author: KEENAN, District Judge:

text:
    INTERNATIONAL DISTRIBUTION CENTERS, INC., Plaintiff, v. WALSH TRUCKING CO., INC., Coastal Freight Lines, Inc., Hempstead Delivery Co., Inc., National Retail Transportation, Inc., Francis J. Walsh, Jr., Kenneth B. Henning, Mark S. Tice, Raymond Weiss, Carmine Sabatini, and Chuck Hannon, Defendants.
    No. 82 Civ. 8709 (JFK).
    United States District Court, S.D. New York.
    June 19, 1985.

      Malcolm A. Hoffmann, Craig Schiller, Peter L. Altieri, Law Firm of Malcolm A. Hoffmann, New York City, for plaintiff.
    Milton Handler, Gerald Sobel, Alan F. Goott, Kaye, Scholer, Fierman, Hays & Handler, Marc Zoldessy, Simon, Uncyk & Borenkind, New York City, for defendants.
   OPINION and ORDER

KEENAN, District Judge:

STATEMENT

Plaintiff has prevailed after a trial of more than six weeks on three Sherman Act (“Act”) antitrust claims. The Court heard 30 days of testimony from 30 witnesses and received hundreds of exhibits in evidence. The jury has awarded to plaintiff antitrust damages in the amount of $13,-208,697.00 which are to be trebled under the Clayton Act for a total award of $39,-626,091.

Plaintiff International Distribution Centers, Inc. (“IDC”) is a trucking company which transports Garments on Hanger (GOH) in Less Than Truckload (LTL) quantities along the traffic lane running between Pennsylvania and New York City.

Plaintiff alleged that (1) Frank Walsh and the corporate defendants attempted to monopolize the LTL transportation of GOH among garment manufacturers, suppliers, contractors and retailers along the so-called Pennsylvania “corridor,” or traffic lane, i.e., the New York, New Jersey, Pennsylvania route, thereby causing antitrust injury to IDC; (2) defendants conspired with one or more other persons to unreasonably restrain trade in connection with LTL transportation of GOH among garment manufacturers, suppliers, contractors and retailers along the so-called Pennsylvania “corridor,” thereby proximately causing antitrust injury to IDC; and (3) defendants conspired with one or more other persons to monopolize the LTL transportation of GOH among garment manufacturers, suppliers, contractors and retailers along the so-called Pennsylvania “corridor,” thereby proximately causing antitrust injury to IDC. On these three counts, the jury found for plaintiff after three days of deliberations.

Plaintiff also urged that one or more of the defendants induced key IDC employees to leave IDC’s employ in order to obtain plaintiffs trade secrets for defendants’ use, thereby causing injury to IDC. Finally, plaintiff alleged that the defendants solicited plaintiff’s customers by utilizing IDC trade secrets, thereby causing injury to IDC. The jury found that plaintiff had failed to meet its burden with regard to its possession of trade secrets and dismissed the plaintiff’s two trade secrets contentions.

Having found for the plaintiff on the three antitrust claims, the jury did not consider defendants’ counterclaim for unfair competition.

The jury was charged on the elements of attempted monopolization under Section 2 of the Sherman Act, the elements of conspiracy to monopolize under Section 2 of the Act and the elements of conspiracy to unreasonably restrain trade under Section 1 of the Act. Further, the jury was charged at length on antitrust damages and was specifically told that “the plaintiff is not entitled to speculative damages and you should not engage in guesswork.” (Transcript (“Tr.”) 4704).

Prior to summations, defense counsel requested that the members of the jury be specifically told that they could make notes of exhibit numbers as the exhibits were referred to by counsel during summations so that the jury could request the exhibits during its deliberations. The Court granted this application and the jury made notations and did request many of the exhibits referred to and relied on by counsel in their closing arguments.

It is in this context that defendants move for judgment n.o.v., or for a new trial, pursuant to Rule 50 of the Federal Rules of Civil Procedure. The Court has carefully reviewed the trial transcript of over 4,700 pages and studied the excellent submissions by counsel on both sides.

DISCUSSION

Legal Standards for Judgment N.O.V. and New Trial

Defendants have moved for judgment n.o.v. or a new trial under Rule 50 of the F.R.Civ.P.. These motions are denied for the reasons set forth below. However, remittitur is ordered and the amount of the award is reduced for the reasons set forth on p. 102 et seq. infra.

In Tennant v. Peoria & Pekin Union R.R. Co. 321 U.S. 29, 35, 64 S.Ct. 409, 412, 88 L.Ed. 520 (1944), the Supreme Court set forth the function of the trial court in reviewing a jury verdict:

Courts are not free to reweigh the evidence and set aside the jury verdict merely because the jury could have drawn different inferences or conclusions or because judges feel that other results are more reasonable.

Accord Sentilles v. Inter-Caribbean Shipping Corp., 361 U.S. 107, 80 S.Ct. 173, 4 L.Ed.2d 142 (1959). Judgment n.o.v. is to be granted only when:

(1) there is such a complete absence of evidence supporting the verdict that the jury’s findings could only have been the result of sheer surmise and conjecture, or
(2) there is such an overwhelming amount of evidence in favor of the movant that reasonable and fair minded men could not arrive at a verdict against him.

Mattivi v. South African Marine Corp., 618 F.2d 163, 167-68 (2d Cir.1980).

It is in this framework that the Court approaches this motion.

A. Attempted Monopolization under Section 2 of the Sherman Act

Defendants maintain that plaintiff failed to establish that defendants violated Section 2 of the Sherman Act by attempting to monopolize the relevant market.

1. Dangerous Probability of Success

The defense urges in this motion that there was no “dangerous probability of success” and that therefore plaintiff’s claim must fail since such must be shown to establish an attempt to monopolize under Section 2 of the Sherman Act. FLM Collision Parts, Inc. v. Ford Motor Co., 543 F.2d 1019, 1030 (2d Cir.1976), cert. denied, 429 U.S. 1097, 97 S.Ct. 1116, 51 L.Ed.2d 545 (1977). In this regard the Court charged the jury as follows:

A dangerous probability means more than a mere possibility. It means a reasonable likelihood that by resorting to unlawful acts Walsh and/or NRT have come dangerously close to achieving a monopoly position. [Tr. 4689].

Plaintiff argues with some force that there was overwhelming evidence that the defendant Frank Walsh had a specific intent to monopolize. There was an abundance of proof to that effect before the jury. In his treatise, Professor Sullivan writes at p. 138 in “The Law of Anti-Trust,” Section 51 (1977):

Neither is there reason to hesitate to condemn conduct short of close probability of success on the ground that such a rule would unduly discourage effective, though aggressive, competitive conduct. By requiring (under the intent test) that the conduct be of a kind plainly threatening competitive conditions, the rule already filters out any serious risk that desirable conduct will be inhibited. Conduct which constitutes an attempt is predatory, coercive, or calculated to heighten entry barriers; there is nothing which should make us hesitate to condemn it if the evidence leaves no doubt that the conduct has been properly characterized.

The Second Circuit in Northeastern Telephone Co. v. American Telephone & Telegraph Co., 651 F.2d 76, 85 (2d Cir.1981) (citation omitted), cert. denied, 455 U.S. 943, 102 S.Ct. 1438, 71 L.Ed.2d 654 (1982), pointed out that “[bjeeause section 2’s prohibition of attempts to monopolize encompasses conduct by firms lacking monopoly power ... its potential reach is broader than the proscription against monopolization.”

At trial plaintiff produced witnesses in the garment industry who testified to the limited number of trucking companies which transported GOH in LTL quantities in the Pennsylvania traffic lane. Given this limited number of competitors and the significant amount of business which IDC established it lost to the Walsh interests, the jury could reasonably have inferred that defendants possessed, in the words of the Court’s charge (Tr. 4690), “sufficient market power to render their conduct likely to succeed.” The Walsh companies possessed real economic clout compared to competitors in the market. (Tr. 1336, DTX 717). Three months after entering the market, defendants had procured seven of plaintiff’s customers with annual sales of over $1 million. In addition, Walsh interests had recently purchased three companies doing business in the relevant market and had conferred with principals of other competitors regarding possible acquisition by the Walsh interests. Testimony of Walsh’s power in the industry was received at several points in the proceeding. (Tr. 804, 1897-1901, 2141-42, 2283-89, 2293).

Further, there was ample evidence, if believed, of barriers to entry into the market (Tr. 474-75, 2937 and 2929) and of the existence of both a relevant product market (Tr. 1468, 1515-16, 2813, 2825-26, 4341, DTX 233) and geographic market. (Tr. 476-77, 1466-68, 2120, 4338). It should be noted that the defense was the source of some of the evidence just cited.

Based on the proof presented at trial, this Court cannot conclude that “there is ... a complete absence of evidence [supporting the verdict]____ or____ an overwhelming amount of evidence in favor of the movant,” South African Marine Corp., 618 F.2d at 167-68, on the issue of dangerous probability of success.

2. Predatory Pricing

In support of its motion, the defense seems to concede that the Court properly instructed the jury on this issue of anti-competitive conduct (Defendants’ Brief at 35, 37), but argues that plaintiff failed to meet its burden in this regard and that the verdict was “in blatant disregard of the Court’s instructions.” (Defendants’ Brief at 38). Plaintiff, of course, argues that “the evidence shows predatory pricing in the traditional sense ...” (Plaintiff’s Brief at 55). Both sides cite Northeastern Telephone, infra p. 102, to buttress their arguments.

The plaintiff called as its experts Dr. Irwin Silberman and Ernest L. Sommer, each of whom testified at great length. (Tr. 2692-2751, 2757-2803, 2806-63, 2882-2937, 4333-70, 4429-65, 4469-75). The Areeda-Tumer rule on predatory pricing was explored in front of the jury. In fact, Professor Areeda’s deposition testimony relative to anticipated costs and predation was read into the record. (Tr. 3936). Á fair reading of the Silberman testimony (Tr. 2911-20, 4355-56) demonstrates again that the jury was not unreasonable in concluding that plaintiff’s experts applied correct standards as to fixed and variable costs. Moreover, plaintiff offered evidence which, if believed, could lead the trier of the facts to conclude that defendants’ pricing was neither temporary nor designed to acquire new business lawfully. (Tr. 2832-33, 2911-19).

The jury was justified in finding that Frank Walsh and the corporate defendants attempted to monopolize the LTL transportation of GOH in the Pennsylvania Corridor in violation of Section 2 of the Sherman Act.

B. Conspiracy to Monopolize in Violation of Section 2 of the Sherman Act

At page 64 of its memorandum on this motion, the defense states that “the Court correctly instructed the jury” on the conspiracy to monopolize issue but that there was not proof that a conspiracy existed. The Court finds that there was sufficient proof from which the jury could have inferred the existence of conspiracy prior to the time when individual defendants left IDC and joined the Walsh group. (Tr. 1160-62, 3155-56, 3161-62, 3374-75).

Since a finding for the plaintiff on the conspiracy to monopolize issue requires proof of the elements of an attempt to monopolize, plus proof of a conspiracy, the Court concludes, based on its reasoning at pages 100-01 supra, - and the fact that there is evidence of a conspiracy, that the jury had a rational basis to conclude that the defendants violated Section 2 by conspiring to monopolize.

C. Conspiracy to Unreasonably Restrain Trade Under Section 1 of the Sherman Act

On this issue, defendants argue that plaintiff failed to prove the existence of a conspiracy and failed to prove an unreasonable restraint on competition in a relevant market. As pointed out above, the jury had a rational basis for finding the existence of a conspiracy.

As to the issue of whether there existed unreasonable restraint on competition in a relevant market, the Court finds that there was a sufficient basis for the jury to conclude that a relevant market existed, p. 101 supra. The Court cannot conclude that the jury was in error in finding that such a conspiracy was an unreasonable restraint of trade. The jury had sufficient evidence before it to decide that defendants’ conduct was anti-competitive and that their purpose was to destroy competition. (Tr. 252, 253, 2919, PX 93).

Damages

It is well established law that a treble damage award may not be predicated upon speculation or guesswork. Story Parchment Co. v. Paterson Parchment Paper Co., 282 U.S. 555, 51 S.Ct. 248, 75 L.Ed. 544 (1931). What is required to sustain a damage award in a case such as this is that there be a reasonable basis for estimating damages “based on relevant data.” Bigelow v. RKO Pictures, 327 U.S. 251, 264, 66 S.Ct. 574, 579, 90 L.Ed. 652 (1946). The jury was specifically charged that “the plaintiff is not to be awarded speculative damages,” “the plaintiff is not entitled to speculative damages and you should not engage in guesswork.” (Tr. 4704).

The plaintiff offered evidence that it lost $7,278,202 in the year March 1, 1983 to February 29, 1984, thereby causing injury to the plaintiff in the amount of $1,848,663.

IDC has used a “before and after” damage theory in support of its claim. Plaintiff took March 1, 1982 through February 28, 1983 as its “before” period and March 1, 1983 through February 29, 1984 as its “after” period. Under the facts of this case, the choice of these periods was not unreasonable. IDC began to feel the impact of losing customers in early 1983 and Dr. Silberman’s damage report was due in April 1984 so plaintiff could be ready for trial.

As its “before” figure plaintiff claims to have proven revenues in the Pennsylvania “corridor” of $22,705,313 and while defendants have not directly challenged the accuracy of this figure, the Court concludes that the figure is in error because it includes revenues directly attributable to the Germantown, New York, IDC Terminal. (Tr. 2858). The undisputed evidence is that the Germantown Terminal served the Southern tier of New York State and the New England states of Vermont, Massachusetts and Connecticut, not the Pennsylvania “corridor.” (Tr. 2051). The Silberman damage report (PX 224) indicates that IDC received $908,805 in revenue from March 1, 1982 through February 28, 1983 at Germantown. Thus, the “before” revenue figure should be reduced to $21,796,-508.

IDC maintains that it established Pennsylvania “corridor” revenues of $15,427,111 in the “after” period of March 1, 1983 through February 29, 1984. Again, plaintiff included revenue from the German-town, New York Terminal in its calculation. The damage exhibit (PX 224) shows $658,-253 in revenue at Germantown during this “after” period. This requires reducing the “after” revenue amount to $14,768,858. Subtracting the corrected “after” amount from the corrected “before” amount establishes a difference in revenues of $7,027,-650, not $7,278,072, the figure claimed by plaintiff.

To arrive at a lost profit figure plaintiff’s expert, Dr. Silberman, concluded that IDC was able to avoid 74.6 cents in costs for each dollar of revenue it lost. He also concluded that IDC lost 25.4 cents per dollar as a contribution to overhead by virtue of its lost revenues. The Court does not fault these calculations in any way. Dr. Silberman called the .254 a lost “contribution” (Tr. 2842) and multiplied the difference in revenue figure by .254 to arrive at the figure of $1,848,663 (p. 102 supra) as the amount of injury caused to plaintiff. Since the Germantown, New York revenues were improperly included, the amount should be $1,785,023 (7,027,650 X .254).

Plaintiff urged the jury that it should recover lost future profits and offered evidence as to lost profits for a 10 year period. This is not an unreasonable period. Autowest, Inc. v. Peugeot, Inc., 434 F.2d 556, 567 (2d Cir.1970). This 10 year amount of $18,486,630, however, is in error because it includes the Germantown, New York revenues. The correct lost profit sum should be $17,850,230. The defense urges that plaintiff is not entitled to any lost profits claiming that plaintiff failed to establish that the injury was permanent. There is evidence to the contrary (Tr. 434, 435) from which the jury could have concluded that the injury was permanent.

The defense argues that the projection of damages should be reduced to present value by utilization of a 20% interest rate. Plaintiff, through Dr. Silberman, urged the application of a 10% interest rate to arrive at the present value figure. There is nothing unreasonable in the jury having accepted the 10% rate. Use of the 10% rate requires a multiplier of .6145 according to “Principles of Corporate Finance.” (PX 253). The multiplier was explained in the Silberman testimony. (Tr. 2846-2850).

The calculations with the Germantown, New York figures included are as follows:

$18,486,630 X .6145 (10 year lost future profits) (Reduce to present value at 10% interest rate)
11,360,034 + 1,848,663 13,208,697 X 3 $39,626,091 (Lost profits for “after” period) (Total lost profits) (Clayton Act trebling) (Total Damage Award)

The proper calculations with the Germantown Terminal amounts excluded are as follows:

$17,850,230 X .6145 (10 year lost future profits) (Reduce to present value at 10% interest rate)
10,968,966 + 1,785,023 12,753,989 X 3 $38,261,967 (Lost profits for “after” period) (Total lost profits) (Clayton Act trebling) (Total Damage Award)

Although defendants specifically have indicated they are not interested in a remittitur (p. 74 Reply Memorandum) and the Court recognizes that “Remittitur is a limited exception to the sanctity of jury fact-finding.” Akermanis v. Sea-Land Service, Inc., 688 F.2d 898, 902 (2d Cir.1982), cert. denied, 464 U.S. 1039, 104 S.Ct. 700, 79 L.Ed.2d 165 (1984), the Court feels that the interests of justice require such a result in this case in view of the improper inclusion of the Germantown, New York Terminal revenues in the damage award. This is not a case like Perfect Fit Industries v. Acme Quilting Co., 494 F.Supp. 505 (S.D.N.Y.1980), (modified on other grounds), 646 F.2d 800 (2d Cir.1981), a libel case cited by defendants. Here, “the Court can identify____a quantifiable amount that can be stricken.” Lin v. McDonnell Douglas Corp., 742 F.2d 45, 49 (2d Cir.1984). Remittitur is the proper result in this case.

CONCLUSION

The motions for judgment n.o.v. or for a new trial are denied. Remittitur is ordered. The jury award is reduced to $12,-753,989 which trebled under the Clayton Act becomes $38,261,967.

SO ORDERED.

       It should be noted that in its moving papers, the defense attacks the amount of the verdict as unreasonable and not supported by the evidence. Nowhere in the papers does the defense specifically urge that the Germantown, New York revenues be excluded from the damage award although passing reference to the Germantown revenues was made in defense counsel’s summation. (Tr. 4554). In oral argument on this motion (Tr. 42, 43), the Court inquired of counsel for the plaintiff about the propriety of the inclusion of the Germantown revenue figures. This prompted defense counsel in their Reply oral argument to suggest that "there is also a fatal inconsistency in including the Germantown figures in the damages study.” (Tr. 54). The Court is excluding the Germantown revenues since they clearly are not derived from the Pennsylvania traffic lane revenues and thus are not properly part of the damage award.


source: Caselaw Access Project

author: NAUMAN S. SCOTT, District Judge.

license: Public Domain

text:
    Larry BRISTER, et al. v. GULF CENTRAL PIPELINE COMPANY, et al. Bobby BRISTER, et al. v. GULF CENTRAL PIPELINE COMPANY, et al. Linda Gayle PESNELL v. GULF CENTRAL PIPELINE COMPANY, et al. SUCCESSION OF J.O. GRIFFIN v. GULF CENTRAL PIPELINE COMPANY, et al. Edroe T. PESNELL, et al. v. GULF CENTRAL PIPELINE COMPANY, et al. Claude L. PESNELL, et al. v. GULF CENTRAL PIPELINE COMPANY, et al. Mike GRIFFIN, et al. v. GULF CENTRAL PIPELINE COMPANY, et al. Raymond CALDWELL, et al. v. GULF CENTRAL PIPELINE COMPANY, et al. Hollis L. SPILLERS, et al. v. GULF CENTRAL PIPELINE COMPANY, et al. Vicki Janell GRIFFIN v. GULF CENTRAL PIPELINE COMPANY, et al. Harold L. PESNELL v. GULF CENTRAL PIPELINE COMPANY, et al. Jack FARMER, et al. v. GULF CENTRAL PIPELINE COMPANY, et al. Edroe T. PESNELL, et al. v. GULF CENTRAL PIPELINE COMPANY, et al. Mike GRIFFIN, et al. v. GULF CENTRAL PIPELINE COMPANY, et al. Randy BRISTER, et al. v. GULF CENTRAL PIPELINE COMPANY, et al. Raymond CALDWELL, et al. v. GULF CENTRAL PIPELINE COMPANY, et al. Pam FARMER, et al. v. GULF CENTRAL PIPELINE COMPANY, et al. O.R. GRIFFIN, et al. v. GULF CENTRAL PIPELINE COMPANY, et al. W.J. PESNELL, et al. v. GULF CENTRAL PIPELINE COMPANY, et al. Vannie M. GRIFFIN v. GULF CENTRAL PIPELINE COMPANY, et al. T.S. PESNELL, et al. v. GULF CENTRAL PIPELINE COMPANY, et al. Mary W. SMITH v. GULF CENTRAL PIPELINE COMPANY, et al. C.J. UNDERWOOD, et al. v. GULF CENTRAL PIPELINE COMPANY, et al. Raymond S. CALDWELL, Jr. v. GULF CENTRAL PIPELINE COMPANY, et al.
    Civ. A. Nos. 82-1069 to 82-1089, 82-1380, 82-1437 and 82-1485.
    United States District Court, W.D. Louisiana, Monroe Division.
    June 21, 1985.

      Robert E. Shadoin, Ruston, La., Charles D. Jones, Benjamin Jones, David E. Verlander, III, William G. Kelly, Jr., Monroe, La., Mark A. Goodwin, Shreveport, La., for plaintiffs.
    Donald E. Walter, Gordon E. Rountree, Shreveport, La., J. Bachman Lee, Monroe, La., John R. Smith, Center, Tex., for defendants.
   OPINION

NAUMAN S. SCOTT, District Judge.

Trial of this matter to date has been restricted to the determination of Reliance Insurance Company’s (Reliance) comprehensive liability coverage, if any, of Shelby County Construction Service, Inc. (Shelby) incidental to an occurrence of May 27, 1981. Included also is the liability, if any, of Shelby’s insurance agent, Kathleen Woods (Woods), an officer and employee of Insurance Consultants of Shreveport, Inc. (Consultants), Consultants, and St. Paul Fire and Marine Insurance Company (St. Paul), their errors and omissions carrier.

FINDINGS OF FACT

1. On May 27, 1981, Shelby was working on property owned by Crown Zellerbach under a verbal contract with Mitchell Energy and Paramount Drilling Company (Mitchell), the mineral lessee. While burying trash, a bulldozer operated by a Shelby employee punctured an ammonia pipeline owned by Gulf Central Pipeline Company (Gulf), causing an explosion.

2. Prior to the explosion, Mr. Pouyer (Pouyer), President of Shelby, commissioned Woods to obtain insurance coverages necessary for him to do business in Louisiana and Texas. Woods had told him that she had experience in writing insurance for oilfield site preparation. Pouyer never discussed types of coverage or liability limits with Woods, nor did he discuss his company’s operations in detail. After initially meeting with Pouyer, Woods spoke to him only by telephone.

3. Pouyer’s secretary, Gwenyth Carlos (Carlos), was primarily responsible for the day-to-day office operations of Shelby, including the handling of insurance matters. Woods traveled to Shelby’s headquarters in Center, Texas, and met with Carlos. They discussed the land clearing operations conducted by .Shelby which had been principally the clearing of commercial sites and had gradually changed until 90 to 95% of the work done in May 1981 consisted of the clearing of oil well drilling sites. Woods was provided an equipment list and a list of companies with which Shelby did business. She was provided access to Shelby’s insurance file, which included old insurance policies, setting forth the risks and limits, endorsements, and insurance certificates. During this visit, Woods and Carlos discussed the type of operations Shelby was primarily engaged in, the different kinds of insurance, including the classifications of risk under the general comprehensive liability policy, and liability limits. The prior policy provided for $500,000 bodily injury and property damage, both per occurrence and aggregate. Shelby’s work was classified in those policies as “grading of land”. Shelby had no umbrella coverage under the prior policies. Woods agreed that any coverage for underground activities would be done on a job-by-job basis.

7. Woods agreed to secure the types of coverages needed for Shelby’s operation. Based on her discussions with Carlos and Pouyer, Woods instructed Bobbie Roberts (Roberts), an office employee at Consultants, to prepare the necessary applications. (Mitchell # 1). In the normal course of business, Woods instructs employees to obtain all coverages, knowing that some may be cancelled if the insured is unhappy. In this case, Woods requested that Roberts apply for workman’s compensation insurance; general comprehensive liability; an equipment floater; automobile liability, all effective with the lapse of the then current policies (May 27, 1981); and an umbrella with no proposed effective date. In addition, Woods requested that there be no exclusions for underground hazards and that the classification “grading of land” be used on the general comprehensive liability policy.

8. Roberts produced the following documents:

RELIANCE ‡1: This is an accord form commercial insurance application dated April 27, 1981. The sections attached to the application are designated as “general liability”, “business auto”, and “worker’s compensation”. The application requests that Reliance issue these policies with a proposed effective date of May 27, 1981. An umbrella policy section is also attached.

RELIANCE #3, #k & #5: These are individual accord application forms for specific coverages. Reliance 3 is the general liability section. This document is dated April 27, 1981 with a proposed effective date of May 27, 1981 for the policy. The application requests comprehensive general liability coverage and manufacturers and contractors coverage. Limits of liability are $500,000 per occurrence and $500,000 aggregate for bodily injury, and $100,000 per occurrence and $100,000 aggregate for property damage. The application gives a rating classification of “the grading of land —07313”. No options are checked, i.e., no requests are made in the option block for X, XCU, or U coverage. Reliance # 4 is a business auto application also dated April 27, 1981 with an effective date of May 27, 1981 for the policy. Reliance #5 is an inland marine application.

RELIANCE #6: This is the umbrella liability policy application. This application requests a “Quote”. There is no request for a binder or a policy. The application also sets forth no proposed effective date for the policy. By Reliance practice, however, an umbrella policy is effective concurrent with the underlying Reliance coverages — in this case, on May 27, 1981. The desired limit for the quotation is $1 million liability coverage.

9. On May 5,1981, after receiving these applications, Reliance’s casualty underwriter, Jack McComas (McComas), had a phone conversation with Woods concerning those applications and challenging the classification of Shelby’s work as “grading of land” on the comprehensive general liability policy. McComas suggested that Shelby’s work should be properly classified as “oil lease work by contractor”. Accordingly, they agreed in June 1981 to add that as a classification on the policy, and also agreed that any underground coverage would be on a job-by-job basis.

10. Shortly thereafter Woods issued written insurance binders to Pouyer with respect to the equipment floater — undated and unsigned, effective May 13, 1981 — and the other coverages, including comprehensive general liability (Bodily Injury $500,-000 and Property Damage $100,000) — dated May 13, 1981, signed and effective May 27, 1981. (Reliance # 7 and # 8). Woods gave no notice to Shelby or Reliance prior to the execution of this binder.

11. No written binder was issued for the umbrella policy.

12. Certificates of insurance were also issued by Woods to Mitchell, the first being dated May 27, 1981, certifying that general liability, auto, and worker’s compensation policies were in effect. (Reliance # 12). This certificate of insurance does not reflect that an umbrella policy was in effect.

13. On May 27, 1981, the accident occurred. At a meeting following the accident, Woods confirmed to all parties that Shelby was covered (including the umbrella coverage) for the loss, or if not, she was insured for her own errors and omissions which caused any lack of coverage.

14. On June 1, 1981 the comprehensive general liability policy was written. (SCC # 1, at 16). It states that the policy is effective from May 27, 1981 to May 27, 1982. Liability for bodily injury is limited to $500,000 per occurrence and $500,000 aggregate and $100,000 per occurrence and $100,000 aggregate for property damage. The business of Shelby is stated as “grading of land contractor”. The policy describes the hazards for premises/operations as “Louisiana: grading of land— 07313XCU; street or road construction— clearing of right-of-way, excavation, filling or grading bridge or culvert building— 1615XCU.” (SCC # 1 at 21). The policy also describes these same hazards on the following page with the same classification code number but without the symbols XCU. (SCC # 1 at 22). Nowhere in the policy is the term “grading of land” defined.

15. On June 4 & 5, 1981, Woods and McComas discussed the Shelby account by telephone. Reliance # 10). According to McComas’ notes, he confirmed the binding of XCU on a blanket basis (before it had been job-by-job) or for a $1 million umbrella. Woods and McComas agreed to increase the insured’s property damage limits to $250,000 per occurrence and $250,000 aggregate. McComas informed Woods that he would get an umbrella quote by Tuesday, June 9.

16. On June 5, 1981, Woods issued a certificate of insurance setting forth the increased liability limits. (Reliance # 13). This certificate reflects the addition of underground hazard coverage effective May 28, 1981. The certificate does not show that umbrella coverage was provided to Shelby.

17. On June 8, 1981, Woods sent a memorandum to McComas to add an “oil lease work by contractor” classification effective May 27, 1981 — i.e. back date the endorsement to the date of the accident. (Reliance # 16). This was done. (SCC # 1 at 15). The code numbers for this classification are 13991.

18. On June 8, 1981, Woods also asked that the umbrella coverage be bound in the amount of $2 million. (Reliance # 11).

19. On June 9, 1981, the umbrella policy was issued. (Reliance # 15). It provided for a $2 million limit of liability. The effective date was June 8, 1981 to May 27, 1981. Woods also issued a new certificate of insurance to Mitchell setting forth the additional property damage coverage ($250,-000/$250,000) and the umbrella of $2 million. (Reliance # 14).

20. At trial, Woods emphatically testified that she orally bound the umbrella policy for $1 million effective May 27,1981. As was true in the case of the written binders, there is no evidence that she gave notice to Reliance or to the insured that she intended to bind the umbrella coverage. Woods possessed all the knowledge necessary to effect a binder, including the subject matter, the duration of the policy (concurrent with the underlying coverages), the risk, and the amount of insurance (at a minimum, $1 million).

21. Woods’ agency agreement with Reliance provides, in part:

1. AGENT’S AUTHORITY
A. The Agent is an independent contractor will exercise his own judgment in the conduct of his business. The Agent is not an employee of the Company and is free to represent such other companies as the Agent shall consider appropriate. He has exclusive control of his time and of the conduct of his agency and he is responsible for all expenses incurred in the operation of his agency.
B. During the term of this agreement, the Agent is authorized on behalf of the Company:
6. To bind coverage and execute insurance contracts in accordance with the guidelines furnished from time to time by the Company or as authorized by the Company with respect to specific risks.
C. The Agent agrees to forward copies of all policies, fidelity and surety bonds, certificates and binders issued by the Agent or otherwise notify the Company in writing of all liability accepted, not later than the seventh day following the inception date of coverage or the date of acceptance of coverage, whichever occurs first.

22. Woods did not notify Reliance in writing that umbrella coverage was bound within seven days of the inception of the coverage on May 27, 1981. She did orally notify them immediately after the loss (See, supra, Findings of Fact # 13).

23. Had notice been given to Reliance, they would have written the umbrella coverage. Shelby had an excellent safety record. McComas accepted the entire Shelby account, and would have written the umbrella coverage if the application of May 6, 1981 (Reliance # 6) had not been limited to a quote.

CONCLUSIONS OF LAW

I. EXTENT OF RELIANCE’S LIABILITY.

The primary issues before us are whether Reliance — Shelby’s insurer — provided coverage for property damage in this case, and if so, the limits of that coverage. Shelby alleges that Reliance provided $100,000 in property damage insurance, plus umbrella coverage in the amount of $1 million. We agree.

a. THE PRIMARY POLICY

The May 13, 1985 binder covered Shelby’s loss until the comprehensive general liability policy was written on June 1, 1981, with a retroactive effective date of May 27, 1981. (SCC # 1). This policy provides the terms and conditions of the insurance contract on the date of the accident.

The policy provides comprehensive general liability coverage to Shelby, as follows:

“I. COVERAGE A-BODILY INJURY LIABILITY
COVERAGE B-PROPERTY DAMAGE LIABILITY
The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of
Coverage A. bodily injury or
Coverage B. property damage to which this insurance applies, caused by an occurrence ...”

(SCC # 1 at 20a). Thus Reliance has contracted to pay on behalf of Shelby all property damage for which Shelby may be liable on account of the occurrence (explosion) of May 27, 1981 unless Reliance can prove that such payment is excused under one of the exclusions in the policy.

Reliance urges that since Shelby’s operations are described in the policy as “grading of land” (SCC # 1 at 21, 22) and the application R3 did not request underground “u” coverage, that the occurrence of May 27, 1981 is excluded under the following language of the policy:

EXCLUSIONS
This insurance does not apply:
8}S S(« ‡ S(S 8){
(q) to property damage included within:
(1) the explosion hazard in connection with operations identified in this policy by a classification code number which includes the symbol “x”,
(2) the collapse hazard in connection with operations identified in this policy by a classification code number which includes the symbol “c”,
(3) the underground property damage hazard in connection with operations identified in this policy by a classification code number which includes the symbol “u”.

We find no exclusion for any of three alternative reasons:

First: Coverage is determined by the terms and conditions of the policy. Ambiguities are construed in favor of the insured. Although the policy classifies Shelby’s operations as “grading of land 07313 XCU”, without underground coverage, so that the exclusion above might apply (SCC # 1 at 21), it also classifies the operations as “grading of land 07313”, with underground coverage, so that the stated exclusion would not apply (SCC # 1 at 22). Construing the ambiguity against the insurance company, Reliance is liable on the face of the policy. This is the result intended by Mrs. Roberts who typed the T528 application.

Second: In the alternative, and should the above ambiguity be construed in favor of Reliance, the exclusion can apply only if, in fact, Shelby on May 27, 1981 was engaged in operations classified as “grading of land”.

Without citation, it is well settled that the insurer bears the burden of proving that the exclusionary language contained in the policy is applicable. In this case, “grading of land” is listed in the description of operations but there is no definition of its meaning (SCC # 1, at 37). This lack of definition is fatal to Reliance’s defense. Snell v. Stein, 261 La. 358, 259 So.2d 876, 878 (1972). Further, the insurer has failed dismally to demonstrate Shelby was engaged in “grading of land” as that phrase is understood in the insurance industry. Not one witness at trial, including Reliance’s witnesses McComas and Herring-ton (expert), has classified the operations of Shelby on May 27, 1981 as “grading of land”.

Grading of land is a term of art in the construction business involving the leveling of soil to achieve a practical degree of inclination, such as to grade a road. Digging a hole to bury trash is not grading of land. These operations were not “grading of land” as classified in the policy issued June 1, 1981, and that therefore the exclusion attached to that classification (SCC # 1 ¶ lq(3) at 20) does not apply. Since Reliance has failed to establish the exclusion which it has plead, it has provided coverage in the amount of $100,000 for property damages caused by the puncture of the ammonia pipeline.

Third: In the alternative, it is hornbook insurance law that a binder merges into the subsequently issued policy so that the terms and conditions of the policy, in case of conflict or ambiguity, are controlling. In addition, the terms and conditions of the policy may be altered retroactively as Reliance did in this case at the request of Woods. On June 9, 1981 Reliance issued an endorsement retroactive to May 27,1981 to include under the description of Shelby operations “oil lease work by contractor— not lease operations.” According to all of Reliance’s witnesses, including its expert Herrington, this classification includes underground coverage and was the correct classification necessary to cover Shelby’s operations on May 27,1981. Thus Reliance is obviously liable for $100,000 property damage coverage under the endorsed policy-

b. THE UMBRELLA POLICY

Woods was retained by Pouyer to acquire the insurance coverage necessary for Shelby to conduct its business in Texas and Louisiana. Shelby was attracted to Woods since she possessed binding authority from several insurance companies and could issue certificates faster than its current agent. She was also expert in her field. Pouyer did not know what type or amount of coverage was appropriate, mentioned neither and left these matters entirely up to Woods. There is no dispute that the type as well as the amount of insurance coverage to be acquired by Wood for Shelby was entirely at Woods’ discretion.

Woods’ agency contract with Reliance gave her absolute power to issue oral or written binders. All Reliance witnesses including McComas, its underwriter, Legendre, an officer, and Herrington, its expert, agree that she possessed this authority and that the validity of her binder to any insured would not be reduced or affected by her failure to give notice of such binder to Reliance.

Reliance’s principal contention is that there was no contract: there was no meeting of the minds because Woods had not given notice of the umbrella binder to Shelby and had not given the required notice to Reliance prior to May 27, 1981. We find that there was no contractual dispute because the absolute character of Woods’ authority from each did not require notice to either party. The uncontraverted evidence is that Woods had absolute authority from Shelby to buy the coverage she thought necessary and appropriate to Shelby’s operations. As testified to by Reliance witnesses Mr. Comas, Legendre and Herrington, Reliance was bound the minute Woods made the oral binder. What better evidence of the contract can there be? Both parties, in the person of their common agent, Woods, agree that an oral binder for umbrella coverage was made. Reliance cannot disclaim the action of its agent. Reliance clothed her with this authority. For the purposes of this contract, Woods is Shelby and Woods is Reliance. She is Reliance just as much as McComas or Legendre. Reliance, through Woods, has represented that Shelby had umbrella coverage by oral binder. Reliance is bound by the act of its agent. This is true even after the loss if Reliance does not believe her. This was not their attitude in the prior Lutes-ville coverage (Woods # 5). There was no loss in that instance and they were very happy to accept the premium on an identical oral binder.

II. BROKER’S BREACH OF DUTY TO THE INSURER.

Reliance alleges that Woods failed to properly represent the classification of risks as “oil lease work by contractor”, and her failure to do so renders her liable for any sums paid by Reliance under the primary policy.

However, Woods’ negligence, if any, did not cause the loss sustained by Reliance, to-wit: $1.1 million, because the purported misclassification of the risk is immaterial to the issue of coverage. (See supra, Conclusions of Law la).

Reliance also alleges that Woods breached her agency agreement by failing to notify the insurer of umbrella coverage in writing within seven days.

We have already determined that Reliance would have issued the policy if the proper notice had been given. (See, supra, Findings of Fact 23). Mathews v. Marquette Casualty Co., 152 So.2d 577 (La.App. 2nd Cir.1963). Reliance did in fact issue such umbrella coverage in the amount of $2 million shortly after the accident. Reliance has not proven that lack of notification of the umbrella coverage has caused any damage. Id., at 584-85.

Considering the foregoing, Shelby is ordered to submit a judgment consistent with this Opinion within ten (10) days of date.

      . McComas testified that if such application had been made he might have exercised other alternatives and that he would have ordered a survey. The record shows, however, that he wrote two million dollars umbrella coverage after Shelby experienced the May 27, 1981 loss and that in doing so he did not order a survey. We find that the umbrella coverage was part of Woods’ original Shelby package. When later she learned that Texas and Louisiana rates were comparable, the cost ceased to be a problem.

      . Shelby’s operations are also identified in the policy by another classification code number employing the symbol "U” — street and road construction — 1615XCU. (SCC # 1 at 21). Reliance does not urge that Shelby was engaged in this type of work in its post-trial memorandum. This claim is considered abandoned and does not warrant further discussion.


author: JOSEPH C. HOWARD, District Judge.

text:
    Helene M. KLOTZMAN, Transferee of Richard Klotzman, and as Representative of Richard Klotzman and Helene Klotzman, Tenants by Entireties, Transferee of Richard Klotzman and as Trustee of Heidi Klotzman, Transferee of Richard Klotzman v. UNITED STATES of America, INTERNAL REVENUE SERVICE.
    Civ. No. JH-85-2405.
    United States District Court, D. Maryland.
    June 25, 1985.
    James B. Feaster, Detroit, Mich., Melvyn J. Weinstock, and Weinberger, Weinstock, Sagner, Stevan & Harris, P.A., Baltimore, Md., for plaintiff, Helene Klotzman.

      Asst. U.S. Atty. Juliet A. Eurich, Baltimore, Md., and Michael J. Kearns, Washington, D.C., for defendant, U.S. of America, I.R.S.
   MEMORANDUM AND ORDER

JOSEPH C. HOWARD, District Judge.

On March 29, 1985, the District Director of Internal Revenue for Baltimore made jeopardy assessments (26 U.S.C. § 6861) against Helene Klotzman as transferee of Richard Klotzman; Helene Klotzman, trustee for Heidi Klotzman, as transferee of Richard Klotzman; and, Richard Klotzman and Helene Klotzman, tenants by the entireties, as transferees of Richard Klotzman, in the amounts of $125,196, $125,000, and $179,452, respectively. Mrs. Klotzman administratively appealed the Director’s decision and lost. 26 U.S.C. § 7429(a). She now seeks judicial review of the jeopardy assessments under 26 U.S.C. § 7429(b).

I.

Judicial review of termination or jeopardy assessments under 26 U.S.C. § 7429(b)(2) is limited to two questions: (1) whether the assessment was reasonable under the circumstances and (2) whether the amount assessed was appropriate. Clarendon Ltd. v. United States, 573 F.Supp. 106 (S.D.N.Y.1983). The Government has the burden of proof on the issue of the reasonableness of making the jeopardy or termination assessment and the taxpayer has the burden of proof oh the issue of the appropriateness of the amount assessed. 26 U.S.C. § 7429(g); Peters v. United States, 574 F.Supp. 37, 38 (E.D.Wis.1983); Bremson v. United States, 459 F.Supp. 121, 125 (W.D.Mo.1978); Haskin v. United States, 444 F.Supp. 299, 304 (C.D.Cal.1977). The standard of review to be applied in evaluating an assessment’s reasonableness is “something more than ‘not arbitrary or capricious,’ and something less than ‘supported by substantial evidence.’ ” Loretto v. United States, 440 F.Supp. 1168, 1172 (E.D.Pa.1977) (citation and footnote omitted); accord Cantillo v. Coleman, 559 F.Supp. 205, 207 (D.N.J.1983); Revis v. United States, 558 F.Supp. 1071, 1074 (D.R.I.1983). Finally, although the district court’s determination is not reviewable, 26 U.S.C. § 7429(f), it “is unrelated substantively or procedurally to any subsequent proceeding to determine the correct tax liability either by action for refund in a ... district court or the Court of Claims or by a proceeding in the Tax Court.” United States v. Doyle, 494 F.Supp. 1041, 1042 (E.D.Wis.1980) (citing S.Rep. No. 94-938 (Part I), 94th Cong., 2d Sess. 365), reprint ed in 1976 U.S.Code Cong. & Ad.News 3429, 3795; accord Revis v. United States, supra, 558 F.Supp. at 1074; Rogers v. United States, 511 F.Supp. 82, 84 (D.Minn.1980); Bremson v. United States, supra, 459 F.Supp. at 125.

II.-

A. Reasonableness of the Assessment

Richard Klotzman, it appears, is having his problems with the Internal Revenue Service. The dispute centers on the alleged failure of Mr. Klotzman to pay federal income taxes. The extent of the disagreement is significant — taxes, penalties, and interest approaching $10,000,000 {See Declaration of Robery Murphy (hereinafter “Declaration”), June 20, 1985, at 1).

Plaintiff, Mr. Klotzman’s wife, has been drawn into the dispute as transferee of certain assets under 26 U.S.C. § 6901. In this lawsuit, she contests the IRS’s decision to make jeopardy assessments against her totalling approximately $430,000.

The Government maintains that due to Mr. Klotzman’s “long, documented history of intentionally hiding his assets[,]” and given his personal and business relationship with plaintiff, it “reasonably concluded that the assets of [plaintiff] would likely be dissipated, and properly made the jeopardy assessments” (Government’s Memorandum in Support for Summary Determination, at 15). Supporting the Government’s position is the testimony and declaration of Revenue Officer Robert Murphy. Officer Murphy testified that Mr. Klotzman had advised him, under oath, that he controlled his wife’s business activities. In his declaration, Officer Murphy avers that Mr. Klotzman informed him that his wife “had no control over her personal [checking] accounts, and that her signature on her personal check was ‘like having a secretary’s signature on [the check]” (Declaration, at 8). Finally, Officer Murphy testified that following the seizure of certain property by the IRS on April 2, Mr. Klotzman closed and withdrew funds from two bank accounts the Service did not even know existed.

The Court is satisfied, after having reviewed the memoranda, exhibits, and affidavits, and considered the arguments of counsel, that the Government has met its burden of establishing that the making of jeopardy assessments against plaintiff was reasonable under the circumstances. In this regard, it is important to recognize the limited nature of this proceeding. The critical question to be answered is: did the IRS act reasonably, given the present record, in concluding that its collection of transferee taxes against plaintiff may be in jeopardy? In light of Mr. Klotzman’s contretemps with the Service during the last several years, his actions after the April 2 seizure, plaintiff’s lack of financial independence (as reflected by her failure to file a federal income tax return since 1971), and her personal and business relationship with Mr. Klotzman, the answer is yes. Now to the second inquiry.

B. Appropriateness of the Amounts Assessed

As noted previously, the jeopardy assessments at issue were made against plaintiff, as transferee, in three different capacities: (1) individually; (2) as trustee for her daughter Heidi Klotzman; and (3) as a tenant of property held jointly with her husband as tenants by the entireties. Unlike the prior determination, the burden is on the plaintiff to demonstrate that the amount of the assessments are inappropriate.

The Court has carefully reviewed the declaration of Officer Murphy as it pertains to the amounts of the assessments and plaintiffs affidavit and exhibits in opposition thereto. The Court finds that the plaintiff has failed to demonstrate that the amounts assessed were inappropriate. As the Government concedes, however, the jeopardy assessments against plaintiff and her husband as tenants by the entireties and against plaintiff individually should be reduced to $145,203.34 and $117,596, respectively (Declaration, at 2-4).

Accordingly, for the reasons stated above, it is this 25th day of June, 1985,

ORDERED:

1) that the jeopardy assessments made against Helene Klotzman, individually as transferee of Richard Klotzman and Helene M. Klotzman and Richard Klotzman, tenants by entireties, as transferees of Richard Klotzman are reduced to $117,596 and $145,203.34, respectively;

2) that plaintiffs complaint is dismissed with prejudice; and

3) that the Clerk mail copies of this Memorandum and Order to counsel for the parties.

      . As a preliminary matter, the Court notes that the proper defendant in this action is the United States and not the Internal Revenue Service. Vernon v. United States, 586 F.Supp. 115, 117 (M.D.N.C.1984).

      . There are two special tax assessments available to the Government "when circumstances exist which would make doubtful the collection of certain tax liabilities.” Marranca v. United States, 587 F.Supp. 663, 664 (M.D.Pa.1984). These are a jeopardy assessment and a termination assessment. The two can be distinguished in that “[a] jeopardy assessment is made for a tax year that has ended and for which the due date for filing has passed. A termination assessment, [on the other hand], is made for a tax year that has not ended and for which the due date for filing has not yet passed.” Nolan v. United States, 539 F.Supp. 788, 789 (D.Ariz.1982).

      . A termination or jeopardy assessment will be deemed reasonable if the Government establishes that "(1) the taxpayer is or appears to be planning to quickly depart from the United States to conceal himself; (2) the taxpayer is or appears to be designing to place his property beyond the reach of the government by either removing it from the United States or by concealing it, or by transferring it to other persons, or by dissipating it; or (3) the taxpayer’s financial solvency appears to be imperiled.” Cantillo v. Coleman, supra, 559 F.Supp. at 206-07 (citation omitted); accord Welch v. United States, 575 F.Supp. 464, 465-66 (S.D.Miss.1983); Peters v. United States, supra, 574 F.Supp. at 38; Clarendon Ltd. v. United States, supra, 573 F.Supp. at 107; McAvoy v. Internal Revenue Service, 475 F.Supp. 297, 299 (W.D.Mich.1979). Moreover, in determining the reasonableness of an assessment, the Court "may consider all relevant evidence ... [and] not just that which was available to the IRS at the time of the assessment.” DeLauri v. United States, 492 F.Supp. 442, 445 (W.D.Tex.1980) (citation omitted).

      . IRS, FBI Move To Depose King of Rock Promoters, Balt. Sun, May 16, 1985, at A1.

      . On June 24, the Court held a hearing in this matter. Revenue Officer Murphy was the only witness at the hearing.

      . Plaintiffs assertions in two affidavits that she is “not now nor h[as] [she] ever been controlled by" her husband (Affidavit of Helene Klotzman, June 18, 1985, at 1) and that he "did not have control over [her] and [her] finances” (Declaration of Helene Klotzman, June 25, 1985, at 3) are conclusory and, in the Court’s view, do not undercut the reasonableness of the Service’s decision to make the jeopardy assessments.

      . The Court assumes the plaintiff did not file a return during these years because she in fact had no income to report.


author: DON J. YOUNG, Senior District Judge.

text:
    EQUAL EMPLOYMENT OPPORTUNITY COMMISSION, Plaintiff, v. The GREAT ATLANTIC AND PACIFIC TEA COMPANY, Defendant.
    No. C 77-586.
    United States District Court, N.D. Ohio, W.D.
    June 28, 1985.

      Elliott Y. Porter, E.E.O.C., Cleveland, Ohio, for plaintiff.
    Robert Hartland, Reed, Smith, Shaw & McClay, Pittsburgh, Pa., Thomas W. Palmer, Marshall & Melhorn, Toledo, Ohio, for defendant.
   OPINION AND ORDER

DON J. YOUNG, Senior District Judge.

This action arises out of the closing of five warehouse operations of defendant, the Great Atlantic and Pacific Tea Company [“A & P”]. Under the terms of collective bargaining agreements with the unions representing the employees at these warehouses, some, but not all, of the employees received severance pay upon termination of the operations. Plaintiff, the Equal Employment Opportunities Commission [“EEOC”], claims that the 89 employees who did not receive severance pay were discriminated against because of their age, in violation of the provisions of the Age Discrimination in Employment Act of 1967, as amended, 29 U.S.C. § 621 et seq. [“ADEA”]. This Court has jurisdiction pursuant to Section 7(b) of the ADEA, 29 U.S.C. § 626(b) and Section 17 of the Fair Labor Standards Act of 1938, as amended [FLSA], 29 U.S.C. § 201 et seq.

Attempts to resolve the matter by conciliation were unsuccessful, and this action was commenced. The parties filed cross-motions for summary judgment. These motions were overruled because there were disputes of fact involved.

Thereafter, the matter came on for trial to the Court, sitting without a jury. It was submitted upon the testimony at the trial, and elaborate stipulations of facts, and was argued by briefs. Each party filed a brief, a reply brief, and a supplemental brief. This Opinion will serve as the Court’s findings of fact and conclusions of law. Fed.R. Civ.P. 52(a).

Prior to reaching the merits of the cause sub judice, the Court first must address the defendant’s contention that some of the claims asserted by plaintiff EEOC are time-barred. Normally, an action for unpaid wages or compensation brought pursuant to the ADEA is subject to a two year statute of limitations. If a “willful” violation of the statute is proven, however, the limitations period is expanded to three years. See § 6 of the Portal to Portal Pay Act of 1947, 29 U.S.C. § 255(a) (incorporated into the ADEA by 7(e), 29 U.S.C. § 626(e)).

Defendant A & P first contends that, in the event a violation of the ADEA is found, there is no proof of defendant’s intent to violate the statute or that a violation was “willful.” It asserts, therefore, that this action is subject to the two year statute of limitations and that any claims arising out of the May 24, 1975 closings of the Buffalo and Syracuse warehouses, which occurred more than two years prior to the November 7, 1977 filing of this suit, are time-barred. Plaintiff EEOC, on the other hand, maintains that the three year limitations period applies, asserting that the defendant A & P willfully violated the ADEA when it denied severance pay to employees over the age of 55.

Divergent views have emerged as courts have wrestled with the appropriate definition of “willful” under the ADEA or the FLSA. In one line of cases, courts have subscribed to the view that, for statute of limitations purposes, a violation is willful if the “employer knew or suspected that his actions might violate the [ADEA] [or] [s]tated more simply ... [d]id the employer know the [ADEA] was in the picture?” Coleman v. Jiffy June Farms, Inc., 458 F.2d 1139, 1142 (5th Cir.1971), cert. denied, 409 U.S. 948, 93 S.Ct. 292, 34 L.Ed.2d 219 (1972); accord Usery v. Godwin Hardware, Inc., 426 F.Supp. 1243, 1267 (W.D.Mich.1976) (violation willful where knowing, as opposed to negligent or accidental, and “committed with at least a general awareness that the requirements of the law were in the picture”). See also E.E.O.C. v. Central Kansas Medical Center, 705 F.2d 1270, 1274 (10th Cir.1983) (willful violation where “employer was or should have been cognizant of an appreciable possibility that the employees involved were covered by the statutory provisions”); Laffey v. Northwest Airlines, Inc., 567 F.2d 429, 472 (D.C.Cir.1976), cert. denied, 434 U.S. 1086, 98 S.Ct. 1281, 55 L.Ed.2d 792 (1978).

Other courts have adopted a narrower approach, requiring that to be “willful,” a violation must be “deliberate, voluntary, and intentional.” Marshall v. J.C. Penney Co., 464 F.Supp. 1166, 1194 (N.D.Ohio 1979). As explained by one court, this standard distinguishes willful violations from those that merely are accidental and “is used to characterize conduct marked by careless disregard whether or not one has the right so to act.” Boll v. Federal Reserve Bank of St. Louis, 365 F.Supp. 637, 648-49 (E.D.Mo.1973), aff'd, 497 F.2d 335 (1974).

Even if this Court applies the more stringent view of willfulness, there is ample evidence, as detailed below in this Opinion, to support a finding that the defendant’s denial of severance pay to its employees age 55 and over was “deliberate, voluntary, and intentional.” Marshall, 464 F.Supp. at 1194. At best, the defendant negotiated this plan in “careless disregard whether or not [it had] the right so to act.” Boll, 365 F.Supp. at 649. The three year statute of limitations applies to this action and all claims asserted, therefore, are timely filed.

The statutory predicate for this suit was enacted in order “to promote the employment of older workers based on their ability rather than age; to prohibit arbitrary age discrimination in employment; [and] to help employees and workers find ways of meeting problems arising from the impact of age on employment.” 29 U.S.C. § 621(a). To this end, Section 4(a)(1) of the ADEA provides, in pertinent part, that:

It shall be unlawful for an employer ... to discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual’s age.

29 U.S.C. § 623(a)(1). See Trans World Airlines, Inc. v. Thurston, — U.S. -, 105 S.Ct. 613, 621, 83 L.Ed.2d 523 (1985); Lorillard v. Pons, 434 U.S. 575, 577, 98 S.Ct. 866, 868, 55 L.Ed.2d 40 (1978) (ADEA “broadly prohibits arbitrary discrimination in the workplace based on age”). This protection extends to individuals who are between forty and seventy years of age. 29 U.S.C. § 631(a) (as amended, 1978).

To prevail on a claim under the ADEA, the plaintiff must first establish a prima facie case of age discrimination either by the use of the criteria set forth in McDonnell-Douglas v. Green, 411 U.S. 792, 93 S.Ct. 1817, 36 L.Ed.2d 668 (1973) in the context of a Title VII discrimination case or by the use of statistical information or direct or circumstantial evidence. Grubb v. W.A. Foote Memorial Hosp., 741 F.2d 1486, 1498 (6th Cir.1984); Blackwell v. Sun Elec. Corp., 696 F.2d 1176, 1180 (6th Cir.1983). The Sixth Circuit Court of Appeals has made it clear, however, that it eschews rigid application of the Title VII guidelines in an age discrimination suit and employs instead a flexible case-by-case approach to the establishment of a prima facie case under the ADEA. West v. Fred Wright Constr. Co., 756 F.2d 31, 33 (6th Cir.1985); Grubb, 741 F.2d at 1497; Blackwell at 1180. If a prima facie case is established, the burden then shifts to the defendant to articulate a legitimate, nondiscriminatory reason for his decision. Texas Dept. of Community Affairs v. Burdine, 450 U.S. 248, 253, 101 S.Ct. 1089, 1093, 67 L.Ed.2d 207 (1981); Blackwell, 696 F.2d at 1179. The ultimate burden of persuasion, however, remains at all times with the plaintiff. Burdine, 450 U.S. at 256, 101 S.Ct. at 1095; Blackwell, 696 F.2d at 1180.

Notwithstanding the questions of proof, the ultimate issue under the ADEA is whether age was a determining factor in an employment decision. Blackwell, 696 F.2d at 1180-81; Ackerman v. Diamond Shamrock, 670 F.2d 66, 70 (6th Cir.1982); Laugesen v. Anaconda, 510 F.2d 307, 317 (6th Cir.1975). Stated differently, the plaintiff is “entitled to recover if one such factor was his age and if in fact it made a difference____” Laugesen, 510 F.2d at 317.

Not every employment decision that impacts adversely on older employees is a violation of the ADEA, however. See Mastie v. Great Lakes Steel Corp., 424 F.Supp. 1299, 1307 (E.D.Mich.1976) (“not every personnel decision by an employer which results in differential treatment of individuals in the protected class is a violation of the [ADEA]”). Recognizing this fact, the statute provides several defenses which may be available to employers to make permissible actions which otherwise would be prohibited. Pertinent to this cause is Section 4(f)(1) .which permits differentiation in treatment when it is based on “reasonable factors other than age,” 29 U.S.C. § 623(f)(1), and Section 4(f)(2) which provides that it shall not be unlawful for an employer “to observe the terms of a bona fide ... employee benefit plan such as a retirement, pension, or insurance plan, which is not a subterfuge to evade the purposes of this chapter____” 29 U.S.C. § 623(f)(2).

The questions presented in this cause are narrow. Plaintiff EEOC contends essentially that the defendant A & P’s plan, whereby severance pay was denied to those employees eligible for early retirement, discriminates on the basis of age. The defendant, on the other hand, argues first that the plaintiff has not met its burden of showing that the severance pay plan made a distinction “because of age.” It further contends that, even if such a distinction were made, it was permissible under either of the above-mentioned statutory defenses.

Although the basic evidentiary facts are relatively simple, and not particularly in conflict, the factual conclusions to be drawn from them are not at all simple, and are very much disputed. Part of this complexity is due to the fact that the defendant’s pension plan is involved in the dispute. Like all pension plans, there are questions of rating of pension rights, the effects of early retirement, who gets pensions, and when, and who doesn’t get pensions, and why. Since the days of the psalmist, the length of any particular person’s life has been recognized as an unknown and unknowable quantity. Mortality tables make it possible to set up pension plans which are financially sound for a large group of pensioners, but they cannot predict what will be most advantageous for any one pensioner contemplating retirement.

Simply stated, five warehouse operations of the A & P, located in Ohio and New York, were closed down during 1975 and 1976 due to a general business decline and the ensuing national reorganization of the defendant. Termination of these operations brought into play severance pay provisions which had been negotiated through collective bargaining between the A & P and the five local unions.

The issue in this case arises because all of the provisions in question denied severance pay to any employee who was eligible for early retirement under the defendant’s pension plan. Normally, an employee could retire with the full benefits to which he was entitled upon reaching the age of sixty-five years. The pension plan then in effect provided also that an employee with vested pension rights could take early retirement at any time after he reached fifty-five years of age. If the latter option were chosen, however, the amount of pension was reduced by five percent for each year under sixty-five to reflect the longer period during which the pension benefits would be paid. Thus, an employee retiring at fifty-five years of age would receive only half the amount of pension payable upon retirement at age sixty-five. Once an employee’s pension rights had vested, it was not necessary to continue in the employ of the company until retirement in order to collect a pension at retirement age. The amount of the pension depends upon the length of employment, but once vested the employee would always be entitled to a maximum pension based upon earnings.

Obviously, an employee with vested pension rights might not wish to take an early retirement at a reduced pension. Innumerable factors in any particular case would influence this decision. There can be no doubt, however, that the right to make the decision is, basically, that of the employee. The employer might be able to persuade the employee to make a particular decision, but should not, and generally does not, have the right to make the decision for him.

In this case, however, the evidence leaves no doubt that many of the defendant’s employees — those who were over fifty-five years of age and eligible for early retirement under the defendant’s pension plan — were given no choice and thus were deprived of this right. These “early retirees,” of course, could take the risk of waiting and defer receipt of their pension until they reached the normal retirement age of sixty-five in order that their monthly pension allotment not be reduced. Choosing this option, however, meant no immediate income for these employees. Notwithstanding the obvious financial hardship under either option, they also were deprived of the severance pay, designed to offset such difficulties, which younger employees were given. There can be no doubt that the age of these employees was a factor in determining whether or not they received severance pay, and that it did make a difference. Laugesen v. Anaconda, 510 F.2d 307, 317 (6th Cir.1975). See E.E.O.C. v. Borden’s, Inc., 724 F.2d 1390, 1393 (9th Cir.1984) (court found a violation of the ADEA where “[a]ge was a ‘but for’ cause or necessary condition for the denial of severance pay to Borden’s retireable employees, since only employees 55 or older were eligible for retirement”).

The defendant, in support of its argument that its policy did not discriminate on the basis of age, makes much of the fact that a small number of employees who were over fifty-five years of age did receive severance pay. The other side of this coin is that employees with vested pension rights who were under the age of fifty-five years of age at the dates of warehouse closings could get both severance pay and retirement pay. When the totality of the circumstances is examined, the discriminatory nature of the scheme is abundantly clear. Discrimination, both in law and in reason, is an individual matter. As to any particular employee who was in fact illegally discriminated against, it makes no difference that other employees, even many others, were not discriminated against. The law is designed to protect minorities, even very small minorities. The constitutional and statutory protections are for individuals, not groups.

The defendant also contends that the distinctions drawn by its severance pay scheme were based on “reasonable factors other than age,” 29 U.S.C. § 623(f)(1), and thus defensible under the ADEA. In support of this argument, the defendant asserts that the provisions in the collective bargaining agreements, which give rise to the discriminatory practice complained of here, were framed for the purpose of giving employees whose income was cut off enough money to tide them over until they could secure other employment. It reasons that any employee who could receive early retirement pension payments had enough money to cushion the loss of wages, just as those who received severance pay did.

This pious protestation of the defendant’s concern for its former employees is belied by the facts. The pittances which the evidence shows the early retirees receive in most cases would barely keep an individual alive, much less a family. On the other hand, the severance pay for many of the employees entitled to it amounted to two or three thousand dollars. The severance pay generally was large enough to prevent financial disaster. The early retirement benefit generally was not. The one who most benefitted financially from the severance pay plan was the defendant. How much the defendant benefitted was based on factors which included age. The age of the displaced workers did make a difference, both to them and to the defendant.

The severance pay plan, which wrought such inequities, cannot be justified by the defendant’s reliance on Section 4(f)(1). The Court finds that, even though employees 55 years and older were eligible for pension benefits, this fact is “not a ‘reasonable factor other than age’ justifying the denial of severance pay.” Borden’s, 724 F.2d 1390, 1394 (9th Cir.1984). See E.E.O.C. v. Westinghouse Elec. Co., 725 F.2d 211, 222 (3d Cir.1983), cert. denied, — U.S. -, 105 S.Ct. 92, 83 L.Ed.2d 38 (1984) (“eligibility for early retirement is too closely related to age to be given credence as a valid justification [under Section 4(f)(1)]”). Permitting employers to utilize this rationale in denying benefits to older employees would emasculate the purposes of the ADEA. See Westinghouse Elec. Co., 725 F.2d at 222-23.

Nor will it do to say that the discrimination so clearly demonstrated by the evidence was the result of a bona fide employee benefit plan and therefore exempt from the ADEA’s proscriptions by virtue of Section 4(f)(2). To support this argument and to bring its severance pay plan within the purview of the statutory exception, the defendant contends that the plan at issue in this cause, along with the pension plan, was part of an integrated package of employee benefits negotiated as part of the collective bargaining agreements between the company and the union.

It appears, however, that the defendant has dragged in its pension plan to clothe its severance pay plan with legitimacy and to achieve results which it was not designed to achieve. In the process, the defendant has deprived the beneficiaries of the pension plan of their rights to determine at what age they would accept retirement.

Moreover, the defendant’s claim that the severance pay plan is valid based on the fact that it was bargained for between the company and the unions is equally without merit.

Collective bargaining agreements such as those involved here are hardly bona fide. They were not negotiated as are those which involve young businesses. These were designed to enable the labor organizations involved to salvage something from the wreckage of the establishments whose employees they represented. These organizations cannot be blamed if they, too, discriminated in favor of their younger members. They were not dealing in the open market, but with a gun at their heads. In any event, it is no defense to the defendant that the labor organization aided and abetted, or at least condoned, its violation of the ADEA.

Notwithstanding ■ the defendant’s claims, the evidence is clear that the severance pay plan was not part and parcel of a total, integrated benefit package. The severance and pension plans were adopted at different times and were documented separately. See Borden’s, Inc., 724 F.2d at 1896 (where negotiated severance pay policy was only loosely integrated with the company’s pension plan and embodied in separate documents, plan not an integral part of retirement and pension package for purposes of Section 4(f)(2)). The only correlation between the two plans was that eligibility for early retirement precluded eligibility for severance pay. Faced with a similar argument, the Third Circuit Court of Appeals noted that:

[t]he mere fact that the benefits available to employees under the Pension Plan were to be considered when determining eligibility for [layoff-benefits], however, does not merge the two plans into a single “coordinated benefit plan.” [E.E.O.C. v. Borden’s, Inc., 551 F.Supp. 1095, 1099 (D.Ariz.1982), aff'd, 724 F.2d 1390 (9th Cir.1984)]. On the contrary, this interaction shows that the [layoff-benefits] Plan is not an integral part of the Pension Plan.

E.E.O.C. v. Westinghouse Elec. Co., 725 F.2d 211, 225 (3d Cir.1983).

The Court finds further, in reviewing the severance pay plan independently, that it does not meet the criterion of those employee benefit plans that have been held to come within the ambit of Section 4(f)(2). The legislative history of this statutory exception reveals congressional recognition that the cost of providing certain benefits, such as insurance and pensions, to older workers was unavoidably higher than the cost of providing similar benefits to younger workers. See generally Borden’s, 724 F.2d at 1396. To encourage the hiring of older employees without causing an undue financial burden on employers, Section 4(f)(2) permits age distinctions to be made in benefit plans where age significantly increases the cost factor of providing the benefits. See Westinghouse, 725 F.2d at 224. The severance pay plan at issue, in contrast to retirement, pension and insurance plans, does not reflect a similar age-related cost factor. That is, for example, it would cost no more to provide severance pay to an employee 58 years of age with 10 years service than it would to provide severance pay to a 54 year old employee with a similar length of service. Denying severance pay to employees 55 years of age and older indeed saved money for the defendant, but only because it arbitrarily discriminated on the basis of age in violation of the ADEA.

For the reasons stated, this Court concludes that the defendant A & P’s plan for severance pay which denied such pay to employees who were eligible to take early retirement is in violation of the ADEA and, therefore, the plaintiff is entitled to prevail in this action. Judgment must be rendered in favor of the plaintiff and against the defendant.

It is Ordered and Adjudged that counsel for plaintiff shall, pursuant to Local Civil Rule 5.02, prepare and submit a judgment and order expressive of the Court’s findings and conclusions in this Opinion and Order.

IT IS SO ORDERED.

      . At the close of plaintiffs case in chief, the defendant moved for a directed verdict in its favor. The Court reserved ruling on the motion. It does not appear that these motions were renewed at the close of all of the evidence, but in any event, if the evidence is viewed in the light most favorable to the plaintiff, against whom the motions are directed, Bellemy v. Bradley, 729 F.2d 416, 418 (6th Cir.), cert. denied. — U.S. -. 105 S.Ct. 156. 83 L.Ed.2d 93 (1984); Newby v. Serviss, 590 F.Supp. 591, 595 (D.Mich.1984), it is clear that plaintiff would be entitled to prevail. The motion therefore will be overruled.

      . Since the ADEA incorporates many procedural provisions of the FLSA, many age discrimination decisions rely on cases which have interpreted these provisions under the FLSA.

      . In addition to the importance of determining a willful violation for statute of limitations purposes under the ADEA, it also can be critical to the determination of whether or not the victim of age discrimination can recover liquidated damages. See 29 U.S.C. § 626(b). In Blackwell v. Sun Elec. Corp., 696 F.2d 1176 (6th Cir.1983), the Sixth Circuit Court of Appeals defined “willfulness” for purposes of the liquidated damages provision as requiring a showing that
      the employer's actions were voluntary and intentional. The employer is not necessarily shielded from liability because he is aware of the "implications of his actions under the Act.” Alternately, the plaintiff may receive liquidated damages if he shows that the employer was reckless in not knowing that his actions were governed by the ADEA or that the employer acted in reckless disregard of whether his actions were covered by the ADEA.

        Id. at 1184. The court concluded by stating that the focus should remain on “whether the employer deliberately, intentionally and knowingly discharged the employee because of his age.” Id. It is not clear, however, whether or not this "willfulness" standard for determining liquidated damages is identical to that needed for purposes of determining the appropriate standard of limitations. Trans World Airlines, Inc. v. Thurston, — U.S. -, 105 S.Ct. 613, 625 n. 21, 83 L.Ed.2d 523 (1985) (referring to a split among the various Courts of Appeal over this question).

      . The five facilities were located in Buffalo, Syracuse and Albany, New York and Bloomdale and Columbus, Ohio. The closing dates of the operations occurred, respectively, on: May 24, 1975; May 24, 1975; February 28, 1976, May 21, 1976; and June 5, 1976. Defendant’s Motion for Partial Summary Judgment, at 3 n. 4.

      . To have vested pension rights, an employee had to have been continuously employed by the A & P for ten years. He also had to be at least thirty-two years of age if he worked at the Albany, Columbus or Bloomdale locations or at least forty years of age if at the Buffalo or Syracuse operations.

      . The evidence indicates that there were five employees over the age of fifty-five who, because they had not worked for the defendant for the required ten years, were ineligible for early retirement and thus received severance pay. See Trial Stipulation, Exhibits A-E.

      . As previously stated, this statutory section provides in pertinent part that it shall not be unlawful for an employer
      to observe the terms of a bona fide seniority system or any bonafide employee benefit plan such as a retirement, pension, or insurance plan, which is not a subterfuge to evade the purposes of this chapter____
      29 U.S.C. § 623(f)(2).

      . The parties have agreed that, for purposes of this action only, the defendant’s pension plan is bona fide. Trial Stipulation No. 15.

      . Trial Stipulations Nos. 6 and 12, Exhibits F and G, show that the Employees’ Retirement Plans were adopted on October 1, 1948, and amended on January 1, 1976, and September, 1973, respectively. Trial Stipulations Nos. 7-11 establish that the separately negotiated severance pay plans became effective on May 1, 1966, September22, 1972, Mayó, 1973, September 19, 1966, and October 18, 1970, respectively.


author: RYMER, District Judge.

text:
    Rigdon O. DEES, III, Plaintiff, v. Ira T. DISTENFIELD and Smith Barney Harris Upham & Co. Inc., Defendants.
    No. CV 84-8676 PAR.
    United States District Court, C.D. California.
    July 17, 1985.
    Gerald F. Edelstein, Peter Laird, Arrow, Edelstein, Gross & Asher, C.C., Los Angeles, Cal., for plaintiff.
    Peter Brown Dolan, P.C., Maren E. Nelson, Overton, Lyman & Prince, Los Angeles, Cal., for defendants.
   MEMORANDUM OF DECISION AND ORDER

RYMER, District Judge.

Plaintiff Rigdon O. Dees III brings this action alleging violations of § .10(b) of the Securities Exchange Act of 1934 (“the 1934 Act”), 15 U.S.C. § 78j(b), and S.E.C. Rule 10b-5. Pendent claims alleging fraud, breach of fiduciary duty, negligence and breach of oral contract were previously dismissed under the principles set forth in United Mineworkers v. Gibbs, 383 U.S. 715, 86 S.Ct. 1130, 16 L.Ed.2d 218 (1966).

Dees charges defendants with misconduct in the management of his securities account. Specifically, he alleges that defendant Ira T. Distenfield, as the account executive, and Smith Barney, Harris Up-ham & Co. (“Smith Barney”) as principal, executed unauthorized transactions which were excessive in volume and frequency and were made solely for Smith Barney’s benefit. In addition, plaintiff charges defendants with a number of fraudulent misrepresentations.

Plaintiff’s claim arises from a securities account opened by him at the Beverly Hills office of Smith Barney in October 1983. At the time he opened the account, plaintiff signed a Securities Account Agreement (“the Agreement”) which provides, in part: “Any controversy between Smith Barney and me arising out of or relating to this contract or the breach thereof, shall be settled by arbitration, in accordance with the rules, then obtaining, of either the Boards of Arbitration of the New York Stock Exchange, American Stock Exchange or National Association of Securities Dealers as I may select.”

Pursuant to the Federal Arbitration Act, 9 U.S.C. §§ 3 and 4 (1976), defendants move for an order staying this action and compelling plaintiff to arbitrate the federal securities claim. Section 4 of the Arbitration Act provides in pertinent part: “A party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court ... for an order directing that such arbitration proceed in the manner provided for in such agreement.” After proper notice, a hearing and “upon being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue, the court shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement.”

It is uncontested that plaintiff and defendants agreed in writing to arbitrate any disputes arising from the management of the securities account. Plaintiff also concedes that his claim against defendants arises from the securities account governed by the Agreement. Similarly, there is no question that defendant demanded arbitration in a timely fashion and plaintiff refused to arbitrate the claim brought under the federal securities law.- Nor does plaintiff assert any general contract defenses such as illegality or fraud in the inducement which might establish that the arbitration provision is unenforceable or revocable. See Southland Corp. v. Keating, 465 U.S. 1, 104 S.Ct. 852, 861 n. 11, 79 L.Ed.2d 1 (1984); 9 U.S.C. § 2 (1976).

Plaintiff opposes the motion to stay the action and compel arbitration on two grounds. First, plaintiff argues that the arbitration provision does not apply because it states, “Nothing in this paragraph shall in any way constitute a waiver or limitation of any rights which the undersigned may have under federal securities law.” According to plaintiff, compelling arbitration constitutes a limitation, if not an outright waiver, of his right to bring his Rule 10b-5 claim in federal court. However, the clause offered by plaintiff makes the arbitration clause coextensive with plaintiff’s rights under the federal securities laws. Thus, the applicability of the arbitration clause depends on whether the 1934 Act gives plaintiff an unlimited right to a determination in federal court and whether the Arbitration Act applies to claims brought pursuant to § 78j(b) and Rule 10b-5.

Second, plaintiff asserts that the policy which underlies the 1934 Act, a desire to protect the small securities investor, prohibits the enforcement of any pre-dispute arbitration agreement. Thus, in order to determine both grounds for opposition, the Court must decide whether the 1934 Act constitutes an exception to the mandate of the federal Arbitration Act to enforce arbitration agreements.

The starting point for this discussion is Wilko v. Swan, 346 U.S. 427, 74 S.Ct. 182, 98 L.Ed. 168 (1953) where the Supreme Court held that an agreement to arbitrate future disputes was not enforceable with respect to claims brought under § 12(2) of the Securities Act of 1933. The Court based its holding on several interrelated statutory provisions. Section 14 of the 1933 Act, 15 U.S.C. § 77n (1982), provides that “[a]ny condition, stipulation, or provision binding any person acquiring any security to waive compliance with any provision of this subchapter or of the rules and regulations of the Commission shall be void.” The Court also noted that the Securities Act of 1933 was designed to protect investors from fraud by requiring securities dealers to provide full disclosure. In order to effectuate this policy, § 12(2) expressly “created a special right to recover for misrepresentation which differs substantially from the common-law action in that the seller is made to assume the burden of proving lack of scienter.” Id. at 431, 74 S.Ct. at 184. Finally, § 22 of the 1933 Act, 15 U.S.C. 77v(a) (1982), affords plaintiff a broad choice of forum by making the “special right” created by § 12(2) “enforceable in any court of competent jurisdiction — federal or state.” Id. Taking these sections together and considering the purposes of the Securities Act of 1933, the Court concluded that the intent of Con-, gress was better effectuated if arbitration provisions did not cover claims brought pursuant to § 12(2). Id. at 438, 74 S.Ct. at 188-89.

Plaintiff argues that the broad policy considerations underlying the 1933 Act compel a similar result with respect to claims brought under § 10(b) of the 1934 Act. However, the 1934 Act is substantially different in several respects and the reasoning in Wilko cannot be mechanically applied. As the Supreme Court noted in Scherk v. Alberto-Culver Co., 417 U.S. 506, 94 S.Ct. 2449, 41 L.Ed.2d 270 (1974), “[tjhere is no statutory counterpart of § 12(2) in the Securities Act of 1934, and neither § 10(b) of that Act nor Rule 10b-5 speaks of a private remedy to redress violations of the kind alleged here.” 417 U.S. at 513, 94 S.Ct. at 2454. Rather than containing an expressly created “special right” as does the 1933 Act, the 1934 Act does not provide a private right of action with respect to § 10(b). Instead, the lower federal courts have implied a private right of action under that section. See Herman & MacLean v. Huddleston, 459 U.S. 375, 380 nn. 9-10, 103 S.Ct. 683, 686-87, nn. 9-10, 74 L.Ed.2d 548 (1983). Thus, although § 29(a) of the 1934 Act, 15 U.S.C. § 78cc(a), bars a waiver of “any provision of this chapter or of any rule or regulation thereunder,” it does not literally apply to a judicially implied Rule 10b-5 claim. Dean Witter Reynolds Inc. v. Byrd, — U.S. -, 105 S.Ct. 1238, 1244, 84 L.Ed.2d 158 (1985) (White, J., concurring). Additionally, although the 1934 Act’s non-waiver provision is similar to § 14 of the 1933 Act, certain provisions of the 1933 Act which the Wilko Court found could not be waived have no counterpart in the 1934 Act. Scherk, 417 U.S. at 513-14, 94 S.Ct. at 2454-55. For example, unlike the broad jurisdiction and venue provision found in the 1933 Act, “the analogous provision of the 1934 Act, by

contrast, provides for suit only in the federal district courts that have ‘exclusive jurisdiction,’ 15 U.S.C. § 78aa, thus significantly restricting the plaintiff’s choice of forum.” Id. at 514, 94 S.Ct. at 2455. Jurisdiction under the 1934 Act is confined to the federal courts and is thus narrower. This view of the arbitrability of claims brought pursuant to the 1934 Act was recently reiterated, albeit in dicta, in Dean Witter Reynolds, Inc. v. Byrd, — U.S. -, 105 S.Ct. 1238, 1244, 84 L.Ed.2d 158 (1985) (White, J., concurring). Thus, the significant differences between the 1933 Act and the 1934 Act leads the Court to the conclusion that the exception to the mandate of the Arbitration Act set forth in Wilko does not extend to Rule 10b-5 claims brought by a customer against his broker.

Nevertheless, those lower courts which have considered the question have held that pre-dispute arbitration agreements do not apply to Rule 10b-5 claims. Weissbuch v. Merrill Lynch, Pierce, Fenner & Smith Inc., 558 F.2d 831, 835 (7th Cir.1977) (policy considerations mandate the application of Wilko to Rule 10b-5 situations); Ayres v. Merrill Lynch, Pierce, Fenner & Smith Inc., 538 F.2d 532, 536 (3d Cir.1976); Sibley v. Tandy Corp., 543 F.2d 540, 543 n. 3 (5th Cir.1976); Merrill Lynch, Pierce, Fenner & Smith Inc. v. Moore, 590 F.2d 823, 827-29 (10th Cir.1978); see also De Lancie v. Birr, Wilson & Co., 648 F.2d 1255, 1258-59 (9th Cir.1981) (arbitration is regarded with favor except in situations involving protective legislation such as the federal securities laws). These courts appear to base their holding on the perceived purpose of the federal securities laws — to protect investors — and the differences between litigation in court and arbitration.

At the same time, these cases give little consideration to the mandate and policy of the Federal Arbitration Act, 9 U.S.C. § 1 et seq. and appear to assume that arbitration proceedings are inadequate to protect an investor’s rights. By enacting the Federal Arbitration Act, Congress sought to make arbitration agreements as enforceable as all other contracts. Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 404 n. 12, 87 S.Ct. 1801 n. 12, 18 L.Ed.2d 1270 (1967). Congress intended to avoid the unnecessary expense and delay of litigation where parties had provided for the more efficient process of arbitration. Id. at 404, 87 S.Ct. at 1806; Cunningham v. Dean Witter Reynolds, Inc., 550 F.Supp. 578, 584 (E.D.Cal.1982). Moreover, arbitration under the Act “is intended to provide the parties to a dispute with a speedy and relatively inexpensive trial before specialists.” Conticommodity Services Inc. v. Philipp & Lion, 613 F.2d 1222, 1224 (2d Cir.1980); New Process Steel Corp. v. Titan Industries Corp., 555 F.Supp. 1018, 1021 (S.D.Tex.1983). In this case, arbitration provides the parties with a neutral and expert determination of the dispute. Moreover, the Arbitration Act represents a strong public policy in favor of arbitration as an effective means of resolving disputes, Moses H. Cone Memorial Hospital v. Mercury Constr. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 941, 74 L.Ed.2d 765 (1983); Scherk v. Alberto-Culver Co., 417 U.S. 506, 511-12, 94 S.Ct. 2449, 2453-54, 41 L.Ed.2d 270 (1974). Absent an indication from Congress that arbitration of Rule 10b-5 claims should not be permitted, the unqualified policy favoring arbitration should be enforced. See Hagstrom v. Breutman, 572 F.Supp. 692, 699 (N.D.Ill.1983).

Accordingly, it is hereby ordered that this action is stayed and plaintiff shall arbitrate his federal securities cause of action pursuant to the terms of the Securities Account Agreement.

      . Section 3 states: “If any suit or proceeding be • brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration.”

      . On March 15, 1985, plaintiff agreed to submit the state law causes of action to arbitration and selected the Board of Arbitration of the New York Stock Exchange to decide the claims.

      . Section 29(a) of the Securities Exchange Act of 1934, 15 U.S.C. § 78cc(a), provides: “Any condition, stipulation, or provision binding any person to waive compliance with any provision of this chapter or of any rule or regulation thereunder, or of any rule of an exchange required thereby shall be void.”
      Section 14 of the Securities Act of 1933, 15 U.S.C. § 77n, states: “Any condition, stipulation, or provision binding any person acquiring any security to waive compliance with any provision of this chapter or of the rules or regulations of the Commission shall be void.”