author: CAHN, District Judge.

text:
    Vanessa NOBLE v. BETHLEHEM HOUSING AUTHORITY and Laura Easen.
    Civ. A. No. 84-4743.
    United States District Court, E.D. Pennsylvania.
    May 20, 1985.

      David Scholl, Lehigh Valley Legal Services, Allentown, Pa., for plaintiff.
    Bruce F. Briody, Bethlehem, Pa., for defendants.
   MEMORANDUM OPINION

CAHN, District Judge.

Plaintiff, a tenant of a public housing authority, seeks injunctive relief, in the form of an order requiring the authority to provide her with a dwelling unit. I permitted plaintiff to proceed in forma pauperis. A complete record has been made of the factual background of plaintiff’s equitable claim, and the attorneys for the parties have filed comprehensive briefs and presented oral argument. For the reasons stated below, I will grant injunctive relief prohibiting defendants from evicting plaintiff until the Authority complies with the notice and hearing requirements mandated by federal and state law.

I make the following:

FINDINGS OF FACT

1. The plaintiff is Vanessa Noble, who was bom on October 6, 1963.

2. Defendant, Bethlehem Housing Authority (“BHA”), is a municipal corporation organized and existing under the laws of the Commonwealth of Pennsylvania with a principal office in Bethlehem, Northampton County, Pennsylvania.

3. Defendant, Laura Easen, is a property manager for BHA. She manages Pembroke Project and three other projects containing 772 family units.

4. The plaintiff and BHA were parties to a written residential dwelling lease, dated September 18, 1980 and subsequently renewed, for a unit in the Pembroke Project at 1154 Fritz Drive, Bethlehem, Pennsylvania. This lease, in paragraph 6N, obligates the tenant:

To give the Authority notice in writing when thé premises are to be vacant for two weeks or more; such notice shall not render the Authority responsible for any personal property of any nature or description left in or on the leased premises during Tenant’s absence[.]

5. Plaintiff, still residing in the Fritz Drive apartment, married on January 14, 1984.

6. On January 15, 1984, plaintiff went to Trenton, New Jersey, to the home of her husband’s grandmother.

7. Plaintiff returned to 1154 Fritz Drive, Bethlehem, Pennsylvania, at the end of February, 1984. Plaintiff had not given BHA notice that she would be away from the premises for more than two weeks.

8. On plaintiff’s return, Myrna Morales, a management aide for BHA, orally reminded plaintiff of the requirement for giving notice if plaintiff would be absent from the premises for a period in excess of two weeks.

9. On April 18, 1984, plaintiff left the premises and returned to Trenton, New Jersey, in an attempt to resolve marital problems.

10. Plaintiff did not advise BHA that she would be away from the premises for a period in excess of two weeks.

11. On May 10,1984, concerned that the premises at 1154 Fritz Drive were vacant, BHA mailed a notice to plaintiff addressed to 1154 Fritz Drive, Bethlehem, Pa., 18107, stating that an inspection would be held on Monday, May 14, 1984, between 10 A.M. and 3 P.M. The notice further stated: [Ajlso, if we do not hear from you by Monday, May 14, 1984, we will consider your home abandoned and cancel your lease — since it has been reported to us that you have vacated.” The notice did not inform plaintiff of her right to request a hearing under BHA’s grievance procedure.

12. On or about May 11, 1984, a rape of a young woman occurred in the apartment at 1154 Fritz Drive.

13. On or about May 14 or May 15, 1984, Myrna Morales and the defendant, Laura Easen, inspected the apartment at 1154 Fritz Drive, Bethlehem, Pennsylvania, and found another young woman, identified as Helen Williams, therein. Ms. Williams was ordered to leave the premises. No clothing was found in the apartment, and the refrigerator belonging to plaintiff was not there. The premises contained broken furniture, fast food remnants, and their containers. The premises had become roach infested.

14. After this inspection, BHA boarded up the premises at 1154 Fritz Drive, Bethlehem, Pennsylvania.

15. BHA then cleaned the premises and on May 30, 1984, rented the premises to new tenants.

16. Plaintiffs rent for 1154 Fritz Drive, Bethlehem, Pennsylvania, was paid on her behalf by the Pennsylvania Department of Welfare through the end of May, 1984.

17. Plaintiff retained the key for the premises in question.

18. In August 1984, plaintiff moved into the unit of her sister, Veronica Lee. At that time, Veronica Lee was terminally ill with cancer, and she is now deceased. Veronica Lee leased her unit from BHA.

19. Plaintiff remains a tenant in the unit formerly leased to Veronica Lee.

DISCUSSION

Because the record is closed, plaintiffs application for preliminary injunctive relief will be treated as an application for a permanent injunction. This approach is in conformity with Fed.R. of Civ.P. 65(a)(2). Plaintiff makes two primary arguments in support of her claim. First, she contends that BHA violated the notice requirements of 24 C.F.R. § 966.4 when it terminated her lease. Plaintiff argues that under these federal regulations BHA was required to give her thirty days notice of the proposed termination and to inform her of her right to a hearing on the dispute. Second, plaintiff points to federal regulations which provide that BHA may terminate her lease only if all applicable state regulations and requirements are met. According to plaintiff, because BHA failed to comply with Pa.R.C.P.D.J. Nos. 501 to 520, it acted illegally in declaring the tenancy abandoned.

BHA responds that plaintiff abandoned her apartment and that this fact obviated the need for lengthy, formal notice and hearing procedures. According to BHA, plaintiffs own violations of the lease terms excuse any subsequent shortcoming on the part of the authority. BHA attempts to justify its action by complaining that the federal and state lease termination procedures would have caused a substantial delay in repossessing the apartment, and by pointing to the public policy favoring full occupancy of available public housing units.

The federal regulations most relevant to plaintiffs claim are the lease termination requirements and grievance procedures contained in 24 C.F.R. §§ 966.4 to ,59. Section 966.4(1) provides as follows:

(1) Termination of the lease. The lease shall set forth the procedures to be followed by the PHA and by the tenant in terminating the lease which shall provide:
(1) That the PHA shall not terminate or refuse to renew the lease other than for serious or repeated violation of material terms of the lease such as failure to make payments due under the lease or to fulfill the tenant obligations set forth in § 966.4(f) or for other good cause.
(2) That the PHA shall give written notice of termination of the lease of:
(i) 14 days in the case of failure to pay rent;
(ii) A reasonable time commensurate with the exigencies of the situation in the case of creation or maintenance of a threat to the health or safety of other tenants or PHA employees; and
(iii) 30 days in all other cases.
(3) That the notice of termination to the tenant shall state reasons for the termination, shall inform the tenant of his right to make such reply as he may wish and of his right to request a hearing in accordance with the PHA’s grievance procedure.

The notice sent to plaintiff by BHA was deficient under these rules on two counts. First, the summary notice sent to plaintiff failed to inform her of her right to a hearing on the proposed termination. 24 C.F.R. § 866.4(1)(3) states without qualification that a notice of termination must inform a tenant of her right to reply and to request a hearing under the housing authority’s grievance procedure. No exceptions to this duty to inform are authorized by the regulations, even where the authority may accelerate the initial notice period because of emergency circumstances. See 24 C.F.R. § 966.4(l)(2)(ii).

The importance of giving notice of hearing rights stems from the fact that a public housing authority must conform its lease termination procedures to certain constitutional mandates. Escalera v. New York City Housing Authority, 425 F.2d 853, 86 (2d Cir.), cert. denied, 400 U.S. 853, 91 S.Ct. 54, 27 L.Ed.2d 91 (1970); Staten v. Housing Authority of Pittsburgh, 469 F.Supp. 1013, 1015 (W.D.Pa.1979); McMichael v. Chester Housing Authority, 325 F.Supp. 147, 148-49 (E.D.Pa.1971). The due process requirements outlined in Goldberg v. Kelly, 397 U.S. 254, 90 S.Ct. 1011, 25 L.Ed.2d 287 (1969), make it clear that BHA must afford plaintiff an opportunity for a hearing before making a final decision to terminate her lease. McMichael, 325 F.Supp. at 149. While it is true that a tenant must request a grievance hearing within a reasonable time, see 24 C.F.R. §§ 966.54 and 966.55, waiver of a right to request a hearing cannot occur where plaintiff was never notified of her right in the first place.

Second, the notice sent by BHA afforded plaintiff only five days between the date of the letter and the threatened termination. Unless a health or safety threat existed, BHA was required to give plaintiff 30 days notice of a proposed termination. 24 C.F.R. § 866.4(l)(2)(ii) and (iii). BHA admits that the sole reason for its action was that plaintiff reportedly had “abandoned” the apartment. Without deciding whether or not abandonment occurred under principles of state law, I find that even if plaintiff had abandoned, BHA could not rely on reports to that effect to abbreviate the 30-day notice requirement to five days. In so finding, I do not denigrate the seriousness of the situation or the need for some action on the part of the housing authority. BHA properly entered the apartment and took steps to secure the premises. Nevertheless, BHA could not simply dispense with federally mandated notice (or grievance) procedures. The circumstances did not necessitate or justify immediate re-rental of the premises to a new tenant.

Plaintiff also argues that BHA violated state law by immediately re-renting the Fritz Drive premises to new tenants. 68 P.S. § 250.501 requires a landlord to serve a thirty day notice to quit on a tenant to initiate state eviction proceedings. See also 24 C.F.R. § 966.58. The notice may be served 1) personally on the tenant; 2) by leaving the notice at the leased premises; or 3) by posting the notice conspicuously on the leased premises. This notice to quit may not be served until the federal regulatory notice period under 24 C.F.R. § 966.4 has already run. See Twyman v. Rockville Housing Authority, 99 F.R.D. 314, 318 (D.Md.1983); Staten v. Housing Authority of Pittsburgh, 469 F.Supp. 1013, 1016 (W.D.Pa.1979). After the second state-authorized notice period has expired, a landlord must file a complaint in the local magisterial district. Pa.R.C.P.D.J. No. 502. Service of the complaint is made by the sheriff, either personally or by posting, Pa. R.C.P.D.J. No. 506, and a hearing is set by the district justice at the time the complaint is filed. Pa.R.C.P.D.J. No. 504. If.the landlord prevails at the hearing, the premises in dispute may be repossessed within thirty days. Pa.R.C.P.D.J. Nos. 515, 519.

BHA concedes that it made no attempt to comply with these eviction procedures as required by both federal and state law. In its defense, the authority complains that compliance with state procedure would cause “quite lengthy” delay in repossessing the apartment and would “conflict with the strong public policy aimed at keeping all available public housing units occupied.” Brief for Defendant at 15. Neither the state eviction procedures nor the federal regulations requiring compliance with state law, however, permit exceptions either to avoid delay or to foster the public policy of maximum use of public housing facilities. Even had I the inclination, I lack the authority to condone BHA’s disregard of the mandated state eviction procedures.

Finally, BHA cannot rely on plaintiff’s violation of the lease terms to justify its failure to satisfy federal and state law. Indeed, a housing authority’s appropriate response to a lease violation is to initiate the precise notice and grievance procedures ignored here. BHA may not excuse its actions by pointing to plaintiff’s wrongdoing. In neglecting to invoke state eviction procedures, BHA illegally terminated plaintiff’s lease to the Fritz Drive apartment.

I reach the following:

CONCLUSIONS OF LAW

1. This court has subject matter jurisdiction over this controversy under 28 U.S.C. § 1331.

2. This court has in personam jurisdiction over the parties, who have appeared here personally and through attorneys.

3. Proper venue lies in this court.

4. Plaintiff has withdrawn, without prejudice, her claim for money damages based on slander allegedly committed by defendant, Laura Easen.

5. Defendant Bethlehem Housing Authority failed to comply with applicable federal and state law in terminating plaintiff’s lease.

6. Plaintiff is entitled to an injunction preventing Bethlehem Housing Authority from evicting plaintiff until the Authority satisfies the notice and hearing requirements mandated by federal and state law.

ORDER

AND NOW, this 20 day of May, 1985, IT IS ORDERED as follows:

1. Plaintiffs claim for money damages against both defendants is hereby DISMISSED without prejudice.

2. Defendant Bethlehem Housing Authority is enjoined from evicting plaintiff from the apartment in which she now resides until such time as the Authority satisfies the notice and hearing requirements mandated by federal and state law.

3. The clerk is directed to close the docket on this case.

      . In addition to injunctive relief, plaintiff initially sought money damages from the authority and one employee of the authority. After a hearing on the application for preliminary injunctive relief, however, plaintiff withdrew her claim for money damages.

      . It should be noted that the injunctive relief sought by the plaintiff is that she be allowed to remain a tenant in the unit leased to her late sister, Veronica Lee. Plaintiff does not request that the family now living at 1154 Fritz Drive be evicted so that she can return to those premises.

      . These regulations were promulgated under 42 U.S.C. §§ 1437c and 1437d, which grant authority to the Secretary of Housing and Urban Development to set regulations governing the management and operation of public housing agencies, such as BHA.

      . "BHA was not even aware of the alleged rape incident until May 14, 1984 after it was reported in the local newspapers. Consequently, the inspection letter was not in response to the alleged rape, but rather to reports that the unit had been abandoned.” Brief for Defendant at 4.

      . While I need not decide the issue, I note that the argument and authorities set out by plaintiff is persuasive that no abandonment occurred here. See, e.g., Turnway Corp. v. Soffer, 461 Pa. 447, 336 A.2d 871 (1975); Aldrich v. Olson, 12 Wash.App. 665, 531 P.2d 825 (1975).

      . I note that both the federal and the state notice procedures were intended by the respective legislatures to serve another public policy interest — the guarantee of tenants' due process rights.

      . To clarify the relief given, it should be noted that BHA will be enjoined from evicting plaintiff from the apartment leased by her late sister, in which plaintiff now resides, until the authority litigates the dispute arising from plaintiff’s lease of the apartment at 1154 Fritz Drive. Equitable relief is to be applied flexibly to fit the needs of each situation. Hecht Co. v. Bowles, 321 U.S. 321, 329, 64 S.Ct. 587, 591, 88 L.Ed. 754 (1944). My goal is to limit the amount of hardship generally while ensuring that plaintiff receives the due process to which she is entitled. Framing appropriate relief given the conundrum of facts here is complicated by the scarcity of available public housing. To remove the family now living at 1154 Fritz Drive because of a dispute between BHA and Ms. Noble would cause undue dislocation. Under the circumstances, I believe the relief granted is the most equitable to all parties affected.


source: Caselaw Access Project

author: TEITELBAUM, Chief Judge.

license: Public Domain

text:
    Burt K. TODD and Frances Hays Todd, Plaintiffs v. UNITED STATES of America, Defendant.
    Civ. A. No. 84-251.
    United States District Court, W.D. Pennsylvania.
    May 29, 1985.

      William J. Smith, Lawrence E. Flatley, Reed Smith Shaw & McClay, Pittsburgh, Pa., for plaintiffs.
    Thomas A. Daley, Judith Giltenboth, Asst. U.S. Attys., Pittsburgh, Pa., Gregory S. Hrebiniak, U.S. Dept, of Justice, Washington, D.C., for defendant.
   MEMORANDUM OPINION

TEITELBAUM, Chief Judge.

I.

Plaintiffs brought this action under the Internal Revenue Code of 1954, as amended, 26 U.S.C. §§ 1 et seq., seeking to recover federal income taxes and interest thereon, which plaintiffs contend was erroneously and illegally assessed and collected by the Internal Revenue Service (IRS).

A nonjury trial on this matter was conducted on January 14-15, 1985.

Judgment in this action will be entered for defendant and against plaintiffs for reasons set forth below.

II.

Plaintiff Burt K. Todd is the owner of a parcel of approximately 104 acres of land that is located in Ligonier Township, Westmoreland County, Pennsylvania. The property in question was at all relevant times used as an undivided country estate.

Burt K. Todd obtained the property on December 12, 1956 by conveyance from R.K. Mellon and Constance Prosser Mellon (later, Constance Prosser Mellon Burrell), his wife.

The deed conveying the property to Burt K. Todd contained the following covenants:

A. The party of the second part [Burt K. Todd] agrees not to subdivide any portion of the above described property, and further agrees not to lease any portion of said property to anyone except members of his immediate family; namely, his own children.
B. The party of the second part [Burt K. Todd] agrees not to sell the above described property or any portion thereof without giving to Richard K. Mellon and Sara Mellon Scaife the first refusal to purchase the same.
C. The party of the second part [Burt K. Todd] agrees that the Rolling Rock Hunt shall have the right and privilege to hunt for foxes over the above described premises with horses and hounds and agrees that the members or guests of members of Rolling Rock Club shall have the right to fish, hunt and shoot and to remove from said premises any fish or game thereon reduced and all such uses and purposes. The party of the second party [Burt K. Todd] is prohibited from erecting wire fences or other obstructions, as a protection for horses and hounds.

On December 30, 1979, Burt K. Todd granted to the Western Pennsylvania Conservancy a scenic easement in gross upon the property in perpetuity, without expectation of economic benefit. The Conservancy is an organization described in 26 U.S.C. § 170(c) of the Internal Revenue Code.

The easement that Burt K. Todd granted to the Conservancy was an easement with respect to real property in perpetuity, exclusively for conservation purposes, without the exception set forth in 26 U.S.C., Section 170(f)(3)(B)(iii) (1979).

The Grant of Easement executed that day contained the following provision:

And in furtherance of the foregoing affirmative rights, and intending to be legally bound hereby the Grantor declares and imposes the following covenants, on behalf of himself, his heirs and assigns, which covenants shall run with and bind the Protected Property in perpetuity:
1. There shall be no subdivision of the property, except Grantor, his heirs and assigns retain the right to subdivide the property into not more than five parcels.

On December 30, 1979, Constance Prosser Mellon Burrell, a grantor of the above Mellon deed dated December 12, 1956, granted to the Conservancy her interest in the restrictive covenants contained in the Mellon deed.

R.K. Mellon and Sarah Mellon Scaife had died prior to December 30, 1979. Constance Prosser Mellon Burrell died on November 12, 1980.

Plaintiffs claimed on their 1979 Federal income tax return (Form 1040) a charitable contribution deduction of $353,000 for the scenic easement granted to the Conservancy. Plaintiffs were unable to utilize the full amount of the charitable contribution deduction in 1979 and, as a consequence, there was a carryover of an unused charitable contribution of $181,349, $159,504 of wieh was used for the tax year ending December 31, 1980.

The IRS subsequently sent plaintiffs a notice of proposed deficiency in tax for the years 1979 and 1980, including an examination report which proposed to value the charitable contribution of the scenic easement to the Conservancy at only $31,000.

Plaintiffs timely filed a protest to the proposed 1979 and 1980 deficiencies, including a protest to the IRS’ proposed valuation of the charitable contribution of the scenic easement.

The IRS subsequently issued statutory Notice of Deficiency letters, which notified plaintiffs that the IRS was assessing a deficiency for the tax'year ended December 31, 1979 in the amount of $71,456 and a deficiency for the tax year ended December 31, 1980 in the amount of $81,266.00.

Plaintiffs then paid the deficiency assessed by the IRS for 1979, plus $32,509.06 in interest. They also paid the deficiency assessed for 1980, plus $26,844.07 in interest.

Plaintiffs subsequently made claims for refund of the above tax deficiencies that had been assessed and collected and for refund of the interest they had paid by filing Amended Tax Returns for 1979 and 1980.

The IRS took no action with respect to those claims, whereupon plaintiffs initiated the present action.

III.

Tax determinations by the Commissioner of IRS are presumptively correct. If the taxpayer presents competent and relevant evidence in a tax refund action that the Commissioner’s determination was incorrect, that presumption is overcome and the burden of going forward then shifts to the Commissioner. The ultimate burden of persuasion remains upon the taxpayer at all times, however. See Sullivan v. U.S., 618 F.2d 1001, 1008-1009 (3d Cir. 1980).

The ultimate issue in a tax refund action is not whether the assessment of the Commissioner was incorrect but, rather, whether the amount paid exceeded the amount actually due. See Higginbotham v. U.S., 556 F.2d 1173, 1175 (4th Cir.1977).

The presumption of correctness which attaches to a deficiency notice issued by the Commissioner places upon the taxpayer the burden of establishing all matters necessary to show that the taxpayer does not owe the taxes in question. See Southwestern Life Ins. Co. v. U.S., 560 F.2d 627, 635 (5th Cir.1977).

A tax refund action is similar to an action for money had and received. The burden is always upon the taxpayer to show the amount wrongfully withheld by the Government. See Ehlers v. Vinal, 382 F.2d 58, 66 (8th Cir.1967).

The taxpayer bears the dual burden: 1) of proving that the Commissioner erred in determining the amount of tax liability; and 2) of proving what the correct amount of tax liability is. See Crosby v. U.S., 496 F.2d 1384, 1390 (5th Cir.1974).

The taxpayer must produce credible evidence from which a proper calculation can be made before he is entitled to a refund. See Bangor Punta Operations v. U.S., 466 F.2d 930, 935 (7th Cir.1972). If insufficient evidence is presented from which the correct amount of tax liability can be calculated, the determination of the Commissioner must be upheld. See Crosby v. U.S., 496 F.2d at 1390.

IV.

The determination by the Commissioner of the amount deductible for the grant of the scenic easement to the Conservancy was correct.

The amount of charitable deduction plaintiffs may take for the grant of the scenic easement is the difference between the fair market value of the property, based on its “highest and best use”, before and after the grant of the easement.

“Highest and best use” is defined as:

A reasonable and probable use that supports the highest present value as defined as of the effective date of appraisal.
Alternatively, that use from among reasonably probable and legal alternative uses found to be physically possible, appropriately supported, financially feasible, and which results in highest land value.

Real Estate Appraisal Terminology, (Rev. Ed.), pp. 126-27.

Mr. John Welsch, expert real estate appraiser for the Government, testified that the difference in fair market value as a result of the grant of the scenic easement was $20,800.

According to Mr. Welsch, the total preeasement value of the property was $875,-000. The land was evaluated at $4,000 per acre, for a total of $416,000 and the improvements at $459,000. The total post-easement value of the property was $854,-000. The land was evaluated at $3,800 per acre and the improvements at $459,000.

Mr. Welsch’s appraisal was based on the determination that the “highest and best use” of the property, both before and after grant of the easement, was as an undivided country estate or “residential gentleman farm.” He did not consider the “highest and best use” of the property as a site for possible subdivision. Had he done so, he admitted, the per-acre values of the land would have been greater.

Mr. Welsch’s determination of “highest and best use” was predicated upon the assumption that the three covenants in the Mellon deed of December 12, 1956 were valid and enforceable. He made no attempt to determine the value of the property in the event that the covenants were invalid.

The assumption that the three covenants were enforceable was incorrect.

The first covenant prohibiting subdivision constituted a restriction on alienation and, as such, was not enforceable under Pennsylvania law. See Grossman v. Hill, 384 Pa. 590, 122 A.2d 69 (1956).

The second covenant giving R.K. Mellon and Sarah Mellon Scaife the right of first refusal in the event Burt Todd sold the property was personal to R.K. Mellon and Sarah Mellon Scaife. See DeSanno v. Earle, 273 Pa. 265, 117 A. 200 (1922). As such, the covenant terminated upon their deaths. Both R.K. Mellon and Sarah Mellon Scaife died prior to December 30, 1979, the date of the grant of the scenic easement.

The third covenant granting the Rolling Rock Hunt the right to hunt foxes on the property also had terminated prior to December 30, 1979. Rolling Rock Hunt had ceased to exist as an independent entity when it merged with the Westmoreland Hunt to become the Rolling Rock-Westmoreland Hunt.

The fact that this assumption was erroneous does not, however, mean that Mr. Welsch’s determination of the “highest and best use” of the property was mistaken. As was indicated previously, the legal use of property is but one factor to be considered. Another factor — in this case the critical factor — is the probable use of the property.

Considering that the area around the Todd property consists of estate-type property, that there existed a strong demand for such estate-type property in 1979-80, that the residents of the area historically have been opposed to development, and that at most three subdivisions exist in all of Ligonier Township, it must be concluded that Mr. Welsch was correct in determining that the “highest and best use” of the Todd property, both before and after the grant of the easement, was as a country estate, and not as property suitable for subdivision.

V.

Plaintiffs’ position concerning the correct amount of the charitable deduction for the grant of the scenic easement is untenable.

According to plaintiffs, the diminution in value of their property as a result of the scenic easement was a staggering 40%.

Mr. Ray Barone, expert real estate appraiser for plaintiffs, testified that the total pre-easement value of the property was $875,000. The land was evaluated at $4,000 per acre, for a total of $416,000, and the improvements at $459,000. He testified that the total post-easement value of the property was $522,000. The land was evaluated at $158,000, and the improvements at $364,000.

Mr. Barone assumed that the “highest and best” pre-easement use of the property was as a residential subdivision of ten tracts of approximately ten acres each. He further assumed that the “highest and best” post-easement use of the property was as a subdivision consisting of four two-acre parcels, upon each of which was placed a residential dwelling, and of a fifth parcel consisting of ten acres, upon which the existing buildings would be located, plus eighty-six acres of agricultural land.

Mr. Barone estimated each of the four-acre plots to be worth $4,000 per acre, the ten-acre plot to be worth $4,000 per acre, and the value of the eighty-six agricultural acres to be worth $1,000 per acre. He further estimated that the value of the main house had decreased by 15%.

The assumption that the “highest and best use” of the Todd property is as a residential subdivision is erroneous. As was indicated previously, the “highest and best use” of the Todd property is as an undivided country estate. Plaintiffs’ determination of the pre- and post-easement values of the Todd property are therefore unreliable. This in turn renders the difference between those values unreliable.

Even if it be assumed that the “highest and best use” of the Todd property was as a residential subdivision, the post-easement evaluation is nonetheless untenable. There is no persuasive justification given either for attaching as much as eighty-six acres to the ten-acre parcel on which the existing buildings stand or for valuing those eighty-six acres at a mere $1,000 per acre. This would mean that this particular ninety-six acre parcel of land located in exclusive Ligonier Township would have a fair market value of only $126,000. Such a result flies in the face of facts and is wholly implausible.

Judgment therefore will be entered for defendant and against plaintiffs because the defendant’s determination as to the allowable charitable deduction is correct, and because defendant’s determination is incorrect.

The foregoing constitute findings of fact and conclusions of law pursuant to Fed.R. Civ.P. 52(a).

An appropriate order shall issue.

ORDER

AND NOW, May 29, 1985, in accordance with the foregoing Memorandum Opinion, IT IS HEREBY ORDERED that judgment is entered for defendant and against plaintiffs.


author: HAROLD H. GREENE, District Judge.

text:
    Raymond C. SULLIVAN, Plaintiff, v. VETERANS ADMINISTRATION, Defendant.
    Civ. A. No. 84-3141.
    United States District Court, District of Columbia.
    May 29, 1985.

      G. Jerry Shaw, William L. Bransford, Neill, Mullenholz, Shaw & Seeger, Washington, D.C., for plaintiff.
    Edith S. Marshall, Asst. U.S. Atty., Washington, D.C., for defendant.
   MEMORANDUM ORDER

HAROLD H. GREENE, District Judge.

Plaintiff, the former Director of the Veterans Administration Medical Center in Cincinnati, Ohio, brought this action against the Veterans Administration (VA) alleging that its disclosure of information pursuant to a request under the Freedom of Information Act (FOIA), 5 U.S.C. § 552, violated his statutory rights under the Privacy Act, 5 U.S.C. § 552a, and severely damaged his reputation. Plaintiff seeks $100,000 in damages for loss to his reputation, mental pain and suffering, and other injuries. The VA has filed a motion to dismiss or, in the alternative, for summary judgment. For the reasons stated below, the motion will be granted and this action will be dismissed.

The material facts are not in dispute. An article appearing in the February 1983 issue of Truth Unity, the newsletter of Local 2031 of the American Federation of Government Employees, alleged that plaintiff, who was then Director of the VA Medical Center, had used a government vehicle for private purposes, that while he was doing so, he was involved in an accident, and that he used government funds to repair the damages to the other driver’s car. Mr. Lonnie Carter, the Local’s President and the author of the article, subsequently complained to the Inspector General’s Office of the VA, repeating the allegations in his article that plaintiff had misused government property and misappropriated public funds, and volunteering to provide the VA with additional information.

The Inspector General’s Office conducted an investigation into these allegations. Although the Office declined to bring criminal charges against plaintiff, it did reprimand plaintiff for violating certain regulations governing the . use of government property. During the pendency of the VA investigation, Carter made a request pursuant to the FOIA for records relating to its investigation of plaintiff. The Inspector General’s Office, after completing its investigation and upon consulting with other VA officials, released a partially redacted copy of its report to Carter. The information in this report essentially confirmed the information that Carter himself had provided to the agency.

Section 552a(b)(2) of the Privacy Act prohibits an agency from disclosing any record which is contained in a system of records without the prior written consent of the individual to whom it pertains “unless disclosure of the record would be ... required under section 552 of this title.” The effect of this section is to permit an agency to disclose records where FOIA requires it, but to prohibit such disclosure where a specific FOIA exemption allows the agency to withhold the information. See Plain Dealer Publishing Co. v. United States Department of Labor, 471 F.Supp. 1023, 1031 (D.D.C.1979). Here, plaintiff maintains that the information contained in the VA investigatory report was exempt under 7(C) of the FOIA, 5 U.S.C. § 552(b)(7)(C), which protects investigatory records, the disclosure of which would constitute “an unwarranted invasion of personal privacy.”

The VA, in fact, considered whether the release of the Inspector General’s investigatory report would result in an unwarranted invasion of plaintiff’s personal privacy, but determined that it would not. On that basis, it concluded that it was required to release the report under FOIA. The Court agrees and thus concludes that the VA has not violated plaintiff’s rights under the Privacy Act.

The central purpose of the FOIA is to increase the public’s access to information in the possession of the federal government. Congress determined that in certain instances disclosure of some government records would be so intrusive — either to private parties or to certain important government functions — that releasing them under the FOIA would be inappropriate. Exemptions 6 and 7(C), which provide protection for personal privacy interests, reflect one of those instances. However, the existence of a privacy interest in certain documents does not automatically protect those documents from disclosure. Rather, the Court, in determining whether exemption 6 or exemption 7(C) applies in a particular case, must balance the plaintiff’s interest in privacy against the public interest in disclosure.

The first step in this balancing process is to identify the nature and magnitude of the various interests involved. On the one side, plaintiff has at least a minimal privacy interest in his employment history and job performance evaluations. See Stern v. F.B.I., 737 F.2d 84, 91 (D.C.Cir.1984), and cases cited therein. In the instant case, the investigatory record at issue does not contain diverse bits and pieces of information concerning plaintiff unrelated to the subject of the report, and its release would not have disclosed intimate details or other aspects of plaintiff’s personal life. Instead, the report concerns an investigation into specific allegations of misconduct. Thus, the privacy interests at stake are limited to whatever embarrassment or reputational injury plaintiff might suffer as a result of being associated unwarrantedly with the alleged wrongdoing which is the subject of the report. See Stern v. F.B.I., supra, 737 F.2d at 91-92.

On the other side of the balance, is the public’s interest in knowing what public servants may be involved in wrongdoing. In addition, as the court in Stern v. F.B.I., supra, recognized, the public has an interest in:

knowing that a government investigation itself is comprehensive, that the report of an investigation released publicly is accurate, that any disciplinary measures imposed are adequate, and that those who are accountable are dealt with in an appropriate manner.

737 F.2d at 92. The Court notes that the Inspector General’s Office did not release the investigatory report to Carter until after it had completed its investigation. Accordingly, there was no risk that ongoing or future investigations and enforcement proceedings concerning this matter would be impaired as a result of the disclosure.

Upon balancing these competing interests, the Court concludes that whatever legitimate privacy interests plaintiff may have had in keeping the report secret, they were clearly outweighed by the public’s interest in disclosure. To begin with, the privacy interests of plaintiff, in his capacity as a federal employee, are diminished due to the public interest in knowing how pub-lie employees are performing their jobs— “in order to hold the governors accountable to the governed”. Stern v. F.B.I., supra, 737 F.2d at 92. This is particularly true where, as here, the federal employee in question holds a high level position — i.e., plaintiff was the head of a major' medical facility with a multi-million dollar budget.

Furthermore, this is not a case where plaintiff was associated unwarrantedly with wrongdoing. While plaintiff continues to protest his innocence of any criminal wrongdoing, he has never denied the essential facts underlying the allegations made by Carter which were investigated by the Inspector General’s Office. In fact, the VA found that plaintiff had engaged in improper and illegal activities, and specifically stated in its letter of reprimand to plaintiff:

A. 31 U.S.C. Section 1344(a) states any use of a Government vehicle must be for official business. This statute also indicates that an official purpose does not include transporting employees of the Government between their domiciles and places of employment. While I am unable to conclude that you have clearly demonstrated a violation of 31 U.S.C. Section 1344(a), I believe your actions did exceed the limits of good judgment and presented the appearance of abuse of your authority for your personal benefit in violation of 38 C.F.R. 0.735-10(b).
B. Your actions regarding the use of a Government vehicle were also in violation of 38 C.F.R. 0.735-14 which requires VA employees to protect and conserve Government property entrusted to them, to not willfully misuse Federal Government property, including vehicles, and to not directly or indirectly use, or allow the use, of Government property for other than officially approved activities.
C. In addition, your failure to report your September 22, 1982, accident with a Government vehicle to your Regional Director is a breach of the Federal Property Management Regulations.

Finally, it is unclear what, if any, embarrassment or other reputational injury plaintiff could have suffered as a result of the VA’s release of the investigatory report. Most, if not all, of the information contained in the report was already available to the public in the Truth Unity article, and was obviously known by Carter.

However, even assuming that the VA’s release of the report had an adverse effect on plaintiff and assuming further that exemption 7(C) of the FOIA applied, plaintiff would still not prevail. An action for damages under section 552a(g) of the Privacy Act must be predicated on a finding that the agency acted in a manner which was “intentional or willful.” 5 U.S.C. § 552a(g)(4). In other words, the agency must either commit the act without grounds for believing it to be lawful, or it must flagrantly disregard an individual’s rights under the Act. Albright v. United States, 732 F.2d 181, 189 (D.C.Cir.1984).

After reviewing the uncontroverted affidavits submitted by the VA officials responsible for the decision to release the report, the Court is convinced that the VA’s action was neither intentional nor willful within the meaning of those terms under the Act. These VA officials, who have received special training in FOIA and Privacy Act matters and who regularly review and screen documents requested under the FOIA and the Privacy Act, all concluded that the VA was required to release the report under the FOIA, and that the report, as redacted, would not violate anyone’s rights under the Privacy Act including the rights of this plaintiff. While the VA was not completely successful in deleting all the personally identifiable references to plaintiff, its attempt to do so demonstrates that agency’s consideration of and concern for plaintiff’s privacy interests.

For the reasons stated, the Court finds that the VA’s release of the investigatory report did not violate plaintiff’s rights under the Privacy Act because such release was mandated by the FOIA. Moreover, it concludes that the VA carefully considered plaintiff’s privacy interest before releasing such report.

Accordingly, it is this 29 day of May, 1985

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

ORDERED that this action be and it is hereby dismissed.

      . Because the Court has considered materials outside the pleadings, it has treated the motion as one for summary judgment.

      . Before releasing a copy of the report to Carter, the Inspector General’s Office "blacked out" references to plaintiff and to another individual who was the subject of the investigation. The Office, however, inadvertently left in one reference to plaintiff by name. In any event, it would not have been difficult for a reader to deduce that plaintiff was a subject of the report.

      . Both parties agree that if the information at issue could be withheld under FOIA, it would be pursuant to exemption 7(C), which places a greater emphasis on protecting personal privacy than does exemption 6.

      . Plaintiff alleges that the release of the report to Carter damaged his reputation, caused him embarrassment and disgrace, and was a factor in his job transfer.

      . As previously noted, the VA report concerns an investigation into plaintiffs alleged misuse of government property and funds, but it did not delve into any aspects of plaintiffs personal life. Thus, plaintiffs interest in nondisclosure is not in continued privacy of personal matters, but in anonymity so that he can avoid criticism for violations of government regulations. See Sims v. CIA, 642 F.2d 562, 574-75 (D.C.Cir.1980); Chicago Board of Trade v. Commodity Futures Trading Commission, 627 F.2d 392, 399 (D.C.Cir. 1980).

      . Plaintiff states that he believed that he had a right to use the car and that he was engaged in government business, and he argues that this Court should strike the same balance as the Stern court did with respect to the two lower level FBI employees. The Court cannot agree. It may be that plaintiff did not intentionally violate any law or regulation, but his role in the wrongdoing was central. He knowingly used a government vehicle for travel to and from his residence and he failed to report an accident.
      Moreover, unlike the lower level employees in Stem, plaintiff is not in danger of being associated with notorious, and much more serious allegations of criminal wrongdoing. To the contrary, the incidents to which plaintiff was linked, and whatever embarrassment he may have suffered as a result thereof, is not out of proportion to plaintiffs personal role in and responsibility for those incidents.

      . Plaintiff argues that summary judgment on this ground is inappropriate because the question of whether the actions were intentional or willful is a factual one. To be sure, the issue is one of fact and if it were in dispute, plaintiff's argument would be well taken. But, that is not the case here. The VA has submitted affidavits from the appropriate officials indicating that they carefully considered plaintiffs privacy interests, but ultimately determined that the VA was required to release the report under the FOIA. Plaintiff has not alleged any facts or produced any evidence which would refute the accuracy or veracity of these affidavits.

      . See Affidavits of Ronald P. Morani, Arthur Kyle, and Robert Shoemake, attachments V, VIII, and IX, respectively, to defendant’s motion for summary judgment.

      . In light of the Court’s findings, it is unnecessary to address the other arguments made by defendant — namely (1) whether the record in question is exempt from the provisions of § 552a(g) of the Privacy Act pursuant to 38 C.F.R. § 1.582; and (2) whether disclosure of a document which merely verifies and confirms information already available to the public constitutes a disclosure within the meaning of the Act.


author: JOYCE HENS GREEN, District Judge.

text:
    Richard HIRSCHFELD, Plaintiff, v. SECURITIES AND EXCHANGE COMMISSION, et al., Defendants.
    Civ. A. No. 84-3453.
    United States District Court, District of Columbia.
    June 20, 1985.

      Richard Hirschfeld, Washington, D.C., Stanley E. Sacks, Sacks, Sacks & Larkin, Norfolk, Va., for plaintiff.
    Linda D. Feinberg, Richard M. Humes, Harris J. Weiss, S.E.C., Washington, D.C., for defendants.
   ORDER

JOYCE HENS GREEN, District Judge.

Plaintiff Richard Hirschfeld brings this action for declaratory and injunctive relief against the Securities and Exchange Commission (“SEC”) and the individual commissioners thereof. Before the Court is defendants’ motion to dismiss the complaint in its entirety and plaintiff’s opposition thereto.

Plaintiff is a Virginia attorney whose practice includes representation of corporate clients on corporate and securities matters. Between April 1983 and June 1984, Annamerle Zwitman Bellah was employed by plaintiff as an associate in his firm. Ms. Bellah worked closely with plaintiff in his dealings with various corporate clients before her employment with the firm was terminated by plaintiff in June 1984. Following her termination, Bellah voluntarily contacted the SEC, after consulting with a state bar ethics committee and a United States Attorney’s office, to report what she believed to be possible violations of the law by plaintiff. Specifically, she told the Commission that plaintiff may have been responsible for the filing of a false registration statement in connection with a public offering of securities by one company, and for misappropriating the funds of another. Based on that information, the SEC commenced investigations into plaintiff’s role in the transactions of those companies and perhaps others.

Plaintiff states that although defendants’ attorneys advised Bellah of her rights prior to questioning her, they did not discuss with her the implications of the attorney-client privilege with respect to information obtained through her association with plaintiff in the representation of his corporate clients. Instead, plaintiff claims, defendants “actively solicited and encouraged [Bellab] to violate the attorney-client privilege.” Plaintiff’s Feb. 7, 1985 Memorandum at 3. Plaintiff brings this action to enjoin defendants from proceeding with or instituting investigations based on information obtained from Ms. Bellah by the SEC. In addition, plaintiff seeks a declaratory judgment that defendants’ communications with his former associate “resulted in the use of tainted, improper or illegal evidence” by the SEC in violation of plaintiff’s constitutional rights, including but not limited to his rights under the First, Fourth and Fifth Amendments to the Constitution.

Plaintiff’s entire complaint, including his constitutional claims, is based on the proposition that the Commission’s receipt and use of information from Ms. Bellah violated his attorney-client privilege. Whether or not an alleged breach of the attorney-client privilege states a claim of constitutional dimension need not be decided. Here, plaintiff has failed to allege all elements of the attorney-client privilege and therefore cannot state a claim on that foundation.

The courts in this Circuit have adopted the concise statement of the attorney-client privilege set forth in United States v. United Shoe Machinery Corp., 89 F.Supp. 357 (D.Mass.1950).

The privilege applies only if (1) the asserted holder of the privilege is or sought to become a client; (2) the person to whom the communication was made (a) is a member of the bar of a court, or his subordinate and (b) in connection with this communication is acting as a lawyer; (3) the communication relates to a fact of which the attorney was informed (a) by his client (b) without the presence of strangers (c) for the purpose of securing primarily either (i) an opinion of law or (ii) legal services or (iii) assistance in some legal proceeding, and not (d) for the purpose of committing a crime or tort; and (4) the privilege has been (a) claimed and (b) not waived by the client.

In re Sealed Case, 737 F.2d 94, 98-99 (D.C.Cir.1984). Two additional statements complete the summary:

Communications from attorney to client are shielded if they rest on confidential information obtained from the client____ Correlatively, when an attorney conveys to his client facts acquired from other persons or sources, those facts are not privileged. [Citations omitted.]

In re Sealed Case, 737 F.2d at 99. Under this test, “the privilege may be claimed only by the client or his/her representative acting on his/her behalf ____ The privilege may not be claimed by the attorney on his/her own behalf.” Larkin, Federal Testimonial Privileges, § 2.05 at 44-45 (1984); In re Dayco Corp. Derivative Securities Litigation, 102 F.R.D. 633, 635 (S.D.Ohio 1984) (“the attorney-client privilege arises when the holder of the privilege is a client ... ”); Washington-Baltimore Newspaper Guild Local 35 v. Washington Star Co., 543 F.Supp. 906, 908 (D.D.C.1982) (quoting first element of United Shoe test).

In this case, plaintiff does not allege that he is a client seeking the protection of the privilege, nor does he allege that as an attorney he asserts the privilege on behalf of any of his clients. On the contrary, plaintiff clearly asserts that he is advancing “rights, privileges and immunities secured to him[self]” (Complaint ¶ 8). The relief he seeks — a declaratory judgment that his own rights have been violated and an injunction against further investigation into his own activities — confirms that plaintiff brings this action on his own behalf. In this situation, plaintiff cannot claim the protection of the attorney-client privilege. It follows that his constitutionally-based objections to the alleged breach of that privilege fail to state an actionable claim.

Accordingly, and for the reasons set forth above, it is by the Court, this 20th day of June, 1985

ORDERED that defendants’ motion to dismiss this complaint for failure to state a claim is hereby granted.

      . See SEC v. Gulf & Western Indus., Inc., 502 F.Supp. 343, 346 n. 5 (D.D.C.1980) (mentioning but not deciding applicability of exclusionary rule to breach of attorney-client privilege in enforcement action against client). In subsequent proceedings, the Court in SEC v. Gulf & Western ultimately found no breach of the privilege; thus, the constitutional question was not reached. Additional authorities cited by defendants on this point address the extent of the attorney-client privilege under state law in state court proceedings. See Bradt v. Smith, 634 F.2d 796 (5th Cir.), cert. denied, 454 U.S. 830, 102 S.Ct. 125, 70 L.Ed.2d 106 (1981); Beckler v. Superior Court of Los Angeles County, 568 F.2d 661 (9th Cir.1978). Those cases do not foreclose the possibility that the privilege may in certain circumstances assume constitutional significance. See Bradt v. Smith, 634 F.2d at 800 n. 4. See also OKC Corp. v. Williams, 461 F.Supp. 540, 548-49 (N.D.Tex.1978) (declining to dismiss Fourth and Fifth Amendment claims based on alleged seizure by SEC of attorney-client communication, but rejecting due process claim based on attorney-client privilege); OKC Corp. v. Williams, 614 F.2d 58 (5th Cir.), cert. denied,
        449 U.S. 952, 101 S.Ct. 357, 66 L.Ed.2d 216 (1980) (declining to reach constitutional issues because SEC did not obtain materials by improper means).


author: RALPH M. FREEMAN, District Judge.

text:
    CHIROPRACTIC COOPERATIVE ASSOCIATION OF MICHIGAN, Plaintiff, v. AMERICAN MEDICAL ASSOCIATION; American Hospital Association; Joint Commission on Accreditation of Hospitals; American Osteopathic Association; Michigan State Medical Society; Munson Medical Center; Michigan Osteopathic Association; H. Doyl Taylor; Joseph A. Sabatier, Jr., M.D.; H. Thomas Ballantine, M.D.; and James H. Sammons, M.D., Defendants.
    Civ. A. No. 83 CV 2701 DT.
    United States District Court, E.D. Michigan, S.D.
    June 24, 1985.

      Paul Wright, Warren, Mich., for Chiropractic Assn, of Michigan.
    Douglas Carlson, Wildman, Harrold, Allen & Dixon, Chicago, 111., Thomas Tallerico, Detroit, Mich., for American Hosp. Ass’n, Dr. Ballantine, Doyl Taylor, Joint Com’n on Accreditation of Hospitals, Dr. Joseph A. Sabatier, Jr., M.D., and Dr. James H. Sammons, M.D.
    Linda Tomaselli, Chicago, 111., Robert Cutler, Detroit, Mich., for American Hosp. Ass’n.
    James Kohl, Detroit, Mich., for James Decker Munson Hosp.
    John Campbell, Peterson, Ross, Schloerb & Seidel, Chicago, 111., Grady Avant, Detroit, Mich., for American Osteopathic Ass’n.
    William Sankbeil, Kerr, Russell & Weber, Detroit, Mich., for Michigan State Medical Soc.
    David Paruch, Clark, Klein & Beaumont, Detroit, Mich., for Michigan Osteopathic Ass’n.
    Patrick Wilson, Traverse City, Mich., for Munson Medical Center.
   MEMORANDUM OPINION

RALPH M. FREEMAN, District Judge.

This matter arises out of an action commenced by the Chiropractic Cooperative Association of Michigan, an association of twenty-one Michigan chiropractors incorporated for purposes of prosecuting this action. In its amended complaint, Plaintiffs allege that Defendants violated Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2, seeking both injunctive relief and monetary damages against the various Defendants. The essence of Plaintiffs’ allegations are that the Plaintiff chiropractic profession competes with members of the medical and osteopathic professions for delivery of certain kinds of health care services to the general public, and that the Defendants have attempted to monopolize and conspire to monopolize such health care services and unreasonably restrain chiropractic doctors in the delivery of health care services and isolate and eliminate the chiropractic profession, thereby increasing the overall costs of health care in the United States, impeding the growth of the chiropractic profession, causing economic injury to Plaintiff and endangering the public health and welfare. Plaintiff alleges that Defendants engaged in a conspiracy to eliminate the chiropractic profession by refusing to deal with chiropractors and engaging in a group boycott, prohibiting medical and osteopathic doctors from referring patients to chiropractic doctors, refusing to permit health facilities to deal in goods or services with chiropractic doctors, prohibiting association of medical doctors and osteopathic doctors in a group practice with chiropractic doctors and by sponsoring and publicizing position papers, policy statements and studies critical of the chiropractic profession and by exerting group pressure in' an effort to obtain executive, administrative, judicial and legislative action adverse to the chiropractic profession. In support of this allegation, Plaintiff contends that in 1963, the American Medical Association (AMA) established a “Committee on Quackery” whose “prime mission was the containment and ultimate elimination of chiropractic.” Plaintiff alleges that in pursuit of such goal, Defendant AMA employed its Principles of Medical Ethics to prohibit the inter-professional relationship of medical doctors with the chiropractic profession. Plaintiff contends that similar canons of ethics and policy statements were adopted and advanced by Defendant American Osteopathic Association. Plaintiff further alleges that the AMA, the American College of Physicians (ACP), the American College of Surgeons (ACS), and the American Hospital Association (AHA) conspired with the Joint Commission on Accreditation of Hospitals (JCAH) to proscribe associations between doctors of chiropractic and hospitals. Plaintiff also alleges that through such agreement, Defendants attempted to monopolize and conspired to monopolize certain health care markets.

Defendants deny the existence of any such alleged concert of action or that medical doctors compete with chiropractors. Defendants also deny that their conduct had anti-conipetitive purposes or a substantial anti-competitive effect or that any injury resulted from Defendants’ activities. Defendants contend that the evidence will show that Defendants’ actions fostered free competition and protected consumers of health care services from exploitation through deception and the hazards of unscientific treatment. Defendants aver that many of their activities were undertaken for the purpose of influencing legislation, and, as such, were protected under the first amendment. Further, Defendants aver that concern for the public health and patient care justifies any alleged anti-competitive effect.

This matter is presently before the Court on Plaintiff’s Motion in Limine to strike the affirmative defense of “good faith concern for the public health, safety and welfare,” laches, unclean hands, and the defense of “modified rule of reason/patient care.”

As an initial matter, this Court notes that Plaintiff improperly relies on Rules 12(b) and 56 of the Federal Rules of Civil Procedure as the bases for its motions to strike. As Defendant AMA notes, the appropriate mechanism to strike a defense is Rule 12(f). See Brown and Williamson Tobacco Corp. v. United States, 201 F.2d 819 (6th Cir.1953); Wright & Miller, Federal Practice and Procedure, § 1380 at 782-784 (1969). Because striking a portion of the pleading is such a drastic remedy, such motions are generally viewed with disfavor and rarely granted. Brown, 201 F.2d at 822.

The Court will now address Plaintiff’s motions.

I. Affirmative Defenses of Good Faith Concern for the Public Health, Safety and Welfare and Patient Care

In its motion, Plaintiff contends that this Court should strike the affirmative defense of the protection of the public health, safety and welfare and patient care raised by numerous Defendants and prohibit the introduction of any evidence relating thereto at trial, alleging that a per se rule bars consideration of and renders irrelevant any possible justification or motivation by Defendants.

In determining whether an agreement, contract or alleged conspiracy violates Section 1 of the Sherman Act, the Supreme Court has long applied the Rule of Reason Analysis. In the case of Standard Oil Co. v. United States, 221 U.S. 1, 31 S.Ct. 502, 55 L.Ed. 619 (1911), the Supreme Court established the now well-recognized rule that although Section 1 conceivably could apply to all contracts, that section would only be invoked to invalidate contracts or agreements which “unreasonably” restrain trade. 221 U.S. at 63-65, 31 S.Ct. at 517-18. Such “Rule of Reason,” recognized at common law, became the standard for analyzing contracts or agreements under Section 1 of the Sherman Act. 221 U.S. at 59-62, 31 S.Ct. at 515-17. The Court in Standard Oil also noted that certain types of contracts, due to their well-known “nature and character,” were conclusively presumed at common law to unreasonably restrain trade without the need for weighing and balancing the harm caused by such restraints against the benefits to society produced by them. The Court concluded that such a per se rule of unreasonableness would also apply in certain situations under the Sherman Act. 221 U.S. at 65, 31 S.Ct. at 517.

In the seminal opinion of Board of Trade of the City of Chicago v. United States, 246 U.S. 231, 38 S.Ct. 242, 62 L.Ed. 683 (1918), the Supreme Court established the often cited formulation or the elements of the “Rule of Reason” analysis which applies to all contracts falling under Section 1, except for those types of contracts entitled to per se treatment. In that case, the government sought to enjoin enforcement of the “Call” Rule of the Board of Trade of Chicago which prohibited members of the Board from purchasing or offering to purchase grain commodities after the exchange closed for the day at other than the closing bid on the exchange, alleging that such rule violated the antitrust law. 246 U.S. at 237, 38 S.Ct. at 243. The defendants admitted the adoption and enforcement of the Call Rule, but alleged that the purpose of the rule was not to prevent competition or control prices, but to promote the convenience of the members and to break up a monopoly in grain trade acquired by several warehousemen. Id. The district court struck allegations of the defendants to this effect and excluded evidence at trial concerning the purpose of the rule, and the court found defendants liable for conspiring to restrain trade merely upon a showing that defendants adopted, acted upon and enforced the “Call” Rule. Id. at 237-38, 38 S.Ct. at 243-44. In holding that the trial court committed error by excluding evidence of the purpose of the rule, the Supreme Court rejected the proposition that the “Call” Rule was per se illegal or unreasonable. Id. at 238, 38 S.Ct. at 243. Rather, the Court concluded that such agreement must be tested under the “Rule of Reason” to determine if such rule is an unreasonable restraint of trade. Writing for the majority, Justice Brandéis set forth the classic statement of the “Rule of Reason:”

Every agreement concerning trade, every regulation of trade, restrains. To bind, to restrain, is of their very essence. The true test of legality is whether the restraint imposed is such as merely regulates and perhaps thereby promotes competition or whether it is such as may suppress or even destroy competition. To determine that question the court must ordinarily consider the facts peculiar to the business to which the restraint is applied; its condition before and after the restraint was imposed; the nature of the restraint and its effect, actual or probable. The history of the restraint, the evil believed to exist, the reason for adopting the particular remedy, the purpose or end sought to be attained, are all relevant facts. This is not because a good intention will save an otherwise objectionable regulation or the reverse; but because knowledge of intent may help the court to interpret facts and to predict consequences. The District Court erred, therefore, in striking from the answer allegations concerning the history and purpose of the Call rule and in later excluding evidence on that subject.

246 U.S. at 238-39, 38 S.Ct. at 243-44. See also National Society of Professional Engineers v. United States, 435 U.S. 679, 691, 98 S.Ct. 1355, 1365, 55 L.Ed.2d 637 (1978). The essence of a Rule of Reason analysis requires this Court to balance the proeompetitive and anti-competitive effects.

In the matter before this Court, the Defendants contend that to strike the defense of good faith concern for the public health and patient care would bar Defendants from rebutting Plaintiffs allegations that Defendants’ actions were detrimental to the public health and general welfare, and in particular, patient care, and from demonstrating that Defendants’ actions promoted competition by improving the quality of scientific patient care and from demonstrating that Defendants' actions promoted competition by improving the quality of scientific patient care services.

In support of its contention that the Court should strike such affirmative defenses, and presumably exclude all evidence with respect thereto at trial, Plaintiff contends that two recent Supreme Court decisions, Arizona v. Maricopa County Medical Society, 457 U.S. 332, 102 S.Ct. 2466, 73 L.Ed.2d 48 (1982), and Jefferson Parish Hospital v. Hyde, 466 U.S. 2, 104 S.Ct. 1551, 1565 n. 41 and 42, 80 L.Ed.2d 2 (1984), dictate that a per se rule should be applied to the medical profession.

Although it is true that “learned professions,” such as those involved in this case, are not exempt from operation of the Sherman Act, Goldfarb v. Virginia State Bar, 421 U.S. 773, 787, 95 S.Ct. 2004, 2013, 44 L.Ed.2d 572 (1975), the Supreme Court has made no definitive statement that the actions of the learned professions in restraint of trade only are entitled to per se treatment under the Sherman Act, and the Court declines the invitation to adopt such a rule in the absence of clear direction from the Supreme Court. See White Motor Co. v. United States, 372 U.S. 253, 83 S.Ct. 696, 9 L.Ed.2d 738 (1963); Arizona v. Maricopa County Medical Society, 457 U.S. 332, 344, 349 n. 19, 102 S.Ct. 2466, 2475 n. 19, 73 L.Ed.2d 48 (1982). In fact, the Supreme Court in Goldfarb recognized that careful consideration is necessary in determining whether a particular restraint involves the Sherman Act where the restraint operates upon a profession as distinguished from a business. The Court in Goldfarb emphasized that certain practices by members of the learned profession such as “public service” might be acceptable under the “Rule of Reason.” 421 U.S. at 788-89, 95 S.Ct. at 2014-15. The Court in Goldfarb went on to state:

The fact that a restraint operates upon a profession as distinguished from a business is, of course, relevant in determining whether that particular restraint violates the Sherman Act. It would be unrealistic to view the practice of professions as interchangeable with other business activities, and automatically to apply to the professions antitrust concepts which originated in other areas. The public service aspect, and other features of the professions, may require that a particular practice, which could properly be viewed as a violation of the Sherman Act in another context, be treated differently.

421 U.S. at 788-89 n. 17, 95 S.Ct. at 2014-15 n. 17; see also National Society of Professional Engineers, 435 U.S. at 696, 98 S.Ct. at 1367. Although the Supreme Court has not delineated the exact nature or the circumstances under which learned professions should be accorded different treatment for purposes of the anti-trust laws, the Court has, on more than one occasion, intimated that considerations such as public welfare, quality of service, and ethical norms of the profession may be appropriate in applying the Rule of Reason. See Arizona v. Maricopa County Medical Society, 457 U.S. at 349, 102 S.Ct. at 2475; National Society of Professional Engineers v. United States, 435 U.S. at 679, 698 n. 22, 98 S.Ct. at 1368 n. 22; see also Smith v. Northern Michigan Hospitals, Inc., 703 F.2d 942, 949 n. 12 (6th Cir.1983).

In fact, in a case which presented almost identical facts and issues, the Court of Appeals for the Seventh Circuit recently held that a challenge by chiropractors to the practices of the AMA and other related defendants, dictated analysis under the “Rule of Reason.” Wilk v. AMA, et. al., 719 F.2d 207 (7th Cir.1983), cert. denied, — U.S. -, 104 S.Ct. 2399, 81 L.Ed.2d 355 (1984). In rejecting the district court’s conclusion that the alleged refusal to deal might be considered a per se violation of the Sherman Act, the court noted that the existence of the “patient care motive” in the context of an alleged violation of the Sherman Act by those in the medical profession rendered the case inappropriate for per se treatment. 719 F.2d at 221. The Court went on to state:

We know from Professional Engineers and Maricopa County that an agreement to fix prices will not escape per se treatment simply because it is entered into by professionals and accompanied by ethical protestations. But a canon of medical ethics purporting, surely not frivolously, to address the importance of scientific method gives rise to questions of sufficient delicacy and novelty at least to escape per se treatment.

719 F.2d at 222. Plaintiff contends that such a holding by the Seventh Circuit is “unprecedented, in conflict with existing law and dramatically wrong,” especially in light of the recent Supreme Court antitrust decision in Jefferson Parish Hospital v. Hyde, 466 U.S. 2, 104 S.Ct. 1551 ns. 41 and 42, 80 L.Ed.2d 2 (1984). Plaintiff contends that the Court in Hyde rejected the contention that a per se rule was inappropriate due to the existence of a patient care motive. This statement is incorrect. The issue addressed in Hyde was whether a hospital’s contract with a firm of anesthesiologists which required all anesthesiological services for hospital patients be performed by that firm gave rise to a tying arrangement which was illegal per se under the Sherman Act. 104 S.Ct. at 1554. The Court, per Justice Stevens, concluded that the facts of the case did not support a basis for applying a per se rule to the tying arrangement in question because the requisite market power necessary to force the purchase of the tied product, the anesthesiological services, was not established. 104 S.Ct. at 1566-67. The footnotes in Hyde cited by Plaintiff in support of its motion to strike the defenses of patient care motive and public interest motive merely recognize that if there had been sufficient evidence of market power such as to establish a per se illegal tying arrangement under the facts of the case, the existence of a patient care motive would be irrelevant and improper. 104 S.Ct. at 1551 ns. 41 and 42. Contrary to Plaintiff’s contention, however, the Hyde case did not clearly overrule any form of “patient care” defense. Rather, the Court simply concluded that the patient care defense was irrelevant where a per se illegal tying arrangement was established.

Such a conclusion is in complete accord with prior Supreme Court precedent and does not now mandate that this Court adopt a per se rule in this case. In Arizo na v. Maricopa County Medical Society, 457 U.S. 832, 102 S.Ct. 2466, 73 L.Ed.2d 48 (1982), the Supreme Court held that the use of a maximum fee schedule by health care providers, like price fixing agreements, are per se violations of the Sherman Act, and such conclusive presumption of illegality bars consideration of the procompetitive justifications. 457 U.S. at 351. Similarly, in the National Society of Professional Engineers v. United States, 435 U.S. 679, 98 S.Ct. 1355, 55 L.Ed.2d 637 (1978), the Court held that the engineering association’s canon of ethics which prohibited all competitive bidding by its members interfered with the setting of price by free market forces, and like agreements to fix prices, was per se illegal under the Sherman Act. 435 U.S. at 679, 98 S.Ct. at 1355. The Court rejected the defendant’s contention that under the Rule of Reason the canon of ethics which restricted all price competition among members was justified because it was adopted for the purpose of minimizing the risk that competition would produce inferior engineering work and endanger the public safety. 435 U.S. at 694, 98 S.Ct. at 1366. The Court in the National Engineers case concluded that where an anticompetitive effect is established, consideration of whether price competition ultimately inures to the public benefit is irrelevant. 435 U.S. at 695, 98 S.Ct. at 1367. See also Arizona v. Maricopa County Medical Society, 457 U.S. at 343-45, 102 S.Ct. at 2472-74; Accord Wilk v. American Medical Association, 719 F.2d 207, 228 (7th Cir.1983).

Contrary to Plaintiff’s contention, these cases do not dictate the conclusion that the defenses of concern for public health, safety, and welfare and patient care must be stricken or that such evidence is categorically irrelevant under the Rule of Reason which must be applied in this case. In so ruling, this Court is mindful of the proposition established in the National Engineers case, that where the facts of a case clearly establish an anticompetitive effect the public interest or safety serves as no justification. However, under the facts of this case, it is far from clear whether the actions of the various Defendants had an anticompetitive effect, and consequently, considerations of public interest and patient care are not totally irrelevant under the Rule of Reason. The Court also recognizes the limited role such evidence of intent or purpose may play as sanctioned by the Supreme Court in Chicago Board of Trade in determining the ultimate issue of whether the actions of the Defendants in this case promote or suppress competition but concludes that questions of admissibility of evidence are more properly addressed when they arise during the course of the trial. It would be improper for this Court to anticipate in advance of trial whether the evidence will establish an anticompetitive effect and thus render irrelevant any possible public safety or interest justification.

Accordingly, Plaintiff’s motion to strike the affirmative defenses of public interest and patient care and to exclude all evidence in regards thereto will be denied. An appropriate order shall enter.

II. Affirmative Defense of Laches and Unclean Hands

Plaintiff also brought a motion to strike the affirmative defenses of laches and unclean hands. Plaintiff did not specifically address the issue of laches in its brief in support of the motion, and the Plaintiff agreed at oral arguments that although its motion on laches was abandoned it reserved the right to raise it at a later date.

In addition, the parties agreed that a decision on the motion to strike the affirmative defense of unclean hands would be reserved until after discovery in this matter was complete.

Accordingly, Plaintiff’s motion to strike the affirmative defenses of public interest and patient care and to exclude all evidence in relationship thereto will be denied. Plaintiff’s motions to strike the affirmative defenses of unclean hands and laches also will be denied without prejudice to the Plaintiff. An appropriate order shall enter.

      . Plaintiffs move to strike affirmative defenses number 3 and number 5 of the Michigan Osteopathic Association; affirmative defense number 2 of the JCAH; affirmative defense number 8 of the AHA; affirmative defenses number 3 and 4 of the Michigan State Medical Society (MSMS); affirmative defenses number 2 and 4 of the AOA; affirmative defenses number 5, 6, 7 and 8 of the Munson Medical Center, and affirmative defense numbers 4, 8, 9, 10 and 11 of the AMA.

      . Section 1 of the Sherman Act provides in pertinent part that ”[e]very contract, combination ... or conspiracy in restraint of trade or commerce among the several States, or with foreign nations is ... illegal.” 15 U.S.C. § 1.

      . The practices traditionally deemed per se illegal under the Sherman Act are price fixing, division of markets, group boycotts, and tying arrangements. Northern Pacific R. Co. v. United States, 356 U.S. 1, 5, 78 S.Ct. 514, 518, 2 L.Ed.2d 545 (1958); See also Arizona v. Maricopa County Medical Society, 457 U.S. 332, 344 n. 15, 102 S.Ct. 2466, 2473 n. 15, 73 L.Ed.2d 48 (1982).

      . See Wilk v. American Medical Association, 719 F.2d at 224-25, for a discussion of the limited role evidence of intent or purpose plays in consideration of the effect of the challenged actions as anticompetitive under the Sherman Act. As the Seventh Circuit in Wilk noted, the Chicago Board of Trade case sanctioned the consideration of the reason for adopting a particular remedy and the purpose or end sought to be attained merely to assist the court in determining the effect of the defendant’s conduct on competition. 719 F.2d at 225.


author: PFAELZER, District Judge.

text:
    LAGUNA PUBLISHING COMPANY, a corporation, Plaintiff, v. EMPLOYERS REINSURANCE CORPORATION, a corporation, Defendant.
    No. CV 85-466 MRP.
    United States District Court, C.D. California.
    June 25, 1985.
    Law Offices of Richard E. McCain, Newport Beach, Cal., for plaintiff.
    Stephen J. Riggs, Keesal, Young & Logan, Long Beach, Cal., for defendant.
   MEMORANDUM AND ORDER

PFAELZER, District Judge.

Defendant’s motion for summary judgment was heard on June 10, 1985 before the Honorable Mariana R. Pfaelzer. After considering the arguments made and the papers filed, the Court denies defendant’s motion for summary judgment. However, on the Court’s own motion, the Court dismisses the Complaint without prejudice because the dispute between the parties is not yet ripe for adjudication.

DISCUSSION

A. Background

Laguna Publishing Co. (“Laguna”) brought this action.for money allegedly due under an insurance policy, Cal.Ins.Code § 11580(b)(2), for unfair insurance practices, Cal.Ins.Code § 790.03(h), and for declaratory relief against Employers Reinsurance Corporation (“E.R.C.”). E.R.C. issued an excess liability policy to Golden Rain Foundation of Laguna Hills (“Golden Rain”), against whom Laguna claims to have won a judgment for $69,301,853. E.R.C. moved for summary judgment arguing that the judgment against Golden Rain, upon which this case is predicated, was set aside by the Superior Court on May 4, 1984, and that a third party claimant under an insurance policy lacks standing to bring a direct action under either Cal.Ins.Code § 11580(b)(2) or Cal.Ins.Code § 790.03(h) until after there is a final judgment in the underlying action between the claimant and the insured. E.R.C. also moved for sanctions under Rule 11 of the Federal Rules of Civil Procedure.

B. Status of the Underlying Action

In October 1979, Laguna filed an action against Golden Rain and others in the Orange County Superior Court. All of the defendants in that lawsuit were or are affiliated with Leisure World, a retirement community near Irvine, California. Laguna alleged that the defendants had violated Laguna’s first amendment rights and had violated the California antitrust laws by refusing to allow Laguna to distribute a newspaper that it published in Leisure World. Pursuant to a settlement agreement between Laguna and Golden Rain, the Superior Court entered a default judgment against Golden Rain in the amount of $69,301,853 on November 14, 1983. The judgment was only against Golden Rain because Golden Rain was the only defendant remaining in the lawsuit at that time.

After the judgment was entered, Laguna contacted several insurance companies which had issued various insurance policies to Golden Rain, including the Insurance Company of North America (“INA”), Central Mutual Insurance Company (“Central Mutual”), and Centennial Insurance Company (“Centennial”). Laguna advised the carriers of the judgment and demanded payment under the policies. INA, Central Mutual, and Centennial moved to set aside the default judgment and to intervene in the action. On May 4, 1984, Superior Court Judge Ryan issued a minute order granting the carriers’ motion. Each carrier was given leave to intervene and the default judgment was set aside.

In response to E.R.C.’s motion for summary judgment in this Court, Laguna argued that the state court judgment was set aside only with respect to the three insurance companies which had moved to set it aside and to intervene. The problem with Laguna’s position is that none of the three insurance companies were defendants in the underlying action. There was no judgment against them to set aside. The only judgment entered in the underlying action was against Golden Rain, and that is the only judgment that could be set aside. It is certainly true that INA, Central Mutual and Centennial are the only parties who were granted permission to intervene in the underlying action, but there is only an action in which to intervene if the judgment against Golden Rain was set aside.

Finally, even if the Court accepts Laguna’s interpretation of Judge Ryan’s order, the order would still affect the case at bar. In its complaint against E.R.C., the only policy that Laguna alleges to be relevant is an E.R.C. policy written to provide excess coverage over and above the limits of a policy issued to Golden Rain by Centennial. If the judgment was set aside with respect to Centennial, then it is ipso facto set aside with respect to E.R.C. because the only way that Laguna can claim against E.R.C. is through the primary insurer, Centennial.

When a judgment has been set aside, the case reverts to its prejudgment status. In re Estate of Edwards, 25 Cal.App.3d 906, 912, 102 Cal.Rptr. 216, 219 (1972). Thus, there is no final judgment in the action between Laguna and Golden Rain.

C. Cal.Ins.Code § 11580(b)(2)

Under Cal.Ins.Code § 11580(b)(2), a claimant, such as Laguna, can bring a direct action against an insurance company such as E.R.C., if Laguna is a judgment creditor of one of E.R.C.’s insureds. “[Ujnder the law of California ... a direct action against the insurer company is not allowable until after the claimant shall have secured a final judgment against the insured.” Tashire v. State Farm Fire and Casualty Co., 363 F.2d 7, 10 (9th Cir.1966), reversed on other grounds, 386 U.S. 523, 87 S.Ct. 1199, 18 L.Ed.2d 270 (1967). There is no final judgment against Golden Rain, thus Laguna is not yet a judgment creditor with standing to sue under § 11580(b)(2). Laguna’s action under Cal.Ins.Code § 11580(b)(2) is premature.

D. Cal.Ins.Code § 790.03(h)

A third party claimant may sue an insurer directly for violations of Cal.Ins.Code § 790.03(h) but only after the action between the claimant and the insured has “concluded.” Royal Globe Insurance Co. v. Superior Court, 23 Cal.3d 880, 884, 153 Cal.Rptr. 842, 845, 592 P.2d 329, 332 (1979). The California courts have held that a matter is concluded for purposes of bringing a § 790.03(h) claim when there is a “judgment that is final for res judicata purposes.” Nationwide Insurance Co. v. Superior Court, 128 Cal.App.3d 711, 715, 180 Cal.Rptr. 464, 467 (1982). See also Rodriguez v. Fireman’s Fund Insurance Co., 142 Cal.App.3d 46, 190 Cal.Rptr. 705 (1983) (a compromise settlement can be the basis of a final judgment for the purposes of bringing a § 790.03(h) claim); Coleman v. Gulf Insurance Group, 153 Cal.App.3d 706, 200 Cal.Rptr. 619 (1984). There can be no res judicata effect to a judgment that has been set aside. Restatement (Second) of Judgments § 13, comment f (1980). Thus, because the underlying action between Laguna and Golden Rain has not concluded, this § 790.03(h) claim is premature.

E. Declaratory Relief

A district court can grant declaratory relief only if there is an “actual controversy” within its jurisdiction. 28 U.S.C. § 2201. “[T]he question of ripeness turns on ‘the fitness of the issues for judicial decision’ and ‘the hardship to the parties of withholding court consideration.’ ” Pacific Gas & Electric Co. v. State Energy Resources Conservation and Development Commission, 461 U.S. 190, 201, 103 S.Ct. 1713, 1720, 75 L.Ed.2d 752 (1983) (quoting Abbott Laboratories v. Gardner, 387 U.S. 136, 149, 87 S.Ct. 1507, 1515, 18 L.Ed.2d 681 (1967)). Neither of the two ripeness factors supports justiciability in this case. First, the question of E.R.C.’s liability to Laguna may never become an issue at all. Laguna is suing E.R.C. under an excess liability policy which covers a primary policy issued to Golden Rain by Centennial. Until Centennial’s liability under, the primary policy is settled, the Court cannot be certain that a controversy will arise between Laguna and E.R.C. Laguna may only be awarded damages, or Centennial may settle with Laguna, within the primary policy limits. In that case, there would be no excess liability for the E.R.C. policy to cover, and there would be no dispute between Laguna and E.R.C. to adjudicate.

Second, delaying the adjudication of the question of whether E.R.C.’s policy covers the type of claim made by Laguna would not work a hardship on the parties. Even if this Court were to decide that the E.R.C. policy covered Laguna’s claim, Laguna could not make a claim against the policy, directly or under Cal.Ins.Code § 11580(b)(2), until Centennial’s liability, and the amount of its liability, had been established. Thus, this claim for declaratory relief is not yet ripe for adjudication.

Therefore, IT IS ORDERED that:

1. Defendant’s motion for summary judgment is denied;

2. On the Court’s own motion, plaintiff’s complaint is dismissed without prejudice for lack of a justiciable case or controversy; and,

3. Defendant’s motion for sanctions under Fed.R.Civ.P. 11 is denied.