author: JUSTICE, Chief Judge.

text:
    Jack PATRICK v. The BOARD OF TRUSTEES OF the MINEOLA INDEPENDENT SCHOOL DISTRICT, et al.
    Civ. A. No. TY-82-376-CA.
    United States District Court, E.D. Texas, Tyler Division.
    Dec. 17, 1984.

      Charles H. Clark, Tyler, Tex., for plaintiff.
    Robert D. Bruce, pro se.
    Tracy Crawford, Tyler, Tex., for Board of Trustees, MISD, Knight, Jones, Bruce, Curbow, George, Puckett, Carr and Peacock, and Kim Harris.
    Susan Henricks, Asst. Atty. Gen., Austin, Tex., for Texas Retirement System of Texas.
   ORDER

JUSTICE, Chief Judge.

Plaintiff’s motion for attorney’s fees under the Civil Rights Attorney’s Fees Award Act of 1976, 42 U.S.C. § 1988, has been presented for resolution. At trial, the jury found that the defendants’ action in not renewing his teaching contract violated his rights to substantive and procedural due process, as well as his right to free speech under the First Amendment to the Constitution of the United States. In the judgment entered in this action, plaintiff received nominal damages for each of these violations. In its findings the jury attempted to award plaintiff damages for lost pay, both past and future. In an order dated September 13, 1984, it was held that such an award was blocked by the decisions in Mt. Healthy School District v. Doyle, 429 U.S. 274, 97 S.Ct. 568, 50 L.Ed.2d 471 (1977), and in Laje v. R.E. Thomason General Hospital, 665 F.2d 724 (5th Cir.1982). The jury gave no award to plaintiff for mental distress, nor did it make findings which would support reinstatement to his former position.

The Civil Rights Attorney’s Fees Awards Act permits a court, in its discretion, to allow the prevailing party a reasonable attorney’s fee. 42 U.S.C. § 1988. The Court of Appeals for the Fifth Circuit has held that, in addressing the question of whether a party has “prevailed” under § 1988, “the proper focus is whether the plaintiff has been successful on the central issue as exhibited by the fact that he has acquired the primary relief sought.” Taylor v. Sterrett, 640 F.2d 663, 669 (5th Cir. 1981). Vindication of constitutional rights constitute such “primary relief,” since the Fifth Circuit has held that nominal damages may serve as the basis for an award of attorney’s fees. Ryland v. Shapiro, 708 F.2d 967, 976 (5th Cir.1983); Basiardanes v. City of Galveston, 682 F.2d 1203, 1220 (5th Cir.1982). The preliminary inquiry does not end, however, with a finding that a party has prevailed: the extent of success is important, and a prevailing party who achieves only partial success should receive only partial attorney’s fees. Hensley v. Eckerhart, 461 U.S. 424, 103 S.Ct. 1933, 1940, 76 L.Ed.2d 40 (1983). As the Supreme Court has succinctly stated, “[t]he result is what matters,” id.

In the instant litigation, plaintiff faced two distinct hurdles in obtaining the full relief which he sought. It was requisite that he show, first, that his contract was not renewed in violation of his constitutional rights. Secondly, in order to obtain damages and equitable relief, it was necessary that he prove that defendants lacked good cause to refuse to renew his contract. In the jury’s findings, plaintiff cleared the first hurdle, but not the second. To allow a full recovery for this partial victory would clearly violate the principle set out in Hensley, that courts only award fees for those expenditures of time that are “reasonable in relation to the success achieved,” id. The fees here must be reduced by some amount.

The Hensley opinion addressed the procedure for reduction as well: “There is no precise rule of formula for making these [reduction] determinations. The district court may attempt to identify specific hours that should be eliminated, or it may simply reduce the award to account for the limited success. The court necessarily has discretion in making this equitable judgment.” Id. Because plaintiff was victorious concerning half of the issues necessary to recover fully, it appears that the attorney’s fees he should receive for the hours reasonably expended in prosecuting this action should be halved.

In order to calculate the fees in this action, the amount of time reasonably spent in this litigation will be determined; this figure will be multiplied by a reasonable hourly rate; and one-half of this amount will be awarded to plaintiff’s attorneys. Plaintiff has submitted documentation of the hours allegedly spent in litigating this action, and also affidavits reflecting the fees customarily charged for representation in similar actions by members of the Bar in the Eastern District of Texas. Defendant has objected to the number of hours and hourly rate claimed. Defendants make three basic objections: (1) that the hours spent in representing plaintiff before the Mineóla School Board and the Texas Commissioner of Education are not properly considered as part of the time expended in the prosecution of this action; (2) that some of the claimed hours were unnecessary or inflated; and (3) that plaintiff’s attorneys were over-staffed in this action.

The most significant objection, in terms of the number of hours involved, is the defendants’ contention that the hours spent before Texas administrative boards cannot be taxed. The Fifth Circuit has addressed this issue and has held that attorney’s fees can be awarded for state proceedings only when these proceedings form an “integral part of the federal remedy.” Redd v. Lambert, 674 F.2d 1032, 1037 (5th Cir. 1982) . Defendants argue that Patrick’s hearing before the Mineola School Board and the Texas Education Agency (TEA) are not the kind of costs taxable under Redd. Defendants call the court’s attention to a case from the Court of Appeals for the Sixth Circuit dealing with a situation analogous to that in the case at bar, Webb v. The County Board of Education of Dyer County, Tennessee, 715 F.2d 254 (6th Cir. 1983) . In that case, a black school teacher was dismissed. After he received an administrative hearing, the dismissal was upheld. He then brought suit in federal court, seeking an award of attorney’s fees for representation both before the court and before the administrative board. The Sixth Circuit denied the latter, on the grounds that the plaintiff was not required to exhaust his administrative remedies before bringing suit in federal court. The question presented, then, is whether it was required that Patrick exhaust his state administrative remedies before bringing the present action.

In 1981, the Fifth Circuit issued its opinion in Patsy v. Florida Board of Regentse, 634 F.2d 900 (5th Cir. 1981). That opinion required civil rights plaintiffs alleging a denial of equal protection to exhaust their state remedies before bringing federal suit. Were the exhaustion requirement of the Fifth Circuit’s Patsy decision still good law, that requirement seemingly would have been a “ ‘necessary preliminary' to the enforcement of section 1983 in federal district court,” the fees for which would be taxable under Redd. Patsy, however, was reversed by the Supreme Court. Patsy v. Florida Board of Regents, 457 U.S. 496, 102 S.Ct. 2557, 73 L.Ed.2d 172 (1982). Specifically, the Court found that the Fifth Circuit’s imposition of an exhaustion requirement impermissibly altered “the balance struck by Congress in establishing the procedural framework for bringing action under § 1983.” Id. at 512, 102 S.Ct. at 2566.

In its recent decision in Collins v. King, 743 F.2d 248 (5th Cir.1984), however, the Fifth Circuit functionally resurrected Patsy’s exhaustion requirement. There, an inmate brought a § 1983 suit against prison officials and guards, alleging that a disciplinary finding against him had violated his right to due process guaranteed by the Fourteenth Amendment. By agreement of the parties, a magistrate conducted all proceedings in the case. The defendants moved for summary judgment on the basis of the plaintiffs failure to appeal the prison disciplinary board’s decision. The magistrate held that, “since Collins had failed to avail himself of the state process and procedures provided him, he could not complain that he had been denied due process.” Id. at 250. The magistrate thereupon granted defendants’ motion. Although the magistrate’s order was entered in response to defendant’s motion for summary judgment, which was premised on the defendant’s factual showing that Collins had not exhausted his administrative remedies, the Fifth Circuit upheld the magistrate’s action as a dismissal for failure to state a claim upon which relief can be granted. Collins’ appeal was based partially on his contention that the magistrate’s actions amounted to a re-imposition of the exhaustion requirement forbidden by the Patsy decision. The Court of Appeals affirmed, however, on the basis of “a cognate doctrine applicable only to procedural due process cases.” Id., at 252.

The court found this “cognate doctrine” in the Supreme Court cases of Parratt v. Taylor, 451 U.S. 527, 101 S.Ct. 1908, 68 L.Ed.2d 420 (1981), and Hudson v. Palmer, — U.S. —, 104 S.Ct. 3194, 82 L.Ed.2d 393 (1984). These cases hold that unintentional and intentional deprivation of property do not violate inmates’ rights, if the state provides adequate post-deprivation remedies. In Collins, the Fifth Circuit held that this doctrine, developed in situations involving the loss or destruction of the inmate’s hobby kit and personal letters, respectively, applies to all § 1983 actions alleging a state deprivation of due process. The court stated that, in the context of state deprivation of Fourteenth Amendment rights, “the State’s action is not complete until and unless it provides or refuses to provide a suitable postdeprivation remedy.” The court then held

Patsy is not to the contrary, for we do not deal today with the exhaustion doctrine but rather with a cognate one: that in Section 1983 action, grounded in denial of procedural due process by a state, one must plead either or both that the state has established a procedure that itself is constitutionally deficient or that it has provided no adequate remedy for aberrational departures by its servants from proper procedures.

Id., at 254. The question at issue is whether this “cognate doctrine,” requiring § 1983 plaintiffs to allege the actual inadequacy of state procedures before being heard in federal court, makes these state procedures — in the case at bar, the hearings before the Mineóla School Board and the Texas Education Agency — a “necessary preliminary” to the Federal hearing under the Redd decision.

Patrick claimed and demonstrated that he was the victim of a biased school board employing unfair procedures. The Collins case requires that a plaintiff who does not attack post-deprivation procedures in the abstract must allege and show that the state, in actuality, “provided no adequate remedy for aberrational departures by its servants from proper procedures.” In order to do so, a plaintiff must go through these same state procedures, for otherwise it is impossible to manifest that state remedies are, in fact, inadequate. Hence, Collins has made the state administrative procedures a necessary prerequisite to a federal hearing, for any plaintiff whose claim of due process violation is not directed against state remedies inadequate on their face. To the extent that Collins contrasts this “cognate doctrine” to the discredited exhaustion requirement of Patsy, it creates a distinction which, while of academic interest, is of little practical import to those whose rights to due process have been violated by the state.

The “cognate doctrine” propounded in Collins renders the state remedies an “integral part of the federal remedy” for purposes of the Redd analysis. In Redd, the Fifth Circuit distinguished a case styled Bartholomew v. Watson, 665 F.2d 910 (9th Cir.1982). In that case, an inmate alleging that he had been denied due process by the Oregon State Corrections Division’s administrative procedures was required by the federal court to challenge these procedures in state court before proceeding with his federal civil rights claim, pursuant to the judge-made doctrine of Pullman abstention. Determining that the state proceedings were “an essential step in the presentation of the inmate’s section 1983 claim,” the court awarded him attorney’s fees for these proceedings. Id., at 914.

In Redd, the Fifth Circuit approved the Bartholomew reasoning but distinguished the facts of the case before it. The plaintiff’s challenge in Redd was to the state procedure. He brought suit under the Tax Injunction Act, 28 U.S.C. § 1341, which allows federal review of state court pronouncements on state taxes solely by the Supreme Court, and only when a state Supreme Court has ruled on the claim. The Court continued:

While the state proceedings in Bartholomew were a “necessary preliminary” to the enforcement of section 1983 in federal district court, the state proceeding in this case served an entirely different function. Congress chose in section 1341 to remit a plaintiff completely to his state remedies so long as they are plain, speedy and efficient. Congress did not intend for the state proceedings to be a necessary preliminary to further federal relief. Instead, it intended state proceedings to be a plaintiff’s primary route with final review of any federal claims in the Supreme Court. [Citations omitted.] Where the state proceedings do not form an integral part of the federal remedy, but were intended to be a separate route, it would be inappropriate for the federal court to award attorney’s fees for work done in state proceedings.

Supra, at 1037.

Before the advent of the “cognate doctrine” of Collins, state procedures were the type of “separate route” described in Redd. Since Collins, however, these procedures have become the only path to federal court for plaintiffs in Patrick’s position. If the state remedies are the judge-made prerequisite for obtaining a federal court hearing, they are as much a part of the federal remedy for due process violations as the judge-made doctrine requiring Pullman abstention in Webb, or the statutory scheme of Title VII in New York Gaslight Club, Inc. v. Carey, 447 U.S. 54, 100 S.Ct. 2024, 64 L.Ed.2d 723 (1979).

Defendants have argued in their submission to the court on this point that Collins does not create an exhaustion requirement, but merely establishes a new pleading requirement. The fact that Collins lost because of a failure to plead the lack of proper state redress for a biased initial hearing does not mean that, had he survived the defendant’s summary judgment motion, the plaintiff would not have had to prove that the requirements of the “cognate doctrine” had been met. The Collins decision makes this requirement of actual proof manifest. Remarking on the plain-' tiff's failure to allege inadequate administrative relief, the court stated: “Nor did Collins allege that Louisiana procedures for redress of the improper administrative proceeding in his case were constitutionally inadequate.” The footnote to the quoted passage characterizes this allegation as “contentions regarding factual or mixed questions of law and fact that were not presented to the trial court.” Collins, supra, note 6 at 254. It is clear, therefore, that a plaintiff wishing to avoid the fate of the plaintiff in Collins must present these contentions to the trial court, and do as Patrick did in the case at bar, i.e., show that administrative procedures were actually inadequate. Patrick did so in accordance with the law of this Circuit, and is therefore entitled to his attorney’s fees for these state administrative remedies.

The court now turns to defendants’ contention that some of the hours claimed by plaintiff’s attorneys Clark, Negem and Cooper are inflated. An oral evidentiary hearing in this matter was held on November 16, 1984, pursuant to Eastern District of Texas Local Court Rule 6(g). After consideration of the evidence and argument there advanced, it is found that all of the hours claimed by these attorneys were, in fact, reasonably expended in the prosecution of this action.

Finally, defendant has asserted that Negem’s services were wholly redundant, in that trial of this matter only reasonably required the services of one attorney. The court takes judicial notice of the fact that defendant found it necessary to employ two lawyers in defense of this action. What is sauce for the goose is sauce for the gander. Defendants’ objection is overruled.

It remains to consider what constitutes “the prevailing hourly rate in the community for similar work”, Graves v. Barnes, 700 F.2d 220, 222 (5th Cir.1983), and whether the product of this amount times the hours worked should be enhanced by a multiplier in order to be reasonably compensatory.

Plaintiff has submitted the affidavits of Thomas Hathaway, Equire, and Larry Daves, Esquire, both attorneys practicing in the Tyler Division of the Eastern District of Texas. Both state that the members of the Bar for the Eastern District of Texas routinely charge between $100 and $150 per hour for work on comparable cases. The court finds that $125 per hour will adequately compensate Clark for his work, and that this is the customary rate in this community. As for the associate attorneys, $90.00 per hour, as requested by Negem and Cooper, is a reasonable rate for attorneys with their respective experience.

The product of number of hours times rate is the “lodestar” figure for attorney’s fees. Johnson v. Georgia Highway Express, Inc., 488 F.2d 714, 717-719 (5th Cir.1974); Cooper Liquor, Inc. v. Adolph Coors Co., 684 F.2d 1087, 1092-1093 (5th Cir.1982); (Cooper Liquor III). In Blum v. Stenson, — U.S. —, 104 S.Ct. 1541, 79 L.Ed.2d 891 (1984), the Supreme Court simplified the procedure for following this lodestar. Before Blum, a court was required to direct light from the lodestar through the twelve filters enumerated in Johnson, in order to determine whether an overall adjustment of the product of hours-times-rate was necessary to make fees reasonably compensatory. In Blum, the court held that the prevailing hourly rate in the community already subsumes most of the factors listed in Johnson, id. The only Johnson factor to survive Blum is contingency, that is, the degree of risk that the action will be unsuccessful, and also that payment will be delayed. In this action, the fee was partially contingent, but plaintiff has specifically declined to request a multiplier on the basis of the contingent portion of the fee (Brief in Support of Plaintiff’s Motion for Attorney’s Fees at p. 9). Therefore the lodestar amount will be the final award.

The attorneys in this action have showed the following reasonable hours and rates of billing:

CLARK 205.5 hours x $125.00 = $25,687.60
NEGEM 73.75 hours x $90.00 = $ 6,637.50
COOPER 28.20 hours x $90.00 = $ 2,538.00

However, because plaintiff was only partially successful, these figures will be reduced by one-half. It is, therefor,

ORDERED that defendants will pay the attorneys for plaintiff the following amounts:

CLARK $25,697.50 X .5 = $12,843.75
NEGEM $ 6,637.50 x .5 = $ 3,318.75
COOPER $ 2,538.00 x .5 = $ 1,269.00

Plaintiff also seeks certain fees as part of its bill of. costs. Plaintiff is instructed to submit a proposed Bill of Costs, with authorities to support the taxation of each item.

      . In doing so, the court does not give Collins retroactive effect. Given Patsy, no plaintiff could fairly be expected to anticipate the novel interpretation of exhaustion requirements under § 1983 contained in Collins. Chevron Oil v. Huson, 404 U.S. 97, 106, 92 S.Ct. 349, 355, 30 L.Ed.2d 296 (1971). Under Redd, however, it appears that the court must decide which state procedures are “an integral part of the federal remedy” at the time attorneys’ fees are determined.

      . Patrick met the pleading requirement of Collins by alleging that the appeal procedure followed in his case by the TEA denied him due process. (Original Complaint at 11.)

      . See Railroad Commission v. Pullman Co., 312 U.S. 496, 61 S.Ct. 643, 85 L.Ed. 971 (1940).


source: Caselaw Access Project

author: JOYCE HENS GREEN, District Judge.

license: Public Domain

text:
    Philip DISMUKES, Plaintiff, v. DEPARTMENT OF the INTERIOR, Defendant.
    No. 84-0757.
    United States District Court, District of Columbia.
    Dec. 19, 1984.
    James H. Lesar, Washington, D.C., for plaintiff.
    Patricia J. Kenney, Asst. U.S. Atty., Washington, D.C., for defendant.
   MEMORANDUM OPINION AND ORDER

JOYCE HENS GREEN, District Judge.

This action arises under the Freedom of Information Act, 5 U.S.C. § 552 (1977). The single issue presented by the pending cross dispositive motions is whether a FOIA requester may specify the format of data he seeks from an agency.

Plaintiff Philip Dismukes brings this action to obtain a copy of a computer tape listing by name and address the participants in the six 1982 Bureau of Land Management (“BLM”) Simultaneous Oil and Gas Leasing (“SOG”) bimonthly lotteries. Defendant Department of the Interior (“Interior”) has advised plaintiff that the list he requests is routinely made available to the public on microfiche cards and can be provided to him in that form. Interior seeks dismissal of this action (or, alternatively, summary judgment in favor of defendant), contending that it has discharged its obligation under FOIA by offering plaintiff the requested lottery information on microfiche. In his cross-motion for summary judgment, plaintiff maintains that his specific FOIA request for lottery information “in 9 track, 1600 bpi, DOS or unlabeled, IBM Compatible formats, with file dumps and file layouts” has not been satisfied.

This Court’s jurisdiction under FOIA turns on whether an agency has (1) “improperly” (2) “withheld” (3) “agency records”. Kissinger v. Reporters Comm, for Freedom of the Press, 445 U.S. 136, 150, 100 S.Ct. 960, 968, 63 L.Ed.2d 267 (1980); Forskam v. Harris, 445 U.S. 169, 177, 100 S.Ct. 977, 983, 63 L.Ed.2d 293 (1980). Commonly, an agency resisting a FOIA request will assert that one of the statute’s nine enumerated exemptions covers the subject material, or will challenge the “agency record” status of the document. This case is not typical. Here, there is no dispute that both the requested computer tape and the corresponding microfiche are nonexempt agency records. The issue is whether the tape and microfiche are equivalent agency records such that release of the latter will satisfy a request for the former. In other words, the Court must decide whether a FOIA plaintiff may designate the format as well as the content of a requested agency record.

Analysis of that issue beings with an understanding of an agency’s basic obligation under FOIA. The fundamental objective of FOIA is to “loosen the agency’s grip on the data underlying governmental decisionmaking” — to foster “disclosure, not secrecy.” Chrysler Corp. v. Brown, 441 U.S. 281, 290 n. 10, 99 S.Ct. 1705, 1712 n. 10, 60 L.Ed.2d 208 (1979), quoting Dep’t of Air Force v. Rose, 425 U.S. 352, 361, 96 S.Ct. 1592, 1599, 48 L.Ed.2d 11 (1976); see also Allen v. Dep’t of Defense, 580 F.Supp. 74 (D.D.C.1983). The Act represents a Congressional effort to open the doors of government to the people, in the hope that public access to government affairs will ensure an “informed electorate ... vital to the proper operations of a democracy.” S.Rep. No. 813, 89th Cong., 1st Sess. 2-3 (1965); H.R.Rep. No. 1497, 89th Cong.,2d Sess. 5-6 (1966), U.S.Code Cong. & Admin. News 1966, 2418, NLRB v. Robbins Tire & Rubber Co., 437 U.S. 214, 98 S.Ct. 2311, 57 L.Ed.2d 159 (1978). Given that purpose, it is not surprising that courts construing FOIA have focused on the informational content of records at issue in determining claims of exemption, see e.g., Department of State v. Washington Post Co., 456 U.S. 595, 102 S.Ct. 1957, 72 L.Ed.2d 358 (1982); Breuhaus v. IRS, 609 F.2d 80 (2d Cir.1979); Zale Corp. v. IRS, 481 F.Supp. 486 (D.D.C. 1979); or even questions of agency record status, see Center for National Security Studies v. CIA, 577 F.Supp. 584, 589-90 (D.D.C.1984).

The clearest exposition of the Court’s concern for information in FOIA cases is found in FBI v. Abramson, 456 U.S. 615, 102 S.Ct. 2054, 72 L.Ed.2d 376 (1982). The issue in that case was whether information initially contained in a record made for law enforcement purposes (and therefore subject to FOIA’s Exemption 7, 5 U.S.C. § 552(b)(7)) remained exempt from disclosure when reproduced or summarized in a document prepared for a non-law-enforcement purpose. In holding that it did, the Court focused on the information, not the form in which it was presented, even though Exemption 7 by its terms covers only certain “investigatory records compiled for law enforcement purposes.” Instead of looking only to the record, the Court observed that FOIA “require[s] assessment of the harm produced by disclosure of certain types of information. Once it has established that information was compiled pursuant to a legitimate law enforcement investigation and that disclosure of such information would lead to one of the listed harms, the information is exempt.” 456 U.S. at 631-32, 102 S.Ct. at 2064 (emphasis added).

In Center for National Security Studies v. CIA, supra, this Court considered the agency record status of the duplicate of a report prepared by the CIA for a House of Representatives committee. Although the original was a Congressional document beyond the reach of FOIA, the duplicate remained in the CIA files and was, in the plaintiffs view, an agency record subject to FOIA. The Court rejected plaintiffs “literal, ‘physical’ approach to the definition of ‘agency record’ ”, echoing the Abramson court’s reluctance to place the focus of FOIA on the “physical format of documents” rather than on their contents. 577 F.Supp. at 589-90. The message of both Abramson and CNSS is that resolution of disputes under FOIA turns on “the nature of the information and the effects of disclosure.” 456 U.S. at 626, 102 S.Ct. at 2061; 577 F.Supp. at 590.

Plaintiff attempts to turn the focus from content to format by citing language from a prior Supreme Court holding to the effect that “[FOIA] deals with ‘agency records’, not information in the abstract.” Forsham v. Harris, 445 U.S. 169, 185, 100 S.Ct. 977, 987, 63 L.Ed.2d 293 (1980). Placed in context, that statement is not at odds with the above discussion. The Forsham court held, inter alia, that FOIA’s disclosure requirements extend only to existing compilations of information: in response to a FOIA request, an agency need not create new documents containing data previously unrecorded. It does not follow from that holding that twice-recorded information, such as that at issue here, must be made available in the format selected by the requester.

Viewed against this background of legislative history and case law, plaintiff’s challenge to the format of the lottery information offered by defendant does not state an actionable claim under FOIA unless plaintiff contends that defendant’s decision to release the microfiche rather than the tape somehow affects his access to the information he seeks — the names and addresses of the 1982 SOG lottery participants. In theory, a variation in the format of data released by defendant could reduce the quantum of information made available to plaintiff. For example, had plaintiff requested an audio tape, he could well argue that production of a written transcript would not satisfy his request, as transcription removes nuances of inflection which give words added meaning beyond that reproducible on paper. However, neither plaintiff nor any document in the record suggests that the quantum of information contained in the microfiche varies in any way from that recorded on the computer tape. Indeed, the uncontroverted affidavit of a knowledgeable BLM official states that “a printout from the ... tape would be identical to the corresponding page from the microfiche.” Affidavit of Andrew Tarshis (“Tarshis Aff.”) at ¶ 7.

Content aside, the Court must also consider whether, as a practical matter, defendant’s decision to release only the microfiche will unreasonably hamper plaintiff's access to the lottery information. Plaintiff contends that from his standpoint computer tape would provide a less expensive and more convenient alternative to microfiche, and he asserts that the agency’s denial of that alternative is a deliberate tactic to hinder him from obtaining the subject information.

In response to plaintiff’s challenge to the agency’s bona fides, defendant states that its decision to establish a distribution system for release of microfiche instead of computer tape was based on legitimate concerns. Compared to computer tape, claims defendant, microfiche is the format more likely to be readily readable by the largest number of requesters, as microfiche readers are available for general use in many public buildings. Affidavit of Jeffrey Zabler (“Zabler Aff.”) at ¶ 18. Plaintiff argues that the microfiche format is in fact very costly for those requesters who need to obtain a paper copy of the information for further study. Affidavit of Philip Dismukes (“Dismukes Aff.”) at ¶ 7. Even if that is so, the microfiche reader nonetheless enables a requester, at minimal cost, to at least view an image of the microfiche projected on a screen. By contrast, information stored on a computer tape is completely inaccessible unless the requester is able to locate and use a costly computer compatible with the tape generated by defendant. The fact that more people are purchasing SOG lottery information since the microfiche system was instituted is testament to the fact that the hard copy cost factor cited by plaintiff is not a practical deterrent to the purchase of the SOG lottery microfiche.

Furthermore, defendant’s decision to release SOG lottery information in the form most useful to the general public does not erect unreasonable barriers to plaintiff’s access to the information. The cost differential between the tape and microfiche amounts to only $15 per drawing, or $90 for a set of six bimonthly drawing participant lists. Tarshis Aff. at ¶ 10. According to defendant, even that difference is exaggerated by the agency’s current pricing practices. Because the creation of one tape is an intermediate step in the microfiche production process, defendant incorporates the cost of original tape production into the microfiche price. However, defendant does not include that cost into the price for copies of the tape. Under a distribution system utilizing only computer tapes, the tape would bear the full costs of production, and the cost of tape copies would rise appreciably. Tarshis Aff. at 1110. Plaintiff’s observation that if tapes were the primary format distributed by BLM “they would in fact cost no more than the microfiche and perhaps somewhat less”, Dismukes Aff. at ¶ 4, does not refute defendant’s point that under the present distribution system the tape price is artificially low.

It may well be that for this particular requester, and under the current pricing system, computer tape offers the least expensive, most convenient means of access to the SOG lottery information compiled by defendant. Nonetheless, defendant has no obligation under FOIA to accommodate plaintiff’s preference. The agency need only provide responsive, nonexempt information in a reasonably accessible form, and its offer to plaintiff satisfies that obligation.

Accordingly, it is by the Court this 18th day of December, 1984

ORDERED that defendant’s motion for summary judgment is hereby granted, and it is further

ORDERED that plaintiff’s motion for summary judgment is hereby denied.

This cause stands dismissed.

      . This is the language of plaintiffs initial request to BLM by letter dated November 26, 1982. Attachment 1 to Plaintiffs Cross-Motion for Summary Judgment.

      . Defendant further states that its decision to release microfiche instead of computer tape resulted in part from the agency’s concern that a computerized format would lend itself to abuse by private sector filing agencies eager to use the computer tape as a mailing list in violation of the policy of the Privacy Act, 5 U.S.C. § 552a. Zabler Aff. at ¶ 18. The prospects of similar abuse by filing agencies developing mailing lists from microfiche are unclear and need not be discussed here. It will suffice that defendant has rebutted plaintiffs claim of bad faith by raising at least one legitimate reason for choosing to release microfiche rather than tape.


author: MOTLEY, Chief Judge.

text:
    KIMMCO ENERGY CORP., et al., Plaintiffs, v. William and Ruth JONES, Defendants, and Aaron Diamond, et al., Nominal Defendants.
    No. 83 Civ. 8504 (CBM).
    United States District Court, S.D. New York.
    Dec. 20, 1984.

      Rosenman, Colin, Freund, Lewis & Cohen by Jeffrey L. Braun, Jan G. Zagkr, New York City, for plaintiffs.
    Willkie, Farr & Gallagher by Louis A. Craco, Brian E. O’Connor, Eric S. Hutner, New York City, for defendants.
   OPINION

MOTLEY, Chief Judge.

This action arises out of fraud allegedly perpetrated on two investment partnerships by their managing partner and his wife. Plaintiffs, Kimmco Energy Corp. [“Kimmco”] and Peter and Elbrun Kimmelman, have brought this suit, individually and derivatively, on behalf of one of the partnerships against defendants William and Ruth Jones. Because this suit is brought derivatively, the remaining members of the partnership are named as nominal defendants to the suit. Defendants, pursuant to Fed.R.Civ.P. 12(b)(1), (6), move to dismiss this action.

FACTS

Plaintiffs and the Jones defendants were involved with two investment partnerships. The partnerships were created to purchase oil and gas leaseholds with the intention of holding those leaseholds for future resale. The first partnership, the William Jones Leasehold Partnership [“WJLP”], was created in April, 1981. According to plaintiffs, during the summer and fall of 1981, William Jones allegedly misrepresented a number of significant facts about this partnership’s activities, including the purchase price for the oil and gas leaseholds, the actual value of the property and the interest expressed by potential purchasers of the leaseholds. Plaintiffs further assert that the apparent success of this initial venture led them, in November, 1981, to create and invest in a second partnership with identical objectives, the Jones-Kimmco Leasehold Partnership [“JKLP”]. Subsequently, Jones is alleged to have made substantial misrepresentations about JKLP’s activities after that partnership had been formed. As a result of these alleged misrepresentations concerning both partnerships, plaintiffs claim that they have paid too much for property which they have little prospect of selling at a profit. In addition, the partnership’s capital has been depleted and the partnership may not be able to afford to maintain its other leasehold interests.

Plaintiff has brought this action alleging three federal and nine pendent state claims. The federal claims consist of two claims under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. sections 1961, et seq. [“RICO”], and one claim under Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. section 78j(b), and Rule 10b-5, 17 C.F.R. section 240.10b-5. The Securities Act claim pertains only to the investments in the second partnership. The parties have stipulated to drop the RICO claims in light of the Second Circuit decisions of Furman v. Cirrito, 741 F.2d 524 (2d Cir.1984), Bankers Trust v. Rhoades, 741 F.2d 511 (2d Cir.1984) and Sedima, S.P.R.L. v. Imrex Co., 741 F.2d 482 (2d Cir.1984) which set forth the prerequisites for imposing civil liability under RICO.

Plaintiff Kimmeo, a general partner in the partnership acknowledges that it is not a party to the Rule 10b-5 action, but asserts that this court should exercise its pendent party jurisdiction so as to enable it to seek relief in this court on its state law causes of action. Defendants argue that since Kimmeo has no federal cause of action, its action should be brought in state court rather than this federal court.

Defendants also have moved to dismiss this action on the grounds that the plaintiffs have failed to state a cause of action. Defendants argue that the alleged misrepresentations by defendants did not arise “in connection with” the purchase or sale of any security.’ Plaintiffs argue that defendants, by their misrepresentations concerning the first partnership, fraudulently induced them to invest in the second partnership.

For the following reasons, defendants’ motion to dismiss the complaint is granted without prejudice to the filing of an amended complaint. Since there are no federal causes of action, it is not necessary for this court to consider whether it has pendent party jurisdiction as to plaintiff’s Kimmeo claims.

SECTION 10(b) AND RULE 10b-5 AND THE “IN CONNECTION WITH” REQUIREMENT

Section 10(b) of the Securities Exchange Act of 1934 proscribes the use or employment

in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered, of any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.

15 U.S.C. section 78j(b) (emphasis added) [“Section 10(b)”]. Rule 10b-5 provides:

It shall be unlawful for any person, directly or indirectly, by use of any means or instrumentality of interstate commerce, or of the mails or of any facility of national securities exchange,
(a) To employ any device, scheme or artifice to defraud,
(b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or
(c) To engage in any act, practice or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.

17 C.F.R. section 240.10b-5 (emphasis added) [“Rule 10b-5”]. Defendants contend that the alleged misrepresentations by defendants did not occur “in connection with” the sale or purchase of securities.

Where, as in the present case, a section 10(b) and Rule 10b-5 claim is predicated on a misrepresentation of fact by the defendant, plaintiff must plead four items: (1) a security was sold or purchased by the plaintiff, Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 730-31, 95 S.Ct. 1917, 1922-23, 44 L.Ed.2d 539 (1975); (2) the proscribed conduct was intentionally committed by the defendant, Ernst & Ernst v. Hochfelder, 425 U.S. 185, 197, 96 S.Ct. 1375, 1383, 47 L.Ed.2d 668 (1976); the defendant committed the proscribed conduct “in connection with” the plaintiffs purchase or sale of a security, Superintendent of Insurance v. Bankers Life & Casualty Co., 404 U.S. 6, 10, 92 S.Ct. 165, 168, 30 L.Ed.2d 128 (1971); and (4) causation in fact exists between the proscribed conduct committed by the defendant and the injury suffered by the plaintiff. Affiliated Ute Citizens v. United States, 406 U.S. 128, 152-54, 92 S.Ct. 1456, 1471-72, 31 L.Ed.2d 741 (1972); Globus v. Law Research Service, Inc., 418 F.2d 1276, 1292 (2d Cir.1969). To satisfy the fourth requirement, plaintiff must allege “transaction causation,” i.e., the commission of the proscribed conduct by defendant caused plaintiffs security transaction, and “loss causation,” i.e., the plaintiffs injury or loss was caused by such conduct of the defendant. Schlick v. Penn-Dixie Cement Corp., 507 F.2d 374, 380 (2d Cir.1974), cert. denied, 421 U.S. 976 (1975).

The Second Circuit, in a recent decision, Chemical Bank v. Arthur Andersen & Co., 726 F.2d 930, 943 (2d Cir.1984), discussed the issue whether misrepresentations or omissions involved in a security transaction but not pertaining to the securities themselves can form the basis of a violation of section 10(b) and Rule 10b-5. The Circuit Court ruled in the negative.

In Chemical Bank v. Arthur Andersen & Co., supra, four banks which had made loans to Frigitemp Corporation [“Frigitemp”] and its subsidiary Elsters, Inc. [“Elsters”], brought an action under section 10(b) and Rule 10b-5. The bank loans to Elsters were secured by a pledge of Elsters’ stocks and were guaranteed by Frigitemp. The banks had relied upon the financial statement of Frigitemp in making this loan, and alleged in their action that these statements were false and misleading. Defendants moved to dismiss the action contending that any misrepresentations made with respect to Frigitemp were not made “in connection with” the pledge of Elsters’ shares. In granting the motion to dismiss, Judge Friendly, writing for the Circuit Court, stated that the “in connection with” standard is to be “fleshed out by a cautious case-by-case approach.” Id. at 942, quoting Smallwood v. Pearl Brewing Co., 489 F.2d 579, 595 (5th Cir.1974), cert. denied, 419 U.S. 873 (1974). He noted that:

The purpose of [section] 10(b) and Rule 10b-5 is to protect persons who are deceived in securities transactions — to make sure that buyers of securities get what they think they are getting and that sellers of securities are not tricked into parting with something for a price known to the buyer to be inadequate or for consideration known to the buyer not to be what it purports to be. Andersen is not alleged to have deceived the Banks with respect to the pledge of Elsters stock; the Banks got exactly what they expected. Their showing is simply that but for Andersen’s description of Frigitemp they would not have renewed the Frigitemp loans or made the Elsters’ loan which Frigitemp guaranteed, and that if they had not done this, there would have been no pledge of Elsters’ stock. Such “but for” causation is not enough. The Act and Rule impose liability for a proscribed act in connection with the purchase or sale of a security; it is not sufficient to allege that a defendant has committed a proscribed act in a transaction of which the pledge of a security is a part.

Id. at 943.

Plaintiffs in this action allege that the misrepresentations defendant Jones made concerning the first partnership induced them to invest in the second partnership. Moreover, they allege that the second partnership was, in essence, still a part of the first partnership since they were both established for identical purposes. But the complaint is devoid of any allegation sufficient to establish a causal nexus between the alleged misrepresentations of Mr. Jones and the formation of the second partnership or any additional investments in the first partnership. There are no allegations which indicate that Mr. Jones was aware that additional investments would be made shortly thereafter or that a second partnership would be formed. Plaintiffs, in defending against this motion to dismiss, have indicated that the parties at the time of the formation of the first partnership had an understanding that if the first partnership were successful, a second partnership would be formed. But this understanding is not set forth in the complaint.

Therefore, plaintiffs have failed to state a cause of action under section 10(b) and Rule 10b-5. Because there are no federal claims to be decided, the pendent state law claims cannot be heard by this court. United Mine Workers v. Gibbs, 383 U.S. 715, 725-27, 86 S.Ct. 1130, 1138-39, 16 L.Ed.2d 218 (1966). Furthermore, it is not necessary to decide at this time whether this court may exercise pendent party jurisdiction over the state law claims of plaintiff Kimmco.

The deficiencies in the plaintiffs’ pleadings, however, might be corrected by properly pleading the allegations they set forth in defense of this motion to dismiss. Accordingly, the court grants defendant’s motion to dismiss the complaint without prejudice to the filing of an amended complaint within sixty days of the filing of this opinion.


author: MARY LOU ROBINSON, District Judge.

text:
    HOMESTEAD MOBILE HOMES, INC. v. FOREMOST CORPORATION OF AMERICA; Foremost Insurance Company; Foremost County Mutual Insurance Company; and Valentine Financial, Inc.
    Civ. A. No. CA-7-84-116.
    United States District Court, N.D. Texas, Amarillo Division.
    Jan. 2, 1985.

      James E. Elliott, Witherspoon, Aikin & Langley, Hereford, Tex., for plaintiff.
    Gregory S.C. Huffman, Thompson & Knight, Tom Thomas, Kolodey, Thomas & Yeager, Dallas, Tex., for defendants.
   ORDER

MARY LOU ROBINSON, District Judge.

Plaintiff Homestead Mobile Homes, Inc. (“Homestead”), a retail dealer in new and used mobile homes, has instituted this antitrust suit against Defendants Valentine Financial, Inc., (“Valentine”), Foremost Corporation of America, Foremost Insurance Company, and Foremost County Mutual Insurance Company (collectively “Foremost”), under Section 1 of the Sherman Act for an alleged “tying arrangement” and “concerted refusal to deal and group boycott,” and under Section 2 of the Act for an alleged “monopolization, attempt to monopolize and conspiracy to monopolize.” Homestead alleges that the defendants entered into “an arrangement whereby Valentine would furnish the financing of mobile homes to the consumers and Foremost would protect Valentine by reinsuring their loans.” Homestead further - alleges that “as a conduit to this arrangement,” Valentine agreed to finance only those contracts which were covered by Foremost’s physical property damage insurance. In other words, Homestead predicates its antitrust causes of action on two facts: (1) that Foremost was tying two types of insurance — credit and physical damages property insurance, and (2) that Homestead did business with a company (Valentine) which allegedly conditioned its financing of the purchase of Foremost’s insurance.

Both Valentine and Foremost have moved to dismiss the action for failure to state a claim upon which relief can be granted. Valentine argues that Homestead has failed to state a claim “because interstate financing is not an activity which, as a matter of law, can be a tying service in violation of the Sherman Act, 15 U.S.C. § 1 et seq.” Foremost argues that it is exempt from the Sherman Act by virtue of Section 2 of the McCarran-Ferguson Act, 15 U.S.C. § 1012 (1982).

Valentine’s Motion

The only ground for dismissal put forth in Valentine’s motion, that “interstate financing is not an activity which ... can be a ‘tying service’ in violation of the Sherman Act,” is without merit. In Fortner Enterprises v. United, States Steel Corp., 394 U.S. 495, 508-09, 89 S.Ct. 1252, 1261-62, 22 L.Ed.2d 495 (1969), the Supreme Court could find “no basis for treating credit differently in principle from other goods and services” for purposes of analyzing a tying arrangement alleged to violate the Sherman Act.

Valentine’s Brief in Support of its Motion discloses that Valentine also seeks dismissal because Homestead has not adequately pleaded the elements of an antitrust violation. In determining this motion, the Court must accept as true all the well-pleaded facts in the Complaint and view them in the light most favorable to plaintiff. The motion should not be granted unless it appears to a certainty “that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.” Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-02, 2 L.Ed.2d 80 (1957).

Rule 8(a), Fed.R.Civ.P., requires “a short and plain statement of the claim showing that the pleader is entitled to relief.” In the antitrust area, “[t]he current trend ... is toward greater liberality in pleading,” Brett v. First Federal Savings & Loan Ass’n, 461 F.2d 1155, 1157 (5th Cir.1972), and away from detailed facts.

[M]any federal courts have rejected the demand for more elaborate pleadings in antitrust cases.... As far as most federal courts are concerned, it is now reasonably clear that the standard in Rule 8(a) calling for a short'and plain statement of the claim for relief is to be applied in the “big case” in the same fashion as it is in any other action.
. . . . .
Thus, facts do not have to be alleged in detail and the statement of the essential elements of the claim has been simplified. Nonetheless, it continues to be necessary for plaintiff to state his claim for relief with care. A general allegation that defendant violated one of the antitrust laws and that plaintiff was injured thereby is not sufficient. Enough data should be pleaded from which the elements of the claim for relief can be identified.

5 Wright & Miller, Federal Practice & Procedure, Civil § 1228 at 167, 170 (1969).

Here, the Court finds that Plaintiff has adequately pleaded its claim. The central facts surrounding the tying arrangement and Homestead’s injury are set forth in the complaint. Valentine’s motion demonstrates that there is no doubt about what has been alleged, what Homestead must show to prevail, and what Valentine must defend against. This case does not appear to be the sort of “potentially massive factual controversy” in which the Court should insist upon a high degree of specificity in pleading. See Associated General Contractors of California v. California State Council of Carpenters, 459 U.S. 519, 528 n. 17, 103 S.Ct. 897, 903 n. 17, 74 L.Ed.2d 723 (1983). Of course, should it develop that the Complaint is not well grounded in fact, appropriate sanctions are available under Fed.R.Civ.P. 11.

Valentine’s Motion to Dismiss is denied.

Foremost’s Motion

Foremost asserts that Homestead’s action should be dismissed because the activities complained of comprise the “business of insurance” and, thus, are exempt from the application of the Sherman Act by virtue of § 2(b) of the McCarran-Ferguson Act, if the other requirements of that Act are met. The initial inquiry, then, is whether the actions complained of here constitute the “business of insurance,” as that term is used in the Act.

Three criteria are relevant in determining whether a particular practice is part of the “business of insurance” exempted from the antitrust laws by § 2(b):

(1) Whether the practice has the effect of transferring or spreading a policyholder’s risk;

(2) Whether the practice is an integral part of the policy relationship between the insurer and insured; and

(3) Whether the practice is limited to entities within the insurance industry.

Union Labor Life Ins. Co. v. Pireno, 458 U.S. 119, 129, 102 S.Ct. 3002, 3008, 73 L.Ed.2d 647 (1982); Group Life & Health Ins. Co. v. Royal Drug Co., 440 U.S. 205, 99 S.Ct. 1067, 59 L.Ed.2d 261 (1979). Prior to the Supreme Court’s decision in Royal Drug, two Circuits had concluded that tying arrangements similar to the one challenged here constituted the business of insurance for purposes of § 2(b).

In Addrisi v. Equitable Life Assurance Society of the United States, 503 F.2d 725 (9th Cir.1974), the defendant refused to loan money for the purchase of residential real estate unless the borrower also purchased a high-cost life insurance policy. Finding that this constituted the business of insurance within the meaning of § 2(b), the Ninth Circuit said:

Addrisi’s allegations establish that Equitable is qualified and does actively engage in the business of life insurance within the State of California as well as all other sister states. While Equitable does also engage in the real estate loan business in California as an adjunct to its business of insurance, Addrisi complains only of the tactics and practices of Equitable in connection with its business of insurance as being proscribed by the antitrust laws of the United States.

Id. at 727.

In Dexter v. Equitable Life Assurance Society of the United States, 527 F.2d 233 (2d Cir.1975), the identical practice by the same defendant was challenged. Agreeing with Addrisi that the action was barred by the McCarran-Ferguson Act, the Second Circuit said:

Even if we agreed with plaintiffs that the lending of mortgage money by an insurance company does not itself constitute “the business of insurance” and so is subject to the antitrust laws, a question we need not decide here, the very basis of the Dexters’ complaint is that Equitable used the mortgage loan to coerce the purchase of an insurance policy. Forcing people to buy insurance may well be an undesirable practice — and we do not suggest that we approve of it— but it is part of “the business of insurance.” ... An insurance company’s methods of inducing people to become policyholders pertain to the company-policyholder relationship, and thus constitute an integral part of “the business of insurance.”

Id. at 235.

Neither Dexter nor Addrisi has been well received in the Fifth Circuit. For example, in Perry v. Fidelity Union Life Ins. Co., 606 F.2d 468 (5th Cir.1979), the court held that premium financing by an insurance company does not constitute the “business of insurance” within the meaning of § 2(b). With regard to Dexter and Addrisi, the court said:

We recognize that other courts, in other contexts, have held that an insurance company’s inducing persons to become policyholders is part of the business of insurance. However, in these cases the inducement was actually a requirement, and forcing prospective policyholders to buy insurance cannot be equated with making the purchase “easier” by offering premium financing. Moreover, if this “inducement” rationale were applied in the financing context, the activities of any lender who engages in premium financing would constitute the “business of insurance.” We have rejected such a result ... and application of the “inducement” theory in the instant case would make the McCarran Act’s applicability turn on who is engaged in premium financing rather than on the nature of that activity.

Id. at 470 n. 6.

In dissent, Judge Brown argued vigorously that the case was analytically indistinguishable from Dexter and Addrisi. Id. at' 477.

The most recent Fifth Circuit pronouncement in this area is Federal Trade Commission v. Dixie Finance Co., 695 F.2d 926 (5th Cir.1983). In Dixie Finance, the Federal Trade Commission sought an order compelling compliance with civil investigative demands it had issued seeking information related to whether the defendant consumer finance companies were unfairly or deceptively misrepresenting to borrowers that the purchase of credit insurance was a prerequisite to the extension of credit. The finance companies resisted production of the documents sought, arguing that the Commission’s inquiry was an unlawful attempt to investigate and regulate the “business of insurance” because § 2(b) of the Act exempts these practices from review by the Commission. The district court ordered production and the Fifth Circuit affirmed, adopting the district court’s opinion. The court said:

It is not the actual sale, but the fact that the sale is a precondition to the extension of credit that is critical here. Were the Commission attempting to investigate the sale of these policies, clearly the state statutes ... would govern and the McCarran Act exemption would apply. But the Commission is not investigating any misrepresentations made in connection with the terms of any policy to be issued; rather it is concerned with the extension of credit. While the offering of such policies may facilitate the sale of insurance policies, that alone does not elevate the activity to the “business of insurance.”
[T]he relationship involved between Dixie Finance and TransSouth and its customers which the Commission seeks to investigate is not the relationship between insurer and insured. It is the credit relationship that the Commission is concerned with; specifically, whether the sale of insurance is a precondition to the arrangement of credit. The “business of insurance” intrudes upon the business of financing only at the point at which the borrower or his lender deal with the insurer regarding the particulars of the policy being purchased.

Id. at 930.

The court found that Dexter and Addrisi “have lost their viability and are distinguishable in light of [Royal Drug].” Id. at 931. In dissent, Judge Reavley argued vigorously that the case was analytically indistinguishable from Dexter and Addrisi. Id. at 932-33.

Here, according to the Complaint, neither Homestead nor its customers ever reached the point of dealing with Foremost regarding the particulars of any policy to be issued. Dixie Finance, thus, compels this Court to conclude that the activities challenged here are not the “business of insurance” within the meaning of § 2(b) of the McCarran-Ferguson Act and are susceptible to antitrust scrutiny.

This conclusion finds support in the three criteria of Royal Drug. The tying arrangement, with insurance as the tied product, does not have the effect of transferring or spreading a policyholder’s risk. The tying arrangement is not an integral part, of the policy relationship between the insurer and the insured because it has no relation to “the type of policy which could be issued, its reliability, interpretation, and enforcement.” Pireno, 458 U.S. at 128, 102 S.Ct. at 3008, quoting SEC v. National Securities, 393 U.S. 453, 460, 89 S.Ct. 564, 568, 21 L.Ed.2d 668 (1969). Finally, the practice of tying arrangements is not limited to entities within the insurance industry. Here, for example, the alleged tying arrangement involves a third party, Valentine, “wholly outside the insurance industry.” Pireno, 458 U.S. at 129, 102 S.Ct. at 3008.

Indeed, because Valentine is an entity wholly outside the insurance industry, Foremost’s Motion to Dismiss would have to be denied even if the challenged activity constituted the “business of insurance” for purposes of the Act. The Supreme Court has stated that “an exempt entity forfeits antitrust exemption by acting in concert with nonexempt parties.” Royal Drug, 440 U.S. at 231, 99 S.Ct. at 1083. Here, there is no contention that Valentine was engaged in the “business of insurance,” as it was not. Since Foremost allegedly acted in concert with this nonexempt party, Foremost forfeited any antitrust exemption it might have had.

Foremost’s Motion to Dismiss is denied.

It is so ORDERED.

      . Valentine’s reliance on Foremost Pro Color v. Eastman Kodak Co., 703 F.2d 534 (9th Cir.1983), is misplaced. In that case, the Ninth Circuit found that Foremost had failed to adequately plead an antitrust violation, noting that:
      Foremost’s complaint pointedly refrains from alleging that Kodak itself required the purchase of film as a condition of the sale of cameras, or required the purchase of chemicals and paper as a condition of the sale of film.... In the absence of an allegation that the purchase of the alleged tied products was required as a condition of sale of the alleged tying products, rather than as a prerequisite to practical and effective use of the tying products, Foremost’s complaint failed to plead the coercion essential to a per se unlawful tying arrangement.

        Id. at 541-42. Here, Homestead has plainly alleged that Valentine refused to provide it with the tying service (nonrecourse financing of used mobile home purchases) because Homestead refused to utilize the tied product (Foremost’s insurance).

      . The Act provides in relevant part:
      “Congress hereby declares that the continued regulation and taxation by the several States of the business of insurance is in the public interest, and that silence on the part of the Congress shall not be construed to impose any barrier to the regulation or taxation of such business by the several States.
      "Sec. 2(a) The business of insurance, and every person engaged therein, shall be subject to the laws of the several States which relate to the regulation or taxation of such business.
      "(b) No Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance, or which imposes a fee or tax upon such business, unless such Act specifically relates to the business of insurance; Provided, That after June 30, 1948, the Act of July 2, 1890, as amended, known as the Sherman Act, and the Act of October 15, 1914, as amended, known as the Clayton Act, and the Act of September 26, 1914, known as the Federal Trade Commission Act, as amended, shall be applicable to the business of insurance to the extent that such business is not regulated by State law.
      15 U.S.C. §§ 1011-1012 (1982).

      . In a converse situation, where insurance is the tying product, some courts have found that the tying arrangement is related to the transferring or spreading of a policyholder’s risk. For example, in Feinstein v. Nettleship Co. of Los Angeles, 714 F.2d 928 (9th Cir. 1983), the defendant insurer offered malpractice insurance only to members of the Los Angeles County Medical Association, although LACMA members were free to purchase malpractice insurance from any carrier. The Court concluded that:
      The practice is ... demonstrably related to the allocation and spreading of risk, for ... it defines a pool of insureds over which risk is spread. The medical association sought to provide a single insurance broker for all of its members in order to assure coverage for certain high-risk specialties, thereby distributing risk across the membership. The effect is to spread risk across a wide area, and that is precisely what the Supreme Court described when it formulated the risk spreading criterion.

        Id. at 932.
      Since the other requirements of the exemption were met, the court applied the McCarran-Ferguson Act and exempted the insurer's practice from antitrust scrutiny. Accord, Owens v. Aetna Life & Cas. Co., 654 F.2d 218 (3d Cir.), cert. denied, 454 U.S. 1092, 102 S.Ct. 657, 70 L.Ed.2d 631 (1981).
      Similarly, in Anglin v. Blue Shield of Virginia, 693 F.2d 315 (4th Cir.1982), the plaintiff alleged that the defendant insurer had refused to sell him health insurance for himself and a minor son unless he also purchased health insurance for his wife. The court found that the McCarran-Ferguson Act applied, saying, “[t]he allegations in the plaintiffs complaint are the very essence of the relationship between insurer and policyholder. He has alleged that Blue Cross-Blue Shield has refused to offer the exact coverage that he prefers." Id. at 320.

      . In this aspect, the instant case differs factually from both Dexter and Addrisi, where the insurer and the lender were one and the same, and Dixie Finance, where the insurers and lenders were either the same or affiliated.

      . Of course, none of the conclusions reached in this Order bear on the ultimate question of whether the Sherman Act has been violated. “It is axiomatic that conduct which is not exempt from the antitrust laws may nevertheless be perfectly legal.” Royal Drug, 440 U.S. at 210 n. 5, 99 S.Ct. at 1072 n. 5. In this connection see the Supreme Court’s decision in United States Steel Corp. v. Fortner Enterprises, 429 U.S. 610, 97 S.Ct. 861, 51 L.Ed.2d 80 (1977) (Fortner II), and the dictates of Rule 11.


author: GRADY, District Judge.

text:
    In re CONTINENTAL ILLINOIS SECURITIES LITIGATION.
    No. 82 C 4712.
    United States District Court, N.D. Illinois, E.D.
    Jan. 3, 1985.
    See also 572 F.Supp. 928, 572 F.Supp. 931.
    Reuben L. Hedlund, Latham & Watkins, Chicago, 111., for defendant John A. Red-ding.
   MEMORANDUM OPINION

GRADY, District Judge.

This case is before the court on defendant John A. Redding’s motion to dismiss Count I of plaintiff FDIC’s first amended complaint. The motion raises three arguments. First, Redding asserts that Count I fails to state a claim because an action against a corporate officer for the negligent performance of employment duties sounds in contract, not tort. Second, Red-ding contends that in any event the FDIC’s tort action is barred by Moorman Manufacturing Co. v. National Tank Co., 91 Ill.2d 69, 61 Ill.Dec. 746, 435 N.E.2d 443 (1982), since it seeks recovery for purely economic losses. Redding’s final argument is that the FDIC lacks standing to sue him for negligence because the Bank’s purported assignment of its claim against Redding was defective. I will address these arguments separately.

I. Is The FDIC Limited To A Contract Action?

Redding contends that inasmuch as the FDIC’s action against him is based on the negligent performance of employment duties, the action is one for breach of contract and may not be brought in tort. I disagree. Every employment relationship arises out of a contract, and therefore the logical extension of Redding’s argument would be that no employer can ever sue an employee for negligence. In Illinois, however, “an employee owes to his employer the duty of exercising reasonable care in the performance of his [employment] duties.” Stawasz v. Aetna Insurance Company, 99 Ill.App.2d 131, 240 N.E.2d 702, 704 (2d Dist.1968). When an employee negligently performs his duties, the employer may sue to recover for damages caused by the negligence. Id. See also 3A W. Fletcher, Cyclopedia Of The Law Of Corporations § 1029 (Perm.Ed.1984) (“The liability of ... [corporate] officers ... is not limited to [actions for] breaches of trust ... but extends also to negligence.”) Since I find nothing in the Illinois case law which suggests that the FDIC should be limited to a contractual remedy, I reject Redding’s argument that the FDIC’s negligence allegations fail to state a claim upon which relief could be granted.

II. Does The Moorman Doctrine Bar Plaintiff’s Action?

Redding next argues that the decision of the Illinois Supreme Court in Moor-man, supra, bars all negligence actions which seek to recover purely economic losses, and therefore precludes the FDIC from pursuing this tort claim. Once again, I disagree. The Moorman case involved damages caused by a defective product. Although Moorman contains some broad language which would appear to support Redding’s position, my reading of the opinion indicates that in reaching its decision, the Court was motivated primarily by a desire to avoid infringing on the Uniform Commercial Code (“UCC”) in defective products cases. The Court emphasized time and again that the UCC provided the proper framework for recovery of economic losses in such cases, and concluded: “When the defect is of a qualitative nature and the harm relates to the consumer’s expectation that a product is of a particular quality so that it is fit for ordinary use, contract, rather than tort, provides the appropriate set of rules for recovery.” Id. at 88, 435 N.E.2d at 451.

Given the Court’s focus on the defective products area, and the opinion’s repeated references to and utilization of examples involving the UCC, warranty law, and consumer expectations, it seems clear that Moorman itself does not bar this negligence action, which has nothing to do with the sale or use of defective products, the UCC or the disappointed expectations of a consumer. Accordingly, Redding’s second argument is rejected.

III. Did The Assignment Give The FDIC Standing To Pursue This Action Against Redding?

Finally, Redding argues that the Bank’s assignment to the FDIC of Count V of the prior derivative action was insufficient to afford the FDIC standing to pursue this claim. Specifically, Redding points out that before the assignment was made, this court dismissed Count V against Redding for failure to state a claim. See Order of April 2, 1984. According to Redding, therefore, there was simply no claim to be taken by the assignee. The FDIC responds that Section 6.1 of the Assignment expressly encompassed “any or all claims” the Bank may have had as of the commencement date, and thus included the negligence claim now asserted against Redding.

I am inclined to agree with the FDIC that the language of Section 6.1 is sufficiently broad to encompass this cause of action. But I am unable to say that Redding’s point is entirely lacking in nuisance value. Accordingly, in order to avoid needless uncertainty over this detail, I believe the Bank and the FDIC would be well-advised to execute another assignment of the claim, and to amend the complaint to reflect the new assignment. Leave is granted to amend within the next 30 days.

CONCLUSION

For the reasons stated above, the motion to dismiss is denied, except that the FDIC should obtain a new assignment of the claim against Redding and the other bank employee defendants.

      . The proposition that a tort duty may have its genesis in a contractual relationship is not a startling one. In the area of medical malpractice, for example, injured plaintiffs sue defendants in tort for damages caused by the negligent performance of obligations which initially arose in contract. See, e.g., Nichelson v. Curtis, 117 Ill.App.3d 100, 72 Ill.Dec. 630, 452 N.E.2d 883, 885 (4th Dist.1983); Allen v. Komajda, 130 Ill.App.2d 1018, 266 N.E.2d 456, 457 (1st Dist. 1970).

      . As defendant points out, some lower state courts and at least one federal district court have extended Moorman beyond the defective products area. See cases cited in Defendant’s Memorandum, at 3-12. Based on the discussion above, I question whether the Illinois Supreme Court would endorse this extension. In any event, none of the state court decisions that have expanded Moorman's reach involve negligence actions grounded on an employment relationship, and I decline to follow the one federal district court decision that does appear to extend Moorman to such actions. If Moorman is to be expanded this far, the expansion should be made not by a federal district court, but by the Illinois Supreme Court.

      . In his brief, Redding additionally moves to strike the FDIC’s prayer for punitive damages since allegations of mere negligence are insufficient to support an award of such relief. See Defendant’s Memorandum, at 2-3 n. 2. I would be inclined to grant this motion for the reasons set forth in defendant’s memorandum. When Redding presented his motion to dismiss, however, I promised the FDIC an opportunity to brief any issues which might have merit. Inasmuch as the FDIC’s letter responses to Redding’s brief have not addressed this particular issue, the FDIC has until January 17, 1985, to file a brief on the point. Redding may have until January 25, 1985, to file a reply. The matter will then be taken under advisement.


author: HAROLD H. GREENE, District Judge.

text:
    Norman GODBEY, Plaintiff, v. FRANK E. BASIL, INC., et al., Defendants.
    Civ. A. No. 83-3082.
    United States District Court, District of Columbia.
    Jan. 11, 1985.

      Neil H. Ruttenberg, Edward L. Hughes, Quinn, Racusin & Ruttenberg, Chartered, Washington, D.C., for plaintiff.
    Patricia D. Wittie, Kirkpatrick & Lock-hart, Washington, D.C., for defendants.
   MEMORANDUM ORDER

HAROLD H. GREENE, District Judge.

In this action, plaintiff seeks damages for breach of contract, defamation, and false imprisonment based on a series of events that allegedly occurred while he was employed by defendants in Saudi Arabia. Defendants have moved for summary judgment on the ground that this action is governed by Saudi law which defendant has failed to plead or to prove. Plaintiff has opposed the motion on the alternative grounds (1) that this case is governed by District of Columbia, not Saudi law, and (2) that, if this Court holds that Saudi law provides the rule of decision in this case, plaintiff is entitled to plead and prove Saudi law.

I

The initial question that must be addressed by the Court is what law governs this case.

First. With respect to plaintiffs breach of contract claim, Article 30(d) of the employment agreement executed between plaintiff and defendants explicitly provides that “this Agreement and the employment of the Employee shall be governed by the laws, statutes, and ordinances of the Kingdom [of Saudi Arabia].” Unless the parties’ choice of law is that of a state lacking a substantial relationship to the parties or the transaction, or unless the chosen law would contradict a fundamental policy of the District of Columbia, a District of Columbia court would enforce the contract provision, and this Court, sitting in diversity, must do likewise. Saudi Arabia, where the alleged breach occurred, where plaintiff contracted to work, and in which one of the defendants is incorporated, clearly has a substantial relationship to the transaction involved here. Defendant has failed to identify any fundamental policy of the District of Columbia that would be violated by the enforcement of the Agreement’s choice of law provision, and this Court has found none. Accordingly, the Court concludes that Saudi law provides the rule of decision with respect to plaintiff’s breach of contract claim.

Second. Resolution of the contract claim issue does not necessarily control the question whether Plaintiff’s tort claims are also governed by Saudi law. Although these claims are based in part on the events underlying the contract claim, they obviously could not have contemplated by the parties when they drafted the choice of law provision, which cannot have been intended to control tort claims such as these. Accordingly, the Court must consider whether, under modern conflict of law principles, which have been adopted in the District of Columbia, Saudi law would govern these claims as well. Where, as here, the alleged injuries occurred in Saudi Arabia; plaintiff is a citizen and resident of Virginia; one of the defendants is Saudi Arabian and the agent accused of actually committing the tortious acts is a Saudi Arabian citizen and resident; and the relationship between the parties centered on plaintiff’s employment by defendants in Saudi Arabia, modern conflicts principles mandate that Saudi law will govern these claims as well. Accordingly, the Court finds that plaintiff’s tort claims also are governed by Saudi Arabian law.

II

The remaining question is whether the Court’s determination that Saudi Arabian law forms the rule of decision for plaintiff’s claims requires that this case be dismissed. The Court concludes that it does not.

Plaintiffs contend that, since plaintiff indicated in his answers to interrogatories that he was not asserting claims under Saudi law, and since discovery in this case has closed, plaintiff is foreclosed from amending his pleadings and prosecuting his case under Saudi law. However, nothing in the Federal Rules of Civil Procedure required plaintiff initially to plead his cause of action under Saudi law where he believed that it did not govern his claims. Further, plaintiff’s responses to the interrogatories indicate only that he had not asserted claims under Saudi law, not that he had no conceivable basis for doing so.

Defendants filed their summary judgment motion on November 30, 1984, one month before the close of discovery, notwithstanding their awareness of the choice of law question as early as September 4, 1984. Moreover, the only conceivable prejudice to defendants from an amendment of the complaint will be some slight delay in resolving plaintiffs claims against them. Thus, justice and fairness require that plaintiff be permitted to amend his complaint to allege claims under Saudi law if he is able legitimately to do so.

Accordingly, the Court will permit a plaintiff to file an amended complaint; it will permit defendants to file an amended answer; and it will entertain a subsequent motion of the parties to re-open discovery for an additional limited period if this should prove necessary in view of the amended complaint.

III

It is therefore, this 11th day of January, 1985,

ORDERED That defendants’ motion for summary judgment be and it hereby is denied; and it is further

ORDERED That defendants shall have twenty days thereafter within which to file an amended answer or otherwise respond to complaint; and it is further

ORDERED That plaintiff shall have until February 15, 1985, to serve and file an amended complaint asserting his claims under Saudi law; and it is further

ORDERED That the trial date scheduled in this case for February 11,1985, be and it is hereby cancelled; and it is further

ORDERED That a status call in this case shall be held on March 15, 1985.

      . Neither defendants nor plaintiff have identified specific conflicts between Saudi law and District of Columbia law. However both sides appear to believe that such conflicts exist, and that they are so significant as to potentially vitiate plaintiffs lawsuit. Accordingly, the Court is confident that, at least with respect to the law establishing plaintiff’s causes of action, the present dispute cannot be characterized as one involving only "false” conflicts.

      . Articles 5, 9, 22 and 23(b)(iv) of the employment agreement also provide that Saudi law shall be controlling with respect to particular employment contract issues.

      . Restatement (2d) of Conflict of Laws § 187. Although there are no District of Columbia cases explicitly adopting Rest. (2d) § 187, Maryland courts have done so, see, e.g., Kronovet v. Lipchin, 288 Md. 30, 415 A.2d 1096 (1980), and District of Columbia courts follow the common law of Maryland where there is a lacuna in their own law. Conesco Industries v. Conforte & Eisele, Inc., 627 F.2d 312, 315 (D.C.Cir.1980).

      . Steorts v. American Airlines, Inc., 647 F.2d 194 (D.C.Cir.1981); Lee v. Flintkote Co., 593 F.2d 1275, 1278 note 14 (D.C.Cir.1979); In re Air Crash Disaster Near Saigon, Etc., 476 F.Supp. 521, 526 n. 11 (D.D.C.1979).

      . Defendant argues, without statutory or case citation or elaboration, that application of Saudi law would violate a fundamental policy of the District of Columbia because: (a) application of Saudi law might produce a different outcome than would be the case were District of Columbia law applied; (b) application of Saudi law would frustrate the District of Columbia’s interest in regulating the conduct of companies doing business and negotiating employment agreements within its boundaries; and (c) application of Saudi law, which incorporates Islamic religious doctrines, would violate the First Amendment’s Establishment Clause. None of these generalized arguments provides a valid basis for rejecting the application of Saudi law.

      . Defendant’s argument that the contract’s choice of law provision should be stricken and the rule of decision selected under the governmental interest analysis set out in Rest. (2d) Conflicts § 188 is similarly unavailing. The choice of law provision was in the same size type as the rest of the contract, and plaintiff concedes that he read the contract before signing it; accordingly, there is no basis for striking the choice of law provision on the grounds of mistake or unconscionability. See Rest. (2d) Conflicts § 187, comment (b). Similarly, plaintiff’s allegation that defendants have breached the contract does not, standing alone, provide a grounds for estopping defendants from relying on the contract's choice of law provision. Finally, the Court notes that, even if a § 188 balancing were appropriate in this case, a proper weighting of the § 188 factors compels the conclusion that Saudi law should govern the breach of contract claims. See Koro Co., Inc. v. Bristol-Meyers Co., 568 F.Supp. 280 (D.D.C. 1983).

      . See generally Restatement (2d) of Conflicts § 145 et seq.

      . The District of Columbia has generally adopted the Restatement (2d) of Conflicts governmental interest analysis approach to deciding choice of law questions in tort cases. See e.g., Stancill v. Potomac Electric Power Co., 744 F.2d 861 (D.C.Cir.1984); Biscoe v. Arlington County, 738 F.2d 1352 (D.C.Cir.1984).

      . See Rest. (2d) Conflicts §§ 6 (significant relationship test), 146 (personal injuries), 149 (defamation), 157 (interest entitled to legal protection).

      . See Grice v. A/S J. Ludwig Mowinckels, 477 F.Supp, 365 (S.D.Ala.1979).

      . Defendants’ counsel indicated at a September 4, 1984 status call in this case that it was their position that Saudi law governed this case, and that they would be filing a dispositive motion to that effect.

      . Id. at 367; Rule 15(a) Fed.R.Civ.P.