author: NORDBERG, District Judge.

text:
    The BRUSS COMPANY, an Illinois corporation, and Hinckley & Schmitt, Inc., an Illinois corporation, individually and on behalf of all other persons similarly situated, Plaintiffs, v. ALLNET COMMUNICATION SERVICES, INC., an Illinois corporation, Michael P. Richer, Melvyn J. Goodman, Robert F. Downing, and Julia A. Vinson, Defendants.
    No. 84 C 3611.
    United States District Court, N.D. Illinois, E.D.
    April 4, 1985.

      Raymond J. Kelly, Seyfarth, Shaw, Fair-weather & Geraldson, Chicago, 111., James S. Kurz, Susan M. Jenkins, Jenkins & Kurz, Washington, D.C., for plaintiffs.
    Michael W. Coffield, Gregory A. Fried: man, Michael D. McCormick, Coffield, Ungaretti, Harris & Slavin, Robert E. Neiman, Neiman & Grais, Chicago, 111., for Allnet Communication Services, Inc.
    William J. Harte, Chicago, 111., for defendants.
    James E. Dahl, James E. Dahl & Associates, Chicago, 111., for Goodman and Richer.
   MEMORANDUM OPINION AND ORDER

NORDBERG, District Judge.

This action is before the court on joint motion of all defendants to dismiss plaintiffs’ Second Amended Complaint. For the reasons set forth below, defendants’ motion is granted in part and denied in part.

Facts

Defendant Allnet Communication Services, Inc. (“Allnet”) is a provider of long distance telephone service. It is subject to the Federal Communications Act of 1934, 47 U.S.C. § 201 et seq., and to the rules, regulations, directions and orders of the Federal Communications Commission (“FCC”). The individual defendants, Michael P. Richer, Melvyn J. Goodman, Robert F. Downing, and Julia A. Vinson, are executives, officers and/or directors of All-net. Plaintiffs, The Bruss Company and Hinckley & Schmitt, Inc., are both former subscribers to Allnet’s long distance telephone service.

Plaintiffs have sued under various legal theories, on behalf of themselves and others similarly situated, for alleged overcharges by Allnet for long distance service. In Counts I and II, plaintiffs allege alternate violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. §§ 1961-1968. Count III alleges a cause of action under the Federal Communications Act of 1934 (“Communications Act”), 47 U.S.C. § 201 et seq. The remaining counts allege state law claims for common law fraud (Count IV), violations of the Uniform Deceptive Trade Practices Act, 111. Rev.Stat. ch. 121V2, § 311 et seq. (Count V), and violations of the Illinois Consumer Fraud & Deceptive Business Practices Act, Ill.Rev.Stat. ch. I2IV2, § 261 et seq. (Count VI).

All six counts are based on the same principal allegations of overcharge and fraud. Plaintiffs essentially allege that defendants charged plaintiffs and other long distance subscribers rates in excess of the tariffs filed with the FCC. These overcharges were allegedly accomplished in three ways: (1) by inflating the distance in miles for “800 service” calls, for which charges are based on the distance between the network switching center and the place called; (2) by inflating the mileage component for normal calls placed through new switching centers, and (3) by billing calls to cities in the Allnet systems, for which lower rates were to be charged, at the higher rates for cities not within the Allnet system. Plaintiffs allege that all the defendants conspired together to conceive, and then implemented, the overcharge system as a scheme to defraud class members.

Motion to Dismiss

The defendants have moved to dismiss all six counts of the complaint on various grounds. In considering a Rule 12(b)(6) motion to dismiss, a complaint should not be dismissed unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim that would entitle him to the relief requested. Cruz v. Beto, 405 U.S. 319, 323, 92 S.Ct. 1079, 1081, 31 L.Ed.2d 263 (1972); Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957). The court must accept as true all material facts well pleaded in the complaint, and must make all reasonable inferences in the light most favorable to the plaintiff. City of Milwaukee v. Saxbe, 546 F.2d 693, 704 (7th Cir.1976). The court need not strain, however, to find inferences available to the plaintiff which are not apparent on the face of the complaint. Coates v. Illinois State Board of Education, 559 F.2d 445, 447 (7th Cir. 1977).

Counts I and II — RICO

In their original motion to dismiss, filed before the 7th Circuit Court of Appeals issued its decision in Haroco, Inc. v. American National Bank & Trust Company, 747 F.2d 384 (7th Cir.1984), defendants argued that plaintiffs’ RICO counts were deficient for failure to allege a “RICO injury.” The Haroco decision squarely rejected any requirement of alleging a “RICO injury,” and defendants have since abandoned this argument.

Defendants also advance a number of other arguments for dismissal of the RICO counts. They assert that plaintiffs have failed to plead the fraud alleged against the individual defendants with sufficient particularity to satisfy Rule 9(b) of the Federal Rules of Civil Procedure. Rule 9(b) provides that:

In all averments of fraud or mistake the circumstances constituting fraud or mistake shall be stated with particularity. Malice, intent, knowledge, and other conditions of mind of a person may be averred generally.

This requirement of greater specificity is intended to protect defendants from the harm that results from charges of serious wrongdoing, and to give the defendants notice of the conduct complained of. D & G Enterprises v. Continental Illinois National Bank, 574 F.Supp. 263, 266-67 (N.D.Ill.1983); Todd v. Oppenheimer & Co., Inc., 78 F.R.D. 415, 419 (S.D.N.Y.1978), citing Segan v. Dreyfus Corp., 513 F.2d 695, 696 (2nd Cir.1975). As the court in D & G Enterprises noted, complaints alleging fraud should seek redress for a wrong, rather than attempt to discover unknown wrongs. 574 F.Supp. at 266, citing Gross v. Diversified Mortgage Investors, 431 F.Supp. 1080, 1087 (S.D.N.Y.1977), affirmed, 636 F.2d 1201 (2nd Cir.1980).

However, Rule 9(b) must be read together with Rule 8, which requires a plain and concise statement of the claim. Tomera v. Galt, 511 F.2d 504, 508 (7th Cir.1975). Therefore, although a plaintiff must allege with particularity the specific acts comprising the fraud, he need not plead detailed evidentiary matters. The allegations should describe the circumstances constituting the fraud, including the time, place and contents of the false representations, as well as the identity of the party making the misrepresentation. D & G Enterprises, 574 F.Supp. at 267.

Moreover, when there are allegations of a fraudulent scheme with multiple defendants, the complaint must inform each defendant of the specific fraudulent acts which constitute the basis of the action against each particular defendant. Id.; Adair v. Hunt International Resources, 526 F.Supp. 736, 744 (N.D.Ill.1981); Lincoln National Bank v. Lampe, 414 F.Supp. 1270, 1278-79 (N.D.Ill.1976).

In this case, plaintiffs have made specific allegations of the manner in which the alleged fraud or overcharges were carried out by Allnet as a corporation. As noted above, the complaint specifies the three ways in which Allnet allegedly overcharged its customers. Viewing these allegations in light of the standards under Rules 9(b) and 8 discussed above, the court finds that these allegations plead fraud with sufficient particularity with respect to Allnet. However, with respect to the individual defendants, the complaint fails to include any allegation as to how any individual defendant participated in the fraud. The complaint merely alleges that Allnet and the individual defendants schemed to defraud customers by overcharging them, and then describes the types of overcharges. Nowhere does the complaint specify any act by any particular defendant through which the fraud was carried out. The individual defendants are merely “lumped” together with Allnet and accused of performing the same fraudulent acts. Under Rule 9(b) and the cases discussed above, these allegations are clearly insufficient to support claims of fraud against the individual defendants.

Plaintiffs’ response to their failure to plead any individual acts by individual defendants is that defendants have destroyed documents which would support their claim of fraud, and otherwise hindered detection of their wrongdoing. These unsupported allegations are insufficient to withstand scrutiny under Rule 9(b). As the court in D & G Enterprises noted, plaintiff should not make serious accusations of fraud until they have ascertained what wrongs have been committed; fraud should not be alleged in the hope of later discovering some. 574 F.Supp. at 266.

The Seventh Circuit has relaxed the requirement of pleading fraud with particularity in cases where matters are particularly within the knowledge of the opposing party. In these circumstances, allegations based “on information and belief” may be sufficient, but the allegations must be accompanied by a statement of facts upon which the belief is founded. Duane v. Altenburg, 297 F.2d 515, 518 (7th Cir.1962); D & G Enterprises, 574 F.Supp. at 267. Thus, even when particular facts are solely within the knowledge of the defendant, the plaintiff must still make sufficient particular allegations based “on information and belief,” and submit a statement of the facts upon which the belief is based.

In this case, plaintiffs have failed to make any particular allegations of any individual defendant’s conduct, even “on information and belief,” and plaintiff has not, and apparently is unable to, proffer any statement of facts on which such allegations could be based. Plaintiffs have therefore failed to meet the standard of Rule 9(b) for pleading fraud against the individual defendants. Accordingly, plaintiffs’ claims against the individual defendants in Counts I and II must be dismissed.

In Count I, plaintiffs allege that Allnet and all the individual defendants together defrauded plaintiffs in violation of §§ 1962(a), (b), (c) and (d). In Count II, plaintiffs alternatively allege that only the individual defendants, and not Allnet, defrauded plaintiffs in violation of § 1962(a), (b), (c) and (d). Since the allegations against all the individual defendants are fatally defective, Count II must be dismissed in its entirety. However, the analysis with respect to Count I is more complex.

Although the claims against the individual defendants in Count I must be dismissed, Allnet remains as a “person” alleged to have violated § 1962(a), (b), (c) and (d). The court must therefore address another argument raised by defendants: whether Allnet can be both the person who violates RICO and the enterprise through which the violation of RICO has been carried out.

The Seventh Circuit Court of Appeals has recently addressed this issue in Haroco, Inc. v. American National Bank, 747 F.2d 384 (7th Cir.1984). In Haroco, the court considered both the statutory language and the legislative intent of section 1962(a) and (c). Section 1962(c) provides:

(c) It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise’s affairs through a pattern of racketeering activity or collection of unlawful debt.

The court first noted that a corporation satisfies the definitions of both a “person” and an “enterprise” under section 1961. 747 F.2d at 400. The court then considered whether the act nevertheless requires that the person and the enterprise be separate entities. Focusing on the language of § 1962(c), the court observed that the provision requires that the liable person be “employed by or associated with any enterprise” which affects commerce. The court reasoned that the use of the terms “employed by” and “associated with” appears to contemplate that the person be distinct from the enterprise. The court therefore concluded that, for an action under § 1962(c), the “person” alleged to have violated the provision must be an entity separate and distinct from the “enterprise” through which commerce was affected. Id.

Employing the same analysis to § 1962(a), however, the court reached the opposite result. Section 1962(a) provides:

(a) It shall be unlawful for any person who has received any income derived, directly or indirectly, from a pattern of racketeering activity or through collection of an unlawful debt in which such person has participated as a principal within the meaning of section 2, title 18, United States Code, to use or invest, directly or indirectly, any part of such income, or the proceeds of such income, in acquisition of any interest in, or the establishment or operation of, any enterprise which is engaged in, or the activities of which affect, interstate or foreign commerce____

Once again, the court focused on the language of subsection (a), and determined that, in contrast to subsection (c), subsection (a) does not contain any language requiring that the “person” and the “enterprise” be distinct. It does not require that the person be employed by or associated with, the enterprise, or contain any other language implying that the two entities must be distinct. The court also emphasized that subsection (a) prohibits the use of income from racketeering in the “operation” of the enterprise, implying that the legislature must have envisioned a corporation using the proceeds of racketeering activity in its own operations. The court therefore concluded that, in actions under subsection (a), the person liable and the enterprise may be the same entity, i.e., “the person liable may be a corporation using the proceeds of a pattern of racketeering activity in its operations.” Id. at 402.

The court found this interpretation of subsections (a) and (c) consistent with the idea that corporations should not be liable if they are merely victims of a fraud perpetrated by lower-level employees, but that a corporation should be held liable if it has itself been a perpetrator of the fraud. Thus, under subsection (a), a corporation can be held liable if it is a perpetrator, or the direct or indirect beneficiary of the pattern of racketeering, but under subsection (c), where the corporation is merely the “victim, prize, or passive instrument” of racketeering, the corporation cannot be liable. 747 F.2d at 402.

In this case, as noted above, plaintiffs have alleged in Count I violations of § 1962(a), (b), (c) and (d). Since Allnet is the only remaining entity in Count I, it must serve as both the person liable and the enterprise. Under Haroco, the claim under § 1962(c) must be dismissed for failure to allege an enterprise separate and distinct from the “person” liable. However, the claim under § 1962(a) cannot be dismissed on this basis, since, under Haroco, Allnet may serve as both the “person” and the “enterprise.”

The Haroco court did not address whether the “person” and the “enterprise” must be distinct under § 1962(b). However, applying the same analysis, it appears that, as with subsection (c), the same entity may not serve as both “person” and “enterprise.” Section 1962(b) provides:

(b) It shall be unlawful for any person through a pattern of racketeering activity or through collection of an unlawful debt to acquire or maintain, directly or indirectly, any interest in or control of any enterprise which is engaged in, or the activities of which affect, interstate or foreign commerce.

Although this provision does not contain the language in subsection (c) requiring that the person be employed by or associated with the enterprise, it does require that the person “acquire or maintain” an “interest in or control of” any enterprise. Like the language in subsection (c), this language implies that the person acquiring an interest in or control of the enterprise must be separate from the enterprise itself. As with subsection (c), the language contemplates that the enterprise is the victim, not the perpetrator, of the crime. Separate entities must therefore fill the roles of the “person” and the “enterprise.” And, unlike subsection (a), subsection (b) does not refer to the use of funds in the “operation” of the enterprise, making unlikely the inference that the legislature intended subsection (b) to cover a corporation using the proceeds of racketeering activities for its own operations. The court therefore concludes that, for a cause of action under § 1962(b), the person liable and the enterprise must be two distinct entities. In this case, since Allnet cannot serve as both “person” and “enterprise,” plaintiffs’ claim in Count I under § 1962(b) must also be dismissed.

The only remaining claim in Count I is under § 1962(d), which makes unlawful conspiracies to violate § 1962(a), (b) and (c). Since a conspiracy necessarily requires more than one person, and the allegations with respect to the individual defendants have been dismissed, plaintiffs’ cause of action under § 1962(d) must also be dismissed.

Accordingly, the court dismisses all causes of action alleged in Count I, except for plaintiffs’ cause of action under 18 U.S.C. § 1962(a) against Allnet only. Plaintiffs are granted leave to file an amended complaint within 21 days from the date of this order. If an amendment is filed, defendants are granted 21 days to answer or otherwise plead.

Count III — Federal Communications Act

In Count III, plaintiffs allege that defendants have violated section 203(c) of Title II of the Communications Act of 1934, as amended, 47 U.S.C. § 203(c), by charging plaintiffs rates in excess of its rate schedules filed with the FCC. Section 203(c) provides:

(c) No carrier, unless otherwise provided by or under authority of this chapter, shall engage or participate in such communication unless schedules have been filed and published in accordance with the provision of this chapter and with the regulations made thereunder; and no carrier shall (1) charge, demand, collect, or receive a greater or less or different compensation for such communication, or for any service in connection therewith, between the points named in any such schedule than the charges specified in the schedule then in effect, or (2) refund or remit by any means or device any portion of the charges so specified, or (3) extend to any person any privileges or facilities in such communication, or employ or enforce any classifications, regulations, or practices affecting such charges, except as specified in such schedule.

Defendants assert that plaintiffs’ claims under the Communications Act must be dismissed and referred to the FCC under the doctrine of primary jurisdiction. This doctrine requires courts to defer to administrative agencies issues intended by Congress to be within an agency’s expert discretion. The Supreme Court described this doctrine in United States v. Western Pacific Railroad Co., 352 U.S. 59, 63-64, 77 S.Ct. 161, 165, 1 L.Ed.2d 126 (1956), in which it stated:

The doctrine of primary jurisdiction, like the rule requiring exhaustion of administrative remedies, is concerned with promoting proper relationships between the courts and administrative agencies charged with particular regulatory duties ... “Primary jurisdiction” ... applies where a claim is originally cognizable in the courts, and comes into play whenever enforcement of the claim requires the resolution of issues which, under a regulatory scheme, have been placed within the special competence of an administrative body; in such a case the judicial process is suspended pending referral of such issues to the administrative body for its views. General American Tank Car Corp. v. El Dorado Terminal Co., 308 U.S. 422, 433, 60 S.Ct. 325, 331, 84 L.Ed. 361.

Courts have applied this doctrine to require deferral to administrative agencies of matters that call for the exercise of an agency’s discretion and expertise. For example, a dispute as to whether a carrier’s rates or practices are reasonable has uniformly been deemed to be within the primary jurisdiction of the appropriate regulating agency. As the court held in Danna v. Air France, 463 F.2d 407, 409 (2nd Cir.1972):

It is beyond dispute that claims that filed tariffs are either unreasonable in amount or unduly discriminatory in effect are questions that in the first instance must be determined by the agency with the tariffs are filed. Any attempt to sue in federal court or in state court on such claims without first obtaining an agency determination of unreasonableness or undue discrimination fails to state a cause of action.

See also Montana-Dakota Utility Co. v. Northwestern Public Service Co., 341 U.S. 246, 251, 71 S.Ct. 692, 695, 95 L.Ed. 912 (1951); Detroit, Toledo and Irontown Railroad Co. v. Consolidated Rail Corp., 727 F.2d 1391, 1394-95 (6th Cir.1984); Booth v. American Telephone and Telegraph Co., 253 F.2d 57 (7th Cir.1958).

However, when a party before a court challenges not the reasonableness of a tariff but only whether the carrier has failed to abide by the tariff, no issues requiring agency discretion or expertise are raised. As the court in Danna v. Air France, supra, noted, quoting from Pennsylvania Railroad Co. v. Puritan Coal Mining Co., 237 U.S. 121, 131-32, 35 S.Ct. 484, 488, 59 L.Ed. 867 (1915):

But if the carrier’s rule, fair on its face, has been unequally applied and the suit is for damages, occasioned by its violation or discriminatory enforcement, there is no administrative question involved, the courts being called on to decide a mere question of fact as to whether the carrier has violated the rule to plaintiff’s damage. Such suits though against an interstate carrier for damages arising in interstate commerce, may be prosecuted either in the state or federal courts.

463 F.2d at 410.

The court in Detroit, Toledo, supra, recently succintly summarized the law on this matter, stating:

The rule which emerges from an examination of representative decisions is that federal courts should decide issues relating to purely commercial transactions between regulated carriers and should perform their judicial function of interpreting and enforcing contracts between such parties except when such judicial action results in interference with the functions congress has placed in the hands of the commission.

727 F.2d at 1396.

In this case, plaintiffs allege only that Allnet filed tariffs with the FCC, and then charged plaintiffs rates in excess of those stated in the tariffs. Thus, plaintiffs challenge only whether the tariff has been violated by Allnet, not whether the rates set were reasonable. The court is not called upon to set or in any way alter a tariff filed with the FCC. A decision in the merits in this case therefore requires no exercise of an administrative discretion, nor would it affect the overall regulatory scheme. The court need only decide whether the tariffs were in fact violated, a matter clearly within the province of the federal courts. The doctrine of primary jurisdiction is therefore inapplicable to this case. Accordingly, defendants’ motion to dismiss Count III is denied.

Counts IV, V and VI — State Law Claims

The remaining counts, Count IV, V and VI, allege common law fraud (Count IV), violations of the Uniform Deceptive Trade Practices Act, Ill.Rev.Stat. ch. 121V2, § 311 et seq. (Count V), and violations of the Illinois Consumer Fraud & Deceptive Business Practices Act, Ill.Rev.Stat. ch. I21V2 § 261 et seq. (Count VI). Defendants have moved to dismiss all three state law claims on the basis that they are preempted by the FCC Act.

Defendants rely primarily on Ivy Broadcasting Co. v. American Telephone & Telegraph Co., 391 F.2d 486 (2nd Cir.1968). In Ivy, the court addressed whether, in the absence of diversity jurisdiction, a federal court has jurisdiction over a claim for negligence and breach of contract in connection with telephone services provided by carrier regulated by the Communications Act. Although the court found that the remedy sought by plaintiffs was not available under the Act, it held that federal jurisdiction could be based on federal common law emanating from the act. The court observed that the broad statutory scheme embodied in the Act indicates a Congressional intent to occupy the field to the exclusion of state law. 391 F.2d at 490. The Court then concluded that:

[Qjuestions concerning the duties, charges and liabilities of telegraph or telephone companies with respect to interstate communication service are to be governed solely by federal law and ... states are precluded from acting in this area. Where neither the Communications Act nor the tariffs filed pursuant to the Act deals with a particular question, the courts are to apply a uniform rule of federal common law.

391 F.2d at 491.

Relying on this language, defendants assert that all state law claims relating to matters governed by the Communications Act are preempted by the Act. Defendants ignore, and the Ivy court did not address, however, the “savings clause” embodied in section 414 of the Act, 47 U.S.C. § 414, which provides:

Nothing in this chapter contained shall in any way abridge or alter the remedies now existing at common law or by statute, but the provisions of this chapter are in addition to such remedies.

The Supreme Court interpreted an identical “savings clause” in Nader v. Allegheny Airlines, Inc., 426 U.S. 290, 96 S.Ct. 1978, 48 L.Ed.2d 643 (1975), in which the Court upheld the plaintiff’s common law claim for fraudulent misrepresentation against an air carrier subject to regulation by the Civil Aeronautics Board under the Federal Aviation Act of 1958, 49 U.S.C. § 1381. Quoting from Texas & Pacific R. Co. v. Abilene Cotton Oil Co., 204 U.S. 426, 27 S.Ct. 350, 51 L.Ed. 553 (1907), the court noted that a common law right is not abrogated, even without a savings clause, “unless it be found that the pre-existing right is so repugnant to the statute that the survival of such right would in effect deprive the subsequent statute of its efficacy; in other words, render its provisions nugatory.” 426 U.S. at 299, 96 S.Ct. at 1984. The Court in Nader concluded that the common law remedy was not preempted because “the common law action and the statute are not ‘absolutely inconsistent’ and may coexist.” 426 U.S. at 300, 96 S.Ct. at 1985.

More recently, however, in City of Milwaukee v. Illinois, 451 U.S. 304, 101 S.Ct. 1784, 68 L.Ed.2d 114 (1981), the Supreme Court took a more restrictive view of the preemption question, holding that the previously created federal common law action for nuisance was preempted by amendments to the Federal Water Pollution Control Act, 33 U.S.C. § 1251, et seq. The savings clause in the Water Pollution Act provided that “[njothing in this section” (emphasis added) precluded other common law and statutory remedies. Siezing upon this limiting language, the Court held that, although nothing in that particular section of the act, the citizen-suit provisions, 33 U.S.C. § 1365, precluded common law remedies, the pervasive regulatory scheme of the act as a whole did preclude other remedies. 451 U.S. at 327-29, 101 S.Ct. at 1797-98. The Court may therefore be retrenching somewhat from its expansive view in Nader of savings clauses and common law remedies in highly regulated fields.

Few courts have specifically addressed the question of preemption with respect to the Communications Act. One court, in Comtronics, Inc. v. Puerto Rico Telephone Co., 553 F.2d 701 (1st Cir.1977), interpreted § 414 in a manner consistent with the Supreme Court decisions discussed above. In Comtronics, the court held that the plaintiff had no cause of action under the Communication Act because “connecting carriers” such as the defendant in that case were explicitly exempted from its coverage. The court also dismissed the plaintiff’s constitutional claims, stating that the “precisely drawn, detailed statute preempts more general remedies.” 553 F.2d at 707, quoting Brown v. G.S.A., 425 U.S. 820, 834, 96 S.Ct. 1961, 1968, 48 L.Ed.2d 402 (1976). In reaching this result, the court interpreted § 414 as follows:

Because we hold that Congress withheld a damages remedy under the Act against connecting carriers ..., we think it would make little sense to hold that a damages remedy exists against them under § 1983 for violations of the very same Act. The “existing” remedies Congress had in mind under § 414 would scarcely be remedies so closely dependent upon the Act itself; rather we read § 414 as preserving causes of action for breaches of duty distinguishable from those created under the Act, as in the case of a contract claim ...

553 F.2d at 707-08, n. 6 (citations omitted). This ruling is consistent with Nader, because the court recognized causes of action outside the act only when they do not conflict with express provisions of the act. The decision in City of Milwaukee does not impact on this interpretation of § 414, because § 414 applies specifically to the entire Communications Act, not only to a particular provision of the Act.

The same conclusion was recently reached by the court in Kaplan v. ITT-U.S. Transmissions Systems, Inc., 589 F.Supp. 729 (E.D.N.Y.1984). In Kaplan, the plaintiff alleged that the defendant charged customers for unanswered long distance calls without disclosing this fact to the customers. Plaintiffs sued under § 201(b) of the Communications Act, 47 U.S.C. § 201(b), as well as under the New York Deceptive Acts and Practices, General Business Law § 349 (McKinney’s), and for fraud, misrepresentation, and breach of agreements embodied in defendant’s advertisements.

In a well-reasoned decision, the court applied the test set forth in Comtronics, supra, and concluded that the common law claims asserted by plaintiffs are not preempted by the Communications Act. The court reasoned that the breaches of duty alleged under the common law claims are markedly different from the statutory claims. 589 F.Supp. at 735. For example, to prove fraud and misrepresentation, the plaintiff must establish a breach of a duty to disclose information, as well as scienter, reliance, and damages. Id. at 736. The court concluded that, since the common law causes of action challenge conduct that is not contemplated by the Communications Act, under Comtronics, § 414 serves to preserve the common law actions alleged by plaintiff in this case.

This court finds the reasoning in Comtronics and Kaplan persuasive, and reflective of current legal analysis of the preemption issue. Under these decisions, § 414 must be applied to preserve the common law actions alleged by plaintiffs in this case. As in Kaplan, the plaintiffs here allege common law fraud, and violation of the Illinois Consumer Fraud and Deceptive Business Practices Act and the Illinois Deceptive Trade Practices Act. The duty owed by defendants under each of these causes of action is distinct from the duties created by the Communications Act; each is intended to prohibit different types of wrongs distinct from those prohibited by the Communications Act. None of these causes of action conflicts with provisions of the Communications Act or interferes in any way with the regulatory scheme implemented by Congress. The Court therefore concludes that § 414 applies to preserve these causes of action.

Accordingly, defendants’ motion to dismiss Count IV, V and VI is denied.

      . It should be noted that the alternate remedies sought in City of Milwaukee were under federal common law, not state common law, and the court discussed the vague and indeterminate nature of federal common law remedies, in contrast with the comprehensive regulatory program supervised by an expert administrative agency established under the 1972 Amendments to the Federal Water Pollution Control Act. The decision may therefore be distinguished from the instant case on this basis, and more importantly, because the savings clause in the instant case is not limited to preserving causes of action in a particular section of the Act, but instead expressly applies to the entire Act.

      . See also Ashley v. Southwestern Bell Telephone Co., 410 F.Supp. 1389, 1392-93 (W.D.Tex.1970) (action for invasion of privacy not preempted by Communications Act); Essential Communications Systems, Inc. v. American Telephone And Telegraph Co., 610 F.2d 1114, 1120-21 (3rd Cir.1979), and Sound, Inc. v. American Telephone and Telegraph Co., 631 F.2d 1324, 1329 (8th Cir.1980) (Communications Act held not to preempt actions under antitrust laws).


source: Caselaw Access Project

author: MAGNUSON, District Judge.

license: Public Domain

text:
    UNITED STATES of America, Plaintiff, and State of Minnesota, by its Attorney General Hubert H. Humphrey, III, its Department of Health, and its Pollution Control Agency, Plaintiff-Intervenor, v. REILLY TAR & CHEMICAL CORPORATION; Housing and Redevelopment Authority of St. Louis Park; Oak Park Village Associates, Rustic Oaks Condominium, Inc., and Philip’s Investment Co., Defendants, and CITY OF ST. LOUIS PARK, Plaintiff-Intervenor, v. REILLY TAR & CHEMICAL CORPORATION, Defendant, and CITY OF HOPKINS, Plaintiff-Intervenor, v. REILLY TAR & CHEMICAL CORPORATION, Defendant. REILLY TAR & CHEMICAL CORPORATION, Plaintiff, v. UNITED STATES of America; United States Environmental Protection Agency; Lee M. Thomas, Administrator, United States Environmental Protection Agency; Jock McGraw, Acting Assistant Administrator, Office of Solid Waste and Emergency Response of the Environmental Protection Agency; Valdas V. Adamkus, Regional Administrator of Region 5 of the Environmental Protection Agency; and Duane A. Dahlberg, Chairperson of the Minnesota Pollution Control Board; Thomas J. Kalitowski, Director of the Minnesota Pollution Control Agency, and Hubert H. Humphrey, III, Attorney General of the State of Minnesota, Defendants.
    Civ. Nos. 4-80-469, 3-85-473.
    United States District Court, D. Minnesota, Fourth Division.
    April 5, 1985.

      William Sierks, David Hird, Donald Hornstein, Environmental Enforcement Section, Land & Natural Resources Div., U.S. Dept, of Justice, Washington, D.C., Robert E. Leininger, Asst. Regional Counsel, U.S. Environmental Protection Agency, Region Y, Chicago, 111., Francis X. Hermann, Asst. U.S. Atty., Minneapolis, Minn., for U.S.A.
    Stephen Shakman, Lisa Tiegel, Minnesota Pollution Control Agency, Roseville, Minn., for State of Minnesota.
    Edward J. Schwartzbauer, Michael J. Wahoske, Bill Keppel, Rebecca A. Com-stock, Dorsey & Whitney, Minneapolis, Minn., for Reilly Tar & Chemical Corp.
    Wayne G. Popham, Thomas E. Mielenhausen, Allen Hinderaker, Kathleen Martin, Popham, Haik, Schnobrich, Kaufman & Doty, Minneapolis, Minn., for City of St. Louis Park.
    Jerre A. Miller, Vesely & Miller, Hopkins, Minn., and Russell C. Brown, Stolpestad, Brown & Smith, St. Paul, Minn., for City of Hopkins.
    Laurance R. Waldoch, Lindquist & Vennum, Minneapolis, Minn., for Oak Park Village.
    Thomas W. Wexler, Peterson, Engberg & Peterson, Minneapolis, Minn., for Philip’s Inv. Co.
    James T. Swenson, Mackall, Crounse & Moore, Minneapolis, Minn., for T.C.F. Service Corp., successor in interest to Rustic Oaks Condominium, Inc.
   MEMORANDUM ORDER

MAGNUSON, District Judge.

At issue in this case is the constitutionality of the punitive damages provision of the Comprehensive Environmental Response Compensation and Liability Act of 1980 (CERCLA), 42 U.S.C. § 9601 et seq., and the penalty provision of the Minnesota Environmental Response and Liability Act (MERLA), Minn.Stat. § 115B.01 et seq. (1984). This matter is before this court upon Reilly Tar’s motion for a preliminary injunction seeking to prevent the accrual of the penalty provisions of CERCLA and MERLA. This action has an extensive litigation history and a brief recitation of that history is necessary in order to understand the issue raised by Reilly Tar’s motion.

BACKGROUND

Reilly Tar & Chemical Corporation (Reilly Tar) operated a plant in St. Louis Park, Minnesota where it processed coal tar into creosote and treated wood products with creosote. The plant was operational between 1917 and 1972 and during that time Reilly Tar disposed of chemical wastes at the St. Louis Park facility. As early as 1933, a dispute erupted between the City of St. Louis Park and Reilly Tar over Reilly Tar’s method of disposing of its chemical wastes and the possibility that it had contaminated the underground water supply in the area.

The dispute between the City and Reilly Tar resulted in the State and City filing a lawsuit against Reilly Tar in state court in 1970. See State of Minnesota, et al v. Reilly Tar & Chemical Corp., File No. 670767 (4th Jud.Dist.Minn.). That lawsuit ended in a settlement in 1973 whereby the City of St. Louis Park purchased the Reilly Tar site and entered into an agreement with Reilly Tar which provided that:

The City hereby agrees to hold Reilly harmless from any and all claims which may be asserted against it by the State of Minnesota, acting by and through the Pollution Control Agency, and will be fully responsible for restoring the property, at its expense, to any condition that may be required by the Minnesota Pollution Control Agency.

The State of Minnesota never signed the settlement document or executed a dismissal of the Reilly Tar action. In 1978, the State of Minnesota amended its complaint in the state court action alleging claims of groundwater contamination and the City of St. Louis Park intervened.

In 1980 the United States commenced this action under the Resource Conservation and Recovery Act of 1976 (RCRA), 42 U.S.C. § 6973. Three weeks after filing this action, the United States amended its Complaint to allege a cause of action under the Comprehensive Environmental Response Compensation and Liability Act of 1980 (CERCLA), 42 U.S.C. § 9601 et seq. The State of Minnesota, the City of St. Louis Park and the City of Hopkins subsequently intervened and since that time the state court action against Reilly Tar has remained dormant. In this action the United States is seeking injunctive relief to abate soil and groundwater contamination caused by Reilly Tar’s operation of its St. Louis Park plant, as well as recovery of certain costs incurred in connection with the cleanup of the Reilly Tar site.

Reilly Tar claims that this lawsuit was settled in 1973 and that, to the extent it was not settled, the City of St. Louis Park is liable for cleanup costs because it entered into a hold harmless agreement with Reilly Tar. The City of St. Louis Park has taken the position that the 1973 settlement did not contemplate groundwater contamination.

In November of 1984, this court issued a Case Management Order setting discovery deadlines and dividing this trial into two phases. Phase I of the trial will encompass those issues brought under RCRA, CERCLA and certain common law theories focusing upon the appropriate remedy for cleaning up the Reilly Tar site. Phase II of the trial will focus upon the issues related to the 1973 settlement of the state court action and the applicability of the hold harmless clause.

On August 1, 1984, the Environmental Protection Agency (EPA) issued an administrative order requiring Reilly Tar to construct and maintain a granular activated carbon water treatment system to purify the water drawn from St. Louis Park wells. On December 18,1984 the Minnesota Pollution Control Agency (MPCA) issued a Request for Response Action (RFRA) to Reilly Tar ordering it to perform, according to a predetermined schedule, the remedial actions requested by the State of Minnesota in this action. The issuance of the EPA administrative order and the RFRA by the MPCA are the events which trigger the imposition of the punitive damages and penalty provisions of CERCLA and MERLA. With respect to both the state and federal orders Reilly Tar contends the remedial action it has been ordered to perform is far more expensive than what is required to remedy properly the pollution problem at the Reilly Tar site. The dispute over the appropriate remedy is the primary issue before this court in Phase I of this trial which is scheduled to begin in September. Accordingly, Reilly Tar has refused to comply with both the state and federal order.

STATUTORY SCHEME — CERCLA AND MERLA

Before examining in detail the nature of Reilly Tar’s constitutional attack upon the penalty provisions of CERCLA and MERLA, it is necessary to briefly outline the relevant provisions of those statutes. The Comprehensive Environmental Response, Compensation and Liability Act, in order to effectuate the twin goals of cleaning up hazardous waste sites as well as holding responsible parties liable for the cost of cleanup, established several different methods for an agency to ensure the clean up of a hazardous waste site. One option of the EPA is to utilize Superfund money to clean up the site and then institute a cost recovery action against the responsible parties. 42 U.S.C. § 9607(4). See Aminoil, Inc. v. United States E.P.A., 599 F.Supp. 69, 73 (C.D.Cal.1984).

Because the number of sites far exceed the available dollars in the Superfund, however, Congress established a second method for cleaning up hazardous waste sites. The second method established by Congress calls for the EPA to order a responsible party to clean up a hazardous waste site. 42 U.S.C. § 9606(a). Aminoil, 599 F.Supp. 69 at 73. Within this second method the EPA has two options available to it. First, it may institute an enforcement action in court in which it seeks to have the court issue a mandatory injunction delineating the specific type of cleanup required. 42 U.S.C. § 9606(a). That is the option the EPA initially chose to follow in this case. Another agency option is to issue an administrative order, such as the order recently issued to Reilly Tar, ordering an allegedly responsible party to clean up utilizing the remedial method chosen by the agency. Id.

At this point in the discussion of CERCLA it is important to note that the appropriate remedial action is at the heart of the dispute between Reilly Tar and the governmental entities in this action. It is Reilly Tar’s contention that the clean up proposed by the federal government, the construction and operation of a granular activated carbon treatment system in St. Louis Park, is far more expensive than is necessary in order to alleviate any danger to the St. Louis Park water supply. Reilly Tar has strenuously argued that it is unfair for the government, after four years of litigation in which the government has sought to have the court determine the appropriate remedy for the Reilly Tar site, to preempt suddenly the court’s authority by ordering Reilly Tar to comply with the EPA’s determination of the appropriate remedy.

In response to the EPA order, Reilly Tar has several options. First, Reilly Tar may comply with the EPA order and expend the funds required for the remedy advocated by the EPA. However, if Reilly Tar complies with the EPA order and it is subsequently found at trial that the EPA remedy was unnecessary, Reilly Tar has no right of reimbursement to recover its expenses incurred in the cleanup. Aminoil, Inc. v. United States E.P.A., 599 F.Supp. 69, 73-74 (C.D.Cal.1984). Thus, if Reilly Tar complies with the EPA order there will be no meaningful opportunity to test the merits of the EPA order.

Reilly Tar’s second option, the one apparently chosen in this action, is to refuse to comply with the order of the EPA. If Reilly Tar refuses to comply with the order of the EPA and the EPA then expends Superfund money to clean up the site, this action will be converted from an action seeking a mandatory injunction against Reilly Tar to a cost recovery action. However, by refusing to comply with the EPA order Reilly Tar also exposes itself to liability under the punitive damages provisions of CERCLA. 42 U.S.C. § 9607(c)(3) provides that:

If any person who is liable for a release or threat of release of a hazardous substance fails without sufficient cause to properly provide removal or remedial action upon order of the President pursuant to section 9604 or section 9606 of this title, such person may be liable to the United States for punitive damages in an amount at least equal to, and not more than three times the amount of any costs incurred by the Fund as a result of such failure to take proper action.

The order issued by the EPA to Reilly Tar is an order under section 9606 and, hence, if Reilly Tar does not have “sufficient cause” for resisting the EPA’s order, it may be liable for treble damages.

The Minnesota Environmental Response and Liability Act provides a parallel, though slightly different, mechanism for cleaning up hazardous waste sites. Just as with CERCLA, MERLA established a superfund to be used to clean up sites with state money if necessary. Minn.Stat. § 115B.20 (1984). However, in order to preserve state resources for those cases where they are truly needed, the MPCA may not utilize superfund money unless it has first requested that a responsible party perform the clean up. Minn.Stat. § 115B.17(l)(a)(l) (1984). That request is known as a request for response action (RFRA). The MPCA issued a Request for Response Action to Reilly Tar. A second prerequisite to obtaining access to super-fund money is that the agency determine that no responsible party will perform the requested remedial action. Minn.Stat. § 115B.17(l)(a)(3). This determination is made in a document known as a Determination of Inadequate Response (DIR). Only after a determination is made that no responsible party will pay for the requested remedial action can the MPCA use its superfund money. Section 115B.18(1) of MERLA provides in part that:

Any person responsible for a release or threatened release from a facility ... shall forfeit and pay to the state a civil penalty in an amount to be determined by the court of not more than $20,000 per day for each day that the person fails to take reasonable and necessary response actions or to make reasonable progress in completing response action.

For failing to comply with the state RFRA, § 115B.18(1) exposes Reilly Tar to fines of up to $20,000 per day.

Due Process

Reilly Tar argues that the possibility that it will be found liable for punitive damages is so onerous that it is effectively precluded from testing the merits of the EPA and MPCA orders. The argument of Reilly Tar centers around a principle of law that finds its origins in Ex Parte Young, 209 U.S. 123, 28 S.Ct. 441, 52 L.Ed. 714 (1908). In Ex Parte Young the issue before the Court was the validity of certain penalty provisions for violation of a Minnesota statute which set maximum railroad freight charges. Under the Minnesota statute a railroad violating the maximum freight provisions was subject to heavy penalties and its officers and directors were subject to possible imprisonment. There was no opportunity for preenforcement review of the validity of the statute and the only way to it was to violate its provisions and be subject to penalty provisions and possible imprisonment. The U.S. Supreme Court held the statute unconstitutional on its face. Ex Parte Young, 209 U.S. 123, 147, 28 S.Ct. 441, 448, 52 L.Ed. 714 (1908). The rationale of the Court’s decision in Ex Parte Young was that a statute denies due process if the penalties for disobeying it are so severe that they effectively intimidate a party into not seeking judicial review. As the Court stated:

It may therefore be said that when the penalties for disobedience are by fines so enormous and imprisonment so severe as to intimidate the company and its officers from resorting to the courts to test the validity of the legislation, the result is the same as if the law in terms prohibited the company from seeking judicial construction of laws which deeply affect its rights.

Id. at 147, 28 S.Ct. at 449.

Since Ex Parte Young, other cases have been decided upon a similar rationale. See Oklahoma Operating Co. v. Love, 252 U.S. 331, 40 S.Ct. 338, 64 L.Ed. 596 (1920). In Love an Oklahoma statute established a commission with authority to set the maximum rates for laundry work. The statute permitted the commission to impose a penalty of up to $500 per day for each day in which a laundromat charged rates higher than those permitted by the commission. As in Ex Parte Young, there was no provision for preenforcement review and the only way of challenging the validity of the statute was to ignore its prohibitions and be subject to its penalties. In finding the statute unconstitutional the Court adopted the Ex Parte Young rationale stating that:

By boldly violating an order a party against whom it was directed may provoke a complaint; and if the complaint results in a citation to show cause why he should not be punished for contempt, he may justify before the Commission by showing that the order violated was invalid, unjust or unreasonable. If he fails to satisfy the Commission that it erred in this respect, a judicial review is opened to him by way of appeal on the whole record to the Supreme Court. But the penalties, which may possibly be imposed, if he pursues this course without success, are such as might well deter even the boldest and most confident____ Obviously a judicial review beset by such deterrents does not satisfy the constitutional requirements, even if otherwise adequate, ____

Id. at 336-37, 40 S.Ct. at 340. It is important to note that, while the penalty provisions in Love were not mandatory, they were imposed by a nonjudicial tribunal before the action was reviewed in a court.

In both Ex Parte Young and Love the statutes did not provide for preenforcement review of the validity of an order. In Ex Parte Young the penalty provisions were mandatory and it was not a defense that a party asserted a good faith challenge to the validity of the statute. In Love, while the statutory penalties were not absolutely mandatory, they were imposed by the agency enforcing the order before any opportunity for review in a court. Moreover, it was no defense to the imposition of penalties that a person subject to the order contested its validity. For those reasons, the statutes did not satisfy due process.

The significance of these features can be seen in more recent decisions of the Supreme Court. For example, in Reisman v. Caplin, 375 U.S. 440, 84 S.Ct. 508, 11 L.Ed.2d 459 (1964), the taxpayer petitioners challenged the constitutionality of § 7210 of the 1954 Internal Revenue Code which provided that any person subject to a subpoena who neglected to appear or produce books and accounts “shall, upon conviction thereof, be fined not more than $1,000, or imprisoned not more than one year or both____” See Reisman, 375 U.S. 440, 446 n. 5, 84 S.Ct. 508, 512 n. 5, 11 L.Ed.2d 459 (1964). The petitioners argued that the penalties for refusal to comply with the subpoena were so severe as to amount to a denial of due process. The Court found that the statute did not apply to situations where a witness appeared and interposed a good faith defense to a subpoena. Rather, its provisions applied only where a witness failed to appear or produce documents. The Court, in upholding the validity of the statute, noted that

It is sufficient to say that noncompliance is not subject to prosecution thereunder when the summons is attacked in good faith.

Reisman, 375 U.S. 440 at 447, 84 S.Ct. 508 at 512. See also, Dan J. Sheehan Company v. Occupational Safety and Health Review Commission, 520 F.2d 1036 (5th Cir.1975), cert. denied, 424 U.S. 965, 96 S.Ct. 1458, 47 L.Ed.2d 731 (1976) (good faith defense to imposition of retroactive penalties coupled with judicial review sufficient to sustain statute).

The decisions of the Supreme Court in Ex Parte Young and its progeny clearly establish that a person has a due process right to challenge the validity of an administrative order affecting his affairs without being forced to pay exorbitant penalties if the challenge is unsuccessful. Ex Parte Young, 209 U.S. 123, 28 S.Ct. 441, 52 L.Ed. 714 (1908); Brown & Williamson Tobacco Corp. v. Engman, 527 F.2d 1115 (2d Cir.1975). The rationale of Ex Parte Young and its progeny is that the imposition of severe penalties effectively denies a person subject to the penalties the right to a judicial review of the validity of an order and that such a denial of judicial review is a violation of due process. However, Ex Parte Young and its progeny also establish that a statute imposing penalties for noncompliance with an administrative order will be constitutional if it is a defense to the imposition of penalties that the party disobeying the administrative order interposed a good faith defense to the validity of the order. It follows that a person will not be intimidated into not seeking judicial review if he knows that good faith is a defense to the imposition of penalties.

To determine whether the punitive damages provisions of CERCLA and MERLA fall within the proscription of Ex Parte Young and its progeny, it is necessary for this court to examine both the statutory language and legislative history of the relevant statutory provisions. Specifically, the court must determine whether CERCLA and MERLA provide a sufficient defense to the imposition of punitive damages to satisfy the due process clause.

Due Process and CERCLA Punitive Damages Provision

In recent years the United States Supreme Court has emphasized that in determining the meaning of a statute the starting point is the language of the statute itself. North Dakota v. United States, 460 U.S. 300, 312, 103 S.Ct. 1095, 1102, 75 L.Ed.2d 77 (1983). Where the language of a statute is clear on its face there is no need to examine the legislative history of a statute.

Section 9607(c)(3) of CERCLA provides that a person who fails:

without sufficient cause to properly provide removal or remedial action ... may be liable to the United States for punitive damages____

Id. The first point to note about § 9607 is that a person may only be held liable for punitive damages if he does not have sufficient cause to disobey an order. A person with sufficient cause to resist an order may not, under any circumstances, be held liable for punitive damages under § 9607(c)(3). As for those persons who do not have sufficient cause to resist an order the statute provides that they may be liable for punitive damages. It is important to note that the statute does not say that a party who disobeys an order without sufficient cause “shall” be liable for punitive damages. Thus, even without an understanding of the precise contours of what constitutes “sufficient cause” to disobey an order, the plain language of the statute does not provide for mandatory penalties.

To determine whether there is sufficient flexibility in the punitive damages provision to satisfy the concerns of Ex Parte Young and its progeny, this court must attempt to determine what constitutes “sufficient cause” to disobey an order. The only court to squarely address the meaning of the “sufficient cause” language of § 9607(c)(3) found the punitive damages provision of CERCLA to be unconstitutional. Aminoil, Inc. v. United States E.P.A., 599 F.Supp. 69 (C.D.Cal. 1984). In Aminoil the court enjoined the imposition of CERCLA’s treble damages provision as a violation of the due process clause. In determining that the punitive damages provision of CERCLA violated due process, the court first noted the lack of any pre-accrual review of the administrative order. Aminoil, 599 F.Supp. 69, 73 (C.D.Cal.1984). The court then analyzed the “without sufficient cause” language of § 9607(c)(3). The court stated that while the penalty provisions would not be applied to one who had sufficient cause for noncompliance,

Such a defense appears to be extremely limited. After examination of the legislative intent behind CERCLA, it appears that “sufficient cause” as used in the statute is to be narrowly construed____ “Sufficient cause” does not appear to apply to situations in which alleged responsible parties in good faith assert a reasonable defense that is ultimately rejected by the court.

Aminoil, 599 F.Supp. 69, 73. The Aminoil court’s conclusion that the “sufficient cause” defense did not encompass a good faith defense to the proposed remedial action was critical to its conclusion that the punitive damages provision was unconstitutional.

The basis of the Aminoil court’s interpretation of the “sufficient cause” language was the legislative history of CERCLA. The only specific reference to the “without sufficient cause” language this court is aware of in the legislative history to CERCLA is found in the Senate debates. Senator Stafford, the author of the bill, stated his opinion of what would constitute sufficient cause for refusing to comply with an administrative order in the following colloquy:

MR. SIMPSON. Under section 107(c)(3), punitive damages may be imposed only when the failure to take proper removal or remedial action upon order is “without sufficient cause.” What is intended by the phrase “without sufficient cause”?
MR. STAFFORD. We intend that the phrase “sufficient cause” would encompass defenses such as the defense that the person who was the subject of the President’s order was not the party responsible under the act for the release of the hazardous substance. It would certainly be unfair to assess punitive damages against a party who for good reason believed himself not to be the responsible party. For example, if there were, at the time of the order, substantial facts in question, or if the party subject to the order was not a substantial contributor to the release or threatened release, punitive damages should either not be assessed or should be reduced in the interest of equity. There could also be “sufficient cause” for not complying with an order if the party subject to the order did not at the time have the financial or technical resources to comply or if no technological means for complying was available.
We also intend that the President’s orders, and the expenditures for which a person might be liable for punitive damages, must have been valid. In particular, they must not be inconsistent with the national contingency plan and must in the President’s belief, have been required in order to protect the public health or welfare or the environment. Thus, in deciding whether a person should be liable for punitive damages, we would expect the courts to examine the particular orders or expenditures from the fund to determine whether they were proper, given the standards of the act and of the national contingency plan, taking into account the fact that a threat to the public was posed by the situation sought to be corrected. If the orders or expenditures were not proper, then certainly no punitive damages should be assessed or they should be proportionate to the demands of equity.

1 Legislative History, 770-771.

One interpretation of the remarks of Senator Stafford, which was adopted by the Aminoil court, holds that a party has “sufficient cause” to refuse to comply with an administrative order only if it was not responsible for the release of the hazardous waste or if it did not have the technical or economic ability to comply. Aminoil, 599 F.Supp. at 73. Such an interpretation, however, is not mandated by the legislative history. Senator Stafford specifically stated that in determining whether to award punitive damages

We would expect the courts to examine the particular orders or expenditures from the Fund to determine whether they were proper, given the standards of the act and of the national contingency plan____ If the orders or expenditures were not proper, then certainly no punitive damages should be assessed or they should be proportionate to the demands of equity.

1 Legislative History at 771. The reference to the national contingency plan is instructive since one of its requirements is that there be a means of assuring that remedial actions are cost-effective. 42 U.S.C. § 9605(7). Thus, Senator Stafford’s comment, that courts could refuse to impose punitive damages because an order issued by an agency was not in accordance with the national contingency plan, can be interpreted to encompass a good faith challenge to the appropriateness (including cost effectiveness) of the proposed remedy.

The requirement that proposed remedial actions be cost-effective is an integral part of the statutory scheme. 42 U.S.C. § 9605(7). It is designed to preserve the limited funds available in the Superfund and ensure that the maximum number of hazardous waste sites are cleaned up with the minimum amount of money. A central issue in Reilly Tar’s dispute with the EPA is the cost-effectiveness of the remedy' which the EPA has ordered Reilly Tar to perform. It would completely defeat the purpose behind the cost effectiveness provision of CERCLA to hold Reilly Tar liable for punitive damages merely for asserting a good faith, albeit unsuccessful, challenge to the cost-effectiveness of the order. The effect would be virtually to nullify the § 9605(7) cost effectiveness provision.

It is clear that the punitive damages provision of CERCLA is not a mandatory penalty provision. Moreover, this court believes that a good faith defense to the validity of the EPA order is sufficient to avoid the imposition of punitive damages. Such an interpretation is consistent with the statute’s language as well as its legislative history. The central teaching of the Ex Parte Young line of due process decisions is that a person has a right to challenge the validity of an agency order affecting his affairs without being forced to pay exorbitant penalties. Because § 9607(c)(3) of CERCLA provides such a right to Reilly Tar, due process is satisfied.

Due Process and MERLA Penalty Provisions

Minn.Stat. § 115B.18(1) (1984) provides that:

Any person responsible for a release or threatened release from a facility of a pollutant or contaminant which presents an imminent and substantial danger to the public health or welfare or the environment or for a release or threatened release of a hazardous substance from a facility shall forfeit and pay to the state a civil penalty in an amount to be determined by the court of not more than $20,000 per day for each day that the person fails to take reasonable and necessary response actions____

Id. Section 115B.18(1) clearly provides that the court shall determine the amount, if any, of the penalty to be assessed for noncompliance with an administrative order. Moreover, § 115B.18(1) does not specify the time at which the penalty begins to accrue or the level of culpability required before penalties can be imposed. The obvious implication is that these matters are left to the sound discretion of the court.

In United States v. Reserve Mining Co., 412 F.Supp. 705 (D.Minn.1976) the District Court for the District of Minnesota interpreted language almost identical to the penalty provision of Minn.Stat. § 115B.18(1). See Minn.Stat. § 115.071(3) (1984). In Reserve, the court examined Minnesota’s request that the court impose penalties under § 115.071(3) which provided in part that:

Any person who violates any provision of chapters 115 or 116 ... shall forfeit and pay to the state a penalty, in an amount to be determined by the court, of not more than $10,000 per day of violation____

Id. The operative words of § 115.071(3) and § 115B.18(1) are nearly identical.

In determining whether to impose penalties upon Reserve Mining the court broke down Reserve Mining’s violations into several categories. United States v. Reserve Mining Co., 412 F.Supp. 705, 707 (D.Minn. 1976). The first category of violations for which the state sought penalties concerned Reserve’s violation of Regulation WPC 15 concerning water quality and purity standards. In refusing to impose penalties the court noted that:

Because Reserve, from the outset, has challenged the validity and applicability of WPC 15, imposition of penalties for the many violations of this regulation is not justified.

Reserve Mining, 412 F.Supp. 705, 707 (D.Minn.1976).

As to another category of violations — relating to air quality regulations — the court noted that they were “of a lesser magnitude — not the kind of acts which normally justify the imposition of punitive damages.” Id. The clear implication of the Reserve court’s decision is that a good faith challenge to the validity of an agency order is sufficient to avoid the imposition of penalties. This court believes that the penalty provision of MERLA should be interpreted in the same manner as the Reserve court interpreted the penalty provisions found in § 115.071(3). By interpreting § 115B.18(1) to mean that a good faith defense to the validity of the RFRA is sufficient to avoid the imposition of severe penalties, this court avoids any constitutional difficulty and satisfies the due process concerns of Ex Parte Young.

The State of Minnesota has also moved this court for an order permitting it to amend its Complaint to set forth a cause of action under the Minnesota Environmental Response and Liability Act (MERLA), Minn.Stat. § 115B.01 et seq. (1984). Rule 15(a) of the Federal Rules of Civil Procedure provides that a party may amend its complaint with leave of court and “leave shall be freely given where justice so requires.” Id. This court has examined Reilly Tar’s arguments in opposition to the State’s motion and concludes that Reilly Tar has not shown that it will be prejudiced by permitting the State’s amendment. For these reasons, this court will permit the State of Minnesota to amend its Complaint to state a cause of action under the Minnesota Environmental Response and Liability Act.

CONCLUSION

An examination of the statutory language of CERCLA and its legislative history leads this court to conclude that Reilly Tar can challenge the validity of the EPA order in the enforcement action that will take place before this court without being forced into paying exorbitant penalties if its challenge is rejected. The state statutory scheme leads this court to a similar conclusion. Therefore, the punitive damages provision of CERCLA, 42 U.S.C. § 9607(c)(3) as well as the penalty provision of MERLA, Minn.Stat. § 715B.18(1) (1984) do not fall within the ambit of Ex Parte Young and those provisions survive Reilly Tar’s constitutional attack.

Because this court concludes that the statutory provisions under attack in the present case are constitutional, Reilly Tar has failed to meet the requirements for a preliminary injunction set forth in Dataphase Systems, Inc. v. C.L. Systems, Inc., 640 F.2d 109 (8th Cir.1981). Moreover, this court will not issue a comparable order under the All Writs Act. 28 U.S.C. § 1651.

For the reasons set forth above, IT IS ORDERED that:

1. Reilly Tar’s motion for a preliminary injunction is denied.

2. The State of Minnesota is granted leave to amend its Complaint.

      . There are actually two actions before this court. United States v. Reilly Tar, Civil File No. 4-80-469 is the main action which has been pending before this court for over four years. The other action, Reilly Tar v. United States, Civil File No. 3-85-473 is a new action which was filed specifically for the purpose of bringing this preliminary injunction. It appears as though Reilly Tar filed the second action, adding certain individual defendants, in the hope of avoiding any abstention or Eleventh Amendment immunity issues that might be raised.

      . The court would note that if the statute provided for preenforcement review of the EPA’s order the constitutional problem raised by Reilly Tar would likely be cured. However, those courts that have considered the issue have generally concluded that an administrative order is not subject to immediate review. See e.g., Lone Pine Steering Committee v. EPA, 22 Env’t. Rep. Cas. (BNA) 1113 (D.NJ.1985); Aminoil, Inc. v. EPA, 599 F.Supp. 69, 71 (C.D.Cal.1984); Earthline Co. v. Rin-Buc, Inc., 21 Env’t. Rep. Cas. (BNA) 2161 (D.N.J.1984); United States v. Outboard Marine Corp., 22 Env’t. Rep. Cas. (BNA) 1124 (N.D.Ill.1984).

      . It is a well established principle of statutory construction that where a court has a choice between interpreting a statute in a constitutional and unconstitutional manner, a court is bound to select that interpretation which upholds the statute constitutionally. This principle is especially true where the basis for interpreting the penalty provision of CERCLA in an unconstitutional manner is the legislative history of CERCLA and not the language of the statute. Thus, this court respectfully disagrees with the Aminoil court’s interpretation of the "without sufficient cause” language of § 9607(c)(3).

      . That conclusion is buttressed by Senator Stafford's remarks that if the orders were not proper, courts should not impose punitive damages or should reduce the amount of punitive damages as "the demands of equity” require. One could hardly say that it is equitable to impose punitive damages upon a party asserting a good faith defense to the validity of an agency order.

      . During oral argument on Reilly Tar’s motion for a preliminary injunction, the court repeatedly questioned counsel on what would happen if Reilly Tar established at trial that the remedy which the EPA implemented through the use of Superfund money was not cost-effective. Could Reilly Tar avoid payment of that portion which was not cost effective? If not, what is the purpose of the requirement that remedial actions be cost-effective?
      In the present case, the government came into court seeking a mandatory injunction requiring Reilly Tar to clean up a hazardous waste site. The government bears the burden of proving in this case that its remedy is appropriate and cost-effective. In other words, Reilly Tar has a right to a de novo determination of the appropriateness and cost-effectiveness of the government’s remedy. It would be peculiar, indeed, to conclude that the government could now avoid review of the appropriateness and cost-effectiveness of its proposed remedy by simply issuing an administrative order on the eve of trial.
      The court believes that CERCLA should be interpreted to allow a responsible party to avoid payment of remedial expenses if the expenses are not shown to be cost-effective. However, such an interpretation may lead to an anomolous result. If CERCLA is so interpreted, responsible parties will be encouraged to resist agency orders because if a responsible party complies with an agency order there is no right to reimbursement from the government in the event it is later found that the order was not cost-effective. Aminoil, Inc. v. United States E.P.A., 599 F.Supp. 69, 73-74 (C.D.Cal.1984). On the other hand, permitting a defense of cost-effectiveness would be perfectly consistent with the framework provided for enforcement actions where the government bears the burden of proving the cost-effectiveness of its proposed remedial action.

      . The court would note that the EPA has recently reported to this court that it is going to use Superfund money to clean up at least part of the Reilly Tar site. To the extent the EPA pays for the cleanup, the action before this court begins to resemble a cost recovery action.