stock Purchase Agreement, § 8(b)(I). Prior to entering into the stock purchase agreement, Corporate Partners required Phar-Mor to obtain commitments from certain significant Phar-Mor shareholders that they would each tender minimum specified quantities of Company Units to ensure that the tender offer would be fully subscribed. In response, and prior to the closing of the sale to Corporate Partners, Phar-Mor received letters from these shareholders setting forth commitments to tender quantities which, in total, exceeded $75 million, that is, the value of the proposed tender offer. In light of these commitments, Phar-Mor was able to assure Corporate Partners that the tender offer would be fully subscribed.[2] The sale to Corporate Partners was closed on June 27, 1991 and the proceeds from the sale were deposited in Phar-Mor's concentration account, where they were commingled with other funds previously and subsequently deposited into the account. Phar-Mor had unfettered access to and control over the money, subject only to the provision in the stock purchase agreement that it use a portion of the proceeds to finance the tender offer. Despite this restriction, Phar-Mor applied the bulk of the proceeds to its revolving line of credit and the rest was transferred to other accounts for general corporate use, including inventory purchases. In accordance with its obligations under the stock purchase agreement, Phar-Mor announced the $75 million tender offer on July 23, 1991. Because the amount received by the shareholders was reduced to reflect the shareholders' payment of their pro rata share of the fees and expenses incurred by Phar-Mor in connection with the Corporate Partners transaction, the actual cost of the tender offer to Phar-Mor was approximately $72.2 million. The defendants in this action are the shareholders that received the funds from Phar-Mor in connection with the tender offer. Although Corporate Partners invested $200 million in Phar-Mor, it is not disputed that Phar-Mor was to receive only $125 million in new equity from the stock sale and was obligated to use $75 million of the proceeds to pay for the tender offer. Frederick Green, counsel for Corporate Partners testified at his deposition as follows: Well, the intention is that the company's capital would increase after the dust of this transaction settled by $125 million. The company was to have $125 million available to it for whatever it was looking to use these proceeds for. Whether you do that in two transactions that are separate, or whether you do it in one transaction, as *501 we decided to here, is a mechanic that is decided after input from tax lawyers, and securities lawyers, et cetera. But its just a mechanic. Green Deposition, p. 45 (emphasis added). The testimony of Jonathan Kagan, Corporate Partners' managing director, is consistent with Green's: I believe that at the time we closed the transaction it was our view that it was in all of the shareholders' interests that the company raise new equity in the amount of in the order of $125 million. The $75 million to repurchase other shareholders was a separate decision process. Kagan Deposition, p. 309. Thus, the net effect to Phar-Mor was, as intended, a capital increase of $125 million along with a $75 million transfer of stock ownership from its existing shareholders to Corporate Partners. Phar-Mor's treatment of the transactions in its accounting records also indicates that the combined effect of the transactions was to be a $125 million increase in equity. In the audited financial statements for the fiscal year ending June 30, 1991, Phar-Mor reserved the amount of $72,954,000 in the liability account named "stock redemption payable." Note number 9 to the financial statements provides in relevant part that: Effective June 27, 1991, the Company entered into a Stock Purchase Agreement (Agreement) with a group of investors unaffiliated with the company. . . . In connection with the Agreement, the Company agreed to apply up to $75,000,000 of the proceeds raised from the sale to the purchase of its outstanding common stock. Coopers & Lybrand, Phar-Mor's independent auditors, concurred with Phar-Mor's accounting treatment of the transaction on the basis that "the commitment to repurchase shares existed at June 30, 1991" and, therefore, "equity at June 30, 1991 has been reduced to reflect the entire tender offer. . . ." The Committee has asserted claims to avoid and recover the amounts paid in the tender offer under a theory of "constructive fraud." Section 548(a)(2) of the Bankruptcy Code provides that: The trustee may avoid any transfer of an interest of the debtor in property, or any obligation incurred by the debtor, that was made or incurred on or within one year before the date of the filing of the petition, if the debtor voluntarily or involuntarily— * * * * * * (A) received less than a reasonably equivalent value in exchange for such transfer or obligation; (B)(i) was insolvent on the date that such transfer was made or such obligation was incurred, or became insolvent as a result of such transfer or obligation; (ii) was engaged in business or a transaction, or was about to engage in business or a transaction, for which any property remaining with the debtor was an unreasonably small capital; or (iii) intended to incur, or believed that the debtor would incur, debts that would be beyond the debtor's ability to pay as such debts matured. 11 U.S.C. § 548(a)(2). The Committee has also asserted claims pursuant to 11 U.S.C. § 544, which incorporates state fraudulent transfer laws.[3] The Committee has moved for partial summary judgment on its claims and, specifically, seeks a judgment in its favor that (1) money was transferred to defendants within one year of Phar-Mor's bankruptcy filing, (2) Phar-Mor had an interest in the money that was transferred to defendants, and (3) Phar-Mor received less than reasonably equivalent value in exchange for the funds transferred. Defendants have also filed a motion for summary judgment and assert that the tender offer does not constitute an avoidable fraudulent conveyance because (1) Phar-Mor did not have an interest in the $75 million transferred to defendants, and (2) Phar-Mor received reasonably equivalent value in exchange for the funds transferred. For the reasons that follow, we will grant the motion of defendants and deny the motion of plaintiff, *502 and judgment will be entered in favor of defendants. By its terms, section 548 does not apply to transfers of property in which the debtor has no interest. This is consistent with the purpose of the statute, which is to "prevent a debtor from diminishing, to the detriment of some or all creditors, funds that are generally available for distribution to creditors." Nordberg v. Sanchez (In re Chase & Sanborn Corp.), 813 F.2d 1177, 1181 (11th Cir.1987). Defendants contend that, because Phar-Mor was contractually obligated to use $75 million of the $200 million invested by Corporate Partners to pay for the tender offer, it had no interest in the $75 million and the funds were never available to Phar-Mor's creditors. On the other hand, the Committee asserts that Phar-Mor must be deemed to have had an interest in the entire $200 million primarily because, as rehearsed, the money was deposited in Phar-Mor's concentration account and which Phar-Mor had unfettered access and control. Plaintiff contends that, because the $75 million in question was not segregated from other funds of Phar-Mor and was used by Phar-Mor for general corporate purposes, Phar-Mor had a property interest in the $75 million. The Committee argues that, under these circumstances, defendants cannot establish that the money was "earmarked" for defendants or that Phar-Mor was a "mere conduit" from which the money would flow from Corporate Partners to defendants. In In re Chase & Sanborn Corp., supra, the Court of Appeals rejected the creditor trustee's contention that, because the debtor had possession of the funds in question and, therefore, some control over them, the funds were part of the debtor's property. In that case, which involved an illegal money laundering scheme, the president and sole shareholder of a limited partnership, which in turned owned all of the stock of the debtor, personally borrowed money from a bank. A portion of the proceeds from the loan was transferred to an account of the debtor which had been reopened solely for the purpose of laundering the money that had been deposited into it. Approximately half of the money was used to pay salaries and lawyers fees of the debtor, while the other half was used to pay a personal debt of the president. As the court recognized, "the actual connection between the funds and the debtor was quite tangential: a two-day layover in a special account then only recently opened and soon thereafter closed. The account, moreover, was opened under a name the debtor no longer used." Id. at 1182. In rejecting the trustee's claim under § 548(a)(2), the court stated that: we conclude that where a transfer to a noncreditor [of the debtor] is challenged as fraudulent, more is necessary to establish the debtor's control over the funds than the simple fact that a third party placed the funds in an account of the debtor with no express restrictions on their use. In determining whether the debtor had control of funds transferred to a noncreditor, the court must look beyond the particular transfers in question to the entire circumstance of the transactions. * * * * * * neither the use by the debtor of some of the funds for its own purposes nor the fact that the debtor's president ordered the transfer can overcome the overwhelming evidence that [the president, and not the debtor], controlled the transfer at issue. Accordingly, we conclude that the funds were not the property of the debtor, and thus that the transfer is not avoidable. To conclude otherwise would confer on the creditors a windfall at the expense of the named defendants, who, as the creditor trustee admits, were innocent of any intent to diminish the assets of the debtor. Id. at 1181-82 (brackets supplied). Defendants contend that Sanborn supports the contention that Phar-Mor did not control the $75 million used in the tender offer. On the other hand, the Committee contends that, because, with respect to the $200 million, Phar-Mor "held complete legal title, all indicia of ownership, and unfettered discretion to pay creditors of its own choosing, including its own creditors," In the Matter of Southmark Corp., 49 F.3d 1111, 1116 (5th Cir.1995) (emphasis in original), the facts of this case *503 are distinct and the holding in Sanborn is not applicable. Although the language of Sanborn would seem to support the position of defendants, we need not rule on this issue because we hold that defendants are entitled to summary judgment on another basis. As explained, the Committee may not avoid a transfer or obligation of the debtor under section 548 unless it can establish that the debtor received less than reasonably equivalent value in exchange for the transfer or obligation. As the Court of Appeals stated in Rubin v. Manufacturers Hanover Trust Co., 661 F.2d 979 (2d Cir.1981): The reason for this requirement is obvious: if the debtor receives property or discharges or secures an antecedent debt that is substantially equivalent in value to the property given or obligation incurred by him in exchange, then the transaction has not significantly affected his estate and his creditors have no cause to complain. Id. at 991. Defendants argue that, in determining whether Phar-Mor received reasonably equivalent value from the tender offer, we must collapse the Corporate Partners sale and the tender offer into a single transaction to assess their true impact upon the debtor. See United States v. Tabor Court Realty Corp., 803 F.2d 1288, 1302 (3d Cir.1986), cert. denied sub nom., McClellan Realty Corp. v. United States, 483 U.S. 1005, 107 S.Ct. 3229, 97 L.Ed.2d 735 (1987). We agree. In our view, the two transactions must be treated as a single transaction for purposes of determining the overall effect on the debtor for the following reasons: (1) the stock purchase agreement requires Phar-Mor to conduct the tender offer. Moreover, it requires Phar-Mor to use $75 million of the proceeds to pay for the tender offer; (2) both Phar-Mor and Corporate Partners intended that Phar-Mor would retain only $125 million in additional equity from the sale; (3) the stock purchase agreement incorporated the tender offer only as a "mechanic" so that Phar-Mor's shareholders could obtain some liquidity and also so Corporate Partners could make a larger investment in Phar-Mor without dealing directly with the shareholders or running the risk of a securities law liability based on its extensive due diligence investigation; (4) Phar-Mor had commitments from its shareholders to purchase more than $75 million prior to the closing of the Corporate Partners deal; (5) the shareholders that participated in the tender offer were charged a pro rata share of the company's costs in connection with the Corporate Partners transaction; and (6) Phar-Mor's financial statements treated the Corporate Partners' purchase and the tender offer as parts of a single transaction. These factors establish that the two exchanges at issue were part of an integrated transaction undertaken by Phar-Mor for the purpose of raising $125 million in capital. See Morse Operations, Inc. v. Goodway Graphics of Virginia (In re Lease-A-Fleet, Inc.), 155 B.R. 666, 676 (Bkrtcy.E.D.Pa.1993) ("Each of the circular financial transactions between the parties in issue must therefore be `collapsed' into one transaction to appreciate their impact upon the Debtor. When each circle of cash is viewed as a single transaction, it is clear that the same monies simply passed through from [parent] to Debtor to the [affiliate]"). Thus, we will not examine the tender offer in isolation, rather, we will analyze the net effect of the integrated transaction upon the debtor. In Mellon Bank, N.A. v. Metro Communications, Inc., 945 F.2d 635 (3d Cir. 1991), cert. denied, 503 U.S. 937, 112 S.Ct. 1476, 117 L.Ed.2d 620 (1992), the Court of Appeals stated that the "touchstone" in evaluating whether the debtor has been given reasonably equivalent value is: whether the transaction conferred realizable commercial value on the debtor reasonably equivalent to the realizable commercial value of the assets transferred. Thus, when the debtor is a going concern and its realizable going concern value after the transaction is equal to or exceeds its going concern value before the transaction, reasonably *504 equivalent value has been received. Id. at 647. In other words, if "the net effect of the transaction on the debtor's estate is demonstrably insignificant, for he has received . . . either an asset or the discharge of a debt worth approximately as much as the property he has given up or the obligation he has incurred," the debtor will be deemed to have received reasonably equivalent value from the transaction. In the case at bar, the effect of the integrated transaction between Phar-Mor, Corporate Partners and defendants was a net financial gain for Phar-Mor of $125 million in new equity, plus payment by defendants of Phar-Mor's costs and expenses in the deal. As stated, the stock purchase agreement provides that the obligation undertaken by Phar-Mor to make the tender offer to defendants was a "material inducement" in Corporate Partners' decision to invest in the company. Thus, we hold that, on this factor alone, Phar-Mor received reasonably equivalent value, albeit indirectly, from the tender offer, to-wit, Corporate Partners' $125 million investment. The Committee argues that, because Corporate Partners would have likely invested $125 million even in the absence of the tender offer, the investment can not be deemed consideration for the transfer of funds to defendants. In other words, the Committee would have us ignore the express provisions of the stock purchase agreement and rule that the tender offer was not a material inducement to Corporate Partners' investment. We will not do so. Even if we were to conclude that the $125 million was not consideration for the tender offer, we would still hold that Phar-Mor received reasonably equivalent value from the exchange. It is undisputed that Corporate Partners initially agreed to invest $125 million into Phar-Mor. That amount increased by $75 million to a total of $200 million only when Phar-Mor agreed to make a $75 million tender offer to its existing shareholders. The Committee can point to no evidence that would suggest that Corporate Partners would have invested the entire $200 million in the absence of Phar-Mor's obligation to conduct the tender offer. Therefore, Phar-Mor received $75 million specifically because it agreed to make the tender offer. This constitutes dollar-for-dollar consideration to Phar-Mor in exchange for its obligation to transfer $75 million to defendants, and the net effect of the transactions, including the assumption by defendants of Phar-Mor's costs and expenses, is an increase in corporate net worth. In essence, Phar-Mor was paid by defendants to transfer $75 million from Corporate Partners to defendants. Under these circumstances, we hold that the tender offer has "not significantly affected [the] estate and [Phar-Mor's] creditors have no cause to complain." Rubin, supra, at 991; see also, Corporate Jet Aviation, Inc. v. Vantress (In re Corporate Jet Aviation, Inc.), 57 B.R. 195 (Bkrtcy.N.D.Ga.1986), aff'd, 82 B.R. 619 (N.D.Ga.1987), aff'd 838 F.2d 1220 (11th Cir. 1988) (debtor received reasonably equivalent value because the challenged stock redemption was a requirement of a contemporaneous asset sale by the company). In our judgment, the estate would be unjustly enriched if the Committee were permitted to recover the transfers made by Phar-Mor, and the purposes underlying section 548 of the Bankruptcy Code would not be served. The express provisions of the stock purchase agreement make clear that $75 million of the $200 million invested by Corporate Partners was intended to merely pass through Phar-Mor to defendants. None of the parties involved expected Phar-Mor's equity to increase by $200 million as a result of the sale. Phar-Mor contracted for an infusion of capital in the amount of $125 million and, when the "dust settled," that is what it got. Were we to hold that the estate is entitled to the entire $200 million, the estate, and Phar-Mor's creditors, would receive a $75 million windfall at the expense of defendants. For the reasons stated, judgment will be entered in favor of defendants on each of the claims asserted by the Committee.[4] An appropriate written order will follow. *505 ORDER OF COURT IT IS ORDERED that the motion of plaintiff, Official Committee of Unsecured Creditors of Phar-Mor, Inc. and Fifteen Affiliated Companies, for leave file an amended complaint be and hereby is granted. IT IS FURTHER ORDERED that the motion of defendants, Action Industries, Inc., et al. and PNC Venture Corp., et al., for summary judgment be and hereby is granted. Judgment be and hereby is entered in favor of all defendants and against plaintiff, Official Committee of Unsecured Creditors of Phar-Mor, Inc. and Fifteen Affiliated Companies, on plaintiff's claims under 11 U.S.C. §§ 544 and 548. IT IS FURTHER ORDERED that the motion of plaintiff for summary judgment be and hereby is denied. NOTES [1] A "Company Unit" is comprised of a share of stock and a warrant to purchase an additional share. [2] We note that Phar-Mor also entered into an agreement with Westinghouse, before the Corporate Partners sale was executed, whereby Phar-Mor agreed to conclude the tender offer no later than July 30, 1991. [3] We note that the Committee has moved to amend its complaint in the PNC Venture Corp. action to delete its claim under 11 U.S.C. § 550 and to set forth as a separate cause of action its claims under 11 U.S.C. § 544. The motion will be granted. [4] Our holding that Phar-Mor received reasonably equivalent value also requires that we enter judgment with respect to the state law fraudulent transfer claims that plaintiff has asserted under either Pennsylvania or Ohio law. See 39 Pa. C.S.A. § 353 (repealed); 13 Ohio Rev.Code Ann. §§ 1336.04(A)(2), 1336.05(A) (Baldwin 1994). Moreover, because the factors relevant to our decision are identical with respect to each defendant, we will enter judgment in favor of all defendants, including those that have neither moved for summary judgment nor joined in defendants' motion.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1905192/

490 F.Supp. 1262 (1980) Gerald T. DeWALT, Plaintiff, v. James D. BARGER, Individually; R. O. Wellendorf, Individually; Dr. Robert Wilburn, in his official capacity as Secretary of the Office of Administration of the Commonwealth of Pennsylvania; Howard Roath, as Director of the Bureau of Personnel of the Commonwealth of Pennsylvania, Defendants. Civ. A. No. 75-1015. United States District Court, M. D. Pennsylvania. May 27, 1980. *1263 *1264 Paul C. Vangrossi, Norristown, Pa., for plaintiff. David Max Baer, Deputy Atty. Gen., Dept. of Justice, Harrisburg, Pa., for defendants. OPINION RAMBO, District Judge. I. INTRODUCTION The complex procedural history of this case dictates a detailed introduction. On May 14, 1975, plaintiff filed a complaint in which the following were named as defendants: 1. The Pennsylvania State Police; 2. Colonel James D. Barger, individually and in his capacity as Commissioner of the Pennsylvania State Police; 3. Milton J. Shapp, individually and in his capacity as Governor of the Commonwealth of Pennsylvania; 4. Ronald G. Lench, individually and in his capacity as Secretary of the Office of Administration of the Commonwealth of Pennsylvania; 5. Richard Madison, individually and in his capacity as Director of the Bureau of Personnel of the Commonwealth of Pennsylvania; 6. Lieutenant Matthew Hunt, Captain Robert Shuck, Major Roy Titler and Lieutenant Colonel R. O. Wellendorf, individually and in their respective capacities as Operational Supervisors within the Pennsylvania State Police. The complaint alleged that these defendants had violated the rights of plaintiff arising under the following constitutional provisions and statutes: 1. The fifth amendment; 2. The sixth amendment; 3. The due process clause of the fourteenth amendment; 4. 42 U.S.C. § 1983; 5. 42 U.S.C. § 1985(3). An answer was filed by defendants on September 11, 1975, followed by a motion for summary judgment filed on April 1, 1976. In the court's memorandum and order dated July 30, 1976, the complaint was dismissed as to the Pennsylvania State Police; the complaint was dismissed to the extent it sought retroactive damages (including punitive damages and back pay) from defendants Lench and Madison; and the entire complaint was dismissed with respect to defendant Shapp. Several trial dates were established only to be continued for various and sundry reasons. The trial was ultimately commenced on October 29, 1979. On October 31, 1979, in an order given from the bench, defendants Hunt, Shuck, and Titler were dismissed. In addition to those dismissals, two substitutions were stipulated to by the parties on October 29, 1979. Dr. Robert Williams was substituted, in his official capacity only, for defendant Lench,[1] and Howard Roath, was substituted, in his official capacity only, for defendant Madison.[2] The end result being that the following individuals are being sued in their designated capacities: 1. James D. Barger, individually;[3] 2. R. O. Wellendorf, individually;[4] 3. Dr. Robert Wilburn, in his official capacity as Secretary of the Office of *1265 Administration of the Commonwealth of Pennsylvania; 4. Howard Roath, as Director of the Bureau of Personnel of the Commonwealth of Pennsylvania. The non-jury trial ended on October 31, 1979 and both sides were ordered to submit proposed findings of fact and conclusions of law after receipt of the transcript. II. FINDINGS OF FACT 1. Gerald DeWalt joined the Pennsylvania State Police on February 1, 1951. Tr. p. 11. 2. From January 2, 1973, until February 17, 1977, James Barger was Commissioner of the State Police. Tr. p. 194. 3. From January 15, 1973 until the time of his retirement in July 1976, Roy Wellendorf was Deputy Commissioner of the Pennsylvania State Police. Tr. p. 66. 4. In January of 1973, Helen Jean Lutz was Secretary to Deputy Commissioner Wellendorf of the State Police. Tr. p. 135. 5. In the Fall of 1972, Major Roy Titler worked for the Pennsylvania Department of Justice and was in charge of investigations. All state policemen who worked with the Crime Commission at that time, including Gerald DeWalt, worked under his direction. Tr. p. 178. 6. Plaintiff and Rocco Urella, Commissioner of the State Police in November 1972, had been friends for some time prior to November, 1972. Tr. p. 47. 7. Commissioner Urella was not plaintiff's immediate superior in November 1972. Tr. pp. 46-47. 8. In October and November 1972, plaintiff received several telephone calls from Corporal Kardash of the State Police. Despite the fact that he was assigned to the Crime Commission at the time, plaintiff provided information to Corporal Kardash concerning his activities at the George Washington Motor Lodge. Tr. p. 49. 9. On the evening of November 27, 1972, wires were discovered in the George Washington Motor Lodge in the crawl space of the room which plaintiff had mentioned to Corporal Kardash. Tr. pp. 43, 101-02. 10. On the morning of November 28, 1972, plaintiff made a phone call to warn Commissioner Urella of the discovery of the wires. He did this by calling his wife and directing her to call a telephone number he had given her, and instructed her to relay the message that the Crime Commission had discovered the wires and to "get the guys out." D. Ex. 1; Tr. pp. 139, 99-102, 46, 50. 11. Plaintiff took this action without discussing the matter with Corporal Bugjo, Sergeant Hunt or Captain Titler, his immediate superiors at the Crime Commission. Tr. p. 47. 12. On the evening of November 28, 1972, plaintiff talked by telephone with Mrs. Sobrecht, co-owner with Commissioner Urella of the Sentinel Motel. D. Ex. 1; Tr. pp. 99-102. 13. The investigation of events at the George Washington Motor Lodge by the Pennsylvania State Police was initially administrative and not criminal in nature. Tr. pp. 131, 206, 236, 244. 14. On January 31, 1973, plaintiff was questioned by Captain Shuck and Sergeant Hussack concerning his involvement in the wiretap incident. Tr. p. 51. 15. This questioning occurred over a period of approximately three hours, from 11:00 a. m. until 2:00 p. m. Tr. p. 130. 16. After taking a break for approximately one hour for sandwiches and coffee, a stenographer, Helen Jean Lutz, was summoned. Mrs. Lutz then recorded a verbatim question and answer session between Captain Shuck and plaintiff, a copy of which is defendant's exhibit 1 in this case. Tr. pp. 102-03, 124, 130-31, 135, 51. 17. While plaintiff became emotional at times during the meeting with Captain Shuck and Sergeant Hussack on January 31, 1973, at the time the verbatim statement was taken, he appeared composed and under no undue strain. Tr. pp. 131, 134, 136, 298-99. 18. Captain Shuck and Sergeant Hussack did not harass, abuse or otherwise speak in an abnormal voice toward plaintiff *1266 during the afternoon session on January 31, 1973. Tr. p. 136. 19. Plaintiff's statements to Captain Shuck and Sergeant Hussack on January 31, 1973, both prior to and after the time a stenographer was called into the room, were voluntarily made, not under coercion. Tr. pp. 131, 134, 136. 20. After talking with Captain Shuck and Sergeant Hussack on January 31, 1973, plaintiff talked briefly with Deputy Commissioner Wellendorf. The Deputy Commissioner stated to plaintiff at that time that he thought plaintiff's resigning would be a big mistake because he had many years of service with the State Police. The Deputy Commissioner arranged for plaintiff's transfer to Troop N in Hazelton at plaintiff's request. Tr. pp. 264, 51-52. 21. Deputy Commissioner Wellendorf and Captain Shuck made arrangements after their discussions with plaintiff on January 31, 1973, for someone to pack up his belongings at the George Washington Motor Lodge and have them delivered to his home or his troop so that he would not have to return to the Motor Lodge and face the men. Tr. pp. 105, 116, 51. 22. Major Robert Rice was assigned in February 1973, to act as Trial Judge Advocate in the upcoming court-martial proceedings against three members of the State Police, including Corporal Kardash. Tr. pp. 108-09. 23. On or about February 1 or 2, 1973, Major Shuck and Major Rice met with plaintiff at Departmental Headquarters. At that time, they reviewed with plaintiff his statement of January 31, 1973. Plaintiff told Major Rice and Major Shuck that he would testify at the court-martial to be held on March 27, 1973. Tr. pp. 108-09, 52-53. 24. On February 16, 1973, Captain Shuck and Trooper Pat Malone went to plaintiff's residence and talked with plaintiff and his wife about the events in November 1972. Tr. pp. 109, 111, 148. 25. On March 5, 1973, Major Shuck went to the DeWalt's residence to serve them with subpoenas for the court-martial. At that time, he gave Mrs. DeWalt a copy of her statement of February 16, 1973, and asked plaintiff if he wanted a copy of his statement of January 31, 1973, defendant's exhibit 1, which he had with him. Plaintiff stated that he did not wish to see that statement. Tr. p. 112. 26. At no time prior to the court-martial on March 27, 1973, was Major Shuck aware that plaintiff would refuse to testify on Fifth Amendment grounds. Tr. pp. 52-53. 27. On March 27, 1973, plaintiff was called by the State Police Trial Judge Advocate to testify against three fellow State Troopers reputedly involved in an illegal wiretap operation at the George Washington Motor Lodge, King of Prussia, Pennsylvania. P. Ex. 13. 28. At the court-martial, plaintiff was given a copy of his statement of January 31, 1973, which he had not wished to see on February 16, 1973. Tr. pp. 14, 112; P. Ex. 13. 29. At the court-martial, plaintiff, upon advice of his counsel, Francis Lord, Esquire, elected not to testify and invoked his right against self-incrimination under the Fifth Amendment of the United States Constitution. P. Ex. 13. 30. Having so raised his rights under the Fifth Amendment of the United States Constitution, the plaintiff was excused as a witness at the court-martial. P. Ex. 13. 31. While plaintiff refused to testify in State Police proceedings on March 27, 1973, he did testify at some length concerning the events of November 27 and 28, 1972 before a Legislative Committee on May 3, 1973. Tr. pp. 55, 13, 15; P. Ex. 13. 32. After the court-martial proceeding on March 27, 1973, Major Rice, the Trial Judge Advocate, called Commissioner Barger, advised him that plaintiff had refused to testify at the court-martial although he had previously provided information, and requested that the Commissioner suspend him pending an investigation. Tr. pp. 194-95, P. Ex. 1. 33. After receiving the call from Major Rice on March 27, Commissioner Barger *1267 called Deputy Commissioner Wellendorf and instructed him to have plaintiff suspended from duty pending an investigation into his conduct. Tr. pp. 195, 264-265; P. Ex. 2. 34. After receiving Commissioner Barger's call on March 27, 1973, Deputy Commissioner Wellendorf talked by telephone with Lieutenant Peters in Hazleton and instructed him to suspend plaintiff pending an investigation. Tr. p. 265; P. Ex. 4. 35. On the night of March 27, 1973, plaintiff was called to the Lehighton Barracks and was notified by Lieutenant Peters that he was being suspended indefinitely. Tr. p. 16; P. Ex. 1. 36. On the morning of March 28, 1973, Deputy Commissioner Wellendorf prepared a memorandum to be sent to plaintiff to confirm his suspension pending the outcome of an investigation of his conduct in connection with the court-martial proceedings. This memorandum, Plaintiff's Exhibit 3, was delivered to plaintiff on March 28, 1973, by Sergeant William Harfman. Tr. pp. 265, 198; P. Ex. 7. 37. On March 28, 1973, Commissioner Barger received a memorandum from Major Rice confirming his telephone call of March 27, and specifically stating that plaintiff's refusal to testify constituted a violation of the State Police Code of Conduct. Tr. p. 197; P. Ex. 1. 38. On March 28, 1973, the Commissioner sent a memorandum to the Deputy Commissioner confirming the telephone call of March 27. This memorandum specifically noted that Major Rice felt that plaintiff's conduct was in violation of the Code of Conduct. Tr. pp. 198, 265; P. Ex. 2; D. Ex. 2. 39. On March 28, 1973, Deputy Commissioner Wellendorf wrote a memorandum to Lieutenant James Regan, Division Director, Bureau of Criminal Investigation, assigning him to conduct an investigation into plaintiff's conduct in connection with the court-martial proceedings. Tr. pp. 266, 160-61; P. Ex. 4. 40. As a result of this instruction, Lieutenant Regan conducted an investigation, considering, inter alia, plaintiff's statement of January 31, 1973, Defendants' Exhibit 1, and plaintiff's testimony or lack of it at the court-martial proceedings, Plaintiff's Exhibit 13 in this case. Tr. pp. 161-64. 41. As a result of Lieutenant Regan's investigation, he concluded that plaintiff had failed to produce information requested of him during court-martial proceedings, opting to take the Fifth Amendment instead, and recommended that the matter be submitted to a disciplinary board for consideration of further disciplinary action against plaintiff. Tr. pp. 164-65. 42. Lieutenant Regan concluded that plaintiff's conduct during the court-martial proceedings constituted a violation of the State Police Code of Conduct, found as Defendant's Exhibit 2. Tr. pp. 165-66. 43. Lieutenant Regan's conclusions were based in part on his belief that a member of the State Police who took the Fifth Amendment was in violation of Section 1.01 (Deportment) of the Code of Conduct, found in Defendants' Exhibit 2. Tr. pp. 171-73. 44. Lieutenant Regan's conclusions were based on his understanding of the law at the time, including the case of Garrity v. New Jersey, 385 U.S. 493, 87 S.Ct. 616, 17 L.Ed.2d 562, which he understood to mean that a member of a police agency was entitled to exercise his Fifth Amendment rights, but because he occupied a position of public trust, could not do so and maintain his public employment. Tr. p. 169. 45. As a result of the recommendations of Lieutenant James Regan, Commissioner Barger, on April 5, 1973, ordered the convening of a disciplinary board to investigate plaintiff's conduct at the recent court-martial proceedings and in connection with information supplied by him concerning the alleged wiretapping incident. Tr. p. 198; P. Ex. 5. 46. On April 6, 1973, a board of inquiry was held which reviewed the facts of plaintiff's case. The board, while stating that no provision of the Disciplinary Code had been expressly violated, found plaintiff's conduct did not warrant court martial. The board *1268 recommended that Trooper DeWalt be suspended because he had conducted himself in a manner which did not reflect favorably on the State Police, and because he had engaged in a course of conduct tending to bring the force into disrepute and reflecting discredit upon himself as a member of that force. Tr. p. 199; P. Ex. 6. 47. There were requirements in the regulations of the State Police at that time that a trooper be notified of any alleged violations of deportment rules or regulations for which he may be court-martialed. The convening of a disciplinary board itself, however, did not require notice to the accused. Tr. pp. 199, 267; P. Ex. 11. 48. Plaintiff was never advised by the Pennsylvania State Police of the findings and conclusions of the board of inquiry. Tr. p. 35. 49. The State Police regulations, then and there in effect, provided for no punitive or disciplinary action to be taken against a State Policeman specifically for invoking his rights under the Fifth Amendment, although such conduct may have violated a general regulation. P. Ex. 11. 50. Commissioner Barger usually complied with the recommendations of a disciplinary board or court-martial board. Tr. p. 210. 51. On May 2, 1973, Commissioner Barger, acting on the recommendation of the Board of Inquiry No. 12, directed that Major Robert Rice initiate a disciplinary action report against Trooper DeWalt recommending a six week suspension without pay and an inter-troop transfer, as evidenced by Plaintiff's Exhibit 8. This action was also based on discussions with other persons involved in the alleged administrative investigation. Tr. pp. 207-8; P. Ex. 8. 52. Under the regulations of the Pennsylvania State Police, suspension without pay was proper punitive measures to be taken for violation of the rules and regulations of the State Police. Tr. p. 257; P. Ex. 11. 53. On May 2, 1973, Major Rice initiated the Disciplinary Action Report, Plaintiff's Exhibit 10, against plaintiff. P. Ex. 10. 54. According to the Disciplinary Action Report, discipline was recommended for plaintiff for two reasons. First, he discovered that Crime Commission telephones were being wiretapped at the George Washington Motor Lodge. Believing that Corporal Metro Kardash was involved, he then made a telephone call to his wife and instructed her to notify Colonel Urella of the State Police and get the message to him to get the men out of the motel. These activities of November 28, 1972, were cited as being violations of the Pennsylvania State Police Field Regulations (hereinafter FR) 1-2, Section 2.08-C, and FR 1-2, Section 2.22, of the Code of Conduct, found as Defendants' Exhibit 2. Second, plaintiff gave a statement detailing his involvement in the events of November 28, 1972, and stated to Captain Robert Shuck and others that he would testify to that effect. However, after being sworn to testify at court-martial proceedings of several state policemen, including Corporal Metro Kardash, he refused to testify asserting a Fifth Amendment right. His refusal to testify was in conflict with his previously stated intention. These actions were cited in the Disciplinary Action Report as a violation of FR 1-1, Section 1.01 of the Code of Conduct. D. Ex. 2. 55. Deputy Commissioner Wellendorf concluded after a review of the investigative report that plaintiff had violated all three sections cited in the Disciplinary Action Report, admitted as Plaintiff's Exhibit 10. Tr. p. 272. 56. Deputy Commissioner Wellendorf believed that plaintiff's conduct as set forth in the Disciplinary Action Report constituted a violation of the Deportment section of the Code of Conduct, FR 1-1, Section 1.01 because his action in giving a statement, agreeing to testify, and then later refusing to so testify, was conduct unbecoming a member of the State Police. Tr. p. 274; D. Ex. 2. 57. At the time of the approval of the Disciplinary Action Report, Deputy Commissioner Wellendorf prepared a memorandum to Trooper DeWalt stating that he was approving the initiating officer's recommendation *1269 for a six week suspension without pay and an inter-troop transfer, that the suspension without pay was retroactive to March 28, 1973, and terminated on May 9, 1973, and that he was to return to duty on May 10, 1973. Tr. p. 269; P. Ex. 7. 58. On or about April 25, 1973, the plaintiff met with Commissioner Barger to discuss his suspension and contemplated resignation from the Pennsylvania State Police. Tr. pp. 22-23, 203. 59. At this meeting with Commissioner Barger, plaintiff demanded a court-martial and hearing on the charges upon which his suspension was purportedly based. Plaintiff was advised by Commissioner Barger that he was not going to be given a court-martial. Tr. p. 26. 60. Plaintiff came to Deputy Commissioner Wellendorf's office on May 8, 1973, and was handed a copy of the Disciplinary Action Report, Plaintiff's Exhibit 10, and told that he would be transferred to Washington, Pennsylvania. Tr. pp. 269-70, 57, 66. 61. Lieutenant Colonel Wellendorf stated on cross-examination that this transfer to Washington, Pennsylvania was part of the punitive action. Tr. p. 67. 62. Deputy Commissioner Wellendorf told plaintiff at their meeting on May 8, 1973, that he could either sign the Disciplinary Action Report and accept the discipline imposed or take an appeal. Tr. p. 279. 63. The Disciplinary Action Report admitted as Plaintiff's Exhibit 10 contains two options: (1) accept the disciplinary action, or (2) appeal the disciplinary action. Plaintiff did not choose to check either block on Plaintiff's Exhibit 10. Tr. pp. 271, 56; P. Ex. 10. 64. The State Police rules and regulations then and there in effect provided a right of appeal to an aggrieved State Police Officer to the immediate superior of the Officer filing the Disciplinary Action Report. Lieutenant Colonel Wellendorf's immediate superior was Commissioner Barger. P. Ex. 11 (FR 3-3.05); Tr. pp. 279-280. 65. The appeal procedures of a Disciplinary Action Report are found in the Field Regulations of the Pennsylvania State Police. All members of the State Police receive these regulations, as well as any amendment or supplements thereto. Tr. p. 63. 66. Had plaintiff appealed the disciplinary action recommended by the Disciplinary Action Report, and had he been successful, the inter-troop transfer would have been rescinded and he would have received back pay for the six weeks suspension. Plaintiff was aware that a successful appeal by him would have resulted in the rescission of all punitive action. Tr. pp. 271-72, 71-72. 67. Plaintiff never attempted to formally appeal the disciplinary action imposed in plaintiff's exhibit 10 by marking the appeal box and signing the form. Tr. p. 56; P. Ex. 10. 68. The plaintiff concluded that the action of the State Police as described in the Disciplinary Action Report, P. Ex. P-10, was final and that any appeal to the next higher authority as provided in the State Police rules and regulations would be frivolous because the person who authorized the institution of the action by the disciplinary board was Colonel Barger, the person who would also hear the appeal from the action taken in that report. Tr. pp. 279-280. 69. Plaintiff did not avail himself of the request for a special investigation pursuant to FR 3.02(c) in effect at the relevant time. P. Ex. 11. 70. On April 17, 1973, Major Roy Titler was informed he had been called by plaintiff. When he returned home, he called plaintiff, at which time plaintiff said he was upset, that he was going to quit, and that he was suspended and was going to be transferred. Major Titler offered to talk to Commissioner Barger to see if he, plaintiff, could be transferred with Major Titler, who was being transferred to Butler within the next several days. He offered plaintiff to make arrangements so that they could travel together. While talking with Major Titler on or about April 17, 1973, plaintiff stated that he would like to talk with Commissioner Barger. Major Titler responded *1270 that that was not a problem and he would make arrangements for such a meeting. Tr. pp. 182-83. 71. Major Titler called the Commissioner after talking with plaintiff on April 17 and told him that plaintiff was going to resign from the State Police and that he wanted to talk to the Commissioner. The Commissioner told Major Titler to have him contact his Administrative Secretary, Mrs. Wise, and she would set up an appointment for him. In his phone call concerning Trooper DeWalt's desire to meet with the Commissioner, the only message given to Major Titler for plaintiff from Commissioner Barger was the information as to whom to contact to set up an appointment. Tr. pp. 203, 183, 21. 72. On April 18, Major Titler called plaintiff to tell him that, in response to his request, Commissioner Barger had agreed to meet with him. Tr. pp. 183, 189, 21. 73. Major Titler made arrangements for plaintiff to be driven to Harrisburg to meet with Commissioner Barger on April 25, 1973. Tr. pp. 190, 21. 74. On April 25, 1973, Trooper DeWalt came to the Commissioner's office and the two met for approximately 30 minutes. During their discussion, Commissioner Barger stated that he did not think law enforcement officers should take the Fifth Amendment concerning their official duties; that a Disciplinary Action Board had recommended his suspension; that he would not go contrary to that recommendation; and that he was being treated the same as any other trooper would be treated. Tr. pp. 204-5. 75. The only direct contact Commissioner Barger had with plaintiff while he was a member of the State Police was on April 25, 1973. Tr. pp. 203, 214. 76. The only times Deputy Commissioner Wellendorf met with plaintiff while he was a member of the State Police were on January 31, May 8 and May 9, 1973. Tr. p. 274. 77. In their brief meeting on January 31, 1973, Deputy Commissioner Wellendorf tried to talk plaintiff out of resigning and made arrangements, in keeping with plaintiff's wishes, for him to be transferred to Hazleton. Tr. p. 264. 78. Shortly before May 8, 1973, Deputy Commissioner Wellendorf called plaintiff to inform him to come to the Deputy Commissioner's office on May 8, 1973, to discuss his return to duty. Tr. p. 268. 79. In their meeting on May 8, 1973, Deputy Commissioner Wellendorf informed him of the disciplinary action as stated above. 80. On May 9, 1973, plaintiff returned to Deputy Commissioner Wellendorf's office and informed him that he was resigning. The Deputy Commissioner again tried to talk him out of it but plaintiff had made up his mind. Colonel Wellendorf then arranged for plaintiff to see Major Hileman, their Personnel Officer, to give him whatever assistance he needed. Tr. p. 274. 81. On May 9, 1973, plaintiff resigned from the State Police. Tr. pp. 274, 35, 37, 57; P. Ex. 9. 82. In plaintiff's letter of resignation on May 9, 1973, he stated that his reasons for resigning were personal and that he realized that by resigning he could not be reinstated as a member of the State Police. This letter was personally signed by plaintiff. Tr. p. 57; P. Ex. 9. 83. Plaintiff had talked of resigning on numerous occasions prior to his meetings with the Commissioner and the Deputy Commissioner in late April and early May of 1973. Tr. pp. 104, 112, 128, 181-83, 295, 300. 84. At no time between the time plaintiff resigned on May 9, 1973, and the time the complaint was filed in May 1975 did he inform any of the defendants in this case that he thought that his resignation had been coerced. Tr. p. 58. 85. Plaintiff's resignation on May 9, 1973, was voluntary and not coerced. III. DISCUSSION In his complaint, plaintiff alleges that he was repeatedly requested by his superiors to give testimony that would implicate Urello, *1271 Luchansky, Guyette, and Kardash in the wiretap incident at the George Washington Motor Lodge in November 1972; that because he invoked his privilege under the Fifth Amendment and refused to testify before the court-martial of Luchansky, Guyette, and Kardash, he was indefinitely suspended and ultimately received a six week suspension without pay as well as an inter-troop transfer; that at the time he was temporarily suspended, no notice of the charges were given to him nor proper procedures followed; that he was never advised of the findings of the disciplinary board initiated to investigate his conduct; and that although he personally tendered his resignation in what appeared to be a voluntary manner, he was coerced to submit his resignation. Plaintiff further alleges that, as a result of defendant's actions, several of his constitutional and civil rights, which are listed in detail in Section I, have been violated. Plaintiff therefore requests that this court order the Pennsylvania State Police to reinstate him to his former position as Trooper with full back pay at 6% interest, to issue a declaratory judgment finding that defendants have violated his constitutional and civil rights, order defendants to pay punitive damages, and award him costs and reasonable attorney's fees. 1. Fifth Amendment Claim Plaintiff claims that although he was permitted to invoke his Fifth Amendment privilege, on advice of counsel, at the court-martial proceedings of Luchansky, Guyette, and Kardash, his subsequent six week suspension and inter-troop transfer were punitive actions taken against him solely because he exercised his Fifth Amendment privilege. He claims such action has a chilling effect on the use of the Fifth Amendment and that a public employee may not be suspended or dismissed solely for exercising his Fifth Amendment privilege, citing Lefkowitz v. Cunningham, 431 U.S. 801, 97 S.Ct. 2132, 53 L.Ed.2d 1 (1977); Uniformed Sanitation Men Assn. v. Commissioner of Sanitation, 392 U.S. 280, 88 S.Ct. 1917, 20 L.Ed.2d 1089 (1968), and Gardner v. Broderick, 392 U.S. 273, 88 S.Ct. 1913 (1968). Plaintiff's interpretation of these cases is in error. It is clear that the Fifth Amendment privilege against self-incrimination should have been available to plaintiff in this case since its protection applies equally to civil and criminal proceedings, when testimony might later subject the witness to criminal prosecution. Lefkowitz v. Turley, 414 U.S. 70, 78, 94 S.Ct. 316, 322, 38 L.Ed.2d 274 (1973); Malloy v. Hogan, 378 U.S. 1, 11, 84 S.Ct. 1489, 1495, 12 L.Ed.2d 653 (1964). It is not as wide sweeping, however, as plaintiff would have this court believe. In Gardner, the question presented was "whether a policeman who refused to waive the protections which the privilege gave him could be dismissed from office because of that refusal." Id., 392 U.S. at 276, 88 S.Ct. at 1915. The Court found that the plaintiff may not be "dismissed solely for his refusal to waive immunity to which he is entitled if he is required to testify despite his constitutional privilege." Id. at 278, 88 S.Ct. at 1916. (emphasis added). The companion case, Uniformed Sanitation Men Assn., supra, also involved persons who were "dismissed for invoking and refusing to waive their constitutional right against self-incrimination." Id. 392 U.S. at 283, 88 S.Ct. at 1919. In Cunningham, supra, the court reaffirmed and clarified the rule in Gardner, stating Public employees may constitutionally be discharged for refusing to answer potentially incriminating questions concerning their official duties if they have not been required to surrender their constitutional immunity. Lefkowitz, supra, 431 U.S. at 806, 97 S.Ct. at 2136. (emphasis added). This case, however, is in sharp contrast to the factual situation in Gardner, Sanitation Men, Turley, and Cunningham.[5] Defendant in the instant case was not suspended because he refused to testify and waive his immunity from use of that testimony in subsequent criminal prosecutions, *1272 but solely because he refused to testify. Whereas in Gardner, Sanitation Men, Turley, and Cunningham the plaintiffs were required to give up the immunity afforded by the Fifth Amendment or risk losing their livelihood, plaintiff here was faced with either testifying, which testimony could not later be used in criminal prosecution against him under Garrity v. New Jersey, 385 U.S. 493, 87 S.Ct. 616, 17 L.Ed.2d 562 (1967), or refuse to testify and face the consequences of suspension or dismissal. He was not compelled to waive his Fifth Amendment immunity. Such an interpretation of the law was supported by Judge Sirica in Pinkney v. District of Columbia, 439 F.Supp. 519 (D.D. C.1977), wherein he accurately summarized the situation as follows: To be sure, this choice placed plaintiff on the horns of a dilemma and burdened him in the exercise of his fifth amendment right to remain silent. But under Gardner and its progeny the choice that plaintiff was faced with simply does not rise to constitutional proportions. Id. at 534. See also, Uniformed Sanitation Men Assn. v. Commissioner of Sanitation of the City of New York, 426 F.2d 619 (2nd Cir. 1970), cert. denied, 406 U.S. 961, 92 S.Ct. 2055, 32 L.Ed.2d 349 (1972). The imposition of this dilemma on public employees is constitutionally permissible because they, unlike an ordinary citizen, are entrusted with the public interest and welfare and therefore the state has a superceding interest in obtaining answers to "questions specifically, directly, and narrowly relating to the performance of [their] official duties." Gardner, supra, 392 U.S. at 277-78, 88 S.Ct. at 1916. The six week suspension and inter-troop transfer that were imposed upon the plaintiff due to his refusal to testify at the court-martial of Luchansky, Guyette, and Kardash did not unconstitutionally infringe upon his Fifth Amendment privilege from self-incrimination.[6] 2. Sixth Amendment Claim Plaintiff alleges that his suspension was "imposed `ex parte' without benefit of hearing, confrontation or objective and meaningful appellate review, in violation of plaintiff's rights under the Sixth Amendment." (Plaintiff's post-trial Brief, p. 12). Plaintiff gives no case law to support this bold statement.[7] It is clear, however, the Sixth Amendment guarantees are applicable only in "criminal prosecutions," not civil proceedings, Hullom v. Burrows, 266 F.2d 547 (7th Cir.), cert. denied, 361 U.S. 919, 80 S.Ct. 262, 4 L.Ed.2d 187 (1959), and that every proceeding that results "in loss of liberty does not ipso facto mean that the proceeding is a `criminal prosecution' for purposes of the Sixth Amendment." Middendorf v. Henry, 425 U.S. 25, 37, 96 S.Ct. 1281, 1288, 47 L.Ed.2d 556 (1976). Plaintiff has given no facts that would justify classifying the suspension as a "criminal prosecution". Accordingly, plaintiff's Sixth Amendment claims will be denied. 3. Due Process Claims Plaintiff contends that he was denied due process of the law by several actions taken by all or some of the defendants. Although the limits of the due process clause have not yet been, and may be incapable of being, defined, it is generally agreed that due process requires as its sine qua non a property or liberty interest. In Board of Regents of State Colleges v. Roth, 408 U.S. 564, 569-70, 92 S.Ct. 2701, 2705, 33 L.Ed.2d 548 (1972), the United States Supreme Court held *1273 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 kind of hearing is paramount. But the range of interests protected by procedural due process is not infinite. (footnote omitted) (emphasis added). To determine whether due process requirements are applicable, the Court went on to state "we must look not to the `weight' but to the nature of the interest at stake . . to see if the interest is within the Fourteenth Amendment's protection of liberty and property." Id. at 571, 92 S.Ct. at 2706 (emphasis in original). Although no definitive list of liberties protected by the due process clause has been enunciated by the Court, it has been held to include generally all those privileges that have long been recognized "as essential to the orderly pursuit of happiness by free men", Meyer v. Nebraska, 262 U.S. 390, 399, 43 S.Ct. 625, 626, 67 L.Ed. 1042 (1923), as well as those situations when "a person's good name, reputation, honor or integrity is at stake because of what the government is doing to him . . .". Roth, supra 408 U.S. at 573, 92 S.Ct. at 2707. In these instances, notice and an opportunity to be heard are required. Id. The Court in Roth also described the types of property interests that compel due process protection, stating that Certain attributes of "property" interests protected by procedural due process emerge from these decisions. To have a property interest in a benefit, a person clearly must have more than an abstract need or desire for it. He must have more than a unilateral expectation of it. He must, instead, have a legitimate claim of entitlement to it. It is a purpose of the ancient institution of property to protect those claims upon which people rely in their daily lives, reliance that must not be arbitrarily undermined. It is a purpose of the constitutional right to a hearing to provide an opportunity for a person to vindicate those claims. Property interests, of course, 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—rules or understandings that secure certain benefits and that support claims of entitlement to those benefits. Id. at 577, 92 S.Ct. at 2709. If plaintiff is to prevail in his due process claims then, it will be incumbent upon him to show that some liberty or property interest protected by the Fourteenth Amendment was violated. The first occasion wherein defendants allegedly denied plaintiff due process was at the interview of the plaintiff by Sgt. Hussack and Lt. Shuck on January 31, 1973. Plaintiff alleges that the three hour off-the-record interrogation by Hussack and Shuck did not comply with § 3.02(A) of the Pennsylvania State Police Field Regulations. That section states A. Rights of an Accused Member: A member who is accused of a violation of any Departmental rule or regulation for which he may be Court-Martialed, or if he is accused of violating any law, shall be fully informed of the nature of the accusation and the name of the person making the accusation. If he is to be questioned in regard to any such accusation he shall be accorded the same constitutional rights accorded to any citizen as defined by applicable court ruling. 1. A member being questioned must be given the name and rank, or title, of everyone present during the questioning. 2. The entire interrogation shall be recorded verbatim by a competent stenographer furnished by the Department. "Off-The-Record" conversation, the use of threats, offensive language, or promises of reward, are strictly prohibited. (emphasis added). It is clearly stated that those procedures apply only to members of the Pennsylvania *1274 State Police who are accused of violations of rules or regulations for which they may be court-martialed or for violating any law. Since at the time of the interrogation, and for nearly two months thereafter, no accusations were made concerning the plaintiff, he cannot successfully claim denial of due process to property interests that had not yet arisen.[8] Plaintiff also argues that the interrogation was constitutionally infirm because he was not given Miranda warnings. Miranda warnings are required only when a custodial interrogation is made, not general investigative questioning. Miranda v. Arizona, 384 U.S. 436, 86 S.Ct. 1602, 16 L.Ed.2d 694 (1966). The requirement to inform an individual of his right to counsel and his right to remain silent arise only if there is a custodial questioning in regard to a criminal proceeding, and police officers who are the subject of a civil investigation and are not in custody need not be so advised. Boulware v. Battaglia, 344 F.Supp. 889 (D.Del. 1972), aff'd, 478 F.2d 1398 (3rd Cir. 1973). Going even further, the Court in Boulware held that [E]ven assuming that the plaintiffs were "in custody" so that informing them of the Miranda warnings was a prerequisite to the admissibility of any statement made during the interrogation, there is a further flaw in the plaintiffs' effort to utilize the Miranda doctrine in an attempt to recover civil damages. This defect arises from what this Court considers is an erroneous reliance on the primary function and concern of Miranda, and the procedural safeguards adopted therein. The plaintiffs seek to predicate civil liability upon the defendants' failure to advise them of their constitutional rights regardless of their knowledge or awareness of the existence and scope of these rights. To insure that custodial interrogation occurred in non-coercive circumstances and that individuals so questioned were apprised of their constitutional rights, Miranda established procedural safeguards. Appropriate warnings prior to custodial questioning are prerequisite to admission of any statements made therein regardless of the knowledge or experience of the individual being questioned. However, while Miranda prescribed a particular procedural plan, the continued constitutional concern of the Court was the nature of the statements elicited during custodial interrogation and the knowledge of the person subject thereto. The procedure adopted was applicable to all cases presumably to standardize police practice and eliminate judicial hearings on an individual's legal understandings. This Court, however, cannot accept the contention that the Miranda rationale supports the proposition that the failure to advise an individual of his constitutional rights creates civil liability when he is already aware of those rights. Id. at 902-3. Plaintiff was an experienced policeman with over twenty-two years of service and had participated in countless investigations subsequent to the Miranda decision in 1966. It stretches the credulity of this court to the breaking point to assert that plaintiff was not aware of these rights, particularly in light of the fact that plaintiff was advised at the outset of the interview by Shuck that "if at any time you feel an answer would incriminate you, advise us before you answer that question." (D. Ex. 1). At no time during the course of the interview did plaintiff indicate he felt an answer would be incriminating. Accordingly, the court does not find that the questioning of plaintiff by Shuck and Hussack violated plaintiff's right to be informed of his right to counsel and to remain silent. The next event wherein plaintiff alleges he was denied due process by some or all of the defendants was the indefinite suspension from duty on March 27, 1973. Plaintiff contends that Lyman v. Swartley, 385 F.Supp. 661 (D.Idaho 1974), stands for the proposition that in order to protect a *1275 public employee's right to public employment, due process dictates a specification of the conduct requiring dismissal, an opportunity to respond, and a fair and impartial hearing. Plaintiff either overlooks or ignores the blatant factual distinction between Lyman and the instant case. In Lyman, plaintiff was a tenured college professor. The court held that [T]enure as a legal right means a reasonable expectation of continued employment so long as that employment is performed properly. This right of public employment is a property right and a teacher may not be deprived of that right without being afforded due process of law. Id. at 665. (emphasis added). As such, Lyman involved a property interest requiring Fourteenth Amendment due process protection. As pointed out in Roth, supra, an individual, to have a property interest justifying the protection of the due process clause, must "have more than a unilateral expectation of [continued public employment]," he must have "a legitimate claim of entitlement to it." Id. 408 U.S. at 577, 92 S.Ct. at 2709. Plaintiff has pointed to no contract, regulation, or statute which confers upon him a property right to continued public employment which would invoke the protection of the due process clause. On the contrary, it is generally held that in the absence of a statutory provision to the contrary, Commonwealth employees, which includes the Pennsylvania State Police, are subject to removal at the pleasure of the appointing power. Broadwater v. Otto, 370 Pa. 611, 88 A.2d 878 (1952); Ruch v. Wilheim, 352 Pa. 586, 43 A.2d 894 (1945). The legislature did impose due process requirements for dismissal of state policemen, which is embodied in Pa.Stat.Ann. Title 71, § 251(b) (Supp.1979-80) stating in pertinent part that (1) Before any enlisted member who has not reached mandatory retirement age is dismissed or refused reenlistment by the commissioner, the commissioner shall furnish such enlisted member with a detailed written statement of the charges upon which his dismissal or refusal of reenlistment is based, together with a written notice, signed by the commissioner or the proper authority, of a time and place where such enlisted member will be given an opportunity to be heard either in person or by counsel, or both, before a Court-Martial Board appointed by the commissioner. (emphasis added.) As pointed out by the defendants, this statute addresses only dismissals and refusals to reenlist enlisted members; it does not and has not been interpreted to include temporary suspensions from duty. This interpretation finds further support in the fact that FR 3.02(C) of the Pennsylvania State Police Field Regulations provides for a special investigation to be conducted at the request of any member of the police force when he has reason to believe his position on the force is jeopardized. Thus a remedy does exist independent of § 251(a) for an officer temporarily suspended who feels falsely accused or in jeopardy of losing his position on the force. There is no indication in the record that plaintiff availed himself of this alternative. Accordingly, this court finds no property interest of continued employment on the part of plaintiff, which would invoke the protection of the due process clause, has been violated by the plaintiff's temporary suspension without notice or a fair hearing. Plaintiff also argues that even if the procedures set forth in 71 P.S. § 251(b) were complied with, they are constitutionally infirm due to an improper mixing of prosecutorial and judicial functions of the commissioner. Although the court need not reach this issue, since the statutes are not applicable to temporary suspensions, it feels compelled to point out that this argument was specifically rejected in Berman v. Commonwealth of Pennsylvania, 37 Pa.Cmwlth. 559, 391 A.2d 715 (1978). In what appears to be an allegation that defendant Barger abused his discretion, plaintiff contends that the board of inquiry found no basis for imposition of punishment for plaintiff's interposition of the Fifth Amendment. This conclusion is inaccurate. It is true that the board of *1276 inquiry unanimously found that plaintiff's conduct did not warrant a court-martial proceeding (P. Ex. 6, para. 2), and that the board also found that "no provision of the Disciplinary Code has been expressly violated. Although it might be possible to infer violations of one or more sections . ." (P. Ex. 6, para. 3). The board of inquiry, however, expressly recommended that plaintiff be suspended because he did not conduct himself in such a manner as to reflect most favorably on the Pennsylvania State Police and that he has engaged in a course of conduct tending to bring the Force into disrepute and reflecting discredit upon himself as an individual member of the Pennsylvania State Police. Therefore, plaintiff's assertion that the board of inquiry found no violation of the Disciplinary Code or the State Police Field Regulations is not correct. That being the case, plaintiff Barger's imposition of a suspension and inter-troop transfer was not an abuse of discretion.[9] Accordingly, no violation of due process was worked upon plaintiff as a result of defendant Barger's imposition of the temporary suspension and the inter-troop transfer. To recapitulate, plaintiff claims his right to due process was violated by 1. The failure of Shuck and Hussack to abide by § 3.02(A) when questioning plaintiff on January 31, 1973; 2. The omission of Miranda warnings at the interview by Shuck and Hussack on January 31, 1973; 3. The lack of compliance with 71 P.S. § 251(b) when plaintiff was temporarily suspended by defendant Barger on March 27, 1973; and 4. The unconstitutional mixing of prosecutorial and judicial functions of the Commissioner in imposing discipline. For the reasons set forth in the discussion above, plaintiff's claims of violation of due process will be denied. 4. Coerced Resignation Claim As his final allegation, plaintiff asserts that his resignation on May 9, 1973 resulted from coercion placed upon him by the defendants. Although not specifically stated by plaintiff, it is presumed that he believes this allegedly coerced resignation violated his right to due process under the Fourteenth Amendment. In support of his allegation, plaintiff summarized his version of the factual scenario, stating [P]laintiff was subjected not only to official procedures which violated his constitutional rights, but also to psychological pressure which included threats and harassment directed to the plaintiff by the two highest ranking officers in the Pennsylvania State Police. Tracing the defendants' conduct, a pattern of fundamental unfairness emerges. Plaintiff was subjected to an intense and constitutionally and procedurally infirm interrogation on January 31, 1973. Plaintiff was suspended indefinitely for invoking his Fifth Amendment rights, receiving no opportunity to answer the charges upon which the suspension was based. Plaintiff was threatened by the Commissioner with criminal charges. Plaintiff was threatened with the innuendo that plaintiff's twenty-three year career as a State Policeman was "going down the drain". The plaintiff was ordered by the Commissioner to implicate himself and others in a supposed conspiracy of which the plaintiff knew nothing. Finally, the plaintiff was presented with a Disciplinary Action Report, an appeal from which was a cynical mockery of due process. In light of the foregoing, it is respectfully submitted that the plaintiff's resignation was, in fact, coerced. (P. Brief, pp. 20, 21.) Defendants, on the other hand, deny that plaintiff's resignation was coerced, alleging that plaintiff had discussed resigning on various occasions with six different officers, *1277 namely, Barger, Shuck, Hussack, Wellendorf, Titler, and Malone, and that plaintiff did not allege his resignation was coerced until some two years after it had been submitted. During the trial, defendant Barger (Tr. p. 205), defendant Wellendorf (Tr. p. 270), Shuck (Tr. p. 104), Titler (Tr. pp. 182-83), and Malone (Tr. p. 150) testified under oath that plaintiff indicated at various times he was contemplating whether or not he should resign from the force. All of these men testified that in some manner each had attempted to persuade plaintiff not to resign, apparently to no avail. It is only natural that plaintiff would have experienced psychological pressure during the course of events between November 1972 and May 1973 and it is entirely possible that this pressure contributed to or caused the plaintiff to resign on May 9, 1973. But these facts alone are not sufficient to classify plaintiff's resignation as an "unconstitutionally coerced resignation" or a "constructive discharge" such that it would constitute a violation of due process; particularly in light of the fact that any psychological pressure, although very real, was apparently self-induced and not intentionally or even negligently caused by defendants. The court, in its fact finding capacity, concluded that the resignation of the plaintiff, although executed while plaintiff was under considerable stress, was not coerced by defendant so as to make the resignation a "constructive discharge" in violation of plaintiff's right to due process.[10] 5. Claims Under 42 U.S.C. § 1983 Plaintiff alleges that one or more acts of defendants constitute a deprivation of his civil rights and therefore violate 42 U.S.C. § 1983. It is true that the interests included within the meaning of "property" and "liberty" as used in the due process clause of the Fourteenth Amendment are protected by § 1983. Paul v. Davis, 424 U.S. 693, 96 S.Ct. 1155, 47 L.Ed.2d 405, reh. denied, 425 U.S. 985, 96 S.Ct. 2194, 48 L.Ed.2d 811 (1976). Based on plaintiff's claims that have been discussed thus far, however, there has been no deprivation of a "liberty" or "property" interest that warrants due process protection. The area for which § 1983 provides redress is not, however, restricted to those rights or interests that warrant due process protection, but includes all civil rights that are created or insured by the United States Constitution and all federal laws. Paul v. Davis, supra; Holt v. Indiana Mfg. Co., 176 U.S. 68, 20 S.Ct. 272, 44 L.Ed. 374 (1900). Rights arising from the state or local governments, however, are not protected by § 1983. Egan v. Aurora, 365 U.S. 514, 81 S.Ct. 684, 5 L.Ed.2d 741 (1961). Plaintiff alleges that in addition to the denial of due process, his Fifth Amendment right to remain silent and his Sixth Amendment right to confrontation have been violated. In previous sections of this opinion, the court concluded that these allegations were not well founded and that no violations of plaintiff's Fifth and Sixth Amendment rights were perpetrated by the defendants. Plaintiff has failed to establish that he has been deprived of "any rights, privileges, or immunities secured by the Constitution and laws." It follows, therefore, that plaintiff's claims under § 1983 must be denied. 6. Claims Under 42 U.S.C. § 1985(3) Finally, plaintiff alleges that some or all of the defendants have conspired to deprive him of equal protection of the laws and equal privileges and immunities under the laws, in violation of 42 U.S.C. § 1985(3). In light of the court's finding that plaintiff was deprived of no civil rights, immunities or privileges, there can be no violation of § 1985(3). The pertinent part of § 1985(3) requires in any case of conspiracy set forth in this section, if one or more persons engaged therein do, or cause to be done, any act in *1278 the furtherance of the object of such conspiracy, whereby another is injured in his person or property, or deprived of having and exercising any right or privilege of a citizen of the United States . . . Since any injury that plaintiff may have suffered did not result from the deprivation of rights secured by the Constitution or federal statutes, there is no violation of § 1985(3). Santiago v. City of Philadelphia, 435 F.Supp. 136 (E.D.Pa.1977). Accordingly, plaintiff's § 1985(3) claims will be denied. IV. CONCLUSIONS OF LAW 1. Plaintiff did not have a sufficient liberty or property interest in his employment so as to entitle him to procedural due process before being disciplined. 2. The procedure followed in disciplining plaintiff did not involve an impermissible commingling of prosecutorial and adjudicative functions in violation of due process. 3. The procedure followed in disciplining plaintiff did not violate any Sixth Amendment right to notice and confrontation. 4. Plaintiff was not effectively denied his right against self-incrimination guaranteed by the Fifth Amendment. 5. Plaintiff was not unconstitutionally coerced into resigning from the Pennsylvania State Police. 6. Defendants did not deprive plaintiff of any rights guaranteed by 42 U.S.C. §§ 1983 or 1985(3). NOTES [1] On page 65 of the transcript, defendant Lench was dismissed and defendant Wilburn was substituted in his official capacity only. [2] On page 65 of the transcript, defendant Madison was dismissed and defendant Roath was substituted in his official capacity only. [3] James D. Barger no longer holds the position of Commissioner of the Pennsylvania State Police, having resigned on February 17, 1977. (Tr. p. 194). [4] R. O. Wellendorf no longer holds the position of Lieutenant Colonel in the Pennsylvania State Police, having retired in July, 1976. (Tr. p. 261). [5] A further distinction between the instant case and Gardner and its progeny is that in the instant case, plaintiff was given a six week suspension and a temporary inter-troop transfer; whereas in the Gardner line of cases, the plaintiffs were dismissed permanently. [6] The reason(s) for the imposition of the six week suspension and inter-troop transfer of plaintiff are in dispute. Plaintiff contends that the sole reason for the suspension and transfer was the exercise of his Fifth Amendment privilege. Defendants contend that, as per the Disciplinary Action Report dated May 9, 1973, plaintiff was suspended and transferred not only for invoking his Fifth Amendment rights but also for violating sections 2.08-C and 2.20 of the Pennsylvania State Police Field Regulations. [7] Plaintiff does cite Lyman v. Swartley, 385 F.Supp. 661 (D.C.1974); but that is strictly a due process case and will be addressed in the appropriate section. [8] Since plaintiff is not an accused and § 3.02(A) of the field regulations is not applicable to the January 31, 1973 interrogation, the court need not address whether or not that section was constitutionally infirm. [9] Plaintiff also contends the degree of discipline imposed by defendant Barger was not in compliance with the Commissioner's Special Order dated October 17, 1972. A review of the types of discipline described in the October 17th order reveals that the type of conduct with which plaintiff was charged could support the discipline imposed. (P. Ex. 11, Special Order 72-127, para. 3). [10] Assuming, arguendo, that plaintiff's discharge had been coerced by defendants, it does not automatically follow that plaintiff's right to due process would have been violated in light of the court's holding that plaintiff had no "liberty" or "property" right to be protected by due process.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1934521/

33 B.R. 820 (1983) In re CUCUMBER CREEK DEVELOPMENT, INC., Debtor. Patricia Ann WESTERGAARD and Thomas J. Pollard, Plaintiffs, v. CUCUMBER CREEK DEVELOPMENT, INC., Defendant. Civ. A. No. 83-K-1087, Adv. No. 83 J 0694. United States District Court, D. Colorado. September 27, 1983. Vicki S. Porter, Sweig & Pockross, Denver, Colo., for plaintiffs. Nevin A. Seeger, Richard A. Francis, Denver, Colo., for defendant. KANE, District Judge. This bankruptcy appeal presents an issue of considerable importance which presently divides not only several district[1] and bankruptcy courts,[2] but also the bankruptcy courts within this district.[3] At issue is the applicability of the automatic stay provisions of 11 U.S.C. § 362 to toll a state foreclosure redemption period. By virtue of a 1982 promissory note Cucumber Creek became indebted to plaintiffs in the principal amount of $325,000. The entire balance plus interest was due and payable on May 1, 1982. When Cucumber *821 Creek defaulted on the note, plaintiffs foreclosed against the real property by which the note was secured. The property was sold on July 7, 1982. It was "agricultural real estate" as that term is defined in Colo. Rev.Stat. § 38-39-102 (1982), and thus the debtor's redemption period expired on January 7, 1983. On the date the redemption period expired, the debtor filed a chapter 11 petition. Plaintiffs began this adversary proceeding on March 30, 1983, seeking relief from the stay provisions, if they applied, to permit them to conclude the foreclosure against the debtor's property. The bankruptcy court, Brumbaugh, J., granted the relief sought by the plaintiffs. Judge Brumbaugh specifically concluded that § 362's automatic stay provisions did not apply in the face of the more specific statutory provisions of 11 U.S.C. § 108. I have had an opportunity in the past to address this question in a slightly different context. In Re Jenkins, 19 B.R. 105 (D.C. Colo.1982). There, I ruled that § 362(a)'s automatic stay tolled the state redemption period to preserve "those property rights which I have found to be possessed by the debtor at the time of filing." 19 B.R. at 110. In Jenkins, however, I did not discuss or consider the applicability of 11 U.S.C. § 108 to such a case. Given an opportunity to consider the question here and to review the body of case law which has developed, I now conclude that § 362(a) is inapplicable, and that state redemptive rights may be preserved and extended only to the extent provided by § 108. In pertinent part, § 362(a) provides that a petition filed under chapter 11 operates as a stay of (3) any act to obtain possession of property of the estate or property from the estate; (4) any act to create, perfect, or enforce any lien against property of the estate; (5) any act to create, perfect, or enforce against property of the debtor any lien to the extent that such lien secures a claim that arose before the commencement of the case under this title. . . . Where it has been considered, no one has denied the importance and centrality of the automatic stay to the Bankruptcy Act of 1978. See Kennedy, Automatic Stays Under the New Bankruptcy Law, 12 Mich.J.L. Ref. 1 (1978). Pertinent portions of its legislative history are oft-cited: [t]he automatic stay is one of the fundamental debtor protections provided by the bankruptcy laws. It gives the debtor a breathing spell from his creditors. It stops all collection efforts, all harassment, and all foreclosure actions. It permits the debtor to attempt a repayment or reorganization plan, or simply to be relieved of the financial pressures that drove him into bankruptcy. The automatic stay also provides creditor protection. Without it, certain creditors would be able to pursue their own remedies against the debtor's property. Those who acted first would obtain payment of the claims in preference to and to the detriment of other creditors. Bankruptcy is designed to provide an orderly liquidation procedure under which all creditors are treated equally. A race of diligence by creditors for the debtor's assets prevents that. S.Rept. No. 95-984, 95th Cong. 2d Sess. 49, 54, 55 (1978), reprinted in 1978 U.S.Code Cong. & Adm.News, 5787, 5835, 5840, 5841. To hold that the automatic stay provision tolls the running of the redemption period, however, I would have to find and identify some "act" of the plaintiffs' within the meaning of § 362(a). For example, I would have to find that causing the 21 day notice of foreclosure sale to be issued is a continuing act within the meaning of § 362(a). Colo.Rev.Stat. § 38-39-102(4) (1982). "Such a fiction would go beyond the scope of conduct sought to be controlled by Section 362(a)." In Re Pridham, 31 B.R. 497, 499 (Bkrtcy.E.D.Cal.1983). The "act" complained of here, "[t]he mere running of time on contractual rights," is not "an act of a creditor within the meaning of § 362(a)." *822 31 B.R. at 499. Accord, Matter of Markee, 31 B.R. 429 (Bkrtcy.Idaho 1983). Title 11 U.S.C. § 108(a) provides, in pertinent part, if applicable law, an order entered in a proceeding, or an agreement fixes a period within which the debtor . . . may file any pleading, demand, notice, or proof of claim or loss, cure a default, or perform any other similar act, and such period has not expired before the date of the filing of the petition, the trustee may only file, cure, or perform, as the case may be, before the later of— (1) the end of such period, including any suspension of such period occurring on or after the commencement of the case; and (2) 60 days after the order of relief. The only mention of section 108(b) in the legislative history is as follows: [s]ubsections (1) and (b), derived from Bankruptcy Act section 11, permit the trustee, when he steps into the shoes of the debtor, an extension of time for filing an action or doing some other act that is required to preserve the debtor's rights. . . . Subsection (b) gives the trustee 60 days to take other actions, not covered in subsection (a), such as filing a pleading, demand, notice, or proof of claim or loss (such as an insurance claim), unless the period for doing the relevant act expires later than 60 days after the date of the order for relief. S.Rpt. No. 95-989, 95th Cong. 2d Sess. 30 (1978), reprinted in 1978 U.S.Code Cong. & Admin.News, 5787, 5816. My only concern in applying section 108 to the instant case stems from the fact that the tolling of redemption periods is nowhere specifically mentioned in the legislative history of the 1978 act, the proposed Bankruptcy Act of 1973,[4] the Chandler Act of 1938,[5] or the original act of 1898.[6] Most courts passing on the applicability of section 108 have mentioned the fact that where one section of the Code explicitly governs an issue, another section should not be interpreted to cause an irreconcilable conflict. Bank of the Commonwealth v. Bevan, 13 B.R. 989 (D.C.Mich.1981); In Re Ecklund & Swedlund Development Corp., 17 B.R. 451 (Bkrtcy.Minn.1981). At least two other courts have been able to reconcile the linguistic conflict. In Re H & W Enterprises, Inc., 19 B.R. 582, 586, 587 (Bkrtcy. Iowa 1982); In Re Johnson, 8 B.R. 371 (Bkrtcy.Minn.1981). In my opinion, however, the language of section 108(b) is broad enough—"perform any other similar act"— to encompass an opportunity to redeem as presented here. Collier, without citing any authority, is in agreement. 4 Collier on Bankruptcy, ¶ 541.07 (15th ed.). Unquestionably, the application of section 108(b) to redemptive rights alters the status quo intended to be preserved by the filing of a bankruptcy petition. The trustee, however, is given at least 60 days within which to inventory the estate and determine whether to redeem any property. Whether the trustee may move to extend the 60 day period pursuant to section 105(a), is a question I need not address here. See Matter of Markee, 31 B.R. 429 (Bkrtcy.Idaho 1983). The property in question was sold on July 7, 1982. The last date on which to redeem was January 7, 1983, the date on which the bankruptcy petition was filed. Pursuant to section 108(b), the period of redemption was extended only for an additional 60 days, to *823 March 8, 1983. The order appealed from here is therefore affirmed. NOTES [1] Compare In Re Martinson, 26 B.R. 648 (D.C.D.N.D.1983), Bank of Ravenswood v. Patzold, 27 B.R. 542 (D.C.N.D.Ill.1982), Bank of Commonwealth v. Bevan, 13 B.R. 989 (D.C.E.D. Mich.1981), with In Re Jenkins, 19 B.R. 105 (D.C.Colo.1982). [2] The following cases have followed Bank of Commonwealth v. Bevan in applying 11 U.S.C. § 108 to a statutory redemption period: In Re Pridham, 31 B.R. 497 (Bkrtcy.Cal.1983); Matter of Markee, 31 B.R. 429 (Bkrtcy.Idaho 1983); In Re Owens, 27 B.R. 946 (Bkrtcy.E.D.Mich.1983); In Re Murphy, 22 B.R. 663 (Bkrtcy.Colo.1982); Matter of Construction Leasing and Inv. Corp., 20 B.R. 546 (Bkrtcy.M.D.Fla.1982); In Re New Town Mall, 17 B.R. 326 (Bkrtcy.S.D.1982); In Re Ecklund & Swedlund Development Corp., 17 B.R. 451 (Bkrtcy.Minn.1981); In Re Headley, 13 B.R. 295 (Bkrtcy.Colo.1981). The following cases have followed my opinion in In Re Jenkins: Eaton Land & Cattle Co. II v. Rocky Mountain Investments, 28 B.R. 890 (Bkrtcy.Colo.1983); In Re Shea Realty, Inc., 21 B.R. 790 (Bkrtcy.Vt.1982); In Re Jones, 20 B.R. 988 (Bkrtcy.E.D.Pa.1982); In Re H & W Enterprises, Inc., 19 B.R. 582 (Bkrtcy.Iowa 1982); In Re Sapphire Investments, 19 B.R. 492 (Bkrtcy. Ariz.1982); Matter of Dohm, 14 B.R. 701 (Bkrtcy.N.D.Ill.1981); In Re Johnson, 8 B.R. 371 (Bkrtcy.Minn.1981). [3] Compare Eaton Land & Cattle Company II v. Rocky Mountain Investments, 28 B.R. 890 (Bkrtcy.Colo.1983) with In Re Murphy, 22 B.R. 663 (Bkrtcy.Colo.1982); In Re Headley, 13 B.R. 295 (Bkrtcy.Colo.1981). [4] Report on the Commission on the Bankruptcy Laws of the United States, Part II, House document No. 93-137, Part II, 93d Cong. 1st Sess. 68. See proposed Section 4-102. [5] See H.Rpt. No. 1409, 75th Cong. 1st Sess. 22 (1937); S.Rpt. No. 1916, 75th Cong. 3d Sess. 13 (1938). And see former 11 U.S.C. § 29(e). [6] See Conference Report, Uniform System of Bankruptcy, Senate Doc. No. 294, 55th Cong. 2d Sess. 7 (1898); Report, Uniform Law on the Subject of Bankruptcies, House Report No. 1228, 54th Cong. 1st Sess. 28 (1896). Both the senate and house bills had identical provisions: Sec. 10. Suits By and Against Bankrupts— A suit which is founded upon a claim from which a discharge would be a release, and which is pending against a person at the time of the filing of the petition against him, shall be stayed until after the adjudication or the dismissal of the petition. . . .

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1906100/

283 F.Supp. 850 (1968) The PLASTIC CONTACT LENS COMPANY, Plaintiff, v. GUARANTEED CONTACT LENSES, INC., Dr. Leonard Seidner, doing business as Quality Optical Company of New York, Dr. Leonard Seidner and Joseph Seidner, Individually and doing business as Quality Optical Company of New York, John Doe, Richard Roe, Doe Corporation, Inc., and Roe Corporation, Inc., Defendants. No. 63 Civ. 388. United States District Court S. D. New York. February 20, 1968. Karpatkin, Ohrenstein & Karpatkin, Marvin M. Karpatkin, New York City, for plaintiff. Jack Smolen, Flushing, N. Y., for defendants. CANNELLA, District Judge. Action to recover royalties under a patent licensing contract. Verdict for the plaintiff. Defendants' counterclaim is dismissed. JURISDICTION The court finds: That the requisite jurisdictional monetary requirement is satisfactory and that the court has jurisdiction under Section 1332 of Title 28 of the United States Code. The court finds: That the plaintiff, The Plastic Contact Lens Co., hereinafter Plastic, is an Illinois corporation with its principal place of business outside of the State of New York and that the defendants Guaranteed Contact Lenses, Inc., hereinafter Guaranteed, and Quality Optical Company of New York, hereinafter Quality, are New York corporations with their principal place of business in New York. The only evidence presented to the court was documentary. It establishes that prior to January 1, 1961, the effective date of the defendants' licenses *851 and up until April 12, 1961, Solex Laboratories, Inc., hereinafter Solex, was the owner of the Touhy Patent, United States Patent No. 2,510,438 for corneal contact lenses. On January 12, 1961, pursuant to an agreement signed by the licensee on January 5, 1961 and by the licensor on January 12, 1961, Solex granted a nonexclusive license to the defendant Guaranteed to manufacture plastic lenses under the Touhy Patent. The effective date of the license was made retroactive to January 1, 1961. A similar license was granted by Solex to the defendant Quality on February 25, 1961 pursuant to an agreement signed by the licensee on February 19, 1961 and by the licensor on February 25, 1961. The effective date of this license was also made retroactive to January 1, 1961. Subsequently, on or about April 12, 1961, Solex assigned to the plaintiff, Plastic, all of its right, title and interest in and to the Touhy Patent, including its rights as licensor under certain nonexclusive patent license aggrements. In this action for the non-payment of royalties, the plaintiff, assignee of Solex, alleges that the defendants have failed to comply with their obligations under their licenses, in that although they have continued to manufacture lenses under the Touhy Patent, the defendant Guaranteed has failed to make any accountings or pay any royalties since August, 1961 and the defendant Quality has failed to make any accountings or pay any royalties since November, 1962.[1] The defendants admit that they ceased making accountings and paying royalties as of the above stated dates, but they allege as affirmative defenses that the plaintiff has breached the "most favored licensee" provisions of their licenses in that it or its assignor granted licenses containing more favorable terms than theirs to the Security Contact Lens Corporation, hereinafter Security License, and to Geo. H. Butterfield & Son, hereinafter Butterfield License, without offering such terms to the defendants. Further, the defendants, as counter-claimants, seek to acquire in their licenses the terms of the Security and Butterfield Licenses, which they allege to be more favorable than their own.[2] It is a well settled principle of contract law that a breach by a licensor is not a defense in a suit for non-payment of royalties where the licensee continued to manufacture and sell under the patent. Wilcolator Co. v. Robertshaw Thermostat Co., 26 F.Supp. 255 (W.D.Pa.1939); Rosenthal Paper Co. v. National Folding Box & Paper Co., 226 N.Y. 313, 123 N.E. 766 (1919). Therefore, even assuming arguendo that the Security and Butterfield licenses resulted in the granting of more favorable terms to other licensees, without offering equal terms to the defendants in violation of the "most favored licensee" clause of the defendants' licenses, this would not be a defense to the plaintiff's suit for non-payment of royalties. If the defendants believed that the plaintiff had breached their contracts there were remedies at law available to them and they could have terminated their contracts. However, the defendants did not choose to avail themselves of these remedies and continued to manufacture *852 under the protection of their licenses without paying royalties. The court will now consider the two contracts which the defendants attempted to use as defenses and on which they base their counterclaims. The first contract relied on by the defendants is the license agreement between Solex and Security which was executed by both parties on December 22, 1960 and had an effective date of January 1, 1961. The defendants allege that the terms of this contract were more favorable than their own and that by granting this license without offering the defendants these more favorable terms, Solex violated the "most favored licensee clause" of their licenses. The court is unable to accept the defendants' argument. The language in the Guaranteed and Quality licenses is identical and in each the "most favored licensee" clause is contained in Section 8 and clearly states that, "Solex agrees that in the event it should hereafter grant a license to another person, firm or corporation under said Patent No. 2,510,438 * * * upon terms and conditions more favorable * * * except in the manner of settlement for past infringement, Solex shall promptly offer Licensee the benefit of such more favorable terms and conditions * * *." The language of the licenses themselves shows the prospective nature of the clause. The Security license was granted on December 22, 1960 and became effective on January 1, 1961. The defendants' licenses were granted on January 12, 1961 and February 25, 1961 and were given retroactive effective dates of January 1, 1961. Since the Security license was in effect before the defendants' licenses were executed, it does not come within the purview of clause 8 of the defendants' licenses which provides for a situation where the licensor "* * * should hereafter grant a license * *." Further, the few cases which have considered the issue, have held that a "most favored licensee clause" has only prospective application[3] and one of the eminent scholars in the field has stated that the purpose behind the clause is to satisfy the licensee's desire "* * * to have the benefit of any relaxation of the terms of his license given to any subsequent licensee."[4] The court therefore will not consider the terms of the Security license since it finds that it is not within the purview of the "most favored licensee" clause of the defendants' licenses. The court further finds that the failure of the plaintiff or its assignor to offer defendants the terms of the Security license did not result in a breach of the most favored licensee clauses of the defendants' licenses by the plaintiff. The defendants counterclaims based on the Security license are dismissed. The second license which the defendants allege violated their "most favored licensee" clauses was the license granted by plaintiff to Geo. H. Butterfield & Son pursuant to the settlement agreement of May 7, 1962. The settlement argeement of May 7, 1962 was the termination of countersuits for patent infringement, by George H. Butterfield, Sr. and Geo. H. Butterfield & Son, and Solex. The parties to these countersuits for patent infringement were the owners of the two largest contact lens patents in the United States, the Butterfield and Touhy patents. The settlement agreement of May 7, 1962 terminated these suits and did not disturb the validity of both patents. As part of the consideration for this agreement Solex gave George H. Butterfield, Sr. and Geo. H. Butterfield & Son "* * * a nonexclusive, nontransferable and royalty free right to make, use and sell corneal contact lenses embodying any of *853 the subject matter described and claimed in and by * * *" the Touhy Patent. Solex further gave George H. Butterfield Sr., and Geo. H. Butterfield & Son, the right to grant a royalty free license under the Touhy Patent to four specified licensees[5] so long as they remained licensees under the Butterfield Patent. The defendants argue that in granting this license to Butterfield and indirectly to the four specified licensees, Solex granted licenses with more favorable terms than theirs and that plaintiff's failure to offer these more favorable terms to the defendants, resulted in a breach of the "most favored licensee" clauses of their licenses. The court, for two reasons, is unable to accept the defendants' argument. First, the uncontradicted evidence clearly proves that on October 25, 1962 the plaintiff sent a letter to its licensees informing them of the terms of the Butterfield Settlement and Butterfield License. The letter further indicated the plaintiff's opinion that the terms of these licenses were not "more favorable" than those of its standard license, but it offered revised terms to any licensee who considered the Butterfield terms "more favorable" and who was in a position to grant the plaintiff consideration equivalent to that received from the Butterfield interests. It invited any licensee who sought to take advantage of this offer to reply promptly. Neither of the defendants ever replied to this offer. The court finds that the plaintiff in making this offer at least technically complied with its obligation under the "most favored licensee" clauses of the defendants' licenses. Second, even assuming arguendo that this technical compliance with the obligation was not sufficient or that the plaintiff had made no attempt to offer the allegedly more favorable terms to the defendants, the court finds that the plaintiff did not breach the "most favored licensee" clauses of the defendant's licenses. The "most favored licensee" clauses in the defendant's licenses explicitly contain one exception which covers the situation where a license with more favorable terms is granted as a settlement for past infringement. That is the situation which is actually before this court. The Butterfield License, in question here, was granted by the plaintiff's assignor as a part of the consideration for the settlement of the counter-suits for patent infringement. Therefore, the court finds that the Butterfield License comes within the exception contained in the "most favored licensee" clauses of the defendant's licenses and that neither the plaintiff nor its assignor has breached these clauses. Further, the court finds that since the plaintiff has complied with its obligation under the "most favored licensee" clauses of the defendant's licenses and that even if it had not, the Butterfield License was within the exception to the "most favored licensee" clauses, that there are no grounds for the defendants' counterclaims based on this issue and they are dismissed. Finally, the court finds that the right given to Butterfield to grant royalty free licenses under the Touhy Patent to four specified Butterfield licensees, as long as they remained Butterfield licensees, was part and parcel of the same settlement agreement and for the reasons stated above, was within the exception to the "most favored licensee" clauses of the defendants' licenses. Therefore, the court directs each of the defendants to account to the plaintiff for all of the plastic lens devices manufactured and sold by each of them subject to the licenses considered by this court and orders that a judgment be entered against each of them for the sums found due on its accounting. So ordered. NOTES [1] The agreement to pay royalties is contained in § 2 of each of the defendant's licenses. The agreement to make monthly accountings is contained in § 3 of each of the defendant's licenses. [2] The so-called "most favored licensee" provision is contained in § 8 of the defendants' licenses and states: "Solex agrees that in the event it should hereafter grant a license to another person, firm or corporation under said Patent No. 2,510,438, or under any other United States patent or application licensed hereunder upon terms and conditions more favorable than those herein accorded, except for the manner of settlement for past infringement, Solex shall promptly offer Licensee the benefit of such more favorable terms and conditions, which upon acceptance shall be retroactive to the date that such more favorable terms and conditions were accepted by said other person, firm or corporation." [3] Core Laboratories, Inc. v. Hayward-Wolff Research Corp., 11 Terry 565, 50 Del. 565, 136 A.2d 533 (Del.1957); Universal Oil Products Co. v. Vickers Petroleum Co., 2 Terry 238, 41 Del. 238, 19 A.2d 727 (Del.1941). [4] Ellis, Patent Licenses (Deller 3rd ed. 1958) § 252 p. 294. [5] Titmus Optical Co., Inc., Petersburg, Virginia; Rogers Brothers, Beaumont, Texas; Sloan Optical Co., Inc. (now Southern Contact Lens Laboratories, Inc.), Greensboro, North Carolina; Utah Optical Supply Co., Salt Lake City, Utah.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1936477/

14 B.R. 542 (1981) In the Matter of COMMONWEALTH OF PENNSYLVANIA STATE EMPLOYEES' RETIREMENT FUND v. William A. ROANE, Margaret Graham, Trustee. Civ. A. No. 81-1319. United States District Court, E.D. Pennsylvania. September 11, 1981. *543 John Swartz, Alan H. Gilbert, Philadelphia, Pa., for plaintiff. Thomas J. Turner, III, Philadelphia, Pa., William A. Roane, pro se, Janet Sonnenfeld, Philadelphia, Pa., for defendant. OPINION BECHTLE, District Judge. This is an appeal from an order of the bankruptcy court denying a request for relief from an automatic stay preventing the mortgagee, Commonwealth of Pennsylvania State Employees' Retirement Fund ("Retirement Fund"), from foreclosing on the residence of the debtors, William and Dolores Roane. The question before the Court is whether an offer by the debtor to make periodic payments on a mortgage which is also federally insured by the Federal Housing Administration ("FHA"), constitutes "adequate protection" for the mortgagee's security interest in the mortgaged property. For the following reasons, the Court affirms. I. On April 2, 1975, William A. Roane executed a mortgage to Fidelity Bond and Mortgage Company ("Fidelity") on his residence located at 4909-11 N. Uber Street, Philadelphia, Pennsylvania. The mortgage was federally insured by the FHA under the National Housing Act, 12 U.S.C. §§ 1707 to 1715z-11. Fidelity thereafter assigned the mortgage to Retirement Fund. From May to October, 1980, the debtor failed to make his monthly mortgage payments. On October 10, 1980, the debtor, together with his wife, filed a petition for the adjustment of their debts under Chapter 13 of the Bankruptcy Code, 11 U.S.C. §§ 1301-1330. On November 17, 1980, Retirement Fund filed a complaint for relief from the automatic stay. At the hearing, testimony was presented by an assistant supervisor of Fidelity's mortgage foreclosure department on behalf of Retirement Fund that the total amount of arrearages was $1,562.88 and that the total balance owed was $15,553.89 on the mortgage debt. The original mortgage was in the amount of $16,150.00. Testimony was further presented that the mortgage was federally insured by the FHA, but that the percentage of insurance was unknown. Mrs. Roane, on behalf of the debtors, testified that the present fair market value of the home was $23,000.00 and that, under the proposed Chapter 13 plan, the debtors would pay $170.00 a month as well as maintaining the current mortgage payments outside the plan. The payment for the month of December was deposited with the debtor's attorney, in escrow, because of Retirement Fund's apprehension that an acceptance of the payment would prejudice its possible rights to relief from the stay. The bankruptcy court held that Retirement Fund was not entitled to relief because (1) it had failed to prove that the debtor lacked equity in the property, and (2) that its security interest was "adequately protected" by the offer of the debtor to make periodic payments on the mortgage and the FHA mortgage guarantee. 8 B.R. 997. (Bkrtcy.) Retirement Fund now appeals the bankruptcy court's holding that its interest in the mortgaged property is "adequately protected." II. The filing of a petition in bankruptcy operates as an automatic stay under 11 U.S.C. § 362(a) on any attempts by the debtor's creditors to collect on any claims arising prior to the filing of the petition. The purpose of the stay is to provide a "breathing spell" and allow the debtor "to attempt a repayment or reorganization plan, or simply to be relieved of the financial pressures that drove him into bankruptcy." S.Rep.No.95-989, 95th Cong., 2d Sess. 54-55 (1978), reprinted in [1978] U.S.Code Cong. & Ad.News 5787, 5840-41. Section *544 362(d), however, provides that in certain circumstances a creditor may obtain relief from the stay: (d) On request of a party in interest and after notice and a hearing, the court shall grant relief from the stay provided under subsection (a) of this section, such as by terminating, annulling, modifying, or conditioning such stay — (1) for cause, including the lack of adequate protection of an interest in property of such party in interest; or (2) with respect to a stay of an act against property, if — (A) the debtor does not have an equity in such property; and (B) such property is not necessary to an effective reorganization. Retirement Fund contends that the bankruptcy court erred with respect to its claim for relief under § 362(d)(1).[1] Specifically, the appellant contends that the bankruptcy court erred in its holding that the bankruptcy stay should not be lifted for "cause" because there is "adequate protection" for the security interest in the mortgaged property. Although the Bankruptcy Code does not define the term "adequate protection," methods of providing such protection are listed in 11 U.S.C. § 361: When adequate protection is required under section 362, 363, or 364 of this title of an interest of an entity in property, such adequate protection may be provided by — (1) requiring the trustee to make periodic cash payments to such entity, to the extent that the stay under section 362 of this title, use, sale, or lease under section 363 of this title, or any grant of a lien under section 364 of this title results in a decrease in the value of such entity's interest in such property; (2) providing to such entity an additional or replacement lien to the extent that such stay, use, sale, lease, or grant results in a decrease in the value of such entity's interest in such property; or (3) granting such other relief, other than entitling such entity to compensation allowable under section 503(b)(1) of this title as an administrative expense, as will result in the realization by such entity of the indubitable equivalent of such entity's interest in such property. In In re Murel Holding Corp., 75 F.2d 941 (2d Cir. 1935), Circuit Judge Learned Hand elaborated on this concept by stating: "It is plain that `adequate protection' must be completely compensatory; . . . a creditor . . . wishes to get his money or at least the property. We see no reason to suppose that the statute was intended to deprive him of that in the interest of junior holders unless by a substitute of the most indubitable equivalence." Id. at 942 (emphasis added). As stated in the legislative history to section 361, the purpose of "adequate protection" is to protect the property interests of secured creditors pursuant to the Fifth Amendment prohibition against takings without just compensation. S.Rep.No.95-989, 95th Cong., 2d Sess. 49 (1978), reprinted in [1978] U.S.Code Cong. & Ad.News 5787, 5835. Therefore, not only is the concept of "adequate protection" important under the statute, but it is mandated by the Fifth Amendment. See Louisville Bank v. Radford, 295 U.S. 555, 589, 55 S. Ct. 854, 863, 79 L. Ed. 1593 (1935) ("The bankruptcy power, like the other great substantive powers of Congress, is subject to the Fifth Amendment."). In this case, there is an equity cushion of $7,500.00 ($23,000.00 fair market value minus $15,500.00 balance owed on mortgage debt) which protects the mortgagee's security interest in the mortgaged *545 property. An equity cushion is the surplus of value remaining after the amount of indebtedness is subtracted from the fair market value of the collateral. In re Pitts, 2 B.R. 476, 478 (Bkrtcy.C.D.Calif.1979). This equity cushion protects the interests of the creditor because resort may be had to the surplus in the event that accrued interest results in an increase on the mortgage debt. See In re Rogers Dev. Corp., 2 B.R. 679, 684-85 (Bkrtcy.E.D.Va.1980); In re Pitts, supra. Although such an equity cushion may dissipate with time and by itself not adequately protect the interests of the mortgagee, the proposed payment of the current monthly mortgage payments, as well as the payment of the arrearages under the Chapter 13 plan, would protect against such an adverse decline in the surplus value. See generally In re 5-Leaf Clover Corp., 6 B.R. 463, 466-67 (Bkrtcy.S.D.W. Va.1980). Such an arrangement constitutes the "indubitable equivalent" of the mortgagee's interest under § 361(3). Therefore, the payment of the mortgage payments outside of the plan and the payment of the arrearages under the plan, together with the existing equity cushion, "adequately protect" the mortgagee's interest. A second reason advanced by the bankruptcy court for its holding that the mortgagee's interest is "adequately protected" is the fact that the mortgage is federally insured by the FHA under the National Housing Act, 12 U.S.C. §§ 1707 to 1715z-11. Under the regulations enacted pursuant to the Act, a mortgagee may file a claim for the payment of the insurance proceeds following the foreclosure and the transfer of the property to the FHA. Accordingly, the mortgagee will recover under the insurance benefits the unpaid principal of the original mortgage, any uncollected interest due, and two-thirds of the costs of foreclosure.[2]See 24 C.F.R. §§ 203.401 to 203.402 (1980). Retirement Fund now contends that the bankruptcy court's refusal to lift the stay results in the denial of the mortgagee's right to pursue an insurance claim which can only be filed after the foreclosure of the property. This argument is without merit, however, because the mortgagee is still protected by the insurance benefits which may be sought after the eventual lifting of the stay. Retirement Fund also contends that the bankruptcy court erred because the federal mortgage insurance assertedly does not "adequately protect" the security interest of the mortgagee. This argument also must be rejected. In the present case, the bankruptcy court held that the FHA mortgage guarantee "adequately protects" the mortgagee's interest. There appears to be a split among the bankruptcy judges in the Eastern District of Pennsylvania concerning the issue whether a federal mortgage guarantee, by itself, can constitute "adequate protection" of a mortgagee's interest. Compare In re DiBona, 9 B.R. 21, 23-24 (Bkrtcy.E.D.Pa. 1981) (VA guarantee of mortgage is adequate protection) with In re Heath, 9 B.R. 665, 668-69 (Bkrtcy.E.D.Pa.1981) (VA guarantee of mortgage is not adequate protection). In In re Heath, supra, Bankruptcy Judge William King held that federal mortgage insurance, standing alone, does not constitute "adequate protection" for the mortgagee's interest. Judge King reasoned that a crafty creditor could eliminate the lifting of the stay by making random mortgage payments sufficient to create a minimal equity cushion, thereby remaining in the property indefinitely. Id. at 668. Secondly, Judge King reasoned that a failure to lift the stay would deprive the secured creditor of the "benefit of their bargain for an extended period of time thereby leaving the mortgagees with unproductive loans in their portfolios." Id. Nevertheless, Judge King intimated that the mortgage guarantee, when coupled with other factors, may adequately protect a mortgagee's interest. Id. See also In re Britton, 9 *546 B.R. 245, 247-48 (Bkrtcy.E.D.Pa.1981); In re Caulk, 9 B.R. 242, 244 (Bkrtcy.E.D.Pa. 1981). The Court respectfully disagrees. A federal mortgage guarantee, standing alone, may constitute "adequate protection" because the federal government will reimburse the mortgagee for the outstanding unpaid mortgage principal, accrued interest, and two-thirds of the foreclosure costs. See 24 C.F.R. §§ 203.401 to 203.402. If the debtor consciously abstains from making the requested mortgage payments because of the assurance of the mortgage guarantee, the bankruptcy court may, after such a finding, lift the stay according to basic equitable principles, but may not initially lift the stay because such a possibility exists. See In re San Clemente Estates, 5 B.R. 605, 611 (Bkrtcy.S.D.Calif.1980) (court of equity must also consider individual circumstances of parties and weigh competing interests and hardships). Secondly, the argument that the mortgagee suffers from an unproductive loan is refuted by the fact that the federal mortgage guarantee provides for the payment of the unpaid interest under the insurance benefits.[3] III. Obviously, a primary purpose for the debtors' filing of a bankruptcy under Chapter 13 is to prevent foreclosure in order to keep the home. It is important, therefore, that the bankruptcy court deny relief to a secured creditor in instances where the debtor has established that the creditor is "adequately protected" and there is no "cause" for lifting the stay. Thus, the Court holds that the existing equity cushion, together with the offer of the debtor to make periodic payments on the outstanding mortgage, "adequately protects" the mortgagee's interest in the mortgaged property. Secondly, the Court holds that the FHA mortgage guarantee "adequately protects" the mortgagee's interest because the mortgagee may file an insurance claim for the payment of any losses suffered as a result of the nonpayment of the mortgage. Finally, the Court holds, alternatively, that the equity cushion, together with the FHA mortgage guarantee, "adequately protect" the mortgagee's interest since the mortgagee may resort to either the sale of the home or a claim for federal insurance benefits in the event that the debtor fails to pay the mortgage. The order of the bankruptcy court is affirmed. An appropriate order will be entered. NOTES [1] Section 362(g), 11 U.S.C., allocates the burden of proof with respect to the issues presented in a request for relief from the stay: (g) In any hearing under subsection (d) or (e) of this section concerning relief from the stay of any act under subsection (a) of this section — (1) the party requesting such relief has the burden of proof on the issue of the debtor's equity in property; and (2) the party opposing such relief has the burden of proof on all other issues. [2] All losses suffered by the mortgagee on account of the mortgage are protected up to a certain percentage of the mortgage debt. Although the exact percentage of coverage applicable to the present mortgage was not determined, the bankruptcy court held that the current amount of arrearages is only 10% of the mortgage debt and that the incurred costs probably will not constitute a large percentage of the total debt. [3] As noted by the bankruptcy court, this is not to say that the Government's interest as the guarantor on the mortgage is "adequately protected" and that the Government will not suffer some harm from the continuation of the stay. However, this issue was not raised, nor is it before the Court, because the Government did not request relief from the stay.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1947084/

923 F. Supp. 275 (1996) Richard NELSON and Edward Jessiman, Plaintiffs, v. UNIVERSITY OF MAINE SYSTEM, Defendant. Civil No. 95-0179-B. United States District Court, D. Maine. April 23, 1996. *276 *277 *278 George C. Schelling, James S. Nixon, Gross, Minsky, Mogul & Singal, Bangor, Maine, for Plaintiffs. Kate S. Debeoise, Patricia A. Peard, Bernstein, Shur, Sawyer & Nelson, Portland, Maine, for Defendant. ORDER AND MEMORANDUM OF DECISION BRODY, District Judge. Plaintiffs Richard Nelson and Edwin Jessiman, professors at the University of Maine at Machias, sue the University of Maine System under Title IX of the Education Amendments of 1972 ("Title IX"), 20 U.S.C. §§ 1681-1688. Plaintiffs base their claims on the University's alleged retaliatory employment action. Nelson and Jessiman originally filed a five-count complaint against the University. In a prior order, however, the Court granted Defendant's Motion for Judgment on the Pleadings as to Counts II (Jessiman's First Amendment claim), IV (Nelson's First Amendment claim), and V (Nelson's breach of contract claim). Defendant now moves for summary judgment on the two remaining claims: Jessiman's Title IX claim, Count I, and Nelson's Title IX claim, Count III. For the reasons stated below, the Court grants summary judgment as to Count I, and denies it as to Count III. I. Summary Judgment Summary judgment is appropriate in the absence of a genuine issue of any material fact, when the moving party is entitled to a judgment as a matter of law. Fed. R.Civ.P. 56(c). Thus it is axiomatic that summary judgment must be denied when disputes remain as to consequential facts — facts upon which the outcome may rely. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 2510, 91 L. Ed. 2d 202 (1986); Menard v. First Sec. Servs. Corp., 848 F.2d 281, 285 (1st Cir.1988). Facts may be drawn from "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits." Id. An issue is genuine, for summary judgment purposes, if "the evidence is such that a reasonable jury could return a verdict for the non-moving party." Anderson, 477 U.S. at 248, 106 S. Ct. at 2510. A material fact is one which has "the potential to affect the outcome of the suit under applicable law." Nereida-Gonzalez v. Tirado-Delgado, 990 F.2d 701, 703 (1st Cir.1993). The Court views the record in the light most favorable to the nonmoving party. McCarthy v. Northwest Airlines, Inc., 56 F.3d 313, 315 (1st Cir.1995). II. Title IX The Court detailed the factual circumstances underlying this action in its January 29, 1996 order, and refers to those facts as necessary without now recounting them in their entirety. The Court begins with the applicable standards. Title IX creates an implied private right of action for plaintiffs subject to discrimination in educational institutions which receive federal funds. Franklin v. Gwinnett County Public Schools, 503 U.S. 60, 65, 112 S. Ct. 1028, 1032, 117 L. Ed. 2d 208 (affirming Cannon v. University of Chicago, 441 U.S. 677, 99 S. Ct. 1946, 60 L. Ed. 2d 560 (1979)); Cohen v. Brown University, 991 F.2d 888, 892-93 (1st Cir.1993). The statute protects against disparate treatment in educational programs, as well as sex discrimination and certain retaliatory employment practices in educational institutions. In the context of retaliatory discrimination, at issue in this case, Title IX protects employees who either participate in a Title IX investigation, or who oppose unlawful employment practices prohibited by Title IX. See Wyatt v. City of Boston, 35 F.3d 13, 15 (1st Cir.1994) (Title *279 VII claim). The statute reads, in relevant part: No person in the United States shall, on the basis of sex, be excluded from participation in, be denied the benefits of, or be subjected to discrimination under any education program or activity receiving Federal financial assistance.... 20 U.S.C. § 1681(a)[1]. Courts generally look to Title VII, 42 U.S.C. §§ 2000e, to supply the legal standards for both Title IX discrimination and retaliation claims. Brown v. Hot, Sexy and Safer Productions, Inc., 68 F.3d 525, 540 (1st Cir.1995) ("Because the relevant caselaw under Title IX is relatively sparse, we apply Title VII caselaw by analogy.") (discrimination claim), cert. denied, ___ U.S. ___, 116 S. Ct. 1044, 134 L. Ed. 2d 191 (1996); Preston v. Com. of Va. ex rel. New River Community College, 31 F.3d 203, 206-07 (4th Cir.1994) ("Title VII, and the judicial interpretation of it, provide a persuasive body of standards to which [the court] may look in shaping the contours of a private right of action under Title IX.") (retaliation claim); Roberts v. Colorado State Bd. of Agric., 998 F.2d 824, 832 (10th Cir.) (Title VII provides "the most appropriate analogue when defining Title IX's substantive standards") (disparate impact claim) (citation omitted), cert. denied, ___ U.S. ___, 114 S. Ct. 580, 126 L. Ed. 2d 478 (1993); Moire v. Temple Univ. Sch. of Medicine, 613 F. Supp. 1360, 1366-67 n. 2 (E.D.Pa. 1985) ("Though the sexual harassment `doctrine' has generally developed in the context of Title VII, these [Title VII] guidelines seem equally applicable to Title IX.") (discrimination claim), aff'd, 800 F.2d 1136 (3d Cir.1986); Lipsett v. University of Puerto Rico, 864 F.2d 881, 896-97 (1st Cir.1988) (Court "can draw upon the substantial body of case law under Title VII to assess the plaintiff's [Title IX claim].") (discrimination claim); see also Davis v. Monroe County Bd. of Educ., 74 F.3d 1186, 1190-93 (11th Cir.1996) (discrimination claim); Murray v. New York University College of Dentistry, 57 F.3d 243, 248-49, 251 (2nd Cir.1995) (discrimination and retaliation claims). But see Franklin v. Gwinnett County Pub. Schs., 911 F.2d 617, 622 (11th Cir.1990) (rejecting the application of Title VII standards to a Title IX claim concluding "we do not believe applying Title VII to Title IX would result in the kind of orderly analysis so necessary in this confusing area of law.") (disparate treatment claim), rev'd on other grounds, 503 U.S. 60, 112 S. Ct. 1028, 117 L. Ed. 2d 208 (1992).[2] While the First Circuit has yet to address a Title IX retaliation claim, the court's treatment of Title IX discrimination claims supports an extension of this analysis to Title IX retaliation claims. For example, in Lipsett v. University of Puerto Rico, the First Circuit, applying Title VII principles to a Title IX harassment claim, relied upon: "the legislative history of Title IX, itself, which strongly suggests that Congress meant for similar substantive standards to apply under Title IX as had been developed under Title VII." 864 F.2d at 897; see Cohen, 991 F.2d at 902 (noting that the application of Title VII standards in Title IX employment discrimination actions was "perhaps" appropriate).[3] At *280 least two other Circuits have analyzed Title IX retaliation claims under Title VII standards. Murray, 57 F.3d at 248-49, 251; Preston, 31 F.3d at 206-07. Accordingly this Court is satisfied that Title VII principles apply to the Title IX claims at issue. A. Prima Facie Case As required by the McDonnell Douglas v. Green, 411 U.S. 792, 93 S. Ct. 1817, 36 L. Ed. 2d 668 (1973), burden shifting rubric, the Court begins with the requirement for a prima facie case under Title IX.[4] As Defendants only challenge Plaintiffs' prima facie case, the Court need not trace the McDonnell Douglas paradigm beyond its first stage. To establish a prima facie case for retaliation under Title IX, a plaintiff must show: 1. he or she engaged in participation or opposition protected by Title [IX]; 2. the employer thereafter subjected the plaintiff to an adverse employment action; and 3. there is a causal connection between the protected activity and the adverse employment action. See Wyatt, 35 F.3d at 15 (Title VII claim); Hoeppner v. Crotched Mountain Rehabilitation Ctr. Inc., 31 F.3d 9, 14 (1st Cir.1994) (same); Hazel v. U.S. Postmaster General, 7 F.3d 1, 3 (1st Cir.1993) (Title VII and ADEA claims).[5] B. Individual Claims The University moves for summary judgment on the basis that neither Jessiman nor Nelson have successfully established a prima facie case of retaliatory discrimination under Title IX. As the Plaintiffs present factually distinct claims, the Court address each claim individually, granting summary judgment as to Count I, and denying it as to Count III. 1. Count I: Professor Jessiman As noted above, in federal discrimination cases, the plaintiff bears the burden of proof to establish a prima facie case. Failure to do so entitles the Defendant to summary judgment. The University concedes for the purposes of summary judgment that Jessiman meets the first prong oppositional conduct requirement. The University challenges only the second and third prong requirements of Jessiman's prima facie case. As to the second prong showing, Professor Jessiman contends that the University engaged in adverse employment action in three distinct ways. First Jessiman contends that the University has subjected him to "highly *281 suspect, uninvestigated and unsubstantiated complaints of sexual harassment." (Pl. Opp.Sum.J. at 15.) Second he argues that he "has been defamed as a result of an internal [University] review of the very complaints that he raised against a colleague regarding sexual harassment and abusive treatment of students." (Id.) Last, Jessiman claims "he was reprimanded by the President of the University as a result of that review as if he in fact were the offending party." (Id.) Jessiman contends that the University's actions have resulted in "professional embarrassment and have caused needless anxiety." (Id. at 16.) The Court does not find, however, that these actions, either individually or as a whole, constitute adverse employment action. An adverse employment action need not rise to the level of discharge to be actionable. Connell v. Bank of Boston, 924 F.2d 1169, 1179 (1st Cir.), cert. denied, 501 U.S. 1218, 111 S. Ct. 2828, 115 L. Ed. 2d 997 (1991). It must, however, at a minimum, impair or potentially impair the plaintiff's employment in some cognizable manner. Nelson v. Upsala College, 51 F.3d 383, 387 (3rd Cir.1995); see Petitti v. New England Tel. & Tel. Co., 909 F.2d 28, 33 (1st Cir.1990) (where an employment action "disadvantages" persons engaging in protected activity, this element is satisfied); Ruffino v. State Street Bank and Trust Co., 908 F. Supp. 1019, 1044 (D.Mass.1995) ("Generally, a plaintiff must demonstrate that he or she was denied a term, condition or privilege of employment [to establish an adverse employment action].") (citing Connell, 924 F.2d at 1179). Demotion, failure to promote, suspension, as well as denial of benefits may also constitute adverse employment action. Corrigan v. State of R.I., Dept. of Business Regulation, 820 F. Supp. 647, 655 (D.R.I.1993) ("there is no doubt that being denied a promotion constitutes an adverse employment action proscribed by the [ADEA]."); Rivers v. Baltimore Department of Recreation and Parks, 1990 WL 112429, *10 (D.Md.1990) ("Clearly, a suspension is an adverse employment action [under Title VII]"); Petitti, 909 F.2d at 32-33 (finding failure to promote an adverse employment action cognizable under Title VII). Less clear is whether more subtle employment actions, such as criticisms, reprimands, defamation and other reputational injuries constitute adverse employment action.[6] Divergent authority, nationwide, obscures the parameters of adverse employment action. Nonetheless even under a liberal reading of adverse employment activity, an employee must ultimately show some employment injury. This Court is weary of defining an adverse employment action in a manner which discourages open communication, critical or otherwise, between employers or supervisors and their employees as to the employee's employment performance. The First Circuit has not specifically addressed the issue of whether reputational injuries resulting from employment activity, alone, may constitute adverse employment action. That court has, however, intimated that "many things, such as constant rudeness, conspicuous discriminatory acts, etc., could also have an adverse effect upon employment." Welsh v. Derwinski, 14 F.3d 85, 86 (1st Cir.1994) (per curiam) (addressing ADEA claims); see Wyatt, 35 F.3d at 15 (noting other adverse actions covered by § 2000e-3(a) of Title VII, including "demotions, disadvantageous transfers or assignments, refusals to promote, unwarranted negative job evaluations and toleration of harassment by other employees." (citing 3 Arthur Larson & Lex K. Larson, Employment *282 Discrimination, § 87.20, 17-101 to 17-107)). Despite the broad language used by the First Circuit, this Court is not aware of any court in the First Circuit that has held that mere criticism, or counseling, of an employee constitutes adverse employment action. An actionable retaliation claim requires more. Fausto v. Welch, 1994 WL 568846, *7 (D.Mass.1994) ("Disparaging remarks can, under proper circumstances, constitute an adverse employment action [under Title VII]. To do so, however, such disparaging comments must significantly impair the employee's ability to function in his position."); Welsh v. Derwinski, 1993 WL 90168, *4 (D.Mass.1993) (reprimand of employee not considered an adverse employment action under ADEA), aff'd, 14 F.3d 85 (1st Cir.1994); see Simmerman v. Hardee's Food Systems, Inc., 1996 WL 131948, *14 (E.D.Pa.1996) (neither criticism, however harsh, nor counseling constitutes adverse employment action under the ADA because both have only intangible and indirect effects on employee's status); Lefevre v. Design Professional Ins. Cos. and Thomas Coppinger, 1994 WL 544430, *1 (N.D.Cal.1994) (harsh criticism of an employee's work does not constitute adverse employment action under Title VII). Indeed the Court views employee criticism, as with employee praise, as a normal incident of the working relationship between supervisors and those in their charge. Employee evaluation, important to both the employee and the employer, should not be hindered because of the important purposes it serves in improving both employee performance, and employer satisfaction. Similarly, courts have held that a letter of reprimand placed in an employee's file, alone, does not qualify as adverse employment action. Coney v. Dept. of Human Resources of State of Ga., 787 F. Supp. 1434, 1442 (M.D.Ga. 1992) ("The court finds that a nonthreatening written reprimand, which is later removed from an employee's personnel file, is not an adverse employment action [under Title VII]."); Rivers, 1990 WL 112429 at *10 ("A letter being placed in a personnel file does not, by itself, constitute an adverse employment action ... [because] [s]uch a claim is far too speculative to constitute an adverse employment action [under Title VII]."). But see Armstrong v. City of Dallas, 829 F. Supp. 875, 880 (N.D.Tex.1992) (letter of reprimand held to be adverse employment action). However, a letter threatening suspension if the employee's conduct is not corrected, has been held to constitute adverse employment action. Rivers, 1990 WL 112429 at 10. The Court turns to the facts of the instant case, as the First Circuit counsels that "[w]ithin reasonable limits, in order to arrive at a determination [as to an adverse employment action], a case by case review is necessary." Welsh, 14 F.3d at 86. In reviewing those facts, the Court finds that no adverse action has been taken on the part of the University against Professor Jessiman as a result of either President Nordstrom's letter of reprimand or the complaints which remain in Jessiman's Equal Employment Opportunity ("EEO") file. Professor Jessiman, by his own admission, continues to enjoy the full benefits of a tenured professor. See Steiner v. Showboat Operating Co., 25 F.3d 1459, 1465 n. 6 (9th Cir.1994) (questioning the existence of "adverse" employment action where employee "was not demoted, or put in a worse job, or given any additional responsibilities"), cert. denied, ___ U.S. ___, 115 S. Ct. 733, 130 L. Ed. 2d 636 (1995); see also Dominic v. Consolidated Edison Co. of New York, Inc., 822 F.2d 1249, 1254-55 (2d Cir. 1987) (employee showed adverse employment decision where he was transferred to area with poor working conditions and deluged with work). Jessiman continues to teach all the classes he himself has chosen, and remains free to pursue outside activities as well. Furthermore Professor Jessiman has not provided evidence to show that the University has threatened him with future adverse action. In sum Professor Jessiman has not established any concrete manner in which his employment at the University has been adversely affected.[7] *283 The Court does not consider mere criticism of an employee to constitute adverse employment action. To the contrary, the critical evaluation of employee performance is often a vital function of any supervisor or responsible administrator. An employer or supervisor must be free, to some extent, to point out an employee's failings, as with his or her successes. The Court considers this appropriate practice in the employment context, and generally within an employer's prerogative. The Court notes that several courts, outside the First Circuit, have construed University action injuring professors' professional reputations as adverse employment actions. Passer v. American Chem. Soc'y, 935 F.2d 322, 331 (D.C.Cir.1991) (cancellation of symposium in honor of plaintiff is an adverse employment action because cancellation humiliated him amongst his peers and made procurement of future employment more difficult); Howze v. Virginia Polytechnic, 901 F. Supp. 1091, 1098 (W.D.Va.1995) (critical report of professor's conduct could constitute adverse employment action as it could hamper her future endeavors). However, those cases are both distinguishable, and the Court finds neither to be persuasive as to the present matter. Most analogous to Jessiman's case is Howze v. Virginia Polytechnic, 901 F. Supp. 1091, 1098 (W.D.Va.1995). In that case, a professor claimed that her employer, Virginia Polytechnic Institute, retaliated against her because of her claims of sexual discrimination. Id. at 1093-94. The professor alleged retaliation on the part of the University in two manners; (1) the denial of the professor's application for tenure, and (2) the issuance of a report critical of the professor. Id. In the case of the report issued, it cited the professor as "using unprofessional methods to pursue her concerns about sex discrimination." Id. Chief Judge Kiser found that this report could constitute adverse employment action because "[i]t is conceivable that the [report's] contents could hinder the plaintiff in obtaining research grants, endowed professorships, publications, and other similar accoutrements of a tenured professor." Id. at 1098. It appears from the facts of the case that this report may have caused significant damage to the professor's reputation. See id. at 1098. Jessiman's situation differs from that in Howze in that he was not criticized by a formal committee, but rather by the University President, and that criticism came by way of a letter to Jessiman, not a committee report. In Jessiman's case neither Nordstrom's reprimand, nor the complaints in Jessiman's EEO file were widely circulated. Furthermore both parties now concede that Nordstrom's letter was ultimately removed from Jessiman's file, and therefore it poses no threat to Jessiman's reputation as would a formal University report.[8] With regard to the student complaints in Jessiman's EEO file, these letters also do not pose any present threat to Jessiman's position at the University, as no action has been taken as a result of the letters. Sheryl Lambson, the University EEO Officer, claims that the letters may later be "used by her in the event subsequent complaints were made against Dr. Jessiman to support an argument that a pattern of this type of behavior existed as to Dr. Jessiman." (Pl.Mot. Sum.J. at 4.) The Court does not foreclose the possibility that Jessiman may have a claim in the future to the extent he is unjustifiably injured due to these complaints. The Court concludes, however, that at present, the University has not taken any adverse employment action cognizable under Title IX. These reports merely sit in a restricted file at the University, and any resulting injury to Jessiman remains too speculative to be actionable. *284 As the Court finds that the University did not engage in adverse employment activity against Jessiman, he cannot establish a prima facie case under Title IX and the Court need not review the causation requirement. The Court grants Defendant's Motion for Summary Judgment. 2. Count III: Professor Nelson The University moves for summary judgment as to Count III, on the grounds that Professor Nelson can neither satisfy the first prong oppositional conduct requirement nor the third prong causation requirement of a Title IX prima facie case of retaliation. a. Oppositional Conduct Defendants claim that Professor Nelson had no reasonable grounds to believe that he opposed conduct in violation of Title IX, and that even if he did believe he was doing so, he never communicated these opinions to anyone involved in the decision to deny him tenure. As to any reports that Nelson did communicate to University officials, such as Dr. Armstrong, then-Vice President of Academic Affairs, the University claims this information was unsubstantiated and mere hearsay, thus undermining any reasonable belief Nelson could legitimately hold as to sexual harassment and discrimination at the University. The University also argues that "Nelson never initiated a sexual harassment complaint on his own behalf, and never initiated a complaint on behalf of any particular individual." (Def.Mot.Sum.J. at 19.) These arguments however misconstrue the requirements under the first prong. To satisfy the first prong of a prima facie case for retaliation, the conduct opposed need not necessarily violate Title IX; rather, the plaintiff need only have a good faith belief that a Title IX violation was occurring. Petitti, 909 F.2d at 33 (1st Cir. 1990) (quoting Jennings v. Tinley Park Community Consol. School Dist., 796 F.2d 962, 967 (7th Cir.1986), cert. denied, 481 U.S. 1017, 107 S. Ct. 1895, 95 L. Ed. 2d 502 (1987)); Love v. RE/MAX of America, 738 F.2d 383, 385 (10th Cir.1984); Muehlhausen v. Bath Iron Works, 811 F. Supp. 15, 18 n. 7 (D.Me. 1993). Thus Nelson need not, at this time, necessarily verify his allegations, or show the causal effect of his action. As noted, a complainant's initial burden of establishing a prima facie case is not onerous. Lipsett, 864 F.2d at 899 (citing Johnson, 731 F.2d at 70). While Nelson's allegations that Dr. Lehman abused his spouse fall outside the scope of Title his claims concerning the student complaints of sexual harassment relate to prohibited activities under Title IX. See Hoeppner, 31 F.3d at 14 (Title VII claim); Morgan v. Massachusetts General Hosp., 901 F.2d 186, 194 (1st Cir.1990) (same). At present, genuine issues of material fact remain as to the extent and veracity of Professor Nelson's opposition to the University's sexual discrimination policies. It is undisputed that at some level Nelson did voice concerns to Dr. Armstrong about the behavior of faculty members pertaining to sexual harassment. The fact that Nelson neither articulated his concerns in writing, nor singled out any particular students victimized by the alleged harassment or discrimination does not dispel the possibility that Nelson held such a good faith belief. Nor do Defendant's challenges to the veracity of Nelson's information, alone, refute the possibility that Nelson could have reasonably believed that University faculty members were in fact violating, or had violated Title IX. Indeed, under the facts presented, a reasonable jury could conclude that Nelson held such beliefs.[9] Aside from Nelson's conversations with Dr. Armstrong, factual issues also remain as to the other means through which Professor Nelson may have communicated his opposition to University practices prohibited under Title IX. Specifically, the extent of Nelson's role in writing the letters signed by Professor Jessiman remains controverted. While the University notes, and Professor Nelson concedes, that these letters were signed only *285 by Jessiman, the possibility exists that a jury could find that Nelson did aid in the writing of these letters, and that University officials were aware of both his support for Jessiman's efforts, and Nelson's opposition to the University's sexual discrimination policies in general. b. Causation The Defendant contests Nelson's third prong causation showing as well. Defendant argues that Professor Nelson's alleged oppositional conduct played no part in the decision to deny his application for tenure. Specifically the University argues that no causal link can be established because: (1) the University officials charged with deciding the fate of Nelson's tenure application were unaware of his opposition to the alleged faculty discrimination; and (2) the time lag between Nelson's oppositional actions and the alleged adverse employment action is too attenuated to support a finding of causation. The Court finds neither argument persuasive. To establish the causation prong, Nelson must show that his protected activity played some role in the adverse action taken against him. Petitti, 909 F.2d at 33 (the third element of the prima facie case is made out where there is a showing that "retaliatory motive play[ed] a part in the adverse employment actions."); Nakai v. Wickes Lumber Co., 906 F. Supp. 698, 705 (D.Me. 1995) (same). Thus Nelson must first establish that the relevant University officials were aware of his oppositional conduct, in order to show that this conduct ultimately played a part in their decision to deny his tenure application. While the University claims that the relevant officials were not aware of Nelson's opposition, Professor Nelson provides sufficient evidence to dispute this assertion. Even to the extent that he did not himself bring this conduct to the attention of the relevant University authorities, the possibility exists that these officials could have become aware of this information through alternate channels. In the absence of direct evidence of causation courts often look to the temporal proximity between the protected activity and the adverse employment action to establish a nexus between the two. Oliver v. Digital Equipment Corp., 846 F.2d 103, 110 (1st Cir.1988) ("A showing of [adverse action] soon after the employee engages in [protected activity] is indirect proof of a causal connection between the [adverse action] and the activity because it is strongly suggestive of retaliation."); Ruffino v. State Street Bank and Trust Co., 908 F. Supp. 1019, 1044, 1046 (D.Mass.1995) (causal connection established where adverse actions escalated sharply during and immediately following employee's complaints); Eldred v. Consolidated Freightways Corp. of Delaware, 898 F. Supp. 928, 940 (D.Mass.1995) (no causal connection where seven years lapsed between plaintiff's protected activity and adverse employment action). The Court notes, contrary to the Defendant's position, that the decision to deny Nelson's tenure application arose within a sufficient proximity to his complaints to support the possibility that a jury could find a causal connection between these actions. In the instant case, Nelson allegedly raised his concerns regarding the discriminatory practices at various times, including during the Spring and Fall of 1992. He was ultimately denied tenure in February of 1993. While Nelson's causation argument may be largely inferential, a reasonable jury could nonetheless conclude that the University retaliated against Nelson as a result of his oppositional conduct. Accordingly, this issue, as with the first prong inquiry, is preserved for the fact finder. The Court denies Defendant's Motion for Summary Judgment as to Count III. III. Conclusion For the above state reasons, the Court (1) GRANTS Defendant's Motion for Summary Judgment as to Count I, and; (2) DENIES Defendant's Motion for Summary Judgment as to Count III. IT IS SO ORDERED. NOTES [1] Title IX does provide for certain exemptions, however, none are applicable here. Id. at § 1681(a)(1)-(9). [2] Plaintiffs, citing Franklin v. Gwinnett County Pub. Schs., 911 F.2d 617, 622 (11th Cir.1990), rev'd on other grounds, 503 U.S. 60, 112 S. Ct. 1028, 117 L. Ed. 2d 208 (1992), note that "countervailing authority suggest that Title VII principles do not apply to Title IX actions." (Pl. Opp.Sum.J., 14.) They nonetheless "maintain that they can satisfy the standards established by Title VII jurisprudence regarding retaliation." Id. While the Supreme Court reserved the question as to whether Title VII standards apply in employment discrimination claims under Title IX, Franklin v. Gwinnett County Pub. Schs., 503 U.S. 60, 65 n. 4, 112 S. Ct. 1028, 1032 n. 4, 117 L. Ed. 2d 208 (1992), the First Circuit, as noted above, has looked to Title VII principles in resolving these claims. Brown, 68 F.3d at 540; Lipsett, 864 F.2d at 896-97. Furthermore the Second Circuit has read the Supreme Court's disposition in Franklin, specifically its citation to Meritor Savings Bank FSB v. Vinson, 477 U.S. 57, 106 S. Ct. 2399, 91 L. Ed. 2d 49 (1986), as supporting the extension of Title VII standards to Title IX claims. Murray, 57 F.3d at 249. [3] In Cohen v. Brown University, the First Circuit rejected the application of Title VII burden shifting standards to the Title IX disparate treatment claim at issue. 991 F.2d at 902. However, the court noted that the burden shifting scheme likely did apply in Title IX employment discrimination cases, such as the one the Court now addresses. [4] Adopting Title VII principles to this Title IX claim, the Court first turns to the burden-shifting rubric employed under Title VII. See e.g., Lipsett, 864 F.2d at 899 (employing Title VII burden shifting scheme to Title IX claim). Under Title VII, and other federal discrimination statutes generally, plaintiffs bear the ultimate burden of proof at all times. Texas Dept. of Community Affairs v. Burdine, 450 U.S. 248, 253, 101 S. Ct. 1089, 1093-94, 67 L. Ed. 2d 207 (1981); Loeb v. Textron, Inc., 600 F.2d 1003, 1011 (1st Cir.1979). Plaintiffs may satisfy this burden by either direct or circumstantial evidence. Udo v. Tomes, 54 F.3d 9, 12 (1st Cir.1995); LeBlanc v. Great American Ins. Co., 6 F.3d 836, 842 (1st Cir.1993), cert. denied, ___ U.S. ___, 114 S. Ct. 1398, 128 L. Ed. 2d 72 (1994). When factual circumstances dictate the use of the latter, as here, the First Circuit employs the framework set forth in McDonnell Douglas. See, e.g., Udo, 54 F.3d at 12; LeBlanc, 6 F.3d at 842. McDonnell Douglas sets forth a three-stage process. 411 U.S. at 802-05, 93 S.Ct. at 1824-26; Goldman v. First Nat'l Bank of Boston, 985 F.2d 1113, 1117 (1st Cir.1993). At the first stage, the burden of proof rests with the plaintiff, who must set forth a prima facie case of discrimination. Id. If successful, then a presumption of discrimination arises in the plaintiff's favor, and the burden of production shifts to the defendant. McDonnell Douglas, 411 U.S. at 802-03, 93 S. Ct. at 1824-25; LeBlanc, 6 F.3d 836, 842. In response the defendant must proffer a legitimate, nondiscriminatory reason for its alleged discriminatory conduct. McDonnell Douglas, 411 U.S. at 802-03, 93 S. Ct. at 1824-25; Udo, 54 F.3d at 12. If defendant does so, the burden shifts back to the plaintiff. LeBlanc, 6 F.3d at 842; Goldman, 985 F.2d at 1117. Then, plaintiff bears the responsibility of refuting the defendant's evidence by showing that defendant's asserted rationale constitutes a pretext for the illegal discrimination. Lawrence v. Northrop Corp., 980 F.2d 66, 69 (1st Cir.1992). [5] The First Circuit has noted that a complainant's initial burden of establishing a prima facie case is "not onerous." Lipsett, 864 F.2d at 899 (citing Johnson v. Allyn & Bacon, Inc., 731 F.2d 64, 70 (1st Cir.), cert. denied, 469 U.S. 1018, 105 S. Ct. 433, 83 L. Ed. 2d 359 (1984)). [6] The Court notes that prevailing caselaw supports an expansive construction of adverse employment action. Courts have found, for example, that even lateral transfers, without a reduction in pay or benefits can constitute adverse employment action if the employer relocates an employee to an undesirable location in an office, Trout v. Hidalgo, 517 F. Supp. 873, 890 n. 67 (D.D.C.1981), aff'd in part and rev'd in part sub nom., Trout v. Lehman, 702 F.2d 1094 (D.C.Cir.1983), vacated on other grounds, 465 U.S. 1056, 104 S. Ct. 1404, 79 L. Ed. 2d 732 (1984), or to an isolated corner of the workplace, Harris v. Richards Mfg Co. Inc., 511 F. Supp. 1193, 1203 (W.D.Tenn.1981), aff'd in part and rev'd in part, 675 F.2d 811 (6th Cir.1982). Additionally the Seventh Circuit, relying on the broad language of Title VII, has held that adverse employment action is not limited to actions relating to strictly monetary concerns. Collins v. State of Ill., 830 F.2d 692, 703 (7th Cir.1987) (citing cases). [7] Plaintiff also cites Saunders v. Southland Corp., 779 F. Supp. 1009 (E.D.Mo.1991), for the proposition that an adverse employee evaluation constitutes an adverse employment action. Saunders involved numerous "adverse evaluations," which the court refers to as "unsatisfactory performance ratings," id. at 1015, and at least some of those ratings were part of a formal rating system employed by the company. Id. at 1012. The Courts finds these facts distinguishable from those at bar, given that Nordstrom's letter to Jessiman was less formal, and consequently less damaging. [8] Passer v. American Chem. Soc'y, 935 F.2d 322 (D.C.Cir.1991) is also easily distinguished given the level of publicity surrounding the cancellation of "a major public symposium in employee's honor," and the more concrete injury suffered by the plaintiff as a result. Id. at 331. [9] The University, itself, concedes that Nelson presents a "few instances which could arguably qualify as protected activity." (Def.Mot.Sum.J. at 19.) The Court need not go beyond this showing to establish that genuine issues of material fact remain as to this prong of Nelson's prima facie case for retaliation.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1967177/

748 F. Supp. 700 (1990) Dixie L. BAEDKE, Individually; et al., Plaintiffs, v. JOHN MORRELL & CO., a Corporation, Defendant/Third-Party Plaintiff, v. PEARSON SERVICES, INC., Third-Party Defendant. No. C88-3114. United States District Court, N.D. Iowa, C.D. October 4, 1990. *701 Neven J. Mulholland, Thomas J. Bice, Fort Dodge, Iowa, for plaintiffs. James P. Craig, Larry G. Gutz, Cedar Rapids, Iowa, for defendant/third-party plaintiff. Dan T. McGrevey, Fort Dodge, Iowa, John B. Grier, Marshalltown, Iowa, for Pearson Services, Inc. ORDER HANSEN, District Judge. This matter is before the court on defendant John Morrell & Co.'s resisted motion for partial summary judgment, filed March 2, 1990. The motion asks that this court determine whether Iowa or South Dakota law applies to various issues presented in this matter. Facts The facts of this matter are as follows. The parties do not dispute the facts necessary for the resolution of defendant's motion. Defendant John Morrell is a Delaware corporation with its principal place of business in Ohio. John Morrell does business and operates plants in both Iowa and South Dakota, including the John Morrell meat packing plant in Sioux Falls, South Dakota. Plaintiffs and their decedent, Douglas Baedke, are all residents of Iowa. Third-party defendant Pearson Services, Inc. (Pearson) is an Iowa corporation. Plaintiffs' complaint alleges that in the spring of 1988, defendant hired Pearson to clean out the sewage lines at the Sioux Falls plant. Douglas Baedke was the Pearson employee assigned this job. On April 5, 1988, Mr. Baedke entered the sewage lines in order to clean the lines with a high pressure water hose. Defendant provided Mr. Baedke with a self-contained breathing apparatus. The apparatus failed, and Mr. Baedke was overcome by toxic gases. Mr. Baedke subsequently died as a result of his injuries. Count I of plaintiffs' complaint alleges negligence and gross negligence on the part of defendant and asks for damages for Mr. Baedke's injuries. Count II seeks damages for loss of consortium on behalf of Mr. Baedke's wife, Dixie Baedke. Count III seeks damages for loss of consortium on behalf of Mr. Baedke's minor children, Brandon Baedke, Brian Baedke, and Danielle Baedke. Motion for Partial Summary Judgment Defendant's motion for partial summary judgment asks that this court resolve the question of whether Iowa or South Dakota law applies to several issues presented in this matter. The specific issues involved are: (1) the law governing loss of consortium; (2) the law governing contributory negligence/comparative fault and assumption of risk; and (3) the applicable Wrongful *702 Death Act. The parties argue that there are significant differences in each of these areas between the law of Iowa and the law of South Dakota. Defendant argues that South Dakota law applies to each of these issues. Plaintiffs argue that Iowa law applies to each. No party contends that defendant's motion is an inappropriate vehicle for resolving these issues. This decision by the court is limited to the issues defined by the parties. Additionally, the parties are advised that this ruling is an interlocutory ruling which is subject to change, particularly if the facts as assumed by the parties and this court are not borne out at trial. A motion for summary judgment may be granted only if, after examining all of the evidence in the light most favorable to the nonmoving party, the court finds that no genuine issues of material fact exist and that the moving party is entitled to judgment as a matter of law. Kegel v. Runnels, 793 F.2d 924, 926 (8th Cir.1986). The court must give the nonmoving party the benefit of all reasonable inferences to be drawn from the evidence. Krause v. Perryman, 827 F.2d 346, 350 (8th Cir.1987). This court must apply the conflicts of laws rules of the forum state, Iowa, in order to determine whether Iowa or South Dakota law governs. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496-97, 61 S. Ct. 1020, 1021-22, 85 L. Ed. 1477 (1941); Freeze v. American Home Prod. Corp., 839 F.2d 415, 417 (8th Cir.1988). In Fuerste v. Bemis, 156 N.W.2d 831 (Iowa 1968), the Supreme Court of Iowa explicitly adopted the "most significant relationship" test of the Restatement (Second) of Conflicts of Laws (1971).[1]See also Berghammer v. Smith, 185 N.W.2d 226, 231 (Iowa 1971); Fabricius v. Horgen, 257 Iowa 268, 132 N.W.2d 410 (1965). The general principle of this test is that "[t]he rights and liabilities of the parties with respect to an issue in tort are determined by the local law of the state which, with respect to that issue, has the most significant relationship to the occurrence and the parties under the principles stated in § 6." Restatement (Second) of Conflicts of Laws § 145(1) (1971) (hereinafter "Restatement"). Contacts which are considered include the place where the injury and the conduct causing the injury occurred, the residence and place of business of the parties, and the place where the relationship between the parties is centered. Restatement § 145(2). [T]he factors relevant to the choice of the applicable rule of law include (a) the needs of the interstate and international systems, (b) the relevant policies of the forum, (c) the relevant policies of other interested states and the relative interests of those states in the determination of the particular issue, (d) the protection of justified expectations, (e) the basic policies underlying the particular field of law, (f) certainty, predictability and uniformity of results, and (g) ease in the determination and application of the law to be applied. Restatement § 6. The Supreme Court of Iowa has not directly spoken on the issues involved in this matter. In a diversity action, the court "must do [its] best to determine what state law is under the state decisions.... [The court] must judicially `estimate' what the Iowa Supreme Court would do if confronted with the same issue." Heeney v. Miner, 421 F.2d 434, 439 (8th Cir.1970).[2] Consortium Under South Dakota law, a consortium claim is derivative of the main cause of action, and thus the noninjured spouse or minor child's consortium claim may be reduced or barred by the negligence of the injured spouse or parent. *703 Barger for Wares v. Cox, 372 N.W.2d 161, 165 (S.D.1985); Bitsos v. Red Owl Stores, Inc., 350 F. Supp. 850, 852 (D.S.D.1972). The underlying policy of this rule is that allowing a spouse to recover, and enrich the family treasury, when the injured spouse's claim is barred due to his or her own negligence, impermissibly allows the injured spouse to profit by his or her own negligence. See Ross v. Cuthbert, 239 Or. 429, 397 P.2d 529, 531-32 (1964) (en banc). Under Iowa law, a consortium claim is not derivative, and the negligence of the injured spouse or parent does not reduce or bar recovery by the noninjured spouse or child under a consortium claim. Schwennen v. Abell, 430 N.W.2d 98, 101-02 (Iowa 1988); Fuller v. Buhrow, 292 N.W.2d 672, 674-76 (Iowa 1980); Handeland v. Brown, 216 N.W.2d 574 (Iowa 1974). The policy underlying this rule is that denying a claim because of the injured spouse's negligence requires the noninjured spouse, who is free from negligence, to bear the burden of damages caused by the negligence of others and permits a negligent tortfeasor to completely escape liability due to the negligence of a third person. Fuller, 292 N.W.2d at 676. See also Schwennen, 430 N.W.2d at 101. The Supreme Court of Iowa has explicitly rejected the policy expressed in Ross. Fuller, 292 N.W.2d at 676; Handeland, 216 N.W.2d at 578. In Berghammer, the Supreme Court of Iowa stated the general rule that the law of the marital domicile, as the state with the most significant relationship to the issue, should govern a claim of consortium. Berghammer, 185 N.W.2d at 231-233. See also Brookley v. Ranson, 376 F. Supp. 195, 198 (N.D.Iowa 1974) (citing Berghammer). See generally Annotation, Conflict of Laws as to Right of Action for Loss of Consortium, 46 A.L.R. 3d 880 (1972). Defendant quotes the above cited Annotation as follows: Whether or not courts which apply the most significant contact theory will apply the law of the place where the injury occurred appears to depend upon whether the place of occurrence was a mere fortuity. It appears that a court using this approach will apply the law of the marital domicil instead of the law of the place of the wrong, unless the latter jurisdiction has some further significant connection with the facts being litigated, so that where the forum state's only connection with a cause of action for loss of consortium was the fact that the automobile accident which resulted in the injury occurred there, it was held that the law of the marital domicil would control the availability of the action. [citing Berghammer].... A closer question is presented where the place of occurrence is more than a mere fortuity, and, indeed, it has been held that where the spouse was injured while a business invitee on defendant's property, the jurisdiction of the place of the injury had a more significant contact with the case than did the law of the place of marital domicil. [citing Casey v. Manson Constr. & Eng'g Co., 247 Or. 274, 428 P.2d 898 (1967) (en banc)]. Defendant's brief, filed April 2, 1990, at 15 (quoting Annotation, Conflict of Laws as to Right of Action for Loss of Consortium, 46 A.L.R.3d at 883). Berghammer involved an Iowa lawsuit by a Minnesota plaintiff against an Illinois defendant arising from an automobile accident occurring in Iowa. Berghammer, 185 N.W.2d at 231. "In Berghammer, [the Supreme Court of Iowa] declined to apply [Iowa] substantive law on the issue of consortium because [the court] recognized that Iowa had limited interest in a case in which neither party was a resident." Cameron v. Hardisty, 407 N.W.2d 595, 597 (Iowa 1987). This court has found no case in which the Supreme Court of Iowa has faced a factual scenario similar to the facts presented in this matter. Casey v. Manson Construction and Engineering Co., 247 Or. 274, 428 P.2d 898 (1967) (en banc), involved facts similar to the facts of this case. In Casey, plaintiff and her husband were citizens of Oregon. Defendants were Washington corporations licensed to conduct business in Oregon. The injury occurred at a dam construction *704 project in Washington. Plaintiff's spouse was a business invitee on defendants' construction site. Plaintiff sued defendants for the loss of her husband's consortium. Oregon law provided for a cause of action for consortium. Washington law did not. Id. 428 P.2d at 899. The only difference between the facts of Casey and this matter is that defendant John Morrell is not incorporated in South Dakota, like the defendants in Casey were incorporated in Washington. However, John Morrell does conduct a substantial amount of business in South Dakota. The court does not find this distinction to be dispositive. Section 145 allows consideration of the "place of business" of the parties. The court does not construe this language to be solely limited to defendant's principal place of business. The remaining facts of Casey are quite similar to the facts of this matter. The Casey court discussed Oregon's old "lex loci delicti" rule and determined that that rule should be abandoned in favor of the "most significant relationship" test of the Restatement. Casey, 428 P.2d at 904-05. The court first noted that, since plaintiff's spouse was a business invitee, the place of the injury was not "fortuitous." Id. at 905. So it is in this case, where plaintiffs' decedent was a business invitee of defendant, and thus his presence at defendant's South Dakota plant was more than fortuitous. In discussing the fact that the defendants also did business in Oregon, the court noted that the defendants' activities in Oregon were not related to the subject matter of the lawsuit. Id. The same can be said of defendant's activities in Iowa in this case. In discussing the relevant policies of Oregon and Washington, the court first stated that the Oregon legislature had abandoned the anachronistic rule of prohibiting recovery for loss of consortium and adopted the policy that a spouse's loss of consortium should not go uncompensated. Id. at 905-06. With regard to Washington's interest, the court stated, "Washington, of course, has no concern with whether an Oregon wife recovers for loss of consortium in an Oregon court, but Washington has a legitimate concern in whether she recovers against Washington residents when the wrong giving rise to the action occurs in Washington." Id. at 906. Further, "Washington has a legitimate concern with whether her residents engaged in [activities there] should be disappointed in their reasonable expectation that the extent of their liability for negligent conduct in Washington be governed by the law of that state, regardless of the domicile of an injured plaintiff." Id. See also id. at 908 (Holman, J. concurring).[3] One of the considerations set forth in § 6 of the Restatement is "the protection of justified expectations." Restatement, § 6(d). Casey held that Washington had the most significant relationship to the issue and that, therefore, Washington law should govern. Id. at 907. Thus, no consortium claim was allowed. This court must determine whether the Supreme Court of Iowa would follow the reasoning of Casey. In Berghammer, the Supreme Court of Iowa cited to Casey, stating that "Oregon, too, has employed the rule ["that matters which depend on the marital relationship for their solution should [generally] be decided by the law of the husband-wife domicile"] in a consortium case, although denying recovery under the particular facts of the case because the place of marital domicile was held not the state of most significant relationship." Berghammer, 185 N.W.2d at 232. The Berghammer court did not specifically approve or disapprove of Casey. This court finds Casey persuasive and believes that the Supreme Court of Iowa would adopt *705 the reasoning and result of Casey. In discussing the lack of Iowa's contacts in Berghammer, the court stated that "[n]o party is an Iowa resident." Berghammer, 185 N.W.2d at 231. The sole connection of the parties in Berghammer to Iowa was the fact that their automobiles happened to collide within Iowa's borders. In this matter, defendant does a substantial amount of business in South Dakota, and this action directly arises out of defendant's South Dakota business activities. South Dakota's contacts with this action are much more substantial than Iowa's contacts in Berghammer. The Supreme Court of Iowa's decision in Cameron suggests that a state has an interest when one of the parties resides in that state. See Cameron, 407 N.W.2d at 597. Berghammer and Cameron suggests that the Supreme Court of Iowa, given the greater interests of South Dakota in this action versus the interests of Iowa in Berghammer, would adopt the analysis of Casey. The court finds that South Dakota law should govern the issue of consortium. Negligence/Fault The two specific issues involved in this area are the doctrines of comparative fault/contributory negligence and assumption of risk. Under Iowa law, comparative fault is governed by Iowa Code Chapter 668. Generally, a plaintiff's fault will not bar his recovery unless he "bears a greater percentage of fault than the combined percentage of fault attributed to the defendants' third-party defendants and persons who have been released." Iowa Code § 668.3(1) (1987). South Dakota law provides: In all actions brought to recover damages for injuries to a person or to his property caused by the negligence of another, the fact that the plaintiff may have been guilty of contributory negligence shall not bar a recovery when the contributory negligence of the plaintiff was slight in comparison with the negligence of the defendant, but in such case, the damages shall be reduced in proportion to the amount of plaintiff's contributory negligence. S.D. Codified Laws Ann. § 20-9-2 (1989). See also Lovell v. Oahe Elec. Co-op., 382 N.W.2d 396, 399 (S.D.1986); Urban v. Wait's Supermarket, Inc., 294 N.W.2d 793, 796 (S.D.1980). The second distinction is that under Iowa law, "assumption of risk" is considered a part of "fault." Iowa Code § 668.1(1). Under South Dakota law, "assumption of risk" is a defense separate and apart from contributory negligence. See Ballard v. Happy Jack's Supper Club, 425 N.W.2d 385, 389 (S.D.1988). Section 164 of the Restatement provides that the law selected by the application of § 145 "determines whether contributory fault on the part of the plaintiff precludes his recovery in whole or in part." Section 165 of the Restatement provides that the law selected by § 145 "determines whether assumption of risk on the part of the plaintiff precludes his recovery." Both sections create the presumption that "[t]he applicable law will usually be the local law of the state where the injury occurred." Restatement §§ 164(2), 165(2). The parties' briefs do not discuss § 164 or § 165 and the presumption created in those sections that the law of South Dakota, as the place where the injury occurred, would apply to these issues. The parties dispute whether or not contributory negligence/comparative fault and assumption of risk are rules of conduct or rules of recovery. Plaintiffs assert that these rules are rules of recovery. "Doug Baedke did expect to be governed by the laws of South Dakota with respect to whether or not his conduct constituted negligence.... This case, on the other hand, involves the issue of which rule of recovery, Iowa's comparative fault or South Dakota's contributory fault, should be applied to determine what is the effect of the parties' negligence." Plaintiffs' brief in support of resistance, filed April 16, 1990, at 4. Plaintiffs rely on Sabell v. Pacific Intermountain Express Co., 36 Colo. App. 60, 536 P.2d 1160 (1975), for their rule of recovery/rule of conduct distinction. The Sabell court stated that "`rules of conduct' are more closely related to the state where the conduct occurs while *706 `rules of recovery' relate more clearly to the state with which a party is identified." Sabell, 36 Colo. App. 60, 536 P.2d at 1166. Sabell involved an Iowa automobile accident between residents of Colorado.[4] The court held that in comparative negligence controversies, the specific approach to applying the choice of law rule of § 145 should be that the domicile, residence, nationality, place of incorporation and the place of business of the parties, and the place where the relationship, if any, between the parties is centered, are to be weighed more heavily and are to be given more importance in such a choice of law determination, than the contacts of the place where the injury occurred, and the place where the conduct causing the injury occurred. Sabell, 536 P.2d at 1166. The court outlined the policies of Iowa and Colorado as follows. First, Colorado had an interest in avoiding the application of the harsh Iowa rule of contributory negligence to its citizens.[5]Sabell, 536 P.2d at 1166. Iowa has a similar interest here, in that the application of the South Dakota rule to plaintiffs leads to a greater likelihood that their recovery will be completely barred. Second, Colorado, as the forum state, had an interest in applying its laws and policies to those who seek relief in its courts. Id. This court does not place great weight on this interest, as it is the plaintiff who chose the Iowa forum — a choice over which defendant had no control. While the forum is a factor which is considered, this court believes that choice of law should not depend on plaintiff's choice of forum. The court also notes that § 145 of the Restatement does not list the "forum" as a contact to be considered, although § 6 does allow consideration of "the relevant policies of the forum." Restatement § 6(2)(b). Third, the only contact Iowa had with the accident in Sabell is that it occurred in Iowa. Id. Thus, Iowa's role as the place of injury was merely "fortuitous." No party in Sabell had any relationship to Iowa. South Dakota's contact with this case is more substantial. Here, plaintiff was specifically hired to perform a service in South Dakota, and, consequently, the fact that the accident occurred in South Dakota is more than "fortuitous." The Sabell court found that Colorado had the "most significant relationship" to the issue of contributory negligence and that Colorado law should apply, because "(1) Plaintiff was domiciled and resided in Colorado; (2) plaintiff's vehicle was registered in Colorado and was operated from a Denver headquarters; (3) the defendants are both residents of and authorized to do business in Colorado; and (4) the defendants were served in Colorado and the case was filed in the district court of Colorado." Sabell, 536 P.2d at 1166. The overriding factor in Sabell is that all the parties were Colorado residents, and none were Iowa residents. Such is not the case here. The court finds that Sabell is distinguishable and further finds Sabell to be unpersuasive. Defendant and the Restatement view contributory negligence/comparative fault as a rule of conduct. See Restatement § 164, comment (b) ("In the great majority of cases, the plaintiff's conduct, which is claimed to constitute contributory fault, will have taken place in the state where he suffered injury. If so, the local law of this state will usually be applied to determine whether the plaintiff's conduct amounted to contributory fault, and if so, whether the effect of this fault is to preclude recovery by the plaintiff in whole or in part."); Restatement § 165, comment (a) (similar language). The parties both agree that the law of South Dakota should apply to determine whether or not plaintiff's conduct was negligent. The Iowa courts have not explicitly adopted or rejected this rule of recovery/rule of conduct dichotomy. Nor *707 have the Iowa courts explicitly adopted or rejected §§ 164 and 165 of the Restatement. Because the Supreme Court of Iowa generally adopts the positions taken by the Restatement, this court believes that the Supreme Court of Iowa would adopt the presumption of §§ 164 and 165 that the place of the injury generally controls, subject to a finding that another state has the most significant relationship to the issue after applying the principles of § 145 and § 6. The court must first examine the contacts as outlined in § 145 of the Restatement. The place where the injury occurred and the place where the conduct causing the injury occurred are indisputably South Dakota. The plaintiffs and their decedent are Iowa citizens. Defendant is incorporated in Delaware, has its principal place of business in Ohio, and has plants and does business in both Iowa and South Dakota. The relationship between the parties is centered around a contract, apparently executed in Iowa, for services which were to be performed in South Dakota. The court finds that the center of the relationship is South Dakota, the place where the services were performed. Cf. Restatement § 196 (validity of contract for rendition of services governed by law of state where services are to be performed, unless some other state has a more significant relationship to the issue). Plaintiffs' primary argument is that their status as Iowa residents, and the fact that decedent was an Iowa resident, is sufficient to find that Iowa has the most significant relationship to the issues of contributory negligence/comparative fault and assumption of risk because Iowa has the paramount interest in seeing that its residents recover for their injuries. The defendant does not dispute that Iowa has an interest in the recovery of its residents for injuries inflicted upon them. The most significant relationship test "gives to the place having the most interest in the problem paramount control over the legal issues arising out of a particular factual context and thereby allows the forum to apply the policy of the jurisdiction most intimately concerned with the outcome of particular litigation." Fuerste, 156 N.W.2d at 833. In reviewing the factors of § 6 of the Restatement, the court finds that the following considerations are the most relevant. (b) the relevant policies of the forum, (c) the relevant policies of other interested states and the relative interests of those states in the determination of the particular issue, (d) the protection of justified expectations, .... (e) the basic policies underlying the particular field of law Restatement, § 6. The basic policies underlying contributory negligence/comparative fault are first, defining the quantum of fault on the part of plaintiff which will preclude recovery, and, second, reducing a plaintiff's recovery for any negligence on his or her part which is less than the quantum which completely precludes recovery. The policies underlying assumption of risk are similar. The policy of Iowa, the forum state, is to allow a negligent plaintiff recovery up to the point where his or her percentage of fault exceeds the fault of the others involved. See Iowa Code § 668.3(1). The policy of South Dakota, the other potentially interested state, is to preclude recovery if the plaintiff's fault is more than "slight." See S.D.Codified Laws Ann. § 20-9-2. The legislatures of each state have drawn the line at a different place. Iowa has an interest in allowing its citizen plaintiffs to recover for their injuries. South Dakota has a strong interest in regulating conduct within its borders and an interest in the consequences of negligent conduct within its border. The parties do not dispute that South Dakota law should be applied to determine whether or not plaintiffs' decedent was at fault, i.e., whether Mr. Baedke was negligent. South Dakota's contributory negligence policy has the effect of discouraging negligent conduct by potential plaintiffs by informing plaintiffs that if their negligence is more *708 than slight, the consequence is that their recovery will be barred. Plaintiffs argue that Iowa's comparative negligence is the "sounder rule of law." Plaintiffs cite to Fuerste, 156 N.W.2d at 834, for the proposition that when important interests of two states are involved and when other considerations are in equipoise, a court can apply the "sounder rule of law." Plaintiffs' brief, at 7. In such a case, the court could "`select the law that most adequately does justice to the parties and has the greatest likelihood of being applicable with justice in the future.'" Fuerste, 156 N.W.2d at 834 (quoting Heath v. Zellmer, 35 Wis. 2d 578, 151 N.W.2d 664, 673 (1967)). However, in this case the interests of the two states are not in equipoise. For the above reasons and for many of the reasons expressed in this court's discussion of the consortium issue, the court finds that in the areas of contributory negligence/comparative fault and assumption of risk, under the facts of this case, South Dakota is the state with the most significant relationship to these issues. Consequently, the court finds that South Dakota law should be applied to these issues. Wrongful Death Acts This action was originally filed on behalf of Douglas Baedke by Dixie Baedke, his guardian and conservator, and sought damages for Mr. Baedke's injuries in addition to the consortium claims of Mr. Baedke's wife and children. On May 23, 1989, an amended complaint was filed due to the death of Mr. Baedke. The amended complaint converted Count I of the original complaint into an action for wrongful death and continues Mr. Baedke's claims, as presented by Mrs. Baedke as Administrator of his estate, which were originally presented. Iowa Code § 611.20,[6] Iowa's wrongful death statute, "is a survival statute; it does not create a new cause of action for the deceased's estate, but rather allows the estate to assert a cause of action which the decedent would have had, had he or she survived." Shook v. Crabb, 281 N.W.2d 616, 617-18 (Iowa 1979). Under South Dakota law, [a]ll causes of action shall survive and be brought, notwithstanding the death of the person entitled or liable to the same. Any such action may be brought by or against the executor or administrator or successors in interest of the deceased. S.D.Codified Laws Ann. § 15-4-1 (1988). The court notes that the first sentence of this section is essentially identical to Iowa Code § 611.20. Whenever the death or injury of a person ... shall be caused by a wrongful act, neglect, or default, and the act, neglect, or default is such as would have entitled the party injured to maintain an action and recover damages in respect thereto, if death had not ensued, then and in every such case, the corporation which, ... would have been liable, if death had not ensued, ... shall be liable, to an action for damages, notwithstanding the death of the person injured ... S.D.Codified Laws Ann. § 21-5-1 (1988). The court has read the parties' briefs on this issue. The court is unable to perceive any significant difference between Iowa and South Dakota law on this issue. Consequently, the court will decline to further address this issue at this time and will await further argument from the parties regarding their perceived difference between Iowa and South Dakota law. As trial in this matter is currently set for November 6, 1990, the court will not call for further briefing on this issue prior to trial, unless the parties desire to do so, but will allow the parties an opportunity to further address this issue either immediately prior to or during trial. ORDER: Accordingly, It Is Ordered: *709 Defendant's motion for partial summary judgment, filed March 2, 1990, is granted in part and denied in part. In accordance with the discussion in the text above, the court finds that the law of South Dakota should govern the issues of consortium and contributory negligence in this action. The court declines to address at this time which state's law regarding wrongful death should apply. The parties will be allowed, either prior to trial or during trial, an opportunity to further address this latter issue. The parties may, if they so choose, file briefs on this issue prior to trial. Done and Ordered. NOTES [1] At the time Fuerste was decided, the Restatement (Second) was in draft form. [2] The court has also considered whether or not to certify this matter to the Supreme Court of Iowa for resolution. See Iowa Code § 684A.2; Local Rule 23. However, the court is convinced that its analysis yields the same result as would be arrived at by the Supreme Court of Iowa. [3] If Washington law is not applied, "Washington citizens carrying on activities in Washington would have to lift their financial protection to an unaccustomed level and one which would be dependent upon the locality from which the injured party might come. Theoretically, citizens of Washington could be subjected to 49 different levels of responsibility for acts done within their state of residence, and this seems to me highly undesirable. It seems more reasonable that under the present circumstances `by entering the state or nation, the visitor has exposed himself to the risks of the territory and should not expect to subject persons living there to a financial hazard that their law had not created.'" Casey, 428 P.2d at 908 (Holman, J. concurring) (quoting Cavers, The Choice-of-Law Process, (1965), at 147). [4] The Sabell court does not discuss the citizenship of the parties. The court only noted that plaintiff, an individual, was a resident of Colorado and that defendants, corporations, were "resident and authorized to do business in Colorado." Sabell, 536 P.2d at 1162. [5] This rule has subsequently been abrogated. See Goetzman v. Wichern, 327 N.W.2d 742 (Iowa 1982); Iowa Code Chapter 668. [6] "All causes of action shall survive and may be brought notwithstanding the death of the person entitled or liable to the same." Iowa Code § 611.20. See also Iowa Code § 611.22 (regarding substitution of legal representative of the deceased).

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1960834/

881 F. Supp. 414 (1995) Connie Jo BRIGGS, Michael Brown, Jr., Michael John Carnes, and Robert Patton, Plaintiffs, v. William MARSHALL, Howard Rutherford, and Town of French Lick, Defendants. No. NA 90-63 C. United States District Court, S.D. Indiana, New Albany Division. February 23, 1995. *415 Michael K. Sutherlin, Indianapolis, IN, John H. Shean, Bloomington, IN, for plaintiffs. Van T. Willis, New Albany, IN, Arthur Dillard, Paoli, IN, Jay D. Allen, Allen Allen & Allen, Salem, IN, for defendants. ENTRY BARKER, Chief Judge. This matter is before the Court on the following post-trial motions: Plaintiffs' motion for a new trial; Plaintiffs' motion to determine their status as a prevailing party; and Plaintiff's petition for attorneys' fees. I. FACTUAL BACKGROUND Plaintiffs filed this suit under 42 U.S.C. § 1983 against inter alia the Town of French Lick ("the Town") and two French Lick police officers on May 15, 1990. The six-count complaint centered on two incidents that occurred in French Lick on May 17, 1988. The first incident happened after the French Lick Police Department (the Department) was informed that vandals had broken into a change machine at the French Lick Springs Hotel. Acting on a description provided by hotel security guards, officer William Marshall allegedly stopped plaintiffs Michael Brown, John Carnes and Robert Patton without probable cause and used excessive force to attempt a false arrest. Plaintiffs also claimed that Officer Howard Rutherford was present, but failed to intervene and stop the alleged use of excessive force. The second incident occurred later that same day when, according to Plaintiffs, Officer Marshall falsely arrested plaintiff Connie Jo Briggs, the mother of John Carnes, and used greater force than was necessary to arrest her. On October 11, 1994, the Court commenced a jury trial, which concluded on October 14. At the conclusion of the evidence, the Defendants moved for a judgment as a matter of law on behalf of the Town and Defendant Rutherford. We granted the motion as to the Town and the case went to the jury on the theories of false arrest, excessive force and failure to intervene. After deliberating for several hours, the jury rendered a verdict *416 in favor of Officers Rutherford and Marshall with respect to the false arrest and failure to intervene claims. However, the jury found that Officer Marshall had used unreasonable force on all four plaintiffs and awarded nominal damages of $1.00 to each. On October 24, 1994, Plaintiffs filed the instant motions, seeking a new trial pursuant to Federal Rule of Civil Procedure 59 and attorneys' fees pursuant to 42 U.S.C. § 1988. We consider each motion in turn. II. MOTION FOR A NEW TRIAL Plaintiffs seek relief from the jury's October 14, 1994, verdict under Rule 59(a). Specifically, they object to the jury verdict awarding $1.00 in nominal damages as inconsistent with the finding that Marshall used excessive force. According to Plaintiffs, the jury impermissibly disregarded the uncontested evidence of actual damages resulting from Marshall's violation of their rights, thus requiring a new trial on the damages issue. We disagree. Whether to grant a new trial is within the discretion of the district court. Olsen v. Ohmeda, 863 F. Supp. 870, 878 (E.D.Wis.1994). We will grant a new trial if the jury's verdict is against the clear weight of the evidence. Thomas v. United States, 41 F.3d 1109, 1120 (7th Cir.1994); Jackson v. Bunge Corp., 40 F.3d 239, 244 (7th Cir.1994). We will not set aside the jury's verdict, however, if there is a reasonable basis in the record which supports it. Thomas, 41 F.3d at 1120. Our review of the caselaw reveals at least three situations where courts may award nominal damages consistent with a finding of an underlying constitutional violation. The first occurs in cases where a jury reasonably concludes that the plaintiffs' evidence concerning their injuries was not credible. For example, in Butler v. Dowd, 979 F.2d 661 (8th Cir.1992) (En Banc), the court considered whether the award of nominal damages to several plaintiffs who had been homosexually raped by other inmates in violation of the Eighth Amendment was inadequate as a matter of law. In affirming the award, the court noted that "plaintiffs failed to produce at trial objective medical evidence supporting their physical injuries or detailing the extent of their emotional injuries." Id. at 669.[1] As a result, the "jury could have disbelieved the plaintiffs' testimony regarding the extent of their injuries" and lawfully awarded nominal damages. Id. at 672. Second, courts have approved nominal damages in cases where plaintiffs have suffered apparently quantifiable harm, but the cause in fact of the harm was not the defendant's unconstitutional conduct. For example, in Carey v. Piphus, 435 U.S. 247, 98 S. Ct. 1042, 55 L. Ed. 2d 252 (1978), the Supreme Court held that public school students who were suspended without procedural due process were entitled to recover only nominal damages if they would have been suspended even had they received the requisite constitutional hearing. Accord Carter v. Burch, 34 F.3d 257, 264 (4th Cir.1994); Butler, 979 F.2d at 669-71 (if jury "could have concluded that many of the plaintiffs' injuries would have occurred even if the defendant's conduct had met constitutional standards," then award of nominal damages is justified); Smith v. City of Chicago, 913 F.2d 469, 472-74 (7th Cir.1990) ("In order to recover more than nominal damages, [Plaintiff] must demonstrate that" he would not have been injured in the absence of the unconstitutional conduct). Third and finally, juries may lawfully award nominal damages when they are unable to place a monetary value on the harm that the plaintiffs suffered. In other words, *417 a jury may award nominal damages if it finds that the plaintiff's "injuries have no monetary value or are insufficient to justify with reasonable certainty a more substantial measure of damages." Howard v. Barnett, 21 F.3d 868, 873 (8th Cir.1994); see also Domegan v. Ponte, 972 F.2d 401, 407 n. 10 (1st Cir.1992); Cowans v. Wyrick, 862 F.2d 697, 700 (8th Cir.1988); cf. Carey 435 U.S. at 266-67, 98 S. Ct. at 1054 (due process violation entitled to nominal damages where no proof of actual injury); Memphis Community School Dist. v. Stachura, 477 U.S. 299, 309-310, 106 S. Ct. 2537, 2544, 91 L. Ed. 2d 249 (1986) (there is "no room for noncompensatory damages measured by the jury's perception of the abstract `importance' of a constitutional right"). In this case, the record supports the jury's nominal damages award under any of these three theories. First, the jury could have reasonably concluded that the plaintiffs' evidence concerning their injuries was not credible. Indeed, nearly all the evidence regarding damages consisted of the Plaintiffs' own testimony. None of the Plaintiffs provided medical testimony regarding the extent of their physical injuries.[2] Objective medical proof of the plaintiffs' pain and suffering was similarly lacking. As a result, the issue of damages depended upon the credibility of the Plaintiffs, and there is evidence in the record from which the jury could have disbelieved the extent of their physical and emotional injuries.[3] The jury also could have concluded that many of the scratches and bruises suffered by the Plaintiffs would have occurred even if Officer Marshall's conduct had met constitutional standards. For example, at the time of the first incident plaintiffs Brown, Carnes and Patton each had prior criminal records, as well as reputations for resisting arrest and attempting to flee from police officers. There was also testimony that Carnes made a movement that Officer Marshall interpreted as an attempt to flee. In light of these surrounding circumstances, the jury could have concluded that much of the force Officer Marshall brought to bear was constitutionally permissible. In other words, the jury could "have found the defendant's unconstitutional actions were not the cause in fact of many of the plaintiffs' injuries and still have returned a verdict for plaintiffs." Butler, 979 F.2d at 670 (emphasis added). Finally, the jury could have permissibly awarded nominal damages simply because they were unable to place a monetary value on the harm that the Plaintiffs suffered. The evidence suggests, for example, that Officer Marshall employed low-level force — such as slapping, shoving and pulling hair — that caused mostly minor physical injuries. Indeed, the Court accepted into evidence photographs of the injuries suffered by Carnes and Brown that revealed only a few faint bruises with little surrounding redness. See Plaintiff's Ex. Nos. 11, 13-15. In light of the meager evidence presented on damages, the jury could have rationally concluded that those injuries were simply "insufficient to justify with reasonable certainty a more substantial *418 measure of damages." Howard, 21 F.3d at 873.[4] According to Plaintiffs, a new trial on damages is required by Stachniak v. Hayes, 989 F.2d 914, 923-24 (7th Cir.1993). In that case, the Seventh Circuit found that a district court "correctly refused to give a nominal damages jury instruction" in a § 1983 action alleging excessive force. Unlike the situation here, however, the plaintiff in that case presented testimony from the treating physician to establish that his injuries were both genuine and severe. Indeed, in marked contrast to the evidence presented in our case, the court in Stachniak was "unable to discover any evidence presented at trial in support of the defendants' argument that [plaintiff] suffered no provable injury during the struggle with the officers." Id. at 923 (emphasis added). In sum, a rational jury could have found that the Plaintiffs failed to prove any actual damages were caused by Officer Marshall's unconstitutional conduct. We therefore deny Plaintiffs' motion for a new trial on the damages issue. III. ATTORNEYS' FEES The Civil Rights Attorney's Fees Award Act of 1976, 42 U.S.C. § 1988, permits a court in its discretion to award the prevailing party in a § 1983 action reasonable attorneys' fees.[5] In Farrar v. Hobby, ___ U.S. ___, 113 S. Ct. 566, 121 L. Ed. 2d 494 (1992), the Supreme Court held that a plaintiff who wins nominal damages is a "prevailing party" for purposes of § 1988. As stated by Justice O'Connor: "Nominal relief does not necessarily a nominal victory make." Farrar, ___ U.S. at ___, 113 S.Ct. at 578 (O'Connor, J., concurring). Although the award of nominal damages does not affect the prevailing party inquiry, "it does bear on the propriety of fees awarded under § 1988." Farrar, ___ U.S. at ___, 113 S.Ct. at 574. Indeed, "the most critical factor in determining the reasonableness of a fee award is the degree of success obtained." Farrar, ___ U.S. at ___, 113 S.Ct. at 574 (internal quotation marks omitted). According to the Court: In some circumstances, even a plaintiff who formally "prevails" under § 1988 should receive no attorney's fees at all. A Plaintiff who seeks compensatory damages but receives no more than nominal damages is often such a prevailing party. Farrar, ___ U.S. at ___, 113 S.Ct. at 575 (emphasis added). This is not to say, however, that a jury's award of nominal damages should always result in a denial of attorneys' fees: neither Farrar "nor Justice O'Connor's concurring opinion ... evince a talismanic approach, either in tone or substance, to the question presented here." Maul v. Constan, 23 F.3d 143, 148 (7th Cir.1994) (Flaum, J., dissenting). Rather, the inquiry should focus on the nature and degree of a plaintiff's victory; if that "success is purely technical or de minimis, no fees can be awarded." Farrar, ___ U.S. at ___, 113 S.Ct. at 576 (O'Connor, J., concurring). In order to determine whether a plaintiff's victory in obtaining nominal damages is de minimis, the Seventh Circuit has isolated three factors to consider: (1) the difference between the recovery sought and the judgment recovered; (2) the significance of the legal issue on which the plaintiff prevailed; and (3) the public purpose served by the litigation. Cartwright v. Stamper, 7 F.3d 106, 109 (7th Cir.1993). The first factor is *419 the most important, Maul, 23 F.3d at 145, and in this case weighs heavily against the Plaintiffs. Undeniably, Plaintiffs' primary goal in this litigation was to obtain monetary damages. The prayer for relief section of their complaint, for example, pertains almost entirely to monetary damages.[6] Moreover, Plaintiffs requested damages in the amount of $50,000 to Connie Jo Briggs, $5,000 to Robert Patton and $10,000 each to Michael Brown and John Carnes during closing arguments to the jury. See Transcript of Excerpt of Proceedings, pp. 18-19; see also Plaintiffs' Motion for New Trial, at 2-3. Plaintiffs also sought significant punitive damages. Thus, because Plaintiffs "sought substantial compensatory and punitive damages and recovered only nominal damages," the first factor "clearly weighs in favor of classifying the victory de minimis." Cartwright, 7 F.3d at 109-110; see also Cramblit v. Fikse, 33 F.3d 633, 635 (6th Cir.1994) (because the prayer for relief section of the complaint pertained primarily to monetary damages, jury award of nominal damages did not entitle plaintiff to attorneys fees). The second factor considers the significance of the legal issue on which the plaintiffs prevailed. This factor examines the extent to which plaintiffs succeeded on their theory of liability. Maul, 23 F.3d at 145; Cartwright, 7 F.3d at 110. In our case, Plaintiffs failed on all their federal and state claims against the County of Orange, Town of French Lick and Officers Feiock and Rutherford. Plaintiffs also failed to establish that Officer Marshall made an arrest without probable cause. Nevertheless, Plaintiffs did establish that Officer Marshall violated their Fourth Amendment right to be free from the use of excessive force. "This factor, therefore, suggests, albeit modestly, that the victory was more than de minimis." Cartwright, 7 F.3d at 110. Factor two, however, is the least weighty of the three "and therefore only minimally advances plaintiff[s'] claim that [they are] entitled to attorney's fees." Maul, 23 F.3d at 146. Finally, the third factor considers the public purpose served by the victory. In other words, this factor examines whether "the decision creates benefits for other persons in the plaintiff's situation, for example by establishing a significant precedent that is likely to alter the behavior of potential defendants." Bristow v. Drake Street Inc., 41 F.3d 345, 352 (7th Cir.1994); see also Koopman v. Water Dist. No. 1, 41 F.3d 1417 (7th Cir.1994). In this case we have little difficulty concluding that the Plaintiffs' victory served little or no public purpose. It is clear from the relief sought by the Plaintiffs "that this suit's primary purpose was to remedy plaintiff[s'] own injuries and not to establish the rights" of citizens vis a vis the French Lick Police Department. Maul, 23 F.3d at 146. Indeed, Plaintiffs brought this suit on behalf of and alleged violations to their own rights. They did not request injunctive relief. Nor did they represent a class. They were also unsuccessful in obtaining punitive damages. See Cartwright, 7 F.3d at 110 ("An award of punitive damages, therefore, is strong evidence that the victory served a public purpose") citing Estate of Borst v. O'Brien, 979 F.2d 511, 517 (7th Cir.1992). While we concede that Plaintiffs sought to vindicate a public purpose by alleging that the Town failed to adequately train and supervise its police officers, we note that their municipal liability claim failed to survive the Defendants' Motion for a Judgment as a Matter of Law. Thus, the balance of these three factors weighs heavily in favor of classifying Plaintiffs' victory as de minimis. Accordingly, an award of attorneys' fees would be *420 inappropriate and we deny the petition for fees. IV. CONCLUSION For the reasons stated above, we DENY Plaintiffs' motion for a new trial. Although we GRANT Plaintiffs' motion to determine their status as a prevailing party, we DENY their corresponding petition for attorneys' fees. It is so ORDERED. NOTES [1] The Court described the Plaintiffs' evidence concerning physical and emotional damages in that case as follows: We first note that an extensive review of the record demonstrates that none of the plaintiffs provided medical testimony regarding the extent of their physical injuries. Similarly, medical proof of the plaintiffs' emotional distress was limited to the introduction of one-page medical services statements in which a prison psychologist (not a medical doctor) state merely that two of the plaintiffs ... suffered from "post traumatic stress disorder," and that he had prescribed sleeping pills for them. This psychologist did not testify. Plaintiffs provided no testimony explaining what "post traumatic stress disorder" is or what its effects are. Butler, 979 F.2d at 671. [2] Ms. Briggs did submit a chiropractic bill which, she claims, is uncontroverted evidence of her physical injuries. We note, however, that the chiropractor did not testify. As a result, the only evidence tending to establish a causal link between Officer Marshall's unconstitutional conduct and Ms. Briggs' back problems was Ms. Briggs' own assertions, which the jury was free to discount. Moreover, even if the jury believed that Officer Marshall caused Ms. Briggs' back problems, the jury could have found that this injury was caused by a constitutionally permissible use of force. See note 4, infra. [3] For example, there was testimony that a half-hour after the first incident, Carnes, Brown and Patton walked by the Police Department laughing, without limping or any visible signs of physical difficulty. Indeed, despite the alleged seriousness of their injuries, they completed their morning errands on foot. Moreover, none of the Plaintiffs sought immediate medical attention. Patton, for example, did not go to a hospital, opting instead to mow a neighbor's yard. Although Briggs and Carnes did visit a hospital later that day, they only did so after Denise Smallwood, an Orange County prosecuting secretary, recommended it in order to facilitate their complaint against Marshall. Brown also visited a doctor, complaining that he could not move his arm. According to his testimony, however, that injury was similar to a pre-existing condition unrelated to his arrest and the only treatment he received was a prescription for medicine to calm his nerves. [4] Indeed, Jury Instruction # 28 prohibited the jury from awarding speculative damages. Plaintiff Briggs, however, submitted a chiropractic bill which, she claims, is uncontroverted evidence of quantifiable damages. See Plaintiff's Ex. 40. As we discussed above, however, there is evidence in the record to support a finding that Officer Marshall's unconstitutional conduct did not cause her back injury; rather, that injury could have been caused by a constitutionally permissible use of force. [5] Section 1988 reads in pertinent part: In any action or proceeding to enforce a provision of section[] ... 1983 ... of this title, ... the court, in its discretion, may allow the prevailing party, other than the United States, a reasonable attorney's fee as part of the costs. 42 U.S.C. 1988 (1992). [6] That section of the Complaint reads as follows: WHEREFORE, Plaintiffs pray for Judgment against the defendants, and each of them jointly and severally, for damages as follows: 1. For General Damages to each plaintiff as proximately caused by the conduct of the defendants in an amount commensurate with the evidence; 2. For Special Damages incurred by each plaintiff as proximately caused by the conduct of defendants in an amount commensurate with the evidence including medical expenses and lost wages; 3. For Punitive Damages against defendants in an amount sufficient to punish defendants and to make an example of their conduct; 4. For reasonable attorney's fees.... * * * * * *

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1965329/

819 F. Supp. 507 (1993) UNITED STATES of America, Plaintiff, v. M/V SANTA CLARA I, its engines, boilers, machinery, masts, boats, anchors, cables, chains, rigging, tackle, apparel, furniture, capstans, outfit, tools, pumps, pumping and other equipment, etc., in rem, and Kriakopoulos Internacional, S.A.; and Empressa Naviera Santa, S.A.; and Juan Alvarez, in personam, Defendants. KYRIAKOPOULOS INTERNACIONAL, S.A.; and Empressa Naviera Santa, S.A., Third-Party Plaintiffs, v. COMPANIA MINERA EL INDIO; LAC Minerals; Chemical Specialities, Inc., Degesch de Chile, Ltd.; and Degesch America, Inc., Third-Party Defendants. Civ. A. No. 2:92-0389-18. United States District Court, D. South Carolina, Charleston Division. March 9, 1993. *508 Ben A. Hagood, Jr., Charleston, SC, Michael J. Devine and Eileen T. McDonough, Washington, DC, for plaintiff. Gordon Schreck and Douglas M. Muller, Charleston, SC, Charles Anderson, New York City, Mike Duffy, Newman Jackson Smith and Paul Tecklenburg, Charleston, SC, Margaret Murphy, New York City, Thomas S. Tisdale, Jr., Charleston, SC, for defendants. ORDER NORTON, District Judge. This matter is before the court on plaintiff's motion to dismiss defendants' counterclaim for lack of jurisdiction, pursuant to Fed.R.Civ.P. 12(b) and 12(c). I. BACKGROUND In the late evening of January 3, 1992 or the early morning of January 4, 1992, a number of containers loaded with drums of arsenic trioxide were lost overboard from the vessel M/V SANTA CLARA I during a severe storm in the Atlantic Ocean off the coast of New Jersey.[1] The loss of the drums overboard resulted in a response by the United States, led by the United States Coast Guard (hereinafter "Coast Guard") *509 with the support of the United States Environmental Protection Agency (hereinafter "EPA"), which exercised their apparent authority under section 104 of the Comprehensive Environmental Response Compensation and Liability Act (hereinafter "CERCLA") to respond to a release or a substantial threat of a release of a hazardous substance into the environment. Through the concerted efforts of the United States and defendants,[2] the Coast Guard was able to locate the position of the drums more than thirty miles offshore and under 120 to 130 feet of water. The United States thereafter initiated this action on February 7, 1992 to recover costs incurred by the government in responding to the loss of the arsenic trioxide from the M/V SANTA CLARA I. The government's action is brought pursuant to section 107(a) of CERCLA, 42 U.S.C. § 9607. On February 20, 1992, the Coast Guard issued an Administrative/Directive Order (hereinafter "Order" or "106 Order") to defendants Kyriakopoulos Internacional, S.A. and Empressa Naviera Santa, S.A., who are owner and operator, respectively, of the M/V SANTA CLARA I. This Order, directing defendants to search for, locate, recover and dispose of the containers and drums of arsenic trioxide, was issued pursuant to the Coast Guard's authority under section 106 of CERCLA, 42 U.S.C. § 9606, section 311(c) of the Clean Water Act, 33 U.S.C. § 1321(c), and section 5 of the Intervention on the High Seas Act, 33 U.S.C. § 1474. Although defendants objected to the government's risk assessment of the arsenic trioxide to the ocean environment, they conducted the mission of locating and recovering the arsenic trioxide drums pursuant to this Order. On April 1, 1992, defendants Kyriakopoulos Internacional, S.A. and Empressa Naviera Santa, S.A. (hereinafter sometimes collectively referred to as "counterclaimants") filed their answer and counterclaim to the plaintiff's complaint. The counterclaim is the subject of plaintiff's motion to dismiss. In support of its motion to dismiss the counterclaim, plaintiff argues that this court lacks jurisdiction over the counterclaim, stating that the only avenue of relief available to the recipient of a section 106(a) order is section 106(b)(2), which establishes a procedure whereby the respondent may petition the EPA for reimbursement and then obtain judicial review if that petition is denied. Plaintiff states that the counterclaimants have failed to exhaust this remedy and thus, the counterclaim must be dismissed. Furthermore, plaintiff argues that the doctrine of sovereign immunity acts as a independent bar to the court's exercise of jurisdiction over the counterclaim. In opposition to plaintiff's motion, the counterclaimants state that section 113(h) of CERCLA, 42 U.S.C. § 9613(h), gives this court jurisdiction over the counterclaim, and that the legal doctrines of sovereign immunity and exhaustion of administrative remedies asserted by plaintiff do not independently bar jurisdiction. Counterclaimants further rely on the doctrine of recoupment as a jurisdictional base. II. NATURE OF COUNTERCLAIM Defendants explain the counterclaim as being two-fold. In part, the counterclaim is a request for this court to determine that defendants are entitled to reimbursement pursuant to § 106(b)(2). Defendants, however, believe that a threshold issue is whether the government had jurisdiction to issue the 106 Order at all. Defendants are thus also specifically asking this court to declare that the United States lacked authority to issue the Order, and that such Order is invalid on jurisdictional grounds. Counterclaimants summarize the characterization of their counterclaim as follows: If the Order issued by the United States is without jurisdiction and, thus, illegal, then Defendants maintain by way of their counterclaim that they have been directly damaged and are entitled (1) to have a judicial determination of the validity of the Order and (2) to indemnification for costs incurred in responding to the invalid Order. Defendants' entitlement to reimbursement *510 under CERCLA § 106(b)(2) constitutes an alternative, affirmative basis for Defendants' recovery from the United States, in addition to this Court's fundamental ability to address the Order's underlying jurisdictional defects and redress Defendants. Counterclaimants' Reply Memorandum, p. 10. III. STATUTORY BACKGROUND CERCLA Cleanup Procedures in General CERCLA provides a comprehensive statutory scheme for cleaning up releases or threatened releases of hazardous substances.[3] CERCLA's primary purpose is the prompt cleanup of hazardous waste sites. J.V. Peters & Co. v. Administrator, EPA, 767 F.2d 263, 264 (6th Cir.1985). Plaintiff's Memorandum generally describes CERCLA's scheme for evaluating and responding to a release or threatened release of hazardous substances as follows: [T]he President may pursue three different options. First, he may respond directly by undertaking, with monies from the Superfund, removal or remedial action that is deemed `necessary to protect the public health or welfare or the environment,' CERCLA section 104(a)(1), 42 U.S.C. § 9604(a)(1), and may then seek to recover the costs of the cleanup from responsible parties in an action brought pursuant to CERCLA section 107(a), 42 U.S.C. § 9607(a). Second, the President may bring an action in federal district court to obtain an order requiring parties to take such action as may be necessary to abate the hazardous substance danger or threat. CERCLA section 106(a), 42 U.S.C. § 9606(a). Third, he may issue an administrative order directing parties to take the appropriate actions. Id. Plaintiff's Memorandum, p. 2-3 (citations omitted) (emphasis added).[4] The President has delegated his authority under CERCLA to several executive agencies. Specifically, the President delegated to the Coast Guard the authority pursuant to CERCLA section 106(a) to initiate a civil action or issue an administrative order "with respect to any release or threatened release involving the coastal zone, Great Lakes waters, ports, and harbors." Exec. Order 12,580 Sec. 4(c)(1). The Coast Guard may issue an administrative order under section 106(a) of CERCLA, as it purports to have done in the present case, when it determines that "there may be an imminent and substantial endangerment to the public health or welfare *511 or the environment" because of an actual or threatened release of a hazardous substance in the waters specified in the Executive Order. 42 U.S.C. § 9606(a). IV. ANALYSIS OF MOTION TO DISMISS THE COUNTERCLAIM Regarding jurisdiction of this court over defendants' counterclaim, three doctrines have been raised by the parties: (1) the doctrine of exhaustion of administrative remedies; (2) the doctrine of sovereign immunity; and (3) the doctrine of recoupment. Each doctrine will be discussed below. A. Doctrine of Exhaustion of Administrative Remedies 1. CERCLA Judicial Review The meaning of CERCLA's provisions for judicial review is the critical issue for resolution of the present motion to dismiss. Basically, counterclaimants argue that section 113(h) of CERCLA provides the jurisdictional basis for their counterclaim before this court. Plaintiff, on the other hand, argues that section 106(b)(2) and its administrative remedy jurisdictional restriction governs the counterclaim. Section 113(h) of CERCLA provides, in pertinent part: (h) Timing of Review No Federal court shall have jurisdiction under Federal law other than under section 1332 of Title 28 (relating to diversity of citizenship jurisdiction) or under State law which is applicable or relevant and appropriate under section 9621 of this title (relating to cleanup standards) to review any challenges to removal or remedial action selected under section 9604 of this title, or to review any order issued under section 9606(a) of this title, in any action except one of the following: (1) An action under section 9607 of this title to recover response costs or damages or for contribution.... CERCLA section 113(h), 42 U.S.C. § 9613(h)(1). Section 106(b)(2) states: (b) Fines; reimbursement (2)(A) Any person who receives and complies with the terms of any order issued under ... [CERCLA section 106(a)] may, within 60 days after completion of the required action, petition the President for reimbursement from the Fund for the reasonable costs of such action, plus interest.... (B) If the President refuses to grant all or part of a petition made under this paragraph, the petitioner may within 30 days of receipt of such refusal file an action against the President in the appropriate United States district court seeking reimbursement from the Fund.[5] CERCLA section 106(b)(2)(A) & (B), 42 U.S.C. § 9606(b)(2)(A) & (B). In order to recover its reasonable response costs from the Superfund, the person must show that it was not a liable party under CERCLA section 107(a) or that the selection of the response action ordered was arbitrary and capricious or otherwise not in accordance with law. 42 U.S.C. § 9606(b)(2)(C) & (D). Plaintiff argues that 106(b)(2) is the sole remedy of counterclaimants and that, since counterclaimants have not petitioned the EPA for reimbursement as required by the statute, then no jurisdiction lies in this court for the counterclaim.[6] If 106(b)(2) is indeed the counterclaimants' sole remedy, then defendants' challenge to the validity of the administrative order and claim for reimbursement must be dismissed. This court must therefore determine if section 113(h) of CERCLA, as proposed by the counterclaimants, provides it with jurisdiction to review the 106 Order. *512 In effect, counterclaimants construe section 113(h) as an affirmative grant of jurisdiction for judicial review of an administrative order issued pursuant to section 106(a) of CERCLA as long as a section 107 cost recovery action has been initiated. Counterclaimants cite no authority, other than the express language of the statute, for this proposition. Plaintiff fervently disagrees and states that 113(h) is not an affirmative grant of jurisdiction. Citing North Shore Gas Co. v. EPA, 930 F.2d 1239, 1245 (7th Cir.1991)[7] and Reardon v. United States, 947 F.2d 1509, 1512 (1st Cir.1991) (en banc), plaintiff argues that section 113(h) is specifically captioned "Timing of Review," and addresses only the issue of when the selection of a removal or remedial action under section 104 or an administrative order issued under section 106 may be reviewed. Thus, plaintiff argues that the pendency of an action under section 107 does not provide this court with jurisdiction to review the 106 order. Plaintiff states: Such jurisdiction can be conferred only by section 106(b)(2), which grants the Court jurisdiction only to review EPA's final decision on a petition for reimbursement. Section 113(h)(3) allows judicial review of a section 106(a) order once the requirements of section 106(b)(2) have been met. However, section 113(h)(1) does not allow review of such an order prior to the exhaustion of the administrative remedies afforded by section 106(b)(2) simply because the United States has filed a cost recovery action pursuant to section 107(a) of CERCLA. Plaintiff's Reply Memorandum, p. 12. Plaintiff footnotes United States v. Cordova Chem. Co. of Michigan, 750 F. Supp. 832 (W.D.Mich. 1990), where a defendant argued that it was allowed to bring a citizen suit pursuant to section 310(a) of CERCLA, 42 U.S.C. § 9659(a), to obtain review of the remedial action at a Superfund site. The Michigan district court found that section 113(h)(4) precluded such suits unless the remedial action had been completed. The defendant Cordova contended that the limits imposed by section 113(h)(4) no longer applied because the United States had already instituted a cost recovery action under section 107(a). The court in rejecting this argument, concluded that Congress specifically limited the review of remedial actions to after completion of the administrative process. The filing of a section 107(a) action was held not to circumvent the specific limitations imposed by section 113(h)(4) on the timing of review. Reviewing these authorities and the statutory language itself, this court agrees with plaintiff and concludes that defendants' claim for reimbursement must first follow the administrative procedure as provided for in section 106(b)(2)(B), and only if the administrative petition for reimbursement is denied, can counterclaimants then properly seek relief before this court. 2. Waiver of the Administrative Petition Element of Section 106(b)(2) of CERCLA The doctrine of exhaustion of administrative remedies "provides `that no one is entitled to judicial relief for a supposed or threatened injury until the prescribed administrative remedy has been exhausted.'" McKart v. United States, 395 U.S. 185, 192, 89 S. Ct. 1657, 1662, 23 L. Ed. 2d 194 (1969) (citation omitted); See also Darby v. Kemp, 957 F.2d 145, 147 (4th Cir.), cert. granted, ___ U.S. ___, 113 S. Ct. 404, 121 L. Ed. 2d 330 (1992). The exhaustion doctrine allows an agency to exercise its discretion and apply its expertise, ensures autonomy, and avoids premature intervention by the courts.... It also `allow[s] the courts to have [the] benefit of an agency's talents through a fully developed administrative record.' Darby, 957 F.2d at 147 (citations omitted). Counterclaimants, however, argue that the court has the power to waive application of the doctrine of exhaustion of administrative remedies and should do so in this case on the *513 ground that administrative proceedings would be "futile." The rule of exhaustion is subject to numerous exceptions. Id. citing McKart, 395 U.S. at 192, 89 S. Ct. at 1662. These exceptions include futility of administrative review ... and inadequacy of administrative remedies.... Further, exhaustion may be excused if its application would leave an administrative decision unreviewed. Id. (citations omitted). Where the requirement of exhaustion is imposed by statute, however, it may not be waived by the courts based on allegations of futility alone. Health Equity Resources Urbana, Inc. v. Sullivan, 927 F.2d 963, 966 (7th Cir.1991) ("So futility is not an excuse for failure to exhaust administrative remedies, but futility plus hardship is."); Saulsbury Orchards & Almond Processing, Inc. v. Yeutter, 917 F.2d 1190, 1196 (9th Cir.1990) ("[W]here a statute specifically requires exhaustion, it implies something more than simply a codification of the judicially developed doctrine of exhaustion, and may not be dispensed with merely by a judicial conclusion of futility."). Counterclaimants' only argument in support of waiver is "futility." Counterclaimants state that there is no rational basis to require defendants to file a futile administrative petition with the EPA when the government has already manifested its position of denial by filing this section 107(a) action. Besides futility, alone, being an ineffective excuse for failure to exhaust administrative remedies, the District of Columbia Circuit has rejected the argument that courts may assume that the government's litigation positions will control the outcome of administrative proceedings. See Randolph-Sheppard Vendors v. Weinberger, 795 F.2d 90, 107 (D.C.Cir.1986). Furthermore, "[t]o excuse exhaustion based on an `unsupported allegation of futility would allow the futility exception to swallow the exhaustion rule.'" Darby, 957 F.2d at 148 citing Thetford Properties IV Ltd. P'ship v. United States Dep't of Hous. & Urban Dev., 907 F.2d 445, 450 (4th Cir.1990). Thus, based on the authorities cited above, this court finds no justifiable reason to waive the administrative remedial element of section 106(b)(2) of CERCLA. B. The Doctrine of Sovereign Immunity The plaintiff urged the doctrine of sovereign immunity as an independent bar to any claim for reimbursement or challenge to the administrative order before this court, except pursuant to section 106(b) of CERCLA. Since this court finds that the administrative remedial confines of 106(b) govern this case, no discussion of sovereign immunity is necessary. C. The Doctrine of Recoupment Although the counterclaim itself did not mention recoupment, counterclaimants assert in their memorandum in opposition that this doctrine provides an alternate basis for their claim. A recoupment counterclaim against the United States must meet three basic criteria: (1) it must arise out of the same transaction or occurrence that is the subject of the government's suit; (2) it must seek relief of the same kind or nature as that sought by the government; and (3) it must be purely defensive, i.e., it must seek only to defeat the government's claim and not see an affirmative recovery of damages. See United States v. Atlas Minerals and Chemicals, Inc., 797 F. Supp. 411, 421 (E.D.Pa.1992); Frederick v. United States, 386 F.2d 481, 488 (5th Cir.1967); United States v. Yonkers Bd. of Educ., 594 F. Supp. 466, 469 (S.D.N.Y. 1984). See also generally 6 C. Wright, A. Miller & M. Kane, Federal Practice and Procedure: Civil 2d § 1427, at 197-200 (1990); United States v. Transamerica Ins. Co., 357 F. Supp. 743, 746 (E.D.Va.1973) (approval of reasoning in Frederick). Counterclaimants argue that their claim satisfies the requirements of recoupment because both the claim and counterclaim arise from the same occurrence; namely, the loss of the arsenic trioxide drums from the SANTA CLARA and the resultant response actions. Counterclaimants therefore allege that their counterclaim is compulsory under Fed.R.Civ.P. 13(a) and should not be dismissed. This court, however, agrees *514 with plaintiff's position and again concludes that the counterclaim must be dismissed. Plaintiff correctly points out that Fed. R.Civ.P. 13(a) renders compulsory only those counterclaims which "at the time of filing the pleading the pleader has against the opposing party...."[8] Based on this court's prior ruling, when the counterclaim was filed, counterclaimants did not have a reimbursement claim that could be judicially asserted against the United States because they had not yet presented their claim to the EPA. When a claim is not mature as of the date the answer is to be filed, the claim is not a compulsory counterclaim under Rule 13(a). Young v. City of New Orleans, 751 F.2d 794, 801 (5th Cir.1985) (citing 6 C. Wright and A. Miller, Federal Practice and Procedure § 1411, at 55 (1971): "A counterclaim acquired by the defendant after he has answered will not be considered compulsory, even if it arises out of the same transaction as does the plaintiff's claim.") Furthermore, this court agrees that counterclaimants have not complied with the third requirement for recoupment in that they have not limited their counterclaim to an offset against any amount that the government might recover. Although counterclaimants note in their brief that "[r]elief in [a recoupment] ... counterclaim will be limited to the extent of diminishing or defeating the government's recovery, their counterclaim is not characterized this way.[9] While denying any liability to the United States, counterclaimants apparently seek to recover full reimbursement for their expenses incurred under the Order. Because they have further failed to limit their counterclaim to an offset, this court will not now allow counterclaimants to rely upon the doctrine of recoupment as a waiver of sovereign immunity and jurisdictional basis for the counterclaim. V. CONCLUSION It is therefore, ORDERED, that plaintiff's motion to dismiss defendants' counterclaim for lack of jurisdiction, pursuant to Fed.R.Civ.P. 12(b) and 12(c), be GRANTED. AND IT IS SO ORDERED. NOTES [1] The M/V SANTA CLARA I was en route from New York, New York, to Baltimore, Maryland, when it encountered the storm. [2] There is a dispute from the government as to the level of cooperation rendered from the counterclaimants. [3] As amended by the Superfund Amendments and Reauthorization Act of 1986, Pub.L. No. 99-499, 100 Stat. 1613 (1986) (SARA). [4] Defendants argue that not all options are available to all situations, stating that "[i]n situations involving releases from vessels, the plain language of section 106 of CERCLA clearly demonstrates that the United States does not have the statutory authority to issue an administrative order or seek a court order requiring a potentially responsible party to undertake a response action." Counterclaimants' Reply Memorandum, p. 7. Defendants believe that, with respect to responding to releases or threatened releases from vessels, the United States is limited to the first option. Thus, this is the basis for defendants' argument that the Order was issued without proper jurisdiction. Defendants' argument is best characterized by citing their own words: The United States, was at all times, clearly aware of this jurisdictional limitation to CERCLA administrative orders. Knowing that section 106(a) required a showing of a release or threat of a release from a "facility," the Coast Guard endeavored to establish jurisdiction for the Order by characterizing Defendants as owners and operators of the drums of arsenic trioxide, and, in turn, alleging that such drums, which after a severe and unexpected winter storm broke their stow and fortuitously came to rest in a debris field at the bottom of the ocean, constituted facilities under CERCLA. This is nothing more than a strained sophistic attempt by the United States to circumvent clear statutory limitations set by Congress. Defendants are the owner and operator, respectively, of the M/V SANTA CLARA I, a vessel under CERCLA. Defendants never had any ownership interest in the cargo and were never the "owner," much less the "operator," of the drums in question. Further, if such drums coming to rest deep in the ocean could be considered as CERCLA "facilities," then a CERCLA section 106 order should only issue against their true owners.... Id. at p. 7-8. The issue of whether the United States had jurisdiction to issue the 106 Order is one going to the merits of the counterclaim. Although helpful to understanding the nature of this cause of action, a resolution of this issue is not necessary at present. The only issue this court need determine now is whether the counterclaim is properly before it. [5] The President has delegated the review of reimbursement claims to the Administrator of the Environmental Protection Agency. Exec. Order No. 12,580 sec. 4(d)(1). [6] The counterclaim itself fails to allege that a petition for relief was sought and denied prior to filing suit. A declaration of Paul N. Connor of the EPA, attached to Plaintiff's Memorandum, verifies that the required petition for reimbursement has not been filed with the EPA. [7] The North Shore court stated: "[I]t is notable that section 113(h) is captioned `timing of review' and that the cases and legislative history indicate that the purpose of the section was not to defeat an aggrieved person's presumptive right of judicial review of agency action, ... but merely to postpone the exercise of the right to the completion of the remedial action...." (citations omitted). [8] "A pleading shall state as a counterclaim any claim which at the time of serving the pleading the pleader has against any opposing party, if it arises out of the transaction or occurrence that is the subject matter of the opposing party's claim and does not require for its adjudication the presence of third parties of whom the court cannot acquire jurisdiction...." Fed.R.Civ.P. 13(a). [9] Furthermore, counterclaimants conceded at oral argument that a recoupment claim is limited to the extent of diminishing or defeating the government's recovery.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/2311669/

13 F. Supp. 2d 1125 (1998) Marvin J. WILLIAMS, Plaintiff, v. BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY, Defendant. No. Civ.A. 97-2473-KHV. United States District Court, D. Kansas. May 19, 1998. *1126 Donald J. Richmond, Thomas J. Joyce, III, Forceno, Hannon & Arangio, Philadelphia, PA, Robert D. Loughbom, Lenexa, KS, for Plaintiff. William P. Coates, Jr., Holman, Hansen & Colville, P.C., Prairie Village, KS, for Defendant. MEMORANDUM AND ORDER VRATIL, District Judge. This matter comes before the Court on defendant's Motion For Summary. Judgment (Doc. # 42) and defendant's Motion In Limine to Exclude Or Otherwise Limit Testimony Of Jetzer (Doc. # 41), both filed on March 30, 1998. Procedural Background The Court addressed both motions at a status conference on April 30, 1998. Defendant seeks to exclude the testimony of plaintiff's expert, Dr. Thomas Jetzer, on the ground that the testimony which he proposes to give at trial is in material conflict with the opinions stated in his expert reports.[1] Plaintiff responds that exclusion of Dr. Jetzer's testimony will essentially terminate plaintiff's case. At the time of the status conference on April 30, 1998, trial was set for May 5, 1998. At the conference, the Court believed — and communicated to counsel its belief — that recent Tenth Circuit authority required it to postpone the trial and grant plaintiff additional time to conform Dr. Jetzer's written reports to his deposition testimony. In making this judgment the Court had in mind the case of Summers v. Missouri Pac. R.R. Sys., 132 F.3d 599 (10th Cir.1997), although it did not have the opinion in front of it at the time. The Court proposed that the trial be postponed, that plaintiff be allowed to revise his expert reports (on certain conditions), and *1127 that ruling on defendant's motion for summary judgment be deferred until that time. At the parties' request, however, the Court agreed to resolve defendant's motion for summary judgment before addressing defendant's motion to exclude Dr. Jetzer's testimony. Accordingly, the Court parked plaintiff's case on the trial docket beginning May 19, 1998, pending a ruling on defendant's motion for summary judgment. Since the status conference, the Court has re-examined the holding in Summers. Having done so, it concludes that Tenth Circuit authority does not require the continuance and opportunity to cure which plaintiff seeks. The requested extension, coming two business days before trial, was ordained to disrupt the orderly and efficient trial of the case. Defendant had filed and briefed its summary judgment motion in reliance upon the written reports of plaintiffs expert — as it was entitled to do. A new expert report, if allowed, will dramatically differ from the reports which plaintiff timely served. To allow plaintiff to vacate those reports and start afresh with new testimony and opinions would cause undue prejudice to defendant, and defendant has no ability to cure any such prejudice. Moreover, plaintiff has not demonstrated good cause for its failure to comply with the pretrial order and Fed.R.Civ.P. 26(a)(2)(B) and 37(c)(1). For these reasons, the Court finds that plaintiff has not demonstrated good cause why he should be allowed to substitute a new expert report, two business days before trial, for the report which he served in accordance with the scheduling order in this case. In other words, we reach the inescapable conclusion that to grant plaintiffs oral request would severely disrupt the orderly and efficient trial of this case and inflict undeserved and irremediable prejudice on defendant. Although the decision to exclude evidence is a drastic sanction, e.g., Summers, 132 F.3d at 604, plaintiff must abide by the same rules as other litigants, and the Federal Rules of Civil Procedure clearly require that plaintiff's expert reports contain a "complete statement of all opinions to be expressed and the basis and reasons therefor." Fed. R.Civ.P. 26(a)(2)(B). See also Fed.R.Civ.P. 37(c)(1) (party that without substantial justification fails to disclose information in compliance with Rule 26(a) shall not be permitted to use at trial any witness or information not so disclosed). Plaintiff therefore shall not be entitled to delay the trial to supplement Dr. Jetzer's written expert reports. Pursuant to Fed.R.Civ.P. 26(a)(2)(B) and 37(c)(1), any opinions not expressed in Dr. Jetzer's written reports must be excluded from this case. We proceed to consider defendant's motion for summary judgment on the basis of the expert reports, as originally formulated. Factual Summary Plaintiff admits all but three of defendant's statement of undisputed facts. As to the three, plaintiff has failed to comply with the local rules which govern the summary judgment process. D.Kan.Rule 56.1 provides in relevant part as follows: A memorandum in opposition to a motion for summary judgment shall begin with a section that contains a concise statement of material facts as to which the party contends a genuine issue exists. Each fact in dispute shall be numbered by paragraph, shall refer with particularity to those portions of the record upon which the opposing party relies, and, if applicable, shall state the number of movant's fact that is disputed. All material facts set forth in the statement of the movant shall be deemed admitted for the purpose of summary judgment unless specifically controverted by the statement of the opposing party. (Emphasis added) Plaintiff has not referred with particularity to those portions of the record upon which he relies,[2] and he therefore has not specifically controverted defendant's statement of facts under D.Kan.Rule 56.1. See, e.g., Thompson v. City of Lawrence, Nos. Civ.A. 93-2253-KHV, 93-2310-KHV, 1994 WL 262598, at *2 (D.Kan. May 19, 1994) (plaintiffs who purported to dispute moving party's statements of undisputed facts, but failed to cite record support, failed to establish genuine issue of material fact under local rule), aff'd, 58 F.3d *1128 1511 (10th Cir.1995). Because plaintiff has failed to comply with D.Kan.Rule 56.1 and thereby demonstrate genuine issues of material fact, the Court deems admitted for purposes of this motion all of defendant's statement of undisputed facts. On this record, the undisputed material facts are these: Plaintiff began working for defendant in 1969. In 1980, plaintiff was laid off and he did not return to work for defendant until 1990. Since that time, however, he has worked continuously for defendant. Since 1995, plaintiff has worked as a carman, repairing damaged or defective railroad freight cars. As a carman, he uses a number of tools, including impact wrenches, grinders, sledgehammers, drills, cutting torches and huck guns. In the last five years, plaintiff has received safety manuals on how to use this equipment, but even without such manuals, plaintiff believes that he knows all of the safety measures. Plaintiff's job changes on a regular basis. Generally, he works on one specific task each day. Plaintiff has the opportunity to take regular breaks and lunch times, and he can use his discretion as to the duration and frequency of washroom or water breaks. Except for a grinder, which he uses for ten minutes at a time, plaintiff spends no more than ten minutes at a time on any particular task. Plaintiff first felt pain in his hands in 1995, when he worked as a carman. Plaintiff did not complain, however, to his supervisor or the personnel office. Plaintiff claims that he experiences pain with some of the jobs which he performs at work, and also with repetitious movement or heavy grasping outside of work. Summary Judgment Standards Summary judgment is appropriate if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. Fed.R.Civ.P. 56(c); accord Anderson v. Liberty Lobby Inc., 477 U.S. 242, 247, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986); Vitkus v. Beatrice Co., 11 F.3d 1535, 1538-39 (10th Cir.1993). A factual dispute is "material" only if it "might affect the outcome of the suit under the governing law." Anderson, 477 U.S. at 248, 106 S. Ct. 2505. A "genuine" factual dispute requires more than a mere scintilla of evidence. Id. 477 U.S. at 252, 106 S. Ct. 2505. The moving party bears the initial burden of showing that there is an absence of any genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986); Hicks v. City of Watonga, 942 F.2d 737, 743 (10th Cir.1991). Once the moving party meets its burden, the burden shifts to the nonmoving party to demonstrate that genuine issues remain for trial "as to those dispositive matters for which it carries the burden of proof." Applied Genetics Int'l, Inc. v. First Affiliated Securities, Inc., 912 F.2d 1238, 1241 (10th Cir.1990); see also Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586-87, 106 S. Ct. 1348, 89 L. Ed. 2d 538 (1986); Bacchus Indus., Inc. v. Arvin Indus., Inc., 939 F.2d 887, 891 (10th Cir.1991). The nonmoving party may not rest on its pleadings but must set forth specific facts. Applied Genetics, 912 F.2d at 1241. "[W]e must view the record in the light most favorable to the parties opposing the motion for summary judgment." Deepwater Invs., Ltd. v. Jackson Hole Ski Corp., 938 F.2d 1105, 1110 (10th Cir.1991). Summary judgment may be granted if the non-moving party's evidence is merely colorable or is not significantly probative. Anderson, 477 U.S. at 250-51, 106 S. Ct. 2505. "In a response to a motion for summary judgment, a party cannot rely on ignorance of facts, on speculation, or on suspicion, and may not escape summary judgment in the mere hope that something will turn up at trial." Conaway v. Smith, 853 F.2d 789, 793 (10th Cir.1988). Essentially, the inquiry is "whether the evidence presents a sufficient disagreement to require submission to the jury or whether it is so one-sided that one party must prevail as a matter of law." Anderson 477 U.S. at 251-52, 106 S. Ct. 2505. Ever mindful of these summary judgment standards, the Court now turns to the merits of defendant's motion. *1129 Analysis Upon careful review of the record, we conclude that plaintiff has failed to demonstrate that genuine issues of material fact preclude the entry of summary judgment for defendant. Plaintiff brings suit under the Federal Employer's Liability Act [FELA], 45 U.S.C. § 51 et seq. Under FELA an employer is liable for injuries to an employee resulting from employer negligence. To recover under FELA, plaintiff must prove that defendant was negligent and that defendant's negligence was a cause of plaintiff's injury. Claar v. Burlington N.R. Co., 29 F.3d 499, 503 (9th Cir.1994); Jordan v. Southern Ry. Co., 970 F.2d 1350, 1352 (4th Cir.1992). Plaintiff must submit evidence of "the traditional common-law elements of negligence, including foreseeability, duty, breach and causation." Fulk v. Illinois Cent., R.R. Co., 22 F.3d 120, 124 (7th Cir.), cert. denied 513 U.S. 870, 115 S. Ct. 193, 130 L. Ed. 2d 125 (1994). Absent evidentiary proof, mere allegations are insufficient to defeat defendant's motion for summary judgment under FELA. Deutsch v. Burlington N.R. Co., 983 F.2d 741, 743 (7th Cir.), cert. denied, 507 U.S. 1030, 113 S. Ct. 1845 (1993). A. Defendant's Duty Of Care In the context of this FELA action, defendant has the duty to provide plaintiff a reasonably safe place to work. E.g., Shenker v. Baltimore & Ohio R.R. Co., 374 U.S. 1, 83 S. Ct. 1667, 10 L. Ed. 2d 709 (1963); Chicago Great W. Ry. Co. v. Casura, 234 F.2d 441, 447 (8th Cir.1956). To survive a motion for summary judgment, plaintiff must therefore present record evidence which creates a genuine issue of material fact whether defendant provided a reasonably safe workplace. Upon close inspection of the record, we conclude that plaintiff has failed to do so. Plaintiff argues that defendant failed to initiate a program to educate employees about the risk factors of carpal tunnel syndrome or to take steps to develop an ergonomic program to protect its employees from developing carpal tunnel syndrome. Specifically, plaintiff contends that defendant knew about the existence of occupational carpal tunnel syndrome; that defendant conducted no safety meetings specifically to address carpal tunnel syndrome; that defendant provided employees with no safety memoranda or other written materials on the condition; and that it provided no training to employees about the syndrome or ways to avoid it. In support of these arguments, plaintiff cites deposition testimony of Lawrence Fleisher, defendant's Director of Ergonomics and Safety. Plaintiff has failed to provide copies of the relevant excerpts, however, and we cannot find them in the record. In order to defeat a motion for summary judgment, plaintiff cannot rely upon arguments of counsel or allegations that are unsupported by the evidence in the record. Thomas v. Wichita Coca-Cola Bottling Co., 968 F.2d 1022, 1024 (10th Cir.), cert. denied, 506 U.S. 1013, 113 S. Ct. 635, 121 L. Ed. 2d 566 (1992); Gross v. Burggraf Constr. Co., 53 F.3d 1531, 1546 (10th Cir.1995). Even if the record contained such deposition testimony, plaintiff has failed to thereby demonstrate a genuine issue of material fact whether defendant breached its duty to provide a reasonably safe workplace. Plaintiff cites no record evidence that defendant knew or should have known that any specific tools which he used were unsafe or that any work tasks which he performed were unsafe. Plaintiff never complained to his supervisors, even when he was experiencing pain. Also, plaintiff received safety manuals on how to use his work tools, and he believes that he knows all of the safety measures even without the use of such manuals. Indeed, when asked what he felt defendant did wrong to cause the problems with his hands and wrists, plaintiff at his deposition answered, "[n]othing really." Plaintiff's Deposition at 116 (lines 11-24). The mere allegation that defendant "knew about the existence of occupational carpal tunnel syndrome," even if true, provides no information with respect to the safety of plaintiff's particular workplace. Equally insufficient is plaintiffs conclusory allegation that "[c]early, in light of the failure of Defendant to properly educate and/or warn its employees of the dangers and risks of occupational carpal tunnel syndrome, the Defendant has failed to provide the Plaintiff with a *1130 safe place to work." Plaintiff cites no record evidence to demonstrate that the tasks plaintiff performed, or the frequency and duration of his tool use, created a workplace that was not reasonably safe, or if so, that defendant knew or should have known it was unsafe. Plaintiff cites but does not analyze a lengthy passage from Aparicio v. Norfolk & W. Ry. Co., 84 F.3d 803 (6th Cir.1996), apparently for the proposition that defendant's knowledge of general studies regarding carpal tunnel syndrome is sufficient to establish that defendant knew or should have known of risk factors and taken steps to ameliorate them, even if none of the studies connect carpal tunnel syndrome to plaintiff's specific work tasks. In Aparicio, plaintiff claimed that his employer acted negligently when it required him to work in a way that exposed his upper extremities to repetitive trauma, failed to evaluate trauma to his upper body, failed to advise him of the risk of carpal tunnel syndrome, and failed to redesign his job functions to make them ergonomically sound. The trial court sustained defendant's motion for judgment as a matter of law at the close of plaintiff's case, and the Sixth Circuit reversed. The Sixth Circuit in Aparicio noted that plaintiff had presented expert testimony of ergonomic risk factors and known remedial measures that had been described and accepted by the scientific community. In addition, plaintiff had presented evidence of defendant's ergonomics program, which sought to identify and reduce risk factors through engineering changes or job rotations and breaks. Also, even though plaintiff informed defendant that he had carpal tunnel syndrome because of his work, and he received surgery on account of it, defendant returned plaintiff to the same duties without any modifications. Reviewing such evidence, the Sixth Circuit held that a reasonable jury could have concluded that a reasonably prudent employer would have known about risk factors for carpal tunnel syndrome — i.e., sustained exertion, wrist flexion, and power tool vibration — and sought to ameliorate them; that defendant should have known that plaintiff's job duties placed him at risk for carpal tunnel syndrome; and that defendant had breached its duty by failing to take remedial measures to reduce plaintiffs exposure to repetitive vibration and shocks. The Sixth Circuit also noted that the employer need not have notice of a previous injury before it acquires the duty to address a safety hazard or risk. This case presents an entirely different situation. Dr. Jetzer's 1995 report states that plaintiff's injury is related to 26 years of repetitive, forceful, awkward use of hands including use of vibrating tools, a sledge hammer, and welding equipment.[3] Dr. Jetzer does not discuss ergonomic risk factors, however, or known remedial measures. He merely attaches to his report a boilerplate document that describes carpal tunnel syndrome, including treatment methods, testing, and so forth. The document does not describe any risk factors or known remedial measures about which defendant should have known. Moreover, Dr. Jetzer's 1997 report indicates that each of plaintiff's jobs must be evaluated to see whether ergonomic hazards truly exist, and in order to render a definitive opinion, Dr. Jetzer would like to see an ergonomic assessment. From the record, however, it is unclear that any such evaluation or assessment has occurred. In addition, plaintiff cites no record evidence that defendant has used an ergonomics program to identify and reduce risk factors through engineering changes or job rotations and breaks, nor does he cite record evidence to establish defendant's knowledge of general studies regarding carpal tunnel syndrome. Because the facts before us vary so dramatically from those in Aparicio, we cannot reach the conclusion which the Sixth Circuit reached in that case. Even viewing the evidence in the light most favorable to plaintiff, no reasonable jury could find that defendant should have known that plaintiff's job duties placed him at risk for carpal tunnel syndrome or that defendant breached its duty by failing to take remedial measures to reduce *1131 his exposure to repetitive vibration and shocks. In light of plaintiff's failure to present even the slightest evidence of negligence, e.g., Harbin v. Burlington N.R.R. Co., 921 F.2d 129, 131 (7th Cir.1990) (quantum of evidence required to establish liability under FELA is much less than in an ordinary negligence action), plaintiff has not established a genuine issue of fact whether defendant breached its duty of care to provide a reasonably safe workplace. Accordingly, defendant is entitled to judgment as a matter of law on plaintiffs' claim that defendant breached its duty of care. B. Causation As noted above, to recover under FELA plaintiff must also prove causation. Even if we were to find that defendant knew or should have known that plaintiff's workplace was dangerous and that it breached its duty to provide him a safe workplace, we conclude for reasons stated below that plaintiff has failed to establish genuine issues of material fact whether defendant's acts caused his alleged injury. Plaintiff argues that his expert will testify, as to "specific causation," that "there were occupational causes of carpal tunnel syndrome." Dr. Jetzer's expert reports, however, do not demonstrate any genuine issue of material fact whether defendant caused plaintiff's alleged injury. The 1995 report states that plaintiff has possible bilateral carpal tunnel syndrome that is "related" to his work history, i.e., his "26 year history of repetitive, forceful, awkward use of the hands including the use of vibrating tools, a sledge hammer, and welding equipment." The 1997 report states as follows: The problematic issue that concerns me is the assumption that this is work related. This individual has bilateral abnormalities and there is no mention whether there is [sic] any other confounding factors such as ... previous wrist trauma that may have occurred to Mr. Williams. The report goes on to state that while some types of repetitive and forceful work of the hands can be associated with carpal tunnel syndrome, each job should be evaluated to see if any ergonomic hazards truly exist. Before giving a definitive opinion, I would like to see an ergonomic assessment and possibly videotape the type of work that Mr. Williams performs. Neither report reveals that Dr. Jetzer has knowledge of any formal ergonomic assessment of plaintiff's work tasks or, for that matter, of any ergonomic assessments of a carman's workplace. In light of the fact that plaintiff's own expert witness questions whether plaintiff's injury is work related and admits that he lacks the data necessary to form an opinion, no reasonable jury could conclude that plaintiffs' work activities caused his alleged injury. Accordingly, defendant is entitled to judgment as a matter of law on this element of plaintiff's claim under FELA. IT IS THEREFORE ORDERED that defendant's Motion In Limine to Exclude Or Otherwise Limit Testimony Of Jetzer (Doc. # 41) filed March 30, 1998, be and hereby is SUSTAINED. IT IS HEREBY FURTHER ORDERED that defendant's Motion For Summary Judgment (Doc. # 42) filed March 30, 1998, be and hereby is SUSTAINED. NOTES [1] The expert reports take the form of letters which Dr. Jetzer addressed to plaintiffs attorney. The first letter is dated December 8, 1995 — nearly two years before plaintiff filed suit. We do not decide whether that document is properly considered an expert report under Rule 26(a)(2)(B), since the parties have apparently agreed to construe it as such. The expert reports question whether plaintiff suffers the injury he alleges, and if so, whether the injury is job related. At his deposition, however, Dr. Jetzer revised his opinion with respect to both injury and causation. He also opined that plaintiff suffers "hand/arm vibration syndrome," a condition which is not mentioned in the pretrial order or the expert reports. Defendant argues that information which is not contained in the written reports should be excluded under Fed.R.Civ.P. 37(c)(1), and that any claims not contained in the pretrial order should be disallowed. [2] Plaintiff's reference to the record takes the form of, e.g., "See Plaintiff's Complaint, Answers to Interrogatories and Plaintiff's Factual Contentions." He fails to indicate what particular portions of the record — i.e., lines, paragraphs, or page numbers — establish disputed issues of fact. [3] In 1995, plaintiff had worked for defendant for only 16 years. The record does not disclose what remaining ten-year period Dr. Jetzer had in mind, what plaintiff did during that period, or how his activities during that period bear on defendant's responsibility in this case.

01-03-2023

10-30-2013

https://www.courtlistener.com/api/rest/v3/opinions/1945512/

787 F. Supp. 872 (1991) UNITED STATES of America, Plaintiff, v. VILLAGE OF MARSHALL, WISCONSIN, Defendant. No. 90-C-524-S. United States District Court, W.D. Wisconsin. April 22, 1991. Harvey L. Handley III, Housing and Civil Enforcement Section, Civil Rights Div., Dept. of Justice, Washington, D.C., for plaintiff. Bradley D. Armstrong, Axley Brynelson, Madison, Wis., for defendant. MEMORANDUM AND ORDER SHABAZ, District Judge. The United States of America commenced this action pursuant to 42 U.S.C. § 3614(b) alleging that the defendant Village of Marshall, Wisconsin, discriminated against Tellurian U.C.A.N. in violation of 42 U.S.C. § 3604(f)(1) when it failed to grant an exception to a group home spacing requirement. Jurisdiction is based on 28 U.S.C. § 1345. The action is presently before the Court on cross-motions for summary judgment. The parties have stipulated that all issues of liability be resolved upon a stipulated record of material facts. The following is a summary of the facts to which the parties have stipulated. *873 FACTS The defendant Village of Marshall is a Wisconsin municipality with a population of approximately 2,400. Tellurian U.C.A.N., Inc. is a private, non-profit corporation which provides services for mentally ill, chemically dependent, and other homeless persons in Dane County, Wisconsin. In March 1989 Tellurian located a prospective house for use as a group residential facility for persons suffering from mental illness at 410 Hubbell Street, Marshall, Wisconsin. Subsequently, it contracted for an option to purchase the property. Tellurian intended to use the property as a community-based residential facility to be occupied by six unrelated individuals. The property was zoned R-2 by the Village zoning code, which would permit such a use. Pursuant to its plan for a community-based residential facility, Tellurian sought funding from the United States Department of Housing and Urban Development. In connection with its application with HUD, Tellurian sought and received letters from the defendant confirming that the property was outside the 100-year flood plain and was appropriately zoned for the intended use. On March 22, 1989, Eugene Dold, President of Tellurian, wrote a letter to the Marshall Village Board explaining the planned operation of the proposed group home. The letter advised that Tellurian was aware that it would be required to apply for an exception to a 2,500 foot spacing restriction. The Wisconsin Statute which creates the spacing restriction to which the letter refers is § 62.23(7)(i)(1), which provides: No community living arrangement may be established after March 28, 1978 within 2,500 feet, or any lesser distance established by an ordinance of the city, of any other such facility. Agents of a facility may apply for an exception to this requirement, and such exceptions may be granted at the discretion of the city. At all relevant times there has been operating at 119 West Main Street, Marshall, a community-based residential facility known as the "Shady Rest Elder House," which has a present capacity of five elderly persons. Shady Rest is the only licensed community-based residential facility now operating in the Village. Shady Rest is approximately 1,619 feet from 410 Hubbell Street in a straight line. However, the two properties lie on opposite sides of a wide unbridged portion of the Maunesha River and the shortest distance of travel between the two properties via public streets is approximately one-half mile. At a regularly scheduled Village Board meeting on April 11, 1989, a number of citizens appeared in opposition to the Tellurian group home. The citizens raised a number of questions concerning the group home. The following is an excerpt from the minutes of the Board meeting: The residents wanted the process stopped now. Mr. Meloy reaffirmed that the Village could not take any action, since no application for permit had been applied for and there was no official action for them to take. The immediate neighborhood was very opposed of having the home there at all.... [Board member] Hensler asked if it would be proper on the Village's part to notify Tellurian that there is no desire to have their facility in the Village. Mr. Meloy felt that a letter could be wrote [sic] to Tellurian stating that the residents had appeared at the Board meeting and were opposed to their project. Motion by Hensler, second by Wild, to send a correspondence to Tellurian that many residents appeared at the Board meeting and strongly opposed their plan and state the concerns mentioned with their disapproval. Roll call vote carried, 7-0. No Village Board member was involved in preparing the list of concerns presented at the April 11th Board meeting. Village Board President Prust distributed to those in attendance at the April 11, 1989 Board meeting copies of a letter dated March 22, 1989, from Tellurian President Dold explaining the proposed program Tellurian intended to establish in Marshall. Mr. Dold was not in attendance at the April *874 11th meeting. Village Clerk Peck sent a letter dated April 12, 1989, to Tellurian President Dold pursuant to the direction of the Village Board. The letter stated as follows: I was directed by the Marshall Village Board to write you this letter regarding the Board meeting that was held last evening. The regular Village Board meeting for the month of April was called to order at about 7:30 P.M. In attendance were approximately 40 concerned citizens, who were at the meeting, to voice their opposition to your proposed CBRF at 410 Hubbell Street in the Village of Marshall. It was the unanimous opinion of those in attendance that the Village Board should deny any request for such facility in the Village. Those in attendance were given a copy of your letter to the Board, dated March 22, 1989. Some of those people may be calling you in person. The Board listened attentively to all of those who spoke in opposition. No one spoke in favor. The Board took no official action other than to direct me to write you to indicate that there is a strong and perhaps unanimous community sentiment opposing your proposal. A copy of the Board minutes and meeting register have been enclosed for your reference. Subsequent to the April 11, 1989, Village Board meeting Tellurian President Dold received a number of letters and phone calls from persons expressing opposition to the proposed group home. During the summer of 1989 a number of residents of the Village organized to oppose Tellurian's proposed CBRF, and retained an attorney for that purpose. On August 25, 1989, the Wisconsin Housing and Economic Development Authority sent a letter to Dold stating that HUD had approved a grant of funds in the amount of $245,644 for the operation of a group home at 410 Hubbell Street, Marshall. In August 1989 Mr. Dold informed Village President Prust that Tellurian's grant request had been approved. On September 12, 1989, the Marshall Village Board at its regularly scheduled meeting determined to prepare and send a letter to Dold advising him that the proposed CBRF was within 2,500 feet of an existing CBRF and that, pursuant to State law, an exception would be necessary. A letter to this effect was sent to President Dold, advising him of the procedure for applying for an exception. By letter dated September 28, 1989, Dold applied for an exception to the 2,500 foot spacing requirement. The request was placed on the agenda for the October 10, 1989 Village Board meeting, and Dold was sent a copy of the agenda. At the October 10, 1989 Village Board meeting the Board determined to treat Tellurian's application for a statutory exception with the procedure used for conditional use permits. A public hearing on the application for a statutory exemption was scheduled for October 26, 1989. Village President Prust indicated that the purpose of the October 26th hearing would be to "hear evidence on the impact of having another community based residential facility within 2,500 feet of another such facility." At the October 10th meeting Village Board members requested that legal counsel provide information relating to Tellurian's application or to assist the Board members in evaluating it. In response, legal counsel provided to the Village Board members, prior to the October 26th hearing, portions of the legislative history of § 62.23(7)(i)(1), Wis.Stat., as well as several Law Review articles relating to community based group homes. A notice of the October 26th Board meeting was prepared and sent. On October 24, 1989, the Village Board held a meeting at which the Board members requested that legal counsel provide guidelines to assist Board members in evaluating comments which might be made at the October 26th public hearing. In response to the request by Board members, legal counsel prepared a letter dated October 26, 1989, which was distributed to the Board members prior to the hearing. The following is an excerpt from that letter: The Board's primary focus should be on the effect and impact to the neighborhood *875 which may result from having two community living arrangements (CLA) within 2,500 feet of one another.... The Board's decision on whether to grant or deny the exception is a zoning decision, and as such, must be related to the promotion of the "health, safety, morals, prosperity, aesthetics, and general welfare of the community. The United States Supreme Court has stated that a municipality's zoning decisions may not be based on unfounded stereotypes, biases, fears or prejudices toward a group of individuals such as the mentally ill. (Citations omitted.) Additionally, the Fair Housing Amendments Act of 1988 (citation omitted), the Federal Fair Housing Law, prohibits a municipality from denying housing to those with handicaps because of the handicap. ... The legislative history of § 62.23(7)(i), Stats., indicates that the purpose of this section is to provide to those who are institutionalized the benefits of living in normal residential settings. To maximize the rehabilitative effort of community-based residential living, the legislative history states that "community living arrangements should be located in a residential area which does not include numerous other such facilities." On October 26, 1989, the Village Board held a public hearing on Tellurian's application for an exception. Approximately 80 persons were in attendance at the meeting. Tellurian President Dold and a number of residents spoke at the public hearing. Several of those who spoke in opposition to the granting of an exception were applauded. Those who spoke in opposition generally discussed concerns over potential violence and crime as a result of the group home, as well as sentiment that exceptions to zoning laws should generally not be granted. After the public hearing was closed the Board entered into public deliberations. The following is the portion of the transcript relating to the public deliberations: Henry — Well, according to that map, that 1,600 foot deal, looks to me like we are right in a very dense, you're talking about density, populous part of the Village which concerns me. Which gets back to the State law. If it was out here, or something you know. Prust — Any other questions? I guess the point might be put here, that there are areas within the Village which fall outside of the 2,500 feet, that such a facility could be located on. So we aren't in the sense within that 2,500 closing the community to another facility, if that's what we're relating all this back to, the 2,500 feet. Hensler — Well, I think we've got to presume that the State Legislature enacted this bill, they had a good reason for it and I think they do in that order. For the concern of human and everyday residential atmosphere and a few other things like Mr. Dold said in such in doing that. That's my concern also in doing it, and I think it's a good law and I think it's there to benefit everybody concerned, especially the group homes. I think it gives them a place to have it and to keep that continuity in a residential area like we want in the first place. Keefer — I guess the thing that bothers me is if we put two group homes within 1,600 feet of each other and we okay this, and another group home comes in within say, in the middle between the two, at 800 feet, then you've got three homes within 1,600 feet. And that's what bothers me. Hensler — I agree. Hyman — And I also have another factor that I think it was presented by Newton, is that they were very careful within their group home to stay within a 2,500 foot section of another home, and I'm not sure why these people have requested to break that (not audible). Because one group home does look out for the other (not audible). Shaker — I just want to say, I can certainly understand the citizens' concern, but I think our issue is the 2,500 feet, and I agree with Wayne's concern that if we would grant this, then we could have somebody else coming in for a closer look. Prust — The important part is the Constitution. If the law is found to be unconstitutional, *876 we will have no say in the future, but at the present time, it's our deliberation as to whether that law is constitutional or not constitutional in the granting of this exception. Hensler — Right. In his own words, basically if there is two or three or four group homes together it's no good. That's why the law was enacted to do such in doing so. I guess I'd make the motion that we deny the variance, the exception, to Tellurian of the 2,500 foot. The motion carried unanimously. The October 26, 1989, meeting was held at a school gymnasium because the municipal building at which meetings are normally held would not accommodate the number of persons whose attendance was anticipated. The request for an exception for a group home aroused more opposition from residents than any other proposal to come before the Board within the experience of President Prust, who was familiar with the operations of the Board since 1986. MEMORANDUM The sole issue before the Court, to be resolved on the documentary record before it, is whether the actions of the Marshall Village Board constitute wrongful discrimination within the meaning of the 1988 amendments to the Fair Housing Act. The applicable statutory language, 42 U.S.C. § 3604(f), is as follows: ... It shall be unlawful * * * * * * (f)(1) to discriminate in the sale or rental, or to otherwise make unavailable or deny, a dwelling to any buyer or renter because of a handicap of— * * * * * * (B) a person residing in or intending to reside in that dwelling after it is so sold, rented, or made available; * * * * * * (3) For purposes of this subsection, discrimination includes— * * * * * * (B) a refusal to make reasonable accommodations in rules, policies, practices, or services, when such accommodations may be necessary to afford such person equal opportunity to use and enjoy a dwelling. Plaintiff advances two arguments in support of its contention that the defendant discriminated against Tellurian on the basis of the handicap of its potential residents. First, plaintiff contends that the decision of the Board to deny the exception was the result of intense public pressure opposing the project because of the desire to exclude mentally ill from the community. Second, plaintiff asserts that the failure to grant an exception constituted a refusal to make reasonable accommodations in rules, policies, practices or services within the meaning of § 3604(f)(3)(B). Defendant denies any discriminatory motive and asserts that § 3604(f)(3)(B) is inapplicable to it as a municipality exercising legislative discretion. Two distinct issues are presented in analyzing the applicability of § 3604(f)(3)(B). The first is whether the statutory spacing requirement for group homes constitutes a rule, policy or practice within the meaning of that section. Second, if the legislation does constitute a rule, policy or practice it must be determined whether the granting of an exception in this instance would have been a "reasonable accommodation necessary to afford such person equal opportunity to use and enjoy a dwelling." The language of the statute is the starting point in determining whether this provision applies to the Wisconsin Statute requiring 2,500 foot spacing between community living arrangements. Southeastern Community College v. Davis, 442 U.S. 397, 405, 99 S. Ct. 2361, 2366, 60 L. Ed. 2d 980 (1979). The terms "rules, policies, practices, or services" used in their ordinary sense are sufficiently broad to encompass a legislative enactment of the type presented here. A rule is "an established standard, guide, or regulation." Black's Law Dictionary 1331 (6th ed. 1990). Policy is "the general principles by which a government is guided in its management of public affairs, or the legislature and its measures." Id. at 1157. Either of these concepts are broad enough to encompass a *877 statute which prescribes the required spacing between group home facilities. Common usage of the terms in question would indicate that the statutory prohibition against locating community living arrangements within 2,500 feet of another are both rules and policies. The fact that the rule has been established by legislative enactment does not place it outside of this commonly understood definition. Reference to the legislative history of the 1988 amendments to the Fair Housing Act fully confirms this interpretation. House Report No. 100-711, 100th Cong., at 24, reprinted in 1988 U.S.Code & Admin.News 2173, 2185 (1988) contains the following language pertaining to the Fair Housing Amendments Act: The Committee intends that the prohibition against discrimination against those with handicaps apply to zoning decisions and practices. The Act is intended to prohibit the application of special requirements through land-use regulations, restrictive covenants, and conditional or special use permits that have the effect of limiting the ability of such individuals to live in the residence of their choice in the community ... Another method of making housing unavailable to people with disabilities has been the application or enforcement of otherwise neutral rules and regulations on health, safety, and land use in a manner which discriminates against people with disabilities. Such discrimination often results from false or over-protective assumptions about the needs of handicapped people, as well as unfounded fears of difficulties about the problems that their tenancies may pose. These and similar practices would be prohibited. New § 804(f)(3) sets out specific requirements to augment the general prohibitions under (f)(1) and (2). These include provisions regarding "reasonable modifications to existing premises," "reasonable accommodation," and accessibility features in new multi-family housing constructions. It is clear from this language that Congress anticipated that there were rules and regulations encompassing zoning regulations and governmental decisions about land use. Accordingly, the legislative history confirms the ordinary sense of the words. Furthermore, in the only case discovered where the issue was raised, it appears that the Court, without contrary argument from the parties, assumed that § 3604(f)(3)(B) applied to a township zoning variance determination. Devereux Foundation, Inc. v. O'Donnell, 1990 WL 132406 at 9, n. 12, n. 14, 1990 U.S.Dist.Lexis 11831 at 13, n. 12, n. 14 (E.D.Pa., 1990). In opposing the application of this provision the defendant contends that the Fair Housing Amendment Act was not intended to impinge upon the exercise of legislative discretion. The legislative history clearly supports the position of Congress that it had no concern about interfering with legislative discretion. To the contrary, Congress expressly stated that it intended to limit legislative discretion where the effect of the exercise of such discretion is to discriminate against individuals with handicaps. In fact, Congress specifically rejected an amendment which would limit interference with legislative discretion despite warnings from the proposal's opponents that this interference would indeed be substantial. My amendment provided that if a locality or state decides to zone real property as available for certain uses, such as commercial development or single-family homes, or fails to zone real property with the particular classification, such a zoning decision is not a violation of the Fair Housing Act unless the decision was made with intent to discriminate on the basis of race or other prohibited criteria under the Act. Similarly, the amendment mandated that if [sic] a local or state zoning grant or refusal to grant a variance is not a violation of the Act unless undertaken with discriminatory intent. H.R.Rep. No. 100-711 at 89, 1981, U.S.Code & Admin.News at 2224. *878 Furthermore, the House Committee directly stated its intent to limit Legislative discretion in this area: These new subsections would apply to state and local land use and health and safety laws, regulations, practices or decisions which discriminate against individuals with handicaps. While state and local governments have authority to protect safety and health, and to regulate use of land, that authority has been sometimes used to restrict the ability of individuals with handicaps to live in communities. Id. at 24, 1988 U.S.Code & Admin.News at 2185. Accordingly, it is clear that Congress intended to limit the exercise of legislative discretion where the effect was to discriminate against the handicapped and was well aware of the extent to which it limited such legislative discretion. Defendant also relies upon several regulations adopted by the government pursuant to the Fair Housing Amendments Act. First, defendant contends that 24 C.F.R. § 100.204 (1990) by referencing the term "person," intends to exclude municipalities. The Court finds no support for this argument. The term "person" as used in the Act and regulations clearly includes municipalities. The Court find no support for this argument. The term "person" as used in the Act and regulations clearly includes municipalities. Bellwood v. Gladstone Realtors, 569 F.2d 1013, 1020, n. 8 (7th Cir. 1978) aff'd, in part, Gladstone Realtors v. Bellwood, 441 U.S. 91, 99 S. Ct. 1601, 60 L. Ed. 2d 66 (1979). Second, defendant contends that because the two examples of the application of § 3604(f)(3)(B) contained in 24 C.F.R. § 100.204(b) do not refer to zoning or land use decisions, by implication the provision was not intended to cover them. There is no suggestion in the regulations that they are intended to be exhaustive of the application of the section. Furthermore, it is not surprising that the regulations do not refer to any land use situation as an example since the Secretary has determined that its regulations do not encompass land use decisions which are statutorily referred to the Attorney General for appropriate action. 24 C.F.R. Ch. 1, Subch. A, App. I at pp 578-79. "Since the Secretary has no power to issue a charge of discrimination in matters involving zoning or other land use law, the Department believes it would be inappropriate to address this specific issue in the regulations." Id. Accordingly, the Court determines that § 3604(f)(3)(B) applies in the present situation where a local government entity is granted legislative authority to determine whether a variance from an established rule is appropriate. The next issue to be addressed is whether the defendant failed to make a reasonable accommodation when it denied the statutory exception. In general, a "reasonable accommodation" is one which would not impose an undue hardship or burden upon the entity making the accommodation, Majors v. Housing Authority of DeKalb, 652 F.2d 454, 457 (5th Cir.1981), and would not undermine the basic purpose which the requirement seeks to achieve. Doherty v. Southern College of Optometry, 862 F.2d 570, 575 (6th Cir.1988). In this case no evidence was apparently presented to the Board that permitting the development of a group home at the Hubbell Street location would impose any cost or expense upon the Village. The only evidence before the Board was that the group home would continue to pay taxes and would not require additional services from the community. Neither was there evidence in the record or any indication that the Board members considered that the location of a group facility at Hubbell Street would undermine the purpose of the Wisconsin spacing statute. The Board was presented with substantial legal advice and considered the legislative history which accompanied the enactment of § 62.23(7)(i), including the following summary of the Legislation's purpose: It is the legislature's intent to promote public health, safety and welfare by enabling persons who otherwise would be *879 institutionalized to live in normal residential settings, thus hastening their return to their own home by providing them with the supervision they need without the expense and structured environment of institutional living. To maximize its rehabilitative potential, a community living arrangement should be located in a residential area which does not include numerous other such facilities. The residents of the facilities should be able to live in a manner similar to other residents of the area. * * * * * * The legislature believes these matters are a state-wide concern and can be achieved only by establishing criteria which restrict the density of community living arrangements while limiting the types of and number of facilities which can exist in residential neighborhoods having appropriate atmosphere for the residents, thereby preserving the established character of a neighborhood and community. 1977 A.B. 383, 1977 Wis.Laws Ch. 205, § 1. The evidence upon which the Board based its decision did not support a finding that an exception in this case would undermine the purpose of the statute. In fact, the evidence was that while technically within the 2,500 foot radius, the effective distance between the properties was in excess of the 2,500 foot requirement by virtue of the presence of the Menausha River. There was no evidence presented at the hearing to indicate that the presence of two relatively small group facilities would create the type of density which the Wisconsin legislature sought to avoid. Board members were, instead, concerned with the precedent which might be established for a potential third home in this radius, "the foot in the door" approach. The public comments of the Board members concerning their concern that a subsequent additional community-based residential facility would be sought were not relevant to its determination of the present facility. In fact, the public discussion by the Board members is probably best characterized as a strict adherence to the 2,500 foot rule in deference to the legislative determination that this was appropriate. Such strict adherence to a rule which has the effect of precluding handicapped individuals from residing in the residence was precisely the type of conduct which the Fair Housing Amendment Act sought to overcome with the enactment of § 3604(f)(3)(B). A discriminatory rule, policy, practice or service is not defensible simply because that is the manner in which such rule or practice has traditionally been constituted. This section will require that changes be made to such traditional rules or practices if necessary to permit a person with handicaps an equal opportunity to use and enjoy a dwelling. 1988 H.R.Rep. 100-711, at 25, U.S.Code Cong. & Admin.News at 2186. Since the evidence before the Board contained nothing that could support a finding that the location of the group home at 410 Hubbell Street would have any significant adverse impact on the legitimate goals of the Wisconsin Statute or would impose any expenses or burden upon the Village, failure to grant the exception constituted a failure to make reasonable accommodation as required by § 3604(f)(3)(B) and, consequently, was an act of discrimination as defined in the Fair Housing Amendments Act. ORDER IT IS ORDERED that plaintiff's motion for summary judgment on the issue of liability is GRANTED. IT IS FURTHER ORDERED that defendant's motion for summary judgment is DENIED.

01-03-2023

10-30-2013