author: STANLEY S. HARRIS, District Judge.

text:
    SUBSCRIPTION TELEVISION OF GREATER WASHINGTON, et al., Plaintiffs, v. A. Bart KAUFMANN, d/b/a A.B. Kaufmann Associates and New Video Engineering, Defendant.
    Civ. A. No. CA 84-2224.
    United States District Court, District of Columbia.
    April 24, 1985.

      Robert A. Fietel, Gordon W. Hatheway, Washington, D.C., for plaintiffs.
    No attorney of record for defendant.
   FINDINGS OF FACT AND CONCLUSIONS OF LAW

STANLEY S. HARRIS, District Judge.

A. Findings of Fact

1. Plaintiff Subscription Television of Greater Washington is a general partnership organized and existing under the laws of the District of Columbia, having its principal place of business in McLean, Virginia. The remaining corporate plaintiffs (hereinafter collectively referred to as STV GW) are general partners in that venture.

2. The defendant, A. Bart Kaufmann, is a citizen of the State of New Jersey, trading as A.B. Kaufmann Associates, and/or New Video Engineering, unincorporated business entities whose principal office is (or was) located at Route 527, Box 140, Livingston, New Jersey 07309.

3. The plaintiffs are engaged in the business of providing Subscription Television (STV) program service to Northern Virginia, Southern Maryland, and the District of Columbia under the trade name “Super TV.” The plaintiffs provide STV program service by transmission over two ultra high frequency television channels: WNUV, Channel 54, Baltimore, Maryland, and WCQR, Channel 50, Washington, D.C. This programming consists primarily of copyrighted movies, sporting events, and other specialty programming not generally available on advertiser-sponsored commercial television.

4. The plaintiffs commenced STV service on November 1, 1981. To date, they have invested substantial capital in the development of their STV service. Plaintiffs have constructed or purchased two television stations, purchased an inventory of decoders for lease to their customers, and expended substantial sums in acquiring broadcast rights to movies, sporting events, and other programming. Moreover, the plaintiffs have engaged in a large scale advertising campaign to inform the viewing public of the availability of STV broadcast service in the Washington, D.C., metropolitan area. At present, STV GW serves approximately 75,000 fee-paying subscribers.

5. Plaintiffs’ STV transmissions are “scrambled” or encoded television signals. The STV broadcast signals are thus unintelligible when received by conventional television sets. In order to view the STV station, one must possess an electronic decoder capable of unscrambling the signal and presenting it in an intelligible form.

6. As part of its service, STV GW generally leases each of its subscribers a specially manufactured decoder box to unscramble the STV signal. Both the decoder and the antenna are connected to the subscriber’s television set. The cost of plaintiffs’ unrestricted programming (not including one-time only specials) is $29.95 per month. Because there is no commercial advertising on Super TV, virtually all of plaintiffs’ revenues come from these monthly subscription fees.

7. The decoder device used by STV GW is manufactured by the Zenith Radio Corporation. The device is encased in a hard black plastic exterior and its approximate dimensions are 11" by 8" by 3". There is a button on top of the decoder which the subscriber pushes in when he wishes to view the STV program signal. The button is released to return to viewing regular UHF or VHF television signals. The decoder cannot be used for any other purpose other than to unscramble encoded STV broadcast signals.

8. In addition to its capacity to unscramble the STV broadcast signal, the decoder has an “addressability” function which permits STV GW to turn on (or off) the decoder’s unscrambling function by its computers. This function would be used, for example, when a subscriber elects voluntarily to terminate service, or when STV GW is forced to turn the descrambler function off for non-payment of the monthly service fee.

9. On or about February 3, 1984, the defendant began to place advertisements in The Washington Post and The Baltimore Sun which read as follows:

SUPER TV BOX

Assembled. 1 year warranty, consumer oriented company. 1-800-631-3403

10. The foregoing advertisement appeared periodically over the course of several months in both newspapers. The advertisement did not advise potential decoder customers that they were obligated to pay the signal provider, plaintiff STV GW, for the use of the STV service.

11. The advertisement thereafter was amended so as to inform potential customers of the need to notify the signal provider that they would be receiving the signal. The amended version of the defendant’s advertisement which appeared in The Washington Post on May 8, 1984, read as follows:

SUPER TV BOX

$225. 1 Yr. warranty (must pay fees' to cable co.) 1-800-631-3403

12. Both The Baltimore Sun and The Washington Post ultimately refused to accept any further advertising from the defendant.

13. Defendant Kaufmann then began a saturation direct-mail advertising campaign to residents of Washington, D.C., and the surrounding metropolitan area. The advertisement consisted of a one-page flyer, printed on both sides, which stated in part:

Now you can own your own decoder! That’s right! Our Zenith Box is identical to that being used by the Pay T.V. Company. It will enable you to view all phases of Super T.V. — a $30 monthly service — for $225 with a one-year unconditional warranty. [Emphasis in original.]

14. The flyer addresses itself as coming from the maker of the finest “T.V. By-Pass Equipment,” which is a technical term for the ability to by-pass the addressability feature of the decoding device. The flyer directed potential customers to call the same toll-free number as that which appeared in the earlier newspaper advertisements, but did not inform the reader of the obligation to contact the signal provider.

15. One of the plaintiffs’ employees, using a pseudonym, ordered a decoder from the defendant, which was sent from defendant’s New Jersey address to plaintiffs’ offices in Northern Virginia. When the decoder arrived, the plaintiffs’ engineers determined that it was a Zenith decoder of the type leased by STV GW, but that it had been modified so that the addressability feature no longer functioned. The package containing the decoder also included installation instructions, and a small piece of paper which stated in substance that the owner was to contact his local STV signal provider and arrange to make payments for the programming he receives.

16. That paper provides the first and the only notice to the customer (aside from those who purchased after reading the newspaper advertisement which briefly ran as described in paragraph 11) that alludes to any obligation to inform the signal provider that a decoder device is to be used to receive and unscramble the plaintiffs’ STV signal.

17. There is only one purpose to be achieved by modifying a decoder device so as to eliminate its addressability function: to enable a user to receive and unscramble an STV signal without notifying the signal provider. Thus, the defendant is selling a decoder that is no longer compatible with plaintiffs’ computer and may not be terminated by its computer. The defendant’s “instruction” accompanying the decoder to communicate with the signal provider is therefore worthless.

18. On another occasion, an employee of an affiliated subscription television service called defendant Kaufmann on the pretext of informing him that although he had attempted to make arrangements with the signal provider to pay for the programming, the station had objected to the use of the modified decoders. In response, Kaufmann instructed the customer not to call the station and then stated, contrary to the printed instructions accompanying the decoder, as follows:

You can’t do that. You can’t do that. You don’t want to pay monthly. That’s the idea. That’s why you spent $225 for the box.

19. Kaufmann’s comments demonstrated his specific intent that customers not contact signal providers such as STV GW. Moreover, in that same conversation, Kaufmann also stated that the message was not intended to be followed, but was included only to “protect us” [the defendant].

20. Defendant Kaufmann also stated publicly during a radio interview that he knew his customers were not paying the monthly subscription fee.

21. As a practical matter, the plaintiffs have no means to discover to whom defendant has sold decoders. There is no available technology which would permit the plaintiffs to identify those individuals who are receiving its STV signal through an unauthorized decoder.

22. The defendant Kaufmann has asserted that he was selling from 30 to 40 decoders per week in the Washington metropolitan area. To date, the plaintiffs have never been contacted by any of these purchasers to arrange for payment of the monthly fee.

23. As a result of the defendant’s unlawful activities, the plaintiffs have had their services converted and have lost substantial revenue from decoder purchasers who have not paid plaintiff STV GW the monthly viewing fee.

24. On July 19, 1984, STV GW filed a verified complaint for damages and temporary, preliminary, and permanent injunctive relief. STV contemporaneously filed applications moving for such extraordinary relief and a motion seeking expedited discovery.

25. A prompt hearing on plaintiffs’ application for a temporary restraining order was delayed, however, because of the need to personally serve the defendant, which was accomplished on August 1, 1984. Although service was made and notice given of the complaint in this case, the defendant defaulted on his obligation to answer the complaint and refused to participate in any of the proceedings.

26. An ex parte hearing on plaintiffs’ application for a temporary restraining order was held before this Court on August 14, 1984, and two days later the Court entered a temporary restraining order prohibiting the defendant from, inter alia, manufacturing or selling the unlawfully modified decoders.

27. In addition, by separate order dated August 15, 1984, the Court granted plaintiffs’ motion for expedited discovery, which directed Mr. Kaufmann to appear and be deposed in New Jersey on August 24, 1984. Both written and oral notice of the discovery order was communicated to the defendant.

28. The defendant failed to appear for the deposition and plaintiffs filed a motion for sanctions which was granted in the amount of $880 on September 21, 1984.

29. The Court held an evidentiary hearing on plaintiffs’ application for a preliminary injunction on August 29, 1984. The application was granted on September 5, 1984, and by its express terms extended the prohibition against the sale of the modified decoders through the entry of final judgment. The Court’s- law clerk telephoned the defendant to inform him of the entry of the preliminary injunction and plaintiffs’ counsel independently sent, via certified mail, a copy of the order to the defendant.

30. On September 25, 1984, almost a month after the preliminary injunction was entered, one of plaintiffs’ employees, again using a pseudonym, telephoned the defendant’s toll free number in New Jersey. The employee spoke with “Bart,” who informed her that although his company could no longer ship decoders C.O.D. into the Washington, D.C., area, if she would mail a check for $225 to A.B. Kaufmann at Route 527, Box 140, Livingston, New Jersey, she would receive the decoder within six business days. The decoder was received on October 8,1984. The mailing carton bore a Cleveland, Ohio, return address, which is the same address as that given by Kaufmann when he advises customers to send decoder devices that have broken down for repairs.

31. A default was entered against defendant Kaufmann by the Clerk of the Court, upon motion, on December 27, 1984.

32. Trial in this case was held on January 24, 1985, at which defendant did not appear personally, through counsel, or otherwise.

33. At trial, plaintiffs introduced competent evidence which established that they had suffered lost sales in the amount of $59,944.50.

B. Conclusions of Law

The issue of the defendant’s liability in this case is quite straightforward. Section 605 of the Communications Act of 1934, as amended, 47 U.S.C. § 605, prohibits any person, from assisting in the unauthorized interception of any wireless communication. The statute states, in pertinent part, that:

No person not being authorized by the sender shall intercept any radio communications and divulge or publish the existence, contents, substance, purport, effect, or meaning of such intercepted communication to any person. No person not being entitled thereto shall receive or assist in receiving any interstate or foreign communication by radio and use such communication (or any information therein contained) for his own benefit or for the benefit of another not entitled thereto____ This section shall not apply to the receiving, divulging, publishing, or utilizing the contents of any radio communication which is transmitted by any station for the use of the general public.

It is well established that a private civil cause of action exists for violations of Section 605, Chartwell Communications Group v. Westbrook, 637 F.2d 459 (6th Cir.1980), and that the statute protects against the unlawful interception of subscription television broadcasting. Without such protection, STV stations would be powerless to prevent the wholesale theft of their signals.

Thus, in National Subscription Television v. S & H TV, 644 F.2d 820 (9th Cir.1981), for example, the Court held that it had jurisdiction pursuant to Section 605 to enjoin the unauthorized sale of pirate STV decoders, reasoning that the defendant’s activities “threaten the economic viability of the STV industry, and thus run counter to FCC policy and the public interest.” 644 F.2d at 825. Similarly, in Chartwell Communications Group v. Westbrook, 637 F.2d 459, 466 (6th Cir. 1980), the court held that a private remedy under Section 605 was essential, else the STV signal provider “would have no means of protecting himself from unauthorized interception of the communication.”

The evidence adduced in this case clearly establishes that defendant Kaufmann’s conduct violated the prohibition contained in Section 605. The defendant has sold, and presumably still is selling, decoders that have been modified so as to render their addressability feature inoperative. There is only one purpose to be achieved by such modification: to enable the user to receive and unscramble a STV signal without notifying and having to make payments to the signal provider.

Moreover, the defendant is selling these decoders with the knowledge and intent that his customers do not contact local STV signal providers to arrange for payment of the programming service. The defendant has acknowledged that he knows his customers are not paying for the programming they receive and, as found above, specifically advised one such client not to contact the signal provider, commenting that: “You don’t want to pay monthly____ That’s why you spent $225 for the box.” Section 605 prohibits any person from assisting in the unauthorized interception of STV signals.' See Chartwell Communications Group v. Westbrook, 637 F.2d at 466 (“It is clear that by selling decoders or decoder schematics the [defendants] are assisting third parties in receiving communications to which they are not entitled.”).

The Court also notes, without deciding, however, that the defendant’s conduct appears to constitute a number of common law torts, including theft-of-service and conversion, and appears also to run afoul of several federal criminal statutes, including the prohibition against mail fraud, 18 U.S.C. § 1341, and wire fraud, 18 U.S.C. § 2511.

The only remaining issue is the type of relief which should be granted in this case. Plaintiffs have requested that the Court enter a permanent injunction and an award of both compensatory and punitive damages. The Court turns first to the availability of injunctive relief.

It is well settled that the federal district courts are vested with “broad discretionary power” in the shaping of equitable remedies. Lemon v. Kurtzman, 411 U.S. 192, 200, 93 S.Ct. 1463, 36 L.Ed.2d 151 (1973) (plurality). The traditional basis for injunctive relief is a showing of irreparable harm and the inadequacy of legal remedies. E. g., Reed Enterprises v. Corcoran, 354 F. 2d 519, 522 (D.C.Cir.1965). This Court also will consider the public interest in the entry of an injunction. Ashland Oil, Inc. v. Federal Trade Commission, 409 F.Supp. 297, 307 (D.D.C.1976). See generally 11 C. Wright & A. Miller, Federal Practice and Procedure § 2942 (1973). It is clear that the plaintiffs have met the standard for injunctive relief and that a permanent injunction prohibiting the defendant from manufacturing or selling the modified decoders must be entered.

As an initial matter, the defendant’s conduct has caused and is continuing to cause plaintiffs irreparable harm. Each purchaser of defendant’s pirate decoders is lost to plaintiffs as a potential subscriber to their STV service. Because subscriber fees are virtually plaintiffs’ only source of revenue to support their STV business, the irretrievable loss of subscribers constitutes irreparable damage entitling plaintiffs to injunctive relief. See Chartwell Communications Group v. Westbrook, 637 F.2d at 467.

In addition, another irreparable injury is being inflicted because plaintiffs’ ability to retain existing subscribers, to enlist new subscribers, to acquire suitable programming, and to remain in the STV business depends directly on their reputation as the sole source of the STV programming that plaintiffs provide. Plaintiffs’ STV business will not survive if plaintiffs lose their credibility as the exclusive source of their programming.

Moreover, plaintiffs have no adequate remedy at law because money damages cannot make them whole. The federal courts have recognized in other video piracy cases that this injury is not adequately compensated by money damages.

In Home Box Office, Inc. v. Pay TV of Greater New York, Inc., 467 F.Supp. 525, 530 (E.D.N.Y.1979), for example, the court found that:

Plaintiff plausibly claims that its present lack of control over the locations and customers being served by defendant and defendant’s representation of the pirated service as its own are damaging plaintiff’s name and jeopardizing its expansion plans. A judgment for damages is hardly adequate to compensate for these.

The public interest also strongly supports the entry of a permanent injunction. The FCC has been authorized by Congress to regulate the airwaves so as to promote the public interest. See e.g., National Subscription Television v. S & H TV, 644 F.2d at 826. In furtherance of this mandate, the Commission has authorized and licensed STV service. See 47 C.F.R. §§ 73.641-73.644.

The FCC’s efforts to authorize, license, regulate and promote STV services so as to serve the public interest would be thwarted if STV programmers are not protected from unlawful activities such as those engaged in by defendant. In fairness to plaintiff, their paying subscribers, and all others who seek to earn their own living and pay their own way in this society, the requested permanent injunction should issue.

This Court is obligated to shape an injunction which will provide protection for the plaintiffs both now and in the future. Thus, the permanent injunction entered in this case will provide not only that the defendant be permanently enjoined from selling or otherwise distributing unauthorized, non-addressable decoders. In addition, the terms of the injunction will order the defendant to turn over his customer lists to the plaintiffs so that they may contact the purchasers and make arrangements for payment. Finally, in order to ensure that the defendant does not continue the unlawful sale of the modification decoders, he will be ordered to turn over the decoders in his possession, wherever located, to the United States Marshal’s office having jurisdiction over the district in which they are located, for ultimate destruction.

With respect to the issue of damages, at trial plaintiffs established that they were entitled to $59,944.50 in compensatory damages. In the special circumstances of this case, however, more than the entry of an award of compensatory damages is necessary to vindicate both the private and public interests raised in this litigation. The plaintiffs have requested, and the Court concludes that the defendant’s conduct warrants, the imposition of a punitive damages award.

In this jurisdiction punitive damages are awarded, in addition to compensatory damages, both to punish the wrongdoer and to deter him (and others) from similar misconduct in the future. City of Newport v. Fact Concerts, Inc., 453 U.S. 247, 266-67, 101 S.Ct. 2748, 2759-60, 69 L.Ed.2d 616 (1981). Punitive damages are justified when the defendant acts with “gross fraud, wantoness, maliciousness, or willful disregard” for the rights of others. Rainbolt v. Johnson, 669 F.2d 767, 769 (D.C.Cir.1981). Accord Knippen v. Ford Motor Co., 546 F.2d 993, 1002 (D.C.Cir.1976). Moreover, the trier of fact may infer the requisite mental state from the defendant’s conduct. See Hobson v. Wilson, 556 F.Supp. 1157, 1193 (D.D.C.1982). The award of punitive damages, of course, rests within the sound discretion of the trial court sitting in a non-jury case. Mariner Water Renaturalizer v. Aqua Purifi cation Systems, Inc., 665 F.2d 1066, 1071 (D.C.Cir.1981).

In this case, the Court finds that the defendant’s continuing course of misconduct unmistakably manifests his wanton, willful and total disregard for the rights of others. The testimony introduced at the trial shows that the defendant has not only violated the law by selling the modified decoders but has deliberately ignored the express terms of this Court’s preliminary injunction, and also has attempted to avoid detection by mailing the unlawful modified decoders from another site and by refusing to accept C.O.D. orders from the Washington, D.C., area.

A substantial award of punitive damages is consistent with the purposes of that remedy. It will serve both to punish the defendant and to deter similar conduct in the future. See Davis v. Schuchat, 510 F.2d 731, 738 (D.C.Cir.1975) (civil law has long recognized that in certain situations deterrence can be better achieved by punitive damages award than through criminal sanctions). Accordingly, the Court will enter an order awarding plaintiffs $50,000 in punitive damages.

As noted above, the defendant has contumaciously ignored, disregarded, or intentionally disobeyed the directives of this Court, including the temporary restraining order and the preliminary injunction. In the future, the Court will consider with the utmost severity any failure by the defendant to comply with each provision of the Court’s permanent injunction which is issued contemporaneously herewith.

ORDER

Upon consideration of plaintiffs’ application for a permanent injunction, compensatory and punitive damages, the memorandum in support thereof, and the evidence and the argument of counsel presented thereon at trial on January 27, 1985, at which the defendant did not appear in person, or by counsel, and for the reasons set forth in the Court’s Findings of Fact and Conclusions of Law issued this date, pursuant to Fed.R.Civ.P. 52, it hereby is

ORDERED, that plaintiffs’ application for a permanent injunction is granted. It hereby further is

ORDERED, that the defendant A. Bart Kaufmann, A.B. Kaufmann Associates, New Video, and any and all other persons acting in consort or participation, aiding and abetting, or conspiring with him hereby are permanently enjoined from:

(1) Manufacturing, assembling, purchasing, using, installing, advertising, promoting, selling, renting, consigning, leasing, gifting, distributing, conveying, or transferring; or attempting to manufacture, assemble, purchase, use, install, advertise, promote, sell, rent, consign, lease, gift, distribute, convey or transfer, components, plans, or devices capable of, or intended, designed, or represented to be capable of, intercepting or receiving plaintiffs’ subscription television programming which has had the manufacturer-installed addressability function removed or modified so as to render it inoperative.

(2) Assisting, aiding and abetting, or conspiring with any person or entity, to unlawfully intercept, receive, publish, divulge, use, or benefit from plaintiffs’ subscription television programming without authorization from plaintiffs.

(3) Destroying, altering, concealing, secreting, changing, disposing of, or tampering in any way with, or otherwise making unavailable, records or writing of any sort which refer to, relate to, mention, or memorialize any acts or transactions of the nature described in the foregoing numbered paragraphs including, without limitation, books of accounts or accounting records, memoranda, or lists of, or documents which identify actual or potential manufacturers, suppliers, purchasers, or transferees of components, plans, or devices.

(4) Disposing of, concealing, removing, or otherwise making unavailable the proceeds of any sales, rentals, consignments, leases or other conveyances of components, plans, or devices of the nature described in the foregoing numbered paragraphs. It hereby further is

ORDERED, that within ten days from the date of this Order, defendant shall make available to the plaintiffs a list of the names and addresses of any individual to whom he has sold a decoder device. It hereby further is

ORDERED, that within ten days from the date of this Order, defendant shall turn over all decoders modified so as to render their addressability feature inoperative to the United States Marshal’s Service in the jurisdictions where such decoders are located. It hereby further is

ORDERED, that plaintiffs shall be awarded compensatory damages in the amount of $59,944.50. It hereby further is

ORDERED, that pursuant to Fed.R. Civ.P. 37 plaintiffs shall be awarded damages as a sanction against the defendant in the amount of $880. It hereby further is

ORDERED, that plaintiffs shall be awarded punitive damages in the amount of $50,000. It hereby further is

ORDERED, that plaintiffs’ bond shall be released.

The Clerk shall enter judgment in the total amount of $110,824.50 in favor of the plaintiffs against the defendant, and the case is dismissed.

SO ORDERED.

      . At the time National Subscription Television was decided, F.C.C. regulations prohibited the sale of decoder devices. See 47 C.F.R. § 73.-642(f)(3) (1979). This regulation was subsequently deleted and, although decoders may now be sold, the purchaser still has an obligation to pay for the STV programming service. In deregulating the sale of decoders, the Commission explicitly recognized that its conduct might aggravate video piracy, and endorsed the use of private actions under Section 605 to combat STV piracy. See Subscription Television Service, 53 Pike & Fisher, Radio Regulation 646 (1983).

      . The defendant’s extremely modest efforts to notify customers of their legal obligation to contact the signal provider does not absolve him of liability. Neither the defendant’s newspaper or direct mail advertisements mention this obligation, nor does the defendant communicate such fact upon receipt of the phone order for the decoder. The small piece of paper included in the package when the decoder device is delivered which informs the customer (after the fact) of his responsibility to contact the signal provider is not intended nor designed to cause such a result. Rather, it is, as defendant also has admitted, something just "to protect us.” Defendant Kaufmann’s purported attempt to comply with the letter of the law cannot excuse his total disregard for its spirit and intent.

      . This standard is incorporated in the test for the grant of temporary and preliminary injunctive relief set forth by the Court of Appeals in Washington Metropolitan Area Transit Authority v. Holiday Tours, Inc., 559 F.2d 841, 843 (D.C.Cir.1977), and Virginia Petroleum Jobbers Ass’n v. Federal Power Comm'n, 259 F.2d 921, 925 (D.C.Cir.1958).


source: Caselaw Access Project

author: BOHANON, District Judge.

license: Public Domain

text:
    Robert L. DOWELL, et al. Plaintiffs, v. BOARD OF EDUCATION of the OKLAHOMA CITY PUBLIC SCHOOLS, et al. Defendants, Applicant for Intervention: Yvonne Monet Elliot and Donnoil S. Elliot, both minor children, by and through their parent and guardian, Donald R. Elliot; Diallo K. McClarty, a minor child, by and through his parent and guardian, Donna R. McClarty; Donna Chaffin and Floyd Edmun, both minor children, by and through their parent and guardian, Glenda Edmun; Chelle Luper Wilson, a minor child, by and through her parent and guardian, Clara Luper; Donna R. Johnson, Sharon R. Johnson, Kevin R. Johnson, and Jerry D. Johnson, all minor children, by and through their parent and guardian, Betty R. Walker; Lee Maur B. Edwards, a minor child, by and through his parent and guardian, Elrosa Edwards; Nina Hamilton, a minor child, by and through her parent and guardian, Leonard Hamilton; Jamie Davis, a minor child, by and through his parent and guardian, Etta T. Davis; and Romand Roach, a minor child, by and through his parent and guardian, Cornelia Roach.
    No. CIV-9452.
    United States District Court, W.D. Oklahoma.
    April 25, 1985.

      John W. Walker, Little Rock, Ark., Ted A. Shaw, New York City and Lewis Barber, Jr., and Jethro Curry, Oklahoma City, for petitioners.
    Ronald L. Day, Oklahoma City, for defendant Bd. of Educ.
   FINDINGS OF FACT AND CONCLUSIONS OF LAW

BOHANON, District Judge.

On February 19, 1985, the petitioners filed a Motion to Reopen this desegregation case to challenge the constitutional validity of a recently proposed Student Reassignment Plan which curtails cross-town busing in Oklahoma City of elementary school children in grades one through four. In their motion, petitioners allege that the Oklahoma City School District has not achieved unitary status, and that the School Board’s proposed plan creates racially identifiable neighborhood schools thereby resegregating the Oklahoma City School District.

On March 6, 1985, the defendant School Board filed a Response to Petitioners’ Motion alleging the school district became unitary in 1977 and that the proposed plan was justified and constitutional.

On March 13, 1985, the court entered an Order finding that petitioners’ Motion and defendants’ Response joined the issues, and set the Motion to Reopen down for an evidentiary hearing. The hearing was conducted on April 15 and 16, 1985. At the hearing the petitioners were represented by John W. Walker of Little Rock, Arkansas, Ted A. Shaw of New York City, New York, Lewis Barber, Jr., of Oklahoma City, Oklahoma, and Jethro Curry of Oklahoma City. The defendant Board of Education was represented by Ronald L. Day of Oklahoma City.

Case History

This action was originally commenced in October, 1961, as a class action seeking equitable relief against the Oklahoma City Board of Education for operating a state-compelled dual system of education. In July, 1963, this court handed down its decision finding that the Oklahoma City School Board’s refusal to grant a transfer to a black student from a predominantly black school to a predominantly white school constituted unlawful race discrimination. Do-well v. School Board, of the Oklahoma City Public Schools, 219 F.Supp. 427 (1963). During the years that followed, this case again came before this court and appellate courts on issues relating to the Oklahoma City School Board’s obligation to convert a state-compelled dual school system into a unitary system which would eliminate racial discrimination.

In February, 1972, after conducting many hearings, this court ordered the Oklahoma City School Board to implement what came to be known as the “Finger Plan.” Dowell v. Board of Education of the Oklahoma City Public Schools, 338 F.Supp. 1256 (W.D.Okl.1972). Under the Finger Plan, high school attendance zones (grades 9-12) were restructured so that each high school enrolled both black and white pupils. To accomplish this, an elementary school feeder system was used so that students were assigned to a high school based on the elementary school attendance zone in which their home was located. Similarly, middle schools (grades 6-8) were desegregated by the establishment of attendance zones for each school. At the elementary level all majority black schools were converted to fifth year centers, while all other schools were to serve grades 1-4. White students in the.group attended their neighborhood school for grades 1-4, and attended the formerly black schools for the fifth grade. Black students formerly assigned to the schools now used as fifth year centers were split up and attended the majority white schools for grades 1-4. Black students in fifth grade attended the fifth grade center which was previously their neighborhood school. Elementary schools located in naturally integrated neighborhoods qualified for an exception to the general plan known as “stand alone” status, a term to be explained further infra, and operated as schools enrolling grades kindergarten through fifth. Kindergartens existed at each elementary school and were permitted to continue without forced desegregation through busing. Parents of kindergarten children were given the freedom to choose the school their child attended. The freedom of choice was justified because it permitted kindergarten children to go to the school in the vicinity of the place where their mother was working, or to walk to kindergarten with other siblings or neighborhood children. Id. at 1267-1268.

The court’s decision in February, 1972, implementing the Finger Plan was upheld on appeal. Dowell v. Board of Education of the Oklahoma City Public Schools, 465 F.2d 1012 (10th Cir.1972), cert. denied 409 U.S. 1041, 93 S.Ct. 526, 34 L.Ed.2d 490 (1972).

The Oklahoma City Board of Education implemented and properly operated the Finger Plan for several years. After the Finger Plan had been in operation for some time, the Board of Education filed a “Motion to Close Case” on the grounds that it “[had] eliminated all vestiges of state-imposed racial discrimination in its school system and [was] ... operating a unitary school system.” Thereafter, the court conducted a hearing to receive evidence from plaintiffs and defendants concerning the state of desegregation in the Oklahoma City public schools, and on January 18, 1977, entered an order relinquishing its jurisdiction and terminating this case. The “Order Terminating Case” states in pertinent part as follows:

... [T]he School Board, under the oversight of the Court, has operated the Plan properly, and the Court does not foresee that the termination of its jurisdiction will result in the dismantlement of the Plan or any affirmative action by the defendant to undermine the unitary system so slowly and painfully accomplished over the 16 years during which the cause has been pending before the Court.”
Now sensitized to the constitutional implications of its conduct and with a new awareness of its responsibility to citizens of all races, the Board is entitled to pursue in good faith its legitimate policies without the continuing constitutional supervision of this Court____
ACCORDINGLY, IT IS ORDERED:
1. The Biracial Committee established by the Court’s Order of December 3, 1971, which has been an effective and valued agency of the Court in the implementation of the Plan, is hereby dissolved;
2. Jurisdiction in this case is terminated ipso facto subject only to final disposition of any case now pending on appeal, (emphasis added)

Plaintiffs did not appeal the Order Terminating Case. To this date the Oklahoma City Board of Education continues to implement the substance of the Finger Plan with minor modifications. There has been no attempt to revive or reopen this case during the eight years which passed from the time this court terminated its jurisdiction until the present contest.

Findings of Fact

1. One of the many elements of the Finger Plan carried forward by the Oklahoma City Board of Education was the provision for kindergarten through fifth grade (K-5) “stand alone” schools. That is, when racial balance in a neighborhood is achieved through natural integration the elementary school qualifies as a K-5 “stand alone” school. When this status is achieved, the fifth grade is returned to the elementary school, and children are no longer bused into or out of the elementary school to achieve racial balance.

2. As the years passed by, more and more neighborhoods in Oklahoma City became naturally integrated. By mid-1984, more than twelve years after the Finger Plan had been in operation, more than a dozen elementary schools were located in neighborhoods with a racial balance that qualified them for “stand alone” school status.

3. In 1984 the Board of Education recognized Bodine Elementary School in southeast Oklahoma City as a K-5 “stand alone” school. In the process, the School Board noticed certain inequities (hereinafter identified) starting to surface with the advent of more and more schools qualifying for K-5 “stand alone” status.

4. On July 16, 1984, the Board of Education appointed a committee to study the school district’s K-5 schools, and to report back to the Board with positive recommendations. The committee consisted of three School Board members. Dr. Clyde Muse, who is black and has a Ph.D. in education, chaired the committee. Also on the committee were Mrs. Susan Hermes and Mrs. Betty Hill. Both of these School Board members had prior experience as certified school teachers. The committee frequently called upon the school district’s research department for data and statistics needed during the study. During the time the committee was meeting, Dr. Muse traveled to the Office of Civil Rights in Dallas, Texas, for consultation and advice.

5. On November 19, 1984, the committee presented a report to the entire Board concerning its study on the far-reaching effects of an increased number of K-5 “stand alone” schools, and recommended that the Board adopt a new Student Reassignment Plan which, among other things, eliminated K-5 “stand alone” schools.

6. The committee study revealed that as more neighborhoods become naturally integrated and their schools qualify for K-5 “stand alone” status, the young black students previously bused into those schools would have to be reassigned to other schools. Since most of the naturally integrated schools are centrally located in the City, the reassignment of young blacks would be to schools located further north, west or south. The effect would be to increase the busing burden in terms of time and distance on young black children in the first through fourth grades. Further, the committee pointed out that when a “stand alone” school reacquires its fifth grade, this causes the student population at the fifth year centers located in the northeast quadrant of the district to drop, and the centers to be subjected to closing.

7. Also, the committee was concerned with the decline of parental involvement in the schools, and wanted a plan which would have the effect of increasing parental involvement. Curriculum uniformity was also a consideration of the committee! All fifth year centers have enrichment programs including intramurals, string instruments, the Opening Doors program and special interest sessions. The committee felt it would be increasingly difficult to make these fifth year center programs equally available within the new K-5 “stand alone” schools.

8. After the committee made its report and submitted its recommendation, public hearings were conducted at various schools throughout the community to discuss the proposed plan. Thereafter, a special School Board meeting was' conducted on December 10, 1984, so that anyone in the community could state their views and make suggestions about the proposed plan directly to the Board of Education. The Superintendent of Schools sent copies of the proposed plan to the Office of Civil Rights, and invited personnel from the Office of Civil Rights to attend the public hearings where the proposed plan was being discussed.

9. As a result of positive input from the public, the committee recommended that certain specific amendments not affecting the overall character of the plan be made. Thereafter, on December 17, 1984, the Oklahoma City Board of Education unanimously adopted the Student Reassignment Plan which is to go into effect at the commencement of the 1985-86 school year.

10. The fundamental elements of the plan, admitted into evidence as plaintiffs’ Exhibit # 1 and incorporated by reference in these findings of fact, are as follows:

(a) The Plan calls for K-4 neighborhood schools throughout the district. This eliminates compulsory busing of young black children, grades 1-4, to elementary schools outside their immediate neighborhood;
(b) An equity officer is to monitor all schools to insure the equality of facilities, equipment, supplies, books and instructors in all schools. An equity committee is to assist the equity officer and recommend ways to integrate students at any racially identifiable elementary schools several times each year;
(c) A “majority to minority” transfer policy will allow elementary students assigned to a school where their race is in the majority to obtain a transfer to a school in which their race will be in the minority. The transfer option is encouraged through district-provided transportation;
(d) All faculties and staff will remain integrated at all schools in the district; and
(e) Fifth year centers will be located in all sections of the school district. All fifth year centers, middle schools, and high schools in the school district will continue to be racially balanced with the aid of busing.

11. Population changes have occurred in the Oklahoma City School District from the time the Finger Plan was implemented. In 1970, 325,000 people lived in the school district. In 1980, 305,000 people lived in the school district. In 1971, 68,840 students attended school in the district. In 1985, 40,375 students attend school in the district. In 1971, the student population was 23.4% black. In 1985, the student population is 38.3% black. In 1971, the student population was 76.6% white. In 1985, the student population is 49.6% white. (The failure of the 1985 figures to add up to 100% is due to the exclusion of non-black minorities from the figures used to calculate percentages of whites and blacks. This apparently was not done with the figures presented to the court in 1971.)

12. Presently, the racial composition of the faculty and staff serving Oklahoma City Public Schools is as follows:

Teachers 30.4% black
Principals 28.4% black
Other Administrators 35.5% black
Coaches 45.6% black
Counselors 41.3% black
Special Ed. Teachers 30.2% black
Support Personnel 45.9% black

Also, the Oklahoma City Board of Education has in the past and continues to implement and follow an affirmative action plan. At present, racial balance within 15 percentage points of the proportions in the system-wide student population is maintained in all classes in grades 1-12 through busing.

13. Under the Student Reassignment Plan there will be 64 elementary schools. Eleven of those schools will be ninety percent (90%) or more black. Twenty-two of the 64 elementary schools will be ninety percent (90%) or more white and non-black minorities. The remaining 31 elementary schools will be racially mixed between blacks and non-blacks. The Oklahoma City Board of Education has neither altered the boundaries to these elementary schools so as to create a certain number of racially identifable schools, nor attempted to fix or alter demographic patterns to affect the racial composition of its schools.

14. Under the Student Reassignment Plan the curriculum in all the elementary schools will be the same. The special education programs offered in all schools will be the same. The student-teacher ratio in all schools remain the same. Facilities, equipment, supplies and textbooks will be equal. As was pointed out previously, the faculties and staffs at each elementary school will remain integrated.

15. In the early 1970’s, there were approximately 94 parent-teacher associations within the school district with a total membership in excess of 25,000 people. Presently, there are only 14 parent-teacher associations and the membership is less than 5,000. Parental involvement is an essential ingredient to a quality education. The Board of Education previously took steps in an effort to increase parental involvement. An attempt was made to implement a district-wide parents council. School Board meetings were moved out into the community. Buses were sent to certain schools to pick up parents for meetings. However, these efforts failed. The court finds that the degree of parental involvement in the schools is a legitimate concern of the Board of Education, and that the School Board’s proposed plan will have the effect of increasing parental involvement at the elementary school level.

16. Student participation in extracurricular activities is also an essential ingredient to a quality education. The School Board’s proposed plan will give elementary students a greater opportunity to participate in such activities.

17. The School Board has a genuine concern for maintaining schools in all areas that the school district serves. Also, the amount of time and distance traveled by elementary school children on buses is a genuine concern of the Board of Education.

18. The Board of Education adopted the Student Reassignment Plan for legitimate purposes: to protect against the loss of schools in the northeast quadrant of the district; to maintain fifth year centers throughout the district; to reduce the busing burden on young black students; to increase parental and community involvement in the schools; and to improve programs and provide elementary children with a greater opportunity for participation in extracurricular activities.

19. The Student Reassignment Plan is not discriminatory, and it was not adopted by the Oklahoma City Board of Education with the intent to discriminate on the basis of race or with a deliberate purpose to affect the racial composition of the schools. Any change in the racial composition of the schools that may be expected to result from the plan is an unintended and largely unavoidable consequence of other objectives sought for the benefit of all students. The court is convinced that the Board of Education is equally concerned about the health, education and well-being of both black students and white students.

20. The School Board members on the committee who recommended the Student Reassignment Plan were qualified by virtue of their educational background and experience to conduct the study and formulate the various components of the Student Reassignment Plan. The Student Reassignment Plan is educationally sound, and when implemented, will accomplish the objectives of the Board of Education.

Conclusions of Law

1. The Supreme Court in Green v. New Kent County School Board., 391 U.S. 430, 437-38, 88 S.Ct. 1689, 1693-94, 20 L.Ed.2d 716 (1968), held that once it is determined that a school district is operating a dual system, then the school authorities are “clearly charged with the affirmative duty to take whatever steps might be necessary to convert to a unitary system in which racial discrimination would be eliminated root and branch.” In Green, the Court identified six components of a school system which must be desegregated before the entire system can achieve unitary status: faculty, staff, transportation, extracurricular activities, facilities, and composition of the student body. Id. at 435, 88 S.Ct. at 1692.

2. The specific question of when a district court should declare a school system “unitary” and terminate its remedial jurisdiction has been addressed by the Supreme Court and the Tenth Circuit Court of Appeals. The Supreme Court in Raney v. Board of Education, 391 U.S. 443, 449, 88 S.Ct. 1697, 1700, 20 L.Ed.2d 727 (1968) held that “in light of the complexities inhering in the disestablishment of state-established segregated school systems, Brown II contemplated that the better course would be to retain jurisdiction until it is clear that disestablishment has been achieved.” Similarly, in an earlier decision in this very case, the Tenth Circuit Court of Appeals stated that “jurisdiction should be held until such time as the court is satisfied that the decreed unconstitutional practices are eliminated and appellant board is found to be in full compliance with the teachings of the Brown case.” Board of Education of Oklahoma City Public Schools v. Dowell, 375 F.2d 158, 168 (10th Cir.1967).

3. This court in its 1972 order directing the implementation of the Finger Plan recognized that the court “was required to retain jurisdiction to evaluate the Plan in practice and to see that state imposed segregation was completely removed.” Do-well v. Board of Education of the Oklahoma City Public Schools, 338 F.Supp. 1256, 1258, footnote 1 (W.D.Okl.1972).

4. At the time this court totally relinquished its jurisdiction over this case in 1977, the court was convinced that the Finger Plan had been carried out in a constitutionally permissible fashion and that the School District had reached the goal of being a desegregated non-racially operated and unitary school system. In the Order Terminating Case this court specifically found that the School Board had complied with the requisite constitutional requirements and recognized that a “unitary system” had been “accomplished” over the previous sixteen years. The Order Terminating Case was not appealed, and no attempt to revive or reopen this litigation was made during the eight years which passed from the time the Order was entered in 1977 until the Motion to Reopen was filed in 1985.

5. The Supreme Court has approved the view that the fact that a case is in the nature of a suit in equity, authorized by 42 U.S.C. § 1983, as is this one, “presents no categorical bar to the application of res judicata and collateral estoppel concepts.” Allen v. McCurry, 449 U.S. 90, 97, [101 S.Ct. 411, 416, 66 L.Ed.2d 308] (1980). These concepts were explained by the Court as follows:

Under res judicata, a final judgment on the merits of an action precludes the parties or their privies from relitigating issues that were or could have been raised in that action. Cromwell v. County of Sac, 94 U.S. 351, 352 [24 L.Ed. 195]. Under collateral estoppel, once a court has decided an issue of fact or law necessary to its judgment, that decision may preclude relitigation of the issue in a suit on a different cause of action involving a party to the first case. Montana v. United States, 440 U.S. 147, 153 [99 S.Ct. 970, 973, 59 L.Ed.2d 210]. As this Court and other courts have often recognized, res judicata and collateral estoppel relieve parties of the cost and vexation of multiple lawsuits, conserve judicial resources, and, by preventing inconsistent decisions, encourage reliance on adjudication. Id., at 153-154 [99 S.Ct. at 973-974],

Id. at 94, 101 S.Ct. at 414. In the present case, this court’s finding in 1977 that a unitary system had been achieved by the Oklahoma City public schools is res judicata as to those who were then parties to this action. At the time of that Order, the plaintiffs in this action represented the entire class of school-aged black children within the Oklahoma City Public School District, and the present petitioners acknowledge that this class included future black children. At the very least, the present applicants for intervention, appearing through their parents and guardians, seek to represent a similarly-defined class of black children and are themselves members of said class. Though the individual members of this class may have changed with the passage of time, this change cannot defeat the preclusive effect of this court’s original finding of unitariness. Courts have held that even when a first case was a so-called “spurious” class action “a public body should not be required to defend repeatedly against the same charge of improper conduct if it has been vindicated in an action brought by a person or group who validly and fairly represent those whose rights are alleged to have been infringed.” Bronson v. Board of Education, 525 F.2d 344, 349 (6th Cir.1975) cert. denied, 425 U.S. 934, 96 S.Ct. 1665, 48 L.Ed.2d 175 (1976) (emphasis in original). There has been no showing in this case that the original plaintiffs did not validly and fairly represent all those whose rights are concerned here. The present petitioners are, therefore, collaterally estopped from relitigating the issue of the unitary character of the Oklahoma City Public Schools as of 1977 even if res judicata itself is not strictly applicable to the facts of this attempted class intervention. Id.; see Bell v. Board of Education, 683 F.2d 963 (6th Cir.1982); L.A. Unified School District v. L.A. Branch NAACP, 714 F.2d 935 (9th Cir.1983) (Bronson cited with approval, but res judicata found to be the more applicable doctrine under the circumstances of the case).

6. Furthermore, this court finds that the Oklahoma City School District displays today, as it did in 1977, all indicia of “unitariness.” It has now been thirteen years since cross-town busing was introduced and almost twenty-five years since the start of desegregation litigation in Oklahoma City. The evidence in this case demonstrates that the Oklahoma City School District remains unitary today. The School Board, administration, faculty, support staff, and student body are integrated. Further, transportation, extracurricular activities and facilities within the school district are equal and non-discriminatory. This court’s finding of unitariness in 1977 was fully justified, and remains a finding which is today fully justified.

7. Supreme Court precedent is clear that once a school system has become unitary, the task of a supervising federal court is concluded. “Neither school authorities nor district courts are constitutionally required to make year-by-year adjustments of the racial composition of student bodies once the affirmative duty to desegregate has been accomplished and racial discrimination through official action is eliminated from the system.” Swann v. Charlotte-Mecklanburg Board of Education, 402 U.S. 1, 31-32, 91 S.Ct. 1267, 1283-1284, 28 L.Ed.2d 554 (1971). Where unitary status has been achieved, district court intervention is normally not necessary unless there is a showing that the school district “has deliberately attempted to fix or alter demographic patterns to affect the racial composition of the schools.” Id. at 32, 91 S.Ct. at 1284. “[Hjaving once implemented a racially neutral attendance pattern in order to remedy the perceived constitutional violations on the part of the defendants, [a District Court has] fully performed its function of providing the appropriate remedy for previous racially discriminatory attendance patterns.” Pasadena City Bd. of Education v. Spangler, 427 U.S. 424, 436-37, 96 S.Ct. 2697, 49 L.Ed.2d 599 (1976).

8. The Tenth Circuit Court of Appeals has recognized “that neighborhood school attendance policies, when impartially maintained and administered, do not violate any fundamental Constitutional principle or deprive certain classes of individuals of their Constitutional rights.” Board of Education of Oklahoma City Public Schools v. Dowell, 375 F.2d 158, 166 (10th Cir.1967), cert. denied, 387 U.S. 931, 87 S.Ct. 2054, 18 L.Ed.2d 993 (1967).

9. Also, the Supreme Court has recognized that in a system that has not been deliberately constructed and maintained to enforce racial segregation, “it might well be desirable to assign pupils to schools nearest their homes.” Swann, 402 U.S. at 28, 91 S.Ct. at 1282.

10. Congress has also passed legislation recognizing the desirability of neighborhood schools. 20 U.S.C. § 1701 states:

(a) The Congress declares it to be the policy of the United States that—
(1) all children enrolled in public schools are entitled to equal educational opportunity without regard to race, color, sex or national origin; and
(2) the neighborhood is the appropriate basis for determining public school assignments.

The fact that the Student Reassignment Plan adopted by the Oklahoma City Board of Education calls for neighborhood schools in grades K-4 does not offend the Constitution.

11. In Swann, the Supreme Court noted that, “the constitutional command to desegregate schools does not mean that every school in every community must always reflect the racial composition of the school system as a whole.” 402 U.S. 24, 91 S.Ct. 1280. Furthermore, the existence of some one-race schools within a district “is not in and of itself the mark of a system that still practices segregation by law.” Id. at 26, 91 S.Ct. at 1281.

12. The existence of racially identifiable schools is not unconstitutional without a showing that such schools were created for the purpose of discriminating on the basis of race. Keyes v. School District No. 1, 413 U.S. 189, 93 S.Ct. 2686, 37 L.Ed.2d 548 (1973). The presence of discriminatory intent may not be inferred solely from the disproportionate impact of a particular measure upon one race. The Supreme Court has clearly stated that “official action will not be held unconstitutional solely because it results in a racially disproportionate impact.” Arlington Heights v. Metropolitan Housing Corp., 429 U.S. 252, 264-65, 97 S.Ct. 555, 562-63, 50 L.Ed.2d 450 (1977); Washington v. Davis, 426 U.S. 229, 96 S.Ct. 2040, 48 L.Ed.2d 597 (1976). The Student Reassignment Plan was not created for the purpose of discriminating on the basis of race.

13. The Supreme Court has recognized the optional majority-to-minority transfer provision as a useful part of a desegregation plan. Swann, 402 U.S. at 26-27, 91 S.Ct. at 1281.

14. The Supreme Court has also acknowledged that:

An objection to transportation of students may have validity when the time or distance of travel is so great as to either risk the health of the children or significantly impinge on the educational process ... [LJimits on time of travel will vary with many factors, but probably with none more than the age of the students involved.

Swann, 402 U.S. at 30-31, 91 S.Ct. at 1283.

15. The decision whether a case should be reopened under Federal Rule 60(b)(6) is discretionary. Special circumstances must be shown in order to justify relief under this rule. Stewart Securities Corp. v. Guaranty Trust Co., 71 F.R.D. 32 (W.D.Okl.1976). The Student Reassignment Plan of the Oklahoma City Board of Education is constitutional, and special circumstances are not present which would justify reopening this litigation.

An appropriate order will accordingly be entered herein.

ORDER

In accordance with the findings of fact and conclusions of law entered herein this day,

IT IS HEREBY ORDERED, ADJUDGED AND DECREED that the Motion to Reopen Case, to Intervene and For Further Relief filed by the applicants for intervention is denied.


author: EDWARD WEINFELD, District Judge.

text:
    Bernard HAHN, Plaintiff, v. N. Preston BREED, Defendants.
    No. 82 Civ. 8091 (EW).
    United States District Court, S.D. New York.
    April 26, 1985.

      Garwin, Bronzaft & Gerstein, New York City, for plaintiff; Bruce E. Gerstein, Scott W. Fisher, of counsel.
    Hughes Hubbard & Reed, New York City, for defendants; Ronald A. Stern, Jay Kelly Wright, Thomas D. Goldberg, of counsel.
   EDWARD WEINFELD, District Judge.

In an opinion dated May 30, 1984, with which familiarity is assumed, this Court dismissed all of plaintiff’s claims except his charge that a five year consulting agreement between David Fain Brown and Apex Oil Company (“Apex”) in fact was not a consulting agreement but payment for services rendered by Brown in effecting the merger of Enterprise Development Group (“EDG”) and a subsidiary of Apex. The Court held that the period of time when Brown and Apex negotiated the consulting agreement was of significance on the issue of conflict of interest that foreclosed dismissal of plaintiff’s claim. The Court granted plaintiff limited discovery as to the circumstances and the timing under which the consulting agreement was entered into. Discovery has now been completed. Plaintiff asserts that three facts, unknown to him when he responded to defendants’ previous motion, entitle him to summary judgment on his remaining claim. Defendants oppose his motion and cross-move for summary judgment on the two fact issues identified by the Court in its May 30 opinion, namely, the nature and timing of negotiation of the consulting agreement. In addition, plaintiff moves pursuant to Fed. R.Civ.P. 23 for class certification.

THE MOTIONS FOR SUMMARY JUDGMENT

The first of the alleged new facts on which plaintiff relies bears on the dispute about the true nature of the consulting agreement, which is also one focus of the defendants’ cross-motion. Plaintiff claims to have discovered that the consulting agreement executed by Brown and Apex expressly provides that the “Consultancy is contingent upon and will commence immediately after consummation of the contemplated merger.” While the proxy statement no doubt would have been more precise had it stated that the consulting agreement was “contingent” upon consummation of the merger rather than that Brown’s consulting services would commence “after the Merger is consummated,” as it did in several places, it is indeed questionable whether such a change in wording would have made any difference to a reasonable shareholder in deciding how to vote on the merger proposal. More importantly, however, even assuming that the contingent nature of the consulting agreement was not adequately disclosed— and, as noted, this point is questionable— the fact that the consulting agreement was contingent upon consummation of the merger is not conclusive proof, as plaintiff asserts, that the agreement was a reward to Brown for his role in helping Apex to buy out EDG’s public shareholders on terms favorable to Apex. This fact is equally consistent with defendants’ contention that the agreement was a bona fide contract for future services — that, as a practical matter, Brown could not render service to Apex effectively unless and until the merger was consummated and his responsibilities to EDG and their demand upon his time ceased. This dispute about the true nature of the consulting agreement can be resolved only by ascertaining the intent of the parties to the agreement, namely, Brown and Apex, and as our Court of Appeals has emphasized so often, questions of intent are, with rare exceptions, ordinarily inappropriate for resolution on a motion for summary judgment.

For the same reason, defendants’ cross-motion for summary judgment on this question is also denied. The existence of the contingency provision in the executed agreement raises a factual issue about the true nature of the agreement and is sufficient by itself to defeat this branch of defendants’ cross-motion. In addition, plaintiff has alleged matters that call into question the value of the services that Brown allegedly has performed for Apex pursuant to the agreement, and also the defendants’ claim that Brown was paid one million dollars as compensation for future services rather than for services in effecting the merger. These allegations include the absence of any written work product prepared by Brown for Apex, Brown’s deposition statement that he never reviewed any documentation concerning Apex’s business prior to June 1984, and Brown’s full-time employment with City Investing Company during the same period in which he was obligated to render consulting services to Apex. Plaintiff’s argument in opposition to defendants’ summary judgment motion, denigrating the services Brown allegedly rendered to Apex under the consulting agreement, as to which Brown and others testified, borders on sheer nit-picking. Nonetheless, under controlling authorities in this circuit, this argument is sufficient to foreclose summary judgment as a matter of law by the Court and to require a disposition by a fact finder.

Plaintiff’s second alleged new fact concerns payments made by EDG to Brown that were not disclosed in the proxy statement. Plaintiff alleges that the periodic payments Brown received under a separate consulting agreement with EDG during EDG’s fiscal year 1981, which totalled $49,-000 on an annualized basis and were disclosed in the proxy statement for that year only, continued into the next fiscal year, through August 1982, during the time when the OPC was deliberating upon the fairness of the proposed merger. According to plaintiff, this undisclosed fact, coupled with the disclosure that “Apex may be deemed to control the Trust,” renders materially false the statement that the “Merger price was unanimously approved by a committee of the Board of Trustees consisting of three Trustees who are not employed by, or affiliated with, Apex Oil and its subsidiaries.” This is especially so, plaintiff further asserts, in view of the statement that the “Trustees who are not officers of the Trust [Brown was not an officer] receive an annual fee of $12,500 for service as Trustees and $1,250 for service on committees of the Board of Trustees.”

Defendants counter that this claim was already considered and dismissed by the Court in its May 30 opinion and thus is barred under the doctrine of the law of the case. However, that doctrine as set forth in the cases cited by defendants has no application to a District Court reviewing its own ruling in a pending action before the entry of a final judgment, as our Court of Appeals has long recognized.' Although plaintiff’s claim here is similar to one dismissed by the Court in its May 30 opinion, it is based on a new factual allegation. Plaintiff previously challenged the proxy statement that the OPC members “were not employed by, or affiliated with, Apex Oil” but failed because his “affiliation claim” was unsupported by any fact other than the existence of the five year consulting agreement between Brown and Apex, which was fully disclosed in the proxy statement. Plaintiff’s instant “affiliation claim” is based on an alleged consulting arrangement between Brown and EDG, a controlled subsidiary of Apex, which he claims was not disclosed in the proxy statement and of which he allegedly was not aware until he had an opportunity for discovery. Under these circumstances, the Court will not refuse to reconsider its judgment on this “affiliation claim” and, accordingly, plaintiff may amend his complaint to reassert the claim as alleged here.

This does not mean, however, that plaintiff is entitled to summary judgment on this claim as amended. Defendants argue with considerable force that Brown’s relationship with EDG was sufficiently disclosed in the proxy statement, which stated that Brown “received compensation in the amount of $40,277 for services as a consultant to the Trust during Fiscal 1981” and, in a table setting forth information about the “present Trustees,” listed Brown as “Chairman of the Board of Trustees of the Trust” and “Consultant to the Trust,” though without mentioning the amount of compensation he received. Thus, at bottom, plaintiff’s “affiliation claim” is that what is only implicit in the proxy statement should have been made explicit: that as a consultant to the Trust in fiscal year 1982, Brown continued to receive the consulting fee paid to him for his services in the prior year. Whether this particular omission is material or renders materially false the statement that Brown was not “employed by, or affiliated with, Apex Oil and its subsidiaries” during fiscal year 1982 involves “delicate assessments of the inferences a ‘reasonable shareholder’ would draw from a given set of facts and the significance of those inferences to him, and these assessments are peculiarly ones for the trier of fact.” Certainly, it cannot be said that this omission was so obviously important to a reasonable investor that reasonable minds could not differ on the question of its importance. This amended affiliation claim is not ripe for summary judgment.

Plaintiff’s third and last alleged new fact is that Brown did not inform his two co-members on the OPC that beginning in 1980 he and Apex had discussed a possible employment relationship until after the OPC had voted unanimously to approve the proposed merger price. This fact should have been disclosed in the proxy statement, plaintiff asserts, and its omission is material as a matter of law. Again, however, it is far from clear that reasonable minds could not differ about the importance of this omission. In their affidavits, the two co-members of the OPC stated that before the proxy statement was distributed to EDG shareholders they reviewed it, including its disclosure that Brown’s and Apex’s discussions had commenced in 1980, and continued to believe that the terms of the proposed merger were fair to EDG’s public shareholders. If the Trustees did not consider these discussions significant enough to influence their votes, it is debatable whether disclosure of the Trustees’ ignorance of such discussions would have affected the judgment of a reasonable shareholder in deciding how to vote on the proposed merger. At issue here is the judgment of the two Trustees and the opinion of a reasonable shareholder. This issue cannot be resolved as a matter of law. Although it differs from the precise issues identified by the Court in its May 30 opinion as remaining to be resolved at trial, it relates to the same basic claim that Brown had an undisclosed conflict of interest as a result of his consulting agreement with Apex and the negotiations that preceded it. Accordingly, this claim, that the two OPC members’ ignorance of the Brown-Apex discussions when they voted to approve the merger should have been disclosed, may be presented at trial.

The remaining matter on these motions for summary judgment is the second branch of defendants’ cross-motion, which relates to the issue of the timing of the negotiation of the consulting agreement between Brown and Apex. According to the proxy statement, this negotiation did not occur while the OPC deliberated upon the fairness of the proposed merger, and defendants assert there is no basis for plaintiff’s claim that this statement is false. They rely primarily upon the deposition testimony of Brown and P.A. Novelly, President and Chief Executive Officer of Apex, which they claim establishes that Brown and Novelly first discussed the possibility of a consulting arrangement between Brown and Apex in May 1982, several weeks after the OPC voted, on April 19, 1982, to approve the proposed merger price; that Brown and Novelly agreed on the essential terms of the arrangement in a telephone conversation in June 1982; and that the final agreement was thereafter negotiated and executed sometime before August 10, 1982. According to defendants, Brown’s and Novelly’s testimony further establishes that, while as early as 1980 they discussed the possibility of Brown working for Apex on some basis in the future, those discussions were of a vague and general nature, without mention of compensation, and that the proxy statement was accurate in stating that no discussions occurred during the OPC deliberations.

Plaintiff counters that the testimony of Brown and Novelly is “self-serving” and “lack[s] credibility” and that defendants “are unable to produce a single piece of contemporaneous evidence to substantiate their contention regarding the timing or the circumstances of the negotiations.” In reply, defendants correctly argue that a litigant cannot defeat a summary judgment motion merely by challenging the credibility of the witnesses on whose testimony the movant relies. Plaintiff “may not rest upon mere denial of the defendants’ evidence, but ‘must set forth specific facts showing that there is a genuine issue for trial.’ ” However, while plaintiff’s evidence on the timing issue is slight, it is not nonexistent. Plaintiff relies entirely upon the fact that the commencement of the consulting agreement was contingent upon the consummation of the merger, which, he claims, “establishes that the consultancy is a reward to Brown to be paid only if the merger was consummated and is evidence that Brown and Apex had to have had at least an understanding that Brown would be rewarded.” In other words, assuming the agreement was a reward to Brown for helping to secure a favorable vote by the OPC on April 19, 1982, it reasonably could be inferred that prior to the vote and during the OPC deliberations Apex and Brown discussed compensation to him in reward for his services in effecting the merger. With respect to the timing of the negotiations, therefore, plaintiff has set forth a specific fact showing there is a genuine issue for trial.

In sum, both parties’ motions for summary judgment are denied and plaintiff is given leave to amend his complaint to conform to the alleged new facts as discussed above.

THE MOTION TO CERTIFY A CLASS

Plaintiff also moves pursuant to Fed.R. Civ.P. 23(b)(3) for a determination that this action may be maintained as a class action. He seeks to certify a plaintiff class consisting of

all [EDG] shareholders who were owners of shares of Beneficial Interest of EDG on June 29, 1982, the date of issuance of EDG’s proxy statement seeking shareholder approval [of the proposed merger], who received $10.50 per share pursuant to said merger, with the exclusion of defendants.

Plaintiff asserts and defendants do not dispute that the putative class includes some 5475 members, so that the numerosity requirement of Rule 23(a) would appear to be satisfied. Moreover, since the alleged wrong involves the dissemination to all former EDG public shareholders of the same proxy statement plaintiff claims was false or misleading, there no doubt would be questions of law or fact common to the putative class members that predominate over any questions affecting only individual members. Nor do defendants argue that plaintiff’s claim is atypical of those of the putative class or subject to atypical defenses. The fact that these preliminary requirements are satisfied, however, does not mean the automatic granting of the class action application. A basic, if not the ultimate, issue is whether certification in fact is required to protect the interests of the class or is merely a means of advancing the individual interest of the litigant who purports to speak on behalf of the class. In other words, it remains to be considered whether or not a class action is superior to other available methods for the fair and efficient adjudication of the controversy.

At the outset, the Court notes it is well aware that plaintiff need not establish a likelihood of success upon the merits of his claims to prevail upon his motion for class certification. It should be emphasized, however, that Rule 23 is not intended to permit a private litigant to enhance his own bargaining power by a claim that he is acting for a class of litigants, at least not when such enhancement appears to be the only substantial “benefit” likely to result from class certification. Nor, as our Court of Appeals has cautioned, should an action be permitted to proceed as a class action, despite the desirability of providing small claimants with a forum in which to seek redress, when it is unlikely to benefit anyone but the lawyers who bring it. Both of these concerns are relevant here.

As already discussed, plaintiff is entitled to a trial on the merits of his remaining claims, but the legal sufficiency of those claims is quite a different matter from their practical value to the putative class. There is no evidence that the putative class members would benefit in any substantial way from the prosecution of this action. Although plaintiff asserts his claims under the federal securities laws, he essentially seeks redress for what he believes was an unfair price paid by Apex to EDG’s former public shareholders upon the merger. Yet the record indicates that plaintiff commenced this lawsuit upon the basis of little more than an uninformed hunch and without any substantial prima facie evidence that the merger price was unfair. He based his belief that the price was unfair solely upon a reading of the proxy statement — specifically, upon what he regarded as a “rather low” appraisal of EDG’s real estate portfolio and the fact that “there was no price recorded for the tax loss that was part of [EDG’s] assets.” When asked about the basis of his view of the real estate appraisal, plaintiff claimed to have knowledge of real estate because of his prior service as an officer of a real estate company, but he acknowledged he was unable to appraise EDG’s assets himself and did not even recall the nature of the properties, explaining simply that he “knew real estate was going up and it was the wrong time to sell.” As to the tax loss carryforward, which the proxy statement disclosed amounted to approximately $29 million on October 31, 1981, plaintiff estimated its worth at approximately $10 million because he had “seen instances where corporations sold tax losses for a substantial amount of money, approximately a third of the tax loss.” Plaintiff relied entirely on his reading of the proxy statement and his general experience in real estate, law, and business. He made no inquiries about the fairness of the merger price and, although he decided it was too costly to assert appraisal rights, he did not respond to a letter he apparently received from another shareholder addressing the possibility of sharing the cost of an appraisal proceeding. He did not even check whether the merger price was above or below the current trading price of EDG stock — it was 40% higher — and acknowledged that he did not know what a fair price would have been because he was “not an appraiser.” Rather, he requested his attorneys to investigate the proxy statement disclosure about the consulting agreement between Brown and Apex, whereafter he concluded that “this whole thing was suspicious.”

In contrast to these speculations about the fairness of the merger price, a reputable investment banking firm had undertaken an analysis of the business, operations, and financial condition of EDG and rendered an opinion — included in the proxy statement — that the merger price was fair to EDG’s public shareholders from a financial point of view. In addition, the merger price exceeded the highest market price of the stock during the preceding seven years and, as already noted, was 40% higher than the (then) current trading price. EDG’s public shareholders overwhelmingly approved the merger, voting 94.7% of their shares in favor of it.

In these circumstances, the practical value of this litigation to the putative class members — as well as plaintiff’s motivation in bringing this lawsuit, not the only one in which he has sought to represent others— is highly questionable, and his Rule 23 motion ought to be considered in this light. Of course, evidence that the merger price was fair does not diminish plaintiff’s right to full and fair disclosure by defendants when they solicited his proxy in connection with the merger and thus cannot prevent him from suing on his own behalf to vindicate his right. But such evidence does bear upon the equities of allowing him to enhance his bargaining power over defendants by purporting to represent the interests of some 5500 others. In view of the totality of circumstances under which this action was brought, class certification appears less likely to advance the genuine interests of the putative class than plaintiff’s individual interest in extracting from defendants greater recognition of his claims than they would otherwise receive. However unexceptionable class certification may seem with respect to the other criteria of Rule 23, it would confer upon plaintiff and his attorneys a procedural power that is unjustified absent any showing that the putative class members are, in the end result, likely to derive substantial benefit from it. In short, class certification would be procedurally unfair to defendants. Therefore, after careful scrutiny of the record, the Court, in its discretion, concludes that a class action would not be superior to an individual action in terms of the fair and efficient adjudication of the controversy, as it must be to satisfy Rule 23(b)(3). Accordingly, plaintiff’s motion for class certification is denied.

So ordered.

      . Hahn v. Breed, 587 F.Supp. 1369 (S.D.N.Y. 1984).

      . Id. at 1374-75.

      . Plaintiff’s exhibit K at f 1(a) (emphasis added).

      . Plaintiffs exhibit A at pp. 3, 8, 28.

      . See Meiri v. Dacon, 759 F.2d 989, 998 (2d Cir.1985); Patrick v. LeFevre, 745 F.2d 153, 159 (2d Cir.1984); Grand Union Co. v. Cord Meyer Dev. Corp., 735 F.2d 714, 717 (2d Cir.1984); Schering Corp. v. Home Ins. Co., 712 F.2d 4, 9 (2d Cir.1983). For an exception to this rule, see Samuels v. Eleonora Beheer, B.V., 500 F.Supp. 1357 (S.D.N.Y.1980), aff'd, 661 F.2d 907 (2d Cir.1981) (mem.).

      . Plaintiffs exhibit A at p. 8.

      . Id. at p. ii.

      . Id. at p. 27 n. 1.

      . See In re United States, 733 F.2d 10, 13 (2d Cir.1984); United States v. Bimey, 686 F.2d 102, 107 (2d Cir.1982); Dictograph Prods. Co. v. Sonotone Corp., 230 F.2d 131, 134 (2d Cir.1956); compare Fine v. Bellafonte Underwriters Ins. Co., 758 F.2d 50 (2d Cir.1985) (prior appellate court ruling is binding on district and appellate courts); Doe v. New York City Dep't of Social Servs., 709 F.2d 782, 788-89 (2d Cir.) (same), cert. denied, — U.S. -, 104 S.Ct. 195, 78 L.Ed.2d 171 (1983); Fogel v. Chestnutt, 668 F.2d 100, 108-09 (2d Cir.1981) (appellate court bound by its own prior ruling), cert. denied, 459 U.S. 828, 103 S.Ct. 65, 74 L.Ed.2d 66 (1982).

      . Hahn, 587 F.Supp. at 1373.

      . Plaintiffs exhibit A at pp. 25, 28 (emphasis added).

      . TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 450, 96 S.Ct. 2126, 2132, 48 L.Ed.2d 757 (1976) (footnote omitted).

      . See id.; Goldman v. Belden, 754 F.2d 1059, 1067 (2d Cir.1985).

      . See McMillan v. Marine Sulphur Shipping Corp., 607 F.2d 1034, 1039 (2d Cir.1979), cert. denied, 445 U.S. 905, 100 S.Ct. 1082, 63 L.Ed.2d 321 (1980); Radix Org., Inc. v. Mack Trucks, Inc., 602 F.2d 45, 48 (2d Cir.1979); Dyer v. MacDougall, 201 F.2d 265, 269 (2d Cir.1952).

      . Nash v. Jacqueline Cochran, Inc., 548 F.Supp. 676, 681 (S.D.N.Y.1982) (quoting Fed.R.Civ.P. 56(e)).

      . Plaintiff's brief at 1.

      . See, e.g., Green v. Wolf Corp., 406 F.2d 291, 301 (2d Cir.1968), cert. denied, 395 U.S. 977, 89 S.Ct. 2131, 23 L.Ed.2d 766 (1969); Moscarelli v. Stamm, 288 F.Supp. 453, 462 (E.D.N.Y.1968).

      . See Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 177-78, 94 S.Ct. 2140, 2152, 40 L.Ed.2d 732 (1974).

      . Free World Foreign Cars, Inc. v. Alfa Romeo, S.P.A., 55 F.R.D. 26, 30 (S.D.N.Y.1972); see Saltzman v. Technicolor, Inc., 51 F.R.D. 178, 183 (S.D.N.Y.1970).

      . See Eisen v. Carlisle & Jacquelin, 391 F.2d 555, 567 (2d Cir.1968); see also City of Detroit v. Grinnell Corp., 495 F.2d 448, 469 (2d Cir.1974).

      . Hahn deposition of Oct. 11, 1984 at 15.

      . Id. at 17.

      . Id. at 48.

      . Id. at 16.

      . Id. at 98-99.

      . See Mills v. Electric Auto-Lite Co., 396 U.S. 375, 381-82, 90 S.Ct. 616, 620, 24 L.Ed.2d 593 (1970).

      . See Fed.R.Civ.P. 23(b)(3) advisory committee note; cf. Wilcox v. Commerce Bank, 474 F.2d 336, 347 (10th Cir.1973).

      . See Abrams v. Interco Inc., 719 F.2d 23, 28 (2d Cir.1983); Homreich v. Plant Indus., Inc., 535 F.2d 550, 552 (9th Cir.1976); City of New York v. International Pipe & Ceramics Corp., 410 F.2d 295, 298 (2d Cir.1969); Ratner v. Chemical Bank New York Trust Co., 54 F.R.D. 412, 416 (S.D.N.Y.1972).


author: GLEN M. WILLIAMS, District Judge.

text:
    SPRAGUE & HENWOOD, Plaintiff, v. Roland JOHNSON, t/a Triple J Contractors, Defendant.
    Civ. A. No. 84-0362-A.
    United States District Court, W.D. Virginia, Abingdon Division.
    April 26, 1985.

      Matthew J. Cody, Jr., Lebanon, Va., for defendant.
   MEMORANDUM OPINION

GLEN M. WILLIAMS, District Judge.

This diversity action to enforce a debt is before the court on the defendant’s motion for summary judgment. Jurisdiction is conferred by 28 U.S.C. § 1332.

The debt in question was an open account which the defendant owed the plaintiff. Various amounts were charged to the account between June 24,1981 and September 25, 1981. The amount of the debt, $15,436.15, is not contested. The defendant debtor has raised as an affirmative defense the statute of limitations for an express or implied unwritten contract. Va. Code § 8.01-246, subd. 4. The three year statutory period would bar this action, which was filed on October 1, 1984.

The plaintiff urges that the various sales of goods to the defendant were made pursuant to a contract so that the Uniform Commercial Code — Sales (Article 2) applies. Va.Code Title 8.2. If so, the relevant statutory period is four years and would not bar this action. Va.Code § 8.2-725. Article 2 requires that a contract be evidenced by a writing signed by the party against whom enforcement is sought. Va.Code § 8.2-201. However, no writing is required where the goods have been received and accepted by the buyer. Id. at (3)(c).

A party opposing summary judgment must come forward with evidence to show that a genuine issue of material fact exists. Fed.R.Civ.P. 56(e). The plaintiff has produced a letter written on defendant’s stationery, dated September 28, 1981 and signed by Shirley A. Johnson. The letter promises payments to the account “as soon as possible.” The plaintiff’s Exhibit A, attached to the complaint, shows that the defendant made a partial payment of $1,500.00 in September, 1984. The letter and this partial payment, in the absence of evidence to the contrary, indicate that the goods in question were received and accepted by the defendant. For this reason, the court need not address the sufficiency of the letter to satisfy the formal requirements of Article 2. Id. at (1).

The defendant contends that it is not a merchant within the meaning of Va. Code § 8.2-104(1), and, therefore, Article 2 does not apply. Article 2 applies to the sale of goods to a buyer. A buyer is a person who buys or contracts to buy goods; a buyer may or may not be a merchant. Va.Code § 8.2-103.

The plaintiff has produced sufficient evidence to show that Article 2 applies to its sale of goods to the defendant. Ya. Code § 8.01-246 expressly provides that where § 8.2-725 is applicable, that section shall be controlling. For this reason, the plaintiffs action is not barred by the statute of limitations. The defendant’s motion for summary judgment must be denied.