author: DIANA E. MURPHY, District Judge.

text:
    TESTERION, INC., a California corporation, Plaintiff, v. Earl W. SKOOG, David P. Stasney, Michael J. Ranalla, and William Robert Kircher, individually and d/b/a Associated Technologies and Supply, and d/b/a Zero Defects, and Micro Concepts, Inc., a Minnesota corporation, Defendants.
    Civ. No. 4-84-911.
    United States District Court, D. Minnesota, Fourth Division.
    Dec. 17, 1984.

      Thomas E. Peterson, and Thomas D. Jensen, Lommen, Nelson, Sullivan & Cole, Minneapolis, Minn., for plaintiff.
    Phillip R. Krass, Krass, Meyer & Walsten, Shakopee, Minn., for defendant Micro Concepts, Inc.
    Joan Bettenburg, Bertie, Bettenburg & Strong, St. Paul, Minn., for defendant William Robert Kircher.
    Stewart R. Perry, Wayzata, Minn., for defendant David P. Stasney.
    Stephen J. Snyder, Gray, Plant, Mooty, Mooty & Bennett, Minneapolis, Minn., for defendant Earl W. Skoog.
    Charles O’Connell, St. Paul, Minn., for defendant Michael J. Ranalla.
   MEMORANDUM OPINION AND ORDER

DIANA E. MURPHY, District Judge.

Plaintiff, Testerion, Inc. (Testerion), brought this action for breach of contract, conversion, fraud, unfair competition and misappropriation of trade secrets against defendants Earl W. Skoog, David P. Stasney, Michael J. Ranalla, and William Robert Kircher, individually and d/b/a Associated Technologies & Supply, and d/b/a Zero Defects, and Micro Concepts, Inc. (Micro Concepts). Jurisdiction is alleged under 28 U.S.C. § 1332. Micro Concepts and Skoog have filed counterclaims against Testerion and Mania GmbH (Mania), a West German corporation, for breach of contract, breach of warranty, tortious interference, and violation of federal and state antitrust laws. This matter is now before the court on the motion of Testerion for a writ of replevin or in the alternative a preliminary injunction, and on the motions of Stasney and Micro Concepts to dismiss.

I. Background

Testerion is a California corporation which is the exclusive United States licensee for electronic bare circuit board testing equipment manufactured by Mania. Testerion, as exclusive licensee, is the only company from which Mania equipment can be purchased. It also operates thirteen test centers nationwide that provide testing services to the large number of circuit board manufacturers that cannot afford to purchase the equipment.

This dispute arises out of the sale of a Mania bare circuit board testing machine to Micro Concepts in May of 1984. Testerion was unaware at the time of the sale that the machine was ultimately intended to be used by the individual defendants to set up a testing service in competition with Testerion’s Minneapolis testing center. The individual defendants are all former employees or independent sales representatives of Testerion who discontinued their association with the company to provide testing services through their own company on July 18, 1984.

The actual purchaser of the machine was Zero Defects, Inc. (Zero Defects), a California corporation and competitor of Testerion which employed Micro Computers as a special purchasing agent. Zero Defects in turn leased the equipment to Technology Congress, Ltd. (Technology Congress), which is using yet another corporation, Associated Technologies & Supply, Inc. (AT & S), to actually operate the testing service. These two corporations are owned and managed by the individual defendants. The purchase was set up in this manner because the individual defendants could not afford the $300,000 purchase price and because they believed that Testerion would probably not sell the machine to them directly.

The contract between Testerion and Micro Concepts established a purchase price of $289,561. A payment schedule was established and payments of $202,692.70, the last by check dated on July 11, 1983, were accepted by Testerion. The Mania equipment was delivered and installed by July 13, 1984. Final payment of $86,869 was formally tendered to Testerion on September 21, 1984 but was refused. Testerion contends that final payment was due on August 13, 1984, and the failure to tender payment at that time was a material breach of contract. It also asserts that Micro Concepts has breached other provisions of the contract. The defendants assert that the delayed tender of payment was not a material breach and that Testerion is in breach of the contract because certain pins in the machine are defective and Testerion has failed to cure the defect.

The individual defendants were associated with Testerion in various capacities. Earl Skoog served as an independent sales representative for Testerion and conducted its marketing for a fourteen state area of the midwest beginning in October of 1982. His career in the circuit board industry spans twenty years and includes service for two other companies during the same time period that he represented Testerion. Skoog had an employment agreement with Testerion that was entered into in May of 1983, several months after he began sales work. Skoog asserts that the employment agreement was terminated in April of 1984, but in any event it was terminated effective July 3, 1984. He also incorporated Technology Congress and AT & S, the companies operating the Mania machine and is an officer and director of both companies.

David Stasney has also worked for many years in the printed circuit board industry. He was first employed by Testerion in 1982 as general manager and he subsequently established the Minneapolis test facility. In March of 1984, Stasney gave notice and left Testerion to join Skoog’s independent sales representative . organization. While employed at Testerion, Stasney had an employment agreement with the company. He serves with Skoog as an officer and director of the corporations that are operating the Mania equipment. Michael Ranalla worked as a test supervisor at Testerion’s Minneapolis test facility. He succeeded Stasney as general manager of the Minneapolis facility until he gave notice and was then terminated on approximately July 24, 1984. He also had an employment agreement with Testerion. Robert Kireher was never an employee of Testerion but has worked as a part-time, and then full-time employee of Skoog’s independent sales representative organization. Both Ranalla and Kireher are now associated with AT & S.

Testerion contends that it is entitled to a writ of replevin or preliminary injunctive relief because of defendants’ fraud and misrepresentations in concealing the identity of the true purchaser of the Mania machine. It also seeks to replevy the machine based upon a material breach of the contract. It asks in the alternative for injunctive relief alleging that the defendants have engaged in unfair competition and have misappropriated trade secrets through their efforts to establish a competing business and their use of confidential information to steal customers from Testerion and compete unfairly.

The defendants raise numerous defenses going both to the merits and to the showing necessary to obtain a writ of replevin or preliminary injunctive relief. They contend that it was lawful to conceal the identity of the intended user of the Mania machine because Otherwise they would risk receiving defective equipment, incurring delays, or facing an outright refusal to sell to them. They assert that the sales policy of Testerion and Mania is in violation of the antitrust laws. On the issue of a writ of replevin, they assert that because the owner, lessee, and operator of the machine are not parties to this action no relief can be granted. In addition, they contend that Testerion cannot make the necessary showing of success on the merits or of irreparable harm and that valid defenses have been raised, thus precluding any preliminary relief. Micro Concepts has affirmatively moved to dismiss the action under Rule 19(b) of the Federal Rules of Civil Procedure for failure to join Zero Defects and Technology Congress as indispensible parties. Stasney has moved to dismiss the claims asserted against him, arguing that under the terms of his employment agreement they must be submitted to arbitration.

II. Discussion

A. Replevin

Under the federal rules, all remedies providing for seizure of property for the purpose of securing, satisfaction of a judgment ultimately entered in an action are available under the circumstances and in the manner provided by the law of the state in which the district court is held. Fed.R.Civ.P. 64. Accordingly, Testerion’s motion for a writ of replevin must conform with the provisions of Chapter 565 of the Minnesota Statutes.

Minn.Stat. § 565.23 governs the recovery of property after notice and hearing. A party seeking replevin is required to demonstrate a probability of success on the merits. Minn.Stat. § 565.23, subd. 3. Even if such a showing is made, seizure will not be ordered if the opposing party can show a defense to the merits of the claim which is a fair basis for litigation and which, if established at the hearing on the merits, would entitle the party to retain possession of the property. Id. § 565.23, subd. 3(a).

The court finds Testerion fails to meet the standard for issuance of a writ of replevin. Questions are raised because the record owner, the lessee, and the operator of the machine are not parties to this action. The issue of which party has title to the machine under Minn.Stat. § 336.2-401(2) is also highly disputed. Furthermore, the defendants assert that the purchase by Micro Concepts for an undisclosed principal was lawful and that the sales policies of Testerion are in violation of the antitrust laws. Testerion also claims a right to equitable replevin. The court, however, finds the analysis under Minn. Stat. § 565.23 to be controlling in this instance, and any other issues or requests for relief are more properly brought and considered under the claim for injunctive relief.

B. Preliminary Injunction

In ruling upon a motion for preliminary injunctive relief, the court should consider the probability that the movant will succeed on the merits; the threat of irreparable harm to the movant; the state of the balance between this harm and the injury that granting the injunction will inflict on other parties litigant; and the public interest. Dataphase Systems, Inc. v. CL Systems, Inc., 640 F.2d 109 (8th Cir.1981).

The court has carefully reviewed the materials submitted and finds the preliminary injunctive relief is not warranted under the Dataphase factors. The court finds that Testerion has not made the necessary showing of irreparable harm. Id. at 114, n. 9. Its claims of irreparable harm from unfair competition and misuse of confidential information have not been sufficiently substantiated. Testerion conceded, as it must, that the defendants have the right to compete with their former employer. See Plaintiff’s Memorandum at p. 14 n. 1. The defendants, as former employees and representatives, by the very nature of those relationships had access to information concerning Testerion.

Testerion has not established on this record that the information possessed by the defendants is confidential or that they are using that information to engage in unfair competition. Rather it appears that any information they possess was not obtained improperly and was not treated as confidential by Testerion. Furthermore, the record at this time indicates that they have obtained customers and conducted testing services without improper activity. See Affidavit of Earl W. Skoog at If 3, 5-12. The affidavits submitted by Testerion do contain some evidence of improper conduct that may ultimately be proven at a later point in the proceedings. While Testerion may ultimately prevail on the merits, however, it has not made the necessary showing of irreparable harm to entitle it to preliminary injunctive relief. Full relief for any fraud or breach of contract can be obtained if warranted after a final determination on the merits.

A review of the remaining Datapkase factors also leads to the conclusion that Testerion is not entitled to preliminary injunctive relief. The likelihood of success on the merits is uncertain at this time. Each of Testerion’s claims is strongly contested and in addition, it faces counterclaims for breach of contract, breach of warranty, tortious interference, and violations of the antitrust laws. Questions of intent and knowledge are raised under many of the claims and need to be more fully developed if a proper determination of these issues is to be reached. Testerion has noted that under California law, six elements are necessary to establish that information is a trade secret. See Tennant Co. v. Advance Mach. Co., 355 N.W.2d 720, 725 (Minn.App.1984) (citing Futurecraft Corp. v. Clary Corp., 205 Cal.App.2d 279, 23 Cal.Rptr. 198 (1962)). The evidence presented fails to show whether Testerion will be able to satisfy each of those elements. Id. The remaining two factors, the balance of harm and the public interest, are not crystalized for one party or the other, in large measure because of the uncertainty of the resolution of the merits. It does appear that AT & S would suffer a severe loss of its current business revenue if it were denied the use of the Mania machine. See Affidavit of Earl W. Skoog, 1124. Testerion states that AT & S is engaged in other lines of business where it can continue to compete. See Affidavit of Edward G. Shea, If 12. It, however, has not countered the assertion that the testing services provide the bulk of the current revenue for AT & S.

C. Motions to Dismiss

Micro Concepts has brought a motion to dismiss under Rule 19(b) of the Federal Rules of Civil Procedure for failure to join indispensable parties. It asserts that Zero Defects is the owner of the Mania machine and therefore must be joined as a party. It continues that since Zero Defects is a California corporation as is Testerion, such joinder will destroy the complete diversity between the parties and thus deprive this court of jurisdiction.

Rule 19(b) comes into play only when the requirements of Rule 19(a) have been met. Under Rule 19(b) the court is to consider a list of four factors in determining “whether in equity and good conscience the action should proceed among the parties before it, or should be dismissed, the absent person being thus regarded as indispensable.” The determination of whether someone is indispensable therefore often depends on the circumstances of the particular case. 7 C. Wright & A. Miller, Federal Practice and Procedure: Civil § 1607 (1972).

The court has carefully reviewed the record to date and all the materials submitted and finds that Zero Defects and Technology Congress are not indispensable parties to this action. Zero Defects involvement in the dispute is peripheral even though it is the owner of record of the machine. Its role as undisclosed principal does not necessarily make it an indispensable party, especially when the agent and the main perpetrators of the alleged fraud are parties. See Milligan v. Anderson, 522 F.2d 1202 (10th Cir.1975).

Stasney has brought a motion to dismiss the claims against him on the basis of an arbitration clause contained in his employment agreement with Testerion. The claims asserted against Stasney, however, are not limited to those covered by the employment agreement, so accordingly, his motion should be denied.

ORDER

Accordingly, based upon the above and all the files, records, and proceedings herein,

IT IS HEREBY ORDERED that

1. The motion for writ of replevin or preliminary injunctive relief brought by plaintiff Testerion, Inc. is denied.

2. The motions to dismiss brought by defendants Micro Concepts and David P. Stasney are denied.

      . Micro Concepts has counterclaimed for breach of contract. Earl Skoog has counterclaimed in conjunction with AT & S and Technology Congress alleging unpaid commissions, tortious interference, breach of warranty, and violations of both federal and state antitrust statutory provisions.

      . Rule 19(a) lists the instances when non-party will be joined if feasible to allow for a just adjudication. See Fed.R.Civ.P. 19(a).


source: Caselaw Access Project

author: BENJAMIN F. GIBSON, District Judge.

license: Public Domain

text:
    UNITED STATES of America, Plaintiff, v. James Frederick CARLBERG, et al., Defendants.
    No. G84-39 CR.
    United States District Court, W.D. Michigan, S.D.
    Dec. 17, 1984.
    Agnes Kempker-Cloyd, Asst. U.S. Atty., Grand Rapids, Mich., for plaintiff.
    David A. Dodge, Catchick & Dodge, Grand Rapids, Mich., for James Carlberg.

      Larry Willey, Grand Rapids, Mich., for Garleen Gunneson.
    Jasper Monti, San Francisco, Cal., for Christine Lark.
    J. Tony Serra, San Francisco, Cal., for George Knighton.
    Dennis C. Kolenda, Grand Rapids, Mich., for Gregory Reynolds.
    Richard Zipser, Southfield, Mich., for Randy Owen.
    Dennis C. Kolenda, Grand Rapids, Mich., for Michael Skwarek.
    Wade Seys, Grand Rapids, Mich., for Rita Bell.
    R. Ben Brown, Grand Rapids, Mich., for Thomas Koryto.
    Gary Mclnerney, Grand Rapids, Mich., for Lawrence Jensen.
    Frank Stanley, Grand Rapids, Mich., for Benjamin Stout.
    Paul Mitchell, Wyoming, Mich., for Daniel Chapin.
    Dennis C. Kolenda, Grand Rapids, Mich., for Thomas Van Blooys.
    Joseph Deeb, Grand Rapids, Mich., for Harold Beveridge.
    Joseph Jerkins, Kalamazoo, Mich., for Robert Woodley.
    Larry Willey, Grand Rapids, Mich., for Anthony Gates.
    John Johnson, Grand Rapids, Mich., for Michael Coleman.
    Larry Willey, Grand Rapids, Mich., for John VanderWeele.
    Charles Rominger, Grand Rapids, Mich., for Frank Hamilton.
    Patrick Bowler, Grand Rapids, Mich., for Daniel Parks.
    Leon Buer, Grand Rapids, Mich., for Roger Ferringa.
    Joel Whetstone, Grand Rapids, Mich., for James Cole.
    Michael Knapp, Grand Rapids, Mich., for Thomas Blackburn.
    Thomas Milanowski, Grand Rapids, Mich., for Ronald Fradgley.
    Leroy Kramer, III, Grand Rapids, Mich., for Thomas Adama.
    Dyanna L. Meekhof, Grand Rapids, Mich., for Frank Stedman.
    Anthony Valentine, Grand Rapids, Mich., for Anthony Francisco.
   OPINION

BENJAMIN F. GIBSON, District Judge.

All defendants herein have joined in a motion to dismiss various counts of the indictment based on the Government’s failure to comply with Title III of the Omnibus Crime Control and Safe Streets Act of 1968, 18 U.S.C. §§ 2510, et seq. Title III prohibits interception and disclosure of wire or oral communications, except where specifically authorized under the requirements of that Title. See § 2511.

Prior to the indictment of twenty-nine defendants in the instant case, the Government sought and obtained authorization to install a wiretap at the residence of James Carlberg and Carleen Gunneson. The application, submitted to U.S. District Judge Richard A. Enslen, sought authorization to gather evidence of violations of 21 U.S.C. §§ 841(a)(1), 843(b), 846, 848. An extensive affidavit by the Special Drug Enforcement Agent set forth facts providing probable cause to believe that those specific crimes were being committed, had been committed, or were about to be committed. Judge Enslen issued the authorizing order on February 22, 1982, and subsequently authorized a thirty-day extension on March 23, 1982. Both the original and the extension order authorized the wiretap based on Judge Enslen’s stated finding of probable cause as to the above stated Title 21 offenses.

This dispute arises because the Government used evidence gathered from the wiretap before the grand jury to obtain indictments for offenses other than those specified in the original or extension orders. The defendants contend that such use, without prior judicial approval, violates § 2517(5). The Government does not contend that it did in fact comply with § 2517(5). Instead the Government asserts that under the facts and circumstances of this case, it was not required to comply. The Court finds that the facts and circumstances of this case do not support the Government’s contention. Because the case law requires dismissal of the charges obtained through use of wiretap evidence contrary to § 2517(5), the defendants’ motion to dismiss the non-Title 21 counts in the indictment is granted.

Among other things, Title III requires that the applicant include “details as to the particular offense that has been, is being, or is about to be committed.” § 2518(b). There is no dispute that this requirement was met in this case with respect to the offenses named in the application, the Title 21 offenses. Here, however, the Government used evidence gathered under that application to indict on other crimes. In this situation, § 2517(5) requires that subsequent judicial approval be sought and obtained prior to the presentation of such evidence to a grand jury for the purpose of indictment on those other crimes.

Section 2517 provides that wiretap evidence may be used for three limited purposes. Such evidence may be used before a grand jury under § 2517(3). Section 2517(5) addresses use of wiretap evidence relating to offenses other than those specified in the order of authorization and provides:

When an investigative or law enforcement officer, while engaged in intercepting wire or oral communications in the manner authorized herein, intercepts wire or oral communications relating to offenses other than those specified in the order of authorization or approval, the contents thereof, and evidence derived therefrom, may be disclosed or used as provided in subsections (1) and (2) of this section. Such contents and any evidence derived therefrom may be used under subsection (3) of this section when authorized or approved by a judge of competent jurisdiction where such judge finds on subsequent application that the contents were otherwise intercepted in accordance with the provisions of this chapter. Such application shall be made as soon as practicable.

The purpose of subsequent judicial approval is to prevent evasion of the restrictions placed on original applications, such as a showing of probable cause, enumeration of serious offenses, and a showing of the ineffectiveness of other investigative techniques. U.S. v. Marion, 535 F.2d 697 (2d Cir.1976), citing S.Rep. 1097, 90th Cong., 2d Sess., reprinted in 2 U.S. Code Cong. & Ad.News, pp. 2112, 2189 (1968). Without a judge’s determination of inadvertence, Title III authorizations might degenerate into what Justice Clarke called “the electronic equivalent ... of a general search warrant.” U.S. v. Brodson, 528 F.2d 214, 215 (7th Cir.1975).

The Government argues that it should be excused from compliance with § 2517(5) based on several theories. First, the Government contends that one of the offenses for which it had authorization is a predicate act for one of the offenses for which it did not have authorization. That is, 21 U.S.C. § 841(a)(1) (possession with intent to distribute controlled substances) is a predicate act for 18 U.S.C. § 1962 (RICO), and there was no need for an independent showing of probable cause for RICO. The Brodson Court specifically rejected this very argument. That Court ruled that, despite the relevance of the conversations to the authorized offenses, the propriety of their interception should be tested by submitting them to a judge under § 2517(5). 528 F.2d at 215. Here, as in Brodson, the two offenses are separate and distinct crimes, although they involve some common elements. Therefore, under Brodson, a separate showing is required under § 2517(5).

The Government also makes this argument with respect to the authorized offense of 21 U.S.C. § 848 (CCE) and RICO. These two offenses clearly seek to proscribe two different types of criminal conduct. See U.S. v. Sinito, 723 F.2d 1250, 1261-1 (6th Cir.1983) (RICO encompasses any racketeering act set out in 18 U.S.C. § 1961; CCE is directed to leaders or “kingpins” of narcotics organizations); see also U.S. v. Phillips, 664 F.2d 971 (5th Cir.1981). The lack of similarity of the elements of these crimes make it impossible for this Court to say that Judge Enslen would have found probable cause to authorize a wiretap for RICO.

The Court is particularly concerned with the serious nature of a RICO offense. This concern causes this Court to reject the Government’s invitation to substitute any finding of probable cause for that of Judge Enslen, the authorizing judge. Further, this Court is of the opinion that the serious nature of a RICO violation requires that an authorization application should be express, and clearly inform the judge of what it is he is being asked to authorize.

The cases cited by the Government do not support its position. The Government cites U.S. v. Lofton, 518 F.Supp. 839, 843 (S.D.N.Y.1981) for the proposition that there is no need for a separate finding of probable cause to intercept evidence of RICO if prior authorization was obtained for a CCE violation. However, the Court in Lofton found that the authorizing judge implicitly approved the gathering of evidence of other crimes, an issue this Court will address below.

In U.S. v. Smith, 726 F.2d 852 (1st Cir.1984) (en banc), also relied upon by the Government, authorization was obtained to intercept communications pertaining to a continuing conspiracy to violate state drug laws. The Smith court held that no subsequent judicial authorization was required in order to use those conversations to obtain an indictment for a conspiracy to violate 21 U.S.C. § 841. The Court stated, “We reach this conclusion because the state offenses specified in the wiretap authorization contain the same essential elements, described in the same language, as the federal offenses for which the indictments were returned.” 726 F.2d at 866 (emphasis supplied). As is stated above, the offenses here, CCE and RICO, do not contain the same essential elements.

The Government’s second theory is that Judge Enslen implicitly authorized the interception of conversations relating to Title 18 offenses. The Government argues that this theory applies to the RICO counts, and to the counts charging Interstate Travel in Aid of Racketeering, 18 U.S.C. § 1952. Under this theory, if the “other crimes” evidence is set forth in subsequent affidavits (such as progress reports) such that those affidavits “clearly evidence” a non-authorized violation, then there is no need to obtain subsequent judicial approval under § 2517(5). U.S. v. Masciarelli, 558 F.2d 1064 (2d Cir.1977). There is a presumption that the authorizing judge had scrutinized the supporting papers, and determined that the statute’s requirements had been satisfied. Masciarelli, 558 F.2d at 1068, citing U.S. v. Tortorello, 480 F.2d 764, 781-83 (2d Cir.1973).

It is undisputed that when the Government applied for the wiretap authorization it was not seeking authorization for RICO or other Title 18 offenses. The Assistant U.S. Attorney concedes this. The same is true for the authorization for extension of the wiretap. In fact, the Assistant U.S. Attorney stated that RICO was not considered as a potential charge until some time after the wiretap was removed and at the suggestion of someone from the Drug Task Force. If the Government did not recognize a RICO violation, and was not seeking approval to wiretap for one, can it be argued that Judge Enslen approved the wiretapping for these offenses? On the contrary, this Court is convinced that the RICO and other Title 18 offenses were an afterthought. (The Government concedes this.) Not only must Judge Enslen be aware that the Government was wiretapping for Title 18 violations, he must find that probable cause existed to wiretap for these violations.

Here, when the Government finally decided that RICO offenses occurred, it still did not comply with the statute. The proper course was to seek Court approval at that time. It failed to do so. If the Government takes the position that the reports and other evidence support the Title 18 offenses, it need only to have so advised Judge Enslen, as was done in one instance. The progress report dated April 2, 1982 states that the Government intercepted a communication concerning “a crime not set forth in the court order.” The crime referred to by the Government is a “grand larceny.” This indicates to the Court that the Government was not unaware of duties under the statute. This further indicates that the Government did not seek subsequent authorization for RICO offenses because it simply was not investigating these offenses. It now seeks retroactive post hoc justification and approval for its conduct.

In the instant case, it is assumed that Judge Enslen scrutinized the supporting papers. However, in this case, he would not have been put on notice that other crimes were being committed. In each of the five-day progress reports, Judge Enslen is informed as to the number of calls intercepted which “related to the object of the intercept order.” The Court notes that the intercept order specifically indicates the offenses for which probable cause existed. With the one exception noted above, each progress report then goes on to say, “No intercepted communications concerned crimes other than those set forth in the Court’s order.” By arguing the implicit approval theory on these facts, it appears the Government now asks the Court to imply that Judge Enslen was aware of facts which he was told did not exist. On this record, the Court cannot imply that Judge Enslen found probable cause to authorize interception of evidence of other crimes.

Finally, the Government contends that two counts charging violations of 18 U.S.C. § 1952 (interstate travel or use of the mails in aid of racketeering) and two counts charging violations of 18 U.S.C. § 894 (collection of credit by extortionate means) should not be- dismissed because they occurred prior to the wiretap. The relevant inquiry, though, is whether the evidence of these offenses was derived from the wiretap and thereafter presented to the grand jury. Despite two hearings on this motion, the Government has not presented the Court with any factual basis from which to conclude that this was not the case. Standing alone, the statement by the Government that these crimes occurred before the wiretap was installed is not enough. Therefore, the Court finds that subsequent approval was required with respect to these counts as well.

Based on the discussion above and the authority cited, this Court is of the opinion that the Government’s failure to obtain judicial approval, and the attendant failure to secure the judicial safeguards required prior to approval of any initial wiretap, is not excused. Title III was passed by Congress in an effort to comply with the constitutional requirements set forth in Berger v. New York, 388 U.S. 41, 87 S.Ct. 1873, 18 L.Ed.2d 1040 (1967) (holding that New York’s wiretap statute lacked sufficient Fourth Amendment safeguards). Congress intended that these safeguards be adhered to in order to “ensure careful judicial scrutiny throughout.” U.S. v. Marion, 355 F.2d 697, 698 (2d Cir.1976).

In Brodson, supra, the Court cited the “stringent conditions” imposed on the authorization to intercept wire and oral communications, and the provision that all such interceptions are outlawed except where authorized by Title III, as supporting the remedy of dismissal where evidence is disclosed to a grand jury in violation of § 2517(5) to obtain an indictment on offenses other than those for which approval was obtained. 528 F.2d at 216-217 (citing Gelbard v. U.S., 408 U.S. 41, 92 S.Ct. 2357, 33 L.Ed.2d 179 (1972). See also U.S. v. Marion, 535 F.2d at 704. Therefore, the offenses for which § 2517(5) authorization was not obtained, i.e. all the Title 18 offenses, must be dismissed.

As a result of the dismissal of the Title 18 offenses herein, four defendants have no further charges pending against them. They are: John VanderWeele, Roger Feringa, George Knighton and Robert Woodley. Therefore, these four defendants are dismissed from this case.

As a further result, the convictions against James Carlberg on counts 18 and 54 must be set aside, these counts being subject to the Court’s ruling herein.

      . This Court denied a motion by defendant James Carlberg to dismiss counts for which subsequent § 2517(5) approval was not obtained in an opinion issued July 10, 1984. This Court cited Lofton and found, based on oral representations by the Government, that Judge Enslen did in fact implicitly approve evidence gathering of other crimes. However, subsequent briefing and this Court’s inspection of the progress reports themselves pursuade the Court that Judge Enslen did not implicitly authorize wiretapping of other crimes. See Discussion of implicit approval, infra.

        . At the December 11, 1984 hearing on this issue, the following colloquy took place:
      THE COURT: At what point did you specifically determine that RICO was involved during the course of your investigation in the sense that you were looking at a particular RICO violation? Was there any point in time during this investigation that you determined that from this entire transaction we can make out allegations of RICO?
      MRS. KEMPKER-CLOYD: I—
      THE COURT: Specifically as opposed to generally.
      MRS. KEMPKER-CLOYD: I don’t remember. To give you the date, I would say that when there was a RICO and I saw that those elements were met beyond a reasonable doubt was when the task force attorney came here and looked it over and pointed it out. I don’t know when that was.
      THE COURT: That was after the wire-tap activity?
      MRS. KEMPKER-CLOYD: Yes.
      THE COURT: What I’m asking is more specifically whether or not at the time that you made application for the extension, whether you had zeroed in on the RICO.
      MRS. KEMPKER-CLOYD: I did not put it in the — I didn’t cite to it at that point, no.

        See partial transcript of hearing held December 11, 1984, pp. 6-7.

      . On page two of this four page progress report, the Government states:
      One intercepted communication concerned a crime not set forth in the court order. On March 27, 1982, call identified as # 26 in the logs, takes place between Verne Bell and James Carlberg. In this call they discuss a stolen tow bar and the sandblasting and painting of it. James Carlberg refers to it as grand larceny and costing |500 if you had to buy one. They make plans to store the tow bar in Carlberg’s barn so that Carlberg can use it too.

      . Judge Kaufman made the following instructive remarks in the course of rejecting the very argument made in the instant case:
      The record does not disclose that any application was ever made for such approval in connection with the Delmonico order, or even for its renewal or extension. We cannot agree with our dissenting brother that approval of the Marion-Denero call, intercepted by the Delmonico tap, was provided by the fact that the state court judge was informed of that call when he renewed the separate wiretap for Jimmy’s Lounge. It would stretch the rationale of Tortorello beyond all meaning to hold that implicit authorization may be furnished in this fashion. In Tortorello the orders, “by referring to the affidavits [supporting renewal and amendment of the original order] for a description of offenses and communications to be intercepted, were amended as the contents of the affidavits changed." 480 F.2d at 783. The dissent today seemingly suggests that the Delmonico order was amended by reference to affidavits submitted in support of applications to renew and extend the Lounge order, a conclusion we find logically untenable and not in compliance with Title III. The state court judge was not called upon at any time to pass upon the validity of the interception here challenged. To say that the Delmonico order “became merged into" the Lounge order simply because each was directed generally at similar criminal conduct would extend the logic of Tortorello past its breaking point.

        Marion, supra 535 F.2d at 704 n. 14. In the instant case, no reference to the description of other offenses subsequently charged is made in any of the documents supporting the wiretap. Here, as in Marion, the Government’s claim is that the order of authorization is amended simply by providing the authorizing judge with the contents of phone calls subsequently determined to contain other crime evidence.


author: DONALD J. PORTER, District Judge.

text:
    The CITY OF ABERDEEN, a municipal corporation of the State of South Dakota v. CHICAGO AND NORTH WESTERN TRANSPORTATION COMPANY, a Corporation; Kenneth D. Vaughan; Susan K. Vaughan Kamla; Philip L. Vaughan; Kenneth W. Vaughan; June L. Johnson; and all persons unknown who have or claim to have any estate or interest or lien or encumbrance upon the premises or any part thereof, described in the complaint v. CHICAGO AND NORTH WESTERN TRANSPORTATION COMPANY, a corp. The CITY OF ABERDEEN, A Municipal Corporation of the State of South Dakota, Plaintiff v. CHICAGO AND NORTH WESTERN TRANSPORTATION COMPANY, A Corporation; Kenneth D. Vaughan; Susan K. Vaughan Kamla; Philip L. Vaughan; Kenneth W. Vaughan; June L. Johnson; and All Persons Unknown Who have or Claim to Have Any Estate or Interest or Lien or Encumbrance Upon the Premises, or Any Part Thereof, Described in the Complaint, Defendants. Kenneth D. VAUGHAN; Susan K. Vaughan Kamla; Philip L. Vaughan; Kenneth W. Vaughan and June L. Johnson, Defendants and Third Party Plaintiffs, v. CHICAGO AND NORTH WESTERN TRANSPORTATION COMPANY, A Corporation, Third Party Defendant.
    Civ. No. 82-1057.
    United States District Court, D. South Dakota, N.D.
    Dec. 21, 1984.

      Terence A. O’Keefe, Siegel, Barnett & Schütz, Aberdeen, S.D., for plaintiff.
    Stuart L. Tiede, Arlo D. Sommervold, Woods, Fuller, Shultz & Smith, Sioux Falls, S.D., for defendant and third party defendant Chicago and Northwestern Transp. Co.
    John S. Lovald, Duncan, Olinger, Srstka, Lovald & Robbennolt, Pierre, S.D., for defendants and third party plaintiffs.
   MEMORANDUM OPINION

DONALD J. PORTER, District Judge.

This case, essentially a quiet title action, was originally brought in the Fifth Judicial Circuit Court of South Dakota against Chicago and Northwestern Transportation Company (CNW) and several individuals (the Vaughans). Plaintiff City of Aberdeen claims title to a strip of land within the municipal boundaries of Aberdeen (for purposes of this opinion, “Tract A”) pursuant to 43 U.S.C. § 912. The portion of Section 912 pertinent to this case provides that whenever a railroad company abandons land within a municipality, title to the abandoned property vests in the municipality.

The Vaughans removed the case to federal district court on the ground that the action arose under federal law, see 28 U.S.C. § 1441(b), and in their answer, plead a crossclaim against CNW. Shortly after answering, the Vaughans also filed a third-party complaint naming CNW as defendant. The Vaughan defendants are all successors in title to a common purchaser of land from CNW: Aberdeen Steel Buildings, a South Dakota corporation. The land sold by CNW to Aberdeen Steel Buildings (for purposes of this opinion, “Outlot B”) is a portion of the land at issue in this lawsuit, and lies within the original boundaries of Tract A at the southern edge of the Aberdeen city limits. In their crossclaim and third-party complaint, the Vaughans alleged that if Aberdeen’s contentions were true, then CNW fraudulently represented itself to be the unqualified owner of the parcel it sold to Aberdeen Steel Buildings.

Following service of the crossclaim and third-party complaint, the parties began a lengthy series of settlement negotiations. Unable to settle the dispute, the parties came back to court and stipulated to a bifurcation of the issues. Plaintiff’s quiet title action was to be tried first inasmuch as the trial of the third-party plaintiffs’ fraud claim depended upon the outcome of the main action. A stipulation of facts was agreed to, briefs were filed, and on October 23, 1984 the court heard oral arguments. For the following reasons, this court now holds that Section 912 does not vest title to any of the disputed realty in plaintiff.

BACKGROUND

The setting of this case goes back to 1875 with Congress’ enactment of what is popularly known as the “General Railroad Right-of-Way Act”, Pub.L. No. 94-579, 90 Stat. 2793 (codified at 43 U.S.C. §§ 934-939), granting to the railroads a right-of-way through public lands of the United States. Pursuant to the Act, in 1880, Dakota Central Railroad acquired a 200 foot wide right-of-way which traversed the land in dispute in this case. CNW is a successor in interest of Dakota Central to that right-of-way.

In 1890, pursuant to a timber culture certificate, the United States granted to Andrew Melgaard the “South East quarter of section twenty four in township . one hundred and twenty three North of Range sixty four West of the Fifth Principal Meridian in South Dakota containing one hundred and sixty acres.” This was land traversed by Dakota Central’s right-of-way. In 1909, by warranty deed, Andrew Melgaard and his wife conveyed a portion of this property, several acres abutting the east side of the railroad right-of-way, to Aberdeen for use as a park. The park has continued in existence and is presently known as Melgaard Park.

In 1965, CNW quit claimed Outlot B, a parcel of land between Melgaard Park and the railroad tracks, to Aberdeen Steel Buildings. Aberdeen Steel Buildings subsequently conveyed Outlot B to its president, defendant Kenneth W. Vaughan, by warranty deed. Vaughan, in turn, conveyed by warranty deed an undivided one-half interest in Outlot B to A.C. Nasvik. Upon Nasvik’s death in 1975, his heir, defendant June L. Johnson inherited his interest in Outlot B. By quit claim deed, in 1978 Vaughan conveyed his remaining one-half interest in Outlot B to his children, defendants Kenneth D. Vaughan, Susan K. Vaughan Kamla and Philip L. Vaughan as tenants in common.

In August, 1982, the Interstate Commerce Commission granted CNW authority to abandon 14.7 miles of railroad line in Brown County, South Dakota. The abandoned line included Tract A and Outlot B. Plaintiff thereupon initiated its quiet title action in state court.

DECISION

I.

Plaintiff argues that under 43 U.S.C. § 912 it is entitled to Tract A and Outlot B. Section 912 states in relevant part that:

[w]henever public lands of the United States ... granted to any railroad company for use as a right-of-way for its railroad ... and use and occupancy of said lands for such purposes has ceased ... by forfeiture or abandonment ... then ... all right, title, interest and estate of the United States in said lands ... within a municipality ... shall vest in such municipality____

Defendants assert that Section 912 is inapplicable to this case because when the railroad abandoned its line, there was no “right, title, interest or estate of the United States” left to vest in the municipality. On the basis of the reasoning found in Great Northern Railway Company v. United States, 315 U.S. 262, 62 S.Ct. 529, 86 L.Ed. 836 (1942), this court agrees with the defendants. However, before discussing Great Northern and why this court believes it to be helpful in resolving the issues presented here, it seems necessary to briefly examine the federal statutes involved in this case: the General Railroad Right-of-Way Act of 1875 (codified at 43 U.S.C. §§ 934-939) and the Railroad Right-of-Way Abandonment Act (codified at 43 U.S.C. § 912) enacted in 1922.

The Federal Statutes

By 1871, Congress’ policy of subsidizing railroad construction with lavish land grants in order to encourage rapid railroad building and construction of a much-desired transcontinental railroad had met with considerable public disfavor. Great Northern, supra, at 273, 62 S.Ct. at 533, 86 L.Ed. at 842. Prompted by this, yet still desiring to encourage development of the West, Congress discontinued these land giveaways to railroad companies and began passing special acts granting only rights-of-way through the public lands to certain railroads. It was the burdensome task of legislating a special act for each new rail line that eventually led to the passage of the General Railroad Right-of-Way Act of 1875. Id. at 275, 62 S.Ct. at 534, 86 L.Ed. at 842.

Apparently, in the years following the Act’s passage, there was some conflict regarding the type of property interest the Act gave to the railroad. Id. at 275-76, 62 S.Ct. at 534-35, 86 L.Ed. 842-43. This conflict ended with the Supreme Court’s decision in Rio Grande Western Railway Company v. Stringham, 239 U.S. 44, 36 S.Ct. 5, 60 L.Ed. 136 (1915), in which the Court declared:

[t]he right of way granted by this and similar acts is neither a mere easement, nor a fee simple absolute, but a limited fee, made on an implied condition of reverter in the event that the company ceases to use or retain the land for the purposes for which it is granted, and carries with it the incidents and remedies usually attending the fee.

Id. at 47, 36 S.Ct. at 6, 60 L.Ed. at 138. In previous decisions construing other acts, the Court had labeled the right-of-way held by the various railroads a “limited fee.” See, e.g., Northern Pacific Railway Company v. Townsend, 190 U.S. 267, 271, 23 S.Ct. 671, 672, 47 L.Ed. 1044, 1047 (1903) (1864 Act of Congress granted the railroad a “limited fee, made on an implied condition of reverter in the event that the company ceased to use or retain the land for the purpose for which it was granted.”); New Mexico v. United States Trust Company, 172 U.S. 171, 183, 19 S.Ct. 128, 133, 43 L.Ed. 407, 412 (1898) (1866 Act of Congress granted railroad an interest in the land that was “surely more than an ordinary easement ... one having the attributes of the fee....”). Thus, according to the Supreme Court, the interest acquired by the railroad under the 1875 Act was the same as that acquired by railroads under earlier acts: a limited fee.

The legislative history of Section 912 reveals that it was intended to resolve the problem of what to do with the narrow strips of land used as railroad rights-of-way once they were abandoned by the railroad company. Consistent with the Supreme Court decisions of the same era holding that the rights-of-way were limited fees, Congress believed the abandoned rights-of-way reverted to the United States. S.Rep. No. 388, 67th Cong., 2d Sess. 2 (1922). Viewing the narrow strips as of little or no use or value to the Government, Congress passed Section 912 providing that the abandoned right-of-way vested in the person or entity owning the land traversed by the railroad line, except when the right-of-way was within a municipality, in which case it then vested in the municipality.

Great Northern Railway Company v. United States

In 1942, the Supreme Court had opportunity to reexamine the limited fee concept. In Great Northern, the United States sought to enjoin a railroad company from drilling for oil and minerals underlying a right-of-way granted to the railroad pursuant to the 1875 Act. The Government maintained that the act conveyed only an easement, and that the railroad was not entitled to the subsurface oil and minerals. Great Northern, supra, 315 U.S. at 270-72, 62 S.Ct. at 532-33, 86 L.Ed. at 840. The Supreme Court agreed. According to the Court, there was a definite policy change after 1871 with regard to railroad rights-of-way. This policy change was in favor of granting the railroads only easements, including, of course, rights-of-way granted under the 1875 Act. Though shrouded for a time by the Supreme Court’s Stringham decision, the policy change was evident to the Great Northern Court “from the language of the Act, its legislative history, its early administrative interpretation and the construction placed upon it by Congress in subsequent enactments.” Id. at 277, 62 S.Ct. at 535, 86 L.Ed. at 844. The String-ham decision was simply dismissed as not controlling because the change in Congressional policy after 1871 was not brought to the Court’s attention.'

II.

In light of Great Northern, it is clear that the right-of-way granted under the 1875 Act to Dakota Central Railroad, CNW’s precedessor in interest, in 1880 was only an easement. This court believes it equally clear that Great Northern renders Section 912 inapplicable to this case.

Section 912 was enacted when Congress and the courts erroneously believed a right-of-way was a limited fee with the United States holding a reversionary interest. The purpose of legislation was to address those situations where land embraced in the right-of-way reverted to the United States notwithstanding a patent of the underlying land to some other party. Congress made no distinction between pre and post-1871 grants.

Defendants argue and this court agrees, however, that after Great Northern, Section 912 was no longer applicable to post-1871 right-of-way grants. As a mere easement, once a railroad ceases using for railroad purposes a right-of-way granted after 1871, it disappears and the underlying landowner has the use of property he already owns. As of the date the United States patents the underlying land, it has no right, title, interest or estate to be transferred under Section 912. The patentee acquires fee title to the entire tract subject to the railroad’s easement. This analysis finds support in the Tenth Circuit Court of Appeals’ Wyoming v. Udall, 379 F.2d 635 (10th Cir.1967) decision. Confronted with a controversy over oil deposits underlying a pre-1871 right-of-way grant traversing Wyoming school lands, the court stated: “We realize that in Great Northern, the court completely disregarded the Abandoned Railroad Right-Of-Way Act and that after Great Northern, such act applied only to pre-1871 grants.” Id. at 639.

Applying this analysis to the facts of this case, when the United States granted Dakota Central a right-of-way, it granted only an easement. In 1890, when the United States patented the underlying land to Andrew Melgaard, it conveyed to him all of the land subject only to the railroad’s right to use and possess its right-of-way. The United States did not retain a reversionary interest in the land after its conveyance to Melgaard. Consequently, when CNW abandoned, Aberdeen did not acquire any interest in Tract A or Outlot B pursuant to Section 912. Because this court holds Section 912 does not entitle plaintiff to the disputed property, it is unnecessary to discuss defendants’ res judicata defense.

III.

In its trial brief, plaintiff contends that in the event this court determines that it should not prevail under 43 U.S.C. § 912, plaintiff is still entitled to Outlot B and that part of Tract A adjacent to Outlot B because Aberdeen is an abutting property owner. The property abutting the east boundary of Outlot B is Melgaard Park conveyed to the city in 1909 by Andrew Melgaard.

Defendants strenuously object to this court deciding the merits of plaintiffs abutting landowner claim. They argue first that plaintiff failed to plead this claim in its complaint. Accordingly, their answers, the factual stipulation they agreed to, and all other documents submitted to this court were submitted in the belief that this case was being tried exclusively on the Section 912 claim. Defendants argue further that the alternative claim raises troubling questions with respect to parties not joined in this proceeding who may have title or interest in the disputed property. Plaintiff’s response to these objections is that a broad reading of its complaint clearly suffices to place the abutting property issue before this court. As a precaution, however, plaintiff moves this court for leave to amend its complaint to include the alternative claim.

Plaintiff’s abutting landowner claim is primarily a question of state law. As such, jurisdiction is pendent and therefore discretionary on the part of this court. The justification for exercising this court’s pendent jurisdiction “lies in considerations of judicial economy, convenience and fairness to litigants; if these are not present a federal court should hesitate to exercise jurisdiction....” United Mine Workers v. Gibbs, 383 U.S. 715, 726, 86 S.Ct. 1130, 1139, 16 L.Ed.2d 218, 228 (1966).

While this court therefore has the power to decide plaintiff’s pendent claim, it does not believe under the circumstances of this case that it should exercise this power. Plaintiff urges this court to decide its pendent claim on the basis of judicial economy and convenience. This court believes that even if deciding this claim would promote judicial economy and convenience, the substantial likelihood of prejudice to defendants brought about by deciding this claim on an incomplete record outweighs these other considerations.

Mindful that “[a]ll pleadings shall be so construed as to do substantial justice”, Fed.R.Civ.P. 8(f), a fair reading of plaintiff’s complaint indicates a claim to Tract A and Outlot B based exclusively on 43 U.S.C. § 912. Relying on the allegations made in the complaint, the defendants in good faith answered and entered into the limited stipulation of facts. Had the abutting landowner issue properly been alleged, it is quite likely that the record would include the history and chain of title to the 135 acres of land granted to Andrew Melgaard by timber certificate in 1890 but not conveyed to Aberdeen. Certainly, the record would include the history and chain of title to land bordering the western edge of Tract A parallel with Outlot B and Melgaard Park. From the record presently available, it is entirely possible that simultaneous to his conveyance of the twenty-five acres to Aberdeen, Melgaard conveyed the railroad right-of-way as part of the remaining 135 acres to a third person. It is equally possible that when all the facts are developed, it may be concluded that Melgaard intended to retain the land embracing the right-of-way. This is not intended to suggest such evidence actually exists, rather it is intended to show that such possibilities have not been negated by the present record.

In sum, the record is inadequate to decide plaintiff’s alternate claim. Such claim should be decided only after the defendants, now aware of the abutting landowner issue, have had ample opportunity to conduct such discovery and to obtain such additional evidence as may be available.

CONCLUSION

This court has decided the federal question: 43 U.S.C. § 912 is inapplicable to the facts of this case. Consequently, Aberdeen has no claim to Tract A and Outlot B premised on the federal statute. Regarding plaintiff’s abutting landowner claim, this court declines to exercise its pendent jurisdiction. To hear this claim is substantially likely to prejudice defendants who have proceeded in this litigation holding a good faith belief that it would be confined to the federal claim.

The foregoing represents the findings of fact and conclusions of this court.

      . Long before CNW quitclaimed Outlot B, in 1916, CNW commenced an action in United States District Court for the District of South Dakota to have its rights in the right-of-way adjudicated superior to numerous defendants who were encroaching upon it. Among the named defendants was the City of Aberdeen which did not make an appearance in that action. In 1920, the district court entered a decree to the effect that the "defendants have not, nor has any of them, any estate, right, title or interest whatever in or to” the railroad’s right-of-way. The district court further concluded that “the title of the plaintiff thereto is good and valid” and permanently enjoined any of the defendants, their agents or successors,” from asserting any claim whatever in or to said lands and premises adverse” to CNW. Defendants now assert that the 1920 decree has a res judicata effect on the present action. Because this court holds 43 U.S.C. § 912 inapplicable to the facts of this case, it is unnecessary to consider this defense.

      . See fn. 1.


author: McCURN, District Judge.

text:
    UNITED STATES of America, v. RUBBISH REMOVAL, INC.; Onondaga Environmental Systems, Inc.; Leaseway Haulers, Inc.; A & T Haulers, Inc.; Ace Sanitary Haulers, Inc.; Raite Rubbish Removal Corp.; Feher Rubbish Removal, Inc.; L. Michael Blumin; Joseph Tripoli, Senior; Joseph Tripoli, Junior; Francis Schrader; Thomas O’Connor, Senior; and Winfred Tousley, Defendants. UNITED STATES of America, v. John MAGGIO, Defendant.
    Nos. 83-CR-128, 84-CR-72.
    United States District Court, N.D. New York.
    Dec. 24, 1984.
    As Amended Feb. 11, 1985.

      U.S. Dept, of Justice Antitrust Division, New York City, for U.S.; Charles V. Reilly,Martha E. Gifford, Eric G. Waxman, III, New York City, of counsel.
    Bond, Schoeneck & King, Syracuse, N.Y., for defendant Rubbish Removal, Inc.; John J. Dee, Syracuse, N.Y., of counsel.
    Hiscock, Lee, Rogers, Henley & Barclay, Syracuse, N.Y., for defendant Onondaga Environmental Systems & Tripoli, Sr.; Richard K. Hughes, Syracuse, N.Y., of counsel.
    Thompson, Hiñe & Flory, Cleveland, Ohio, for defendant, Leaseway Haulers; Leslie Jacobs, Cleveland, Ohio, of counsel.
    Eric Dadd, Attica, N.Y., for A & T Haulers.
    Berger, Steingut, Weinwer, Fox & Stern, New York City, for defendant, Ace Sanitary Haulers; Lawrence I. Fox, New York City, of counsel.
    Rivizzigno Aloi & DiLauro, Syracuse, N.Y., for defendants Raite Rubbish Removal & Feher Rubbish Removal; Anthony Rivizzigno, Ernest A. DelDuchetto, Syracuse, N.Y., of counsel.
    Nottingham, Engel, Gordon, Kerr & Watt, Syracuse, N.Y., for defendant, L. Michael Blumin; Richard L. Engel, Syracuse, N.Y., of counsel.
    DeFrancisco, Menkin & Brunetti, Syracuse, N.Y., for defendant, Joseph Tripoli, Jr.; Edward Menkin, Syracuse, N.Y., of counsel.
    Joseph Fahey, Syracuse, N.Y., for defendant, Francis Schrader.
    Emil Rossi, Syracuse, N.Y., for defendant, Thomas O’Connor, Sr.
    McGraw & Wegerski, Syracuse, N.Y., for defendant Winfred Tousley; James R. McGraw, Syracuse, N.Y., of counsel.
    Menter, Rudin & Trivelpiece, Syracuse, N.Y., for defendant Maggio; Gerald J. Mathews, Syracuse, N.Y., of counsel.
   MEMORANDUM-DECISION AND ORDER

McCURN, District Judge.

This is a criminal antitrust action in which the defendants are charged with conspiracy to allocate customers and rig bids and price quotations in violation of section 1 of the Sherman Act, 15 U.S.C. § 1. Presently before the court is a motion by the defendants to dismiss the indictment for lack of subject matter jurisdiction. Defendants contend that subject matter jurisdiction is lacking because the allegations contained in the indictment do not satisfy the interstate commerce requirement of the Sherman Act. The government contends that the allegations are more than sufficient to demonstrate an interstate commerce nexus thereby satisfying the Sherman Act’s interstate commerce requirement and establishing subject matter jurisdiction. For the reasons set forth below the court finds that the indictment sufficiently alleges an interstate commerce nexus and therefore the defendants’ motion to dismiss the indictment must be denied.

BACKGROUND

The defendants are engaged in the containerized refuse removal business in Onondaga County, New York. On December 13, 1983 a federal grand jury returned a one count indictment charging them with “en-gag[ing] in a continuing combination and conspiracy in unreasonable restraint of ... interstate and foreign trade and commerce in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1.” Indictment ¶ 11. The indictment charges that the defendants conspired to allocate and divide customers and rig bids and price quotations in the provision of containerized refuse removal services in the Onondaga County area. In February, 1984 the government provided the defendants with a voluntary limited bill of particulars addressed to the interstate commerce issue. Thereafter, the defendants moved to dismiss the indictment contending that the interstate commerce allegations contained in the indictment do not satisfy the jurisdictional requirements of the Sherman Act and consequently, this court is without subject matter jurisdiction to hear the case. The government argues that the interstate commerce allegations in the indictment clearly establish this court’s subject matter jurisdiction.

DISCUSSION

A preliminary matter must be addressed before considering the interstate commerce question. The defendants take the position that this court should consider the bill of particulars in determining the sufficiency of the interstate commerce allegations in the indictment. They argue that the reason the government provided them with a voluntary bill of particulars was to allow the defendants to prepare their motion to dismiss on jurisdictional grounds.

The government contends that the sufficiency of the indictment must be determined by considering the allegations contained therein without reference to the bill of particulars. The government also argues that the letter accompanying the bill of particulars clearly indicates its position that its bill of particulars was not provided as a prerequisite to defendants’ motion to dismiss. The letter, dated February 7, 1984 and addressed to defendants’ lead counsel, states:

In providing this voluntary response, we do not assent to any assertion by defense counsel that our voluntary response to your request for particulars was needed to enable you to file by March 5th any motion addressing the interstate commerce allegations of the indictment. In addition, the government asserts that the record in this matter demonstrates that it has fulfilled, in a timely fashion, all conditions precedent to filing by you on March 5th of any such motion____
The government provides these particulars without limitation upon its adding to or in any other way changing the information prior to or at trial.

Letter from Charles V. Reilly to Leslie W. Jacobs (Feb. 7, 1984) (providing voluntary limited bill of particulars) at 2-3.

The purpose of a bill of particulars is to apprise the defendant of the charges against him so that he can prepare an adequate defense. See e.g. United States v. Konefal, 566 F.Supp. 698, 702 (N.D.N.Y.1983). The defendants here argue that a motion to dismiss the indictment is a defense and therefore, this court should consider the bill of particulars. In support of this position the defendants cite United States v. Carrier, 672 F.2d 300 (2d Cir.) cert. denied, 457 U.S. 1139, 102 S.Ct. 2972, 73 L.Ed.2d 1359 (1982) wherein the Second Circuit stated:

A bill of particulars may not save an invalid indictment; it may provide the defendant with the evidentiary details needed to establish his defense.

United States v. Carrier, 672 F.2d 300, 303 n. 5 (2d Cir.1982). While the cited language seems to suggest that a court may consider a bill of particulars on a motion to dismiss the indictment, this court concludes that it may not consider evidence outside the indictment on a challenge to its sufficiency. See e.g., United States v. Sampson, 371 U.S. 75, 78-79, 83 S.Ct. 173, 174-175, 9 L.Ed.2d 136 (1962); Russell v. United States, 369 U.S. 749, 769-70, 82 S.Ct. 1038, 1050, 8 L.Ed.2d 240 (1962); United States v. Mann, 517 F.2d 259, 266-67 (5th Cir.1975) cert. denied, 423 U.S. 1087, 96 S.Ct. 878, 47 L.Ed.2d 97 (1976); United States v. Murray, 297 F.2d 812, 819 (2d Cir.) cert. denied, 369 U.S. 828, 82 S.Ct. 845, 7 L.Ed.2d 794 (1962); United States v. Greater Syracuse Board of Realtors, Inc., 449 F.Supp. 887, 899 (N.D.N.Y.1978); 1 Wright Federal Practice and Procedure § 194 at 714 (1982).

Even if the rule were otherwise, the facts of this case would lead the court to conclude that consideration of the voluntary limited bill of particulars would be improvident. The government has clearly stated that the bill does not contain all of its evidence on the interstate commerce issue and that the list is subject to additions and modifications. The defendants, therefore, are asking this court to consider a bill which the government admits is incomplete; in other words, the defendants want the court to dismiss the indictment based partially on the incomplete “evidence” contained in the voluntary bill of particulars. The court declines to do so. The indictment either adequately alleges jurisdiction or it does not; that is the only issue currently before this court. The court finds that that determination must be made from looking solely at the face of the indictment.

A motion to dismiss a Sherman Act indictment for lack of jurisdiction assumes the truth of the allegations and must be denied if those allegations, taken as true, state facts which would support a finding of jurisdiction. E.g. United States v. Frankfort Distilleries, Inc., 324 U.S. 293, 296, 65 S.Ct. 661, 663, 89 L.Ed. 951 (1945); United States v. Greater Syracuse Board of Realtors, 449 F.Supp. 887, 894 (N.D.N.Y.1978). The court must draw all the inferences that can be drawn in support of the indictment. United States v. Cadillac Overall Supply Co., 568 F.2d 1078, 1082 (5th Cir.) cert. denied, 437 U.S. 903, 98 S.Ct. 3088, 57 L.Ed.2d 1133 (1978). Additionally, the court must consider the government’s allegations concerning the effects on commerce. United States v. Employing Plasterers Ass’n, 347 U.S. 186, 188, 74 S.Ct. 452, 453, 98 L.Ed. 618 (1954); United States v. Greater Syracuse Board of Realtors, 449 F.Supp. 887, 894 n. 4 (N.D.N.Y.1978).

Section 1 of the Sherman Act provides that “every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal.” 15 U.S.C. § 1. The requirement that the illegal conduct be “in restraint of trade or commerce among the several States” has been held to be both a jurisdictional prerequisite and a substantive element of the offense. See e.g., United States v. Greater Syracuse Board of Realtors, Inc., 449 F.Supp. 887, 890 (N.D.N.Y.1978). Thus, a criminal antitrust indictment must contain allegations that the defendant’s illegal conduct occurred in the flow of or substantially affected interstate commerce. If the indictment fails to satisfy this requirement the court has no jurisdiction to determine the case on the merits.

The interstate commerce requirement may be established in either of two ways. If the defendant’s conduct is within the stream of interstate commerce, it is subject to the Sherman Act. Goldfarb v. Virginia State Bar, 421 U.S. 773, 95 S.Ct. 2004, 44 L.Ed.2d 572 (1975); McLain v. Real Estate Board Inc., 444 U.S. 232, 100 S.Ct. 502, 62 L.Ed.2d 441 (1980). This is known as the “in commerce” test. See e.g., United States v. Greater Syracuse Board of Realtors, Inc., 449 F.Supp. 887, 891 (N.D.N.Y.1978). If the defendant’s conduct “substantially affects” interstate commerce, it is also subject to the Sherman Act, even though that conduct may have taken place wholly within one state. United States v. Employing Plasterers Ass’n of Chicago, 347 U.S. 186, 74 S.Ct. 452, 98 L.Ed. 618 (1954); McLain v. Real Estate Board, 444 U.S. 232, 100 S.Ct. 502, 62 L.Ed.2d 441 (1980); Furlong v. Long Island College Hospital, 710 F.2d 922 (2d Cir.1983). This is known as the “affecting commerce” test. See e.g., United States v. Greater Syracuse Board of Realtors, Inc., 449 F.Supp. 887, 891 (N.D.N.Y.1978).

Only conduct that does not meet the “in commerce” test need be tested by the “affecting commerce” test. Nonetheless, the court finds it appropriate to examine the “affecting commerce” test first. If the indictment contains sufficient allegations to establish Sherman Act jurisdiction based on the “affecting commerce” test, it becomes unnecessary to decide whether the allegations also establish jurisdiction under the more rigorous “in commerce” test.

The allegations in the indictment which relate to interstate commerce are fully set out in the margin. Briefly summarized the allegations charge:

(1) that the defendants purchased substantial quantities of equipment manufactured out-of-state;
(2) that the funds used to purchase some of this equipment was obtained from out-of-state sources;
(3) that the defendants sent bills to customer’s out-of-state offices;
(4) that some of defendants’ customers paid their bills from out-of-state sources;
(5) that some of the defendants’ customers were national corporations; and
(6) that some of the defendants’ customers’ trash was generated from out-of-state sources.

Defendants contend that these allegations are insufficient to establish Sherman Act jurisdiction under the “affecting commerce” test. The Second Circuit recently clarified what the “affecting commerce” test requirements are in this Circuit:

[T]he inquiry must be whether the defendant’s activity that has allegedly been ‘infected’ by unlawful conduct can be shown “ ‘as a matter of practical economics’ to have a not insubstantial effect on the interstate commerce involved.” (citation omitted). The requisite showing will vary with the type of unlawful conduct alleged. With a price-fixing allegation ... the link between the ‘infected’ activities and an ultimate effect on commerce [is] easily posited, since price-fixing is generally recognized as tending to restrict output, and the complaint adequately allege[s] interstate activities ... that would be adversely affected if the local ... activities of the defendants were diminished____
We therefore conclude that a plaintiff must allege sufficient facts concerning the alleged violation and its likely effect on interstate commerce to support an inference that the defendants’ activities infected by illegality either have had or can reasonably be expected to have a not insubstantial effect on commerce.

Furlong, 710 F.2d at 926.

Thus, to withstand a motion to dismiss, the indictment must allege that the defendants’ activities infected by illegality, here allocating customers and bid-rigging, have a not insubstantial effect on defendants’ interstate commerce activities, here the purchase of out-of-state equipment with out-of-state funds, etc. The court must be able to conclude “as a matter of practical economics” that the conspiracy charged in the indictment substantially affected interstate commerce. McLain v. Board of Real Estate, Inc., 444 U.S. 232, 246, 100 S.Ct. 502, 511, 62 L.Ed.2d 441 (1980).

A number of other courts have considered the applicability of the “affecting commerce” test in the local rubbish hauling context, unfortunately with conflicting results. While it is clear that each case challenging Sherman Act jurisdiction must be determined on the basis of its own relevant economic facts, an examination of these cases is instructive.

In J.P. Mascaro & Sons, Inc. v. William J. O’Hara, Inc., 565 F.2d 264, 269 (3rd Cir.1977), the Third Circuit reversed the district court’s granting of summary judgment to the defendants for lack of jurisdiction. There was no question that the defendants were local rubbish collectors, although one of the more than twenty defendants did have a single out-of-state customer. The plaintiffs asserted that the Sherman Act applied notwithstanding the local nature of the defendants’ business because the defendants purchased substantial amounts of equipment from out-of-state and borrowed substantial sums of money from out-of-state institutions. The court also noted that several corporate customers paid defendants from home offices located outside the state. Defendants in the instant case are quick to point out that Mascaro was a case which involved an out-of-state customer. That fact, however, did not weigh heavily in the court’s decision. The Mascaro court’s analysis focused primarily on the same factors that are alleged in the indictment here, namely out-of-state equipment purchases and financing.

In Western Waste Services v. Universal Waste Control, 616 F.2d 1094 (9th Cir.), cert. denied, 449 U.S. 869, 101 S.Ct. 205, 66 L.Ed.2d 88 (1980), the Ninth Circuit held that Sherman Act jurisdiction had been established based primarily on substantial purchases of out-of-state equipment and the financing of those equipment purchases from out-of-state lenders. Defendants argue that Western Waste should not be relied upon because the Ninth Circuit uses a broader test for jurisdiction than the Second Circuit. While it is true that the Ninth Circuit employs a broader test, the Second Circuit noted in Furlong that the Judge in Western Waste relied on factors that would meet the narrower Second Circuit test. Furlong, supra at 925 n. 3.

In United States v. Georgia Waste Systems, Inc., 731 F.2d 1580 (11th Cir.1984), the Eleventh Circuit affirmed the criminal convictions of the defendants rejecting their challenge to jurisdiction under the Sherman Act. The court stated:

The conspirators included companies with out-of-state parents which transferred substantial funds out-of-state, paid for in-state operations with out-of-state checks, billed customers at out-of-state addresses, bought millions of dollars worth of equipment, including waste containers rented to customers, from out-of-state vendors, and collected refuse from out-of-state flights coming into the Atlanta airport. Without determining whether any single item standing alone would be enough, we hold the above evidence sufficient to meet the Sherman Act’s requirement that defendants’ activity be within the flow of interstate commerce or, if wholly local in nature, have a substantial effect on interstate commerce. (citations omitted).

United States v. Georgia Waste Systems, Inc., 731 F.2d at 1583.

In upholding jurisdiction the court considered many of the same factors alleged in the indictment in this case.

A number of other courts have also found jurisdiction over “local” refuse removal activities. See e.g. A Cherney Disposal Co. v. Chicago Suburban Refuse Disposal Ass’n., 484 F.2d 751 (7th Cir.1973) cert. denied, 414 U.S. 1131, 94 S.Ct. 870, 38 L.Ed.2d 755 (1974); Tiger Trash v. Browning-Ferris Industries, 560 F.2d 818 (7th Cir.1977); United States v. Pennsylvania Refuse Removal Ass’n., 242 F.Supp. 794 (E.D.Pa.1965); Central Iowa Refuse Systems, Inc. v. Des Moines Metropolitan Area Solid Waste Agency, 557 F.Supp. 131 (S.D.Iowa 1982).

There are, however, some cases in which the courts have held that the interstate commerce nexus alleged was insufficient to establish Sherman Act jurisdiction. The defendants here rely primarily on three such cases to support their position.

In Heille v. City of St. Paul, 512 F.Supp. 810 (D.Minn.1981), aff'd, 671 F.2d 1134 (8th Cir.1982), the court held that the purchase of equipment from out-of-state sources by local rubbish collectors was insufficient to establish an interstate commerce nexus for Sherman Act purposes. The court stated:

The closest and only reasonable nexus plaintiff can show is the fact that the equipment used to conduct their business was shipped in interstate commerce. However, neither party was in the business of buying and selling such equipment, rather the equipment was simply an incident of their trade, a one time or infrequent purchase.

Heille, 512 F.Supp. 813.

Heille, however, differs from the instant case in several significant aspects. The indictment here alleges far more interstate activities than the complaint in Heille. A crucial distinction is that the refuse services in Heille apparently did not require the use of containers. The defendants here provide a containerized refuse service and the government alleges that those containers are purchased in substantial quantities from out-of-state. This is clearly not a “one time or infrequent purchase” of equipment as in Heille. Id. Additionally, the indictment here also alleges out-of-state financing of equipment purchases, payments from out-of-state, servicing of customers in interstate commerce, and pick-up of trash generated in interstate commerce.

The Ninth Circuit in Sun Valley Disposal Co., 420 F.2d 341 (9th Cir.1969), similarly held that the plaintiff had failed to establish jurisdiction where, although it had obtained containers and other supplies from out-of-state, the effect on interstate commerce of its having gone out of business as a result of defendant’s acts was “incidental.” Id. at 343. That language suggests that the court believed that the purchases in interstate commerce were insubstantial, not that the purchases had no effect on interstate commerce. Moreover, in Western Waste the Ninth Circuit implied that the holding in Sun Valley had been weakened by the Supreme Court’s intervening decision in Hospital Building Co. v. Rex Hospital Trustees, 425 U.S. 738, 96 S.Ct. 1848, 48 L.Ed.2d 388 (1976). Western Waste, 616 F.2d at 1098.

In Universal Services of Indiana v. Central Waste Systems, 1977-1 Trade Cas. ¶ 61,244 (S.D.Ind.1977), the court held that the business of collecting was a local concern and not subject to the Sherman Act. The court stated:

This Court is cognizant that dismissals in antitrust cases are not favored, but believes that the undisputed facts herein demonstrate that the plaintiffs and Indiana Waste Systems are engaged in a distinctly localized business in a distinctly localized market. Although, as with all local business, there is some effect on interstate commerce, such effect is minimal. This Court concludes that neither jurisdictional test [in commerce or affecting commerce] is satisfied. The defendant’s motion is therefore granted, and summary judgment will be entered dismissing Count I for lack of jurisdiction.

Id. at 70,725.

Two of the cases relied on by the court, however, were later reversed on appeal. Additionally, the court’s entire focus was on what percentage of defendant’s business was in interstate commerce. After finding that only 1.7% of defendant’s business was involved in interstate commerce the court concluded that such an amount was de minimis and hence there was no substantial effect on interstate commerce. The court did not consider whether defendant purchased substantial amounts of equipment in interstate commerce or whether substantial out-of-state financing was necessary.

While these cases are instructive, none of them involves a motion to dismiss a criminal indictment. Most of the cited decisions involve motions for summary judgment where the court had all the evidence before it. The court here has no evidence before it. The court must determine whether the indictment, on its face, is so deficient that it must be dismissed without consideration of the evidence. The sufficiency of the indictment is a question of law, not of fact. See e.g. United States v. Mann, 517 F.2d 259, 266 (5th Cir.1975), cert. denied, 423 U.S. 1087, 96 S.Ct. 878, 47 L.Ed.2d 97 (1976). The test is whether the indictment is sufficient to charge an offense. Id.

The allegations contained in the indictment, namely customer allocation and bid-rigging, are per se violations of the Sherman Act. Thus, under the test announced in Furlong the court can properly infer that the demand for the defendants’ services will be diminished, thereby affecting the defendants’ interstate activities, but under the Furlong test, the effect on interstate commerce must also be “not substantial.”

The government has alleged that the defendants’ illegal activities have led to restrained and suppressed competition and to prices being raised and fixed at noncompetitive levels. Indictment If 14. It is also alleged that the defendants are engaged in several interstate activities including the purchase of substantial amounts of out-of-state equipment financed by out-of-state sources. Indictment II7. There are additional allegations concerning out-of-state billing • and- customers with out-of-state trash. Indictment 1111 8, 9. Assuming the truth of these allegations, the court cannot conclude as a matter of law that the effect on interstate commerce is not substantial.

Under a classic economic analysis, the lessened competition and higher prices caused by the defendants’ illegal conduct would lead to a diminished demand for their services, thereby causing a reduction in the volume of containers and other necessary equipment purchased in interstate commerce and a corresponding reduction in the need for out-of-state financing. The government has alleged that the amount of equipment purchased by the defendants from out-of-state sources is “substantial” and the inference could be drawn that the impact on these equipment purchases resulting from the defendants’ illegal conduct is also substantial.

The defendants have made the argument that the above analysis is usually true when one is dealing with elastic goods and services but is totally inapplicable in a trash case because trash hauling is an inelastic service, that is, the trash has to go somewhere regardless of the price of services. The defendants argue that, assuming trash production stays constant, a rise in prices will not diminish the demand and hence will not affect interstate commerce. The government has responded stating that it is only required to demonstrate a shift in the demand for services, and not a diminution, to show an effect on interstate commerce. Cardio-Medical Associates v. Crozier-Chester Medical Center, 721 F.2d 68, 72-74 (3rd Cir.1983). Whatever the merit of this position, it is not necessary to reach it as the court finds the inelasticity argument as applied here unpersuasive. A business at the economic margin may decide to have its garbage picked up less frequently or dispose of its own garbage rather than pay the higher noncompetitive price for garbage pick-up. Such a company may order fewer containers than it would in the absence of noncompetitive prices. Therefore, the court finds that the inelastic nature of trash hauling services alleged here does not automatically preclude an effect on interstate commerce.

The court is constrained to point out that at this preliminary stage the government has been given the benefit of all reasonable inferences with respect to the sufficiency of the present indictment. The preceding discussion makes clear that the court finds the issue of jurisdiction in this case a very close question. There has not yet been any factual development and this court finds that the indictment, when read in a light most favorable to the government, is adequate to survive this motion. The government, however, should be forewarned that although the court finds the present indictment sufficient on its fact to satisfy the previously described Furlong test, I express no view as to whether the government will ultimately be able to prove a proper interstate commerce nexus at trial. The government still must carry its heavy burden of factually establishing an interstate commerce component under the Sherman Act at trial.

Because the court finds that the indictment adequately alleges antitrust jurisdiction, the defendants’ motion to dismiss the indictment is hereby denied.

IT IS SO ORDERED.

      . One of the defendants, John Maggio, was not indicted until June 12, 1984. The Maggio indictment charges the same offense and generally tracks the language of the indictment returned against the other thirteen defendants charged herein. This court has ordered the two indictments tried together. United States v. Rubbish Removal, Inc., No. 83-CR-128 (N.D.N.Y. July 12, 1984). References to the indictment throughout this decision are to the indictment in 83-CR-128.

       Armed with a bill of particulars ... defendant could have made a motion to dismiss the indictment prior to trial.

      . The defendants have argued that the government should have provided them with all the information that it had concerning the interstate commerce issue, but the government was not under a duty to disclose its case to the defendants. Additionally, the information that the government did provide was in response to questions framed by the defendants. The defendants’ suggestion that the government could have provided them with more complete information by asking and answering its own questions is somewhat disingenuous.

      . The relevant paragraphs of the indictment provide:
      6. During the period covered by this indictment, the defendant corporations and co-conspirators were the major providers of containerized refuse removal services in the Onondaga County area. Their customers included, among others, national corporations, federal, state and county facilities, and local school districts. Total revenues from containerized refuse removal services provided by the defendant corporations and co-conspirators in the Onondaga County area from 1978 through the Spring of 1982 were about $29 million.
      7. During the period covered by this indictment, defendant corporations and co-conspirators purchased or otherwise obtained substantial quantities of equipment manufactured outside the State of New York for use in the provision of containerized refuse removal services in the Onondaga County area. This equipment included various types of containers and compactors needed to satisfy the requirements of both new and established customers, and trucks and other equipment used in the storage, collection, hauling, processing and dumping of refuse. During this period, this equipment was in a continuous and uninterrupted flow of interstate and foreign commerce from sources located in Canada and in states other than the State of New York to defendant corporations and co-conspirators and their customers in the Onondaga County area. Funds used to finance the purchase of some of this equipment were obtained from sources located in states other than in the State of New York by a defendant corporation and a co-conspirator located in the Onondaga County area.
      8. During the period covered by this indictment, defendant corporations and co-conspirators located in the Onondaga County area received substantial revenues from customers’ offices or banks located in states other than the State of New York and from the Treasury of the United States in payment for containerized refuse removal services provided in the Onondaga County area. To effect the receipt of certain of these revenues, defendant corporations and co-conspirators caused bills and other forms of business communications to be sent from their offices in the Onondaga County area to states other than the State of New York.
      9. During the period covered by this indictment, defendant corporations and co-conspirators provided containerized refuse removal services to customers in the Onondaga County area whose refuse was generated as a consequence of activities of a substantial dollar amount within the flow of interstate commerce.
      10. The activities of the defendants and co-conspirators, as described herein, were within the flow of, and substantially affected, interstate and foreign commerce.