source: Caselaw Access Project

author: STEGER, District Judge.

license: Public Domain

text:
    Sergio F. GROSSLING, v. FORD MEMORIAL HOSPITAL and James O. Dismukes.
    No. TY-84-1-CA.
    United States District Court, E.D. Texas, Tyler Division.
    Aug. 1, 1985.

      R.L. Whitehead, Jr., Whitehead-Beck-worth, Longview, Tex., for plaintiff.
    Wayne Pearson, Larry Hallman, Burford & Ryburn, Dallas, Tex., for defendants.
   FINDINGS OF FACT AND CONCLUSIONS OF LAW

STEGER, District Judge.

On January 22, 1985, came on for trial before the Court the above-entitled and numbered cause. Having heard the evidence presented and having duly considered all testimony, exhibits and arguments, the Court now enters these Findings of Fact and Conclusions of Law in conformity with Fed.R.Civ.P. 52(a). Any finding of fact that constitutes a conclusion of law shall be deemed a conclusion of law. Any conclusion of law that constitutes a finding of fact shall be deemed a finding of fact.

I. FINDINGS OF FACT

1. This action seeks monetary and injunctive relief under 42 U.S.C. § 1985 and under state law for a medical doctor who was dismissed from the staff of a private hospital.

2. At the time of the filing of this cause of action, Plaintiff was a resident of Glade-water, Gregg County, Texas, and is now a resident of Arlington, Tarrant County, Texas. Plaintiff was and is a duly licensed physician authorized to practice medicine under the laws of the State of Texas, and is a citizen of the State of Texas. Plaintiff was born on March 18, 1929 in Antofagasta, Chile, and became a citizen of the United States on December 15, 1971.

3. Defendant Ford Memorial Hospital is a private, nonprofit corporation organized under the laws of the State of Texas. Is governed by a Board of Trustees. Membership on the Board of Trustees is not a governmental position, nor are any of the trustees chosen by public officials.

4. Defendant James O. Dismukes is a citizen of the State of Texas. Starting in October of 1981 through all dates relevant to this action, he served as Executive Director of the Ford Memorial Hospital.

5. Dr. Grossling joined the staff at the Ford Memorial Hospital (hereafter referred to as “the hospital”) in August of 1981. His primary responsibilities were those of a surgeon.

6. In early 1982, plaintiff and defendant Dismukes had an informal meeting to discuss various complaints concerning plaintiff’s conduct at the hospital, particularly in surgery.

7. Later in 1982, plaintiff lost his temper and had a serious outburst in surgery. The medical staff issued a formal letter of admonition as a result.

8. In September of 1982, plaintiff was told that his services were no longer needed by the hospital after most of the doctors on the staff, including the chief of staff, Dr. H.P. Torres, had complained about plaintiff’s behavior. This message was delivered by Mr. Dismukes, and left plaintiff convinced that Dismukes was “out to get his head.”

9. In October of 1982, an ad hoc medical staff committee reviewed those surgical cases of Dr. Grossling that involved complications. On November 30, 1982, this committee found that Dr. Grossling’s surgical competency was acceptable by current medical standards. See Plaintiff’s Exhibit Nos. 1 and 2.

10. On December 1, 1982, the hospital’s Board of Trustees met to consider complaints of harassment brought by plaintiff against defendant Dismukes. Plaintiff was invited to attend the meeting but did not do so. Mr. Dismukes refuted the charges and was backed by Dr. Torres. The board voted unanimously to exonerate Mr. Dismukes. See Defendant’s Exhibit No. 3.

11. On December 21, 1982, plaintiff offered to resign from the hospital’s staff if statements concerning an alleged high infection rate among his patients were stricken from his record. No further action was taken on this offer. On December 27, 1982, plaintiff was reappointed to the medical staff, but this was done with reservations concerning plaintiff’s purportedly disruptive behavior. See Plaintiff’s Exhibit No. 3.

12. On January 21, 1983, Mr. Dismukes requested information from the director of the American College of Surgeons concerning plaintiff’s competency. See Plaintiff's Exhibit No. 4. On April 28, 1983, the Board of Trustees established a special committee to review Dr. Grossling’s professional conduct. See Defendant’s Exhibit No. 4. Dr. Grossling was not informed of these actions when they were taken.

13. On May 6, 1983, the special committee met to determine the procedure for reviewing Dr. Grossling’s conduct. Among other things, letters were sent to physicians outside the hospital’s staff soliciting their assistance in evaluating plaintiff’s competency. See Plaintiff’s Exhibit No. 5.

14. The special committee met again on July 13, 1983, to review the information received. Based on that information, the committee voted to recommend plaintiff’s permanent removal from the hospital’s staff. See Plaintiff’s Exhibit No. 6.

15. On July 20, 1983, the Board of Trustees accepted the special committee’s recommendation and voted to terminate plaintiff’s membership on the hospital’s staff. Plaintiff was informed of the board’s decision by a certified letter mailed on the same day. See Plaintiff’s Exhibit No. 7. In accordance with the hospital’s medical staff bylaws, Plaintiff requested a hearing before a special hearing committee to review the board’s decision.

16. The review hearing was conducted on August 8, 1983. Plaintiff responded to the charges against him as they had been outlined in the letter notifying him of the hearing. The hearing committee voted unanimously to affirm the board’s decision to terminate plaintiff’s staff privileges. See Defendant's Exhibit No. 5. ‘

17. The procedure employed by the special hearing committee was inconsistent with the requirements of the hospital’s medical staff bylaws. In particular, no member of the medical staff was included on the committee (§ 4.2 of the bylaws), no representative of the governing body of the hospital presented appropriate evidence in support of the dismissal (§ 5.8), and plaintiff was effectively denied the right to challenge witnesses or rebut evidence against him (§ 5.9). See Plaintiff's Exhibit 16.

18. Dr. Grossling requested appellate review by the entire board of the special hearing committee’s decision, and another hearing was scheduled for September 1, 1983. Copies of the information that formed the basis for the dismissal decision were finally sent to plaintiff on August 19, 1983.

19. The hospital’s Board of Trustees met on September 1. Dr. Grossling brought a tape recorder and evidenced his intent to record the proceedings. The board’s chairman refused to allow this, and Dr. Grossling left. The board subsequently finalized its decision to dismiss plaintiff. See Plaintiff’s Exhibit No. 13.

20. Defendant Dismukes did not discriminate against plaintiff because of his national origin. Although one witness, Dr. John Delcambre, suggested that the fact that plaintiff graduated from a foreign medical school may have played a small role in causing the friction between Mr. Dismukes and Dr. Grossling, there was no overt evidence of this attitude. In fact, most of the hospital’s medical staff at the time had graduated from foreign schools, and no problems involving those doctors were brought to light. The difficulties and resulting turmoil between Mr. Dismukes and Dr. Grossling were caused by their individual personality conflicts.

II. DISCUSSION

Plaintiffs amended complaint seeks recovery based on two theories: First, the complaint alleges that Mr. Dismukes and the hospital conspired against plaintiff in violation of 42 U.S.C. § 1985(3). Second, the complaint alleges that the defendants treated plaintiff unfairly when they dismissed him from the hospital’s staff, a violation of the laws of the State of Texas. Plaintiff has requested this Court to invoke its pendent jurisdiction over the latter claim. Both claims will be discussed separately.

A. Conspiracy

In order to prevail on a claim based on 42 U.S.C. § 1985(3), the plaintiff must establish four things by a preponderance of the evidence:

(1) A conspiracy;

(2) For the purpose of depriving, either directly or indirectly, any person or class of persons of equal protection of the law, or of equal privileges and immunities under the law; and

(3) An act in furtherance of the conspiracy;

(4) Whereby a person is either injured in his person or property or is deprived of some right, privilege or immunity accorded to citizens of the United States. United Broth. of Carpenters & Joiners v. Scott, 463 U.S. 825, 103 S.Ct. 3352, 3356, 77 L.Ed.2d 1049 (1983); Griffin v. Breckenridge, 403 U.S. 88, 102, 91 S.Ct. 1790, 1798, 29 L.Ed.2d 338 (1971).

In order to prevent § 1985(3) from being used in every instance where two or more people conspire to injure another, the Court has stressed the importance of the second element, which requires the existence of some invidious, class-based animus that motivates the conspiracy. Scott, 103 S.Ct. at 3359; Griffin, 403 U.S. at 102, 91 S.Ct. at 1798.

There is some question concerning the existence of a conspiracy in this case, and the litigants have spent a good deal of time briefing this issue. Defendants argue that all the parties involved acted as agents for the corporate hospital, meaning that only one party — the corporation — acted against the plaintiff. With only one party involved, no conspiracy is possible.

Even in an antitrust context, where corporate conspiracies are not recognized, it has been held that a medical staff is a combination of individuals capable of a conspiracy. See Weiss v. York Hospital, 745 F.2d 786, 814 (2d Cir.1984). To the extent that the medical staff at Ford Memorial Hospital involved themselves in the revocation of plaintiff’s staff privileges, a conspiracy among them and the hospital, through its agents, may have existed. The only parties named in plaintiff’s complaints, however, are the hospital and its executive director.

Plaintiff, therefore, has limited himself to an allegation of conspiracy between a corporate hospital’s executive director and its governing board. According to the Supreme Court, there is a disagreement among the circuits on whether corporate employees can conspire with themselves or with the corporation in violation of § 1985(3). Copperweld Corp. v. Independence Tube Corp., — U.S.-, 104 S.Ct. 2731, 2744 n. 24, 81 L.Ed.2d 628 (1984). The Third Circuit has held that under the proper circumstances, corporate employees can conspire among themselves. See Novotny v. Great Am. Federal S. & L. Ass’n, 584 F.2d 1235, 1259 (3rd Cir.1978) (en banc), vacated and remanded on other grounds, 442 U.S. 366, 99 S.Ct. 2345, 60 L.Ed.2d 957 (1979). Novotny rejected the prevailing rule from the Seventh Circuit that there could be no intracorporate conspiracies for § 1985(3) purposes. See Dombrowski v. Dowling, 459 F.2d 190 (7th Cir.1972) (Stevens, J.). At least one Fifth Circuit panel has indicated a preference for the Novotny approach. Dussouy v. Gulf Coast Investment Corp., 660 F.2d 594, 603 (5th Cir.1981). Employing the reasoning of Dussouy and Novotny, plaintiff adequately alleged a conspiracy between defendant Dismukes and the hospital’s governing board. Novotny left at least one major question unanswered, however, for even if corporate agents can conspire amongst themselves and incur liability, it is unclear whether the corporation itself also incurs liability because of their actions. See generally Note, Intracorporate Conspiracies Under 42 U.S. C. § 1985(c), 92 Harv.L.Rev. 470, 475 (1978). This question need not be answered in this case, and any remaining factual issues concerning intracorporate conspiracy need not be decided, since the plaintiff has in any event failed to satisfy two of the other essential elements of a § 1985(3) cause of action.

First, plaintiff has failed to prove that an invidious, class-based animus motivated the actions taken against him. Plaintiff alleged that the defendants conspired against him because of his Chilean ancestry and heritage. Yet no persuasive evidence was presented tending to support that allegation.

The evidence presented concerned only two incidents allegedly demonstrating some racial bias. On one occasion, Dr. Foster, a member of the medical staff at the hospital, allegedly referred to plaintiff as a “wetback.” As noted earlier, however, the members of the medical staff were not named as parties to this action or the conspiracy, and this one comment does not support the conclusion that racial animosity spurred the conspiracy, if any, between Dismukes and the hospital board. Nor does this one comment suggest any ill will towards people of Chilean descent.

The only other evidence of a purported racial bias was a comment by Dismukes referring to plaintiffs “Latin temper.” Again, this falls far short of proving the existence of a conspiracy motivated by hatred for Chileans, or even a hatred for anyone who might be described as being of Latin descent. The comment seemingly was motivated by plaintiffs alleged short temper, and not his national origin. From the evidence adduced at trial it seems that plaintiff had some personality traits, possibly including his temper, that led to many of his disputes with Dismukes. Even if this one comment, taken together with subsequent actions, did demonstrate that Dismukes disliked'plaintiff because of his race or national origin, there was absolutely no evidence offered to demonstrate a similar sentiment among the hospital’s directors. . Lacking this proof, it cannot be said that the conspiracy was rooted in racial prejudice, since one of the parties to the alleged conspiracy harbored no such ill will toward plaintiff.

In the face of the two incidents described above, numerous witnesses, including some called by plaintiff, supported the conclusion that racial discrimination did not instigate a conspiracy against plaintiff. Dr. Roger Whitman of the hospital’s staff testified on cross-examination that he did not believe plaintiff’s national origin was the cause of the actions taken against him. This same belief was affirmed by Gerald Johnson, formerly the administrator at Ford Memorial Hospital’s Clinic, and Rebecca McClure, a registered nurse at the hospital at the time. Dr. John Delcambre of the hospital’s staff testified that the problems between plaintiff and Dismukes arose out of personality conflicts rather than racial prejudice.

There was little evidence presented relating to plaintiff’s competence as a surgeon, and it is unfortunate that this entire episode has become a blot on his career. His difficulties at Ford Memorial Hospital cannot be attributed to any racial prejudice, however, especially since at least five other doctors on the hospital’s staff had ties to foreign countries and none suffered similar problems. While it may be somewhat trite, it is also true that many times people do not get along simply because their personalities clash. Based on the evidence presented at trial, this seems to be the likely explanation for the events that transpired at the Ford Memorial Hospital. While it may have been unpleasant, that is not enough to state a cause of action under § 1985(3).

A second reason remains that also banishes plaintiff’s cause of action from the ranks of § 1985(3) conspiracies. The Supreme Court, in dicta, has endorsed the Seventh Circuit’s view that § 1985(3) does not provide substantial rights itself, but rather the rights sought to be vindicated must be found elsewhere. If the rights that are found require a component of state action for their infringement, such as the equal protection and due process claims in this case, then state action becomes a prerequisite to a successful § 1985(3) cause of action. See Scott, 103 S.Ct. at 3358; citing Great American Fed. S. & L. Ass’n v. Novotny, 442 U.S. 366, 372, 99 S.Ct. 2345, 2349, 60 L.Ed.2d 957 (1979) (“... to make out their § 1985(3) case, it was necessary for respondents to prove that the state was somehow involved in or affected by the conspiracy.”) See also Dombrowski v. Dowling, 459 F.2d 190, 194-95 (7th Cir.1972) (the first pronouncement of the occasional requirement for state action in § 1985(3) cases).

Plaintiff did not establish that the state was involved in or affected by the purported conspiracy in this case. Plaintiff admits that the defendant hospital is a private, non-profit corporation. Plaintiff has nevertheless attempted to devise some state involvement based on two factors: First, Ford Memorial Hospital, like all public and private hospitals today, received substantial funds from state and federal sources such as Medicare and Medicaid. Second, since Ford Memorial Hospital is the only medical facility in the area, it is quasi-public and, in plaintiffs opinion, a state actor.

There are three ways these factors could be used to demonstrate that a facially private entity is really acting under color of state law. First, a plaintiff may show that there is a sufficiently close nexus between regulations imposed by a state and the challenged action of the regulated entity so that the action of the latter may fairly be attributed to the state. Blum v. Yaretsky, 457 U.S. 991, 1004, 102 S.Ct. 2777, 2786, 73 L.Ed.2d 534 (1982), citing Jackson v. Metropolitan Edison Co., 419 U.S. 345, 351, 95 S.Ct. 449, 453, 42 L.Ed.2d 477 (1974). Plaintiff has not attempted to find such a nexus in this case, other than the reference to governmental funds received by the hospital. No state regulation imposed on the hospital directly led to the denial of plaintiff’s staff privileges, however, and the existence of some governmental funding falls far short of establishing the required nexus.

Second, a plaintiff may prove state action by showing that the state exercised coercive power or provided significant overt or covert encouragement to induce the challenged private action. Yaretsky, 457 U.S. at 1004, 102 S.Ct. at 2786, citing Flagg Bros., Inc. v. Brooks, 436 U.S. 149, 166, 98 S.Ct. 1729, 1738, 56 L.Ed.2d 185 (1978). Mere approval of or acquiescence in the private activity is insufficient to prove state involvement. Yaretsky, 457 U.S. at 1004-05, 102 S.Ct. at 2785-86. Again, the only allegation by plaintiff that arguably relates to this method of proving state action is the reference to the governmental funds received by the hospital. The hospital’s receipt of financial support, however, is insufficient to show state action standing alone. See Herwald v. Schweiker, 658 F.2d 359, 362 (5th Cir.1981) (nursing home not state actor); Briscoe v. Bock, 540 F.2d 392, 395-96 (8th Cir.1976) (no state action where private hospital dismissed a physician from its staff despite the fact that it received government funds and was subject to state regulation). In order to implicate the state, there must be some connection between the governmental contacts and the challenged action of the hospital. In effect, it is necessary to show that the regulations imposed or the funds received led to, or caused, plaintiff’s dismissal from the hospital’s staff. Greco v. Orange Memorial Hospital Corp., 513 F.2d 873, 879 (5th Cir.), cert. denied, 423 U.S. 1000, 96 S.Ct. 433, 46 L.Ed.2d 376 (1975). There was nothing in this case to indicate such a causal relationship or other link between the governmental contacts and the challenged conduct. Neither state regulations nor governmental funding played any role in plaintiff’s dismissal from the medical staff at the hospital.

There is a third way to establish state involvement in cases involving private action. If the private entity exercises powers that are traditionally the exclusive prerogative of the state, the required nexus is present and the state action requirement is satisfied. Yaretsky, 457 U.S. at 1005, 102 S.Ct. at 2786. By arguing that the Ford Memorial Hospital is quasi-public since it is the only medical facility in the area, plaintiff in effect is arguing that it performs functions traditionally undertaken by the state. Many hospitals and medical facilities, if not most, are privately owned and operated. Plaintiff presented no evidence or authority supporting the proposition that the provision of medical care is a traditional, inherent function of the state.' There is no doubt that government has become heavily involved in guaranteeing access to medical care, primarily through programs like Medicare and Medicaid. Government does not always provide the actual facilities or personnel, however. In that sense, the Ford Memorial Hospital is a privately owned enterprise “providing services that the State would not necessarily provide,” and is not a state actor. Yaretsky, 457 U.S. at 1011, 102 S.Ct. at 2789; Greco, 513 F.2d at 881-82.

The government’s involvement with this hospital is not related to its decision to dismiss plaintiff. For this reason, plaintiff has failed to satisfy the state action requirement of his § 1985(3) claim, and has therefore failed to establish a second essential element of that claim. Plaintiff’s only remaining claim concerns his allegedly unfair treatment under state law.

B. Unfair Treatment

In addition to his § 1985(3) conspiracy action, plaintiff also asserted a claim under state law alleging unfair treatment in the manner of his dismissal from the hospital’s staff. Taking plaintiff’s allegations to heart, the Court will strictly apply state law in deciding this issue.

In Texas, when a hospital discriminates against or dismisses a doctor seeking to retain his staff membership, the power of a court to intervene depends on whether the hospital is a public or private institution. Tigua General Hospital v. Feuerberg, 645 S.W.2d 575, 578 (Tex.App.—El Paso 1982, writ dism’d w.o.j.). Plaintiff has stipulated that the Ford Memorial Hospital is a private, non-profit corporation, and the preceding discussion concerning state action indicates that the state is in no other way implicated in the hospital’s actions toward plaintiff. The Ford Memorial Hospital is therefore a private institution.

Under Texas law, a private hospital acts at its own discretion when deciding questions concerning staff membership, and its decisions are not subject to judicial review. Feuerberg, 645 S.W.2d at 578. The exclusion of a physician from a private hospital’s staff is solely within the discretion of the hospital’s management, and courts may not interfere. Charter Medical Corp. v. Miller, 605 S.W.2d 943 (Tex.Civ.App. — Dallas 1980, writ ref’d n.r. e.); Weary v. Baylor University Hospital, 360 S.W.2d 895 (Tex.Civ.App.—Waco 1962, writ ref’d n.r.e.). This rule does not provide an exception for cases such as the present one where the hospital’s management did not strictly follow its own self-imposed procedures, especially since Texas courts have held that procedural due process is not required in these cases. Charter Medical, 605 S.W.2d at 951. This Court may not interfere with the hospital’s decision.

Plaintiff attempted to carve one exception to the rule by relying on Hodges v. Arlington Neuropsychiatric Center, Inc., 628 S.W.2d 536 (Tex.App.—Fort Worth 1982, writ ref’d n.r.e.). In Hodges, the court referred to an argument advanced by the plaintiffs at trial alleging that the Arlington facility was quasi-public in nature, and therefore not entitled to the immunity afforded to private hospitals. The court noted that the quasi-public distinction came from New Jersey and California law, and lacked authority in Texas. The plaintiff correctly notes that the court did not reject the quasi-public argument, but it certainly did not accept it either. Instead, the court relied on Charter Medical and Geary to affirm the trial court’s conclusion that the plaintiff failed to state a cause of action. 628 S.W.2d at 538.

This Court is also unwilling to depart from the rule set out in Charter Medical and Geary. Just as in Hodges, this Court is also convinced that while the treatment plaintiff received from the hospital may have been unpleasant, it was not irrational or unreasonable. Under such circumstances, the quasi-public argument is unavailing.

CONCLUSIONS OF LAW

Based on the preceding discussion, the Court has reached the following conclusions of law:

1. The Court has jurisdiction over the subject matter and parties involved in this action pursuant to 28 U.S.C. § 1331 and pendent claim jurisdiction. Venue is proper in this Court.

2. Plaintiff failed to prove two essential elements of his conspiracy cause of action under 42 U.S.C. § 1985(3). First, he failed to prove that the conspiracy against him, if any, was motivated by an invidious, racially-based animus. Second, he failed to prove sufficient state involvement as required when a § 1985(3) conspiracy claim is based on the deprivation of rights secured by the fourteenth amendment to the Constitution.

3. The defendant, Ford Memorial Hospital, is a private institution. Under the laws of the State of Texas, this Court is precluded from interfering in the decisions made by a private hospital’s administrators regarding the denial of physician staff privileges. Even if the law of Texas was disregarded, and federal law applied in its stead, plaintiff failed to satisfy the state action requirement that would be imposed by that law.

4. Plaintiff Sergio F. Grossling is not entitled to any of the relief he requested.

5. All costs are to be borne by the respective parties.

JUDGMENT

This action having come on for trial before the court, without a jury, and the issues having been tried and a decision having been duly rendered, the Court has this day entered its Findings of Fact and Conclusions of Law directing judgment for the reasons stated therein.

It is, therefore, ORDERED that defendants, Ford Memorial Hospital and James O. Dismukes, have judgment over and against plaintiff, Sergio F. Grossling, and that said plaintiff take nothing by virtue of his claims against defendants.

It is further ORDERED that all costs are to be borne by the respective parties. See Fed.R.Civ.P. 54(d).


text:
    MATCO TOOLS CORPORATION, Plaintiff, v. PONTIAC STATE BANK, David Cox, Clotilde Cox, The Travelers Indemnity Co. and Connecticut Bank & Trust, Defendants.
    No. 84-CV-2972-DT.
    United States District Court, E.D. Michigan, S.D.
    Aug. 1, 1985.

      John R. Mann, III, of Fildew, Hinks, Gilbridge, Miller & Todd, Detroit, Mich., for ■ plaintiff.
    Rockwood W. Bullard, Lyon, Colbert & Bullard, Rochester, Mich., for defendants David & Clotilde Cox.
    Daniel J. Bernard of Booth, Patterson, Lee, Karlstrom & Steekling, Pontiac, Mich., for Connecticut Bank and Pontiac State Bank.
   MEMORANDUM OPINION

RALPH M. FREEMAN, Senior District Judge.

Mateo Tools Corporation has brought this action against several defendants on various theories. In the portion of the lawsuit presently before the court, Mateo, as the named payee on a negotiable instrument, seeks to recover the value of the instrument from Pontiac State Bank, as depository bank, under warranty and conversion theories, for accepting the instrument for deposit over an allegedly forged endorsement. Both parties have moved for summary judgment.

The material facts are largely undisputed. David Cox was a distributor of Mateo Tools. Cox purchased the tools from Mateo on credit and assigned to Mateo a security interest in the tools and their proceeds. Cox did business under the assumed name of DMC Enterprises.

On August 16, 1980, Cox opened a commercial checking account at Pontiac State Bank under the name DMC Enterprises. At the time he opened the account, Cox presented Pontiac State Bank with a letter from Mateo’s Controller. That letter, on Mateo Tools stationery, states:

To Whom It May Concern:

In the normal course of business, an authorized Mateo Tools Distributor, who is an independent businessman, will receive checks from his customers designating the payee as Mateo, Mateo Tools, Mateo Man, Tool Man, etc. These checks are rightfully payable to the Distributor for amounts due him. We hereby authorize him to endorse these checks for deposit as the intended payee.
Any questions regarding the above should be directed to my attention.
Very truly yours,
MATCO TOOLS CORPORATION /s/
Dale Gillespie
Controller

Cox also obtained an endorsement stamp which states:

FOR DEPOSIT ONLY
Pay to the Order of
PONTIAC STATE BANK
MATCO TOOLS
DMC ENTERPRISES,
AUTHORIZED DISTRIBUTOR
3160-364-5

Pontiac State Bank provided Cox with deposit slips which stated “DMC Enterprises, authorized Mateo Tool Distributor,” and which were imprinted with the Mateo Symbol.

In May 1983, a quantity of Cox’s tools were stolen. Cox’s insurer, The Travelers Indemnity Company, sent a settlement check in the amount of $24,960.71 to Cox. The check was payable to “David M. Cox and Mateo Tools Corp.” Cox endorsed the check with his own signature and the deposit stamp and deposited the check into the DMC Enterprises account at Pontiac State Bank. The money deposited was later withdrawn by Cox. Mateo, named as a loss payee on the Travelers insurance policy, never received any proceeds from the insurance settlement.

Mateo alleges that Cox forged Mateo’s endorsement on the check. Mateo seeks to recover the value of the check from Pontiac State Bank under warranty and conversion theories. Mateo contends that Pontiac State Bank is liable for breaching a warranty that all endorsements are authorized. UCC §§ 3 — 417(2)(b), 4-207(2)(b) (MCLA §§ 440.3417(2)(b), 440.4207(2)(b)). Mateo also contends that Pontiac State Bank is liable for converting the check under UCC § 3-419(l)(c) (MCLA § 440.3419(l)(c)).

Warranty

The Uniform Commercial Code imposes certain implied warranties in connection with negotiable instruments. Mateo relies upon the implied warranties imposed by sections 3 — 417(2)(b) and 4-207(2)(b). Section 3-417(2)(b) provides:

(2) Any person who transfers an instrument and receives consideration warrants to his transferee and if the transfer is by indorsement to any subsequent holder who takes the instrument in good faith that
(b) all signatures are genuine or authorized.

MCLA § 440.3417. Section 4-207(2)(b) provides:

(2) Each customer and collecting bank who transfers an item and receives a settlement or other consideration for it warrants to his transferee and to any subsequent collecting bank who takes the item in good faith that
(b) all signatures are genuine or authorized.

MCLA § 440.4207.

These sections have no application here. Pontiac State Bank was the depository bank in regard to the check from Travelers. Mateo was one of two named payees on the check. Neither section 3-417 nor section 4-207 create any warranties which run expressly to a payee from a depository bank. The only case which addresses the issue holds that a payee may not maintain an action against the depository bank under either section 3-417 or 4-207. See National Surety Corp. v. Citizens State Bank, 41 Colo.App. 580, 583, 593 P.2d 362, 365 (1978), aff’d, 199 Colo. 497, 612 P.2d 70 (1980). No authority holds that a payee may maintain an action against a depository bank under these sections. This court will not so hold.

Since no implied warranties imposed by the UCC run to Mateo, Mateo cannot maintain any breach of warranty action. For this reason, the court will grant Pontiac State Bank’s motion for summary judgment as to plaintiff’s breach of warranty claim.

Conversion

Both the Uniform Commercial Code and the common law of Michigan permit a direct action by a payee against a depository or collecting bank which forwarded an instrument bearing a forged endorsement for collection. For the common law rule, see Brown v. People’s State Bank, 170 Mich. 416, 136 N.W. 506 (1912); Kaufman v. State Savings Bank, 151 Mich. 65, 114 N.W. 863 (1908). For the UCC rule, see Sherriff-Goslin Co. v. Cawood, 91 Mich.App. 204, 283 N.W.2d 691 (1979); Grieshaber v. Michigan National Bank of Detroit, 18 UCC Rep.Serv. 1248 (Detroit Common Pleas 1976).

The relevant UCC provision is section 3-419, which provides in pertinent part:

(1) An instrument is converted when
(c) it is paid on a forged indorsement.
(3) Subject to the provisions of this act concerning restrictive indorsements a representative, including a depository or collecting bank, who has in good faith and in accordance with the reasonable commercial standards applicable to the business of such representative dealt with an instrument or its proceeds on behalf of one who was not the true owner is not liable in conversion or otherwise to the true owner beyond the amount of any proceeds remaining in his hands.

MCLA § 440.3419. The first issue under this section is whether Pontiac State Bank paid the instrument over a forged endorsement. If so, the second issue is whether Pontiac State Bank is protected from liability by subsection (3) because it acted “in good faith and in accordance with the reasonable commercial standards.” See Grosberg v. Michigan Nat’l Bank, 420 Mich. 707, 714, 362 N.W.2d 715 (1984).

A. Forged Endorsement

The parties seriously dispute whether any endorsement on the check can be considered “forged.” Mateo clearly gave Cox authority to endorse checks from customers. Travelers, however, was not a customer of Cox.

Section 3-401(2) provides:

A signature is made by use of any name, including any trade name or assumed name, upon an instrument, or by any word or mark used in lieu of a written signature.

MCLA § 440.3401(2). Here, the check bore an endorsement stamp bearing the words “Mateo Tools.” This suffices as Mateo’s signature under section 3-401(2). Section 1-201(43) defines an unauthorized signature to mean “one made without actual, implied or apparent authority and includes a forgery.” MCLA § 440.1201(43). Conversely, a signature which is authorized is not a forgery. MCLA § 440.3404(1); Grosberg v. Michigan Nat’l Bank, 420 Mich, at 714, 362 N.W.2d 715. It is clear that Cox had no express authority to endorse the check on behalf of Mateo because Travelers, the drawer of the check, was not a customer of Cox.

Pontiac State Bank contends that it had no knowledge as to whether the Travelers check came from one of Cox’s customers, that nothing on the face of the check put it on notice that Cox was acting beyond the scope of his authority, and that it had no duty to inquire into the underlying transaction. This argument appears relevant not to the issue of whether there was a forgery, but to the issue of whether Pontiac State Bank acted “in good faith and in accordance with the reasonable commercial standards.” The court holds that Pontiac State Bank deposited the check in the account of DMC Enterprises over the unauthorized endorsement of Mateo.

B. Good, Faith/Reasonable Commercial Standards Defense

Pontiac State Bank raises the defense set forth in subsection (3) of section 3-419 and contends that it cannot be held liable because it no longer has any proceeds from the check in its possession and because it dealt with the check “in good faith and in accordance with the reasonable commercial standards.” The threshold issue is whether Pontiac State, being the depository bank in the transaction, can assert the defense provided by section 3-419(3). Despite the unambiguous language of section 3-419(3), the caselaw interpreting the section constitutes one of the more bizarre chapters of the law of commercial paper.

The precise language of section 3-419(3), though already quoted, bears repeating:

Subject to the provisions of this act concerning indorsements a representative, including a depository or collecting bank, who has in good faith and in accordance with the reasonable commercial standards applicable to the business of such representative dealt with an instrument or its proceeds on behalf of one who was not the true owner is not liable in conversion or otherwise to the true owner beyond the amount of any proceeds remaining in his hands.

MCLA § 440.3419(3).

Although this subsection appears to provide a defense to “a representative, including a depository or collecting bank,” numerous courts have held that subsection (3) does not apply to suits by payees, such as Mateo, against depository or collecting banks, such as Pontiac State Bank, for payment of checks bearing forged endorsements. There are two theories by which courts have reached this result.

One line of cases has held that a depository or collecting bank cannot be a “representative” within the meaning of this subsection. These courts have reasoned that section 4-201 makes a collecting bank an agent only of the owner of the instrument and not of the forger/depositor; therefore, the bank is not acting as a representative when it deposits or pays an instrument over a forged endorsement. These courts have also relied upon the common-law principle that a bank’s agency status is brought to an end upon collection of the paper. See Tubin v. Rabin, 389 F.Supp. 787, 789-90 (N.D.Tex.1974), aff'd, 533 F.2d 255 (5th Cir.1976); Grieshaber v. Michigan Nat’l Bank of Detroit, 18 UCC Rep.Serv. 1248, 1251-56 (Mich.C.P.1976); Ervin v. Dauphin Deposit Trust Co., 38 Pa.D. & C.2d 473, 481-82, 3 UCC Rep.Serv. 811, 318-19 (Pa.C.P.1965). This reasoning flies in the face of the language of subsection (3), which expressly provides that a representative can be a person (or bank) “who has ... dealt with an instrument ... on behalf on one who is not the true owner____”

The second line of cases is equally doubtful. These courts have concluded that subsection (3) can never apply because the depository bank will always retain all the proceeds in its hands regardless of whether the forged instrument was cashed or deposited and then withdrawn. When a bank cashes a check, the reasoning goes, it pays out its own funds arid retains the “proceeds” in its own hands. When the true owner brings an action against the depository bank to recover such proceeds, the owner ratifies the collection by the depository bank but does not ratify the payment of funds to the forger. See Cooper v. Union Bank, 9 Cal.3d 371, 107 Cal.Rptr. 1, 507 P.2d 609 (1973); Ervin v. Dauphin Deposit Trust Co., 38 Pa.D. & C.2d at 481-82, 3 UCC Rep.Serv. at 319. Such reasoning defies common sense.

The Michigan Court of Appeals, in Sherriff-Goslin Co. v. Cawood, 91 Mich.App. 204, 210, 283 N.W.2d 691 (1979), held that section 3-419(3) provides no defense for the depository/collecting bank in a suit by the owner of an instrument cashed or deposited over a forged endorsement. The court discussed the various theories by which other courts have reached the same result, but did not state which theory it was relying on. While recognizing that the body of caselaw discussed above has been criticized for its failure to follow the language of the statute, the court of appeals was persuaded by undeniably good policy reasons which support the result.

[T]he reasons which support [this body of caselaw] are clearly ascertainable. This case is a good example of the most important of these reasons. The bank here accepted for collection some 300 checks drawn by various entities on many different banks. If the payee cannot sue the depository bank directly it would be necessary to sue either the drawee bank under 3-419(l)(c) or the drawer under 3-804. Thus 300 lawsuits might be required where one will do under the prevailing contraction of 3-419(3). But, even then the matter would not be closed. When the drawee bank or drawer loses the suit to the payee, they in turn pass the loss to the first party to deal with the forger ... under the warranty provisions of 3-417.

91 Mich.App. at 209-10, 283 N.W.2d 691 (footnotes omitted).

More recent decisions from other states, however, cast doubt on the Michigan court’s characterization of denial of the defense as the prevailing construction of section 3-419(3). Five more recent decisions, including three by state supreme courts, hold that any construction of section 3-419(3) which denies its application to depository banks, while perhaps based on good policy reasons, violates the clear language of the section. See Jackson Vitrified China Co. v. People’s American Nat’l Bank of North Miami, 388 So.2d 1059, 1062-63 (Fla.App.1980); Denn v. First State Bank of Spring Lake Park, 316 N.W.2d 532, 537 (Minn.1982); Hydroflo Corp. v. First Nat’l Bank of Omaha, 217 Neb. 20, 26, 349 N.W.2d 615, 619 (1984); Knesz v. Central Jersey Bank and Trust Co., 97 N.J. 1, 18, 477 A.2d 806, 815 (1984); Stevens-Daniels Corp. v. Commercial Nat’l Bank, 673 S.W.2d 651, 653 (Tex.App.1984). The rationale of these decisions was succinctly stated by the New Jersey Supreme Court in Knesz:

We are in consequence not persuaded that the underlying policy served by the common law — the recognition of a single direct action by an owner-payee against the depository or collecting bank and the avoidance of circuitous or chain litigation — overrides the plain terms of § 3-419(3). That policy was undoubtedly known to the drafters of the Code. It was presumably within their contemplation when § 3-419(3) was inserted granting immunity to these banks. We are constrained to adhere to the choice made by the Legisin its enactment. It has not been shown that this choice leads to intolerable or absurd results, a factor that would have given us pause in applying § 3-419(3) in accordance with its terms.

97 N.J. at 17-18, 477 A.2d at 814 (citations omitted).

In this diversity action, the court is bound by the doctrine of Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), to- apply the law as announced by the Michigan Supreme Court. The court is not bound to apply a decision of the Michigan Court of Appeals if it determines that the Michigan Supreme Court would decide otherwise. Commissioner of Internal Revenue v. Estate of Bosch, 387 U.S. 456, 465, 87 S.Ct. 1776, 1782, 18 L.Ed.2d 886 (1967); West v. American Telephone and Telegraph Co., 311 U.S. 223, 237, 61 S.Ct. 179, 183, 85 L.Ed. 139 (1940); 19 C. Wright, A. Miller & E. Cooper, Federal Practice and Procedure: Jurisdiction § 4507, at 95 (1982). The Michigan Supreme Court has not passed on the issue at bar. In view of the foregoing authority, this court is convinced that the Michigan Supreme Court would not follow the decision in Sherriff-Goslin, but would hold that section 3-419(3) does provide a defense to a depository bank such as Pontiac State Bank. This court, therefore, holds that Pontiac State Bank can assert the good faith/reasonable commercial standards defense provided by section 3-419(3).

The next issue before the court is whether Pontiac State Bank, in accepting the check for deposit, acted “in good faith and in accordance with the reasonable commercial standards.” MCLA § 440.3419(3). If Pontiac State Bank acted in good faith and in accordance with reasonable commercial standards, then Mateo cannot recover against it on a conversion theory. In view of this court’s rejection of the perpetually retained proceeds theory, there can be no dispute that Pontiac State Bank no longer has any of the proceeds of the check in its hands.

Good faith and adherence to reasonable commercial standards are separate elements of the defense provided by section 3-419(3). See Coulter Electronics, Inc. v. Commercial Bank of Cobb County, 727 F.2d 1078, 1079 n. 5 (11th Cir.1984); Siegel Trading Co. v. Coral Ridge Nat’l Bank, 328 So.2d 476, 478 (Fla.App.1976); 6 R. Anderson, Uniform Commercial Code § 3-419:35, at 435-36 (3d ed. 1984). Good faith is defined in the Code as “honesty in fact in the conduct of the transaction concerned.” MCLA § 440.1202(19). Mateo has not alleged that Pontiac State Bank failed to act in good faith, nor could the court so find since there is no evidence of dishonesty on the part of Pontiac State Bank. The only issue concerning the asserted defense, therefore, is whether Pontiac State Bank acted in accordance with reasonable commercial standards.

Mateo, relying on the principle that it is usually not commercially reasonable for a bank to accept for deposit into an individual account a check naming a corporation as a payee, asks this court to take judicial notice that Pontiac State Bank did not act in accordance with reasonable commercial standards. For this general principle, see, e.g., D & G Equipment Co., Inc. v. First National Bank of Greencastle, Pa., 764 F.2d 950, 956 (3d Cir.1985); Hermetic Refrigeration Co., Inc. v. Central Valley Nat. Bank, Inc., 493 F.2d 476 (9th Cir.1974); Aetna Cas. & Sur. Co. v. Hepler State Bank, 6 Kan.App.2d 543, 550, 630 P.2d 721, 728 (1981); National Bank of Georgia v. Refrigerated Transport Co., 147 Ga.App. 240, 244-45, 248 S.E.2d 496, 499-500 (1978); Grosberg v. Michigan Nat’l Bank Oakland, 420 Mich. 707, 718, 362 N.W.2d 715 (1984); Sherriff-Goslin Co. v. Cawood, 91 Mich.App. at 211, 283 N.W.2d 691; Belmar Trucking Corp. v. American Trust Co., 65 Misc.2d 31, 34, 316 N.Y.S.2d 247, 251 (N.Y.Civ.Ct.1970). These cases are distinguishable from the present case, however, in that they involved forgeries of the corporate payees’ endorsements or endorsements by persons with no authority to endorse on behalf of the corporate payee. Here, Cox had authority to endorse some checks, i.e., checks from customers, for deposit into the DMC Enterprises account. The court can locate no authority by which the court can determine as a matter of law the commercial reasonableness of Pontiac State Bank’s conduct in this case. See Grosberg v. Michigan Nat’l Bank Oakland, 113 Mich.App. 610, 618, 318 N.W.2d 490 (1982), aff'd on other grounds, 420 Mich. 707, 362 N.W.2d 715 (1984).

It is undisputed that Cox had limited authority to endorse some checks payable to Mateo and deposit them into the account of DMC Enterprises. It is also undisputed that the Travelers check was endorsed by Cox and stamped with the name of “Mateo Tools/DMC Enterprises/Authorized Distributor.” Although Cox only had authority to endorse checks payable to Mateo if such checks were from customers, Pontiac State Bank’s personnel were unaware of whether Travelers was a customer of Mateo. They accepted the check for deposit without inquiring as to Cox’s authority to endorse the Travelers check. The assistant manager of the Pontiac State Bank Walled Lake branch testified at her deposition that she believed acceptance of the check for deposit as endorsed was in accordance with reasonable commercial standards. (Cheryl Marotta dep. at 25-26). The court holds that there is a genuine issue of fact as to whether Pontiac State Bank, in accepting the Travelers check for deposit, acted in accordance with reasonable commercial standards.

C. Contributory Negligence

Pontiac State Bank contends that Mateo is precluded, by virtue of its own negligence, from maintaining an action upon the unauthorized endorsement. Pontiac State relies upon section 3-406, which provides:

Any person who by his negligence substantially contributes to a material alteration of the instrument or to the making of an unauthorized signature is precluded from asserting the alteration or lack of authority against a holder in due course or against a drawee or other pay- or who pays the instrument in good faith and in accordance with the reasonable commercial standards of the drawee’s or payor’s business.

MCLA § 440.3406. By its own terms, section 3-406 is unavailable as a defense unless the party asserting it has paid the instrument in good faith and in accordance with reasonable commercial standards. Since the court has held that there is a genuine issue of fact as to whether Pontiac State acted in accordance with reasonable commercial standards in accepting the check for deposit, the court cannot determine whether section 3-406 is available as a defense.

Conclusion

For the reasons set forth herein, the motion for summary judgment of Pontiac State Bank will be granted in part and denied in part; the motion shall be granted as to Mateo’s warranty claim, but denied as to Mateo’s conversion claim. Mateo’s motion for summary judgment shall be denied. An appropriate order shall be submitted.

      . According to Professors White and Summers, "[T]he courts have taken up section 3-419(3), and what they have done to it shouldn’t happen to a dog.” J. White & R. Summers, Uniform Commercial Code § 15-4, at 591 (2d ed. 1980).

      . Section 4-201(1) provides in pertinent part:
      Unless a contrary intent clearly appears and prior to the time that a settlement given by a collecting bank for an item is or becomes final ... the bank is an agent or sub-agent of the owner of the item and any settlement given for that item is provisional____

       It is possible that the burdensome circuitous litigation deplored by many commentators may be mitigated today. The "circuity argument" has been criticized as being exaggerated and inconsequential in the modern era of long-arm jurisdiction, negotiated settlements, and liberal rules of interpleader____ In addition, foreclosing a direct suit against a depository bank and, instead, forcing the payee to sue his drawer or the drawee bank preserves in some instances the timely presentation of appropriate defenses that would have been unavailable to a depository bank, such as that of the drawer’s negligence in causing or detecting the forgery.

      . Mateo makes much of the fact that manager of the Walled Lake branch testified that a teller can accept a check for deposit which is drawn on another bank without even checking to see if it is endorsed. (Christine Downing dep. at 6-7, 10-11). The court finds this testimony to be largely irrelevant to the issue of whether Pontiac State acted reasonably in accepting the Travelers check for deposit; the Travelers check was endorsed, so the narrower issue is whether Pontiac State acted reasonably in failing to inquire into Cox's authority as to this particular check.

      . There is some authority that the contributory negligence defense of section 3-406 can never be asserted in a conversion action. See R. Anderson, Uniform Commercial Code § 3-406:15 (3d ed. 1984) (citing DoAll Dallas Co. v. Trinity Nat'l Bank, 498 S.W.2d 396 (Tex.App.1973)). Since the parties have not addressed this issue, the court will not decide it at this time.


author: BEAM, District Judge.

text:
    Thomas J. HIRT, Plaintiff, v. UM LEASING CORP., et al., Defendants.
    No. CV 84-0-222.
    United States District Court, D. Nebraska.
    Aug. 1, 1985.

      Wm. E. Morrow, Gary L. Hoffman, Thomas J. Culhane, Erickson & Sederstrom, P.C., Omaha, Neb., for plaintiffs.
    James E. Lang, Omaha, Neb., and Michael R. Law, Phoenix, Ariz., for defendants Leon A. Ross and Heritage Sound Recording Distributors.
    William G. Dittrick, Omaha, Neb., for defendants Banyan Products and Jack Milliman.
    Thomasina M. Reed, pro se.
   BEAM, District Judge.

This matter is before the Court upon the motion of defendants Leon Ross and Heritage Sound Recording Distributors (HSRD) to dismiss the complaint (filing 10). Specifically, defendants seek dismissal for lack of personal jurisdiction, Fed.R. Civ.P. 12(b)(2); for failure to state a claim upon which relief may be granted, Fed.R.Civ.P. 12(b)(6); and for failure to set forth allegations of fraud with sufficient particularity, ,Fed.R. Civ.P. 9(b).

In this action, plaintiff seeks damages from six individual defendants and four corporate defendants in connection with alleged securities fraud, RICO violations and breach of contract. As against defendants Ross and HSRD, the complaint alleges conspiracy to commit violations of the Securities Exchange Act of 1934 (15 U.S.C. § 78j(b)) and Rule 10B-5 promulgated thereunder, the Racketeer Influenced and Corrupt Organization Act (RICO — 18 U.S.C. § 1962(d)), and the Securities Act of Nebraska (Neb.Rev.Stat. § 8-1102(1)).

I. BACKGROUND

The alleged facts are as follows. On December 21, 1980, plaintiff entered into a lease agreement with defendant UM Leasing Corporation (UML), a New York corporation, whereby plaintiff agreed to lease a master sound recording (Master), entitled “Merle Travis UDL 2366,” from UML. Pursuant to this lease agreement, plaintiff was granted the right to manufacture, produce and distribute sound recordings from the Master. Plaintiff claims that he entered into the lease in reliance upon written representations by UML that UML had clear and unencumbered title to the Master, and that the lease would entitle plaintiff, as lessee, to certain income tax benefits.

Contemporaneous with entering this lease with UML, plaintiff also entered into an agreement with defendant United Distributors, Ltd. (UDL), whereby plaintiff tendered $3,500.00 for the production, promotion, distribution and maintenance of sound recordings from the Master. UDL, which has its principle business office in Phoenix, Arizona, was recommended to plaintiff by UML. Plaintiff and UDL executed a service contract on February 27, 1981. Sometime thereafter, UDL apprised plaintiff that it could not produce, promote or distribute any sound recordings derived from the Master until it received proof of title to the Master from UML. Despite receipt of copies of written representations from UML that it had title to the Master, UDL continued not to perform. As a result, plaintiff terminated his contract with UDL on February 19, 1982.

On March 25, 1982, plaintiff engaged defendant Leon Ross, sole proprietor of defendant HSRD and ex-employee of UDL, to assume the responsibilities of UDL. Plaintiff subsequently paid Ross $758.00 for certain production costs. Seventeen months later, on August 22, 1983, Ross sent plaintiff a letter demanding proof of title with respect to the Master and stating that he and defendant HSRD were precluded from marketing any recordings until such proof of title was furnished. Thereafter, on November 1, 1983, Ross advised plaintiff by letter that, per a telephone conversation between he and UML, UML did not have proof of legal title to the Master. Based on this information, Ross informed plaintiff that he and HSRD would not distribute or market any of the recordings which had been produced from the Master.

On or about November 9, 1983, plaintiff received notice from the Internal Revenue Service (IRS) that it was denying plaintiff all of the tax benefits he had claimed in connection with the lease of the Master for the 1980 and 1981 tax years. The IRS accordingly assessed plaintiff with deficiencies totaling approximately $53,000.00 and penalties of approximately $2,650.00.

Upon subsequent investigation, plaintiff discovered that UML had made numerous misrepresentations to him in connection with the lease. This action was subsequently filed on April 16, 1984.

II.

With regard to defendants’ claim that this Court lacks personal jurisdiction under Fed.R.Civ.P. 12(b)(2), defendants argue that plaintiff has failed to establish sufficient minimum contacts with the State of Nebraska.

To determine whether the Court has personal jurisdiction over defendants, the Court looks to the relevant federal statutes. 15 U.S.C. § 78aa provides:

Any suit or action to enforce any liability or duty created by this chapter [the Security Exchange Act] or rules and regulations thereunder ... may be brought in any such district or in the district wherein the defendant is found or is an inhabitant or transacts business, and process in such cases may be served in any other district of which the defendant is an inhabitant or where ever the defendant may be found.

18 U.S.C. § 1965 provides:

(a) Any civil action or proceeding under this chapter [the Racketeer Influenced and Corrupt Organization Act] against any person may be instituted in the district court of the United States for any district in which such person resides, is found, has an agent, or transacts his affairs.
*****:}:
(d) All other process in any action or proceeding under this chapter may be served on any person in any judicial district in which such person resides, is found, has an agent, or transacts his affairs.

Sections 78aa and 1965 provide for nation-wide service of process, see Fitzsimmons v. Barton, 589 F.2d 330, 332-34 (7th Cir.1979); Mariash v. Morrill, 496 F.2d 1138, 1143 (2d Cir.1974); Hodgdon v. Needham-Skyles Oil Co., 556 F.Supp. 75, 77 (D.D.C.1982), and it is well established that the “minimal contacts” theory proposed by defendants is not relevant where a federal statute provides for nation-wide service of process. See Haile v. Henderson National Bank, 657 F.2d 816, 824 (6th Cir.1981); Mariash, 496 F.2d at 1143; Hodgdon, 556 F.Supp. at 77. Pursuant to sections 78aa and 1965, the Court’s jurisdiction is coextensive with the boundaries of the United States and “due process requires only that a defendant in a federal [question] suit have minimum contacts with the United States, ‘the sovereign that has created the court.’” F.T.C. v. Jim Walter Corp., 651 F.2d 251, 256 (5th Cir.1981), quoting Stafford v. Briggs, 444 U.S. 527, 554, 100 S.Ct. 774, 789, 63 L.Ed.2d 1 (1980) (Stewart, J., dissenting); Clement v. Pehar, 575 F.Supp. 436, 438-39 (N.D.Ga.1983).

Defendants, being residents of Arizona and having been served process there, necessarily had sufficient contacts with the United States to satisfy the requirements of due process in this instance, and thus the Court has personal jurisdiction over them under sections 78aa and 1965.

The Court now briefly turns to defendants’ claim that, even assuming the Court has personal jurisdiction with respect to the federal claims, the Court does not have personal jurisdiction with respect to plaintiff’s pendent state claims. The Court finds no merit in defendants’ argument. Once the Court finds that it has personal jurisdiction over defendants with respect to certain federal claims, and further finds that the state claims are pendent in nature, i.e., that they arise from the same set of operative facts as the federal claims, then the Court necessarily has personal jurisdiction over such pendent state claims, if the Court so chooses to exercise pendent jurisdiction. See United Mine Workers v. Gibbs, 383 U.S. 715, 86 S.Ct. 1130, 16 L.Ed.2d 218 (1966).

In this instance, both federal and state claims arise from the same set of operative facts. In the interest of judicial economy the Court concludes that it will exercise pendent jurisdiction over the state claims and that it has personal jurisdiction over defendant with respect to such claims.

III. FAILURE TO STATE A CLAIM

The Court will now address defendants’ claim that the complaint should be dismissed for failure to state a claim upon which relief may be granted.

A. 10(b) and 10b-5 Claims

Plaintiff’s first claim for relief against defendants Ross and HSRD alleges that they conspired with defendants UML, William B. Medina (President of UML) and Pete Bennett (special consultant to UML) to commit violations of 10(b) of the Securities Exchange Act of 1934 (15 U.S.C. § 78j(b)) and Rule 10b-5 (17 C.F.R. § 240.-10b-5). Defendants Ross and HSRD argue that plaintiff’s complaint should be dismissed under Fed.R. Civ.P. 12(b)(6) because it fails to allege (1) that they made any material misrepresentations to plaintiff, (2) that they had any intent to deceive or defraud plaintiff, (3) that they used any manipulative or deceptive device in connection with the purchase or sale of the lease, or (4) that plaintiff suffered any damages in reliance upon representations or omissions that they made.

It is well established that a complaint alleging conspiracy to violate securities laws must plead the following elements: (a) an agreement to accomplish a wrongful act, i.e., a securities violation; and (b) an act in furtherance of the conspiracy. Rose v. Arkansas Valley Environmental & Utility Authority, 562 F.Supp. 1180, 1200 (W.D.Mo.1983); Gilbert v. Bagley, 492 F.Supp. 714, 727 (M.D.N.C.1980). Furthermore, where the defendant’s alleged participation is not sufficient to subject him to independent “primary” liability, there must be other allegations properly pleading a “primary” violation by another or others, as well as allegations of scienter on the part of the defendant. Rose, 562 F.Supp. at 1200. The complaint must also be sufficiently specific to allow the defendant to identify the conspiracy of which he is alleged to be a part. Id. at 1203.

[I]t is often said with respect to conspiracy pleading that a mere conclusory allegation that a conspiracy has taken place will not suffice and, variously, at least where possible, that enough facts should be alleged to support an inference of the necessary conspiratorial agreement to show overt acts which are reasonably related to promotion of the claimed conspiracy and to show the time frame and effect of the conspiracy.

Rose, 562 F.Supp. at 1204 (citations omitted). The Court must also bear in mind the usual rules for testing the sufficiency of a complaint: that all well-pleaded averments will be taken as true, Loge v. United States, 662 F.2d 1268, 1270 (8th Cir.1981); that the complaint will be liberally construed in the light most favorable to the plaintiff, Fusco v. Xerox Corp., 676 F.2d 332, 334 (8th Cir.1982); that all doubts will be resolved in favor of the sufficiency of the complaint, Mandel v. Erickstad, 648 F.2d 1175, 1177 (8th Cir.1981); and that the complaint will not be dismissed unless it appears beyond all doubt that plaintiff can prove no set of facts thereunder which would entitle him to relief, Price v. Moody, 677 F.2d 676, 677 (8th Cir.1982).

With these principles in mind, the Court considers the defendants’ questions concerning the sufficiency of the complaint. In this Court’s view, defendants’ claim that the complaint fails to allege material misrepresentations, intent to defraud, and use of any manipulative or deceptive device on the part of defendants Ross and HSRD overlooks the very nature of conspiracy.

In order for a defendant to be liable in a 10b-5 case, it is not necessary that he personally and directly perpetrate the fraud ... [Liability may also be imposed, under theories of so-called “secondary” liability, upon persons who aid and abet a securities violation, or who conspire to its commission.

Rose, 562 F.Supp. at 1199-1200.

As against Ross and HSRD only conspiracy, a form of “secondary” liability, is alleged, and thus acts which would traditionally establish a “primary” violation need not be alleged against them. In this instance, paragraph 23 of the complaint sufficiently alleges that a conspiratorial agreement existed between defendants Ross and HSRD and defendants UML, Medina and Bennett. Specifically, it alleges that under the agreement defendants UML, Medina and Bennett would lure prospective investors, such as plaintiff, into the leasing program; that UML would then refer the investor to a service company, such as UDL, for the production and distribution of derivative recordings; that after having received certain fees, UDL would demand proof of legal title and refuse to take action until such proof was provided; that UML would respond by making claim of good title but would give no further evidence of title; and that when the investor was faced with such an impasse, Ross and HSRD would offer to take over the project, would collect certain fees, and then repeat the process of demanding proof of title and refusing to perform until such proof was provided. The Court finds that such allegations sufficiently plead an inference of the necessary conspiratorial agreement and acts in furtherance of the conspiracy. The Court further finds that the complaint sufficiently pleads a “primary” violation by others, i.e., defendants UML, Medina and Bennett. See Rose, 562 F.Supp. at 1199. The necessary pleading requirements having been met, defendants’ motion to dismiss the federal securities fraud claims will be denied.

B. State Securities Fraud Claims

Plaintiff’s second claim for relief alleges that defendants Ross and HSRD conspired to violate section 8-1102(1) of the Nebraska Revised Statutes. Section 8-1102(1) is the state’s counterpart to federal securities Rule 1 Ob-5, and it prohibits the same fraudulent acts.

In support of their motion to dismiss the state securities claims for failure to state a claim, defendants Ross and HSRD reassert the same arguments they made against the federal securities claims. The Court rejects these arguments for the same reasons set forth above. Accordingly, defendants’ motion to dismiss this portion of the complaint will also be denied.

C. Common Law Fraud Claim

Plaintiff’s third claim for relief alleges that defendants Ross and HSRD conspired to commit fraud upon plaintiff at common law. Again, defendants reassert the same arguments they made with respect to the federal and state securities claims, i.e., that the complaint fails to make allegations of misrepresentation or omission by defendants Ross and HSRD. These arguments lack merit under a theory of conspiracy. Therefore, defendants’ motion to dismiss this portion of the complaint will also be denied.

D. RICO Claim

Plaintiff’s sixth claim for relief essentially alleges that defendants Ross and HSRD conspired with defendants Bennett, Medina and UML to violate 18 U.S.C. § 1962(b), in violation of 18 U.S.C. § 1962(d). Section 1962(d) provides in its entirety: “It shall be unlawful for any person to conspire to violate any of the provisions of subsections (a), (b), or (c) of this section.”

Defendants Ross and HSRD argue that the complaint should be dismissed for failure to state a claim, Fed.R.Civ.P. 12(b)(6).

In order to properly allege a conspiracy under section 1962(d), the plaintiff must assert that each defendant has by his words or actions ... objectively manifested an agreement to participate directly or indirectly, in the affairs of an enterprise through the commission of two or more predicate crimes.

Chambers Development Co. v. Browning—Ferris Industries, 590 F.Supp. 1528, 1538 (W.D.Penn.1984) (quoting United States v. Elliott, 571 F.2d 880, 903 (5th Cir.), cert. denied, 439 U.S. 953, 99 S.Ct. 349, 58 L.Ed.2d 344 (1978) (emphasis original)). Furthermore, the plaintiff must allege injury in his business or property stemming from the “conspiracy.” See Bache Halsey Stuart Shields v. Tracy Collins Bank, 558 F.Supp. 1042, 1047 (D.Utah 1983); 18 U.S.C. § 1964(c). An allegation of a “racketeering injury” separate and apart from the harm from the predicate acts is not required. Sedima, S.P.R.L. v. Imrex Co., Inc., — U.S. -, -, 105 S.Ct. 3275, 3285, 87 L.Ed.2d 346 (1985). “If the defendant engages in a pattern of racketeering activity [i.e., the commission of two or more predicate crimes] in a manner forbidden by these provisions, and the racketeering activities injure the plaintiff in his business or property, the plaintiff has a claim under § 1964(c).” Id.

Under the facts as alleged, the Court finds that the complaint sufficiently alleges conspiracy under 18 U.S.C. § 1962(d). Accordingly, defendants’ motion to dismiss for failure to state a claim will be denied.

IV. FAILURE TO PLEAD FRAUD WITH PARTICULARITY

With respect to defendants’ claim that the complaint fails to allege fraud with particularity, Fed.R.Civ.P. 9(b) does provide that “in all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity.” However, this directive must also be considered in the context of Rule 8, which advocates a “short and plain statement of the claim” and averments which “shall be simple, concise, and direct.” In addition, “there appears to be a tendency to allow greater leniency where the issues are complex, or the transactions cover a long period of time.” 2A J. Moore’s Federal Practice, ¶ 9.093 at 9-28 (1979).

Paragraphs 15, 16, 17, 23 and 38 of the complaint list specific acts alleged to have been committed by defendants Ross and HSRD. These allegations comprise plaintiff’s claims of fraudulent activity and comply with the directives of Rules 8 and 9. Defendants are adequately placed on notice of the claims made against them and, therefore, may either admit or deny their participation in such activities. Accordingly, the Court finds no merit to defendants’ motion in this regard.

Based upon the foregoing discussion,

IT IS ORDERED that defendants’ motion to dismiss (filing 10) should be and hereby is denied; and

IT IS FURTHER ORDERED that defendants shall file and serve their answer to the complaint within twenty (20) days from the date of this Order.

      . Defendant Ross apparently was employed by UDL during the period in which UDL was under contract by plaintiff, and he allegedly took part in telephone conversations with plaintiff regarding UDL’s insistence on proof of title to the Master.