text:
    Howard Leslie PENDLETON v. ACUFF-ROSE PUBLICATIONS, INC., Fred Rose, Algee Music Corp., Elizabeth Jane Anderson, CBS, Inc., Buzz Cason, Publications, Inc., James E. Cason, Let There Be Music, Gary S. Paxton, Johnny Paycheck, George A. Robertson, Jr., Scorpio Enterprises, Billy N. Sherrill, Bradley L. Williamson, Hument Productions, Bright Blue Productions, Inc., Southern Writers Group, Inc., and Bob Montgomery.
    No. 82-3668.
    United States District Court, M.D. Tennessee, Nashville Division.
    Oct. 31, 1984.

      Steven H. Strain, Nashville, Tenn., Thomas J. Pitman, Jacksonville, N.C., Michael E. Weddington, Raleigh, N.C., Alan Turk, Nashville, Tenn., for plaintiff.
    Thomas E. Harris, New Bern, N.C., John D. Warlick, Jacksonville, N.C., Samuel G. Thompson, Raleigh, N.C., Jean Nelson, Valerius Sanford, Richard H. Frank, Jr., Rich ard H. Frank, III, Herbert R. Rich, Mark A. Schneider, Tyree Harris, Nashville, Tenn., for defendants.
   MEMORANDUM

JOHN T. NIXON, District Judge.

This action for copyright infringement was originally filed in the United States District Court for the Eastern District of North Carolina on July 25,1980. The original defendants subsequently moved for dismissal based on lack of personal jurisdiction, and plaintiff was granted a voluntary dismissal of the complaint. On February 13, 1981, the complaint was re-filed, and defendants renewed their motions to dismiss. After an amended complaint was filed naming additional defendants, the case was transferred to this Court by order of the North Carolina court dated July 28, 1982. Currently pending before this Court are independent motions for summary judgment from (1) defendants Acuff-Rose Publications, Inc., Fred Rose Music, Inc., Elizabeth Jane Anderson, James E. Cason, Buzz Cason Publications, Inc., Let There Be Music, Robert C. Jennings, Bob Montgomery, and Southern Writers Group, Inc., (2) defendants Billy N. Sherrill and Algee Music Company, and (3) defendant CBS, Inc. Defendants Scorpio Enterprises, Bradley L. Williamson, and George A. Robertson, Jr. adopt and join in the motions and supporting documents filed by other defendants. This cause came on to be heard on October 4, 1984. For the reasons that follow, defendants’ motions for summary judgment are hereby GRANTED, and this case is ORDERED DISMISSED.

Plaintiff, Howard Leslie Pendleton, is a citizen and resident of Jacksonville, Onslow County, North Carolina. In 1974, plaintiff wrote three compositions entitled “Just a Blue Box,” “Dear Dolly,” and “Angel.” In 1975, plaintiff played a tape recording of the songs for defendant George Robertson and in 1976 played a similar recording for defendant Robert C. Jennings. The gravamen of plaintiffs complaint is that defendants Robertson and Jennings, as well as numerous recording artists, producers, publishers, and record companies, illegally appropriated the lyrics of the three songs. Plaintiff does not allege infringement of the music accompanying these songs.

Plaintiff contends that, in 1977, defendant Elizabeth Jane Anderson wrote and assigned to defendant Fred Rose Music, Inc., the composition “Mama’s Shoe Box.” Plaintiff contends that the lyrics to this composition infringe upon the lyrics of his composition “Just a Blue Box.” Plaintiff further asserts that defendants James E. Cason and George Robertson wrote and assigned to defendants Buzz Cason Publications, Inc. and Let There Be Music the composition “Dolly,” which was written in 1978. Plaintiff alleges that the lyrics to “Dolly” infringe upon the lyrics of his composition “Dear Dolly.” Lastly, plaintiff maintains that, in 1978, defendants Billy Sherrill and Johnny Paycheck wrote and assigned to Algee Music Corporation the composition “Friend, Lover, Wife.” Plaintiff asserts that the lyrics of “Friend, Lover, Wife” infringe upon the lyrics of his composition “Angel.” It is the position of the defendants that the lyrics in question contain no similarities other than the idea or theme about which the compositions are written.

FED.R.CIY.P. 56 provides for the entry of summary judgment in a case where the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. FED.R. CIV.P. 56(c). A court must view the evidence and inferences therefrom in the light most favorable to the nonmoving party. Adickes v. S.H. Kress & Co., 398 U.S. 144, 157-59, 90 S.Ct. 1598, 1608-09, 26 L.Ed.2d 142 (1970). The summary judgment procedure is used to eliminate unnecessary trials, curb the threat of coercive settlement, eliminate claims which lack merit, and provide a just, speedy, and efficient disposition of a lawsuit. Federal Procedure, L.Ed. § 62:532. A defendant’s motion for summary judgment on a copyright claim may be granted “if, after assuming copying, the Court finds that any similarity between the works is insubstantial.” Smith v. Weinstein, 578 F.Supp. 1297, 1302 (S.D.N.Y.1984) (quoting Musto v. Meyer, 434 F.Supp. 32, 36 (S.D.N.Y.1977), aff’d, 598 F.2d 609 (2d Cir.1979)).

In order to establish a prima facie case of wrongful appropriation of expression by copyright infringement, a plaintiff must prove substantial similarity and access. Walker v. University Books, Inc., 602 F.2d 859, 864 (9th Cir.1979). “Ordinarily, wrongful appropriation is shown by proving a ‘substantial similarity’ of copyrightable expression.” Hoehling v. Universal City Studios, Inc., 618 F.2d 972, 977 (2d Cir.) (emphasis in original), cert. denied, 449 U.S. 841, 101 S.Ct. 121, 66 L.Ed.2d 49 (1980). Copyright protection extends only to the expression of the idea; it does not protect the idea itself. O’Neill v. Dell Publishing Co., Inc., 630 F.2d 685, 686 (1st Cir.1980). “It must be remembered that copyright protection does not extend to ideas, plots, dramatic situations, and events. Rather, it is limited to the arrangement of words the author uses to express his ideas.” Scott v WKJG, Inc., 376 F.2d 467, 469 (7th Cir.), cert. denied, 389 U.S. 832, 88 S.Ct. 101, 19 L.Ed.2d 91 (1967). See Sid & Marty Krofft Television v. McDonald’s Corp., 562 F.2d 1157, 1163 (9th Cir.1977) (protection granted to a copyrighted work extends only to the particular expression of the idea and never to the idea itself); Reyher v. Children’s Television Workshop, 533 F.2d 87, 91 (2d Cir.) (although the writer’s monopoly exceeds an exact reproduction of the words, the copyright extends not to the ideas disclosed but to their expression), cert. denied, 429 U.S. 980, 97 S.Ct. 492, 50 L.Ed.2d 588 (1976); see also Mazer v. Stein, 347 U.S. 201, 217, 74 S.Ct. 460, 470, 98 L.Ed. 630 (1954). Obviously, no principle may be enunciated that will reveal when an imitator has gone beyond copying the “idea,” and has infringed upon its “expression.” Decisions must, therefore, necessarily be ad hoc. See Reyher, 533 F.2d at 91; Peter Pan Fabrics, Inc. v. Martin Weiner Corp., 274 F.2d 487, 489 (2d Cir.1960).

Plaintiff argues that substantial similarity necessarily presents a close factual issue that cannot be disposed of on summary judgment. See Hoehling, 618 F.2d at 977 (because substantial similarity is customarily an extremely close question of fact, summary judgment has traditionally been frowned upon in copyright litigation). However, although the issue of substantial similarity is frequently a fact issue for jury resolution, Twentieth Century-Fox Film Corp. v. MCA, Inc., 715 F.2d 1327, 1330 n. 6 (9th Cir.1983), a court may determine non-infringement as a matter of law on a motion for summary judgment in at least two instances: first, when all alleged similarity relates to non-copyrightable elements of the plaintiff’s work, Hoehling, 618 F.2d at 977; second, when no reasonable jury could find that the two works are substantially similar. See Warner Brothers v. American Broadcasting Companies, 720 F.2d 231, 239-40 (2d Cir.1983). Thus courts in copyright cases may dismiss meritless litigation and avoid lengthy and costly trials. Hoehling, 618 F.2d at 977; Weinstein, 578 F.Supp. at 1302.

The test for substantial similarity has been articulated as “whether an average lay observer would recognize the alleged copy as having been appropriated from the copyrighted work.” Ideal Toy Corp. v. Fab-Lu Ltd., 360 F.2d 1021, 1022 (2d Cir.1966). See also Warner Brothers, 720 F.2d at 244; Atari, Inc. v. North American Philips Consumer Electronics Corp., 672 F.2d 607, 614 (7th Cir.), cert. denied, 459 U.S. 880, 103 S.Ct. 176, 74 L.Ed.2d 145 (1982); Wickham v. Knoxville International Energy Expositions, Inc., 555 F.Supp. 154, 155 (E.D.Tenn.1983). The existence of similarities limited to the general idea or theme will not, as a matter of law, support a claim for copyright infringement. 17 U.S.C. § 102(b). See O’Neill, 630 F.2d at 686. “It is an axiom of copyright law that the protection granted to a copyrightable work extends only to the particular expression of an idea and never to the idea itself.” Reyher, 533 F.2d at 90. Although the demarcation between idea and expression is not susceptible to a litmus test determination, the essence of infringement lies in its particular expression through similarities of treatment, detail, scenes, events, and characterization. Id. at 91. “An infringement is not confined to literal and exact repetition or reproduction; it includes also the various modes in which the matter of any work may be adopted, imitated, transferred, or reproduced, with more or less colorable alterations to disguise the piracy.” Sid & Marty Krofft Television, 562 F.2d at 1167 (quoting Universal Pictures Co., Inc. v. Harold Lloyd Corp., 162 F.2d 354, 360 (9th Cir.1947)).

The basic facts in this case are not in dispute. An examination of the record reveals that at least some of the defendants had access to plaintiff’s songs. Additionally it is apparent that plaintiff’s work is validly copyrighted. See Reyher, 533 F.2d at 90. Plaintiff’s work as well as the allegedly infringing work are before the Court, and there is no dispute as to their authenticity. Thus, the only issue left for resolution is whether, as a matter of law, a comparison of the compositions reveals substantial similarity. Overman v. Universal City Studios, Inc. and Richard Pryor, 1984 Copyright Law Decisions ¶ 25,660, at 18,958 (C.D.Cal.1984). Even though the issue of similarity is factual, when only one jury verdict could be upheld, summary judgment is appropriate. See Warner Brothers, 720 F.2d at 239-40.

The lyrics of plaintiff’s composition, “Just a Blue Box,” and the lyrics of “Mama’s Shoe Box,” are as follows:

“JUST A BLUE BOX”
Words and music by Les Pendleton
Just a blue box with a few old pictures Grey love letters and a couple of scriptures Memories from a time my mamma loved so well Just a blue box or so it seems It held all of her sweet dreams Just a blue box with a few old things from days gone by.
Well, I got home just this morning Mamma had died without a warning Sixty-five years of workin' hard, she’s going to rest Well, the last thing that she said “Gotta little box under my old bed And it holds all the things that your mamma loves the best”.
Just a blue box with a few old pictures Grey love letters and a couple of scriptures Memories fom a time my mama [sic] loved so well Just a blue box or so it seems It held all of her sweet dreams Just a blue box with a few old things from days gone by.
Never had much but mama [sic] tried To keep us together after papa died Whenever she got down here’s what she’d do She’d get out her old pictures Talk about pa and read the scriptures Memories she kept in a little box so blue.
Just a blue box with a few old pictures Grey love letters and a couple of scriptures Memories fom a time my mama [sic] loved so well Just a blue box or so it seems It held all of her sweet dreams Just a blue box with a few old things from days gone by.
“MAMA’S SHOE BOX’
Liz Anderson
Mama was a dear sweet lady Finest woman ever born Spry and bright but nearly eighty On the day that she passed on As we went through her possessions Her last wishes to fulfill We just happened on a shoe box Never mentioned in the will
In a shoe box, on the top shelf In the closet, in the hall Her whole lifetime in a shoe box Mama’s shoebox held it all.
There was her picture as a baby Dancing eyes and shiny curls Sometime in the eighteen nineties When she came into this world She was ten and seven summers When she met dad, her only man There was a picture of their wedding As they faced life hand in hand
Old birth records, maybe pictures As we kids came, one, two three Of the milestones of mama’s lifetime Tucked away so lovingly
There was her picture at the depot With the son who went to war And the gold star with the letter From the white house in forty four One old clipping from the paper When our daddy passed away And the locket he once gave her In some far off yesterday
Old report cards, graduations One red pressed and faded rose Mama’s memories in a shoe box Tied with love and satin bows
In a shoe box, on the top shelf In the closet, in the hall Her whole lifetime in a shoe box Mama’s shoe box held it all.

The underlying theme of each composition is a box of memorabilia belonging to the writer’s deceased mother. The expression of this idea in each song is quite different. Plaintiff’s lyrics refer to a sixty-five year old woman who informs her children before her death of a blue box in which she kept various personal items. These include old pictures, love letters, and scriptures. Ms. Anderson’s composition, on the other hand, concerns a woman “nearly eighty” whose children happen upon a shoebox containing mementoes of her lifetime after her death. The lyrics of this song, composed of seven stanzas as opposed to plaintiff’s tive, are considerably more descriptive. The shoe box contained pictures of herself, her wedding, and her children, birth records, a letter from Washington reporting her son’s death in the war, a newspaper clipping

about her husband’s death, a locket, report cards, a pressed rose, graduation documents, and satin bows. Plaintiff’s composition contains three repetitions of the chorus and two independent stanzas. Ms. Anderson’s lyrics reflect two repetitions of the chorus and five independent verses. It is the opinion of this Court that any similarity between the songs stems solely from the underlying theme or idea and that the separate manners of expression of that idea clearly do not constitute an infringement. See O’Neill, 630 F.2d at 686; Scott, 376 F.2d at 469. As a matter of law, a substantial similarity does not exist. Warner Brothers, 720 F.2d at 239-40.

The lyrics of plaintiff’s composition, “Dear Dolly” and the lyrics of “Dolly”, are as follows:

“DEAR DOLLY”
Words and music by Les Pendleton
Many nights all alone In a place where I don’t have a friend Your voice I would hear and the lonliness [sic] all goes away I owe you so much for the warmth and the feelings you brought to me The memories you’ve stirred in my heart always cause me to say
Country girl sing Sing of love And the hard times that you knew Just a sweet simple girl with a voice like you’d hear in a dream From a farm long ago in a coat of rags your mother made A poor girl seeker she said But now she’s a queen.
From your songs I can tell You must be someone who cares To be sad and alone I know can surely be hell And some nights your songs Were the only things that got me through And Dolly for that I wish you well
Country girl sing Sing of love And the hard times that you knew Just a sweet simple girl with a voice like you’d hear in a dream From a farm long ago in a coat of rags your mother made A poor girl seeker she said But now she’s a queen.
Well I must say goodbye now its late And tomorrow’s another day These things that I’ve told you I promise are true And if someday things don’t go your way or you need a friend I’ll always be here to return the kindness to you.
Country girl sing Sing of love And the hard times that you knew Just a sweet simple girl with a voice like you’d hear in a dream
From a farm long ago in a coat of rags your mother made A poor girl seeker she said But now she’s a queen.
“DOLLY”
Buzz Cason—Austin Roberts
She came down from the mountains of Eastern Tennessee To a place called Music City, just to see what she could be. And I was there the first day she played her first song She sang and played so sweetly I just had to sing along
Dolly, sweet songbird in your flight On your way from nowhere soon to be a star so bright Dolly, I’ve loved you all along And shared your tears and laughter in the heartbeat of your song
It didn’t happen right away, the making it was slow ’Til a man named Porter Wagoner [sic] finally put you on his show Your records started selling more you were traveling night and day Soon all the country loved you honey, you were on your way.
Dolly, sweet songbird in your flight The mountains now are far behind your star is shining bright Sweet Dolly we’ve loved you all along And shared your tears and laughter in the heartbeat of your song.
One night you finished playing with the crowd still going wild I came backstage to see you and you flashed that pretty smile It surprised me when you told your friends how you knew me well You said Lord them was the good old days, hey and the stories we could tell.
Now you’re on the pop charts with your records all around Singing "Here You Come Again” and “Two Floors Down” And you may be out in Hollywood but you’li be back, they say You’ve never lost your sweetness, you’ve still got your country way
Dolly, sweet songbird in your flight You’ve come so far from nowhere, now your star is shining bright Sweet Dolly, your love is in your songs You’ve given us so much and how we love to sing along with you
Dolly, sweet songbird in your flight You’ve come so far from nowhere, now your star is shining bright Sweet Dolly, your love is in your song You’ve given us so much and how we love to sing along.

These compositions refer to the popular singer and performer, Dolly Parton. The lyrics reveal an admiration and affection for Parton and allude to her rise to stardom from humble beginnings. Comparison reflects some similarity between the ideas, plots, or themes on which the compositions are based; however, the scope of copyright protection does not extend to these limits. Sid & Marty Krofft Television, 562 F.2d at 1163.

A fundamental objective of copyright law is to foster creativity. However, the application of that law may both augment and curtail such prospects. The idea-expression dichotomy attempts to reconcile two competing social interests: rewarding individual creativity, while at the same time permitting the public to enjoy the benefits from use of the same subject matter. Id. See Warner Brothers, 720 F.2d at 240.

Upon any work ... a great number of patterns of increasing generality will fit equally well, as more and more of the incident is left out. The last may be perhaps no more than the most general statement of what the [work] is about, and at times might consist of only its title; but there is a point in this series of abstractions where they are no longer protected, since otherwise the [writer] could prevent the use of his “ideas,” to which, apart from their expression, his property is never extended.

Nichols v. Universal Pictures Corp., 45 F.2d 119, 121 (2d Cir.1930), cert. denied, 282 U.S. 902, 51 S.Ct. 216, 75 L.Ed. 795 (1931).

The similarity between “Dear Dolly” and “Dolly” does not go beyond the idea to write a laudatory song about Dolly Parton. The expression of that idea is entirely different in each composition. “Dear Dolly” speaks of a lonely devotee from afar who is inspired by the singing of a “sweet simple girl.” Conversely, “Dolly” tells a tale of an admirer who knew Dolly before she “came down from the mountains of Eastern Tennessee.” A major premise of “Dear Dolly” is the loneliness and depression of the admirer, while “Dolly” is an optimistic and upbeat composition. This Court does not discern a substantial similarity of expression between the two sets of lyrics and finds no basis in law to extend the bounds of copyright law protection to encompass the story of an international celebrity such as Dolly Parton. As a matter of law, a substantial similarity is not evident between these compositions. See Twentieth Century-Fox Film Corp., 715 F.2d at 1330.

The lyrics of plaintiff’s composition, “Angel” and the lyrics of “Friend, Lover, Wife,” are as follows:

“ANGEL”
Words and music by Les Pendleton
I’m not the kind of man I know That I’m supposed to be And I’ll never know why God above Sent an angel here for me
I like to gamble, I like to smoke I like to drink and tell a dirty joke How’d an old stray dog like me Meet an angel like you.
I like to go out every night To the card games or maybe a fight And when they let those horses run you know It’s the only place that I will go I lost my money like a fool On a horse that ran like a mule I’m worthless now as I can be But if she cares, she ain’t told me.
I like to gamble, I like to smoke I like to drink and tell a dirty joke How’d an old stray dog like me Meet an angel like you.
Well, my friends have said for years That I must keep my angel in tears It isn’t so, you see she understands She’s not the kind to even change her man She likes me happy all the time Even if it takes some cards and wine She’s sweet, kind, lovin’ and awful pretty Even likes George Wallace and Richard Petty
I like to gamble, I like to smoke I like to drink and tell a dirty joke That’s How an old stray dog like me Met an angel like you.
Well, I remember the night and the neon lights In a place called the Devil’s Den How the boys would all shout as any angel stepped out Show us how you take it off again
I like to gamble, I like to smoke I like to drink and tell a dirty joke That’s how an old stray dog like me Met an angel like you.
“FRIEND, LOVER, WIFE”
Billy Sherril—J. Paycheck
Let me tell you about a woman I know She don’t drink, she don’t smoke She can’t stand a dirty joke She don’t hang out ’til the morning light She don’t have to get high, Lord to get right She’s a friend, she’s a lover, she’s my wife
But I’ll take a drink, Lord And I’ll have a smoke And I’ve told some downright filthy jokes I’ve been known to hang out 'til the morning light Been known to get high trying to get right But that’s just me, son, that’s just me
Well, If you don’t know my woman You might think she’s square But you ought to see that woman When she lets down her hair She’s the damnest thing that ever walked into my life, heh, Lord She’s a friend, she’s a lover, she’s my wife. Tell them about my wife, son, and yours too!
I wear jeans, she wears silk I like beer and she likes milk She can be soft like a summer rain But lock them doors at night, she’s a hurricane She’s a friend, she’s a lover, she’s my wife
Lord, it’s still a mystery what she sees in me She says long as I want her She’ll never set me free She’s the damnest thing that’s ever walked into my life, hey, Lord She’s a friend, she’s a lover, she’s my wife. Hey, she’s a friend, she’s a lover, she’s my wife. She’s a fox, she’s a mother, she’s my friend, she’s my lover She’s my wife, that’s my wife I’m talking about.

These compositions impart a story of a seemingly paradoxical couple. Despite the propensity of the male character to smoking, drinking and telling dirty jokes, the women remains loyal to him; however, in each song, the woman ultimately is revealed to be a bit scurrilous herself.

Even an occasional country music listener will encounter myriads of ballads alluding to similar ideas. Although the perfect country and western song has been described as including drinking, mother, prisons, trains, and trucks, this Court can add to that list, without reservation, smoking, gambling, loving, and telling dirty jokes. However, a comparison of the two songs reveals similarity in the use of the words “smoke,” “drink,” and “dirty jokes”:

“Angel”
I like to gamble, I like to smoke I like to drink and tell a dirty joke
“Friend, Lover, Wife”
She don’t drink, she don’t smoke She can’t stand a dirty joke

Plaintiff contends that the work “Friend, Lover, Wife” infringes his copyright in “Angel” because of the substantial similarity between the works.

Courts have consistently held that common words and clichéd language are not subject to copyright protection. See Alexander v. Haley, 460 F.Supp. 40, 46 (S.D.N.Y.1978). Moreover, summary judgment is appropriate when such circumstances are demonstrated. Id. at 44. “Similarity of expression, whether literal or nonliteral, which necessarily results from the fact that the common idea is only capable of expression in more or less stereotyped form will preclude a finding of actionable similarity.” 3 M. Nimmer, Nimmer on Copyright § 1303[A][1] (1981). See Atari, Inc., 672 F.2d at 616. The use of particular words or common phrases does not constitute an infringement; it is in the arrangement of words on which a cause of action must be based. Jackson v. Washington Monthly Co., 481 F.Supp. 647, 649 (D.D.C.1979), aff’d, 675 F.2d 1340 (D.C.Cir.), cert. denied, 459 U.S. 909, 103 S.Ct. 215, 74 L.Ed.2d 172 (1982).

The English language is not broad enough so that similarity of phraseology and word usage will not appear in material on the same topic.... It would be ridiculous to consider such similarity a copyright infringement. Plaintiff has no monopoly on the words or phrases he has used. Plaintiff’s right is to the arrangement of the words he has selected to express his ideas, not to the ideas or words themselves.

Id. at 649 n. 7 (citations omitted). In O’Brien v. Chappel & Co., 159 F.Supp. 58 (S.D.N.Y.1958), the complainant contended that the phrase “night and noon” was susceptible to copyright protection. Id. at 58. The court held that copyright protection does not extend to words or phrases isolated from their context. A common phrase in and of itself is not susceptible to copyright nor of appropriation. Id. at 59.

It cannot be contested that a finite number of themes surface in country music songs. The terms “drink,” “smoke,” and “dirty joke” are not subject to the proscriptions of copyright law, and a comparison of their arrangement in “Angel” and “Friend, Lover, Wife” does not indicate substantial similarity. “Angel” speaks in the first person and refers to a gambling man who is known to smoke, drink, and tell dirty jokes. “Friend, Lover, Wife,” on the other hand, describes a woman who does not drink or smoke and cannot tolerate dirty jokes. As a matter of law, a substantial similarity does not exist between the two. See Warner Brothers, 720 F.2d at 239-40. Moreover, as noted above, because the theme or idea of the two songs is not copyrightable, O’Neill, 630 F.2d at 686, and because the manner of expression utilized in each song is clearly dissimilar, Sid & Marty Krofft Television, 562 F.2d at 1163, this action must be dismissed.

An appropriate Order shall enter.

      . Steve Goodman, You Never Even Call Me By My Name (1975).


source: Caselaw Access Project

author: SHADUR, District Judge.

license: Public Domain

text:
    MORTON ARBORETUM, Plaintiff, v. James R. THOMPSON, et al., Defendants.
    No. 84 C 6297.
    United States District Court, N.D. Illinois, E.D.
    Nov. 29, 1984.
    On Motion for Reconsideration Feb. 26, 1985.

      Geoffrey G. Gilbert, Steven B. Varick, McBride, Baker & Coles, Lawrence J. Suffredin, Joseph A. Spitalli, Simon & Spitalli, Laurence A. Carton, Gardner, Carton & Douglas, Chicago, III., for plaintiff.
    Donald J. Kreger, Russ M. Strobel, Stephen Fedo, Friedman & Koven, Chicago, Ill., for defendants.
   MEMORANDUM OPINION AND ORDER

SHADUR, District Judge.

Morton Arboretum (“Arboretum”), one of the major holders of Northern Illinois Toll Highway Revenue Bonds, Series of 1955 (“Bonds”), challenges the 1984 amendment (the “Amendment,” P.A. 83-1258) to the statute (the “Act,” Ill.Rev.Stat. ch. 121, ¶¶ 100-1 to 100-35) creating the Illinois State Toll Highway Authority (“Authority”). Arboretum says the new provisions of the Amendment impair the terms of the Bond resolution (the “Resolution”) covering the original issuance of the Bonds, in violation of Arboretum’s rights under (1) the Contract Clause (U.S. Const. art. I, § 10), (2) the Fourteenth Amendment and (3) the Illinois Constitution’s version of the Contract Clause (Ill. Const. art. I, § 16). For the reasons stated in this memorandum opinion and order, defendants’ Fed.R.Civ.P. (“Rule”) 12(b)(6) motion is granted and Arboretum’s Complaint and this action are dismissed.

Bondholders’ Rights Under the Resolution

As the name “revenue bonds” indicates, holders of the Bonds cannot look to the faith and credit or taxing power of the State of Illinois (Res. § 7.01), but only to “Revenues” of the tollway system (the “Facility,” as it is termed in the Resolution). In a fashion typical of revenue bond issues, the Resolution has a number of provisions designed to protect the integrity of the Bond payment provisions:

1. All revenues from tolls charged to users of the Facility and from other collateral income derived from the Facility (collectively “Revenues”) are a trust fund “exclusively and irrevocably pledged ... for the security and payment or redemption of, and for the security and payment of interest on,” the Bonds (Res. § 2.04).
2. Authority is obligated to set tolls at levels at least sufficient to service the Facility and to meet the current obligations (including minimum Sinking Fund requirements) on the Bonds (Res. § 4.01.-1).
3. No Revenues will be used for any purposes except those specified in the Resolution (Res. § 7.10).
4. No other bonds can be issued by Authority, nor can it create any other lien or charge on the Facilities or the Revenues (Res. § 7.04).
5. Minimum Sinking Fund requirements call for accelerating deposits typical of revenue bond issues, self-amortizing over the life of the Bonds (Res. § 4.03.2 (Third)). Excess Revenues must also be transferred to the Sinking Fund Account (Res. § 4.03.2(g)). All amounts in the Sinking Fund must be applied to payment and retirement or redemption of the Bonds (Res. § 5.04).

Authority has no obligation to create surpluses to accelerate retirement of the Bonds beyond the mandatory Sinking Fund requirements. Indeed Act 11100-19 requires that tolls be fixed “at the lowest possible rate that will provide funds sufficient” to service the Facility and the Bonds, including Sinking Fund requirements (more of this later). Resolution § 4.01(4) specifically gives Authority the right to reduce tolls, conditioned only on (1) notice to interested parties, (2) current compliance with the funding requirements and (3) certification that the reduced rate will provide sufficient Revenues to meet the funding requirements for the next ten fiscal years.

1984 Amendment

To facilitate the construction, operation and maintenance of a new projected North-South Tollway, the 1984 Amendment provides for the issuance of Refunding Bonds for purposes of refunding the Bonds (Act ¶ 100-20.1). Under Act 11100-20.1(f) all the Bonds will be “deemed paid and no longer ... outstanding for purposes of [the] [Resolution ... and all rights and obligations under [the] [R]esolution ... shall be deemed discharged ...” upon establishment of an irrevocable trust with either:

(a) funds adequate to meet all payment obligations on the Bonds; or
(b) obligations issued or guaranteed by the United States government, the amount of which is sufficient to pay the Bonds; or
(c) the same kinds of obligations in an amount that, taking into account investment earnings on those obligations, will be sufficient to pay the Bonds.

Bondholders of course will retain “an irrevocable and unconditional right to payment in full of all principal of and premium, if any, and interest on such outstanding bonds, at maturity or upon prior redemption, from the amounts on deposit in such trust” (Act 11100—20.1(f))—the difference being that they will look to the trust funds and not to the Revenues of the Facility.

Rule 12(b)(6) Principles

Last Term the Supreme Court announced the rule of Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-102, 2 L.Ed.2d 80 (1957) was still alive and well and living in Washington. Hishon v. King & Spalding, — U.S. -, 104 S.Ct. 2229, 2233, 81 L.Ed.2d 59 (1984) phrased the applicable standard as requiring that a complaint survive unless “it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations.” But as Judge Bua of this District Court has said in Goodman v. Board of Trustees of Community College, 498 F.Supp. 1329, 1337 (N.D.Ill.1980):

Where, however, the plaintiffs cause of action arises out of a contract which has been attached to the complaint as an exhibit, and where such contract shows unambiguously on its face that the relief prayed for is not merited, dismissal is both justified and appropriate.

See Jackson Sawmill Co. v. United States, 580 F.2d 302, 311-12 (8th Cir.1978), affirming dismissal of a Contract Clause claim by revenue bondholders, based on the insufficiency of the complaint in light of the contract document. Here Arboretum’s contract rights as an owner of Bonds are defined by the Resolution —the contract whose obligations are purportedly impaired by the Amendment. This Court rejects Arboretum’s invitation (Mem. 5, 7, 8) to consider a constitutional inhibition on Authority to a greater extent than the Resolution provides, simply on the strength of the Official Statement issued when the Bonds were first sold (see n. 5).

“Impairment” of the Obligations of the Resolution

Arboretum urges the Amendment is an impermissible encroachment in Contract Clause terms because:

1. Revenues will no longer be collateral for the Bonds. Instead they will be available as collateral for the Refunding Bonds and the new Bonds to be issued to finance the North-South Tollway (Complaint ¶¶ 28(a) and (d)).
2. Surplus Revenues will be used for the North-South Tollway and not for early retirement or redemption of the Bonds (Complaint Till 28(b) and (e)).
3. There is no provision under the Amendment to raise additional funds if proceeds of the Refunding Bonds are inadequate to pay the Bonds at maturity (Complaint 1128(c)).
4. Bondholders are deprived of the right to vote on amendments to the Resolution (Complaint ¶ 28(f)).
5. Refunding would jeopardize the Bonds’ tax-exempt status (Complaint 1128(g)).

Nothing in Arboretum’s Memorandum suggests a basis for the last speculative argument, and Def.Mem. 18 (referring to issuance of an IRS private letter ruling to the contrary) shows it has no foundation. This opinion will therefore address only the other, more serious contentions.

Contract Clause cases disclose a nonliteral view of the “impairment” concept. Not every statutory alteration of contractual undertakings is a “law impairing [their] Obligation ...” in the constitutional sense. Energy Reserves Group v. Kansas Power & Light Co., 459 U.S. 400, 411, 103 S.Ct. 697, 705, 74 L.Ed.2d 569 (1983) provides a definitive overview of the operative principles:

Although the legal issues and facts in these two cases [United States Trust Co. v. New Jersey, 431 U.S. 1, 97 S.Ct. 1505, 52 L.Ed.2d 92 (1977) and Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 98 S.Ct. 2716, 57 L.Ed.2d 727 (1978)] differ in certain ways, they clarify the appropriate Contract Clause standard.
The threshold inquiry is “whether the state law has, in fact, operated as a substantial impairment of a contractual relationship.” Allied Structural Steel Co., 438 U.S., at 244 [98 S.Ct. at 2722]. See United States Trust Co., 431 U.S., at 17 [97 S.Ct. at 1515]. The severity of the impairment is said to increase the level of scrutiny to which the legislation will be subjected. Allied Structural Steel Co., 438 U.S., at 245 [98 S.Ct. at 2722]. Total destruction of contractual expectations is not necessary for a finding of substantial impairment. United States Trust Co., 431 U.S., at 26-27 [97 S.Ct. at 1519-1520]. On the other hand, state regulation that restricts a party to gains it reasonably expected from the contract does not necessarily constitute a substantial impairment.

True enough a stricter standard applies where the State seeks to alter its own contractual obligations. As Energy Reserves, id. at 412-13 n. 14, 103 S.Ct. at 705-06 n. 14 put it:

In United States Trust Co., but not in Allied Structural Steel Co., the State was one of the contracting parties. When a State itself enters into a contract, it cannot simply walk away from its financial obligations. In almost every case, the Court has held a governmental unit to its contractual obligations when it enters financial or other markets. See United States Trust Co., 431 U.S., at 25-28 [97 S.Ct. at 1519-1521]; W.B. Worthen Co. v. Kavanaugh, 295 U.S. 56 [55 S.Ct. 555, 79 L.Ed. 1298] (1935); Murray v. Charleston, [6 OTTO 432] 96 U.S. 432 [24 L.Ed. 760] (1878). But see Faitoute Iron & Steel Co. v. City of Asbury Park, 316 U.S. 502 [62 S.Ct. 1129, 86 L.Ed. 1629] (1942). When the State is a party to the contract, “complete deference to a legislative assessment of reasonableness and necessity is not appropriate because the State's self-interest is at stake.” United States Trust Co., 431 U.S., at 26, 97 S.Ct. at 1519.

But the “threshold inquiry” remains whether there is any “substantial impairment”— whether Illinois is seeking to “walk away from its financial obligations.” That threshold inquiry will be essayed first.

Arboretum and its fellow Bondholders have no vested stake in a particular remedy, for their fundamental right is to have both the interest and principal of their Bonds paid when due (in Energy Reserves terms, those are the State’s “financial obligations”). As Richmond Mortgage & Loan Corp. v. Wachovia Bank & Trust Co., 300 U.S. 124, 128-29, 57 S.Ct. 338, 339-40, 81 L.Ed. 552 (1937) said, albeit in the private obligor context:

The particular remedy existing at the date of the contract may be altogether abrogated if another equally effective for the enforcement of the obligation remains or is substituted for the one taken away.

Illinois’ General Assembly has provided Bondholders with a remedy—funding of and payments from the irrevocable trust required by Act 11100-20.1(f)—“equally effective” to the one afforded as a contractual matter by the original statute and the Resolution. Arboretum Mem. 5-6 speculates that Authority may not invest the Refunding Bond proceeds in United States or United-States-guaranteed securities, thus assertedly posing a fact question and precluding dismissal under Rule 12(b)(6). But that contention ignores both the statute’s terms and the fundamental proposition that statutes must be construed to avoid constitutional problems. After all (as Arboretum ignores), Act 11100-20.1(f) deals only with Authority’s initial deposit into the irrevocable trust, for which purpose the statutory alternatives of depositing either funds or government securities make obvious sense.

How the trust fund is to be invested, and not its initial form, is the critical fact for Contract Clause purposes. Under the Act that is a matter for decision by the trustee, which must be a trust company or bank with capital and surplus of at least $100 million. Act 11100-20.1(e) provides that pending the application of the Refunding Bonds’ proceeds towards the purchase, retirement or redemption of the Bonds, such proceeds “may be invested” in United States or United-States-guaranteed securities. Because any arguable Contract Clause questions can be averted by giving Bondholders at least equal security to what they now have, this Court reads that provision (surely a permissible reading) as defining and limiting the authorized investment of the proceeds—as requiring investment by the trustee in such securities (that is, if Authority does not itself exercise its right to deposit such securities in the first instance). Indeed the trustee’s fiduciary obligations alone should require it to comply with that standard.

Accordingly Arboretum’s effort at discovery of the “particulars of the planned refunding issue” (Arb.Mem. 7) is really beside the mark. If the refunding issue produces funds sufficient to provide security of full payment of the Bonds, the “particulars” of the refunding are irrelevant.

Arboretum’s only contention really worthy of consideration is that Bondholders now have the right to have Bonds retired or redeemed out of surplus Revenues, a right that will no longer exist with the funded irrevocable trust. On that issue too Arboretum complains of the lack of discovery—this time “information concerning the extent to which, in practice, surplus revenues have existed in the past, and have been used by the Authority to retire outstanding bonds by purchase or redemption” (Arb.Mem. 8).

But the flaw in Arboretum’s position is in labeling what is nothing more than an expectancy as a right—as an “obligation” of the contract. It must be remembered Authority’s contractual obligations, and the correlative rights of Bondholders, were defined by the Resolution itself when it was first adopted—not by what has since happened “in practice.”

Nothing in the Resolution obligates Authority, as a matter of contract law, to maintain tolls at a level that will provide ongoing accelerated Bond retirement. What controls in constitutional terms is that Authority has always had the unfettered contractual right to reduce tolls—and in fact it now has the statutory duty to keep them at the lowest level necessary for discharge of Authority’s obligations, thus preventing a surplus buildup.

Finally Arboretum mischaracterizes the Amendment as impairing “the right to have all of the outstanding bonds redeemed if the Authority chooses to divert the revenues of the existing facility to another purpose” (Arb.Mem. 12). Arboretum prefers to gloss over the obvious fact that Bondholders are creditors, not shareholders (who might perhaps be entitled to rely on a contractual undertaking for continued operations, as giving them an enforceable right to require the maintenance of such operations). Bondholders’ basic right is to payment, and that right to payment of revenue bonds carries with it the assurance of operations simply because such operations are the only source of payment. However bondholders (unlike equity owners) have no contractual stake in operations as an end in themselves, as contrasted with operations as being merely the means to the end of payment. Thus Arboretum cannot be said to have an independent right to the method of Authority’s operation, so long as the Amendment provides (as it does) at least equivalent security for payment.

All the foregoing discussion carries with it the rejection of Arboretum’s related arguments, negating any notion of contract impairment in constitutional terms. Though Bondholders’ rights have been somewhat altered, they have not been “substantially impaired.” Most importantly, Bondholders’ right to payment—the fundamental substantive right for which all the other procedural rights were conferred by the Resolution—has been assured. See City of El Paso v. Simmons, 379 U.S. 497, 514, 85 S.Ct. 577, 586, 13 L.Ed.2d 446 (1965); Faitoute Iron & Steel Co. v. City of Asbury Park, 316 U.S. 502, 514, 62 S.Ct. 1129, 1135, 86 L.Ed. 1629 (1942). Nor is United States Trust to the contrary, for the very factor the Supreme Court found lacking there—the need for replacement of the bondholders’ security by “an arguably comparable security provision” (431 U.S. at 19, 97 S.Ct. at 1516)—is afforded by the Amendment.

That really makes the second-level inquiry in United States Trust unnecessary—whether an “impairment,” once established, violated the Contract Clause (see discussion 431 U.S. at 21-32, 97 S.Ct. at 1517-1523). It is nonetheless worth noting that during the course of that inquiry the Court said (id. at 25-26, 97 S.Ct. at 1519-1520):

Of course, to say that the financial restrictions of the 1962 covenant were valid when adopted does not finally resolve this case. The Contract Clause is not an absolute bar to subsequent modification of a State’s own financial obligations. As with laws impairing the obligations of private contracts, an impairment may be constitutional if it is reasonable and necessary to serve an important public purpose. In applying this standard, however, complete deference to a legislative assessment of reasonableness and necessity is not appropriate because the State’s self-interest is at stake. A governmental entity can always find a use for extra money, especially when taxes do not have to be raised. If a State could reduce its financial obligations whenever it wanted to spend the money for what it regarded as an important public purpose, the Contract Clause would provide no protection at all.

In this case:

1. Illinois’ General Assembly has determined the proposed North-South Tollway “is reasonable and necessary to serve an important public purpose” (431 U.S. at 25, 97 S.Ct. at 1519).
2. Any effective prohibition of such added tollways in the Resolution was not the substantive purpose of the Resolution, but was rather a protection to Bondholders against dilution of their security: the pledge of all Revenues from the original Facility.
3. By the Amendment’s requiring establishment of an irrevocable trust with the proceeds of Refunding Bonds, the State has not “reduce[d] its financial obligations” (431 U.S. at 26, 97 S.Ct. at 1519) at all. Bondholders’ contractual security is undiluted, and perhaps even enhanced.

Thus the Amendment satisfies the Contract Clause from both perspectives exemplified by United States Trust.

Conclusion

Arboretum has therefore failed in its claim as a matter of law. And in light of the analysis in this opinion, there is no prospect of restating its Contract Clause claim by amending the Complaint. Accordingly not only the present Complaint but this action itself must be and is dismissed (without prejudice, however, to Arboretum’s possible assertion of a claim under NEPA if and when such a claim may ripen into existence).

ON MOTION FOR RECONSIDERATION

Morton Arboretum (“Arboretum”) has moved for reconsideration of this Court’s November 29, 1984 memorandum opinion and order (the “Opinion”) dismissing Arboretum’s Contract Clause claim against the Illinois State Toll Highway Authority (“Authority”). For the reasons briefly stated in this memorandum opinion and order, the motion for reconsideration is denied.

Arboretum continues to insist that Bondholders’ contractual right to the application of surplus revenues to early Bond retirement has been impaired in the Contract Clause sense. And of course what the Clause prohibits is “any ... Law impairing the Obligation of Contracts.” Yet Arboretum’s current Mem. 2 says (emphasis in original):

The Arboretum has never contended that the Authority has an “obligation to create surpluses to accelerate retirement of the Bonds beyond the mandatory Sinking Fund requirements.”

In an effort to escape that semantic dilemma, Arboretum argues (citing 3A Cor-bin, Contracts § 626, at 10 (1960) and Donner v. New York City Employees’ Retirement System, 33 N.Y.2d 413, 353 N.Y.S.2d 428, 308 N.E.2d 896 (1974)) that “a benefit may be conditional and still be constitutionally protected.” Donner, id. at 416, 353 N.Y.S.2d 428, 308 N.E.2d at 898. But that begs the real question, which is whether the conditional benefit has real or only speculative value. If the latter, there is no meaningful “impairment” and hence no constitutional violation.

Where Arboretum leaves the rails is in arguing the test is one based on the actual performance of the Facility’s operations in the many years that have passed since the Bonds were first issued. Not so. Instead the constitutional inquiry is as to the obligation of the contract (here the Resolution), and that means the obligation when the contract was executed.

It may be that for one or more of a number of reasons Authority has chosen to operate in a way that in fact generates a surplus. But that is very different from saying it is obligated to do so, or even that it has no practical choice except to do so. Thus, though it may be convenient to set tolls in amounts divisible by five, there is no legal reason Authority must function in that manner. Its toll attendants could of course handle odd amounts, and its automatic toll machines are capable of accepting and counting pennies and being programmed for that purpose (if that is not already the case).

In terms of its purpose, the provision in the Resolution creating Authority’s duty to use available funds in excess of specified amounts to fund early retirements is obvious: It protects Bondholders against any diversion of Revenues and against Authority’s pegging rates at an inordinately high level so as to generate surplus that might be used in any impermissible way. Again the mere presence of that contractual safeguard is not the equivalent of a reasonable inference—based on factual allegations— of the substantiality of the right it creates. Though the Opinion was based on the pleadings, under circumstances entitling Arboretum to reasonable factual inferences (see Wolfolk v. Rivera, 729 F.2d 1114, 1116 (7th Cir.1984)), Arboretum has again chosen to focus on Authority’s post-contract operations rather than the expectations of the contracting parties when the Resolution was adopted.

It may be that Arboretum could craft a Complaint that could survive dismissal in the terms stated here (see n. 3). Instead Arboretum incorrectly characterizes this Court as having misunderstood Arboretum’s claim. Arboretum would do better to examine the mote in its own eye. As stated at the outset of this opinion, its motion for reconsideration is denied.

      . Arboretum also originally advanced a claim under the National Environmental Policy Act of 1969, 42 U.S.C. §§ 4321 et seq. ("NEPA") but has now acknowledged (Arb.Mem. 1-2) that claim has been rendered moot by action since taken by the United States Army Corps of Engineers. Arboretum’s stated intention to file an "amended complaint” (Arb.Mem. 2) really contemplates a supplemental complaint (for it concerns facts occurring after the original complaint was filed, not additional facts in existence as of the original filing date, see Fed.R.Civ.P. 15(d)). Given this opinion's dismissal of Arboretum's original action in its entirety, any effort by Arboretum to return to court calls for a new lawsuit rather than a revival of this one.

      . Arboretum’s Memorandum does not suggest any theory on which the Due Process Clause would be violated if the Contract Clause were not. Accordingly this opinion will, like the parties' own memoranda, deal only with the latter.

        . Pennhurst State School & Hospital v. Halderman, 465 U.S. 89, 104 S.Ct. 900, 911, 919, 79 L.Ed.2d 67 (1984) appears to foreclose the last claim (though the result would be the same if it did not, for the Illinois constitutional provision is read in the same manner as the Contract Clause, Hardin, Inc. v. Village of Mount Prospect, 99 Ill.2d 96, 103, 75 Ill.Dec. 435, 438, 457 N.E.2d 429, 432 (1983)). Pennhurst certainly precludes this Court's dealing with the state law arguments advanced in Complaint ¶ 30.

      . Authority is of course right that the full faith and credit of the United States are superior to the existing pledge of Facility Revenues. For the reasons expressed in the text, it is unnecessary to decide the hypothetical question whether, if the trustee were to opt for some other form of investment, that too would provide security superior to the Bondholders’ present contractual rights.

      . Arboretum also points to a reference in the Official Statement, issued when the Bonds were originally sold, to the possibilities of early retirement. Even though Arboretum has not tendered the Official Statement itself, both litigants’ descriptions of that Statement reflect that any such discussion of future prospects was simply not contractual in nature (indeed, Arboretum’s own Complaint consistently speaks only of the Resolution as the source of its contract rights, now allegedly impaired by the Amendment). Though the Official Statement may have described what was anticipated, Bondholders had no contractual assurances other than the duty of the Authority to set tolls at a level that would "at least” service the minimum Bond payment requirements. In Contract Clause terms, the discussion of future possibilities (a full disclosure matter in the sale of securities) did not create an “obligation” whose impairment is prohibited by the Constitution.

      . When the Act was first passed, Authority’s predecessor had that right, though not that duty. Ill.Rev.Stat. ch. 121, 1f314a40 (1953). It is absurd for Arboretum to suggest (Arb.Mem. 11) that the legislature’s later enactment of a duty to that effect creates a potential impairment of contract. That enactment did not alter an obligation —it only reduced a possibility.

      . Though a state case is obviously not controlling authority as to the federal Constitution, Beaumont v. Faubus, 239 Ark. 801, 394 S.W.2d 478, 482 (1965) upheld a refunding provision wholly parallel to the one at issue here. Beaumont’s analysis, which rebuffed challenges both under the Contract Clause and under the corresponding provision of the Arkansas Constitution, is persuasive and should be read in its entirety. Indeed the principal linchpins of the dissent in Beaumont were the factors (both absent here) that (1) the State had pledged its full faith and credit for the original bonds, a promise repudiated by the refunding bond statute, and (2) the existing reserve fund for payment of the bonds was wiped out by the new legislation (while in this case, as the Resolution requires, excess Revenues have in fact been used to retire Bonds).

      . This opinion will assume total familiarity with the Opinion. It continues the use of all defined terms in the Opinion.

      . Until the recent increase to a 40-cent level, passenger vehicles were charged 30 cents at each toll booth on the Facilities themselves, with lower tolls at certain exits.

      . Maybe there is a case for the investors' and Authority’s justifiable joint expectations—at the time they contracted—having been for Facility operations that would have to produce surpluses and therefore accelerated Bond retirements. If so, Contract Clause analysis would produce a result different from the one reached in the Opinion and here. But that is not the case Arboretum has presented in the Complaint or argued in its memoranda. This Court cannot simply speculate in those terms, despite the liberal criterion for judging complaints most recently stated in Hishon v. King & Spalding, — U.S. -, 104 S.Ct. 2229, 2233, 81 L.Ed.2d 59 (1984).


author: WISEMAN, Chief Judge.

text:
    CONSOLIDATED ALUMINUM CORPORATION, Plaintiff, v. TENNESSEE VALLEY AUTHORITY, Defendant.
    No. 3-83-0892.
    United States District Court, M.D. Tennessee, Nashville Division.
    Nov. 15, 1984.
    Donald C. Winson, Pittsburgh, Pa., Lon P. MacFarland, Columbia, Tenn., for plaintiff.
    Herbert S. Sanger, Jr., General Counsel, James E. Fox, Assoc. Gen. Counsel, Robert E. Washburn, Peter K. Shea, TVA, Knoxville, Tenn., for defendant.
   MEMORANDUM

WISEMAN, Chief Judge.

Before this Court are cross motions for summary judgment. Both sides agree that the issue concerns contract construction and thus can be decided as a matter of law. The dispute between Consolidated Aluminum Corporation [Consolidated] and Tennessee Valley Authority [TVA] centers upon the alleged overpayment by Consolidated of its electric bill. Consolidated maintains that TVA has misinterpreted certain contract and rate schedule provisions contained or incorporated in the three electric power contracts between the two parties. Consolidated claims that as a result of the misinterpretation, TVA erroneously applied the “minimum billing demand formula” from a rate schedule to the aggregate contract demand under all of Consolidated’s power agreements with TVA, rather than to the individual contract demand under each of the three_ power agreements. Consolidated argues that at stake are more than two million dollars that it has paid under protest to TVA. TVA asserts that it has not overbilled Consolidated and that Consolidated’s claim is based on a mischaracterization of the “minimum billing demand” provision as a “minimum bill” provision.

In order to decide the motions before it, this Court must scrutinize the language of the pertinent provisions in the power contracts and rate schedules between the parties. In order to do that certain basic concepts and terms of art used in the electric utility industry must be understood. First, a power bill for an industrial customer such as Consolidated consists of several possible components—an energy charge, a demand charge, a minimum bill charge, and a late payment charge (if applicable). Mobil Oil Corp. v. Tennessee Valley Authority, 387 F.Supp. 498, 501-02 (N.D.Ala.1974). The “energy charge” is the amount charged for actual use of electric energy during the month. Id. at 502. This amount is not contested between the parties. The “demand charge” is the amount based on “billing demand” which is usually “the customer’s highest actual demand on the system’s capacity during the month.” The purpose of the demand charge is to recoup the fixed costs related to the investment of the power supplier in its electrical system. Id. at 502. It is the “demand charge” component that is in dispute between the instant parties. The dispute centers upon how the “billing demand” was calculated—i.e., whether the minimum billing demand formula applied to the aggregate demand or separately to the individual demand under each contract. The “minimum bill charge” is “the lowest amount to which a customer’s bill may fall ... This minimum must be paid in each billing period of the customer’s contract, whether or not any service is actually taken.” Id. Thus, the bill that an industrial electric user receives consists of the combination of an energy charge relating to the actual use of electric power and a demand charge relating to its demand of power vis-a-vis the capacity of the supplier, or, if the combination of those two charges falls short of the minimum bill charge, the customer is charged the minimum bill amount. Id.

Section 5 of the contract between TVA and Consolidated, captioned Determination of Billing Amounts, addresses the determination of both the energy charge and the demand charge. In laymen’s terms, determination of the “energy charge” is done simply by measuring the amount of energy delivered. Determination of the “demand charge,” the charge disputed in the instant case, is a bit more complicated. Section 5 in pertinent part states:

The demands established ... shall be determined monthly in the manner provided in this section ...
(b) Company’s (Consolidated’s) ‘total demand’ for each billing period shall be determined in the same manner as prescribed for determining the demand for any month under the Determination of Demand section of the attached rate schedule ...
(d) The total demand for each billing period ... shall be the billing demand.

The Determination of Demand provision incorporated in section 5(b) above states:

Distributor (TVA) shall measure the demand in kilowatts of all customers having loads in excess of 50 kilowatts. The demand for any month shall be ... used as the billing demand except that ... the billing demand for any month shall in no case be less than the sum of (1) 40 percent of the first 5,000 kilowatts, (2) 70 percent of the next 45,000 kilowatts, and (3) 90 percent of all kilowatts in excess of 50,000 kilowatts....

The 40-70-90 percent formula contained in the last part of this provision is known as a “ratchet formula” which in this case functions as a minimum billing demand formula because it establishes a minimum, billing demand for each month. Thus, the determination of “billing demand” is a process by which one first determines whether the ratchet formula applies to establish a minimum billing demand as calculated under the 40-70-90 percent formula. If the ratchet formula does not apply, the billing demand is the actual demand under both the Determination of Demand provision and section 5 of the contract. The billing demand, whether it is the minimum billing demand or some other demand figure, is multiplied by a demand charge factor to arrive at the demand charge.

Positions of the Parties

Consolidated maintains that in computing the amount of its bill the ratchet formula applies separately to the billing demand of each of the three contracts. Applying the ratchet formula separately results in less of the billing demand being affected by the ninety percent level of the ratchet formula than would be the case if the ratchet were applied to the aggregate of the billing demands for the three contracts. The result, Consolidated claims, is an inflated billing demand which in turn inflates the demand charge component of the billing amount resulting in an overbilling by TVA. Consolidated bases its contention that the ratchet formula applies separately to the billing demands of the three contracts on the belief that the ratchet formula constitutes a “minimum bill” provision which in turn applies to the “exception” clause of the following crucial provision of section 5(d):

(d) ... The billing demand [from the contracts in force] ... taken during any billing period shall each remain combined for purposes of billing under the attached rate schedule rather than each being divided among the 1973 and 1976 Contracts and this contract [the 1978 contract] except that for calculations required to determine the application of minimum bill provisions the billing demand for ... any billing period shall each be divided among the 1973 and 1976 Contracts and this contract in proportion to the respective amounts of firm power available under the respective contracts during the billing period, (emphasis added).

Thus, Consolidated contends that in determining whether to apply the ratchet formula, which it maintains is a minimum bill provision, the “exception” clause of section 5(d) dictates that the billing demand be separated among the three power contracts.

TVA, on the other hand, maintains that the ratchet formula is not a “minimum bill” provision, rather it is a “minimum billing demand ” provision, and thus is not affected by the “exception” clause of section 5(d) concerning separation of billing demand for minimum bill purposes. Also, TVA expresses some dismay as to how Consolidated can maintain that the ratchet provision is a minimum bill provision in light of the section of the rate schedule entitled Minimum Bill which addresses the calculation of the minimum bill charge.

Discussion

Both parties agree that the disputed contractualianguage is unambiguous and that the matter is proper for summary judgment. Once again, the focus of the dispute is the construction of the following contractual provision:

5(d) ... The billing demand for ... any billing period shall ... remain combined for purposes of billing under the attached rate schedule rather than each being divided among the 1973 and 1976 Contracts and this contract [the 1978 contract] except that for calculations required to determine the application of minimum bill provisions the billing demand ... shall each be divided among the 1973 and 1976 Contracts and this contract.

The first clause of this provision clearly establishes that the billing demands of the three contracts will be aggregated for billing purposes. The second clause, beginning with “except,” just as clearly states that the billing demands of the three contracts will remain separate when determining if minimum bill provisions apply. The issue is whether the ratchet formula is a minimum bill provision. The Court holds that it is not. The ratchet formula establishes a minimum billing demand below which billing demand cannot fall; it does not establish a minimum dollar amount below which the monthly bill may not fall. The consequences of having the “minimum billing demand” provided by the ratchet formula is that whenever the term “billing demand” is used in the contract, one must be aware that there is an established minimum for that billing demand that must be considered before applying the billing demand to any further computation under the power agreement. Basically, billing demand, which could be the actual demand or the minimum billing demand—whichever is greater, is used in two computations. First, billing demand is used as part of the determination of the “demand charge” a component of the electric bill. This is what is referred to in section 5(d) as determination of billing demand “for purposes of billing,” and for this purpose the billing demands are aggregated. Second, billing demand is part of the calculation to determine whether the demand and energy charge components are so deficient as to invoke the minimum bill provision. This is what is referred to in the section 5(d) “exception” clause as “calculations required to determine the application of minimum bill provisions.” For these calculations, the billing demands are separated among the various power contracts, but it is important to remember that the separate billing demands may be either the individual minimum billing demand determined through the ratchet formula or some other billing demand figure. In either role, the ratchet formula, as a matter of the unambiguous contractual language, is a minimum demand provision, not a minimum bill provision.

The operation of the minimum billing demand provision/ratchet formula does not lend support to Consolidated’s argument. In short, any determination of billing demand must first begin with deciding whether the minimum billing demand applies. The language of the “exception” clause of section 5(d) instructs that the billing demand be viewed separately under each individual contract in deciding whether to apply the minimum bill, but here again the separate billing demand may be the actual demand or may be the minimum billing demand as computed under the ratchet formula. Because the minimum billing demand provision is used, when applicable, in determining the propriety of invoking the minimum bill provision, this Court is not persuaded that the minimum billing demand provision/ratchet formula also operates as a minimum bill provision. Thus, the Court holds that the 40-70-90 percent ratchet formula establishes a “minimum provision,” but it establishes a “minimum billing demand provision” not a “minimum bill provision.” The Court finds that when computing billing demand for billing purposes the ratchet formula applies to the aggregate of the billing demands of all the contracts. Therefore, it follows that the “exception” clause of section 5(d) does not apply to the separate billing demands under the three contracts when determining total billing demand for billing purposes. Thus, TVA did not wrongfully apply the ratchet demand provision to the aggregate of billing demand when it was computing the amount of Consolidated’s electric bill. As a result, Consolidated was not over-billed as it claims. Accordingly, plaintiff’s motion for summary judgment is denied; defendant’s motion for summary judgment is granted.

      . Consolidated and TVA have had power supply contracts since 1963. The contracts in question are the 1973, 1976, and the 1978 contracts. The contracts overlap in that each provides for supplying electricity into the term of the succeeding contract which is presumably negotiated with the previous agreements in mind. The rate schedules referred to are those issued periodically by TVA that apply to all power contracts with its various customers. The disputed provisions are the same in all three contracts and all the applicable rate schedules.

      . For example, for the month of October 1981, when the ratchet is applied to the aggregate contract demand (i.e., 254,000 kW) called for by the 1973, 1976, and 1978 contracts, the resulting minimum billing demand is as follows:
      40% of the first 5,000 kW = 2,000 kW
      70% of the next 45,000 kW = 31,500 kW
      90% of the remaining 204,000 kW = 183,600 kW
      217,100 kW
      If the demand under each of the contracts were separated as Consolidated contends, the minimum billing demand would be computed as follows:
      1973 Contract 1976 Contract 1978 Contract (109,000 kW) (70,000 kW) (75.000 kW)
      40% of first 5.000 kW 2,000 kW 2,000 kW 2,000 kW
      70% of next 45.000 kW 31,500 kW 31,500 kW 31.500 kW
      90% of remaining 86,600 kW 51,500 kW 56,000 kW kW 53,100 kW 18,000 kW 22.500 kW
      Total 194,100 kW Thus, for this one month period, depending upon whether billing demand was aggregated or separated, there was a difference of 23,000 kW (217,100-194,100) of billing demand.

      . The contents of the Minimum Bill provision are not in dispute. The applicable part of the provision states: "The monthly bill ... shall not be less than the base demand charge ... applied to the higher of (a) the currently effective contract demand or (b) the highest demand established during the preceding 12 months." The parties, however, do dispute whether this provision is the only "minimum bill” provision in the agreement between the parties. Consolidated argues that the language of the "exception” clause in 5(d), which uses the words "minimum bill provisions," indicates that more than one minimum bill provision is contained in the argument. Of course, Consolidated argues that the ratchet formula is one of the “other” minimum bill provisions. TVA argues that since the Minimum Bill section contains three paragraphs it would be correct to refer to "minimum bill provisions" as meaning the one section of the rate schedule. Furthermore, TVA argues that the 5(d) "minimum bill provisions” language could not refer to the ratchet formula because the formula did not exist at the time of the contract. Consolidated, however, maintains that the ratchet formula in question has the purpose and effect of a minimum bill provision because it establishes a minimum demand level for purposes of billing. TVA counters by saying that the ratchet provides a floor below which billing demand will not fall, but that this "floor" is used not to compute the minimum bill, rather is used to determine whether the minimum bill provision from the rate schedule applies to the particular billing period.


author: CAHILL, District Judge.

text:
    Edom Everett WILLIAMS, Plaintiff, v. Arthur SCHULTE, and Gerald Higgins, Defendants.
    No. 83-1902C(4).
    United States District Court, E.D. Missouri, E.D.
    Nov. 15, 1984.
    On Motion For Reconsideration March 27, 1985.

      Curtis Dombek, St. Louis, Mo., for plaintiff.
    Rosalynn Van Heest, Jefferson City, Mo., for defendants.
   MEMORANDUM AND ORDER

CAHILL, District Judge.

This matter is before the Court on defendants’ motion for summary judgment (treated by the Court as a motion to dismiss); plaintiff’s motion for summary judgment, and plaintiff’s petition for a writ of habeas corpus.

In light of the fact that plaintiff is no longer incarcerated, his writ for habeas corpus relief is denied as moot. This leaves the Court with the more troubling issue of whether plaintiff’s constitutional rights were violated.

Plaintiff was originally an inmate at the St. Mary’s Honor Center in St. Louis, Missouri. Because of an alleged conduct violation, plaintiff was later apprehended and placed in the St. Louis Police Central Headquarters’ holdover jail. At the holdover cell, the plaintiff was advised that certain conduct violations had been alleged against him. The plaintiff was alleged to have been out-of-bounds from the St. Mary’s facility. This out-of-bounds infraction was escalated to an escape. Plaintiff alleges that he was not advised of his rights concerning the conduct violations, and that the defendants failed to furnish him with a copy of the alleged violations. Plaintiff also maintains that he was not given the opportunity to gather or present any evidence on his behalf. Plaintiff claims that as a result of the omissions of the defendants, his original parole date of August 31, 1983, was revoked.

Procedural Due Process Issue.

In Wolff v. McDonnell, 418 U.S. 539, 94 S.Ct. 2963, 41 L.Ed.2d 935 (1979), the Supreme Court ruled that certain procedures must be followed in prison disciplinary proceedings. Wolff established the following procedures which must be followed prior to the revocation of a prisoner’s liberty interests: (1) written notice of the claimed violation at least 24 hours before the disciplinary hearing, (2) a written statement must be given to the prisoner containing the reasoning and conclusions of the decision maker, and (3) an opportunity to call witnesses and present evidence. See Wolff v. McDonnell, 418 U.S. at 564-566, 94 S.Ct. at 2978-2980.

Upon reviewing the record now before the Court, it seems apparent that the defendants failed to follow the specific procedures set out in Wolff. But as the Supreme Court has pointed out, “[d]ue process, unlike some legal rules, is not a technical conception with a fixed content unrelated to time, place and circumstances.” Cafeteria Workers v. McElroy, 367 U.S. 886, 895, 81 S.Ct. 1743, 1748, 6 L.Ed.2d 1230 (1961). “[D]ue process is flexible and calls for such procedural protections as the particular situation demands.” Morrissey v. Brewer, 408 U.S. 471, 481, 92 S.Ct. 2593, 2600, 33 L.Ed.2d 484 (1972). See also Mathews v. Eldridge, 424 U.S. 319, 334, 96 S.Ct. 893, 902, 47 L.Ed.2d 18 (1976). The Court is not convinced that the procedural defects in this case rise to the level of a constitutional deprivation; further, the Court is of the opinion that the procedures used were adequate in light of the totality of the circumstances that were present.

The plaintiff was incarcerated within a St. Louis Police Department holdover cell at the time his team meeting took place. Prisoners incarcerated within the holdover cells were not allowed to keep papers with them in their cells. Because of that rule, the defendants allowed the plaintiff to read the violation report, but did not allow him to keep the report with him as ordinarily required by Wolff. The issue which now confronts the Court is whether the circumstances present at the St. Louis holdover cell warrant an exception to the procedures required in Wolff.

When determining whether the procedures given satisfy the due process requirements of the constitution, the Court must undertake a weighing and balancing process. The Court must consider the liberty interest involved; the possibility of an erroneous deprivation of a constitutional right; and the governmental interest involved. See Mathews v. Eldridge, 424 U.S. 319, 334-335, 96 S.Ct. 893, 902-903, 47 L.Ed.2d 18 (1976); Goldberg v. Kelly, 397 U.S. 254, 263-266, 90 S.Ct. 1011, 1018-1020, 25 L.Ed.2d 287 (1970). See also Landen v. Plasencia, 459 U.S. 21, 103 S.Ct. 321, 330, 74 L.Ed.2d 21 (1982). In this specific case, the Court is of the opinion that the governmental interest outweighs that of the plaintiff. The reason behind the rule disallowing inmates to keep papers with them while in the holdover cell stems from security problems at the holdover cell. All too often prisoners within the cell would use papers to start fires and to stop up the drainage system. In Wolff, the disciplinary proceedings took place in a maximum security facility, unlike the St. Louis holdover facility. The problems posed by allowing prisoners to keep papers with them did not exist in the Wolff case. There are no maximum correctional facilities within the City of St. Louis. Thus, the Court comes to the conclusion that the defendants had a valid reason for not allowing the plaintiff to retain a copy of the conduct violation report. Further, there is no showing that plaintiff’s rights in the hearing were substantially compromised by his failure to have the papers in the holding cell overnight.

Adequacy of the Hearing.

The plaintiff alleges that he was not given the opportunity to call witnesses or present evidence at the disciplinary proceedings. But the plaintiff himself admits that he never specifically requested that he be allowed to call witnesses or present any evidence. Thus, the plaintiff cannot argue that the defendants violated his constitutional rights based on the above alleged irregularities. Plaintiff also contends that he was not given Miranda warnings when he was apprehended. The plaintiff has failed to substantiate his claim, and there is no evidence in the record that would indicate that he was not given the required Miranda warnings.

The plaintiff also maintains that the adjustment team which conducted a hearing on the alleged conduct violation was improperly staffed. But plaintiff has yet to show that he was damaged because of the alleged improper staffing. Also, the Court is of the opinion that the above fact alone does not rise to the level of a constitutional deprivation.

Finally, plaintiff has failed to show this Court the effect, if any, that additional procedures would have had on the outcome of the disciplinary committee’s findings. See Mathews v. Eldridge, 424 U.S. 319, 335, 336, 96 S.Ct. 893, 903, 47 L.Ed.2d 18 (1976). Thus, the Court concludes that based on the record now before this Court, the procedural deficiencies alleged do not rise to the level of constitutional infractions. Based on the record now before the Court, dismissal of the plaintiff’s case seems to be in order. The Court will, however, allow the plaintiff to bring forth evidence that would show that a different result would have occurred had different procedures been used. Accordingly,

IT IS HEREBY ORDERED that petitioner Edom Everett Williams’ petition for a writ of habeas corpus is DISMISSED AS MOOT.

IT IS ORDERED that plaintiff’s motion for summary judgment is DENIED.

IT IS ORDERED that defendants’ motion for summary judgment, treated as a motion to dismiss, is STAYED pending further Orders of this Court.

The plaintiff may amend his complaint within 20 days of this Order provided he can plead and adduce sufficient new evidence to support his contentions.

ON MOTION FOR RECONSIDERATION

This matter comes before the Court on plaintiff’s motion for reconsideration.

At the outset, the Court notes that plaintiff is correct in his assertion that procedural due process claims are actionable for nominal damages without proof of actual injury. See Carey v. Piphus, 435 U.S. 247, 266-67, 98 S.Ct. 1042, 1053-1054, 55 L.Ed.2d 252 (1980). But the Court remains firm in its belief that the procedural irregularities that may have occurred in this case do not rise to the level of a constitutional deprivation. The Supreme Court in Wolff recognized the fact that the rights of prisoners are subject to certain restrictions. Wolff v. McDonnell, 418 U.S. 539, 556, 94 S.Ct. 2963, 2975, 41 L.Ed.2d 935 (1974). “[T]he fact that prisoners retain rights under the Due Process Clause in no way implies that these rights are not subject to restrictions imposed by the nature of the regime to which they have been lawfully committed.” Wolff, 418 U.S. at 556, 94 S.Ct. at 2975. There must be a “mutual accommodation” between the needs of the institution and the rights of the individuals. Id. at 556, 94 S.Ct. at 2975.

The Court in its previous order recognized the special problems that the St. Louis City Municipal Jail would face if it were to allow prisoners to keep papers with them overnight. But even with the restrictions that were placed upon the plaintiff in this case, the Court, upon second reflection, is of the opinion that the requirements of Wolff were in fact followed. Plaintiff was given written notice of the charges that were made against him. Plaintiff signed a statement acknowledging the fact that he was allowed to read the violation report prior to his hearing. The second requirement of Wolff was also met. Plaintiff admits that he never requested that he be allowed to present any witnesses on his own behalf. The third requirement of Wolff was met by defendants in that plaintiff was allowed to read a copy of the report containing the findings and the evidence relied upon by the Classification— Treatment Team. Plaintiff again signed a copy of the report acknowledging that he was given an opportunity to read the report. Thus, the Court concludes that the constitutional rights of plaintiff were not infringed, and plaintiffs motion for reconsideration is therefore denied. Accordingly.

IT IS HEREBY ORDERED that plaintiff’s motion for reconsideration is DENIED.

IT IS FURTHER ORDERED that defendant’s motion for summary judgment, which is treated by the Court as a motion to dismiss, is GRANTED.