author: MILLS, District Judge:

text:
    The FEDERAL LAND BANK OF ST. LOUIS, a corporation, Plaintiff, v. Allen N. KEISER; Carol A. Keiser; the United States of America, acting Through the Farmers Home Administration, United States Department of Agriculture; the First National Bank of Litchfield, a National Banking Association, Trace Petroleum and Unknown Owners, Defendants.
    No. 84-3427.
    United States District Court, C.D. Illinois, Springfield Division.
    Feb. 14, 1986.

      John E. Evans, Hillsboro, Ill., J. Patrick Joyce, Springfield, Ill., for plaintiff.
    Allen N. Reiser, Raymond, Ill., Francis L. Ruppert, Clayton, Mo., for defendants.
   OPINION AND ORDER

MILLS, District Judge:

Defendants’ arguments for federal jurisdiction are specious.

The ease is remanded to state court.

The matter presently before the Court is a motion by the Federal Land Bank for remand to the Circuit Court for the Fourth Judicial Circuit of Illinois at Hillsboro.

The bank brought a mortgage foreclosure suit under Ill.Rev.Stat., Ch. 110, par. 15-101 et seq., in the state circuit court, and the Defendants have removed that case here, claiming that there is original federal question jurisdiction under 28 U.S.C. § 1331, which may be removed to the district court under 28 U.S.C. § 1441(b). No other grounds are alleged to exist for original jurisdiction here, such as diversity.

I

The nonfederal defendant is trying to “boot strap” his way here by the use of the Plaintiff’s federal status. The defendant has no standing to do this. The federal Plaintiff could have chosen the federal forum, which was provided for its protection from local prejudice. They have not chosen to avail themselves of this and since they are bringing the action they may choose the forum by “determining the theory of the action, and so long as fraud is not involved, [they] may defeat removal to the federal courts by avoiding .allegations which provide a basis for the assertion of federal jurisdiction.” Jones v. General Tire & Rubber Co., 541 F.2d 660, 664 (7th Cir.1976).

In general, to remove a case from state court to a United States district court the defendant must establish at least two requisites: that “the action was properly commenced in the state court, and that it could have been originally commenced in federal court.” Nuclear Engineering Co. v. Scott, 660 F.2d 241, 248 (7th Cir.1981). “Removal is proper where the real nature of the claim asserted in the complaint is federal, whether or not so characterized by the Plaintiff.” Jones v. General Tire & Rubber Co., 541 F.2d 660, 664 (7th Cir.1976). Furthermore, “A federal law, statute, or question, a right or immunity created by the Constitution or ... law of the United States must be an element, and an essential one, of the Plaintiff’s cause of action ... i.e. ..., the federal nature of the claim must be a basic issue in the case.” Id. These cases are cited with approval in People of the State of Illinois v. Kerr-McGee Chemical Corp., 677 F.2d 571, 575 (7th Cir.1982), where the court went on to say, “a federal question must appear on the face of the complaint ... [and] a defendant’s assertion of an issue of federal law in the pleadings or in the petition for removal does not create a federal question. Phillips Petroleum Co. v. Texaco, Inc., 415 U.S. 125, 127-28 [94 S.Ct. 1002, 1003-04, 39 L.Ed.2d 209] (1974).”

Also, “the removal statute should be construed narrowly and against removal, see Shamrock Oil and Gas Corp. v. Sheets, 313 U.S. 100, 108 [61 S.Ct. 868, 872, 85 L.Ed. 1214] (1941),” Kerr-McGee Chemical Corp., 677 F.2d at 576.

II

More specifically — and most pertinent to the case at hand — is the case of The Federal Land Bank of Columbia v. Cotton, 410 F.Supp. 169 (N.D.Ga.1975). This case was initiated by the Federal Land Bank against defendant Cotton in the Georgia state court to foreclose upon a mortgage because the defendant Cotton had defaulted on a promissory note. The defendant had attempted to remove the case to the United States District Court, using the same arguments that are found in the case before the court, but to no avail.

Cotton argued that the case arose under the laws of the United States because the plaintiff is a federally chartered corporation formed under the Federal Farm Loan Act, 12 U.S.C. § 2011 et seq. [sic]. The court noted that due to 28 U.S.C. § 1349, “corporations organized under federal law as [a] party,” “federally-chartered corporations cannot sue or be sued in federal court merely because they are federally chartered, unless the United States government owns 51% of the capital stock.” (Emphasis the court’s.) Cotton at 170. The only way this case could be removed is for the Plaintiff to allege a “violation of the regulatory guidelines governing such organizations.” Id. The court noted in Cotton (and the same is true here) that “plaintiff is merely seeking to enforce a contract right pursuant to the laws of the State.” Id.

The Defendant before us, and the one in Cotton, argue that the federal land banks were agencies of the federal government and so removal would be proper under 28 U.S.C. § 1345. That section of the Code states: “Except as otherwise provided by Act of Congress, the district courts shall have original jurisdiction of all civil actions, suits or proceedings commenced by the United States, or by any agency or officer thereof expressly authorized to sue by Act of Congress.” However, the term Agency is defined at 28 U.S.C. § 451 and states in part: “The term ‘agency’ includes ... any corporation in which the United States has a proprietory interest, unless the context shows that such term was intended to be used in a more limited sense.” The court in Cotton read this section in tandem with § 1349, supra, and found that a federally chartered corporation could not be an “agency” “unless the government has a substantial proprietory interest in the corporation or exercised considerable control over operation and policy of the corporation.” Cotton at 171.

For the purposes of comparison, the defendant in Cotton and the Defendant here wish to compare the Federal Savings and Loan Insurance Corporation (FSLIC) with the federal land banks because FSLICs have been found to be “agencies” of the federal government and so there is original federal jurisdiction in all cases involving them. The court in Cotton found that federal land banks were “obviously meant to be a private, rather than governmental, corporation which” is merely subject to various federal regulations. 12 U.S.C. § 2001(a), et seq.; Cotton, id. 171. Thus, the court in Cotton held that there was no subject matter jurisdiction and allowed the remand.

When we look to 12 U.S.C. § 2011 “Establishment; Title; Branches,” [of Federal Land Banks] the first sentence declares in part that “Federal land banks ... shall continue as federally chartered instrumentalities of the United States,” (emphasis ours). Further, that the Farm Credit Administration may modify their charters consistent with 12 U.S.C. § 2001 et seq. Specifically, at § 2012 in the preamble, it states that Farm Credit Administration shall supervise the Federal Land Banks, and at § 2012(19), the Federal Land Banks shall, “Perform any function delegated to it by the Farm Credit Administration.” The Farm Credit Administration is expressly made “an independent agency of the executive branch of the Government,” 12 U.S.C. § 2241. It appears, and Defendant relies on the fact, that the Federal Land Bank is an instrumentality of an agency of the U.S. Government. But this has no bearing on jurisdiction. Also, 31 U.S.C. § 9101(2)(F) defines federal land banks as “mixed ownership” corporations, whereas at § 9101(3)(E) FSLICs are listed as a “wholly owned government corporation.” Thus, the dichotomy between the two is strengthened, contrary to what Defendant argues. Moreover, this section says nothing about original federal jurisdiction.

There are also several differences in wording of the two statutes that form these two corporations (federal land banks and FSLICs). The statute that forms federal land banks, 12 U.S.C. § 1021, does not rule out the applicability of other statutes that may effect its status as a federal instrumentality, such as § 1349. Furthermore, the statute that pertains to the bank’s ability to be sued, § 2033(4), only states that it can “sue or be sued,” but spells out no specific designation where these suits can be brought.

The statute that governs the “jurisdiction and enforcement” of FSLICs, 12 U.S.C. § 1730(k)(l) is very explicit, and it limits and mandates where jurisdiction will be for FSLICs. Section 1730(k)(l)(A) begins, “Notwithstanding any provision of law the corporation shall be deemed to be an agency of the United States within the meaning of section 451 of Title 28 ...” Therefore, § 1349, supra, would not apply to take FSLICs out of the district court. Furthermore, section 1730(k)(l)(B) states that, “any civil action, suit or proceeding to which the corporation shall be party shall be deemed to arise under the laws of the United States and the United States district courts shall have original jurisdiction thereof ...” This section and section 1730(k)(2) continue on in detail to enumerate all of the situations in which there is original federal jurisdiction. (One such clause allows jurisdiction without regard to the amount in controversy.)

Thus, there are palatable reasons why any analogy between Federal Land Banks and FSLICs and their amenability to district court jurisdiction is mistaken. FSLICs have expressly been given exclusive jurisdiction whereas the Federal Land Banks are only allowed “to sue or be sued,” subject to the normal rules that govern federal jurisdiction.

Furthermore, the land bank alleges that its capital stock is not held by the federal government. Thus, section 1349 should make the bank a private corporation. This allegation must be true as the statute that controls the bank’s ability to issue stock, 12 U.S.C. § 2013, mandates who may hold that stock. Voting stock is held by federal land bank associates (made up of borrowers from federal land banks, 12 U.S.C. §§ 2031, 2034), agents of borrowers and borrowers. No'nvoting stock may be issued to the governor of the Farm Credit Administration. Dividends can only be paid to voting stockholders. Thus, if the bank is abiding by the statute only the associations of private citizen borrowers hold the stock, and section 28 U.S.C. § 1349 would make the land bank subject to the regular rules governing the jurisdiction of civil cases in the federal courts.

Ill

But, even if we assume — arguendo —that Cotton is wrong, there is still no basis for removal because the subject matter of this cause before us is the validity of the mortgage contract as construed by state law. The district court, due to 28 U.S.C. § 1349, does not have original subject matter jurisdiction over such a suit, nor is there any other ground (such as diversity) that would establish jurisdiction. Section 28 U.S.C. § 1441(a) therefore is inapplicable. Section 1441(b) of 28 U.S.C. allows removal if the district court has original jurisdiction by virtue of the claim or right “arising under” the constitution, treaties or laws of the United States. As stated above, this claim arises under Illinois law, not federal, and the bank is making no constitutional claims. Furthermore, the last sentence of § 1441(b) would preclude the Defendant’s removal entirely: “Any other such action shall be removable only if none of the parties in interest and properly joined and served as defendants is a citizen of the state in which such action is brought.” (Emphasis ours.) Defendant Reiser and all the other Defendants but one — Trace Petroleum of Hazelwood, Missouri — are residents of Illinois.

Since there is no claim upon which the original jurisdiction of this Court can rest, the case must be remanded to the Illinois circuit court.

IV

The Defendant raises other federal issues which are defenses. A fifth amendment due process denial is raised and there is an allegation that the Plaintiff has violated the RICO Act, 18 U.S.C. § 1964(c), for which there seems to be absolutely no basis. These defenses are raised in the hope that they may raise a federal question by which to base removal. There is no question that this is erroneous. As early as 1894 it was established in Tennessee v. Union and Planter’s Bank, et al., 152 U.S. 454, 14 S.Ct. 654, 38 L.Ed. 511 (1894), “that the right of the plaintiff to sue cannot depend on the defense which the defendant may choose to set up. His right to sue is anterior to that defense, and must depend on the state of things when the action was brought.” Id. at 459, 14 S.Ct. at 655. Furthermore,

a cause cannot be removed from a state court simply because, in the progress of the litigation, it may become necessary to give a construction to the Constitution or laws of the United States ..., whether a party claims a right under the Constitution ... is to be ascertained by the legal construction of its own allegations, and not by the effect attributed to those allegations by the adverse party.

Id. at 460, 14 S.Ct. at 656.

In Franchise Tax Board of the State of California v. Construction Laborers’ Vacation Trust for Southern California, 463 U.S. 1, 103 S.Ct. 2841, 2847, 77 L.Ed.2d 420 (1983), the Court said that this rule, which has become known as the “well pleaded complaint” rule, is still in full force and effect, and further opined that “for better or worse, under the present statutory scheme as it has existed since 1887, a defendant may not remove a case to federal court unless the Plaintiffs complaint establishes that the case ‘arises under’ federal law.” Id. 103 S.Ct. 2846. And, “since 1887 it has been settled law that a case may not be removed to federal court on the basis of a federal defense ..., even if the defense is anticipated in the plaintiff’s complaint, and even if both parties admit that the defense is the only question truly at issue in the case.” 103 S.Ct. 2848. This case emphasizes the impossibility of defendant Reiser’s position and the fact that we can only remand this case to the circuit court.

Therefore, it is ORDERED that this case be REMANDED to the Circuit Court for the Fourth Judicial Circuit of Illinois in Hillsboro, Montgomery County, Illinois, along with all costs, fees, and disbursements INCURRED, because this court lacks original jurisdiction over the cause, and the Plaintiff has chosen the state court as its forum.

      . "§ 1349. Corporation organized under federal law as party.
      The district courts shall not have jurisdiction of any civil action by or against any corporation upon the ground that it was incorporated by or under an Act of Congress, unless the United States is the owner of more than one-half of its capital stock. June 25, 1948, C. 646, 62 Stat. 934.”

      . "§ 2013. Land bank stock.
      (b) Voting stock of each bank shall be held only by the Federal land bank associations and direct borrowers and borrowers through agents who are farmers or ranchers, which stock shall not be transferred, pledged, or hypotheticated except as authorized pursuant to this chapter.
      ******
      (d) Nonvoting stock may be issued to the Governor of the Farm Credit Administration, and may also be issued to Federal land bank associations in amounts which will permit the bank to extend financial assistance to eligible persons other than farmers or ranchers. Participation certificates with a face value of $5 each may be issued in lieu of nonvoting stock when the bylaws of the bank so provide.
      (e) Dividends shall not be payable on any stock held by the Governor of the Farm Credit Administration. Non-cumulative dividends may be payable on other stock and participation certificates of the bank. The rate of dividends may be different between different classes and issues of stock and participation certificates on the basis of the comparative contributions of the holders thereof to the capital or earnings of the bank by such classes and issues, but otherwise dividends shall be without preference."

      . "§ 2031. Organizations; articles; charters; powers of Governor.
      Each Federal land bank association chartered under section 7 of the Federal Farm Loan Act, as amended, shall continue as a federally chartered instrumentality of the United States. A Federal land bank association may be organized by any group of ten or more persons desiring to borrow money from a Federal land bank, in-eluding persons to whom the Federal land bank has made a loan directly or through an agent and has taken as security real estate located in the territory proposed to be served by the association.” (emphasis ours)
      "§ 2034. Association stock; value of shares; voting.
      (a) The shares of stock in each Federal land bank association shall have a par value of $5 each. No person but borrowers from the bank shall become members and stockholders of the association.”


source: Caselaw Access Project

author: BISSELL, District Judge, CLARKSON S. FISHER, Chief Judge, Judges LACEY, STERN, BARRY, COWEN and COHEN

license: Public Domain

text:
    In re ASBESTOS LITIGATION.
    Misc. No. 85-381.
    United States District Court, D. New Jersey.
    Feb. 14, 1986.
   OPINION

BISSELL, District Judge,

writing for GERRY, BROTMAN, DEBEVOISE, SA-ROKIN, ACKERMAN, THOMPSON and RODRIGUEZ, District Judges.

I. Introduction

In many asbestos related actions pending before this Court, the issue of the availability of the “state-of-the-art” defense to manufacturers of asbestos products has been presented in pretrial motions. These motions take the form of either an application by a plaintiff to strike such a defense from the pleadings or one by a defendant-manufacturer to allow the defense and the submission of evidence to support it. Because of rules developed in recent decisions of the Supreme Court of New Jersey, apparently precluding that defense to strict liability claims in asbestos cases but permitting it in such actions involving other products, several defendants have argued that manufacturers of asbestos products are denied “the equal protection of the laws” of New Jersey in violation of the Fourteenth Amendment.

That equal protection question presents a significant issue of constitutional law, not dependent upon the facts of a particular case. It has been raised in many asbestos cases pending before different judges of this Court. Therefore, it is the Court’s desire to issue a ruling which will govern all such actions under the current state of New Jersey law. On October 11, 1985 this Court entered an Order consolidating all its asbestos cases for the limited purpose of a common, single adjudication of this issue. For the reasons set forth hereafter, this Court determines that under New Jersey law the state-of-the-art defense is not available, against a strict liability claim, to a defendant-manufacturer of products containing asbestos, and that this rule, even if limited only to such defendants, does not violate their “equal protection” rights.

II. The Law of New Jersey

The history which has placed the Court in the present circumstances is well known to all involved with asbestos litigation in the State of New Jersey and accordingly will not be developed in great detail here. By way of brief review, we note the following:

In 1982 the New Jersey Supreme Court decided Beshada v. Johns-Manville, 90 N.J. 191, 447 A.2d 539 (1982), which expressly rejected the “state-of-the-art” defense in strict liability/failure to warn cases. However, on July 30, 1984, that same Court decided Feldman v. Lederle Laboratories, 97 N.J. 429, 479 A.2d 374 (1984), in which it dramatically altered this position. In Feldman, the Supreme Court ruled that actual and constructive knowledge of a defendant are relevant factors in determining whether it is strictly liable in a failure to warn case. However, the Court expressly refused to overrule Beshada. Instead, the Court restricted Beshada “to the circumstances giving rise to its holding.” 97 N.J. at 455, 479 A.2d 374.

One month after Feldman, and in reliance on that decision, Owens-Illinois, an asbestos manufacturer, in a case entitled Heckman v. Johns-Manville, pending in the Superior Court of New Jersey, Law Division, Middlesex County, Docket No. L-2470-81, filed a motion in limine to permit it to introduce evidence at trial demonstrating its lack of actual and constructive knowledge regarding the health hazards its product posed to users. Recognizing the importance of the issue for hundreds of other asbestos cases pending in this state, the Honorable John E. Keefe, sua sponte, entered an Order noticing the motion under the general caption In the Matter of Asbestos Litigation Venued In Middlesex County, Docket No. L-52237-81, and invited the asbestos bar to file briefs and participate in oral argument.

Judge Keefe, after hearing oral argument on September 10, 1984, denied the motion on the ground that in light of Beshada and its treatment in Feldman, an asbestos manufacturer, under New Jersey law, was prohibited from relying on the state-of-the-art defense.

Defendant Owens-Illinois then moved before the Superior Court, Appellate Division, for leave to appeal the trial court’s ruling and simultaneously petitioned the New Jersey Supreme Court for direct certification. On December 5, 1984, the Supreme Court entered an Order granting the request for direct certification and further:

ORDERED that leave to appeal is granted, and this Court, in Feldman v. Lederle Laboratories, 97 N.J. 429 [479 A.2d 374] (1984), having recognized that Beshada v. Johns-Manville, 90 N.J. 191 [447 A.2d 539] (1980) [sic ], applies to all pending asbestos eases, the September 21, 1984 Order of the Superior Court, Law Division, (L-52237-81) is summarily affirmed.

In the Matter of Asbestos Litigation Venued In Middlesex County, 99 N.J. 201, 491 A.2d 700 (1984).

Thereafter, Owens-Illinois petitioned the New Jersey Supreme Court for a rehearing. The petition specifically sought clarification of the word “pending”. On December 19, 1984, the motion for rehearing was denied and forwarded to counsel with a cover letter from the Clerk of the New Jersey Supreme Court which stated:

The request has been denied essentially because Judge Keefe’s interpretation that the Court’s prior order applies to all pending asbestos cases was correct. [Emphasis in original].

III. Equal Protection

One aspect of defendants’ equal protection argument can be disposed of without extensive analysis. The application for' rehearing before the Supreme Court of New Jersey focused upon a requested construction of the term “pending” as the term was employed in the Supreme Court’s Order of December 5, 1985, supra. Since that term was not in fact clarified, either by the Order denying that motion for rehearing or by the covering letter from the Clerk of the Court, defendant-manufacturers argue before us that the use of the term “pending” by the Supreme Court of New Jersey establishes classifications within the asbestos cases themselves which deny equal protection of the laws to some defendants, in some cases, based solely upon the filing date of a particular action. Several possible constructions of the term “pending” and the date to which that term might be attributed have been posited by these defendants to this Court. We believe, however, that defendants’ construction of the term “pending” is misplaced. In December 1984, the Supreme Court of New Jersey could only rule as to cases then in existence (or “pending”) under current New Jersey law. This Court believes that the New Jersey Supreme Court carefully chose the term “pending,” later emphasized by its Clerk as being “all pending”, to encompass all asbestos litigation governed by the present state of New Jersey law. In the fourteen months since December 1984, that law regarding the state-of-the-art defense at issue here has not changed. Accordingly, there are no classifications among asbestos cases presently “pending” in New Jersey, either in state or federal court. No viable equal protection argument can be posited upon such alleged (but non-existent) classifications.

This Court now turns its attention to the more serious question of whether asbestos defendants, when compared to other. defendant-manufacturers in strict liability/failure to warn cases, are denied equal protection of the laws of New Jersey.

In the area of economics and social welfare, a State does not violate the Equal Protection Clause merely because the classifications made by its laws are imperfect. If the classification has some “reasonable basis,” it does not offend the Constitution simply because the classification “is not made with mathematical nicety or because in practice it results in some inequality.”

Dandridge v. Williams, 397 U.S. 471, 485, 90 S.Ct. 1153, 1161-62, 25 L.Ed.2d 491 (1970).

As the application of Beshada to the defendants involves both the areas of economics and social welfare, and “neither apportions benefits and burdens on the basis of a ‘suspect classification’ nor impinges on ‘fundamental interests,’ it violates equal protection only if it bears no rational relationship to a legitimate state .purpose.” Delaware River Basin Commission v. Bucks County Water & Sewer Authority, 641 F.2d 1087, 1092 (3d Cir.1981) (citing United States Railroad Retirement Board v. Fritz, 449 U.S. 166, 101 S.Ct. 453, 66 L.Ed.2d 368 (1980); Massachusetts Board of Retirement v. Murgia, 427 U.S. 307, 96 S.Ct. 2562, 49 L.Ed.2d 520 (1976)). In Vance v. Bradley, 440 U.S. 93, 97, 99 S.Ct. 939, 942-43, 59 L.Ed.2d 171 (1979), (footnotes omitted), the Court detailed this standard:

... [C]ourts are quite reluctant to overturn governmental action on the ground that it denies equal protection of the laws. The Constitution presumes that, absent some reason to infer antipathy, even improvident decisions will eventually be rectified by the democratic process and that judicial intervention is generally unwarranted no matter how unwisely we may think a political branch has acted. Thus, we will not overturn such a statute unless the varying treatment of different groups or persons is so unrelated to the achievement of any combination of legitimate purposes that we can only conclude that the legislature’s actions were irrational.

Equal (if not greater) caution should be exercised in assessing whether decisions of a state Supreme Court have denied equal protection of the laws.

The rationality test requires the Court to conduct a two-step analysis. “First, it should identify the purposes of the statute [or as here, common law rule] and assure itself that these purposes are legitimate ... Second, having identified the governmental purposes, the court must determine whether the classification is rationally related to achievement of these goals.” Delaware River, supra at 1092-3.

In identifying the purposes behind the Beshada/Feldman dichotomy, the Court may look to both an articulated purpose and “general public knowledge about the evil sought to be remedied, prior law, accompanying legislation, and formal public pronouncements.” Id. at 1093, n. 9. In addition, “in the absence of an articulated purpose in the legislation or in its history, courts have upheld challenged provisions that furthered the attainment of goals either suggested by the parties or postulated by the reviewing court itself.” Id. at 1094.

While the Supreme Court’s Order affirming Judge Keefe’s opinion in In the Matter of Asbestos Litigation Venued In Middle-sex County does not articulate the purposes behind treating asbestos cases differently than others, other data for ascertaining them does exist. The first is found in the Feldman decision itself:

In our opinion Beshada, supra, would not demand a contrary conclusion in the typical design defect or warning case. If Beshada were deemed to hold generally or in all cases, particularly with respect to a situation like the present one involving drugs vital to health, that in a warning context knowledge of the unknowable is irrelevant in determining the applicability of strict liability, we would not agree. Many commentators have criticized this aspect of the Beshada reasoning and the public policies on which it is based. [Citations omitted]. The rationale of Beshada is not applicable to this case. We do not overrule Beshada, but restrict Beshada to the circumstances giving rise to its holding. See, e.g., Friedman v. Podell, 21 N.J. 100, 105 [121 A.2d 17] (1956); Konrad v. Anheuser-Busch, Inc., 48 N.J.Super. 386, 388 [137 A.2d 633] (Law Div.1958) (“Cases state principles but decide facts, and it is only the decision on the facts that is binding precedent.”).

97 N.J. at 454-55, 479 A.2d 374.

As Judge Keefe stated regarding Feldman’s treatment of Beshada:

[The New Jersey Supreme Court] said that, “The rationale of Beshada is not applicable to this case,” and when I say to this case they mean the rationale of Beshada is not applicable to the general typical liability case. “We do not overrule Beshada but restrict Beshada to the circumstances giving rise to its holding” and they use the word circumstances as opposed to facts because there were no facts which were decided in Beshada or the cases that were joined with it.
The word circumstances has even broader meaning I think than the word fact. There are circumstances about Beshada which I think might conceivably be applied to other types of product litigation if not in New Jersey certainly in the United States. The circumstances of Beshada, when you consider the presence of amicus on the part of all litigants is that we have a vast number of people who are injured by a specific product, the injury is brought about over a long latency period and because of those factors and circumstances it is difficult, both for Plaintiffs and Defendants, to intelligently try the issue of state of the art.
In justification for his reasoning in the opinion Justice Pashman pointed to the fact finding process as being one of the most difficult considerations for a trial Court and jury in that setting. I think he meant it to apply to a much broader setting but in terms of rationalizing why Beshada was not overruled it seems to me that one of the factors and circumstances certainly is the question of how difficult it would be in a multiple defendant, multiple plaintiff case, for a jury to come to some conclusion that at one point in time one defendant knew and another didn’t, whether it was in point of time that the actual injury occurred, things of that nature.

In the Matter of Asbestos Venued In Middlesex County, transcript of proceedings of September 9, 1984, pp. 94-95. (Emphasis added).

Judge Gerry of this Court, prior to the New Jersey Supreme Court’s affirmance in the Middlesex County litigation, addressed the equal protection argument in the case of Gogol v. Johns-Manville, 595 F.Supp. 971. (1984). In finding that there was no equal protection violation, he reasoned:

Looking generally at tort law, this court recognizes numerous distinctions made between classes of litigants. Under the New Jersey Tort Claims Act, for example, governmental entities and officers are at a distinct advantage over private actors. Non-medical-malpractice plaintiffs, ... are somewhat more favorably treated by New Jersey courts than malpractice claimants. The whole workmen’s compensation scheme places both employers and employees in a position different from those involved in non-job-related accidents. There is nothing unconstitutional about any of the above examples. All of them are the result of legitimate policy decisions of New Jersey (and other states).
Looking at tort law generally, there is a huge distinction made between those defendants subjected to strict liability and those against whom plaintiffs are only entitled to prove negligence. Again, the courts have acted on the basis of public policy. Indeed, Feldman itself is basically a case dealing with the reasons to subject or not subject drug manufacturers to strict liability. Clearly, the chasm between strict liability defendants who may advance a state of the art defense and those who may not is not nearly so wide as the chasm between defendants subjected to strict liability and those who are not.
It needs hardly be stated that asbestos cases are like no other products liability cases in terms of their volume and difficulty, as well as the massive societal problem they manifest. This alone, we believe warrants the distinction made by the Feldman court.

Gogol at 974-75. (Emphasis added). See also the very recent case of Spring Motors Distribution, Inc. v. Ford Motor Co., 98 N.J. 555, 489 A.2d 660 (1985), in which the New Jersey Supreme Court held that in a case involving solely economic loss due to a non-conforming product, between two commercial companies similarly situated, neither negligence nor strict liability was available to a plaintiff-purchaser as a basis for his action, only warranty theories.

The asbestos litigation has revealed the vast exposure of thousands of people, decades ago, through numerous different contacts, with products made by many manufacturers, resulting in latent injury detected 30 years and more after exposure, where evidence of actual or constructive knowledge will undoubtedly create widely differing circumstances between various defendants. These factors combine to create a situation where legitimate concerns of case management, economics, and social welfare and policy regarding exposed persons and their families amply justify a rule precluding the state-of-the-art defense in these atypical products liability cases. This decisional rule evolving from such considerations of public policy is indeed similar to the legislative decision in workers’ compensation matters, imposing liability without proof of fault (or the defense of contributory fault) upon the employer, unlike that imposed upon other defendants to claims resulting from the very same work-related injuries. Furthermore, these considerations in support of the Beshada rule are so self-evident for asbestos cases that the New Jersey Supreme Court’s failure to articulate them in its ruling of December 1984 is not fatal. Asbestos cases are different than typical products liability cases and treating them as such under different rules of law is permissible.

The purposes then,, as this Court sees them, for treating asbestos cases differently than typical products liability cases are to ease jury confusion and resulting prejudice to litigants, and to expedite trial of the issues, both of which are areas in which a state Supreme Court has traditionally played a leading role. As Judge Keefe stated, asbestos cases involve “a vast number of people who are injured by a specific product, the injury is brought about over a long latency period and because of those factors and circumstances it is difficult, both for plaintiffs and defendants, to intelligently try the issue of state of the art.” In the Matter of Asbestos Litigation Venued In Middlesex County, supra, transcript at 94-5. In addition, there is the difficulty in a multiple defendant case “for a jury to come to some conclusion that at one point in time one defendant knew and another didn’t [that their products posed potential health hazards].” Id. at 95. That difficult jury function is compounded when the task of determining when the plaintiffs’ exposure occurred is included in the equation. While it is true that none of these variables is exclusive to asbestos cases, it is equally true that in such cases all of them come together in one action at one time.

Creating a common law rule, which prevents a defendant in an atypical products liability case such as asbestos litigation from relying on the state-of-the-art defense, eases the jury’s burden by removing voluminous and often conflicting testimony concerning the knowledge possessed by the industry as a whole, and by each individual defendant in particular, on a myriad of different, remote dates. It thus serves to facilitate the trial of each of these numerous cases by removing an issue which, as stated earlier, is very difficult for the jury to grasp and fairly adjudicate as to each defendant separately.

Having identified what this Court feels are the purposes behind treating asbestos cases differently than typical cases, and having assured itself that those purposes are legitimate, the Court must now determine whether the Beshada/Feldman dichotomy is rationally related to the achievement of those goals. It is this Court’s determination that there is a rational relationship. Eliminating the issue of the state of the art, for the reasons set forth above, is an appropriate rule for minimizing jury confusion (and resulting error regarding a particular defendant’s responsibility) and expediting the trial of the hundreds of cases filed in this state.

Accordingly, this Court determines that the Beshada/Feldman dichotomy has a “reasonable, rational basis” and as such does not violate the equal protection clause of the Fourteenth Amendment. This Opinion and the enclosed Order implementing it shall be filed in and shall govern each asbestos action presently pending in this District. This decision shall have no retroactive effect upon any asbestos cases previously adjudicated or otherwise disposed of, and may not serve as a ground for the reopening of any such concluded action. On the Court’s own motion, a determination of the suitability of an interlocutory appeal to the United States Court of Appeals for the Third Circuit, pursuant to 28 U.S.C. § 1292(b), is included in the enclosed Order.

CLARKSON S. FISHER, Chief Judge,

dissenting.

I respectfully dissent because I feel the majority opinion misses the mark in its application of equal-protection law by attempting to distinguish asbestos litigation from other strict-liability warning cases and in other particulars which are detailed below.

At the outset, I am hesitant to find a denial of equal protection arising out of the rulings in Beshada v. Johns-Manville, 90 N.J. 191, 447 A.2d 539 (1982), Feldman v. Lederle Laboratories, 97 N.J. 429, 479 A.2d 374 (1984), and In the Matter of Asbestos Litigation Venued in Middlesex County, 99 N.J. 201, 491 A.2d 700 (1984). Vance v. Bradley, 440 U.S. 93, 99 S.Ct. 939, 59 L.Ed.2d 171 (1979), counsels deference to the government where its actions are challenged on equal-protection grounds since “even improvident decisions will eventually be rectified by the democratic process.” Id. at 97, 99 S.Ct. at 942. In the unusual situation before us, however, where we are called upon to review a judge-made rule of law, the efficacy of the checks and balances inherent in the “democratic process” is substantially reduced. In my view, therefore, our deference to the state court should be tempered and our application of the rationality test sharpened accordingly.

Furthermore, it must be remembered throughout that this is exclusively a fourteenth amendment controversy, therefore disagreement relating purely to underlying policy considerations has no rightful place in the discussion, nor can it be cloaked in the guise of equal-protection doctrine. Only sound constitutional arguments can be heard in objection to the majority’s conclusion.

As a final preliminary note, it should be stated that the issue before the court poses a genuinely troubling dilemma. The debate hinges on whether a real and substantial difference separates defendants in asbestos-related, failure-to-warn products-liability actions from those in all other failure-to-warn cases. Reed v. Reed, 404 U.S. 71, 76, 92 S.Ct. 251, 254, 30 L.Ed.2d 225 (1971). We can go two routes. If such a difference exists, asbestos firms are denied a potentially exculpatory defense which the New Jersey Supreme Court has itself expressly held available in other strict-liability contexts. Feldman, 97 N.J. at 451-52, 479 A.2d 374; O’Brien v. Muskin Corp., 94 N.J. 169, 463 A.2d 298 (1983) (state-of-the-art evidence is relevant in design-defect cases). If, on the other hand, the difference is nonexistant, we are inexorably drawn to the conclusion that the New Jersey Supreme Court has blinked on the doctrine of equal protection. Neither result is appealing. Nevertheless, reason, experience, common sense, and the Constitution dictate that we choose the second, and perhaps less-travelled, route, regrettable though it may be to disagree with the state’s highest court.

There can be no argument with the constitutional framework employed by the majority. Under traditional analysis, Beshada/Feldman denies equal protection only if there is no legitimate state purpose rationally promoted by the challenged classification. Western & Southern Life Insurance Co. v. California State Board of Equalization, 451 U.S. 648, 668, 101 S.Ct. 2070, 2083, 68 L.Ed.2d 514 (1981); San Antonio Ind. School Dist. v. Rodriguez, 411 U.S. 1, 17, 93 S.Ct. 1278, 1288, 36 L.Ed.2d 16, rehearing denied, 411 U.S. 959, 93 S.Ct. 1919, 36 L.Ed.2d 418 (1973).

My opposition originates in the soft and uncritical application of rule to fact. For satisfaction of the “legitimate purposes” requirement, the majority relies expressly on nothing more than the elimination of jury confusion and the expedition of trials. These are certainly significant objectives in any setting, but here those reasons simply are not enough to rebut a challenge on constitutional grounds where the underlying tort liability at stake is particularly high. In this regard, the opinion conspicuously lacks citation to case law for the critical proposition that such relatively slight goals have been, or can be, recognized as sufficient “legitimate state purposes” in an equal-protection setting. In addition, the reference to “legitimate concerns of case management, economics, and social welfare and policy,” at page 11 is undeveloped. It does little to truly differentiate asbestos from other difficult tort litigation or to rationalize the severe outgrowth of the proffered distinction.

It is also mere conjecture that elimination of state-of-the-art evidence will streamline litigation and reduce jury confusion. There has been no data to support the majority’s assertions in this regard. Indeed, in Wolf v. Procter & Gamble, 555 F.Supp. 613 (D.N.J.1982), it was held that state-of-the-art is a valid defense to negligence claims. Such evidence is also relevant to the consideration of punitive damages. Thus, state-of-the-art evidence may well find its way into asbestos trials regardless of Beshada/Feldman. Confusion would then be compounded, not reduced, since jurors would be required first to distinguish strict liability from negligence and then to discretely apply the state-of-the-art evidence only to the latter. Severance might avoid these results, but at the same time defeat the original aim of streamlining trial of the issues. In sum, accomodation of juries, though praiseworthy, carries little weight in the equation.

The equal-protection test’s second element, too, is not sufficiently treated by the majority. In the single paragraph — indeed, the single sentence — devoted to this subject at page 13, the majority seems to assume rather than to identify and explain a rational relationship between the legitimate state purposes and- the segregation of asbestos defendants. Aside from expedience, a term employed by the majority at page 779 and one not known for its positive connotations, I am unable to discern from the opinion or to imagine of my own the necessary connection bridging means and ends.

Accordingly, in the absence of a stronger argument to satisfy both elements of the equal-protection formula, I am constrained to conclude that by prohibiting asbestos defendants from introducing state-of-the-art evidence the Supreme Court of New Jersey violates the fourteenth amendment.

Further considerations also compel my view of this matter. I disagree, for one, with the majority’s assessment that asbestos actions are “self-evidently” and substantially different from other products cases. Looks are deceiving, in litigation as in life; thus, no surer trap can be set than for a court to judge a suit by the code number it bears. I refer specifically to three areas in which the majority itself, and through its incorporation of decisions by Judge Gerry and Judge Keefe, seeks support for the distinctive treatment of asbestos: (1) volume of cases, (2) numerosity of parties, and (3) complexity of issues.

The volume of asbestos cases on court dockets is absolutely irrelevant to consideration of the present equal-protection challenge. “The constitutional imperatives of the Equal Protection Clause cannot be satisfied by mere conjecture as to administrative convenience.” Frazier v. Manson, 703 F.2d 30, 35 (2d Cir.), cert. denied, 464 U.S. 934, 104 S.Ct. 339, 78 L.Ed.2d 308 (1983). More to the point, however, is the realization that if, as the majority premises, the elimination of juror confusion and resultant prejudice is at the core for precluding state-of-the-art evidence, what difference does it make then whether the court’s docket lists one or a million and one asbestos actions? One jury will, in most instances, decide but one case. And it matters not one iota to Monday’s jury that a million asbestos cases will still remain on Tuesday, nor does such knowledge contribute one measure of confusion to that panel’s deliberation. As Owens-Illinois, Inc. astutely observes in its brief on these issues, it would appear that there are more routine auto accident cases than asbestos cases in the courts, yet the many motorists in litigation are not denied the right to prove, for example, comparative negligence on the scant basis of their prolific numbers.

As for the majority's point concerning the abundance of plaintiffs and defendants in the asbestos cases, it must be noted that not every action is a multi-party behemoth. To be sure, there are cases where the parties are almost innumerable. But there are also instances where the named plaintiffs and defendants can each be counted on one hand. E.g., Miller v. Johns-Manville, Civil Action No. 85-389 (husband and wife v. five named defendants); Gregory v. General Motors Corp., Civil Action No. 82-4031 (administratrix and son v. one named defendant). Where in these smaller cases is the danger in permitting a jury to weigh the evidence of the actual and constructive knowledge of the handful of defendants who comprise the chain of asbestos distributors? I see none. Thus, the majority’s overly broad numerosity argument is misplaced and the New Jersey Supreme Court’s preclusion of state-of-the-art evidence constitutes needless and prejudicial overkill.

Now of course the majority is concerned lest the cumulative effect of complicated legal theories, multiple parties, and prolonged latency of injury overwhelm our juries. But even at its hypothetical worst, the danger is not so extreme as to warrant the pre-emptive strike against the asbestos litigants’ defensive arsenal. Fundamental fairness must prevail over cures that are worse than the disease. The proper remedy for projected jury confusion, prejudice, or delay is not arbitrary and radical excision of potentially dispositive evidence, but rather time-tested methods including thoughfully prepared jury instructions and charges, well-organized presentation of all evidence, expert testimony, and other ingredients which make up a well-tried case.

Even if it were agreed that juror confusion and facilitation satisfy the rationality test, I am not entirely convinced that it is proper for us to ascribe these purposes to the New Jersey Supreme Court. Admittedly, Delaware River Basin Commission v. Bucks County Water & Sewer Authority, 641 F.2d 1087 (3d Cir.1981), permits us to hypothesize as to the purposes behind a classification. But, in that very same opinion, the circuit court also recognized that the “Supreme Court has sometimes indicated that rationality analysis must consider the actual purposes of the legislature, rather than post hoc justifications offered by government attorneys or hypothesized by the court itself.” 641 F.2d at 1094. The United States Supreme Court has often looked for an actual articulation of the state’s purposes where the subject matter at hand was unusually sensitive or troublesome. See, e.g., San Antonio School District, 411 U.S. at 17, 44-52, 93 S.Ct. at 1288, 1302-06; McGinnis v. Royster, 410 U.S. 263, 270-71, 93 S.Ct. 1055, 1059-60, 35 L.Ed.2d 282 (1973). Thus, where a decision (1) emanates from a court and is therefore not readily susceptible to the aforementioned correctives of the democratic process, and (2) has generated substantial critical commentary, I do not feel it improper to impose an articulation requirement. Since my reading of the cases reveals no express or implied explanation for the discriminatory fence raised around asbestos defendants, the failure of the New Jersey Supreme Court to disclose its rationale is, in and of itself, fatal to the distinction. There is simply no way to escape the reality of this state of affairs and the majority compounds and perpetuates an unfortunate error.

Judge Gerry has also commented on this issue in an earlier opinion, noted above, from which the majority quotes extensively. An important distinction must be drawn regarding those excerpted comments. In looking generally at tort law, Judge Gerry observed by way of example, that this court recognizes numerous distinctions made between classes of litigants under the New Jersey Tort Claims Act and Workers Compensation Act and in medical malpractice litigation. Gogol at 974-75. In none of these contexts though has the classification effectively stripped litigants of a substantive right without at the very least providing some procedural quid pro quo. Here, the New Jersey Supreme Court has withheld a theory, which, if proved, could conceivably relieve numerous defendants of liability, but offered no substitute or counter-measure. Had the court somehow “re-evened” the score between asbestos plaintiffs and defendants or made the latter’s isolation less glaringly conspicuous, perhaps the Beshada/Feldman rule would be more palatable.

Furthermore, the majority has created a potential Pandora’s Box at pages 11 and 12 with its usage of the phrase “atypical products liability cases,” by no means a synonym for “asbestos cases.” Whatever Beshada/Feldman stands for, the damage should be kept to a minimum at all costs. Yet the imprecision that is brought to the opinion by the term “atypical” — however qualified it may be in context — unnecessarily opens the door for an extension of the challenged rule to an unforeseeable maze of applications.

Finally, the only point left for discussion is to surmise what in fact the New Jersey Supreme Court might have meant by the controversial language that restricted Beshada “to the circumstances giving rise to its holding.” Feldman, 97 N.J. at 455, 479 A.2d 374. As stated above, I find judicial speculation in this area to be inappropriate; therefore, I will hazard no guess as to what this phrase intends. I note only that had the supreme court actually wished the result reached by the majority, it could easily have said “state-of-the-art evidence is relevant in failure-to-warn cases but not where asbestos is involved,” or “but not where the case is big and clumsy.” The silence is indeed clanging.

In sum then, the New Jersey Supreme Court’s classification of asbestos defendants should fall for a multitude of reasons, for in the supposed hope of reducing that prejudice generated by confusion, the court and today’s majority achieve the very result they seek to avoid. Asbestos defendants are entitled to the same opportunity to be heard as manufacturers and distributors of all other products. The deprivation of this opportunity has the effect of inappropriately classifying these defendants and subjecting them to a different and harsher standard of liability by denying the chance to present relevant and probitive evidence.

The difficulty of the facts in a case is no ground for ignoring those facts. That is precisely what the majority proposes we do in our asbestos cases. Expedience is thereby exalted over fairness and justice is subordinated to simplicity. It is inconceivable that these results were intended by the New Jersey Supreme Court.

Judges LACEY, STERN, BARRY, COWEN and COHEN

authorize me to say that they join in this dissent.

On its own motion, on October 11, 1985, the court ordered that all cases in the District of New Jersey involving exposure to or use of asbestos be consolidated for the sole purpose of determining issues concerning the relationship among the New Jersey Supreme Court’s decisions in Beshada v. Johns-Manville Products Corp., 90 N.J. 191, 447 A.2d 539 (1982), and Feldman v. Lederle Laboratories, 97 N.J. 429, 479 A.2d 374 (1984), and the Equal Protection Clause of the fourteenth amendment of the Constitution of the United States, the opinion of the court on these issues to become the law of the case for all cases in the asbestos litigation.

For the reasons stated in the accompanying opinion, the court determines that the aforementioned decisions together with In the Matter of Asbestos Litigation Venued in Middlesex County, 99 N.J. 201, 491 A.2d 700 (1984), do not violate the Equal Protection Clause of the fourteenth amendment; accordingly, it is, on this 14th day of February, 1986,

ORDERED that under New Jersey law the state-of-the-art defense is not available, against a strict-liability claim, to a defendant-manufacturer of products containing asbestos, and it is further

ORDERED that this rule shall henceforth be the law of the case for all cases in the asbestos litigation in the District of New Jersey.

Parties to asbestos actions in which motions pertaining to the state-of-the-art defense are pending as of this date are directed to submit appropriate orders to the judge to whom the action is assigned.

Motions subsequently made regarding this issue shall be submitted to the judge to whom the action is assigned and shall be disposed of in accordance with this order and accompanying opinion.

This decision shall have no retroactive effect upon any asbestos cases previously adjudicated or otherwise disposed of and may not serve as a ground for the reopening of any such concluded action.

On its own motion, the court is of the opinion that controlling questions of law have been presented regarding the constitutionality of the denial of the state-of-the-art defense to manufacturers of asbestos products in New Jersey. There is substantial ground for difference of opinion on this question and an immediate appeal from this order to the United States Court of Appeals for the Third Circuit, pursuant to 28 U.S.C. § 1292(b), may materially advance the ultimate termination of litigation. Any application for immediate interlocutory appeal from this order shall not result in a stay of proceedings in this court.

      . In the present context, defendant-manufacturers would assert such a defense by introducing evidence that they neither knew nor should have known of the dangers of the asbestos contained in their products and therefore may not be charged in strict liability for a breach of any duty to warn of such dangers.

      . Federal jurisdiction in these matters is predicated upon diversity of citizenship. 28 U.S.C. § 1332. Accordingly, the applicable substantive law is that of New Jersey. Erie v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938).

      . Workers’ compensation statutes have withstood other equal protection attacks. Lower Vein Coal Company v. Industrial Board, 255 U.S. 144, 41 S.Ct. 252, 65 L.Ed. 555 (1921); New York Central Railroad v. White, 243 U.S. 188, 37 S.Ct. 247, 61 L.Ed. 667 (1917); Davidson v. Hobart Corp., 643 F.2d 1386 (10th Cir.1981). There is no reason to believe that the feature of workers' compensation regarding an employer’s liability violates such a defendant’s equal protection rights.

      . Not to be overlooked in this discussion of unburdening the jury is the distinct possibility that asbestos cases will be tried to the bench. Taking for granted the competence and acuity of the state and federal bench in New Jersey, the argument regarding simplification of the issues for the trier of fact therefore goes largely for naught.

      . All asbestos cases commenced in the District of New Jersey are marked by the court clerk with the distinctive computer code number 368.

      . Gogol v. Johns-Manville, 595 F.Supp. 971 (1984).

      . In the Matter of Asbestos Litigation Venued in Middlesex County, Superior Court of New Jersey, Law Division, Docket No. L-52237-81, transcript of proceedings of Sept. 9, 1984.

      . The district court clerk reports that approximately 133 asbestos-related cases were pending in the District of New Jersey as of January 1, 1986. The court's full docket consisted of 5,570 civil actions, thus 2.3% were asbestos related.

      . See Memorandum of Law in Support of Motion of Defendant Owens-Illinois, Inc. to Admit Evidence Relating to its Actual or Constructive Knowledge of the Potential Hazards of its Product submitted to Judge Sarokin in Valori v. Johns-Manville Sales Corp., Civil Action No. 82-2686.

      . See Schwartz, The Post-Sale Duty to Warn: Two Unfortunate Forks in the Road to a Reasonable Doctrine, 58 N.Y.U.L.Rev. 892, 901-04 (1983); Comment, Requiring Omniscience: The Duty to Warn of Scientifically Undiscoverable Product Defects, 71 Geo.L.J. 1635, 1644-53 (1983); Note, Products Liability — Strict Liability in Tort — State-of-the-Art Defense Inapplicable in Design Defect Cases, 13 Seton Hall L.Rev. 625, 636-42 (1983).

      . Judge Frederick B. Lacey participated in the court’s consideration and determination of this matter on December 23, 1985. He resigned from the bench on January 31, 1986, prior to the filing of this opinion.


author: WILLIAM C. LEE, District Judge.

text:
    Kenneth A. HULL, Plaintiff, v. CENTRAL TRANSPORT, INC. and Charles Garavaglia, Defendants.
    Civ. No. F 85-147.
    United States District Court, N.D. Indiana, Fort Wayne Division.
    Feb. 18, 1986.

      S. Sargent Visher and Fergus Kear, Choate, Visher & Haith, Indianapolis, Ind., for plaintiff.
    Thomas M. Kimbrough, Barrett, Barrett & McNagny, Fort Wayne, Ind., Timothy K. Carroll, Dykema, Gossett, Spenser, Good-now & Trigg, Detroit, Mich., for defendants.
   ORDER

WILLIAM C. LEE, District Judge.

This matter is before the court on a motion for summary judgment filed by the defendants Central Transport, Inc. (“Central”) and Charles Garavaglia (“Garavaglia”). The plaintiff (“Hull”) has responded to the motion, and the defendants have filed a reply. For the following reasons, the motion for summary judgment will be granted in part and denied in part.

This cause arises out of events surrounding the termination of Hull from his job with Central in March, 1983. Hull’s complaint alleges five causes of action: breach of the collective bargaining agreement between Central and Hull’s union; defamation by Garavaglia during grievance proceedings under the agreement; violation of an Indiana statute requiring an employer to provide written reasons for discharge; violation of the Indiana Blacklisting statute; and failure to pay Hull’s wages upon termination on time. Central and Garavaglia now move for summary judgment.

Under Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment may only be granted if “the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(c). Thus, summary judgment serves as a vehicle with which the court “can determine whether further exploration of the facts is necessary.” Hahn v. Sargent, 523 F.2d 461, 464 (1st Cir.1975).

In making this determination, the court must keep in mind that the entry of summary judgment terminates the litigation, or an aspect thereof, and must draw all inferences from the established or asserted facts in favor of the non-moving party. Munson v. Friske, 754 F.2d 683, 690 (7th Cir.1985). The non-moving party’s reasonable allegations are to be accepted as true for purposes of summary judgment. Yorger v. Pittsburgh Coming Corp., 733 F.2d 1215, 1218-19 (7th Cir.1984). A party may not rest on the mere allegations of the pleadings or the bare contention that an issue of fact exists. Posey v. Skyline Corp., 702 F.2d 102, 105 (7th Cir.), cert. denied, 464 U.S. 960, 104 S.Ct. 392, 78 L.Ed.2d 336 (1983). See Adickes v. S.H. Kress & Co., 398 U.S. 144, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970). See also Atchison, Topeka & Santa Fe Railway Co. v. United Transportation Union, 734 F.2d 317 (7th Cir.1984); Korf v. Ball State University, 726 F.2d 1222 (7th Cir.1983). See generally C. Wright, Law of Federal Courts, § 99 (4th ed. 1983); 6 Moore’s Federal Practice, § 56.15 (2d ed. 1984).

Thus, the moving party must demonstrate the absence of a genuine issue of material fact. Even if there are some disputed facts, where the undisputed facts are the material facts involved and those facts show one party is entitled to judgment as a matter of law, summary judgment is appropriate. Egger v. Phillips, 710 F.2d 292, 296-97 (7th Cir.1983); Collins v. American Optometric Assn., 693 F.2d 636, 639 (7th Cir.1982). See also Bishop v. Wood, 426 U.S. 341, 348, 348 n. 11, 96 S.Ct. 2074, 2079, 2079 n. 11, 48 L.Ed.2d 684 (1976).

Under these principles, the relevant facts of this case appear to be as follows. In March 1983, Central was a signatory to a collective bargaining agreement (“Agreement”) with Local 414 of the International Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers (“Union”). Hull was a member of the Union, and was employed by Central as an over-the-road truck driver. On March 11, 1983, Hull got into a fight with another driver over who would get to haul an empty trailer from a Michigan plant, and Hull suffered injuries as a result. On March 14, 1983, Garavaglia, Central’s Vice President for Labor Relations, sent Hull a telegram saying that Hull was being terminated for assaulting another employee.

Hull filed a grievance pursuant to the grievance mechanisms under the Agreement. The grievance was denied at the first level, and the Union appealed to the Motor Carriers Labor Advisory Grievance Committee (“MCLAGC”), which is a Joint Committee within the meaning of the National Freight Master Agreement under which the Agreement had been negotiated. At a hearing before the MCLAGC on March 30, 1983, Garavaglia made statements about Hull’s work history which Hull claims were defamatory. The MCLAGC denied Hull’s grievance, and Hull’s grievance opportunities were exhausted at that point.

Hull also claims that Garavaglia made false statements to Detroit Police Detective Raymond Trautz, who was investigating the fight, and to the Michigan Employment Security Commission during hearings on Hull’s application for unemployment benefits.

In March 1984, Hull filed suit against the Union for breach of its duty of fair representation, and against Central for breach of the Agreement, in violation of § 301 of the Labor Management Relations Act, 29 U.S.C. § 185. This court held that the suit was barred by the six month statute of limitations for § 301 suits. Hull v. Local 414 of International Brotherhood of Teamsters, 601 F.Supp. 869 (N.D.Ind.1985).

On March 18, 1985, Hull filed this action against Central and Garavaglia in the Allen Superior Court, which was removed to this court. Count I of the complaint alleges that several provisions of the Agreement relating to notice and warnings prior to termination, as well as the appropriate body to hear an appeal of a first level denial of a grievance, were breached by Central. Count II alleges that Garavaglia’s statements to MCLAGC, the Detroit police officer and the Michigan Employment Security Commission were defamatory. Count III alleges a violation of I.C. 22-6-3-1, which requires an employer to issue a signed letter setting forth a statement of the cause for discharge of a former employee. Count IV asserts a violation of I.C. 22-5-3-1, the Indiana Blacklisting Statute, which prohibits employers from preventing former employees from obtaining employment. Count V claims a violation of I.C. 22-2-9-2, which requires payment of wages of a discharged employee on the pay day for the last pay period the employee worked.

Central and Garavaglia move for summary judgment. They argue that Hull’s state law claims are preempted by federal labor law, in effect leaving only Count I. On the merits of the claims, they argue that the grievance proceedings are binding on Hull, and thus Count I mandates judgment for the ' defendants. As for the merits of Count II, Garavaglia asserts privileges for making his statements. The defendants argue that Count III must fail both because Hull received written notice in the telegram and because I.C. 22-6-3-1 is a penal statute. They contend that the allegations of the complaint do not support a claim under the blacklisting statute, and argue that Hull was in fact paid his final wages on April 14, 1983 so as to satisfy the provisions of I.C. 22-2-9-2.

The court begins with the defendants’ preemption argument.

I. PREEMPTION OF STATE LAW CAUSES OF ACTION

Section 301 of the Labor Management Relations Act provides:

Suits for violation of contracts between an employer and a labor organization in an industry affecting commerce ... may be brought in any district court of the United States having jurisdiction of the parties____

The Supreme Court has recently made clear that the “dimensions of § 301 require the conclusion that substantive principles of federal labor law must be paramount in the area covered by the statute [so that] issues raised in suits of a kind covered by. § 301 [are] to be decided according to the precepts of federal labor policy.” Allis-Chalmers Corp. v. Lueck, 471 U.S. -, -, 105 S.Ct. 1904, 1910, 85 L.Ed.2d 206 (1985), quoting Teamsters v. Lucas Flour Co., 369 U.S. 95, 103, 82 S.Ct. 571, 576, 7 L.Ed.2d 593 (1962). The doctrine is motivated by concern for uniformity in the law applied to labor contracts. Id. Thus, this doctrine of preemption requires that suits alleging breach of a collectively bargained contract be brought under § 301 and decided by reference to federal labor law.

The scope of the preemption doctrine extends beyond actions alleging breaches of the collective bargaining agreement; actions which relate to what the parties to a labor agreement agreed upon, or the legal consequences which were to flow from what was agreed upon, must be decided by reference to uniform federal law. Lueck, 471 U.S. at -, 105 S.Ct. at 1911. However,

not every dispute concerning employment, or tangentially involving a provision of a collective bargaining agreement, is preempted by § 301 or other provisions of federal labor law ... In extending the pre-emptive effect of § 301 beyond suits for breach of contract, it would be inconsistent with congressional intent under that section to pre-empt state rules that proscribe conduct, or establish rights and obligations, independent of a labor contract.

Id. at -, 105 S.Ct. at 1912. The Lueck Court has described the proper methodology for analyzing whether a state tort claim is preempted: the court must look to see whether the state law claim

confers non-negotiable state law rights on employers or employees independent of any right established by contract, or, instead, whether evaluation of the tort claim is inextricably intertwined with consideration of the terms of the labor contract. If the state tort law purports to define the meaning of the contract relationship, that law is pre-empted.

Id.

The court begins its preemption analysis by noting that Count I, to the extent that it constitutes a state law cause of action, is clearly preempted by § 301. In fact, it appears to be a § 301 claim without calling itself one. Count I alleges that certain provisions of the contract regarding notice and the grievance procedures were breached. That is clearly a claim for breach of contract, and the Lueck Court holds that such a state law claim is preempted by § 301. Hull attempts to argue that this is a state law claim outside of § 301 because of the manner in which the breaches occurred, but evaluation of the claim is “inextricably tied” to the contract — to determine whether there was a malicious breach of the Agreement’s provisions concerning notice prior to termination, the court would have to consider whether the provision itself was breached, which would involve consideration of a term of the contract. Thus, the court finds that Count I is in fact a § 301 claim, and any state law claim implied in it is preempted by § 301.

Count II relates to Garavaglia’s defamation of Hull. The defendants attempt to argue that preemption applies because the statements were made in the context of arbitration mandated by the contract or else in the course of Garavaglia’s performance under the contract. Concerning the comments made in the course of arbitration proceedings, the defendants’ position is well taken. The concern which animates the preemption doctrine is the need for certainty in the operation of the agreement so as to prevent an erosion in the willingness of employers and unions to agree to terms involving arbitration or judicial resolution of disputes. Lueck, 471 U.S. at -, 105 S.Ct. at 1911. The preemption doctrine posits that unions and employers would be much less willing to bargain when the fruits of their negotiations are subject to the uncertainty caused by outside attempts to assess liability for acts permissible under the agreement. This does not allow the parties to circumvent all state law requirements, Lueck, 471 U.S. at -, 105 S.Ct. at 1911-12. However, when unions and employers take the favored step of establishing grievance procedures in order to avoid the need for judicial intervention, that negotiated choice should not be diluted by intrusions of potentially inconsistent state law. Parties to collective bargaining agreements should be able to rely on their bargain and the principles of § 301. To hold otherwise would allow the threat of defamation suits for comments made during grievance hearings to introduce an element of uncertainty into the grievance process as well as chilling the advocacy of the positions of the parties. As a result, parties would be much less willing to agree to grievance mechanisms that are fraught with potential liability under state tort law. Such a result would fly directly in the face of the federal labor policy, which encourages settlement of labor disputes through nonjudicial means.

An argument can be made that defamation suits are not directly related to the contract. The Supreme Court has stated that a libel suit is a “merely peripheral concern under the Labor Management Act.” Linn v. United Plant Guard Workers of America, 383 U.S. 53, 61, 86 S.Ct. 657, 662, 15 L.Ed.2d 582 (1966). However, that case does not operate to place defamation suits beyond the reach of the preemption doctrine. First, Linn dealt with the exclusive jurisdiction of the National Labor Relations Board, not with § 301 preemption. Second, Linn must be read in light of the Lueck Court’s more recent pronouncement on the reach of the preemption doctrine. The doctrine serves to thwart the undermining of the collective bargaining process by preventing state tort theories from ignoring the process of dispute resolution hammered out in the negotiating process. State law causes of action which adversely affect the grievance process only serve to undermine the entire collective bargaining process. That is why, as will be more fully discussed below, courts are willing to recognize an absolute privilege for statements made in the grievance process — chilling advocacy in grievance proceedings jeopardizes the entire contract process. Thus, the court finds that in the narrow instance of defamation suits brought for statements made in the grievance process, the detrimental effect of a defamation suit on the grievance process mandates preemption of such a suit.

As for the defamation claims about Garavaglia’s comments to Detective Trautz and the Michigan Employment Security Commission, the preemption argument stretches too far. The defendants claim that Garavaglia was acting within his capacity under the collective bargaining agreement. However, the fact that the Agreement recognizes the right of Central to establish management positions and operate the company does not mean that an act done in the course of managing the company involves the interpretation of the Agreement so as to mandate preemption. Garavaglia’s “right” to make statements to the police or the Commission is not set forth in or governed by the Agreement. Nor can it be said that the grievance process would suffer as a result of allowing the defamation claim in this instance. The court therefore finds that the defamation claims concerning the statements to police and the Employment Security Commission are not preempted.

Count III alleges a violation of I.C. 22-6-3-1, which provides:

Whenever any employee of any person, firm or corporation doing business in this state shall be discharged or voluntarily quits the service of such person, firm or corporation, it shall be the duty of such person, firm or the officer of the corporation having jurisdiction over such employee, upon written request of such employee, to issue such employee a letter, duly signed by such person, firm or officer, setting forth the nature and character of service rendered by such employee and the duration thereof, and truly stating for what cause, if any, such employee has quit or has been discharged from service____

Hull claims that he made a written request as provided under this statute, but that Central did not provide him with the written notice required.

Central argues that Count III is preempted because the same protection is provided under the terms of the Agreement. The general rule is that when a collective bargaining agreement provides protection which is the same as or greater than that provided by state tort law, federal law concerning the collectively bargained agreement will preempt the state cause of action. Harper v. San Diego Transit Corp., 764 F.2d 663, 668 (9th Cir.1985); Marine Transport Lines, Inc. v. International Organization of Masters, Mates & Pilots, 609 F.Supp. 282, 286 (S.D.N.Y.1985). Here, the Agreement requires that an employee be given a written warning prior to being fired, be notified of the reason for being fired, and gives the employee a mechanism to test the sufficiency of the reason for firing through the grievance procedures. In addition, Hull received written notice of the reason for his termination in the telegram from Garavaglia, and utilized the grievance machinery to test the sufficiency of the reason. The Agreement clearly provided Hull with more than I.C. 22-6-3-1 could offer. Therefore, federal law preempts Count III.

Count IV alleges a violation of I.C. 22-5-3-1, the Indiana Blacklisting statute, which provides:

A person who, after having discharged any employee from his service, prevents the discharged employee from obtaining employment with any other person commits a Class C infraction, and is liable in penal damages to the discharged employee, to be recovered by civil action; but this section does not prohibit a person from informing, in writing, any other person to whom the discharged employee has applied for employment, a truthful statement of the reasons for the discharge.

Courts have found that state law claims of blacklisting are preempted by federal labor law. See Peterson v. Air Line Pilots Ass’n., 759 F.2d 1161, 1170 (4th Cir.1985); Campbell v. McLean Trucking Co., 592 F.Supp. 1560 (E.D.N.Y.1984). Therefore, Count IV is preempted.

Count V alleges a violation of I.C. 22-2-9-2, which provides in pertinent part:

Whenever any employer separates any employee from the pay-roll, the unpaid wages or compensation of such employee shall become due and payable at regular pay day for pay period in which separation occurred.

This claim challenges the timeliness of Central’s payment of Hull’s last paycheck. However, the Agreement specifies the pay period to be used when paying out wages to employees governed by the Agreement. Quite simply, when Hull was to be paid is a function of the Agreement. Whether Hull was paid properly under the Agreement involves consideration of the Agreement itself, and thus § 301 preempts a state law claim about when wages are due.

Thus, the court finds that all of Hull’s state law claims are preempted by § 301 except his defamation claim relating to statements made by Garavaglia to Detective Trautz and the Michigan Employment Security Commission. Therefore, the only claims remaining in the case are the defamation claims and the § 301 claim of Count I. However, out of an abundance of caution, the court will consider the merits of all five counts.

II. MERITS OF THE CLAIMS

A. Count I

Given the preemption of a state breach of contract claim in Count I, this count can only be construed as a violation of § 301. However, as noted above, Hull has already brought a § 301 action against Central. This court held that Hull’s § 301 action was time-barred by the six month statute of limitations applicable to § 301 suits. Hull v. Local 414 of International Brotherhood of Teamsters, 601 F.Supp. 869 (N.D.Ind.1984). Clearly, res judicata prevents the relitigation of this § 301 claim. Therefore, Count I fails as a matter of law.

B. Count II

There are three claims of defamation in Count II: the comments made to the MCLAGC; the statements made to Detective Trautz; and the statements made to the Michigan Employment Security Commission. Garavaglia claims privileges for his statements in each instance. The court analyzes these claims in turn.

1. The Statements to MCLAGC

The statements made by Garavaglia to MCLAGC were made in the context of grievance proceedings under the Agreement. Several courts have held that statements made in grievance proceedings are unqualifiedly, or absolutely, privileged. Hasten v. Phillips Petroleum Co., 640 F.2d 274, 278 (10th Cir.1981); General Motors Corp. v. Mendicki, 367 F.2d 66, 70 (10th Cir.1966); Brooks v. Solomon Co., 542 F.Supp. 1229 (D.Ala.1982). The rationale behind this rule is that damage suits for statements made in the course of the proceedings would inhibit frank and strong statements of the parties’ positions, Hasten, 640 F.2d at 279, with the result that “the likelihood of the attainment of peaceful adjustments or disposition of the issues involved between [employers and employees] through the conference or bargaining processes would be greatly decreased.” Mendicki, 367 F.2d at 71. The court is persuaded by this precedent, and therefore finds that Garavaglia’s statements at the MCLAGC were absolutely privileged. Therefore, the defamation claim based on those statements must fail.

2. Statements to Detective Trautz

Hull’s complaint alleges that Garavaglia told Detective Trautz, who was investigating the March 11, 1983 incident, that Hull was not fired on account of the March 11 altercation but because he had beaten up an old man in Fort Wayne. Garavaglia claims that his statements are qualifiedly privileged as statements made to a law enforcement officer. However, assuming Garavaglia had a privilege, it was only a “qualified” privilege, which means that it would not attach to a statement if “the defendant acted principally through motives of ill will or ... if he acted recklessly.” Elliott v. Roach, 409 N.E.2d 661, 673 (Ind.App.1980). Hull has alleged that Garavaglia acted maliciously and deliberately in making his statements to the police detective, which is sufficient to raise an issue of fact about the applicability of the privilege. Therefore, summary judgment cannot be granted on this claim.

3. Statements to the Michigan Employment Security Commission

Hull’s final defamation claim involves statements by Garavaglia to the Michigan Employment Security Commission. It is clear under Michigan law (which would govern this claim) that statements made to the Commission are privileged. The privilege is statutorily recognized:

Any report or statement, written or verbal, made by any person to the commission, or any member thereof, or to any person engaged, in administering this law, shall be a privileged communication and no person, firm or corporation shall be held liable for slander or libel on account of such report or statement.

M.C.L.A. § 421.11(b). The language of the statute itself implies that the privilege is absolute (“no person ... shall be held liable”), and the Michigan Supreme Court has so found. Sias v. General Motors Corp., 372 Mich. 542, 127 N.W.2d 357 (1964). Therefore, Garavaglia’s statements to the Commission are absolutely privileged, and Hull’s claim must fail as a matter of law.

C. Count III

Count III claims a violation of I.C. 22-6-3-1, which requires an employer to issue a letter setting forth the reasons for discharge. I.C. 22-6-3-2, which provides that a person violating I.C. 22-6-3-1 is guilty of a Class C infraction (a misdemeanor), indicates that I.C. 22-6-3-1 is intended to be a penal statute. Being in derogation of the common law, it must be strictly construed. Palmer v. Stockberger, 135 Ind.App. 263, 193 N.E.2d 384, 387 (1963). Nothing in the statute provides for a private civil action to enforce the statute; indeed, given the fact that the legislature has opted to make violation of the statute a criminal offense, one can imply that it did not intend to create any private cause of action. Therefore, Hull cannot as a matter of law pursue a claim under I.C. 22-6-3-1.

D. Count IV

Count IV challenges a violation of the Indiana Blacklisting statute, I.C. 22-5-3-1. An examination of the statute reveals that an essential element of a claim under the statute is that the former employer must have prevented the discharged employee from obtaining employment. Here, Hull has made no allegations that he was actually unable to obtain a job because of anything said by Garavaglia or anyone else at Central. In fact, the complaint seems to focus on Garavaglia’s statements of the MCLAGC and the violation of I.C. 22-6-3-1, which does not, either directly or inferentially, suggest an actual denial of employment. Further, these two acts do not establish in any way the causal element implicit in the statute’s language.

The complaint does allege that these acts were engaged in by Garavaglia “knowingly, wrongfully and fraudulently, and with the intent that the [MCLAGC] rely upon the statements made and uphold the discharge, denying him reemployment, and with the intent to prevent him from obtaining employment with any other person or entity____” At first reading, this language appears to be either an item in a list of things allegedly intended by Garavaglia or else an assertion that MCLAGC’s denial of the appeal would result in a denial of reemployment. Neither of these would constitute an assertion of an actual prevention of employment; that would seem to require that Hull allege that he tried to get work and was unable to do so because of the “blacklisting” by Garavaglia and Central. Further, the motion for summary judgment challenged the sufficiency of the pleadings in this court, and Hull has not responded. As noted in the standards for summary judgment, a party cannot rest on mere allegations in his pleadings.

The court therefore finds that Hull has failed to make out a claim under I.C. 22-5-3-1, and that the claim as pleaded is insufficient as a matter of law.

E. Count V

The final claim alleges that Central violated I.C. 22-2-9-2, which requires payment of wages due a discharged employee on the pay day for the pay period in which the discharge occurred. Central has alleged full payment on April 14, 1983, and Hull does not dispute that fact. I.C. 22-2-9-2 is clearly concerned with timely and expeditious payment of wages due a discharged employee. In light of the fact of payment within a month of discharge, Hull can only make out a claim under this statute by showing that the pay period ended at some point sooner than April 14, 1983. Hull has made no such showing, nor has he offered any assertions or evidence of any damage done to him by the payment made on April 14, 1983. Thus, this claim as pleaded is insufficient as a matter of law.

Thus, the court’s examination of the merits of Hull’s claims reveals that only the defamation claim for statements made to Detroit Detective Trautz has any merit. Because the preemption analysis did not find that claim preempted, the court concludes that the motion for summary judgment must be denied as to that claim. However, the motion will be granted as to all other claims.

Conclusion

For the reasons stated above, the defendants’ motion is hereby DENIED as to the Count II claim for defamation in statements made to Detroit Police Detective Raymond Trautz. The motion for summary judgment is hereby GRANTED in all other respects.

      . The Seventh Circuit has made it clear that a plaintiffs attempt to cast a claim in state law terms is not determinative when the claim is in fact one under § 301. Oglesby v. RCA Corp., 752 F.2d 272, 276-77 (7th Cir.1985).

      . Additional support for this conclusion is found in an unpublished decision cited by the defendants, Green v. Hughes Aircraft Co., 630 F.Supp. 423 (S.D.Cal.1985). Green involved statements made by cafeteria workers to company investigators about the plaintiffs alleged theft of a sandwich. The court held that the statements were made in the context of the discipline of a bargaining unit employee, which was covered by the collective bargaining agreement, and thus were "central rather than tangential to rights and procedures provided under the collective bargaining agreement. They intertwine not only with management’s right to discipline for cause, but also with labor and management’s right to resolve disputes openly in accordance with their private agreement.”

      . Hull claims that the privilege asserted here cannot apply because MCLAGC is not the proper body to hear his appeal of the first denial of his grievance. According to Hull, the appeal should have been heard by a Joint State Committee. However, the unrefuted affidavit of Stephen Bridge, Secretary/Treasurer of MCLAGC, establishes that MCLAGC is a Joint Committee under the National Master Freight Agreement, from which the Agreement between Central and the Union is derived. In addition, MCLAGC’s status as a Joint Committee was an undisputed fact in Hull’s previous case before this court. Thus, Hull’s argument is without merit.

      . Under the Supreme Court’s analysis in Cort v. Ash, 422 U.S. 66, 95 S.Ct. 2080, 45 L.Ed.2d 26 (1975), the proper methodology for determining whether a private cause of action may be implied from a statute involves the examination of four factors: (1) whether the statute creates a right in favor of the plaintiff; (2) whether there is any express or implied indication of legislative intent to create or deny a remedy; (3) whether the underlying purpose of the legislative scheme is consistent with implying a private remedy; and (4) whether the cause of action is traditionally relegated to state law, an issue not relevant here. Id. at 78, 95 S.Ct. at 2088. It is clear that the second and third factors militate against finding a private cause of action. By making a violation of I.C. 22-6-3-1 a criminal offense, the legislature has indicated its desire to have the statute enforced through the prosecutorial power of the state and not through private individuals. To allow private actions to enforce criminal statutes would create chaos in the state courts, and is inconsistent with the power to enforce criminal statutes that the legislature has bestowed on prosecutors.
      This legislative intent not to create a private cause of action becomes even clearer when one examines the statute at issue in Hull’s Count IV. I.C. 22-6-3-1 states that an employer who blacklists an employee as defined in the statute "commits a Class C infraction, and is liable in penal

        damages to the discharged employee, to be recovered by civil action ” (emphasis supplied). The legislature obviously knows how to indicate that a Class C misdemeanor may be pursued by a private action, and the absence of similar language in I.C. 22-6-3-1 negates the implication of a private cause of action under that statute.


author: VIETOR, Chief Judge.

text:
    IOWA INSURANCE GUARANTY ASSOCIATION, Plaintiff, v. CANADIAN UNIVERSAL INSURANCE COMPANY, Defendant.
    Civ. No. 82-662-B.
    United States District Court, S.D. Iowa, Central Division.
    Feb. 18, 1986.
    Kent M. Forney, Des Moines, Iowa, for plaintiff.
    Richard G. Langdon, Des Moines, Iowa, for defendant.
   FINDINGS OF FACT, CONCLUSIONS OF LAW, AND ORDER FOR JUDGMENT

VIETOR, Chief Judge.

This is a diversity of citizenship case that presents a question of construction of the annual aggregate limits provision of a liability insurance policy. The case was submitted on stipulated facts and written briefs of the parties.

FINDINGS OF FACT

(1) Plaintiff Iowa Insurance Guaranty Association is an unincorporated entity created by Chapter 515B of the Code of Iowa with its place of business in Des Moines, Iowa.

(2) Defendant Canadian Universal Insurance Company is a foreign corporation with its principal place of business outside of Iowa and is licensed and conducts business as a non-life insurer.

(3) Signal Insurance Company was a California insurer conducting a non-life business.

(4) Nissen Corporation is an Iowa corporation engaged in the manufacture and sale of certain products.

(5) Effective January 1, 1975, through January 1, 1976, defendant Canadian issued to Nissen a policy of liability insurance covering, inter alia, Nissen’s liability for products manufactured by it. Relevant portions of the policy are set forth in Appendix A attached hereto.

(6) The Canadian policy provided an aggregate limit on the defendant’s liability of $300,000 per policy year. In addition, the policy provided for a $5,000 per claim deductible.

(7) During the same policy period, Signal issued its excess policy to Nissen providing $1,000,000 in liability coverage in excess of the $300,000 provided by defendant Canadian.

(8) Subsequent to January 1, 1976, Signal was declared insolvent by the state of California.

(9) Pursuant to the terms of Chapter 515B, plaintiff assumed Signal’s obligations under its policy to Nissen.

(10) From time to time claims have arisen against Nissen involving products made by Nissen, which claims were within the policies of Canadian and Signal.

(11) Defendant Canadian paid certain sums, pursuant to terms of the Canadian policy, in settlement of the liability claims against Nissen.

(12) Pursuant to the terms of the Canadian policy, the defendant paid $303,750 to settle claims for occurrences during the policy year.

(13) Pursuant to the Canadian policy provisions for a $5,000 per claim deductible, the defendant received $33,750 in reimbursement from Nissen.

(14) Subsequent to the insolvency of Signal, the defendant notified Nissen that it was the defendant’s position that it had paid its aggregate liability of $300,000 under defendant’s policy and that therefore defendant would not further defend suits against Nissen.

(15) Thereafter, plaintiff undertook the defense of Nissen and spent $5,382.71 in legal fees defending pending cases and in excess of $30,000 in settling cases still pending against Nissen.

CONTENTIONS OF THE PARTIES

The plaintiff contends that a proper construction of defendant's policy obligated the defendant to pay a net of $300,000 in order to exhaust the aggregate and fully discharge its liability under the policy. Plaintiff seeks judgment against defendant for claims it settled and legal defense fees it incurred that it contends were within the scope of defendant’s liability under the Canadian policy.

The defendant contends that under a proper construction of its policy, once it paid $300,000 gross (exclusive of deductible reimbursements) it had exhausted the aggregate and fully discharged its liability so that it had no legal obligation to pay any further sums either in settlement or defense of any claims.

CONCLUSIONS OF LAW

I agree with plaintiff. The Canadian policy clearly and unambiguously places the $300,000 aggregate limit on defendant’s “liability” under the policy, not on the total amount of judgments and settlements. Defendant’s liability on each claim is the amount of the judgment or settlement less the $5000 deductible. The clearest statement of that is the following in the $5000 deductible endorsement:

The Company’s obligation under the Bodily Injury Liability and Property Damage Liability Coverages to pay damages on behalf of the insured applies only to the amount of damages in excess of any deductible amounts stated in the schedule above as applicable to such coverages.

Plaintiff is entitled to judgment against defendant in the amount of $35,382.71.

ORDER FOR JUDGMENT

IT IS ORDERED that judgment be entered in favor of the plaintiff, Iowa Insurance Guaranty Association, and against the defendant, Canadian Universal Insurance Company, in the amount of $35,382.71, plus pre-judgment interest thereon from November 23, 1982, as provided by Iowa code § 535.3, together with post-judgment interest on the total sum as provided by federal law, and for costs of this action.

APPENDIX A

I. COVERAGE A — BODILY INJURY LIABILITY

COVERAGE B — PROPERTY DAMAGE LIABILITY

The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of

Coverage A. bodily injury or Coverage B. property damage to which this insurance applies, caused by an occurrence, if the bodily injury or property damage is included within the completed operations hazard or the products hazard, and the company shall have the right and duty to defend any suit against the insured seeking damages on account of such bodily injury or property damage, even if any of the allegations of the suit are groundless, false or fraudulent, and may make such investigation and settlement of any claim or suit as it deems expedient, but the company shall not be obligated to pay any claim or judgment or to defend any suit after the applicable limit of the company's liability has been exhausted by payment of judgments or settlements.

III. LIMITS OF LIABILITY

Regardless of the number of (1) insureds under this policy, (2) persons or organizations who sustain bodily injury or property damage, or (3) claims made or suits brought on account of bodily injury or property damage, the company’s liability is limited as follows:

Coverage A — The total liability of the company for all damages, including damages for care and loss of services, because of bodily injury sustained by one or more persons as the result of any one occurrence shall not exceed the limit of bodily injury liability stated in the declarations as applicable to “each occurrence”.

Subject to the above provision respecting “each occurrence”, the total liability of the company for all damages because of all bodily injury to which this coverage applies shall not exceed the limit of bodily injury liability stated in the declarations as “aggregate”.

Coverage B — The total liability of the company for all damages because of all property damage sustained by one or more persons or organizations as the result of any one occurrence shall not exceed the limit of property damage liability stated in the declarations as applicable to “each occurrence”.

Subject to the above provision respecting “each occurrence”, the total liability of the company for all damages because of all property damage to which this coverage applies shall not exceed the limit of property damage liability stated in the declarations as “aggregate”.

Coverages A and B — For the purpose of determining the limit of the company's liability, all bodily injury and property damage arising out of continuous or repeated exposure to substantially the same general conditions shall be considered as arising out of one occurrence.

APPLICATION OF ENDORSEMENT (Enter here any limitations on the application of this endorsement. If no limitation is entered, the deductibles apply to all loss however caused):—

It is agreed that:

1. The company’s obligation under the Bodily Injury Liability and Property Damage Liability Coverages to pay damages on behalf of the insured applies only to the amount of damages in excess of any deductible amounts stated in the schedule above as applicable to such coverages.

2. The deductible amounts stated in the schedule apply as follows:

(a) PER CLAIM BASIS — If the deductible is on a “per claim” basis, the deductible amount applies under the Bodily Injury Liability or Property Damage Liability Coverage, respectively, to all damages because of bodily injury sustained by one person, or to all property damage sustained by one person or organization, as the result of any one occurrence.

(b) PER OCCURRENCE BASIS — If the deductible is on a “per occurrence” basis, the deductible amount applies under the Bodily Injury Liability or Property Damage Liability Coverage, respectively, to all damages because of all bodily injury or property damage as the result of any one occurrence.

3. The terms of the policy, including those with respect to (a) the company’s rights and duties with respect to the defense of suits and (b) the insured’s duties in the event of an occurrence apply irrespective of the application of the deductible amount.

4. The company may pay any part or all of the deductible amount to effect settlement of any claim or suit and, upon notification of the action taken, the named insured shall promptly reimburse the company for such part of the deductible amount as has been paid by the company.

APPENDIX A — Continued

COMBINED SINGLE LIMIT — CLAUSE NO. 2

(Bodily Injury and Property Damage)

(POLICY YEAR AGGREGATE)

In consideration of the Rates and/or Premiums at which this Policy is written it is hereby understood and agreed that the Company’s liability, in the aggregate, for loss arising from an OCCURRENCE resulting in BODILY INJURY and/or PROPERTY DAMAGE shall be limited to THREE HUNDRED THOUSAND Dollars ($ 800,000. ) in respect of each OCCURRENCE or series of OCCURRENCES arising out of one event, and further subject to that limit for each OCCURRENCE, the Company’s liability, in the aggregate for all OCCURRENCES during any one policy year shall be limited to THREE HUNDRED THOUSAND Dollars ($ 300,000. )