author: HADEN, Chief Judge.

text:
    Richard D. STOVER, Plaintiff, v. Edwin MEESE, III, et al., Defendants.
    Civ. A. No. 2:85-0431.
    United States District Court, S.D. West Virginia, Charleston Division.
    Jan. 3, 1986.

      Richard D. Stover, pro se.
   MEMORANDUM OPINION AND ORDER

HADEN, Chief Judge.

Richard D. Stover has brought before this Court an action in which he seeks mostly equitable relief. The Defendants have all filed motions to dismiss. The pro se Plaintiff having responded to all the dispositive motions, the Court considers the issues raised by the motions mature for decision. A brief review of the facts is necessary to fully illuminate the issues.

I. Background

In 1973, Richard Stover pled guilty in the United States District Court for the Western District of Texas to importing marijuana in violation of 21 U.S.C. § 952(a). In 1974 he was sentenced to five years imprisonment and subjected to a special parole term of five years. He served twenty-two months of his sentence and was paroled in June, 1976. On March 3, 1980, Stover was discharged from further parole conditions. Upon the advice of a county sheriff, Stover made inquiries in January, 1985, directed towards obtaining a presidential pardon for his past offense. The Office of the United States Pardon Attorney sent Stover the proper forms and documents, the latter being of an instructional and informational nature. Upon reviewing the information, Stover states that he became “concerned” about what he perceived to be limitations placed upon his coveted, but merely prospective, application for presidential pardon.

Stover’s complaint is essentially in two parts. First, he claims that the Office of the Pardon Attorney has placed limitations on the pardoning power of the President in violation of Article II, Section 2 of the Constitution. Apparently, this charge is based upon the informational literature supplied to him by the Pardon Attorney. One such piece of literature, entitled “Information and Instructions on Pardons,” contains the following advisory in its paragraph 7:

“A Presidential pardon will not erase or expunge the record of conviction and it will not indicate innocence; therefore, it still will be necessary to report the conviction where such information is required. A Presidential pardon is a forgiveness and, in those states that require it, it usually helps restore any civil rights which were lost as a result of the conviction.”

Stover interprets language of this type as preconditioning what he believes should be an unconditional pardon. Thus, Stover has named Attorney General Edwin Meese, III, as a Defendant in this action, individually and as the executive in charge of the Office of the Pardon Attorney. Stover seeks a declaratory judgment that the alleged encumbrances on the presidential pardon are unconstitutional.

Second, Stover has named as Defendants all members of the West Virginia Legislature and Secretary of State Hechler. His problems with the Legislature are manifested by several state statutes which he claims undermine the purpose and effect of a presidential pardon. For illustrative purposes, Stover attached to his complaint copies of several state statutes which “discriminate” against convicted felons. He does not identify all the statutes which he claims encumber the presidential pardon; however, he does request that the Court search out, discover and then declare unconstitutional all of those statutes which conflict with his view of the presidential pardon. Presumably, Hechler, as chief elections officer in the state, is named as a Defendant because of the election statute which does not permit a convicted felon to vote.

Ancillary to the argument that some targeted state statutes putatively encumber the presidential pardon is Stover’s argument that the mere existence of these and other statutes constitute a continuing punishment of himself and other convicted felons. In reference to the identified statutes, he accuses the legislators of enacting ex post facto laws and bills of attainder. He again requests that the Court declare such statutes unconstitutional.

As mentioned, the case is now before the Court on the separate motions of the Defendants to dismiss. The Court turns first to the substance of the State Defendants’ motions.

II. Discussion

A. The State Defendants

The State Defendants, Secretary Hechler and the members of the Legislature, both argue that the Plaintiff’s complaint is not justiciable. They contend that his case is not yet “ripe.” The Defendants point out that Stover is claiming that the mere existence of certain state statutes may hinder the effectiveness of a presidential pardon. Until he receives such a pardon, the Defendants argue, he has suffered no injury for which relief can be granted.

It is axiomatic that the jurisdiction of a federal court is confined by the “case or controversy” requirement of Article III of the federal Constitution. City of Los Angeles v. Lyons, 461 U.S. 95, 103 S.Ct. 1660, 75 L.Ed.2d 675 (1983); Flast v. Cohen, 392 U.S. 83, 88 S.Ct. 1942, 20 L.Ed.2d 947 (1968). Stover’s argument that a declaratory judgment action has a lower threshold of justicability is not well taken. Indeed, the statute authorizing a federal court to declare the rights of litigants by its terms limits such a remedy to cases of “actual controversy.” 28 U.S.C. § 2201. “Basically, the question in each case is whether the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.” Golden v. Zwickler, 394 U.S. 103, 108, 89 S.Ct. 956, 959, 22 L.Ed.2d 113 (1969) (quoting Maryland Casualty Co. v. Pacific Coal & Oil Co., 312 U.S. 270, 273, 61 S.Ct. 510, 512, 85 L.Ed. 826 (1941)).

Stover argues that the Supreme Court’s decision in Steffel v. Thompson, 415 U.S. 452, 94 S.Ct. 1209, 39 L.Ed.2d 505 (1974), a declaratory judgment action, “would seem to dispel the argument that an individual must first expose himself to actual injury before he would be able to test the constitutionality of a statute threating [sic] impending harm.” Stover’s reliance on Steffel, however, is misplaced. In Steffel, the plaintiff was threatened with prosecution under a statute which was arguably unconstitutional. He and a companion had been distributing handbills outside of a mall. When threatened with arrest, he left the area; his companion remained and was arrested. The parties stipulated that if the plaintiff returned to the mall to distribute handbills, he would probably be arrested. The Supreme Court concluded that it was unnecessary for a party to expose himself to actual arrest or prosecution to make his constitutional challenge and that a declaratory judgment action was appropriate where alleged threats of prosecution were not “imaginary or speculative.” Id. at 459, 94 S.Ct. at 1215.

The vital question in Stover’s case concerns the speculative nature of his injury. Unlike the Plaintiff in Steffel, he is not threatened with an imminent criminal prosecution. Moreover, no assessment can be made here of the likelihood of injury to Stover. Stover claims that if he receives a presidential pardon, several state statutes will interfere with his rehabilitation. Yet, Stover admits that he is not guaranteed a pardon. He also admits, as he must, that the pardon is subject to the unfettered discretion of the president — a discretion as broad as any known to the law. The Court can only conclude that the granting of a presidential pardon is a contingency which creates at most a speculative threat of future injury. Emory v. Peeler, 756 F.2d 1547 (11th Cir.1985). In the words of the Emory court, “The remote possibility that a future injury may happen is not sufficient to satisfy the ‘actual controversy’ requirement for declaratory judgments.” Id. at 1552; see also City of Los Angeles v. Lyons, 461 U.S. 95, 103 S.Ct. 1660, 75 L.Ed.2d 675 (1983) (injury or threat of injury must be both “real and immediate,” not “conjectural” or “hypothetical”); O’Shea v. Littleton, 414 U.S. 488, 94 S.Ct. 669, 38 L.Ed.2d 674 (1974) (plaintiff must be immediately in danger of sustaining some direct injury); Shell Oil Co. v. Noel, 608 F.2d 208 (1st Cir.1979) (declaratory relief is not available where the threat of state action is imaginary, speculative, or chimerical).

Stover’s alternative argument that he is continuing to be punished by state statutes which discriminate against convicted felons suffers from a similar justiciability problem. For instance, he complains of statutes which exclude convicted felons from certain occupations, but he does not allege that he has foregone employment, applied for employment, or even considered employment in those occupations covered by the statutes. The words of Justice Frankfurter are appropriately directed to the instant facts: “[T]he adjudicatory process is most securely founded when it is exercised under the impact of a lively conflict between antagonistic demands, actively pressed, which make resolution of the controverted issue a practical necessity.” Poe v. Ullman, 367 U.S. 497, 503, 81 S.Ct. 1752, 1755, 6 L.Ed.2d 989 (1961). The instant situation does not raise to the required level of justiciability. This Court cannot and will not decide constitutional issues in a vacuum.

It is not enough that Stover points his finger at allegedly unconstitutional statutes on behalf of others as well as himself. “The constitutional question ... must be presented in the context of a specific live grievance.” Golden, 394 U.S. at 110, 89 S.Ct. at 960. Moreover, the mere existence of a statute which might be applied to the Plaintiff, or those similarly-situated, at some future date is not enough to satisfy the “actual controversy” requirement of the Declaratory Judgment Act. Western Mining Council v. Watt, 643 F.2d 618 (9th Cir.) cert. denied, 454 U.S. 1031, 102 S.Ct. 567, 70 L.Ed.2d 474 (1981); French v. Devine, 547 F.Supp. 443 (D.D.C.1982) (“the mere existence of a statute ... is not ordinarily enough to sustain a judicial challenge, even by one who reasonably believes that the law applies to him and will be enforced against him according to its terms”). Stover seeks to have the Court dance merrily through the pages of the West Virginia Code with scissors in hand. The Court respectfully declines the invitation.

B. The Federal Defendants

Attorney General Meese, the sole federal defendant, has moved to dismiss the complaint on several grounds. Because the Court finds his argument of nonjusticiability to have merit, it will not address the other grounds. Stover contends that the Office of the Pardon Attorney, as directed by Meese, “has so encumbered the President’s Pardon as to make it practically worthless.” He bases this allegation on the literature forwarded to him by the Pardon Attorney. The Court’s review of the literature fails to disclose the virtue of Stover’s position. The information disseminated by the Office of the Pardon Attorney is just that — information. It does not have the force of law and, consequently, does not in any way bind the President. Stover seems to believe that if he submitted his petition in the face of the limitations and conditions allegedly attached to the presidential pardon, he would in some way waive his right to challenge those disabilities. The converse would appear to be true. Until such time as he receives a pardon, Stover cannot complain of any unconstitutional limitations which might accompany the pardon. To consider the merit of any so-called encumbrances at this point would be mere conjecture on the part of the Court. It would put the Court to the task of clearing the brush from a trail which may not be chosen for travel.

It is significant that Stover does not allege that Meese and his underlings have placed restrictions upon petitioning for a pardon. Rather, he complains of what could occur after the pardon issued. Until such time as the injuries feared by Stover progress to reality, this Court cannot grant him relief.

III. Conclusion

For the foregoing reasons, the motions of the Defendants to dismiss are granted. The case is ORDERED dismissed without prejudice.

The Clerk is directed to send a certified copy of this Memorandum Opinion and Order to counsel of record and to the pro se Plaintiff.

      . The following facts are taken for the most part from Stover’s complaint and related exhibits. The Defendants have not disputed the facts as alleged by Stover.

      . The breadth of Stover’s interpretation of the presidential pardon can be discerned from the following passage in his complaint:
      "Plaintiff asserts that [a presidential pardon] can expunge the record of conviction and in fact does. It also, in its legal effect, wipes out of existence the infamy of guilt. It makes the person to whom it is directed, a new man.”

      . Stover appears to be confused about his rights under W. Va.Code, § 3-1-3 (Supp.1985). He argues that that statute only "permits" a convicted felon to vote, whereas ordinary citizens are "entitled” to vote. Actually, a person under conviction is not permitted to vote. This disfranchisement, however, continues only for the length of the sentence. Once the sentence is served, the convicted person is again entitled to vote. 51 Op.Att’y.Gen. 182 (1965). Hence, Stover’s dispute with Hechler is imaginary.

      . The legislators also raise the defense of absolute immunity. Because of the Court’s treatment of the ripeness issue, it need not, and does not, address the immunity defense.

      . Stover cites no authority or reasoning for this proposition.


source: Caselaw Access Project

author: REYNOLDS, Chief Judge.

license: Public Domain

text:
    COATINGS, INC., Plaintiff, v. NATIONAL COLD DRAWN, INC., Defendant, and NATIONAL COLD DRAWN, INC., Defendant and Third Party Plaintiff, v. ABCOR STEEL CO., Third Party Defendant.
    Civ. A. No. 85-C-89.
    United States District Court, E.D. Wisconsin.
    Jan. 7, 1986.

      David J. Vergeront, Milwaukee, Wis., for plaintiff.
    Kenneth R. Nowakowski, Milwaukee, Wis., for defendants.
   ON MOTION FOR STAY

REYNOLDS, Chief Judge.

The third party defendant, Abcor Steel Co., has moved this court for an order staying these proceedings as to it, or in the alternative, staying the entire action. On July 2, 1985, 611 F.Supp. 958 this court rendered a decision and order that denied a similar motion on the part of the original defendant, National Cold Drawn, Inc. Ab-cor has also failed to convince the court that a stay is appropriate. For the reasons stated in this court’s order of July 2, 1985, the motion is denied.

IT IS THEREFORE ORDERED that the third party defendant’s motion for a stay of these proceedings is denied.


author: PLATT, District Judge.

text:
    Leona S. SHULTS, Individually and as Stockholder on Behalf of Hornell Broadcasting Corporation, and all other similarly situated stockholders, Plaintiff, v. Charles D. HENDERSON, Hornell Broadcasting Corporation, Defendants. Donald L. SELLERS, Plaintiff, v. Charles D. HENDERSON, Defendant.
    Nos. 84 CV 504 T, 84 CV 535 T.
    United States District Court, W.D. New York.
    Jan. 7, 1986.

      Balok & Urbanski, Elmira, N.Y. by Raymond J. Urbanski, for plaintiffs.
    Dadd & Dadd, P.C., Attica, N.Y. by Eric T. Dadd, for defendants.
   MEMORANDUM AND ORDER

PLATT, District Judge.

Plaintiff Leona S. Shults (“Shults”) sues “individually and as stockholder on behalf of Hornell Broadcasting Corporation (“HBC”) and all other similarly situated stockholders” in an amended complaint charging defendants with violation of federal securities laws and (in a pendent claim) of Section 717 of the New York State Business Corporation Law and common law fraud and deceit.

Defendant Charles D. Henderson (“Henderson”) claims (i) there is no federal jurisdiction of plaintiffs’ claims (ii) plaintiffs’ claims are barred by the applicable statute of limitations, (iii) plaintiffs have failed to prove fraud, deceit or breach of fiduciary obligation, and (iv) plaintiffs have failed to show that she, he or any other stockholders sustained any damages.

A trial was held before the undersigned (without a jury) on October 28 and 29,1985.

HBC is a New York corporation whose principal asset from its formation in the early 1950’s until 1971 was radio station WLEA in Hornell, New York.

Defendant Henderson during the relevant times herein owned approximately 60% of the stock of HBC; plaintiff Shults owned approximately 18% of the stock, and plaintiff Donald Sellers (“Sellers”) (whose separate complaint was dismissed from the bench during the trial as time-barred by the applicable statute of limitations) owned approximately 20% of the stock.

From the early 1950’s through 1971, Henderson was president of HBC and directed and managed the affairs of WLEA. Henderson was also a New York State Assemblyman and for some time prior to and during 1970 he found it difficult to perform both jobs and the station was sustaining annual losses. In addition Mrs. Henderson, who worked at the station, became seriously ill, further complicating Henderson’s ability to run the station.

In 1970 HBC had a part-time manager, Kevin Doran, working at the station. In late 1969 or early 1970 he first indicated to Henderson his interest in purchasing WLEA.

Shults’s son David A. Shults, who is an attorney, testified that for some period of time he had on behalf of his mother attempted to determine the value of his mother’s stock and that on April 23, 1970, Henderson te’ephoned him, asked if his mother would be willing to sell her shares to him and advised that the stock was not worth “a hell of a lot.” David Shults replied that his mother would not do so.

Jerome Kornfeld (“Kornfeld”), the attorney for Henderson and HBC, testified that Henderson first communicated with him in August 1970, advising that he had a buyer for WLEA. Henderson stated that the purchase price was to be $80,000 and that he would receive a consulting contract for $70,000.

Kevin Doran testified that prior to the meeting in the Binghamton area on or about August 10, 1970, there had been no discussion of price but he identified certain notes (Ex. 29) which he had made prior to the meeting in which he indicated a proposed purchase price of $150,000 and his thought that he could put $15,000 down and pay the $135,000 balance over a ten-year period. He further testified that at the said meeting attended by Henderson and Kornfeld and his brother, Stanley Do-ran, representing him as his attorney, the figure of $150,000 came up. Stanley Do-ran, he said, was opposed to this price on the ground that it was “too much” and that Kevin Doran could not afford it. Henderson, Kevin Doran testified, then came up with the breakdown of $80,000 for the assets and $70,000 for a consulting agreement.

Stanley Doran testified that he was aware of the two and one-half times gross billings rule of thumb for valuation of a business and that the station’s gross billings were almost $60,000. He was also aware of the $150,000 suggested price and was opposed to it because he did not think Kevin Doran could handle it financially. He knew Kevin Doran only had $15,000 in cash for a down payment.

Stanley Doran said Henderson asked for $150,000 and Stanley Doran’s answer was “Forget it.” Henderson then said “Give me $15,000, sign a ten-year note for $65,-000 at 7% interest, and retain me at $7,000 per year for ten years or a total of $70,-000.” Stanley Doran asked his brother whether he could handle it, and Kevin Do-ran said “Yes.” Kornfeld then said he would prepare the papers. Stanley Doran recalls that he asked Henderson whether this bound the other stockholders and Henderson said “Yes.”

Both Kornfeld and Kevin Doran, however, said there was no discussion about minority stockholders’ consent to the proposals.

Kornfeld returned to his office in Suffern, New York, drafted a proposed contract for the sale of HBC (Ex. 25) and a proposed contract that a consulting agreement for Henderson would be executed (Ex. 26). He mailed these drafts on August 14th to Stanley Doran and Henderson.

On November 9, 1970 a meeting of the HBC stockholders was held and attended by David Shults, Donald Sellers, and Mr. and Mrs. Henderson. David Shults was not aware on that date of any prior negotiations for the sale of the station. At the meeting Henderson indicated that HBC had been losing money for some time and that he was too busy to run it. Henderson did not say that he had a potential buyer but rather said that $60,000 was a fair price for the station. He did say that he thought Kevin Doran might be interested, and asked for authority to negotiate the sale of the station. Accordingly, the stockholders agreed to the following, as reflected in the meeting minutes: (1) that serious consideration be given to the sale of the station; (2) that $60,000 be the fair minimum asking price; and (3) that Henderson be authorized to seek a buyer (Ex. 9).

Two days after the stockholders’ meeting the option contract for the sale of the assets of HBC was signed (Ex. 17). Kornfeld mailed an amended draft of the consulting agreement to Stanley Doran on November 17,1970, which was to take effect when, as and if the Federal Communications Commission (“FCC”) approved the purchase (Ex. 27).

The next stockholders’ meeting was noticed for May of 1971 and with the same stockholders present Henderson indicated that he had negotiated a sale of the assets of HBC for $80,000 with $15,000 down and the balance over a ten-year period at 7%. Nothing was said with respect to Henderson’s management consulting agreement.

At about the same time, in 1971, Kevin Doran formed Patricus Enterprises, Inc. (“Patricus”), which entity purchased the assets of HBC on November 10, 1971, with a $15,000 down payment and the execution of a ten-year note for $65,000 at 7% interest. The final version of the management consulting agreement was executed on June 1, 1972 (Ex. 20). This agreement provided for payments of $7,000 annually for ten years to Henderson in return for his performance of various consulting services to Patricus. In the event of Henderson’s death payments would cease following three additional monthly installments.

David Shults testified that he learned a couple of years later that the sale had been completed but never saw the contracts or other paperwork in connection therewith.

During the ensuing ten years Henderson performed services for Patricus pursuant to the agreement, among which were advice and consultation, continued maintenance and solicitation of advertising accounts and the broadcast of weekly radio programs.

In 1974 or 1975 Sellers, at a point when he was working for Henderson, came across a legal bill to HBC for the sale of the assets (Ex. 21) and a legal bill to Henderson for the consulting contract (Ex. 22), and a handwritten memorandum prepared by Kevin Doran prior to the August meeting (Ex. 29), in files belonging to Henderson. Sellers consulted an attorney in 1978 with the thought of pursuing a legal action against Henderson and HBC but no action was taken at that time.

David Shults testified that on December 16, 1983, he received a call from Sellers inquiring whether David Shults had received a call from Henderson about selling his shares. Sellers added that he had evidence that the true purchase price was not $80,000 but $150,000. Sellers thereafter forwarded to David Shults Exhibits 21, 22 and 29.

Sellers eventually commenced his present action in May 1984, at least nine years after he had discovered what he now claims is actionable conduct on the part of Henderson. In view of these particular facts the Court dismissed Sellers’ complaint as barred by the applicable statute of limitations when such facts emerged during the course of the trial.

Plaintiff Shults’ claims are not so time-barred, however, because she had no information with respect to the fraud until December 16,1983, and commenced her action relatively promptly thereafter.

I.

JURISDICTION

The Court’s jurisdiction in this case is predicated on Section 22 of the Securities Act of 1933 (“the ’33 Act”), codified at 15 U.S.C. § 77v, and Section 27 of the Securities Exchange Act of 1934 (“the ’34 Act”) (15 U.S.C. § 78aa), and Rule 10b-5 promulgated in connection therewith (17 C.F.R. § 240.10b-5). Defendant argues that the ten-year note given by Patricus for $65,000 at 7% interest per annum secured by both a chattel mortgage and a real property mortgage is not a security within the meaning of such statutes but rather a “cash substitute.” In connection with this argument defendant also argues that there is no proof of any “purchase or sale” of a security.

Defendant not only overlooks the controlling cases in this Circuit, which liberally interpret a “security” within the meaning of the federal securities laws and which hold that kickbacks or commissions paid in connection with the exchange of a security fall within the ambit of Rule 10b-5, see, e.g., Hoff v. Sprayregen, 339 F.Supp. 369, 373 (S.D.N.Y.1971), but also the significant features of this particular transaction.

A. The Applicable Caselaw

Despite slight differences in wording between the ’33 and ’34 Acts, courts have treated the definitions of “security” in the two statutes as functional equivalents. See Tcherepnin v. Knight, 389 U.S. 332, 335-36, 88 S.Ct. 548, 552-553, 19 L.Ed.2d 564 (1967); Securities and Exchange Commission v. Diversified Industries, Inc., 465 F.Supp. 104, 107 (D.D.C.1979). Section 3(a)(10) of the ’34 Act (15 U.S.C. § 78c(a)(10)) provides in pertinent part that “[t]he term ‘security’ means any note, ... investment contract ... for a security or in general, any instrument commonly known as a ‘security’; ... but shall not include ... any note ... which has a maturity date at the time of issuance of not exceeding nine months____”

By offering that loosely-phrased definition Congress declined to articulate precise relevant economic criteria for distinguishing a security from a nonsecurity. Rather Congress painted the term with a broad brush in order to embrace within its meaning the infinite variety of financings that fall within the concept of a security. See H.R.Rep. No. 85, 73d Cong., 1st Sess., 11 (1933). In applying the Legislature’s language the Circuits have adopted different tests. The Second Circuit has taken the broadest approach in determining whether a note constitutes a security under the federal securities laws. In Exchange National Bank of Chicago v. Touche Ross & Co., 544 F.2d 1126 (2d Cir.1976), Judge Friendly offered the following guidance:

The 1934 Act says that the term “security” includes “any note ... [excepting one] which has a maturity at the time of issuance of not exceeding nine months,” and the 1933 Act says that the term means “any note” save for the registration exemption in § 3(a)(3). These are the plain terms of both acts, to be applied "unless the context otherwise requires.” A party asserting that a note of more than nine months maturity is not within the 1934 Act (or that a note with a maturity of nine months or less is within it) or that any note is not within the anti-fraud provisions of the 1933 Act has the burden of showing that “the context otherwise requires.” (Emphasis supplied.) One can readily think of many • cases where it does — the note delivered in consumer financing, the note secured by a mortgage on a home, the short-term note secured by a lien on a small business or some of its assets, the note evidencing a “character” loan to a bank customer, short-term notes secured by an assignment of accounts receivable, or a note which simply formalizes an open-account debt incurred in the ordinary course of business (particularly if, as in the case of the customer of a broker, it is collateralized). When a note does not bear a strong family resemblance to these examples and has a maturity exceeding nine months, § 10(b) of the 1934 Act should generally be held to apply.

Id. at 1137-38 (footnotes omitted).

B. The Law Applied to the Facts

The note in this case does not “bear a strong family resemblance” to any of Judge Friendly’s examples. Henderson owned 60% of the stock of HBC and he was the chief executive officer and in complete control thereof. He structured the ultimate deal in the way most profitable to, and most protective of, his majority interest in the corporation. At the conclusion of the negotiations, he took back, on behalf of HBC, a ten-year note at 7% interest secured by virtually all of the property of the Patricus corporation and a consulting agreement, both of which, i.e., the note and the consulting agreement, put HBC and him in the position of having first right to profits of the station for the ensuing ten years. This combination was unquestionably a ten-year investment in the hoped-for profitability of the WLEA station, and it was taken by defendants HBC and Henderson in exchange for the assets of HBC. Stated another way, Patricus purchased the assets of HBC with such a combination of the note and mortgages as well as the consulting agreement. Under the circumstances the note and mortgages may not be said to be anything but a security within the meaning of the federal securities Acts.

Moreover, there is no question but that the alleged “misrepresentations” and “omissions” by Henderson pertained to the value of the note or security itself. Cf. Chemical Bank v. Arthur Anderson & Co., 726 F.2d 930 (2d Cir.), cert. denied, - U.S. -, 105 S.Ct. 253, 83 L.Ed.2d 190 (1984) (holding that the same must pertain to the value of the security and where the facts indicated they did not). Plaintiff alleges that Henderson defrauded the buyer (HBC) as to the value of an available note when he failed or omitted to advise it of the full and fair value of the same, which plaintiff claims was the equivalent of the note plus the interest-free $70,000 ten-year installment amount, or a ten-year note of $135,000 at a rate of interest slightly under 3Va%.

II.

FRAUD, DECEIT, NONDISCLOSURE AND BREACH OF FIDUCIARY DUTY

Defendant Henderson argues that only if his consulting agreement “was a sham” may a claim be made that there was a duty on his part to disclose the facts with respect to the same to the minority stockholders in HBC. While this might be true, if, some two years after the sale of the assets had occurred, Patricus had for the first time commenced and thereafter completed negotiations for a separate consulting agreement with Henderson, it is not the case here. Given the facts recited above where the negotiations for the sale of the assets were so completely intertwined with the negotiation for the consulting agreement, full disclosure of all of such facts was required by Henderson to all of the minority stockholders at or before the November 1970 meeting. Not to have done so, as was the case here, constituted a fraud and deceit within the meaning of Rule 10b-5 and the indicated federal securities laws, as well as a common law fraud, deceit and breach of fiduciary obligation on the part of Henderson. See Hoff v. Sprayregen, supra, at 374.

Whether or not plaintiff or any other minority stockholder sustained any damage as a consequence thereof is a separate question.

III.

DAMAGES

The present day action of deceit derives from the older action on the case and continues the requirement that the plaintiff must have suffered substantial damage before a cause of action will lie. Nominal damages are not awarded in deceit. See, e.g., Castelli v. Abramo, 12 Misc.2d 145, 148, 176 N.Y.S.2d 525, 529 (N.Y.Mun.Ct.1956), and cases cited therein. If the plaintiff is not materially harmed by the defendant’s conduct, however flagrant it may have been, there may be no recovery, See W. Prosser & W. Keeton, The Law of Torts, p. 765 (5th ed. 1984). Nor are punitive damages available for ordinary fraud under New York law. Walker v. Sheldon, 10 N.Y.2d 401, 405, 223 N.Y.S.2d 488, 491, 179 N.E.2d 497, 498-99 (1961) (punitive damages awarded only “where the fraud, aimed at the public generally, is gross and involves high moral culpability.”).

Similarly, under Rule 10b-5 no recovery may be had absent proof of damages. Section 28(a) of the ’34 Act, codified at 15 U.S.C. § 78bb(a), the Act under which the Rule was promulgated, denies recovery to a plaintiff for any amount “in excess of his actual damages on account of the act complained of.” Byrnes v. Faulkner, Dawkins & Sullivan, 550 F.2d 1303, 1313 (2d Cir.1977) (citation omitted).

The facts in this case reveal that plaintiff's and other minority stockholders’ reliance (if any) on Mr. Henderson’s conduct was in no way detrimental to their pecuniary interests. There is no question but that Henderson performed substantial services for Patricus during the ten-year period of his consulting agreement. Indeed, according to Kevin Doran, Henderson complied with all Kevin Doran’s requests. He sold advertising, called on and pursued national accounts and agencies, and gave managerial advice to Kevin Doran at least at the start of the contract. Moreover, the station made sufficient funds in each year to meet the periodic payments as they became due on the ten-year note and most of the ten-year payments to Henderson in a timely fashion.

The proof with respect to the hours and the value of the hours spent by Henderson in the performance of such services was not adduced during the trial with any degree of precision and normally this would present a problem to the Court as trier of the facts in this matter. The crucial consideration here, however, appears to be the fact that the FCC would not have issued its approval of the transfer of the franchise from HBC to Patricus unless Kevin Doran entered into the management consulting contract which was ultimately signed with Henderson. In other words, without the contract and the services to be performed thereunder there would have been no deal in this case and the minority stockholders would have been left with their station, which was losing money and which they themselves agreed had a value of approximately $60,000 in November of 1970. In fact HBC, of course, received $80,000, or $20,000 more than the agreed upon value.

Under the circumstances, it is difficult for this Court to understand how Shults or any other stockholder has been damaged by the actions and steps taken by Henderson (no matter how theoretically fraudulent, deceitful and in breach of his fiduciary obligations the acts may have been).

In sum, plaintiff Shults and the other minority stockholders would appear to be entitled to no damages and this Court so finds and dismisses plaintiff’s complaint. The Court awards no costs and no attorneys’ fees in this action.

SO ORDERED. Submit judgment.

      . See infra notes 5-8 and accompanying text.

      . Section 717 of the New York Business Corporation Law provides in pertinent part:
      Directors and officers shall discharge the duties of their respective positions in good faith and with that degree of diligence, care and skill which ordinarily prudent men would exercise under similar circumstances in like positions.
      N.Y.Bus.Corp.Law § 717 (McKinney 1963).

      . As hereinafter indicated the FCC conditioned its approval of the transfer of the station license on the execution of a revised "managerial” con-suiting agreement with Henderson because of Kevin Doran’s lack of managerial experience (see infra at p. 1426).

      . The applicable limitations period under the federal securities laws is "one year after the discovery of the untrue statement or the omission.” 15 U.S.C. § 77m (1981). The New York statute of limitations for fraud actions is six years “computed from the time the plaintiff or the person under whom he claims discovered the fraud, or could with reasonable diligence have discovered it." N.Y.Civ.Prac.Law § 213(9) (McKinney 1972). Thus, Sellers, who discovered the fraud in 1974 or 1975, was barred from bringing' an action in federal court in 1975 or 1976 and barred from bringing a State court action in 1980 or 1981.

      . Shults’ complaint is dated May 1, 1984, within five months of David Shults’ discovery of the deceit.

      . That section provides in pertinent part:
      (a) The district courts of the United States, and the United States courts of any Territory, shall have jurisdiction of offenses and violations under this subchapter and under the rules and regulations promulgated by the Commission in respect thereto, and concurrent with State and Territorial courts, of all suits in equity and actions at law brought to enforce any liability or duty created by this subchapter. Any such suit or action may be brought in the district wherein the defendant is found or is an inhabitant or transacts business, or in the district where the offer or sale took place, if the defendant participated therein, and process in such cases may be served in any other district of which the defendant is an inhabitant or wherever the defendant may be found.
      15 U.S.C. § 77v (1981).

      . That section provides in pertinent part:
      The district courts of the United States, and the United States courts of any Territory or other place subject to the jurisdiction of the United States shall have exclusive jurisdiction of violations of this chapter or the rules and regulations thereunder, and of all suits in equity and actions at law brought to enforce any liability or duty created by this chapter or the rules and regulations thereunder.
      15 U.S.C. § 78aa (1981).

      . Rule 10b-5 reads as follows:
      It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange,
      (a) To employ any device, scheme, or artiface to defraud,
      (b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or
      (c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person,
      in connection with the purchase or sale of any security.
      17 C.F.R. § 240.1Ob-5 (1985).

      . Section 3(a)(13) of the ’34 Act (15 U.S.C. § 78c(a)(13)) defines “purchase" to include "any contract to buy, purchase or otherwise acquire.” The succeeding section defines "sale” as including "any contract to sell or otherwise dispose of." 15 U.S.C. § 78c(a)(14). These terms are to be broadly construed to properly effectuate the purpose of the Act. See First National Bank of Las Vegas, New Mexico v. Estate of Russell, 657 F.2d 668, 673 (5th Cir.1981). This Court having heard the testimony and reviewed the exhibits in this case concludes that there is sufficient evidence to warrant the finding that there was a purchase or sale within the meaning of the federal securities laws. See Pl.’s Exs. 20, 25-28 and Def.’s Ex. A.

      . Because the profitability of the WLEA station hinged to a large extent on the efforts of Kevin Doran, the sale may also be said to resemble an investment contract which "for purposes of the Securities Act means a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of ... a third party.” Securities and Exchange Commission v. W.J. Howey Co., 328 U.S. 293, 298-99 (1946).

      . The six elements of common law deceit are: (1) false representation or nondisclosure of (2) a material (3) fact; (4) the defendant must know of the falsity causing (5) the plaintiff to justifiably rely and (6) suffer damage as a consequence. L. Loss, Fundamentals of Securities Regulation, p. 809 (1983).

      . Even assuming arguendo that the consulting agreement was a "sham" (which it clearly was not), the minority stockholders’ interest in the $70,000 paid in equal installments of $7,000 per annum between 1972 and 1982 would have been at best 41% of the discounted value of such $70,000 as of November 10, 1971, i.e., approximately $13,600, which, of course, would have been paid to HBC at least until all debts of the corporation had been satisfied.


author: RICE, District Judge.

text:
    Betty Amos DEE, Plaintiff, v. Willard H. AUKERMAN, et al., Defendants.
    No. C-3-84-144.
    United States District Court, S.D. Ohio, W.D.
    Jan. 7, 1986.
    John R. Ensley, Dayton, Ohio, Joseph Patrick Burke, Kettering, Ohio, Jack Harrison, Dayton, Ohio, for plaintiff.
    James Frantz, Eaton, Ohio, Gilbert N. Henderson, Dayton, Ohio, for defendants.
   DECISION AND ENTRY OVERRULING DEFENDANTS’ MOTION TO DISMISS FOR LACK OF SUBJECT MATTER JURISDICTION; DEFENDANTS’ MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM CONDITIONALLY OVERRULED; PLAINTIFF TO FILE A MORE DEFINITE STATEMENT BY JANUARY 17, 1986; DEFENDANTS’ MOTION FOR SANCTIONS AND REASONABLE EXPENSES OVERRULED

RICE, District Judge.

Plaintiff has filed a Complaint seeking declaratory, injunctive and other relief against Defendants for the failure of A. Lucille Aukerman, deceased, to name Plaintiff as a joint inventor in a United States patent which Ms. Aukerman obtained in 1969. In response to Plaintiff’s Complaint, Defendants have filed a Motion to Dismiss (Doc. #3), citing various defects in this Court’s jurisdiction as well as in Plaintiff’s cause of action itself. The Court will address these issues in turn.

(1) Subject Matter Jurisdiction.

Plaintiff founds subject matter jurisdiction over her Complaint upon 28 U.S.C. § 1338(a), which grants the District Courts original jurisdiction over patent cases, and 35 U.S.C. § 256. The latter section, entitled “Correction of Named Inventor,” provides as follows:

Whenever through error a person is named in an issued patent as the inventor, or through error an inventor is not named in an issued patent and such error arose without any deceptive intention on his part, the commissioner may, on application of all the parties and assignees, with proof of the facts and such other requirements as may be imposed, issue a certificate correcting such error.
The error of omitting inventors or naming persons who are not inventors shall not invalidate the patent in which such error occurred if it can be corrected as provided in this section. The court before which such matter is called in question may order correction of the patent on notice and hearing of all parties concerned and the Commissioner shall issue a certificate accordingly.

Defendants’ contention is that § 256 permits a court, during the course of litigation as to the validity of a patent, to order correction of the patent on notice and hearing of all parties concerned. Defendants do not believe, on the other hand, in the absence of such patent litigation, that § 256 confers jurisdiction upon this Court to correct innocent errors of misjoinder or nonjoinder in a patent application.

This Court has found two cases in which, apparently, § 256 was found to confer original jurisdiction to resolve an inventorship dispute involving an innocent error of misjoinder or nonjoinder. Mechmetals Corp. v. Telex Computer Products, Inc., 518 F.Supp. 243 (C.D.Calif.1981); modified, 709 F.2d 1287 (9th Cir.1983); Aetna-Standard Engineering Company v. Rowland, 223 U.S.P.Q. 557, 560 (Penn.Court Common Pleas 1983). Unfortunately, in neither case is the scope of § 256 analyzed. In Mechmetals, subject matter jurisdiction was predicated upon 28 U.S.C. § 1338(a), and the court decided on the merits plaintiff’s claim that its employee was properly named as a joint inventor. There was no diversity jurisdiction available in that case. 709 F.2d at 1290 n. 4.

As for the two cases cited by Defendants, the Court finds that they, too, cannot be considered definitive with respect to subject matter jurisdiction herein. The Ninth Circuit in Bemis v. Chevron Research Company, 599 F.2d 910 (9th Cir.1979) did not reach the issue herein and explained that § 256 cannot be used to substitute one sole inventor for another, which is not the aim of Plaintiff herein. While not reaching the issue central to this case, in Iowa State University Research Foundation v. Sperry Rand Corporation, 444 F.2d 406 (4th Cir.1971), the Fourth Circuit emphasized the broad remedial purposes of Congress in enacting § 256 in 1952, and refused to require that all parties apply to the Court for correction under § 256. Id. at 410. Donald Chisum, in his treatise on patents, concludes that neither of these appellate opinions excludes the use of § 256 for an independent correction action, without the pendency of a patent infringement suit, when there is a good faith dispute as to inventorship between joint inventors. D. Chisum, Patents § 2.04[7], at 2-55 through 2-58 (1985).

Unlike the typical case in which a court is asked to imply a private remedy from a particular federal statute, § 256 specifically provides for judicial correction of a patent by means of adding an omitted inventor or deleting a named inventor. The issue here, of course, is whether § 256, when taken with 28 U.S.C. § 1335, is sufficient in itself, in the absence of patent litigation as to the validity of a patent or whether same has been infringed, to confer jurisdiction over an inventorship dispute. Nonetheless, the factors which this Court would consider in implying a private remedy from any statute which does not expressly provide for it may still prove helpful in the Court’s analysis in the instant case. Those factors, as set forward in Howard v. Pierce, 738 F.2d 722, 724 (6th Cir.1984), are as follows: The plaintiff’s membership in a protected class, the legislative intent to provide a private remedy, and a consistency of that private remedy with the “underlying purposes of the legislative scheme.” Id. at 724. The fourth factor, whether the area is one of traditional concern to the states, is not at issue herein, as patents are largely a federal province.

The legislative history of § 256 reveals that, at the time of this enactment in 1952, the patent statutes had made no provision for mistakes in the determination of persons named as inventors after the issuance of a patent. The legislative history contained in the Senate and House reports is virtually the same:

Section 256 is a new section in the law that is correlated with § 116 [35 U.S.C. § 116] and relates to a mistake in joining a person as a joint inventor. Very often two or three people make an invention together. They must apply as joint inventors. If they make a mistake in determining who are the true inventors, they do so at their peril. This provision permits a bona fide mistake in joining a person as inventor or in failing to join a person as an inventor to be corrected.

S.Rep. No. 1979, 82nd Cong., 2nd Sess. at 7 (1952). Section 116, which was also added in 1952, made provisions for the first time for corrections of innocent mistakes with respect to joint inventorship in patent applications before the commissioner. Both § 116 and § 256 were amended in 1982 in order to “enlarge the possibilities for corrections of misnamed inventors” in patent applications and in issued patents. H.Rep. No. 542, 97th Cong., 2nd Sess. at p. 9-10, reprinted in 1982 Code Cong, and Administrative News 765, 773-74. The result of this amendment was the authorization for correction in cases where the person originally named as an inventor was in fact not the inventor of the subject matter contained in the application or in the issued patent. Id.

It would appear from the legislative history as though Plaintiff herein is a member of the class sought to be protected by § 256, in that she claims that she is a joint inventor of a patent device who is not named in the issued patent. In adding §§ 116 and 256 in 1952 and then in enlarging the potential categories of relevant inventorship disputes in 1982, Congress evidently felt that innocent errors and omissions were suitable for correction either before the commissioner or, in some cases, before the court. The legislative history does not indicate, however, whether or not § 256 was intended to confer original jurisdiction in this Court to resolve solely an inventorship dispute.

However scanty, the legislative history of § 256 does indicate that a construction of § 256, under which original jurisdiction is found for adjudication of a joint inventor-ship dispute, would be consistent with the legislative scheme. The addition of the statute, as well as § 116, in 1952, and its enlargement in breadth in 1982, seems to indicate a congressional interest in resolving inadvertent mistakes with respect to joint inventorship, and with respect to the addition of joint inventors after the issuance of a patent. While § 256 does not expressly provide for such an entry into court, as does 35 U.S.C. §§ 145 and 146, cited to this Court by Defendants, nonetheless the statute does make reference to correction by the district court, while cryptically omitting precisely when such a court may take jurisdiction. As noted by T.J. Federico, Examiner in Chief of the Patent Office in 1952 and a drafter of § 256, the pertinent portion of § 256

states that the misjoinder or nonjoinder of joint inventors shall not invalidate a patent if a mistake is one that can be corrected under the section, that is, arose by error and without deceptive intention, and gives a court authority to order correction.

Commentary, 35 U.S.C.A. at 1, 50 (1952). This Court sees no persuasive reason that § 256 should not be read as conferring subject matter jurisdiction over this case, providing that Plaintiff is capable of articulating certain facts for the record as ordered by Section 3, infra, of this opinion.

(2) Exhaustion of Remedies.

Defendants argue that Plaintiff's action should be dismissed due to her failure to exhaust her remedies before the Patent Office. In 37 C.F.R. § 1.324 and § 1.20(b), certain administrative procedures for correction before the commissioner are set forth. It is noteworthy, however, that the consent of all the parties is required in order that this procedure be invoked. Section 256, on the other hand, requires only notice and a hearing in order for a District Court to order correction of a patent. In Iowa State, 444 F.2d at 406, the Fourth Circuit refused to require the consent of all parties in order for correction to be ordered under § 256, noting expressly the literal terms of the statute and the broad remedial purposes of § 256. Accordingly, Defendants’ position that this case should be dismissed for Plaintiff’s failure to exhaust her administrative remedies is not well taken, as obviously the administrative procedure set forth in the federal regulations requires a consensus not obtainable by Plaintiff.

(3) - Omission Without Deceptive Intention.

Having concluded in Part 1 of this opinion that Plaintiff is not precluded from seeking relief in this Court solely for a joint inventorship dispute, this Court’s attention necessarily focuses on that portion of § 256 which provides for correction in an issued patent only when “such error arose without any deceptive intention” on the part of the named inventor. Plaintiff’s Complaint seems to allege willful or wrongful conduct on the part of Willard Aukerman’s decedent, A. Lucille Aukerman. In her Memorandum Contra, Plaintiff appears to waffle, explaining that she knows only that she was omitted from the patent, and that she is uncertain as to whether said omission was inadvertent or wrongful. (Doc. # 5). This is simply insufficient for purposes of this action. As held by the Ninth Circuit in Bemis, § 256 is limited in effect and can only be used as a vehicle when an omission or other mistake was due to inadvertent error. 599 F.2d at 912.

Accordingly, in order to proceed in this action, Plaintiff must file, by Friday, January 17, 1986, a definite statement setting forth precisely the specific facts relevant to her claim against the Defendants herein. Only if her claim is one of erroneous omission can this Court find itself with jurisdiction to further proceed in this action. That portion of Defendants’ motion which seeks to dismiss the instant case under Fed.R. Civ.P. 12(b)(6) is thus conditionally overruled, subject to the filing of a more definite statement by Plaintiff. Upon any such filing by Plaintiff, Defendants are free to attack said statement should they feel that the nature of the conduct alleged is not the type of innocent error required in order for correction to be available under § 256.

(4) Defendants’ Motion for Expenses and Attorneys Fees Under Fed.R. Civ.P. 11.

In her Complaint, Plaintiff asks for two and a half million dollars in damages, an accounting, one half of royalties paid to Defendants, and an injunction to restrain Defendant Snugli from paying royalties to Defendants. The Complaint also seeks attorneys’ fees. Defendants have moved for reimbursement of their expenses in responding to the Complaint, as well as for attorneys’ fees, on the basis of 35 U.S.C. § 262, which provides as follows:

In the absence of any agreement to the contrary, each of the owners of a patent may make, use or sell the patented invention without the consent of and without accounting to the other owners.

Defendants allege that the damages and accounting sought by Plaintiff are precluded by the statute, and thus that the relief sought by Plaintiff is violative of Rule 11 in that it is without foundation in the law. Plaintiff has cited in return certain rulings made by former District Court Judge Duncan in a case which was settled prior to the entry of judgment on the merits. In her Memorandum Contra, Plaintiffs position appears to be that she is entitled to damages for that period of time when she was not named as a joint inventor of the patented device at issue. As a result, during that period, she was unable to make any licensing agreements. To quote from Plaintiff’s Memorandum, she was “deprived of this valuable opportunity.” (Plaintiff’s Memorandum Contra, at 4).

This Court has considerable difficulty in squaring Plaintiff’s theory of deprivation with the authority provided in § 256 for this Court to correct errors arising “without any deceptive intention.” As pointed out by Defendants, under a tortious theory of recovery, Plaintiff would have to show intentional and unjustified conduct in order to recover for the deprivation of a legally protected property interest. Restatement (2nd) of Torts, § 871. In his treaty on equity, McClintock explains that an equitable duty to account arises when one person has a fiduciary duty with respect to the money or property or another. McClintock, Equity, Ch. 20, § 201 at 538 (1948). The “restitution” of profits made by one person through the use of something “belonging” to another is usually available only where the person profiting has done so through a breach of fiduciary duty, or where that person is a conscious wrongdoer. Dobbs, Remedies, Ch. 4, § 4.5 at 273-74.

The Court is uncertain, as mentioned supra, as to how Plaintiff can allege a set of facts which would both bring her within the scope of § 256 and entitle her to this type of accounting or damages for lost profits. While the Court does not believe that Plaintiff’s request rises to the level that sanctions are required, obviously Plaintiff’s statement, which is to be filed in accordance with Section 3 of this opinion, must also touch upon the nature of the relationship between Plaintiff and A. Lucille Aukerman, deceased. At that time, not only will the compatibility of Plaintiff’s claim and § 256 become apparent, but it should also become more apparent whether there is any means for Plaintiff to continue to pursue the monetary relief sought in her Complaint. Accordingly, Defendants’ Motion for Sanctions and Reasonable Expenses is overruled.

(5) Summary.

In conclusion, this Court has overruled that portion of Defendants’ Motion which alleged a lack of subject matter jurisdiction over Plaintiff’s Complaint. That portion of Defendants’ Motion which seeks to dismiss Plaintiff’s Complaint pursuant to Rule 12(b)(6) is conditionally overruled, with Plaintiff ordered to file a more definite statement, as outlined in Part 3 of this opinion, by Friday, January 17, 1986. Defendants’ Motion to Dismiss for Failure to Exhaust Remedies is overruled, as is their Motion for Expenses and Sanctions under Rule 11.