author: SHAW, District Judge.

text:
    Johnny RAMOS, et al. v. DELMAR SYSTEMS, INC., et al.
    Civ. A. No. 83-0504.
    United States District Court, W.D. Louisiana, Lafayette-Opelousas Division.
    March 1, 1984.
    St. Martin, Lirette & Gaubert, Michael X. St. Martin, Houma, La., for plaintiffs.
    Michael S. O’Brien, Lafayette, La., for Aetna in Intervention.
    Andrus, Preis & Kraft, Edwin G. Preis, Jr., Lafayette, La., Onebane, Donohoe, Bernard, Torian, Diaz, McNamara & Abell, Frank X. Neuner, Jr., Lafayette, La., for Great Atlantic Ins. Co.
    Landry, Watkins & Bonin, Alfred Smith Landry, New Iberia, La., for John J. Toce & Eric V. Toce.
    Henderson, Hanemann & Morris, Philip E. Henderson, Houma, La., for Southwest La. Electric Membership Corp.

      Drury, Grossel-Rossi & Tabb, William C. Tabb, III, New Orleans, La., for Delmar Systems, Inc. and Aetna Cas. & Sur. Co.
    John K. Hill, Jr., PLC, Lafayette, La., for Sherman Scott.
   RULING

SHAW, District Judge.

Now pending before this court is a motion for summary judgment urged by defendants, Delmar Systems, Inc., Aetna Casualty and Surety Company, Great Atlantic Insurance Company and Northeastern Fire Insurance Company. These defendants argue that a summary judgment dismissing the Jones Act and General Maritime Law claims against them should be granted.

The record establishes the following undisputed facts: Johnny Ramos had worked for a number of years in the anchor-handling industry prior to his employment with Delmar, including a stint from 1976 to 1981 with International Mooring & Marine, Inc. He was hired to work for Delmar Offshore, Ltd. and/or Delmar Systems, Inc. in November, 1982. At that point Delmar was a new anchor-handling company which had yet to solicit its first anchor-handling job. The daily activities of the plaintiff included: (1) visits to oil companies to obtain a place on their approved vendor’s list and generally to solicit anchor-handling jobs, and/or (2) purchase or preparation of equipment at the Youngsville yard for eventual use offshore by Delmar anchor-handling crews. Whether he was hired to perform offshore anchor-handling duties as a part of his job is a disputed fact. We assume for purposes of this motion that he would have eventually performed anchor-handling duties aboard a vessel or any number of vessels. The plaintiff was seriously injured on January 12, 1983 at the Delmar equipment yard while assisting another employee in moving a large compressor. According to invoices and the depositions of Helveston and Palmature submitted as attachments to the pending motion, Delmar performed its first anchor-handling job subsequent to the occurrence of plaintiff’s injuries. The invoice dated January 31 indicates that Delmar began performance of its first anchor-handling job on January 28, 1983. Further, the plaintiff indicated in his deposition that he had no assignment to a vessel, and stated that he would be working aboard the vessel of “whoever called first”.

The crucial inquiry is whether the plaintiff was a seaman at the time of his injury. As stated in Desper v. Starved Rock Ferry Co., 342 U.S. 187, 191, 72 S.Ct. 216, 218, 96 L.Ed. 205 (1952) the [Jones Act] does not cover probable or expectant seamen but seamen in being. The test in the Fifth Circuit for seaman status under the Jones Act was first established in Offshore Co. v. Robison, 266 F.2d 769, 779 (5th Cir.1959). Even allowing the most expansive reading of the Robison test this court concludes that there is no reasonable evidentiary basis to support a jury finding that the plaintiff was a seaman and member of a crew of a vessel under the Jones Act. The plaintiff in this case had no pending assignment to a vessel at the time of injury nor had he ever had any assignment to a vessel during the course of his employment for Delmar.

Counsel for plaintiff argues that the decedent’s general pattern of employment may be considered by the court in addressing the seaman’s status issue citing Guidry v. South Louisiana Contractors, Inc., 614 F.2d 447 (5th Cir.1980) and Higginbotham v. Mobil Oil Corporation, 545 F.2d 422 (5th Cir.1977), rev’d on other grounds, 436 U.S. 618, 98 S.Ct. 2010, 56 L.Ed.2d 581 (1978). The issue addressed in those two cases, however, is distinguishable. In both cases the question raised was whether the plaintiff had lost the seaman status he had once attained because of a temporary assignment off the vessel. Johnny Ramos was never assigned to any vessel by Delmar, and we conclude never attained seaman’s status with regard to Delmar.

The fact that plaintiff may have been a seaman with regard to prior employers does not have any definitive effect on the status of his employment relationship with Delmar. The seamen in Higginbotham, supra, Guidry, supra, and Savoie v. Otto Candies, Inc., 692 F.2d 363 (5th Cir.1982), all remained in the employment of the same employer throughout. Both Guidry, 614 F.2d at 453 and Savoie, 692 F.2d at 365 note that,

“... Higginbotham does not imply that a maritime worker assigned to work ashore for a very long period of time would continue indefinitely to be a seaman merely because it is contemplated that he will some day return to the vessel, nor that a seaman’s status continues if he commences work for another employer.”

We agree that an employee’s status with regard to Employer A is a separate and distinct relationship from, and does not affect his status with regard to Employer B.

The moving defendants have also requested that the court dismiss the general maritime law claims. The record reflects that the plaintiff was injured at an inland equipment yard in Youngsville, Louisiana. The plaintiff has neither locality nor the maritime flavor required to maintain a cause of action under the general maritime law. Accordingly, the general maritime law claims are also dismissed.

The question now arising is whether a jurisdictional basis still exists to maintain this action in federal court. Having addressed the federal question bases of jurisdiction alleged by the plaintiff and having dismissed them, we further find after a review of the pleadings that neither is the action supported by diversity jurisdiction, 28 U.S.C. § 1332. Thus, the court’s ruling herein that the Jones Act and general maritime claims be dismissed also eliminates the court’s subject matter jurisdiction over this action.

For the foregoing reasons, the defendants’ motion for summary judgment to dismiss the Jones Act and general maritime law claims is GRANTED, and further because the court does not have subject matter jurisdiction the entire matter is DISMISSED.

Counsel for movers is ORDERED to submit an appropriate judgment within ten (10) days.


source: Caselaw Access Project

author: FILIPPINE, District Judge.

license: Public Domain

text:
    Barbara Bailey HOWARD, Plaintiff, v. John O. MARSH, Jr., Secretary of the Army, Defendant.
    No. 82-587C(2)
    United States District Court, E.D. Missouri.
    April 4, 1984.
    On Motion To Alter Or Amend Judgment Sept. 13, 1984.

      Barbara Bailey Howard, pro se.
    Wesley D. Wedemeyer, Asst. U.S. Atty., St. Louis, Mo., Peter B. Loewenberg, Washington, D.C., for defendant.
   MEMORANDUM

FILIPPINE, District Judge.

This matter is before the Court for a decision on the merits after trial to the Court. Plaintiff brings this action alleging that defendant disclosed records pertaining to her to certain individuals without her consent in violation of the Privacy Act of 1974, 5 U.S.C. § 552a. Plaintiff seeks compensatory and injunctive relief.

After consideration of the testimony adduced at trial, the exhibits, the parties’ stipulation of uncontested facts, the parties’ briefs and the applicable law, the Court enters the following Memorandum which it adopts as its findings of fact and conclusions of law in accordance with Rule 52(a), Fed.R.Civ.P.

Plaintiff is a citizen of the United States who resides within the territorial jurisdiction of this Court. From December, 1978, until July, 1982, plaintiff was an employee of Department of the Army Troop Support and Aviation Material Readiness Command (“TSARCOM”), St. Louis, Missouri. During that time period, plaintiff’s job positions were that of GS-160-13 Equal Employment Opportunity (“EEO”) Officer (December, 1978 — February, 1981) and GS-2050-11 Supply Cataloger (February, 1981 —July, 1982).

Defendant John O. Marsh, Jr., at all relevant times was Secretary of the Army. Plaintiff has instituted this action against defendant in his official capacity.

This Court has jurisdiction over plaintiff’s action under 28 U.S.C. § 1381, and 5 U.S.C. § 552a(g)(5). Venue is proper in the Eastern District of Missouri under 28 U.S.C. § 1391(e) and 5 U.S.C. § 552a(g)(5).

In September, 1980, plaintiff initiated a formal administrative complaint of employment discrimination concerning the denial of a within grade salary step increase. In December, 1980, plaintiff’s supervisor, Colonel Booker T. McManus, proposed that plaintiff be downgraded from her position for unsatisfactory performance. An investigator from the United States Army Civilian Appellate Review Agency (“USA-CARA”) conducted an investigation into plaintiff’s discrimination complaint in January, 1981, and submitted his completed Report of Investigation (“ROI”) on April 3, 1981, to Mr. George Jones, Director of Equal Employment Opportunity, Department of the Army Material Development and Readiness Command (“DARCOM”), (the immediate higher headquarters of TSARCOM), Alexandria, Virginia. The ROI concluded that the personnel actions (denial of within grade salary step increase and downgrade in position) taken against plaintiff were based on sex discrimination and recommended restoration of plaintiff to her position as EEO Officer.

The USACARA ROI was then referred to Major General Emil L. Konopnicki, Commander of TSARCOM, pursuant to Department of the Army Civilian Personnel Regulation (“DA CPR”) 700 B-6(h)(l). Major General Konopnicki was vested with authority pursuant to DA CPR 713.B-6(h)(l) and 713B-7(b)(l) to “reject, modify, or approve the recommendations contained in the investigative file.” After reading the entire ROI and its attachments, Major General Konopnicki determined that the ROI was incomplete. He therefore authorized his staff to compile all other appropriate existing documents pertaining to plaintiff in order to enable him to make his determination based upon a complete report.

Pursuant to Major General Konopnicki’s authorization, Mr. Robert Willenbrink, Attorney in the TSARCOM legal office, with the technical assistance of Mrs. Valada Henson, a personnel specialist from the TSARCOM Civilian Personnel Office, reviewed pertinent files in the Equal Employment Opportunity Office and prepared a memorandum of rebuttal of the USACARA ROI entitled “Management Position and Rebuttal to USACARA’s Report of 3 April 1981 In The Complaint of Ms. B. Bailey Howard.” Attached to the memorandum were 111 exhibits. All of these exhibits came from existing files in the TSARCOM Office, Office of the Chief of Staff, the Deputy Commander’s Office, and the Civilian Personnel Office.

Plaintiff contends that the disclosure of the records pertaining to her to Roger Willenbrink and Valada Henson violated her rights under the Privacy Act.

The pertinent provisions of the Privacy Act provide:

(b) Conditions of disclosure. — No agency shall disclose any record which is contained in a system of records by any means of communication to any person, or to another agency, except pursuant to a written request by, or with the prior written consent of, the individual to whom the record pertains, unless disclosure of the record would be—
(1) to those officers and employees of the agency which maintains the record who have a need for the record in the performance of their duties;
(3) for a routine use as defined in subsection (a)(7) of this section and described under subsection (e)(4)(D) of this section.

5 U.S.C. § 552a(b)(l) and (3). Plaintiff may bring a civil action for a violation of section 552a(b) only if she suffered an “adverse effect” as a result of the violation. 5 U.S.C. § 552a(g)(l)(D). See Parks v. United States Internal Revenue Service, 618 F.2d 677, 682-83 (10th Cir.1980). Additionally, in order to receive actual damages for a violation of the Act, plaintiff must show that the agency acted in a manner which was “intentional or willful.” 5 U.S.C. § 552a(g)(4).

Defendant contends that plaintiff has not suffered a Privacy Act violation because (1) the disclosed documents were not within a “system of records” as defined by the Act, and (2) the disclosure of information pertaining to plaintiff to Willenbrink, Henson, and others fell within the exceptions contained in 5 U.S.C. § 552a(b)(l) and (3). Further, defendant argues that even if plaintiff has suffered a Privacy Act violation, she may not recover compensatory damages because (1) she has failed to show that she suffered any “adverse effect” as a result of the disclosure, and (2) she has failed to show that any of the violations were “willful or intentional.” Finally, defendant contends that plaintiff may not obtain injunctive relief because such relief is not available for violations of 5 U.S.C. § 552a(b).

Defendant’s argument that the documents attached to management’s rebuttal memorandum were not within a “system of records” is without merit. The Privacy Act defines “system of records” to mean “a group of any records under the control of any agency from which information is retrieved by the name of the individual or by some identifying number, symbol or other identifying particular assigned to the individual.” 5 U.S.C. § 552a(a)(5). Many of the documents incorporated in management’s rebuttal memorandum were contained in plaintiff’s personnel file and the EEO files maintained by defendant. Clearly, these documents were name retrievable and thus were within a “system of records” maintained by defendant. Cf Hernandez v. Alexander, 671 F.2d 402 (10th Cir.1982); Parks v. United States Internal Revenue Service, supra. (Fact that EEO files and personnel files are “systems of records” was uncontroverted).

Equally unavailing is defendant’s contention that the disclosure of the documents incorporated in management’s rebuttal memorandum fell within the exceptions contained in 5 U.S.C. § 552a(b)(l) and (3).

Under Section 552a(b)(l), defendant contends that Major General Konopnicki had a “need for the record[s] in the performance of [his] duties” because he was required to accept, reject, or modify the USACARA report and because he believed additional documentation was necessary to make an informed decision. Willenbrink and Henson, defendant argues, also had a need for the records because they were authorized by Konopnicki to compile the additional documents.

Defendant’s argument fails at its first premise. Regulations of the Equal Employment Opportunity Commission, expressly made applicable to the Department of the Army by 29 C.F.R. § 1613.202(b)(i) (1982), see Hernandez v. Alexander, 671 F.2d at 410, n. 7, required Konopnicki to make his decision “based on information in the complaint file.” 29 C.F.R. § 1613.-221(a). The only investigative documents that are to be included in the “complaint file” are documents contained in the “investigative file.” 29 C.F.R. § 1613.222(d). Only persons who are not, “directly or indirectly, under the jurisdiction of the head of that part of the agency in which the complaint arose” are authorized to investigate and include documents in the “investigative file.” 29 C.F.R. § 1613.216(a). Thus, Konopnicki did not have authority to authorize Willenbrink and Henson, “employees under the jurisdiction of the head of that part of the agency in which the complaint arose,” to conduct an independent investigation of the matters raised in plaintiff’s discrimination complaint. Because the authorization was invalid, therefore, the Court finds that disclosure of records pertaining to plaintiff to Willenbrink and Henson was not “to those officers and employees of the agency ... who [had] a need for the record[s] in the performance of their duties” under 5 U.S.C. § 552a(b)(l).

Similarly, disclosure to Willenbrink and Henson was not “for a routine use” under 5 U.S.C. § 552a(b)(3). The Privacy Act defines “routine use” to mean, “with respect to the disclosure of a record, the use of such record for a purpose which is compatible with the purpose for which it was collected.” 5 U.S.C. § 552a(a)(7). As indicated above, the documents in plaintiffs EEO files and personnel files were not collected to enable Konopnicki to conduct an independent investigation of the matters raised in plaintiffs discrimination complaint. Thus, the use of these documents by Willenbrink and Henson to prepare a rebuttal memorandum to the US ACARA ROI was not a use which was compatible with the purpose for which the documents were collected. Therefore, defendant’s argument that disclosure to Willenbrink and Henson falls under the “routine use” exception contained in 5 U.S.C. § 552a(b)(3) is without merit.

Consequently, because the Department of the Army, pursuant to Major General Konopnicki’s authorization, disclosed records contained in a “system of records” to Willenbrink and Henson without plaintiff’s consent, plaintiff may recover compensatory damages and costs of this action from defendant under the Privacy Act if she suffered an “adverse effect” as a result of the disclosure, 5 U.S.C. § 552a(g)(l)(D), and if the disclosure was “intentional or willful.” 5 U.S.C. § 552a(g)(4)(A) and (B).

The Eighth Circuit Court of Appeals has held that mental distress or embarrassment constitutes an “adverse effect” under the Act. Parks v. United States Internal Revenue Service, 618 F.2d at 682-683. Plaintiff testified during the trial that she was “upset” and “embarrassed” as a result of the disclosure of the information contained in her personnel and EEO files. The Court finds her testimony in this respect to be credible. Thus, plaintiff has sufficiently shown an “adverse effect” as a result of the improper disclosure.

Finally, the Court finds that the improper disclosure was “intentional or willful” within the meaning of the Act. The legislative history of the Act provides some guidance in interpreting the words “intentional or willful”:

In a suit for damages, the [compromise] amendment reflects a belief that a finding of willful, arbitrary or capricious action is too harsh a standard of proof for an individual to exercise rights granted by this legislation. Thus the standard was reduced to “willful or intentional” action by an agency. On a continuum between negligence and the very high standard of willful, arbitrary, or capricious conduct, this standard is viewed as only somewhat greater than gross negligence.

Analysis of House and Senate Compromise Amendments to the Federal Privacy Act, reprinted in 120 Cong.Rec. 40405, 40406 (1974).

In this case, it is clear that Major General Konopnicki intentionally authorized the improper disclosure to Willenbrink and Henson; no form of negligence was involved. Parks v. United States Internal Revenue Service, 618 F.2d at 683. Thus, the “intentional or willful” standard has been satisfied.

For the foregoing reasons, the Court finds that plaintiff has established that defendant violated the Privacy Act, that the violation resulted in an adverse effect to plaintiff, and that the violation was intentional. Thus, plaintiff may recover actual damages and costs under 5 U.S.C. § 552a(g)(4)(A) and (B). This subsection provides that “a person entitled to recovery [shall not] receive less than the sum of $1,000.” Id. Because the Court finds that plaintiff’s damages are less than $1,000.00, it will award the statutory minimum $1,000.00 sum to her, together with her costs in this action.

Plaintiff also seeks injunctive relief ordering the defendant “to take steps to prevent the improper disclosure of records of its employees.” Injunctive relief for violations of the disclosure provisions of the Privacy Act, however, is not available in this circuit. Parks v. United States Internal Revenue Service, 618 F.2d at 683-84. The Court will therefore find for defendant on plaintiff’s claim for injunctive relief.

JUDGMENT

In accordance with the Memorandum filed this date and incorporated herein,

IT IS HEREBY ORDERED, ADJUDGED, and DECREED that plaintiff shall have judgment against defendant in the sum of $1,000.00 on plaintiff’s claim for actual damages.

IT IS FURTHER ORDERED, ADJUDGED, and DECREED that defendant shall have judgment against plaintiff on plaintiff’s claim for injunctive relief.

IT IS FURTHER ORDERED that plaintiff’s claim for injunctive relief be and is DISMISSED with prejudice.

IT IS FURTHER ORDERED that costs shall be taxed against defendant.

On Motion To Alter or Amend Judgment

This matter is before the Court on the motion of defendant to alter or amend judgment. Defendant has filed a memorandum in support of its motion. Plaintiff has filed a memorandum in response thereto.

After careful consideration of the issues raised by defendant in his motion, the Court reaffirms its earlier holdings on those issues. The Court believes, however, that a few matters need further elaboration in this memorandum.

First, the Court in its earlier memorandum referred to the case of Parks v. United States Internal Revenue Service, 618 F.2d 677 (10th Cir.1980), as being an Eighth Circuit case. The Court regrets the error and will amend its earlier memorandum to reflect the fact that Parks was a Tenth Circuit case. The rationale and holdings of Parks on the issues for which it was relied upon, however, are persuasive to this Court. Thus, the Court’s present recognition of the fact that Parks was a Tenth Circuit ease and not an Eighth Circuit case in no way affects this Court’s earlier rulings and judgment.

Second, the Court believes an additional finding is appropriate on the issue of whether Major General Konopnicki’s improper authorization of disclosure of documents pertaining to plaintiff was “intentional or willful” within the meaning of the Privacy Act. In its earlier memorandum, the Court found that said authorization was clearly intentional and thus satisfied the “intentional or willful” standard in the Act. In order to more fully explain the Court’s rationale in finding an intentional violation, the Court today additionally finds that Major General Konopnicki made the improper authorization “without grounds for believing it to be lawful” and by “flagrantly disregarding [plaintiff’s] rights under the Act.” See Albright v. United States of America, 732 F.2d 181 at 189 (D.C.Cir.1984). The Court will incorporate this additional finding in its earlier memorandum.

In conclusion, with the corrections and additions referred to above, the Court reaffirms its earlier memorandum and judgment and accordingly will deny defendant’s motion.

In accordance with the foregoing,

IT IS HEREBY ORDERED that defendant’s motion to alter or amend judgment be and is DENIED.

IT IS FURTHER ORDERED that this Court’s memorandum of April 4, 1984, be and is amended in the following respects:

(1) All references to the case of Parks v. United States Internal Revenue Service shall reflect that said case was decided by the Tenth Circuit Court of Appeals; and
(2) The finding made in the above memorandum concerning defendant’s “intentional or willful” violation of the Privacy Act shall be incorporated in said April 4, 1984, Memorandum.

      . Plaintiff originally brought this action against Major General Emil L. Konopnicki, Commander, U.S. Army Troop Support & Aviation Material Readiness Command. At trial, on motion of defendant without objection by plaintiff, John O. Marsh, Jr., Secretary of the Army, was ordered substituted as the proper party defendant.

        . In the Department of the Army, authority to investigate discrimination complaints is given only to USACARA. DA CPR 700.B-6(1).

      . The Court need not decide whether subsequent disclosures to other individuals violated the Privacy Act. The Court finds that even if all the disclosures mentioned by plaintiff during trial and in her briefs were violative of the Privacy Act, plaintiffs total damages would not exceed the sum of $1,000.00.


author: FORRESTER, District Judge.

text:
    George J. CORCORAN, Jr. and Linda Corcoran, Plaintiffs, v. SHEARSON/AMERICAN EXPRESS INC., Defendant.
    Civ. A. No. C84-706A.
    United States District Court, N.D. Georgia, Atlanta Division.
    Sept. 30, 1984.
    Carolyn Thorn Thurston, Varner, Stephens, Wingfield, McIntyre & Humphries, Atlanta, Ga., for plaintiffs.
    Michael J. Hogan, Shearson/American Express, New York City, Ronald D. Reemsnyder, Neely & Player, Atlanta, Ga., for defendant.
   ORDER

FORRESTER, District Judge.

This action is before the court on defendant’s motion to compel arbitration and to stay discovery. Relying upon 9 U.S.C. § 3, defendant asks the court to enforce an arbitration agreement between the parties by staying this action and compelling plaintiffs to submit their claims to arbitration. Plaintiffs oppose defendant’s motion by arguing that the arbitration agreement is unenforceable as a matter of law. Plaintiffs also argue in the alternative that even if the arbitration agreement is enforceable as to some of plaintiffs’ claims, it does not apply to all of plaintiffs’ claims and that the non-arbitrable and the arbitrable claims are so intertwined that none of them should be submitted to arbitration. Finally, plaintiffs argue that even if all the claims are submitted to arbitration, discovery in this case should continue.

Counts I through V of plaintiffs’ complaint allege that defendant executed a number of unauthorized trades in plaintiffs’ commodities account during the period from February 3 through 8, 1982 and that these trades resulted in losses of at least $20,224.75. Plaintiffs claim that these unauthorized trades constituted violations of the Commodity Exchange Act, breach of contract, fraud, negligence, and gross negligence.

Count VI of plaintiffs’ complaint alleges that defendant attempted to cover the deficit in plaintiffs’ personal account which resulted from the unauthorized trades by liquidating certain money market funds in a separate account held by Omni, a non-profit corporation of which plaintiffs are officers. Count VI alleges that such liquidation of the Omni funds to cover the deficit in plaintiffs’ personal account constituted tortious interference by defendant in plaintiffs’ business relations with Omni and resulted in professional embarrassment to plaintiffs.

Count VII of plaintiffs’ complaint alleges that defendant, after being forced to restore the assets to the Omni account, took funds from an IRA account held by Mrs. Corcoran and a Keogh account held by Mr. Corcoran to cover the deficit. Count VII alleges that such actions with regard to the IRA and Keogh accounts constituted a breach of fiduciary duty as well as a breach of the express terms of the Keogh account agreement with Mr. Corcoran. Count VIII alleges that the unauthorized liquidation of the IRA and Keogh funds was a willful and malicious breach of fiduciary duty and asserts a claim for punitive damages. Finally, Count IX of the complaint asserts that the liquidation of the IRA and Keogh accounts against the express direction of plaintiffs constituted a conversion of plaintiffs’ property. Count X simply asserts that defendant has been stubbornly litigious in settling the claims and thus should be liable for attorney’s fees under Georgia law.

I. ENFORCEABILITY OF THE ARBITRATION AGREEMENT.

Plaintiffs in this ease separately signed as part of their commodity customer agreement with defendant a paragraph entitled “Arbitration Agreement.” This paragraph provides as follows:

Any controversy arising out of or relating to my account, to transactions with you for me or to this agreement or the breach thereof, shall be settled by arbitration in accordance with the rules, then in effect, of the American Arbitration Association of (sic) the Board of Directors of the New York Stock Exchange, Inc. as I may elect. If I do not make such election by registered mail addressed to you at your main office within five days after demand by you that I make such election, then you may make such election. Judgment upon any award rendered by the arbitrators may be entered in any court having jurisdiction thereof.
While the Commodity Futures Trading Commission (CFTC) encourages the settlement of disputes by arbitration, it requires that your consent to such agreement be voluntary. You need not sign this Arbitration Agreement to open an account with Shearson Loeb Rhodes, Inc. (see 17 CRF (sic) 180.1-180.6).
By signing this Arbitration Agreement, you may be waiving your right to sue in a court of law. But you are not waiving your right to elect later to proceed pursuant to Section 14 of the Commodity Exchange Act to seek damages sustained as a result of a violation of the Act. In the event a dispute arises you will be notified that Shearson Loeb Rhoades intends to submit the dispute to arbitration. If you believe a violation of the Commodity Exchange Act is involved and you prefer to request a Section 14 “reparations” proceeding before the CFTC, you will still have 45 days in which to make that election.

The latter two paragraphs were printed in bold face type as required by 17 CFR § 180.3(4) and satisfied the requirements of that section. As noted above, plaintiffs separately signed and dated the Arbitration Agreement.

Section 2 of the United States Arbitration Act provides that “a written provision in any ... contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” Section 3 of the Act provides for the stay of a proceeding involving a contract subject to arbitration:

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.

The United States Arbitration Act embodies a strong federal policy to encourage arbitration and to relieve congestion in the courts. Seaboard Coastline Railroad Co. v. National Rail Passenger Corp., 554 F.2d 657 (5th Cir.1977). The Supreme Court has recently reaffirmed this policy. Southland Corporation v. Keating, — U.S. -, 104 S.Ct. 852, 79 L.Ed.2d 1 (1984):

Contracts to arbitrate are not to be avoided by allowing one party to ignore the contract and resort to the courts. Such a course could lead to prolonged litigation, one of the very risks the parties, by contracting for arbitration, sought to eliminate. Id. at 856. See also Prima Paint Corp. v. Flood & Conklin Manufacturing Co., 388 U.S. 395, 400 [87 S.Ct. 1801, 1804, 18 L.Ed.2d 1270] (1967).

Plaintiffs argue, however, that this court should not enforce an agreement to arbitrate claims for violations of the Commodity Exchange Act, 7 U.S.C. § 1, et seq. Plaintiffs rely upon Wilko v. Swan, 346 U.S. 427, 74 S.Ct. 182, 98 L.Ed. 168 (1953). In Wilko the Supreme Court held that an agreement to arbitrate future controversies was invalid under Section 14 of the Securities Act of 1933, 15 U.S.C. § 77n. This section provided that “Any 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 in Wilko concluded that Section 14 rendered void an agreement to submit disputes to arbitration as opposed to trying them in court: “As the protective provisions of the Securities Act require the exercise of judicial direction to fairly assure their effectiveness, it seems to us that Congress must have intended § 14 ... to apply to waiver of judicial trial and review.”

Although Wilko v. Swan was based upon a construction of Section 14 of the Securities Act of 1933, some lower courts have read it to create a broad exception to the United States Arbitration Act for cases involving “protective federal legislation.” These courts have extended this “protective federal legislation” exception to a variety of areas. See Applied Digital Technology, Inc. v. Continental Casualty Co., 576 F.2d 116 (7th Cir.1978) (antitrust); Allegaert v. Perot, 548 F.2d 432, 437 (2d Cir.), cert. denied, 432 U.S. 910, 97 S.Ct. 2959, 53 L.Ed.2d 1084 (1977) (bankruptcy); Beckman Instruments, Inc. v. Technical Development Corp., 433 F.2d 55 (7th Cir.1970), cert. denied, 401 U.S. 976, 91 S.Ct. 1199, 28 L.Ed.2d 326 (1971) (patent). Several cases have also extended this exception to claims arising under the Commodity Exchange Act. See Breyer v. First National Monetary Corp., 548 F.Supp. 955, 961 (D.N.J. 1982); Bache Halsey, Stewart, Inc. v. French, 425 F.Supp. 1231 (D.D.C.1977); Milani v. Conticommodity Serv., Inc., 462 F.Supp. 405 (N.D.Cal.1976).

Although the cases cited above support plaintiffs’ arguments for extending the doctrine of Wilko v. Swan to claims arising under the Commodity Exchange Act, there is considerable persuasive authority to the contrary. See Smokey Greenhaw Cotton v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 720 F.2d 1446 (5th Cir.1983); Ingbar v. Drexel Burnham Lambert, Inc., 683 F.2d 603 (1st Cir.1982); Salcer v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 682 F.2d 459 (3d Cir.1982); Tamari v. Bache & Co. (Lebanon) S.A.L., 565 F.2d 1194 (7th Cir.1977), cert. denied, 435 U.S. 905, 98 S.Ct. 1450, 55 L.Ed.2d 495 (1978); Hagstrom v. Breutman, 572 F.Supp. 692 (N.D.Ill.1983); Romnes v. Bache & Co., 439 F.Supp. 833 (W.D.Wis.1977). This court finds the reasoning of the cases upholding arbitration to be more persuasive than the reasoning of the cases which have extended the Wilko holding to commodities claims. As the Fifth Circuit has stated:

Though specifically similar in many respects, the securities market and the commodities market have different histories and functions. We will not pause to detail these differences. It is sufficient to note that the policies that might impel Congress to establish a particular rule for the securities trading industry may find little parallel in the commodities trading industry.
The more forceful argument against extending the Wilko rule to commodities cases is that it would require a judicial policy decision that Congress has not made. We must recollect that the Supreme Court in Wilko was not giving effect to its own determination that securities traders required special protections; rather it was effectuating a congressional determination that had been embodied — implicitly at least — in the Securities Acts. The Commodity Exchange Act, by contrast, emphasizes extra-judicial resolution of disputes, and does not generally lead us to conclude that Congress meant to rule out arbitration as a dispute resolution mechanism in cases arising under that act.
We find support for this reading of congressional intent in the regulations promulgated by the Commodity Futures Trading Commission. The Commission has sanctioned arbitration and issued regulations calculated to protect a customer from an unknowing agreement to arbitrate. We are unable to find a congressional signal that arbitration ought not be available in Commodity Exchange Act cases where the parties have previously entered into a valid arbitration agreement. Smokey Greenhaw Cotton v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 720 F.2d 1446, 1449 (5th Cir.1983).

This court agrees with the First, Third, Fifth, and Seventh Circuit Courts of Appeals that nothing in the Commodity Exchange Act or its legislative history indicates a congressional intent that agreements to arbitrate claims arising under the Commodity Exchange Act should not be enforceable under the United States Arbitration Act. The court therefore holds that the Arbitration Agreement in this case is not unenforceable simply because some of plaintiff's claims arise under the Commodities Exchange Act.

II. WHICH CLAIMS MUST BE SUBMITTED TO ARBITRATION?

Having held that the “protective federal legislation” exception does not apply in this case, the court turns to the question of whether plaintiffs’ claims are within the scope of the arbitration agreement. If they are, and defendant is not in default in seeking arbitration, then the stay should be granted. 9 U.S.C. § 3. As the Fifth Circuit has stated,

An applicant for a section 3 stay is entitled to obtain it, if he makes “a claim [to arbitration] which on its face is one governed by the [applicable] agreement.” ... And the court should grant the stay “unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute.” Seaboard Coastline Railroad Co. v. National Rail Passenger Corp., 554 F.2d 657 (5th Cir. 1977) (citations omitted).

No issue has been raised that defendant is in default in seeking arbitration. Therefore, the only issue is whether plaintiffs’ claims are governed by the arbitration agreement.

This court has no trouble finding that Counts I through V of plaintiffs’ complaint are governed by the arbitration agreement. These counts all involve alleged unauthorized trades in plaintiffs’ commodities account during the period of February 3 through 8, 1982. As such, they clearly present a “controversy arising out of or relating to (plaintiffs’) account, to transactions with (defendant) for (plaintiffs) or to this agreement or the breach thereof ...” and are thus within the scope of the Arbitration Agreement. The court also believes the remaining counts of plaintiffs’ complaint are subject to arbitration. The remaining claims concern defendant’s allegedly wrongful conduct in covering the deficit in the commodities account. Paragraph 5 of the Commodity Customer Agreement provides, in relevant part:

I agree to maintain such collateral and/or margin as you may in your discretion require from time to time and will pay on demand any amount owing with respect to any of my accounts____ It is further agreed that if you fail to receive sufficient funds to pay for any commodities, commodity options and commodity futures contracts and/or to satisfy any demands for original and/or variation margin you may without prior demand and notice sell any property held by you in any of my accounts and any loss resulting therefrom will be charged to my account.

After considering the above language the court cannot say “with positive assurance that the arbitration clause is not susceptible of an interpretation that covers” the allegations in Counts VI through X. Seaboard Coastline Railroad Co. v. National Rail Passenger Corp., 554 F.2d 657, 660 (5th Cir.1977).- The court holds therefore that these claims must be submitted to arbitration as well. See McBro Planning and Development Co. v. Triangle Electrical Construction Co., 441 F.2d 342 (11th Cir.1984). Defendant’s motion to compel arbitration is, therefore, GRANTED, and this action is hereby STAYED. 9 USC § 3.

III. WHETHER DISCOVERY SHOULD BE STAYED?

The final remaining issue is whether discovery under the Federal Rules of Civil Procedure should continue pending arbitration. Plaintiffs rely on International Association of Heat and Frost Insulators and Asbestos Workers Local 66 v. Leona Lee Corp., 434 F.2d 192 (5th Cir.1970), to argue that discovery should continue. In that case the district court had ordered parties to a collective bargaining agreement to submit to Trade Board and Arbitration proceedings, provided for discovery by the parties under the Federal Rules of Civil Procedure in aid of the Trade Board and Arbitration proceedings, and retained jurisdiction “pending determination of the Trade Board and Arbitration proceedings.” The Fifth Circuit affirmed the district court and found that it did not exceed its jurisdiction when it ordered arbitration and that

[T]he district court did not err when it specifically made available to the parties federal discovery procedures “to the extent necessary for the presentation of matters submitted for Trade Board and Arbitration determination.” Such order is consistent with the District Court’s retention of jurisdiction and effectuates the policy favoring arbitration. 434 F.2d at 194.

The court in Leona Lee did not explain how allowing discovery under the Federal Rules of Civil Procedure “effectuates the policy favoring arbitration.” Later cases have pointed out that 9 U.S.C. § 7 provides for discovery by the arbitrator and that additional discovery under the Federal Rules would create “dual discovery” which would be contrary to the very expense and delay saving purpose for arbitration in the first place. See Mississippi Power Com pany v. Peabody Cole Co., 69 F.R.D. 558 (S.D.Miss.1976). In Mississippi Power Co., Circuit Judge Coleman, sitting by designation as a judge for the Southern District of Mississippi, found several problems with allowing parties the opportunity to engage in discovery under the Federal Rules during a Section 3 stay. First and foremost was the problem of dual discovery with its attendant expense. Second, Judge Coleman noted that a majority of the courts which had faced the issue had decided against allowing discovery to proceed under the rules. See, e.g., H.K. Porter Co. v. Local 37, United Steel Workers of America, 400 F.2d 691 (4th Cir.1968); Econo-Car Intl., Inc. v. Antilles Car Rentals, Inc., 61 F.R.D. 8, 10 (D.C.Vt.1973), rev’d on other grounds, 499 F.2d 1391 (3d Cir.1974); Local Lodge 1746, I.A.M. & A.W. v. Pratt & Whitney Division of United Aircraft Corp., 329 F.Supp. 283, 286-87 (D.C.Ct. 1§71); 7 Moore’s Federal Practice ¶ 81.-05[7] at 81-82. Judge Coleman found that the Fifth Circuit’s statement that allowing continued discovery would effectuate the policy favoring arbitration was contrary to the overwhelming weight of authority. Since the Fifth Circuit had not explained its statement nor given any authority for it, Judge Coleman concluded that the decision in Leona Lee “must have been grounded on some factor not made clear in the opinion and is not a controlling precedent.” 69 F.R.D. at 565. Ruling that discovery under the Federal Rules would be contrary to the policies favoring arbitration, Judge Coleman issued an order staying all further discovery pending arbitration.

The Mississippi Power decision was apparently not appealed, despite Judge Coleman’s invitation to the parties to do so. See 69 F.R.D. at 568. Neither the Fifth nor Eleventh Circuits have, as far as this court can ascertain, dealt with the issue of discovery pending arbitration since Leona Lee. This court is, therefore, faced with the problem of deciding whether to regard the statement made by the court in Leona Lee that discovery under the Federal Rules would effectuate the policy favoring arbitration as binding precedent or simply dicta. The court chooses to regard it as dicta. Several courts have held that the granting of discovery during a Section 3 stay lies within the court’s discretion. See, e.g., Bigge Crane & Rigging Co. v. Docutel Corp., 371 F.Supp. 240 (E.D.N.Y.1973). It appears to this court that the Leona Lee court simply approved the trial court’s decision to allow continued discovery while the case was before arbitration. The Leona Lee court did not say that discovery should always be permitted, nor did it say that discovery should never be permitted. The court may well have regarded the trial court’s decision as a sound exercise of discretion.

Given the weight of authority favoring a stay of discovery pending arbitration and the strong policy reasons which favor such a stay, and given the tenuous nature of the Fifth Circuit’s treatment of the issue, this court concludes that it has the discretion to grant a stay of discovery pending arbitration and that this discretion should properly be exercised in granting the stay. See Recognition Equipment, Inc. v. NCR Corp., 532 F.Supp. 271 (N.D. Tex.1981) (following Mississippi Power rather than Leona Lee). 7 Moore’s Federal Practice ¶ 81.05[7] at 81-82. The court hereby STAYS all further court-sanctioned discovery under the Federal Rules of Civil Procedure pending arbitration.

IV. CONCLUSION.

In sum, defendant’s motion to compel arbitration and stay discovery is GRANTED. This action is hereby STAYED pending arbitration. The Clerk of Court is DIRECTED to close this case for statistical purposes.


author: O’NEILL, District Judge.

text:
    Joseph D. GARVEY and Frances A. Garvey, husband and wife v. The PRUDENTIAL INSURANCE COMPANY OF AMERICA, the National League of Postmasters of the United States, and United States Office of Personnel Management, Compensation Group.
    Civ. A. No. 83-0694.
    United States District Court, E.D. Pennsylvania.
    April 13, 1984.
    Jonathan Wheeler, Philadelphia, Pa., for plaintiffs.
    Peter C. Paul, Philadelphia, Pa., for defendant Prudential Ins. Co.
    Susan Dein Bricklin, Asst. U.S. Atty., Philadelphia, Pa., for defendant U.S. Office of Personnel Mgmt.
    = Henry S. Ruth, Jr., Michael Olmstead, Philadelphia, Pa., for defendant Nat. League of Postmasters.
   MEMORANDUM

O’NEILL, District Judge.

Plaintiffs are Joseph Garvey, a federal employee, and Frances Garvey, his wife. In November, 1980, Mr. Garvey enrolled in a Health Benefits Plan sponsored by the National League of Postmasters. The contract of insurance consisted of three parts: an agreement entered into by the Office of Personnel Management (OPM) and the Postmasters (the carrier), a group policy issued to Postmasters by the Prudential Insurance Company of America (the underwriter) and a brochure of benefits published and distributed by OPM to beneficiaries of the Plan. It is agreed that the benefits section of the contract is contained in the brochure.

In his health benefits registration form, Mr. Garvey elected high option coverage, which provided, among other things, unlimited benefits for private duty nursing care for himself and his dependents. The Garveys’ coverage under the Plan became effective January 1, 1981.

On July 31, 1981, while a patient at Episcopal Hospital, Mrs. Garvey suffered several strokes which left her a quadriplegic. She remained a patient at Episcopal until November 5, 1981, at which time she was transferred to Harrison House, a skilled nursing facility adjacent to Episcopal. She was discharged from Harrison House on February 26, 1982, and thereafter has received round-the-clock private duty nursing care in her home at an estimated cost of $9,000 to $13,000 per month. For the year 1982, this cost was paid or reimbursed by Prudential.

The Postmaster’s Plan is one of the 161 health benefit plans made available to federal employees pursuant to the Federal Employees’ Health Benefits Act, Title 5 U.S.C. §§ 8901-13 (“FEHBA”). The premium is paid in part by the employee and in part by the federal government according to a formula established by the statute, see Title 5 U.S.C. § 8906. The government’s contribution is a sum equal to 60% of the average premium for six selected plans.

Each year a contract is negotiated between OPM and each of the carriers of the health benefits plans. The final determination as to coverage is made by OPM, and the benefits to be provided are then defined in this contract. Benefits may be changed each year as a result of the negotiations. Premiums charged by the carriers are based on prior loss experience and the benefits to be provided. Employees are notified of changes in benefits by means of a brochure published annually by OPM for each health benefits plan, see Title 5 U.S.C. § 8907. Each year, during an “open season” after benefit changes and premium rates are announced, federal employees are permitted to switch from one plan to another regardless of the state of their health.

During the 1981 contract negotiations, OPM requested that all plans make significant reductions in their benefits packages because OPM’s budget was not sufficient to pay the government’s share of the cost of the plans as proposed. OPM negotiated with each plan to secure the requested reductions. Postmasters (the Plan with the “richest” benefits, N.T. II 77), was able to reduce the benefits provided in their 1982 plan without limiting the private duty nursing benefit. As a result, it became the only one of the ten health benefits plans open to all federal employees which provided unlimited private duty-nursing benefits.

During the 1982 negotiations Postmasters requested permission to reduce the unlimited private-duty nursing benefit for 1983. Reductions in other benefits not relevant to this case were also proposed. The reduction in unlimited private-duty nursing benefits was approved by OPM, which for some years had been concerned about the “rich benefit structure” of the Postmasters Plan and its escalating rates (N.T. II 78). OPM was cognizant of the problems encountered by Postmasters as the only open plan retaining the right to unlimited private-duty nursing benefits. Selection of the plan by all federal employees requiring this expensive care would force the cost of the Postmasters plan to escalate, and would reduce the ability of the plan to compete with other health benefit plans. OPM believed that the reduction in benefits might contain costs, improve reserves and prevent adverse selection. A reduction in unlimited private-duty nursing benefits to a maximum amount of $10,000 per year was disclosed by the 1983 Postmasters Benefits Plan brochure, which was distributed in 1982 to plan enrollees, including plaintiffs.

In early 1983, at the request of OPM, Postmasters agreed to extend unlimited private-duty nursing benefits for one additional year to those enrollees in the Garveys’ situation. Counsel for plaintiffs was notified of this agreement by letter dated May 16, 1983. Since the premiums to be paid to the underwriter had been calculated on the basis of the $10,000 maximum, Postmasters, rather than Prudential, paid for the additional cost of providing the benefit to Mrs. Garvey in 1983.

The 1984 benefits package provided by Postmasters includes the $10,000 limitation on private duty nursing care benefits. Thus, during 1984 plaintiffs are entitled to receive benefits for private-duty nursing care, but only up to that maximum amount.

The Complaint, naming Prudential, Postmasters and OPM as defendants, was filed on February 10,1983. Jurisdiction is based on Title 28 U.S.C. §§ 1332 and 1346. The jurisdictional provision of FEHBA, Title 5 U.S.C. § 8912 was not specifically invoked. The Complaint alleges that the termination of the nursing benefits which plaintiffs were receiving constitutes a breach of contract (Complaint, para. 13 and see N.T. II 3-4). Plaintiffs request that defendants be directed to restore the benefits which existed prior to January 1, 1983, and be permanently enjoined from terminating those benefits. Plaintiffs also seek damages. Defendants deny liability; Prudential and OPM assert that, in any event, they are not subject to suit.

Plaintiffs filed a Motion for a Preliminary Injunction on December 15,1983. After hearing, the Motion was denied because plaintiffs had failed to demonstrate a likelihood of success on the merits sufficient to justify preliminary relief. After final hearing, without jury, all parties submitted Requests for Findings of Fact and Conclusions of Law and supporting Memoranda.

Plaintiffs advance two theories in support of recovery:

(1) Prior to January 1, 1983, they acquired a contractually vested right to unlimited benefits for private-duty nursing care. Consequently, the subsequently imposed limitation of $10,000 on such benefits (without their consent) constituted a breach of contract;

(2) They are entitled to unlimited benefits for private-duty nursing care by virtue of the catastrophic benefits provisions of their present policy.

VESTED RIGHTS

FEHBA granted the Civil Service Commission, later the OPM, broad discretionary authority to negotiate, contract for and approve the benefits to be offered by health carriers to federal employees, Nat’l Federation of Federal Employees v. Devine, 679 F.2d 907, 912 (D.C.Cir.1981). Title 5 U.S.C. § 8902(d) provides as follows:

“(d) Each contract under this chapter shall contain a detailed statement of benefits offered and shall include such máximums, limitations, exclusions and other definitions of benefits as the Office considers necessary or desirable.” (Emphasis supplied).

As “part of OPM’s broad discretionary power to approve health plan benefits, [OPM has] the power to order reductions in benefits”, Nat’l Federation of Federal Employees v. Devine, supra, 679 F.2d at 912, in order “to assemble a total package of benefits that reasonably accommodate[s] the diverse concerns and interests of subscribers, the government, and the carrier.” Doe v. Devine, 703 F.2d 1319, 1334 (D.C.Cir.1983). In making this accommodation, OPM is required to pursue the objective, among others, of lowest possible cost to the employee-subscribers themselves and to the government; when it negotiates FEHBA contracts OPM must obey the limits imposed upon it by the federal budget, Doe v. Devine, supra, 703 F.2d at 1329. Although OPM’s decisions in this regard are reviewable, its judgments must be sustained “if consistent with the governing law and not unreasonable,” Doe v. Devine, 703 F.2d at 1326.

Plaintiffs do not assert that OPM or Postmasters acted arbitrarily or capriciously in reducing the benefits of the Postmasters Plan (Plaintiffs’ Brief, pp. 13-14 and see N.T. II 3). What they do assert is that OPM and Postmasters could not, while reducing those benefits prospectively, terminate the benefits already being paid to plaintiffs, ibid. No authority directly on point has been cited to the Court and the matter appears to be one of first impression.

Title 5 U.S.C. § 8902(i) and (a) specifically authorizes OPM to make “benefit adjustments” on an annual basis and contains no language prohibiting an adjustment which would adversely affect benefits being received by an insured at the time that the adjustment is made.

On the inside of the front cover of the brochure covering the 1981 Postmasters Plan, in a large box headed “National League of Postmasters of the United States,” there appears the following language:

“This brochure is ... the contract statement of benefits, exclusions, limitations, and definitions. It states the benefits to which an employee and each eligible family member covered by this Plan are entitled____
The contract may be modified or terminated, but no modification or termination will affect adversely any benefit for an allowable expense incurred prior to such modification or termination.”

Plaintiffs contend that the second paragraph of the language just quoted is ambiguous. Their argument is as follows:

“There is an ambiguity in this contractual language. The language can be interpreted to mean that a subsequent modification or termination will not adversely affect the level of benefits already being received under the insurance policy. Conversely, this language can be interpreted to mean that the modification or termination will not adversely affect the payment of any expense incurred pri- or to the modification or termination of the Plan, but submitted thereafter. Since defendants drafted this policy language, the ambiguity must be interpreted in favor of increased coverage for the policy holder, and this language must be interpreted to mean that the level of benefits for expenses incurred prior to modification or termination will not be affected by the modification or termination.” (Plaintiffs’ Brief, p. 20).

The Court is unable to conclude that the quoted contractual language is ambiguous. There is nothing in the language which remotely suggests that a subsequent modification “will not adversely affect the level of benefits already being received.” The words “level of benefits” are not used. What is expressly preserved from the effect of any subsequent modification is “any benefit for an allowable expense incurred prior to such modification” (emphasis supplied). The unavoidable consequence of this language is that a previously allowable expense which is made nonallowable by modification will not be reimbursed if it is incurred after the modification. Thus, the contract language precludes any vested right of the Garveys to continue to receive private-duty nursing care without limitation on its cost.

Plaintiffs cite cases decided under the laws of several states to support their contention of a vested right. At the outset it should be observed that since the contractual language negates any such right, state authorities to the contrary would not be controlling. Title 5 U.S.C. § 8902(m)(l) provides:

“The provisions of any contract under this chapter which relate to the nature or extent of coverage or benefits (including payments with respect to benefits) shall supersede and preempt any State or local law, or any regulation issued thereunder, which relates to health insurance or plans to the extent that such law or regulation is inconsistent with such contractual provisions.”

However, the conflict contemplated by the statute does not arise because the authorities cited by plaintiffs do not compel a result different from that required by the language of the contract.

The two cases cited by plaintiffs which are' most nearly on point are Danzig v. Dikman, 78 A.D.2d 303, 434 N.Y.S.2d 217 (1980) and Myers v. Kitsap Physicians Service, 78 Wash.2d 286, 474 P.2d 109 (1970).

In Danzig, Blue Cross-Blue Shield had issued a group contract to the Queens County Bar Association, of which Danzig was a member. Thereafter he suffered a stroke requiring that he have daily nursing care. Blue Cross provided private-duty nursing benefits pursuant to a contract provision which had no lifetime maximum for such benefits. Thereafter, as a consequence of experience under the contract, Blue Cross proposed a substantial increase in the premium for the new contract year. In order to avoid this increase, the Bar Association and Blue Cross negotiated a modification of the contract which, among other things, imposed a lifetime maximum of $5,000 for private-duty nursing care.

The Appellate Division held that the modification could not deprive Danzig of benefits for continued private-duty nursing care without a maximum amount. There were two grounds for the holding. First, there was no contract provision that expressly provided for modification which could deprive Danzig of a vested right under the contract without his consent, 434 N.Y.S.2d at 219, 220. Second, the contract was ambiguous and could reasonably be read as requiring Blue Cross to continue nursing benefits: the earlier contract specifically stated that there was no lifetime maximum for private-duty nursing care, thus evidencing an awareness of the parties that the need for such care could continue for life and thus beyond any single contract year, 434 N.Y.S.2d at 218, 220-21.

The contract language in Danzig was materially different from that in the present case. Here, there is an unambiguous contract provision permitting the modification complained of.

In Myers, plaintiff became a member of defendant health care service contractor. Thereafter, he began to suffer from a chronic kidney disorder. He was admitted to an artificial kidney center where he received hospital hemodialysis treatments. His contract with defendant obligated the latter to “furnish during any certificate year all necessary medical, ... and hospital services ... for any illness ...” 474 P.2d at 110. After defendant refused to pay for the hospitalization and treatment on the grounds that they were not covered by the contract, Myers instituted suit in a state court, which rendered summary judgment in his favor. Pursuant to that judgment defendant paid benefits for the remainder of the contract year but modified its basic health contract for the succeeding year to exclude chronic kidney disorder treatments from coverage. Upon refusal of defendant to pay benefits under the later policy, Myers brought a second action, which was dismissed on the grounds that the first contract had a term of one year, that it required defendant to pay only for medical services rendered during that year, and that defendant had an absolute right to modify the contract at the beginning of each succeeding contract year, 474 P.2d at 110.

The Supreme Court of Washington reversed. It held that the contractual language was ambiguous and that the words “life of the contract” could reasonably be interpreted to mean such time as might be required to treat an illness which occurred within the one-year term of the contract. In addition, the Court held that when defendant drafted the contract it may have contemplated the situation in which Myers found himself because it obligated itself to provide services to him during “any certificate year”, 474 P.2d at 111 (emphasis by the Court).

As in Danzig, the contract language in Myers is materially different from that in the present ease. In each of those cases, the Court recognized that plaintiffs rights were governed by contract. In each case, the Court held that the contractual language was ambiguous; that it was reasonably capable of an interpretation which favored plaintiff; and, thus, that it was to be construed against the insurer, which drafted the policy. That is not the case here. The contractual language is clear and the Court is required to give it its plain meaning, Houghton v. Amer. Guar. Life Ins. Co., 692 F.2d 289, 291 (3d Cir.1982).

CATASTROPHIC COVERAGE

On page 20 of the 1983 brochure, which is also the official description of benefits for 1984, the following appears:

“SUPPLEMENTAL BENEFITS HIGH OPTION
After YOU PAY the first $200 (The Deductible) PLAN PAYS 80% of the eligible expenses incurred by a person in a calendar year, subject to the Catastrophic Protection provision.
PRIVATE DUTY NURSING CARE BENEFIT
Benefits for private duty nursing care by a professional registered nurse (R.N.), licensed practical nurse (L.P. N.), or a licensed vocational nurse (L.V.N.) are limited to a maximum of $10,000 per person per calendar year.
CATASTROPHIC PROTECTION
Under the High Option, if, in a calendar year, the out-of-pocket expenses for coinsured eligible expenses exceed $1,000 for a person under Self Only ($2,000 per family under Self and Family), the Plan will pay 100% of the eligible expenses incurred during the remainder of that calendar year. Expenses incurred for the treatment of mental, psychoneurotic and personality disorders are not included under the Catastrophic Protection Benefit.”

Plaintiffs assert that the last three paragraphs, when read together, create an ambiguity as to whether the $10,000 limitation for private-duty nursing care is superseded by the catastrophic protection provision as soon as the $2,000 coinsurance amount has been paid by the employee. They argue that, given the ambiguity, a proper interpretation of the language results in an obligation of defendants to pay the unlimited cost of private duty nurses once the $2,000 threshold has been met.

Here again, the Court finds no ambiguity in the language of the contract. On page 21, “Supplemental Benefits (Continued)”, under the heading “What Is Covered”, it is stated:

“Subject to the definitions, exclusions and limitations in this brochure, this Plan will pay Supplemental Benefits, as shown on page 20, for charges ... for the following medical necessary services____
Special nurses — services of a professional registered nurse (R.N.), licensed practical nurse (L.P.N.), or licensed vocational nurse (L.V.N.)”.

“Catastrophic Protection” is a “Supplemental Benefit ... shown on page 20.” All such benefits are expressly subject to the “limitations in this brochure.” The limitation in the brochure for private duty nursing care is clearly specified on page 20 as “a maximum of $10,000 per person per calendar year.” The Catastrophic Protection provision is subject to that limitation. Accordingly, there is no merit to plaintiffs’ contention.

The Court is not unmindful of the understandable desire of plaintiffs to have Mrs. Garvey remain in her home. Their rights, however, are dependent on a contract whose meaning is clear and the Court may not torture its language to create an ambiguity where none exists, Houghton v. Amer. Guar. Life Ins. Co., supra, 692 F.2d at 291.

The foregoing shall serve as the findings of fact and conclusions of law required by Rule 52(a), F.R.C.P. Judgment will be entered in favor of defendants and against plaintiffs.

        . Mr. Garvey first enrolled in the Postmasters Plan in 1979, but that enrollment is not material to the issues herein.

      . At the risk of stating the obvious, a private-duty nurse is one assigned to only one patient.

      . Prudential suggests that only the insured member can be a claimant under the Plan and that, therefore, "technically" Mrs. Garvey is not a proper plaintiff. (Prudential Brief, pg. 3). This issue need not be resolved.

      . For “an overview of FEHBA”, see Doe v. Devine, 703 F.2d 1319, 1321 (D.C.Cir.1983).

      . For example, the Postmasters brochure for the year commencing January 1, 1981, at page 23 sets forth in large type “How Plan Benefits Change in January 1981” and specifies various benefit increases over the prior year and also a decrease in benefits, the exclusion of charges for treatment of weight control or reduction.

      . See Nat'l Federation of Federal Employees v. Devine, 679 F.2d 907 (D.C.Cir.1981).

      . “N.T. I” refers to testimony at the preliminary hearing; "N.T. II” refers to testimony at the final hearing.

      . Of the more than three million federal employees enrolled in the plans, 75% are in these ten.

      . Plaintiffs have been covered by the Postmasters Plan to the present date. The uncontradicted testimony of Dr. Adler, Mrs. Garvey’s treating physician, is that she will continue to require medical treatment for an indefinite period of time and that such care can be provided by an institution such as Harrison House. Dr. Adler described Harrison House as a skilled nursing facility with nurses, monitoring devices, suction equipment and various other kinds of medical facilities for the care of patients “as readily available as [in] acute care facilities” (N.T. I 41). He concluded that Harrison House is "one of the better places in this area for chronic care____ The nursing care is quite good, and they also have a hospital within 100 feet, and various acute problems can be handled in that way.” (N.T. I 39).
      The following colloquy occurred between the Court and Dr. Adler:
      “THE COURT: Where is Harrison House located?
      THE WITNESS: It is physically located on the campus of Episcopal Hospital 200 feet away from the hospital building proper.
      THE COURT: So that if need develops for acute care or for medical attention, they are quickly available?
      THE WITNESS: Yes. It’s almost like being in the hospital. They have the same facilities for x-ray and laboratories.” (N.T. I 41).
      The cost of confinement at an institution such as Harrison House would be borne by the Postmasters Plan so long as medical treatment is necessary and until and unless such confinement is merely for the purpose of custodial care. Plaintiffs assert that that cost would be approximately equal to the present cost of private duty nurses, that is, about $13,000 per month. While this fact is, in the Court’s view, irrelevant it should be noted that the only evidence of such cost is Dr. Adler's statement that he had "heard estimates” that the cost of Harrison House was "around $13,000 a month” (N.T. I 40).
      Dr. Adler testified that institutionalization of Mrs. Garvey “would be devastating to her mentally” (N.T. 37) and that "she would probably die” if confined to Harrison House (N.T. 38). Dr. Adler did not suggest that Harrison House could not provide adequate care for Mrs. Garvey. So far as the record shows, the only basis for his prediction that Mrs. Garvey would die there is his belief that she would lose her will to live if separated from the environment of her home (N.T. I 37-39).

      . "The district courts of the United States have original jurisdiction, concurrent with the United States Claims Court, of a civil action or claim against the United States founded on this chapter.”

      . In view of the decision reached in this matter, it is not necessary to rule upon the latter defense.

      . See 5 U.S.C. § 8902(e).

      . Some of the plaintiffs in Doe v. Devine, supra, which involved reductions in mental health benefits, were persons similarly situated to the Garveys; however, their claims apparently were settled, 703 F.2d at 1324 n. 27.

      . Identical language appears in the same place in the 1982 and 1983 Postmasters brochures; similar language appears in all federal employee organization plans (N.T. II 93).

      . Page 5 of the brochure states that "Expenses are incurred on the date services and supplies are received.”

      . In fact, the contract contained no provision authorizing modification but only a provision permitting termination, from which, the Court held, the power to modify could be inferred.

      . Plaintiffs assert that the present policy is an "occurrence” policy, that the happening of Mrs. Garvey's illness was a contingency insured against, and that once the contingency occurred the Garveys became entitled to a continuation of benefits so long as the illness lasts. This assertion seems to be merely a different way of expressing plaintiffs’ vested right theory; in any event, the simple answer to the assertion is that the contract does not so provide.
      Plaintiffs also emphasize that at the time of enrollment Mr. Garvey contemplated that health benefits for a serious medical condition could and would continue from one policy period into the next. Since the contract cannot reasonably be so read, his contemplation, if a fact, is irrelevant. Finally, plaintiffs offered as an expert witness on the subject of group health insurance Roseanna Coleman, Director of the Group Insurance Department of the Employee Benefits Division of a diversified financial services firm. The Court reserved its ruling on defendants’ objections to this testimony but now holds it inadmissible because Ms. Coleman admittedly had no knowledge or experience with federal employee benefit plans under FEHBA. If admissible, the Court gives no weight to her testimony that the contractual provisions herein involved "might” be ambiguous to an average person reading them (N.T. II 56-57). No factual basis was stated for her surmise and it is noteworthy that she herself found the provisions unambiguous and understood them to have the meaning for which defendants contend (N.T. II 56-57, 58).

      . It is a settled principle of contract construction that "Where there is a repugnancy between general clauses and specific ones, the latter will govern,” 4 Williston on Contracts § 619, p. 743 (3d ed. 1961); Capitol Bus Co. v. Blue Bird Coach Lines, Inc., 478 F.2d 556, 560 (3d Cir. 1973). This principle need not be invoked, however, because there is no “repugnancy” between the two provisions discussed above.


text:
    CUSTOM IMPORTS, INC., Plaintiff, v. HANMEE TRADING CO., INC., Jae D. Song, Defendants.
    No. 83 Civ. 2334 (IBC).
    United States District Court, S.D. New York.
    June 19, 1984.

      Anderson, Russell, Kill & Olick, P.C., New York City, for plaintiff; John E. Daniel, Adrienne M. Coffin, New York City, of counsel.
    Jhinu C. Jung, New York City, for defendant; Martin Sulkow, P.C., New York City, of counsel.
   OPINION

IRVING BEN COOPER, Senior District Judge.

Plaintiff, a Nevada corporation and the owner of United States Copyright Registration Number VA 67-398 for a long-arm monkey puppet, instituted this action to recover damages for alleged breaches of several agreements by defendants, Hanmee Trading Co., Inc. (“Hanmee”), a New York corporation, and Mr. Jae D. Song, president and sole shareholder of Hanmee. The case was tried to the Court on November 7 and 8, 1983. We reserved decision at the conclusion of the trial and now find defendants wholly liable for breaches of contract.

FACTS

The present dispute stems from a prior contest that the parties for considerable time had amicably resolved. In November of 1982, Hanmee began importing a specific type of monkey puppet into the United. States. The puppet was characterized by its fluffy exterior, its long arms and legs which had Velcro (an adhesive often used on cloth products) on hands and feet. The operator could wrap the puppet’s arms around the neck and stick the hands together by using the Velcro; likewise, the legs wrapped around the operator’s waist and the feet stuck together. The puppets had squeaking horns in the throat area enabling them to “talk.”

Hanmee’s monkey puppets were impounded by the United States Customs Service when in November 1982 they arrived in the United States because another company, plaintiff herein, already owned a copyright in the product. Thereupon Hanmee instituted an action against plaintiff and the Customs Service under 28 U.S.C. §§ 1331 and 1338 to release the allegedly infringing puppets. (Joint Pre-Trial Order, UK 5, 6, at 2-3) On November 24, 1982 (before trial) the parties entered into a settlement agreement (Ex. 1A) which provided, in relevant part to immediately (1) execute a general release in. favor of Custom Imports; (2) enter into a Copyright License Agreement between the parties; (3) execute a guaranty by defendant Song; and (4) stipulate to dismiss with prejudice all of Hanmee’s claims against Custom Imports.

On that same date, the Copyright License Agreement (“License Agreement”) (Ex. 2) was executed. It provided, inter alia, that Hanmee: (1) acknowledged the validity of the copyright and agreed not to challenge its validity; (2) agreed to pay plaintiff a royalty of four dollars per dozen on infringing monkey puppets imported into the United States between September 1 and December 31, 1982; (3) advise plaintiff seven days in advance of the scheduled arrival of any infringing puppets imported by Hanmee; (4) immediately supply plaintiff with a copy of all shipping and United States Customs Service documents relating to the infringing puppets; (5) would make sworn, written reports confirming the number of infringing puppets imported as well as written statements that no other such puppets had been imported; (6) keep accurate records and allow Custom Imports’ representatives to inspect its books and records in order to verify accuracy; (7) was prohibited from importing infringing puppets into the United States after January 1, 1983; and (8) that Custom Imports would be entitled to recover all payments called for by the License Agreement as well as reasonable attorneys fees, costs and interest in the event of breach.

The Guaranty of Performance (“Guaranty”) (Ex. 4) was executed by Mr. Song on November 24, 1982. It guaranteed the full and timely performance of Hanmee pursuant to the provisions of the License Agreement, including all payments due as well as attorneys fees and costs for breach of the agreement. Song further agreed to be sued by Custom Imports with or without joining Hanmee and without first or contemporaneously suing Hanmee or otherwise seeking to collect from the company.

On an undated and unsigned paper sent by Hanmee to plaintiff sometime after December of 1982, ie., after the contract deadline date for importation of infringing monkey puppets, Hanmee listed the quantities and dates of puppets imported during the contract period. (Ex. 15) The list showed a total of 6,839 dozen puppets for which $27,356.00 was paid in royalty payments. The invoices for the sale of these puppets listed the model numbers as Hanmee style numbers 833M, 833SM, 731, 731S, 334, and 334S. Plaintiff and defendants dispute whether these numbers refer to a type or a size of puppet. After reviewing the Hanmee catalogues (Exs. 16, 17), we find that the three different numbers reflect different colors of the monkey puppet and these particular letters (i.e., “M,” “SM,” “S” or the lack of any letter following the number) reflect various sizes.

In late January to early February 1983, plaintiff’s president, Carl Bai, travelled to Seoul, Korea and learned through a representative of a large Korean export company that Hanmee was still importing the monkey puppets (Carl Bai Affidavit in Support of Preliminary Injunction). Thus, by letters dated December 10, 17 and 30,1982, January 28, and March 18, 1983, plaintiff informed Hanmee that the latter was defaulting, particularly with regard to Hanmee’s obligations to make and deliver written reports confirming the number of infringing puppets that had been imported, the failure of Hanmee to execute its general release in favor of Custom Imports, and the refusal of Hanmee to allow Custom Imports its right under the License Agreement to inspect Hanmee’s books and records in connection with the importation of monkey puppets. (Exs. 6, 8, 10, 11, and 14); Joint Pre-Trial Order, ¶ 18, at 7).

On March 25, 1983, Judge Weinfeld signed an order to show cause enjoining defendant from either disposing of the puppets in any way or the documents relating to the puppets; requiring defendants to impound all puppets imported after January 1, 1983 pending the outcome of this action; accounting for all monkey puppet imports since September 1, 1982; permitting plaintiff to inspect defendants’ books and records concerning purchase, sale, importation, transfer or location of monkey puppets; permitting plaintiff to make copies of documents; and promoting discovery by ordering the deposition of defendant Song on a particular date and time. The order granting a preliminary injunction was filed on April 12, 1983 together with an oral opinion previously filed.

Pursuant to Judge Weinfeld’s order, plaintiff attempted to inspect the material documents. Plaintiff and defendants contest whether defendants did, in fact, show such documents to plaintiff. Based on the total trial record and the strong impression made on us by John E. Daniel, Esq., plaintiff’s attorney and witness, we find that plaintiff was not given for examination all the relevant documents. Plaintiff then reviewed thousands of purchase orders and learned that there were more sales than imports accounted for. Mr. Song still refused to give plaintiff the key documents, whereupon plaintiff subpoenaed both Hanmee’s bank, Marine Midland Bank, and a shipper Hanmee used in order to collect documents demonstrating the defendant’s monkey puppet imports. The documents showed imports about which Hanmee had never informed plaintiff. Plaintiff confronted Hanmee with this information and finally Hanmee capitulated to giving plaintiff invoices and other pertinent shipping documents. (Tr. 7-8) The invoices listed descriptions such as “SM.” or “LG. HG. MONKEY” (Exs. 191, 20B) and “HUGGING MONKEY” (Exs. 21D, 211, 21E, 22F, 23D, 24D) adjacent to one of six style numbers, ie., 833M, 833SM, 731, 731S, 334, or 334S.

Desirous of an explanation, plaintiff scheduled a deposition of Mr. Song. The date was adjourned twice, and on the date ultimately set (approximately August 26, 1983) (Tr. Ill), Mr. Song did not appear. The parties then appeared before Magistrate Buchwald who directed the defendant to appear at the next scheduled deposition. Mr. Song appeared and explained that at least some of the imports arrived in Los Angeles before September 1,1982 (the date on which defendants had to begin paying royalties to plaintiff) and then were sent to New York where they arrived on September 7. (Tr. 9-10) The explanation conflicted with the form prepared by Hanmee’s customs broker, Mr. Simon Byun, who recorded “September 7, 1982” as the date of importation. (Ex. 33C)

Mr. Song further explained that the products that were shipped were not infringing monkey puppets but rather were other non-infringing puppets. (Tr. 11, 27) He deposed that the order had been changed and that the invoices did not reflect that change since such an alteration would cause delays. (Tr. 11) Plaintiff requested documents supporting Mr. Song’s explanation, but, with the exception of a one sheet inventory report from January 1983 given to plaintiff three days before the trial, they were not produced.

On November 7, 1983, the first day scheduled for trial, plaintiff moved to dismiss defendants’ affirmative defenses and counterclaims and to impose sanctions under Fed.R.Civ.P. 37 in connection with defendants’ defense that the puppets imported were different from those covered in the License Agreement. We heard oral argument and, on November 8, granted plaintiff’s motion. We stated, inter alia:

Granting plaintiff’s motion to dismiss precludes defendants from introducing any proof as to duress or the invalidity of the copyright, the invalidity of the settlement agreement and the invalidity of the copyright license agreement.
Granting plaintiffs motion for sanctions pursuant to FRCB [sic] 37b2b precludes defendants from introducing any proof on their ‘switched products’ defense.

(Tr. 47-48)

Thus, the only questions left open are: (1) Were the Settlement Agreement, License Agreement, and Guaranty breached? (2) If so, what are the damages?, and (3) If the agreements were breached, how much attorneys fees and costs is the plaintiff entitled to?

THE LAW

1. Breach of Contract

At the outset, we find that the Settlement and License Agreements signed by Hanmee and the Guaranty executed by Mr. Song are valid and binding contracts. In New York as elsewhere, it is beyond cavil that the failure of a party to perform its obligations under a valid and binding contract constitutes a breach and entitles the other contractually bound party to damages which arose out of the breach. See McCaffrey v. Strainer, 81 A.D.2d 977, 439 N.Y.S.2d 773, 775 (3d Dept.), appeal dismissed, 55 N.Y.2d 700, 431 N.E.2d 308, 446 N.Y.S.2d 947 (1981); Manufacturers and Traders Trust Co. v. Cottrell, 71 A.D.2d 538, 422 N.Y.S.2d 990, 993 (4th Dept.1979).

We find that defendants breached their contractual obligations in the following respects: (1) In this action, defendants challenged the validity of the copyright. Although paragraph 2 of the License Agreement prohibited such a challenge, defendants argue that the agreement was signed under duress and counterclaim that the copyright was not valid.

These defenses, however, are moot; as already mentioned, on the second day of trial we granted plaintiff’s motion to dismiss defendants’ affirmative defenses and counterclaims, thereby precluding them from introducing evidence on duress or invalidity of the copyright. Although we invited the defendants to file a memorandum within a week from November 8, 1983, the date on which we granted plaintiff's motion (despite defendants’ failure to make such a request) (Tr. 48), the only paper submitted that addressed this issue was defendants’ Post Trial Memorandum, filed with the Court on December 6, 1983. Based on the totality of evidence adduced at trial and the papers submitted after-wards, we are compelled to stand on our order of November 8. Thus, the challenge by defendants of the copyright validity constituted a breach of contract.

(2) Defendants failed to immediately supply plaintiff with copies of all shipping and United States Custom Service documents relating to the infringing monkey puppets, thus breaching paragraph 5b of the License Agreement. Since defendants were precluded from introducing proof demonstrating that the imported products did not infringe, and since we find that the style numbers listed in the originally unaccounted for invoices of defendants’ imported products described as “HUGGING MONKEY,” or “SM.” or “LG. HG. MONKEY” (Exs. 191, 20B, 21D, 211, 21E, 22F, 23D, 24D) correspond exactly to the style numbers listed in Hanmee’s catalogues next to pictures of white, tan and brown furry hugging monkey puppets protected from infringement by the License Agreement (Exs. 16, 17), we entertain no hesitancy in concluding that unreported infringing puppets were imported, the shipping and Customs documents of which were never turned over to plaintiff.

Furthermore, although Mr. Song contends that at least some of the products arrived in Los Angeles prior to the contract commencement date of September 1, 1982, we find that the date recorded on the form prepared by Hanmee’s customs broker, Mr. Simon Byun, i.e., September 7, 1982, is dispositive of the actual date of importation. Therefore, the products included on the shipment which were recorded as arriving in the United States on September 7, 1982 were subject to the provisions in the License Agreement. Thus, Hanmee was contractually required to supply plaintiff with copies of these and subsequent shipping and Customs documents relating to style numbers 833SM, 833M, 731, 731S, 334, and 334S hugging monkey puppets, all of which they failed to do.

(3) Hanmee also failed to make sworn, written reports regarding the number of imported infringing monkey puppets. This failure constituted a breach of paragraph 5e of the License Agreement.

(4) Paragraph 5e of the License Agreement provided that Hanmee would keep accurate records and allow plaintiffs representatives to inspect relevant books and records to verify such accuracy. Defendants refused to allow representatives of plaintiff access to much of this material information, thereby breaching this provision.

(5) Paragraph 2 of the Settlement Agreement provides that Hanmee would immediately execute a general release in favor of Custom Imports. Both plaintiff and defendants stipulated that the release was never executed. (Tr. 61)

(6) In total, the importation of 6,224 dozen infringing monkey puppets from September 1 to December 31, 1982 was not reported to plaintiff and thereby constituted a breach of the License Agreement. Defendant was required to pay plaintiff four dollars per dozen in royalties (paragraph 3 of the License Agreement); accordingly, $24,896.00 is still due.

In sum, we find that Hanmee breached six vitally different provisions of the Settlement and License Agreements. Paragraph 10b of the License Agreement provides that in the event of breach, plaintiff is entitled to recover all payments set forth in the agreement. Thus, Hanmee owes plaintiff $24,896.00 in royalty payments and, by virtue of the Guaranty of Performance, Mr. Song is also liable in that payment.

2. Attorneys Fees and Costs

Paragraph 10b of the License Agreement also provides that the plaintiff is entitled to recover reasonable attorneys fees, costs and interest in case defendants breach the provisions of the agreement.

Plaintiff presented a meticulously detailed accounting of attorneys fees and disbursements expended. Time records specifying the work that was done and the amount of time expended were kept by each attorney. (Ex. 45C) This information was then transcribed onto computer printouts (Exs. 45A, 45B) which each attorney compared with his or her original records. (Tr. 72-79)

We have reviewed the long lists of services rendered by members of the firm representing plaintiff, Anderson Russell Kill & Olick, P.C., and conclude that the services performed and disbursements incurred are reasonable. In this regard, we take particular note of several facts supporting our conclusion: (1) the lawsuit was not commenced until five letters of default of contractual obligations had been sent by plaintiff to defendants (Exs. 6, 8,10, 11,14; Tr. 5-6, 67-68); (2) a paralegal and an attorney billed at a comparatively low rate at the law firm were assigned where possible instead of lead counsel (Tr. 6-7, 70-71, 79-80); and (3) defendants’ refusal to cooperate by providing all the relevant documentation required an expenditure for additional legal services. We conclude that under paragraph 10b of the License Agreement, defendant Hanmee and its guarantor, Mr. Song, are respectively liable in the sum of $29,900.74 for legal services incurred by reason of the breach of the Settlement and License Agreements.

CONCLUSION

On the basis of the facts and the law applicable thereto as recited herein, we are constrained to, and do, direct Hanmee or Mr. Song to pay plaintiff the sum of the royalty payments due under the contract, $24,896.00, and the reasonable attorneys fees and disbursements, $29,900.74, a total of $54,796.74, together with interest and costs.

SO ORDERED.

      . Throughout this opinion, the letters "Tr." followed by a number in parentheses indicate a particular page number in the trial transcript. The same applies to an "Ex." which refers to a specific exhibit.

      . A rider to the License Agreement was also executed on November 24, 1982. It required plaintiff and/or its attorneys to give Hanmee and its attorneys five days written notice of default before taking any action to enforce any of the agreements. (Ex. 3) Both parties agree that the plaintiff acted in accordance with this provision in the rider before instituting the instant action. Joint Pre-Trial Order, ¶ 18, at 7.

      . The invoices for these puppets were marked at trial as Exhibits 25, 25A, 25B, 26, 26A, 26B, 27, 27A, 27B, 28, 28A, 28B, 22F, 22G, 22H, 221, 23D, 23E, and 23F.

      . All of the agreements provided that the law of the State of New York would govern any actions which might arise under the agreements.