text:
    Martin HORWITZ, individually in Claims 1, 3 and 4 and derivatively in the right of Southwest Forest Industries, Inc., in Claims 2 and 3, Plaintiff, v. SOUTHWEST FOREST INDUSTRIES, INC., and William A. Franke, Defendants.
    No. CV-R-84-467-ECR.
    United States District Court, D. Nevada.
    June 21, 1985.

      John Frankovich, Reno, Nev., and Allan R. Tessler, Sheldon D. Camhy, Kurt Hunciker and John G. Nicolich, New York City, for plaintiff.
    Albert F. Pagni, Reno, Nev., Charles F. Richards, Jr., Donald A. Bussard, Jesse A. Finkelstein, Gregory P. Williams, Gregory V. Vallado, C. Stephen Bigler, Allen M. Terrell, Jr., Wilmington, Del., for Southwest.
    Peter D. Laxalt, Richard L. Davenport, Reno, Nev., for William Franke.
   MEMORANDUM DECISION AND ORDER

EDWARD C. REED, Jr., District Judge.

The plaintiff is a shareholder of defendant Southwest Forest Industries, Inc. (SFI). Defendant Franke is the president, chief executive officer, and a member of the board of directors of SFI. Nevada is the State of incorporation of SFI, but its principal place of business is in Arizona. Mr. Franke is a resident of Arizona. The plaintiff is a citizen of New York.

Four claims for relief are set forth in the complaint. Two invoke diversity jurisdiction and the other two, federal question. Essentially, the plaintiff contends that “poison pill” warrants or rights issued as a dividend by SFI violate the laws of Nevada by adversely affecting the rights of the shareholders vis-a-vis the corporation. Also, the Securities Exchange Act of 1934 allegedly has been infringed by a false and misleading press release issued by the defendants in connection with the poison pill warrants. Defendant Franke caused SFI to commit the wrongful acts, according to the pleading, and breached his fiduciary duties to the corporation and its shareholders in the process.

Mr. Franke has filed a motion to dismiss on the ground that this Court lacks personal jurisdiction over him. In the alternative, the motion asks that the action be transferred to the United States District Court for the District of Arizona, Phoenix Division, pursuant to 28 U.S.C. § 1404(a). The alternative motion, that is, to transfer the action, will be granted for the reasons set forth herein. Therefore, the motion to dismiss will not be discussed. Defendant SFI has made its own motion to transfer the action to the Phoenix Division. It has adopted Mr. Franke’s points and authorities in support of its motion. Its own motion to dismiss, based on grounds different than Mr. Franke’s, won’t be treated herein.

The defendants’ factual points are as follows: Mr. Franke and all other officers of SFI who have knowledge of the rights plan reside in Arizona. No members of the corporation’s board of directors reside in Nevada. The plaintiff is not a resident of Nevada, either. Depositions already noticed by the plaintiff indicate a number of potential witnesses reside in New York. The executive offices of SFI are in Phoenix. The rights plan was adopted by the board of directors at a meeting in that city. Documentary evidence relevant to this lawsuit is maintained in the Phoenix offices.

The affidavit of Mr. Franke, in support of the motion, further declares that he never has been a resident of Nevada and has not even been in this State for the last five years. Nor does he have any business activities here. The affidavit states that SFI has no place of business in Nevada; it merely has designated a resident agent, as required of all corporations incorporated under the State’s laws.

In his opposing memorandum of points and authorities, the plaintiff notes that his choice of forum should not be disturbed unless the interests of justice and the convenience of parties and witnesses heavily favor transfer. He argues that the venue provisions of the Securities Exchange Act reflect a national policy to minimize the burden on plaintiffs in suits brought under the Act. Mr. Horwitz emphasizes that, as a substantial shareholder of a Nevada corporation (SFI), he is seeking the protection of this State’s laws in trying to keep miscreant management from damaging shareholders as it violates those laws. The governance of the corporation and its relationship with its stockholders are internal affairs that are controlled by Nevada law and, thus, mandate a Nevada forum, he urges.

28 U.S.C. § 1404(a) reads: “For the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought.” The “might have been brought” language requires that the proposed transferee court have subject matter jurisdiction, that venue be proper there, and that the defendants be amenable to service of process issued by that court. Leesona Corporation v. Duplan Corporation, 317 F.Supp. 290, 292-3 (D.R.I.1970). There doesn’t appear to be any dispute that the Phoenix Division of the U.S. District Court of the District of Arizona qualifies. Defendant Franke resides there. Defendant SFI’s principal place of business is there, so that the District of Arizona may be regarded as the residence of the corporation for venue purposes. 28 U.S.C. § 1391(c). Nevertheless, a plaintiffs choice of forum shouldn’t be disturbed unless the reasons for transfer are clear and cogent. Williams v. Green Bay & W.R. Co., 326 U.S. 549, 554 n. 4, 66 S.Ct. 284, 287 n. 4, 90 L.Ed. 287 (1946); see also Gulf Oil Corp. v. Gilbert, 330 U.S. 501, 508, 67 S.Ct. 839, 843, 91 L.Ed. 1055 (1947).

§ 1404(a) itself indicates that the convenience of the parties, the convenience of the witnesses and the interest of justice must be considered by a court entertaining a change of venue motion. Where, as here, the forum chosen by the plaintiff is not his place of residence, the defendants’ residence becomes more important in determining the convenience of the parties. Quandt v. Beech Aircraft Corporation, 317 F.Supp. 1009, 1011-12 (D.Del.1970); Cambridge Filter Corp. v. International Filter Co., 548 F.Supp. 1308, 1311 (D.Nev.1982). It would seem to be equally inconvenient for a New York citizen like Mr. Horwitz to litigate in either Phoenix or Reno. On the other hand, it would be markedly more convenient for both defendants if the proceedings were conducted in Phoenix. The convenience of witnesses is of considerable importance. Id.; Los Angeles, etc. v. Nat. Football League, 89 F.R.D. 497, 501 (C.D.Cal.1981), aff'd on oth. gds. 726 F.2d 1381 (9th Cir.1984). The record here does not suggest that any witnesses will be from Nevada, whereas it is apparent that there will be some from the Phoenix area because significant activities complained of by the plaintiff occurred at SFI’s corporate headquarters. There would be less disruption of those witnesses’ routines and those of their employers were the action transferred to Phoenix. Helfant v. Louisiana & Southern Life Ins. Co., 82 F.R.D. 53, 58 (E.D.N.Y.1979). The interest of justice would be as well served in Phoenix , as in Reno. No prejudice to the plaintiff would result from the transfer. The residence of Mr. Horwitz is not Nevada, therefore a court located in this State would not have a particular interest in protecting him as a resident shareholder. See Id.; Edgar v. Mite Corp., 457 U.S. 624, 644, 102 S.Ct. 2629, 2641, 73 L.Ed.2d 269 (1982); Foster v. Lumbermens Mutual Co., 330 U.S. 518, 525, 67 S.Ct. 828, 832, 91 L.Ed. 1067 (1947).

Ease of access to sources of proof is another factor favoring transfer of the action to Phoenix, for some of SFI’s records, which are maintained there, figure to be relevant in the trial. Id. at 526, 67 S.Ct. at 833; Kreisner v. Hilton Hotel Corp., 468 F.Supp. 176, 179 (E.D.N.Y.1979); Helfant, supra at 59. Also supportive of the transfer is the availability of compulsory process to obtain attendance of unwilling witnesses. A non-party witness may not be compelled to attend trial unless served within the district or, if served outside the district, within 100 miles of the place of trial. Fed. R.Civ.P. 45(e). Therefore, the Arizona witnesses could not be brought unwillingly to testify at trial in Nevada, as they could be in Phoenix. This is a factor of some importance. Los Angeles, Etc. v. Nat. Football League, supra at 89 F.R.D. 501; Kreisner, supra at 178.

The subjective intent of defendant Franke and the other directors of SFI is at issue, for part of the plaintiff’s theory is that they were acting in their own self-interest in violation of their fiduciary duties to the corporation and its shareholders. The credibility of witnesses assumes a greater importance in such case, thus rendering less satisfactory the use of deposition testimony of witnesses who can’t be compelled to come to the trial. Helfant, supra at 58; Los Angeles, Etc., supra at 89 F.R.D. 501; Cambridge Filter Corp. v. International Filter Co., supra at 1311.

Matters peculiar to the relationships among a corporation, its officers, its directors and its stockholders are considered to be internal affairs of the corporation. Edgar v. Mite Corp., supra 457 U.S. at 645, 102 S.Ct. at 2642. Those affairs are governed by the law of the state of its incorporation. Id.; Gaynor v. Buckley, 318 F.2d 432, 434 (9th Cir.1963); Rogers v. Guaranty Trust Co., 288 U.S. 123, 130, 53 S.Ct. 295, 297, 77 L.Ed. 652 (1933). Nevertheless, there is no ironclad rule forbidding a court from trying a case involving issues arising from the internal affairs of a foreign corporation. Roster v. Lumbermens Mutual Co., supra 330 U.S. at 527, 528, 67 S.Ct. at 833, 834. It is only when the court must exercise continuing supervision over corporate affairs, e.g., through a court-appointed receiver, that a foreign court might have trouble enforcing its orders. Williams v. Green Bay & W.R. Co., supra 326 U.S. at 556, 66 S.Ct. at 287. No such problem is foreseeable here. Although this internal affairs doctrine favors Nevada as the forum state, it is outweighed by the other considerations discussed herein. Issues concerning the internal affairs of foreign corporations have been tried in the Ninth Circuit. See Gaynor v. Buckley, 318 F.2d 432 (9th Cir.1963).

IT IS, THEREFORE, HEREBY ORDERED that the defendants’ motions for an order transferring this action to the United States District Court for the District of Arizona, Phoenix Division, be and the same hereby are GRANTED.


source: Caselaw Access Project

author: JAMES T. FOLEY, Senior District Judge.

license: Public Domain

text:
    Stephen Charles CHASE, Petitioner, v. John T. HADDEN, Warden, Federal Correctional Institution, Rudy Estrada, Captain, Chairman of IDC, and Randy Wells, Correctional Officer, Respondents.
    No. 84-CV-1614.
    United States District Court, N.D. New York.
    June 24, 1985.

      Stephen Charles Chase, pro se; David A. Lenihan, Assigned by Magistrate Ralph W. Smith, Jr. for Evidentiary Hearing, Albany, N.Y., of counsel.
    Frederick J. Scullin, Jr., U.S. Atty., N.D. N.Y., Albany, N.Y., for respondents; David R. Homer, Asst. U.S. Atty., Albany, N.Y., of counsel.
   MEMORANDUM-DECISION and ORDER

JAMES T. FOLEY, Senior District Judge.

The petitioner submitted pro se a detailed and lawyerlike form application for federal habeas corpus setting forth, with exhibits A to E, five grounds of alleged due process and equal protection violations that occurred in disciplinary proceedings against him at the Federal Correctional Institution, Ray Brook, New York. A substantial memorandum of law was submitted pro se in support of the application. Assistant United States Attorney David R. Homer, thereafter, filed in behalf of the respondents a motion, with attached exhibits A through D-2, to dismiss the petition/complaint, and/or the grant of summary judgment as a matter of law. Petitioner filed opposition pro se to that motion arguing there were several factual disputes, and requesting an evidentiary hearing. By Order dated February 4, 1985, Magistrate Ralph W. Smith, Jr., stating there were questions of material fact to be resolved, set an evidentiary hearing for March 12, 1985 at the Ray Brook Federal Correctional Institution. Magistrate Smith assigned Attorney David A. Lenihan to represent the petitioner at the evidentiary hearing. The hearing was held on March 19, 1985 and by a Report-Recommendation of nine pages, dated April 8, 1985, Magistrate Smith, based on findings therein, recommends that the respondents’ motion for summary judgment be granted and the petition dismissed. On May 3, 1985, after grant of extension for filing, Attorney Lenihan filed eight pages of objections to the Magistrate’s Report-Recommendation.

Magistrate Smith’s report summarizes by name the testimony of the several witnesses, including the petitioner, who testified at the evidentiary hearing. The exhibits introduced and received at the hearing are contained in an envelope marked “Evidentiary Hearing (3/19/85) Exhibits.” The exhibits are the same as the ones attached to the petitioner’s application for habeas corpus and the government motion to dismiss or for summary judgment. In the main, the exhibits are documents and records related to the disciplinary proceedings involving the petitioner. My reference to the exhibits shall be to their markings at the evidentiary hearing. The Magistrate states in his report that the purpose of the evidentiary hearing was to explore petitioner’s claim that he was denied the right to call witnesses at the Unit Discipline Committee (UDC) hearing and the Institution Discipline Committee (IDC) hearing.

The petitioner was charged in an Incident Report (Ex. A) with “Insolence Towards a Staff Member,” who was respondent, Correctional Officer Wells, on March 28, 1984. The incident is described in the report and to summarize states that the petitioner came into Well’s office, on March 28, 1984, when Wells was typing a memo, had an argument with him, used vulgar language and called him a liar in front of other inmates, and was causing a scene. This exhibit A also contains the initial investigative report of Lieutenant Stephen Louder-milk who investigated the incident on the same day. It is stated in his report that, after talking with petitioner Chase, Officer Wells and inmate Anthony Poulios, Lieutenant Loudermilk concludes that the written report of Officer Wells is true as written, thereby in effect refusing to accept the denial of petitioner Chase that he used vulgar language and at no time showed disrespect for Officer Wells. After this conclusion, the petitioner was placed in administrative detention and the matter referred to the Unit Discipline Committee (UDC) for further disposition. Then, the same Exhibit A reflects that on March 30, 1984, the UDC, after hearing the denial of the petitioner, found and upheld the incident report as written, particularly the profane words, and referred the matter to the Institution Discipline Committee (IDC) recommending the withholding of Statutory Good Time (SGT) for a month. Defendant’s Exhibit B is a Notice of Institution Discipline Committee (IDC) Hearing given to the inmate petitioner Chase, dated March 30, 1984, with a large X mark in the space, “I (do not) wish to call witnesses,” and signed S. Chase. Exhibit C is the Institution Discipline Committee Report (IDC), dated April 4, 1984. In this Report, the petitioner’s statement before the Committee is summarized, the finding is marked XX that the act was committed as charged, and the specific evidence for the finding is stated. The sanction was 7 days disciplinary segregation. Then followed the panoply of review to the Chief Executive Officer, the Regional Director, and the General Counsel. (Exs., Pi’s Exs. 3, and 4—Report of the Chief Executive Officer not included in hearing exhibits, but marked Ex. D in habeas corpus application and government motion for dismissal or summary judgment.) The statement of facts and responses to the appeals by petitioner are detailed and lengthy in the standard forms. The appeals were denied at each level of administrative review.

The contention of the petitioner is that, in violation of due process and equal protection rights, he was denied the right to call witnesses when he so requested at both the UDC and IDC hearings. His assigned lawyer argues in the objections he filed to the Magistrate’s Report-Recommendation that this denial prevented in some way important disclosure of the true fact that other inmates were not present on the scene at the time of the incident. Also, that the initial incident report of Officer Wells is untrue in the words that the vulgar statement of petitioner Chase “was said in front of other inmates and was causing a scene.” It is contended in the objections that this is an exaggeration and untruth on the part of Officer Wells that should seriously impair the credibility of Officer Wells and the integrity of his written incident report. Oddly enough, this contention of denial of the right to call witnesses is made in the face of the express and puzzling position of petitioner that there were no other inmates on the scene at the time of the incident, except one inmate, Anthony Poulios. This is the same inmate Poulios, who was called as a witness by Lieutenant Loudermilk at the investigative stage, and as noted in the Lieutenant’s report of March 28, 1984, stated, “that when inmate Chase came into the office and started to raise his voice to Officer Wells that he departed the area.” Poulios went on to say that he knew that inmate Chase was mad and he did not want to get involved. (Ex. A) In an affidavit, Ex. E, dated August 14, 1984, before the decision of the General Counsel, dated September 21, 1984, and submitted in this habeas corpus proceeding, inmate Anthony Poulios gives further details of his recollection in the office, on March 28, 1984, when inmate Chase was speaking to Officer Wells about a disciplinary report Chase was receiving or about to receive. The affidavit states that it was made when inmate Chase asked inmate Poulios to give a truthful account of what he observed. This affidavit of Poulios emphasizes that there were no other inmates present in the immediate or proximate vicinity where Officer Wells and inmate Chase were talking.

It is difficult for me to understand the contention of the petitioner that there was a denial of his right to call witnesses, when at the same time he insists there were no witnesses present, other than inmate Poulios. However, from my review of the record, there is no need to enter this area of uncertainty that in my judgment seems to approach gamesmanship. From my review, there is adequate support in the administrative records for the administrative determinations, that petitioner requested no named witnesses after being advised of his right to call witnesses. The General Counsel and the Regional Director Reports note that the petitioner requested an inmate witness at the IDC hearing and explains the reason for upholding the refusal to call such witness. (See PI. Exs. 3 and 4). The denial by the petitioner of the X marking in Exhibit B that he did not wish to call witnesses is not accredited in the administrative decisions or the Magistrate’s Report. The word “correct” in Exhibit C, the Institution Discipline Committee Report, is typed after the statement that the inmate requested no witnesses. The summary of the testimony of the Committee members set forth in the Magistrate’s Report is similar in this respect. It is obviously necessary in this prison setting that there has to be reasonable compliance with the listing of named witnesses on appropriate forms in order to insure orderly investigation, presentation, processing and determination of disciplinary charges. See Wolfe v. Carlson, 583 F.Supp. 977 (SDNY 1984). To request generally, if such request was made by petitioner, for witnesses unknown and unnamed to be sought out and produced, particularly when insisting none such existed, is not reasonable or acceptable compliance in my judgment with required procedures.

Magistrate Smith finds in his report that petitioner did not, in fact, ever specifically request that inmate Poulios be called as a witness but requested generally, at both the UDC and IDC hearings, that the witnesses to whom Officer Wells referred to in his incident report be produced. He further found that if Anthony Poulios had been called as a witness at the IDC hearing, the result would not have been different. (Mag.Rep.—Rec., pp. 7, 8). His conclusion is that the petitioner was properly advised of his right to call witnesses but was unable to do so because no witnesses, aside from Poulios, existed and as to him, it was properly concluded that his testimony would not have affected the outcome. Such findings and conclusions are accepted as supported satisfactorily by the record.

I do not have the same assurance from my review as the Magistrate that other inmates were not in the office area when the incident occurred. It seems most unlikely that at 12:05 P.M., in a prison setting with substantial number of inmates as at Ray Brook, there was not presence and movement of inmates in and around an office area. Again, however, as the Magistrate finds and as I approve, it would make no difference if there were only one or none. The essence of and gravamen of the charge is insolence to a staff officer, and it makes no difference if the insolence came from insulting and vulgar remarks in front of others, or from such type remarks whispered into the ear of the correction officer. The petitioner did admit at the IDC hearing that he told Officer Wells that he, Wells, had lied to him in the past. (Def.Ex. C). The demand of the petitioner to call all witnesses because the incident report refers to other inmates was unreasonable and would necessitate an extensive inquiry of some or all of the prison population in order to ascertain inmates who may have been in the area at that time and place. Most likely, few, if any, like inmate Poulios, would want to be involved if they were there.

Credibility was a prime factor to be weighed in the disciplinary proceedings involving petitioner Chase. Chase was interviewed at the investigative stage by Lieutenant Louder milk, testified at the IDC hearing, and also testified at the evidentiary hearing held by Magistrate Smith. In each instance, his creditability was found wanting, and his denials were not accepted. Also, credibility evaluation permeated the relevant documents, and there is adequate support for the determinations that petitioner never requested a witness or witnesses in accord with prescribed procedures.

The landmark case establishing the right of an inmate involved in disciplinary proceedings is Wolff v. McDonnell, 418 U.S. 539, 94 S.Ct. 2963, 41 L.Ed.2d 935 (1974). The right to call witnesses and present documentary evidence in defense is allowed to the inmate, but the right is circumscribed and not unrestricted. Particularly relevant to the situation here, it is stated that an unrestricted right to call witnesses carries obvious potential for disruption, and prison officials must have the necessary discretion to keep the hearing within reasonable limits. Id. at 566-67, 94 S.Ct. at 2979-80. The circumscription was repeated in Baxter v. Palmigiano, 425 U.S. 308, 320-321, 96 S.Ct. 1551, 1559, 47 L.Ed.2d 810 (1976); see also Hewitt v. Helms, 459 U.S. 460, 467, 103 S.Ct. 864, 869, 74 L.Ed.2d 675 (1983). Recently the Wolff and Baxter opinions and rulings were reviewed again by the United States Supreme Court in Ponte v. Real, — U.S. -, 105 S.Ct. 2193, 85 L.Ed.2d 553 (1985). The reasons for limiting the right to call witnesses under certain circumstances are explained again. As previously noted in the disciplinary proceedings here, justification is present in the administrative record to support the denial of a request for a witness or witnesses. The important ruling in Ponte is that the Due Process Clause of the Fourteenth Amendment does not require that prison officials’ reasons for denying an inmate’s witness request appear in the administrative record, but they may explain it “later” in a Court challenge on this ground. Ponte at -, 105 S.Ct. at 2196. Last week the United States Supreme Court gave further guidance and definition of the rights afforded inmates by Wolff v. McDonnell in Superintendent, Massachusetts Correctional Institution at Walpole v. Hill, — U.S. -, 105 S.Ct. 2768, 86 L.Ed.2d 356 (1985). The Court held that due process requires only that there be some evidence to support the findings made in inmate disciplinary hearings, (emphasis supplied).

Technically, in view of the evidentiary hearing held by the Magistrate in this habeas corpus proceeding, the grant of the summary judgment motion for the respondents may not be the proper procedural remedy. See Blackledge v. Allison, 431 U.S. 63, 80, 97 S.Ct. 1621, 1632, 52 L.Ed.2d 136 (1977). The objections filed by Attorney Lenihan are overruled. The findings and conclusions of the Magistrate are accepted and adopted as made. Judgment shall enter in favor of the respondents denying and dismissing the petition for the reasons stated herein, 28 U.S.C. § 636(b)(1)(C).

It is so Ordered.


author: WARRINER, District Judge.

text:
    Judy D. COOK, Administratrix of the Estate of Patricia Ann Romig, Deceased v. Cynthia ROBINSON, Individually and in her official capacity as a Police Officer for the City of Richmond, et al.
    Civ. A. No. 85-0467-R.
    United States District Court, E.D. Virginia, Richmond Division.
    June 24, 1985.

      Carl J. Witmeyer, II, Witmeyer, Webb & Phillips, Richmond, Va., for plaintiff.
    John Oakey, Jr., Christopher Spencer, McGuire, Woods & Battle, Richmond, Va., for defendant.
   ORDER

WARRINER, District Judge.

Presently before the Court is a matter filed by plaintiffs on 23 May 1985 styled as Plaintiffs Objection to Defendants’ Petition for Removal, which this Court will treat as a motion to remand.

This action was initially brought in the Circuit Court of the City of Richmond on 25 March 1985 and removed to this Court on 10 May 1985. The action in State court was brought against five defendants: Cynthia Robinson, individually and in her official capacity as a police officer of the City of Richmond; the City of Richmond; Starling King, individually and in his official capacity as a police officer of the City of Richmond; John Doe, individually and in his official capacity as a police officer of the City of Richmond; and Jane Doe, individually and in her official capacity as a police officer of the City of Richmond.

28 U.S.C. § 1441 defines those actions that are removable from State to federal court. Section 1441 provides in pertinent part:

(a) except as otherwise expressly provided by Act of Congress, any civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant or the defendants, to the district court of the United States for the district and division embracing the place where such action is pending.
(b) Any civil action of which the district courts have original jurisdiction founded on a claim or right arising under the Constitution, treaties, or laws of the United States shall be removable without regard to the citizenship or residence of the parties____
(c) Whenever a separate and independent claim or cause of action, which would be removable if sued upon.alone, is joined with one or more otherwise non-removable claims or causes of action, the entire case may be removed and the district court may determine all issues therein, or, in its discretion, may remand all matters not otherwise within its original jurisdiction.

28 U.S.C. § 1447(c) requires, in pertinent part, that: “[I]f at any time before final judgment it appears that the case was removed improvidently and without jurisdiction, the district court shall remand the ease, and may order the payment of just cost.”

28 U.S.C. § 1446 prescribes the procedures to be followed by parties seeking removal. The applicable provisions of that section provide:

(a) A defendant or defendants desiring to remove any civil action or criminal prosecution from a State court shall file in the district court of the United States for the district and division within which such action is pending a verified petition containing a short and plain statement of the facts which entitle him or them to removal together with a copy of all process, pleadings and orders served upon him or them in such action.
(b) The petition for removal of a civil action or proceeding shall be filed within thirty days after the receipt by the defendant, through service or otherwise, of a copy of the initial pleadings setting forth the claim for relief upon which such action or proceeding is based, or within thirty days after the service of summons upon the defendant if such initial pleading has then been filed in court and is not required to be served on the defendant, whichever period is shorter____
(d) Each petition for removal of a civil action or proceeding, except a petition in behalf of the United States, shall be accompanied by a bond with good and sufficient surety conditioned that the defendant or defendants will pay all costs and disbursements incurred by reason of the removal proceedings should it be determined that the case was not removable or was improperly removed.

Defendants’ petition for removal contains a number of irregularities. Only petitioners Robinson, King, and the City of Richmond joined in the petition for removal. All defendants in a federal question case must join in the petition to remove. See Aguiar v. Evans, 607 F.Supp. 1418, 1420 (E.D.Va.1985). Defendants joining in the petition of course will argue that John Doe and Jane Doe, since they are unknown parties, cannot join in a petition. However, while the Does failed to join in the petition for removal, an answer was filed for them by counsel for the known defendants and the answer seeks relief for the Does. The removal bond mentioned “defendants,” which I take to mean all defendants, despite the absence of the Does from the petition for removal. There is no indication in the record whether the Does have been served under applicable State procedure. If they in fact have not been served and if they are proper parties in this action, they would have the thirty day period established under 28 U.S.C. § 1446(b) to join the petition for removal. See Balestrieri v. Bell Asbestos Mines, Ltd,., 544 F.Supp. 528, 529-30 (E.D.Pa.1982).

However, because I determine that defendants Robinson, King, and the City of Richmond did not properly remove the action it must be remanded regardless of the necessity of Does joining in the petition and regardless of what they may subsequently do under § 1446.

Forty-six days elapsed between the time this action was initially filed in State court and its removal to this Court. Defendants are required under § 1446(b) to file the petition for removal within thirty days after receipt by defendants, by service or otherwise, of a copy of the initial pleading. Defendants on their petition failed to avow that this time requirement was met.

This Court follows the majority opinion that “the whole record brought forward on removal should be examined to determine removal jurisdiction.” Thompson v. Gillen, 491 F.Supp. 24, 27 n. 4 (E.D.Va.1980) (citations omitted). Defendants did not, as required by § 1446(a) file copies of all process served upon them. The only process submitted in support of removal was the one directed to defendant Robinson. The failure to submit the process served on defendants King and City of Richmond is significant because the process could have served as an independent means of determining whether the petition for removal was timely filed. Defendants’ lapse in avowing timely removal in their joint petition may have been obviated by the return shown on the process had defendants followed the requirement of § 1446(a) and filed in this Court “a copy of all process.”

“Removal statutes are strictly construed.” Thompson v. Gillen, 491 F.Supp. 24, 26 (E.D.Va.1980) (citing Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100, 61 S.Ct. 868, 85 L.Ed. 1214 (1941)). The “thirty day limitation is mandatory and cannot be extended by the court.” Balestrieri, 544 F.Supp. at 529. Defendants have failed, within the jurisdictional time period, to set forth all of the facts which entitle them to removal.

Defendants did not defectively allege the timeliness of their petition, but rather failed to make any allegation at all concerning the timeliness of the petition. Therefore 28 U.S.C. § 1653 is inapplicable. See, e.g., Richmond, Fredericksburg & Potomac Railroad Co. v. Intermodal Services, Inc., 508 F.Supp. 804, 807 (E.D.Va. 1981).

Accordingly, this action will be REMANDED pursuant to 28 U.S.C. § 1447(c) to the State court.

An appropriate judgment SHALL issue. And it is so ORDERED.

      . Defendants John and Jane Doe are not real persons; they were named as defendants in this action because there are certain unknown parties alleged to have caused or contributed to the deceased’s injury.

      . 28 U.S.C. § 1331 provides, “The district court shall have original jurisdiction of all civil action arising under the Constitution, laws, or treaties of the United States.” The motion for judgment filed by plaintiff in the State court alleges that the acts of the defendants violated "laws of the Constitution of the United States, and particularly the First, Fourth, Fifth, Eighth, and Fourteenth Amendments thereof and 42 U.S.C. §§ 1983, 1985(2), (3), 1986, and 1988, and the Constitution of the Commonwealth of Virginia ...” Plaintiff's Motion for Judgment Count 7, ¶ 17. Pursuant to 28 U.S.C. § 1441 plaintiff's claims arising under the Constitution and the laws of the United States and the pendent State claims are removable.


author: KRENZLER, District Judge.

text:
    Hannah HENKEL, Plaintiff, v. Albert John STRATTON, Defendant.
    No. C80-1777Y.
    United States District Court, N.D. Ohio, E.D.
    June 24, 1985.

      Christopher Nardi, J. William Petro, Petro, Rademaker, Matty & McClelland, Cleveland, Ohio, for plaintiff.
    Frederick R. Nance, Squire, Sanders & Dempsey, Cleveland, Ohio, Harold E. Mas-back, III, John Timothy Byrd, Washington, D.C., for defendant.
   MEMORANDUM AND ORDER RE: FURTHER BRIEFING ON DEFENDANT’S MOTION FOR SUMMARY JUDGMENT

KRENZLER, District Judge.

In this case, Hannah Henkel seeks to recover from the defendant, Albert John Stratton, insurance benefits allegedly due as a result of the death of Deborah Lee Gentile. Mrs. Henkel was the beneficiary of a life insurance policy purchased for Deborah Gentile in March of 1979. On the morning of May 17, 1979, Deborah Gentile was found murdered in her motel room at the Pittsburgh Airport. On January 11, 1984, Richard Henkel, Hannah Henkel’s son, pled guilty to killing, or having directed another to kill, Deborah Gentile. At that time, he also pled guilty to attempted theft by deception in connection with his efforts “... to defraud the insurance company from the funds pursuant to the insurance policy____” Plea Transcript at p. 51.

Pending before the Court is the defendant’s motion for summary judgment. The motion was filed April 11, 1985, with substantial evidentiary material attached. On May 9, 1985, the plaintiff filed her opposition to the motion without any evidentiary material attached. On May 24, the defendant filed a reply to the opposition.

The defendant’s motion argues:

(1) that an insurance policy purchased for the purpose of defrauding the insurance company is void ab initio and thus unenforceable;
(2) that Richard Henkel’s guilty plea to attempted theft by deception in Pennsylvania collaterally estops him from denying in this case that he intended to defraud the insurance company; and
(3) therefore, summary judgment must be granted to the defendant since the policy upon which the plaintiff seeks to collect was rendered void by Richard Henkel’s prior admission.

The plaintiff’s opposition to the motion focuses exclusively on the defendant’s second step above. She argues that she should not be estopped from proving that her son did not purchase the insurance policy with an intent to defraud and that the policy is therefore not void. Though she attaches no evidentiary material to her opposition, she suggests, in her brief, that Richard Henkel may have pled guilty to the attempted theft by deception charge even though he was not, in fact, guilty. See Plaintiffs Brief at p. 4.

I. IS AN INSURANCE POLICY PURCHASED FOR THE PURPOSE OF DEFRAUDING AN INSURANCE COMPANY VOID AB INITIO?

While the plaintiff has not challenged this legal conclusion by the defendant, the case law on this question is sparse and by no means clear. This case was brought under the federal court’s diversity jurisdiction and, thus, all legal determinations must be based upon Ohio law. Erie Ry. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). In presenting his legal argument on this question, the defendant cited from Missouri, Kansas, Indiana, Louisiana, and Oklahoma cases, but mentioned nothing of Ohio law on this question.

Perhaps the reason for the defendant’s omission is the fact that there is little Ohio law relevant to this question. One Ohio statute forbids a killer from in any way benefiting from the death of his or her victim. Ohio Rev.Code Ann. § 2105.19 (Page 1985). Yet that statute does not reach the instant case in which the insurance company seeks to void the insurance policy altogether rather than simply denying any benefits to the killer.

In fact, one Ohio court has held that a beneficiary denied the recovery of proceeds on an insurance policy because of § 2105.19 is not precluded from sharing in those proceeds as an heir of the estate of the insured after the proceeds become a part of the general assets of the estate. Winters Nat. Bank v. Shields, 14 O.O. 438 (Probate Ct. of Montgomery Cy.1939). The Ohio statute does not have the effect of voiding the insurance policy altogether, the result urged in this case by the defendant.

Still, it is clear that § 2105.19 is not intended to be the exclusive statement of Ohio law in this area. In Huff v. Union Fidelity Life Insurance Co., 14 Ohio App.3d 135, 470 N.E.2d 236 (Cuy.Co.Ct. App.1984), the court held that “[§ 2105.19] does not purport to allow recovery by persons whose rights are curtailed by the common law.” Id. at 137, 470 N.E.2d 236. Yet there does not appear to be any statutory or common law in Ohio regarding the defendant’s claim that an insurance policy purchased with the intent to defraud the insurance company is void ab initio.

When there is no clear pronouncement on a question of state law from the state courts, a federal court sitting under diversity jurisdiction must apply the law it believes the state’s highest court would apply if it were ruling on the question. See Glinsey v. Baltimore & Ohio Railroad Co., 495 F.2d 565, 567 (6th Cir.1974); and McKenna v. Ortho Pharmaceutical Corp., 622 F.2d 657, 662-663 (3rd Cir.1980). This Court believes that if the Ohio Supreme Court were to rule on the defendant’s theory propounded in the instant case, it would find an insurance policy purchased for the purpose of defrauding the insurance company void ab initio.

Though not binding on this Court, there is one Ohio decision which takes a position consistent with the Court’s determination herein. In Mieritz v. Insurance Co., 11 Ohio Dec. 759 (Cuyahoga Common Pleas 1901), the court instructed the jury:

If you shall find that the written application for the policy of insurance in suit was made to the defendant by [the deceased], or that the said policy was by him or the plaintiff obtained or produced from the defendant in furtherance of a conspiracy theretofore entered into by and between the plaintiff and [the deceased] to cheat and defraud the defendant, either by having said [deceased] simulate death or commit suicide for the purpose of enabling the plaintiff to collect from the defendant the sum of money stated in the policy, you will return a verdict for the defendant.

Id. at 766-767.

It has been widely held that the insurance policy is void and the insurer may retain all proceeds, “where the beneficiary or the assignee of the policy obtained the policy fraudulently, that is, with the intention of killing the insured in order to collect the insurance proceeds.” Killing of Insured by Beneficiary as Affecting Life Insurance or Its Proceeds, 27 A.L.R.3d 794, 825 (1984). (For a complete discussion of all of the states which have already adopted this rule, see § 13 of the above cited A.L.R. article.)

This Court recognizes that Richard Henkel was not the named beneficiary in the Gentile insurance policy. Nonetheless, the policy reasons driving the voiding of fraudulently obtained insurance policies are just as applicable. If Richard Henkel arranged for the purchase of the Gentile insurance policy with the intent to later kill her so that he could reasonably benefit in some way, the policy is void. It is the defendant’s burden to make that showing.

II. IS RICHARD HENKEL COLLATERALLY ESTOPPED FROM DENYING THAT HE INTENDED TO DEFRAUD THE INSURANCE COMPANY BECAUSE OF HIS GUILTY PLEA TO ATTEMPTED THEFT BY DECEPTION IN PENNSYLVANIA?

The defendant claims that Richard Henkel’s guilty plea to attempted theft by deception in Pennsylvania collaterally estops him from denying his intent to defraud in this action. The plaintiff strenuously resists that claim, arguing that she was not in privity with her son at the time he pled guilty, that he had alterior motives for doing so, and that she has not had a full and fair opportunity to litigate the question of his intent.

The Court is unwilling, at this time, to make a determination on this question. Under L.Civ.R. 3.01(2):

The moving party shall serve and file with his motion a brief written statement of reasons in support of the motion and a list of the authorities on which he relies. (Emphasis added.)

L.Civ.R. 3.01(3) imposes a like burden on the party opposing a motion. These rules presume that the authorities cited will be from the jurisdiction whose authorities control the determination of the motion. Both parties have failed to cite any authority from Pennsylvania—the jurisdiction whose law controls the determination of this issue.

A federal court sitting under diversity jurisdiction must follow the conflict of laws rules prevailing in the state in which it is sitting. Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941); Myers v. Alvey-Ferguson Co., 331 F.2d 223 (6th Cir.1964). Under Ohio law, as mandated by the full faith and credit clause of the United States Constitution, the Ohio courts give judgments from sister states whatever effect they would be given in the courts of the state which rendered the original decision. Miller v. Bock Laundry Machine Co., 64 Ohio St.2d 265, 416 N.E.2d 620 (1980).

Richard Henkel’s criminal conviction was obtained in a Pennsylvania trial court. Accordingly, whatever collateral estoppel effect should be given to Richard Henkel’s conviction, or issues resolved by it, will be determined by what collateral estoppel effect the Pennsylvania courts would afford.

Since neither of the parties in this action have cited any Pennsylvania law on this question, the Court will hold the defendant’s summary judgment motion in abeyance. Both parties shall have until Monday, July 8, 1985, at 4:00 p.m. to provide the Court with legal citations from Pennsylvania relevant to the pending motion.

III. SUMMARY JUDGMENT ON THE MERITS

In the defendant’s reply brief, he continues to insist upon the viability of his collateral estoppel theory. In passing, he notes that, with or without estoppel, the plaintiff has failed to dispute the defendant’s allegation that Richard Henkel purchased the insurance policy with the intention of defrauding the insurance company. Had the defendant originally sought summary judgment on that ground, and had the plaintiff responded with no more than she did, the Court would be prepared to grant summary judgment for the defendant at this time.

Instead, the defendant explicitly limited the scope of his initial motion to summary judgment based upon collateral estoppel. See Defendant’s Brief at p. 3, n. 2. The plaintiff has not yet been faced with a motion forcing her to show what evidence, if any, she has to demonstrate that her son did not purchase the policy with an intent to defraud the insurance company. Accordingly, this Court can not grant summary judgment on that ground at this time.

Still, the evidence provided to the Court for the purpose of placing “the guilty plea and this civil litigation in proper context” (Defendant’s Brief at p. 3., n. 2), seems quite overwhelming. While it is conceivable that the plaintiff will be able to supply the Court with evidence to counteract the defendant’s explicit statements of intent contained in the plea transcript, it seems unlikely. Without evidence which genuinely puts in issue the defendant’s claim that Richard Henkel arranged for the purchase of Deborah Gentile’s insurance policy for the explicit purpose of defrauding the insurance company, this Court will grant summary judgment for the defendant.

• Accordingly, the plaintiff shall have until Monday, July 8, 1985, at 4:00 p.m., to provide any evidentiary material relevant to the defendant’s motion for summary judgment on the merits. In addition, the defendant may submit any additional relevant evidentiary material on that motion by July 8 at 4:00 p.m. All other dates announced in the Court’s order of March 18 are vacated. Should the defendant’s motion for summary judgment be overruled, new dates will be announced at that time.

IT IS SO ORDERED.

      . On the first page of the defendant’s brief in support of his motion and on the first page of his reply brief, the defendant claims that Hannah Henkel is now dead. While referring to the plaintiff throughout his papers as "the Estate of Hannah Henkel," he also states at one point that "the plaintiff in this action is no longer Hannah Henkel.” Defendant's Reply Brief at p. 1, n. 1. The defendant is wrong. At this point in time, Hannah Henkel is still the plaintiff in this action. Fed.R.Civ.P. 25(a), to which the defendant cites, requires substitution of parties to take place “after the death is suggested upon the record by service of a statement of the fact of death as provided herein for the service of [a] motion____” No suggestion of death has been filed with this Court in the manner proscribed by the Federal Rules. Accordingly, a motion to substitute because of the death of Hannah Henkel would not, at this time, be ripe. Even when all parties are aware of the death of a party, the 90-day time limit for a motion for substitution does not commence until service of the suggestion of death in the manner set out by the Federal Rules. United States v. Miller Brothers Construction Company, 505 F.2d 1031 (10th Cir.1974).


author: HALLANAN, District Judge.

text:
    UNITED STATES of America v. Donald J. SHEPPARD.
    Crim. Nos. 84-50012-03, 5:85-00001.
    United States District Court, S.D. West Virginia.
    June 24, 1985.

      Mary S. Feinberg, Asst. U.S. Atty., Charleston, W.Va., for U.S.
    Douglas J. Kinz, Clifton, N.J., for defendant.
   MEMORANDUM ORDER

HALLANAN, District Judge.

I. Introduction

The Defendant, Donald J. Sheppard, previously entered guilty pleas to (1) Count Six of an eight count indictment, charging him with aiding and abetting in the filing of false and fraudulent income tax returns on behalf of Brandywine Associates under 26 U.S.C. § 7206(2) and 18 U.S.C. § 2, and (2) a one-count information, charging him with aiding and abetting in the filing of false and fraudulent tax returns on behalf of NRG Coal Associates 1979-1 under 26 U.S.C. § 7206(2) and 18 U.S.C. § 2. Pending before the Court is Defendant’s Rule 35(b), Fed.R.Crim.P; motion for a reduction of sentence which was filed in a timely manner on June 7, 1985, the sentence having been imposed on February 15, 1985. The Defendant filed a brief and affidavits in support of his motion and the Government filed a brief in opposition to the motion; a hearing was held on June 15, 1985, at which both sides were represented. A brief recitation of the facts and circumstances of this case is necessary in order to develop a clear understanding of the Defendant’s primary argument for a reduction of sentence, namely that the sentence imposed on Mr. Sheppard was unduly harsh when compared to that imposed on his equally or more culpable co-defendant, Mr. Huber (Karl Huber, Jr.).

II. Factual Background

The indictment to which Mr. Sheppard pleaded guilty stemmed from his employment from the fall of 1976 to the summer of 1978 as President of the Boden Mining Corp. and Vice-President of the Boden Coal Co. at a salary of approximately $1,000 per week, plus expenses. Boden Mining Corp. was established (and owned) by Karl Huber, Jr., and Karl Huber, Sr., of Newark, N.J., for the purposes of acquiring coal leases and providing coal reserve reports to assist the Hubers in promoting and syndicating coal tax shelters through a limited partnership known as Brandywine Associates. Although the parties are in dispute as to whether Boden Mining Corp. actually mined any coal, they agree that Sheppard’s role in the fraudulent tax scheme consisted of obtaining and/or preparing coal reserve reports with substantially overstated reserves for use in the offering memoranda distributed by the Hubers to investors seeking information about their coal tax shelter limited partnerships. The parties agree that Sheppard did not prepare or file the false income tax returns for the limited partnerships, that with one possible exception he did not solicit investors for Brandy-wine Associates, and that the pecuniary benefit he received from the syndication of the fraudulent tax shelters was limited to his salary. In short, Mr. Sheppard was a salaried employee in a fraudulent operation that was conceived, directed, and owned by the Hubers.

The information to which Mr. Sheppard pleaded guilty stemmed from his employment from the summer of 1978 to the spring of 1981 as Vice-President of Natural Resources Group (NRG) Coal Corp. NRG Coal Corp. was established (and partially owned) by David Walsh and Robert Goldberg for the purposes of acquiring coal leases and mining equipment, and providing coal reserve reports to assist Walsh and Goldberg in promoting and syndicating coal tax shelters through a limited partnership known as NRG-1979-I. As with the previous conspiracy, Sheppard’s role consisted of obtaining and/or preparing coal reserve reports with inflated reserves for use in the offering memoranda disseminated to investors who were interested in the NRG coal tax shelter limited partnerships.

Mr. Sheppard was aware in both instances that the reports that were included in the offering memoranda would be used by investors to avail themselves of tax deductions to which they were not entitled. After offering a guilty plea on the indictment and information counts, Mr. Sheppard was sentenced to a prison term of three years under 18 U.S.C. § 4205(a) and fined $5,000 on the indictment count, and to five years probation and fined $5,000 on the information count, to run consecutively with the sentence imposed pursuant to the indictment count. The primary basis for Sheppard’s Rule 35(b) motion is that his co-defendant, Karl Huber, Jr., who pleaded guilty to a more serious offense (Count One of an eight count indictment charging him with conspiring to defraud the Internal Revenue Service under 18 U.S.C. § 371), was given a more lenient sentence of five years probation, fined $5,000 and ordered to perform 2,000 hours of public service.

III. Jurisdiction of the Court

As stated earlier, Defendant’s Rule 35(b) motion was timely filed on June 7, 1985. However, the Court’s Order on the motion is being entered after the expiration of the 120 day period specified in Rule 35(b). Accordingly, a threshold question exists as to whether this Court still has jurisdiction over the motion.

Rule 35(b) provides in relevant part that “[t]he court may reduce a sentence within 120 days after the sentence is imposed ...” Although a literal reading of the Rule would seem to require a District Court to issue an Order within 120 days of the imposition of a sentence, the Courts have not given Rule 35(b) so harsh a construction. Instead; many appellate courts have recognized that so long as a Defendant’s motion is filed before the expiration of the 120 day time period of Rule 35(b), a District Court may rule upon such a motion within a reasonable period after the 120 days have expired. United States v. Stollings, 516 F.2d 1287 (4th Cir.1975); United States v. Janiec, 505 F.2d 983 (3rd Cir.1974); United States v. Mendoza, 581 F.2d 89 (5th Cir.1978); United States v. Williams, 573 F.2d 527 (8th Cir.1978); United States v. Polizzi, 500 F.2d 856 (9th Cir.1974), cert. denied 419 U.S. 1121, 95 S.Ct. 802, 42 L.Ed.2d 820 (1975). Dicta in United States v. Addonizio, 442 U.S. 178, 99 S.Ct. 2235, 60 L.Ed.2d 805 (1979) to the effect that Rule 35(b)’s time period is jurisdictional and cannot be extended cast doubt on the vitality of the above construction of the rule. However, numerous Circuit Courts of Appeal recently have reaffirmed the concept that, provided a Rule 35(b) motion is filed in a timely manner, a District Court may rule on such a motion within a reasonable time after the expiration of the 120 day period. Diggs v. United States, 740 F.2d 239 (3rd Cir.1984); United States v. Krohn, 700 F.2d 1033 (5th Cir.1983); United States v. DeMier, 671 F.2d 1200 (8th Cir.1982); United States v. Smith, 650 F.2d 206 (9th Cir.1981).

Post-Addonizio authority that, on a superficial or cursory reading adopts a contrary interpretation of Rule 35(b), is distinguishable. In United States v. Schafer, 726 F.2d 155 (4th Cir.), cert. denied — U.S. -, 104 S.Ct. 3512, 82 L.Ed.2d 820 (1984), the trial court’s delay in ruling on Defendant’s Rule 35(b) motion was held unreasonable because the court intentionally waited over seven months until after the Parole Commission had acted in order to review, and overturn, its decision concerning a presumptive parole date. The Schafer court’s holding was based not on the fact that the trial judge acted on a Rule 35(b) motion more than 120 days after the sentence was imposed, but solely on the unreasonable length and purpose of the trial judge’s delay; Schafer did not overrule the Fourth Circuit’s prior holding in Stollings that a District Judge “retains jurisdiction to act upon a timely motion after the expiration of the 120 day period for such reasonable time, as under the circumstances, is required for its consideration and disposition.” 516 F.2d at 1289-90. Similarly, the recent decisions in United States v. Kajevic, 711 F.2d 767 (7th Cir.1983), cert. denied, — U.S. -, 104 S.Ct. 721, 79 L.Ed.2d 182 (1984) and United States v. Pollak, 655 F.2d 243 (D.C.Cir.1980) held unreasonable a trial judge’s delays of 12 to 14 months respectively, and did not flatly reject the notion that a District Court may rule on a timely filed Rule 35(b) motion within a reasonable time after the 120 day period has expired.

In contrast to the situations in Schafer, Kajevic, and Poliak, this Court has made every effort to expedite a ruling on Defendant’s Rule 35(b) motion. Once the motion was filed on June 7, 1985, a hearing on it was set for June 14, 1985, which was the earliest possible date on which counsel who represented the parties at sentencing could argue the motion. The Court is ruling on the motion roughly a week and a half after the expiration of the 120 day period, and this brief delay has stemmed not from a desire to monitor and/or interfere with Parole Commission activities, but rather from my desire to reflect upon the arguments of counsel and give full and fair consideration to the Defendant’s motion. Under these circumstances, the Court is satisfied that its delay is “reasonable” under both Stollings and Schafer. Hence, an analysis of the merits of the motion is appropriate and now will be undertaken.

IV. Defendant’s Disparity in Sentencing Argument

Counsel for Defendant earnestly contends that at worst the Court could have viewed Mr. Sheppard as being equally culpable with Karl Huber, Jr. in the Boden Mining Corp. tax fraud scheme, and realistically the Court should have viewed Sheppard as being less culpable than his co-defendant, who received a lighter sentence. From the Defendant’s perspective, three points distinguish his involvement in the scheme from that of Karl Huber, Jr. First, Huber pleaded guilty to the more serious offense of conspiracy to defraud the IRS which authorized a maximum penalty of five years imprisonment and fine of $10,000, involved scheming among several individuals, and was aimed at such serious objects as defrauding the IRS, filing fraudulent partnership tax returns, filing fraudulent individual tax returns on behalf of the IRS, and defrauding purchasers of various securities. In contrast, Sheppard pleaded guilty to an indictment count of aiding and abetting in the filing of false tax returns and an information count of the same violation; the maximum penalty for each count was three years imprisonment and a fine of $5,000. Yet the Court sentenced Sheppard to three years in prison while Huber was given five years probation. Second, Defendant asserts that an egregious disparity in sentencing is evidenced by the fact that Huber previously had been convicted of conspiracy, racketeering, and perjury based on Medicare, Medicaid, and Hill-Burton Act frauds, See, United States v. Huber, 603 F.2d 387 (2nd Cir.1979) when he came before this Court for sentencing, whereas Sheppard had no prior criminal record. Finally, Defendant asserts that because he was merely a salaried employee with no equity interest in Boden Mining Corp., his lesser degree of involvement warranted a lighter sentence than Huber, who created the partnerships, made the operating decisions, solicited investors, and syndicated and profited from the fraudulent tax shelters.

In the Court's view, Defendant’s first and third submissions are so closely intertwined as to be indistinguishable; Huber’s guilty plea to a more serious conspiracy violation was a natural consequence of his broader involvement in and direction of the tax fraud scheme. If it were this Court’s mission in sentencing to consider solely co-defendants’ (1) relative degrees of culpability and resulting offenses to which guilty pleas were entered and (2) past criminal records, Sheppard’s disparity in sentencing argument might be a sufficient ground for granting his Rule 35(b) motion. However, this Court never has taken so narrow an approach to sentencing and in the case at bar, a host of additional factors were considered in arriving at the respective sentences for Huber and Sheppard. A brief survey of these factors will demonstrate that Defendant’s disparity argument, though appealing as an abstract preposition without regard to the specific individuals involved, is meritless.

It is true that Karl Huber, Jr. came before this Court for sentencing in late March, 1985 as a convicted felon and a mastermind of the Boden Mining Corp. tax fraud scheme. However, he also came before this Court having served over 36 months in the Lexington Federal Correctional Institution (from June 26, 1980 to January 18, 1982) pursuant to his prior conviction, all of which time was served subsequent to his involvement in the scheme that was the subject of his guilty plea in the case at bar. Having experienced prison firsthand, and being free from the domineering influence of his deceased father for the first time in his life, Huber apparently had decided to put the past behind him and make a new start toward an honest life. As the Presentence Report indicates, at the time of sentencing, Huber inter alia had been enrolled in the agricultural engineering program at Rutgers University since the fall of 1982, had plans to become a farmer, was maintaining a very high grade point average despite heavy course loads, and was expected to obtain a Bachelor of Science in May of 1986. In addition, he was repentant and remorseful concerning his role as a mastermind of the Boden Coal scheme. In the Court’s view, Huber, through his own initiative or through being incarcerated previously or through some combination of the two, had been rehabilitated completely. Under these circumstances, no purpose would have been served by imprisoning Huber again with the possible exception of punishment, which when taken by itself, did not justify disrupting or perhaps thwarting altogether his genuine attempt to redirect his life.

In contrast, Donald Sheppard came before the Court for sentencing both unrehabilitated and unrepentant. Although his role in the tax fraud was less significant or culpable than that of Karl Huber, Jr., it hardly could be termed inconsequential, because the inflated coal reserve reports were absolutely essential to the operation of both of the schemes to which he pleaded guilty. Furthermore, after he left the Hubers’ operation and during part of the time period when Karl Huber, Jr. was in prison due to his prior conviction, Sheppard went on to play a limited but indispensable role in a second coal tax shelter fraud scheme, NRG-1979-I, which was the subject of the information count to which he pleaded guilty. Under these circumstances, the Court felt that deterrence was the primary purpose to be served by sentencing Sheppard to three years, with rehabilitation and punishment also being important goals of the sentence.

Although the above discussion of the rather unique circumstances that influenced the Court’s sentencing determination in this case is sufficient to demonstrate that the Defendant’s disparity argument lacks merit, the Court nonetheless will analyze the cases cited by Defendant for the proposition that the respective sentences imposed on Huber and Sheppard constitute a “gross miscarriage of justice” and deny Sheppard “equal treatment under the law.” Defendant urges that United States v. Wiley, 267 F.2d 453 (7th Cir.1959), remanded, 184 F.Supp. 679 (N.D.Ill.1960), rev’d and remanded with directions, 278 F.2d 500 (7th Cir.1960), both parallels and condemns what happened in the ease at bar, insofar as the District Court there arbitrarily singled out a minor defendant for the imposition of a three-year sentence but imposed a two year sentence on a more culpable ringleader who, subsequent to the offense in question and while out on bond, committed two similar offenses. Wiley is distinguishable because the sentencing disparity in that case obviously resulted from the trial judge’s wooden application of his peculiar “long standing policy” of refusing to consider a probation application as an alternative to incarceration once a defendant declined to enter a guilty plea but instead chose to stand trial. On the first appeal, the Seventh Circuit, before remanding for reconsideration of the defendant’s application for probation, mildly rebuked the trial judge as follows:

... the Probation Act extends to all defendants (with certain exceptions not here relevant) against whom a judgment of conviction is entered. It is obvious that such a judgment may follow either a plea of guilty or a trial on a plea of not guilty. However, under the standing policy announced by the district judge in this case, he does not consider an application for probation by a defendant who pleads not guilty and stands trial. While, in considering an application for probation, the court’s decision on whether or not probation shall be granted in any particular case, is seldom set aside except for abuse of discretion, the intention of Congress, under the Probation Act, requires that an application for probation by a defendant convicted of the offense involved in this case must be received and acted upon by the court, regardless of whether the conviction is based upon a plea of guilty or follows a trial ... (emphasis supplied)

267 F.2d at 455. After the trial judge reimposed a three year sentence on remand, the Seventh Circuit quite properly expressed its distaste for the District Court’s “long standing policy” more explicitly:

... we reject the theory that a person may be punished [more severely than a more culpable co-defendant who pleaded guilty] because in good faith he defends himself when charged with a crime, even though his effort proves unsuccessful. It is evident that the punishment imposed on Wiley was in part for the fact that he had availed himself of his right to a trial, and only in part for the crime for which he was indicted ...

278 F.2d at 504. In the case at bar, no capricious “policy” has been applied in a mechanical fashion so as to single out Sheppard arbitrarily for a more severe sentence than Huber; instead their respective sentences resulted from the Court’s considered judgment based on the circumstances discussed above.

The Defendant cites a number of cases for the proposition that a minor defendant cannot be singled out for a more severe sentence than equally or more culpable co-defendants. United States v. Shope, 509 F.Supp. 1170 (N.D.Ohio 1981); United States v. McRoy, 452 F.Supp. 598 (W.D.Mo.1978); United States v. Rubinson, 426 F.Supp. 266 (S.D.N.Y.1976); United States v. DelToro, 405 F.Supp. 1163 (S.D.N.Y.1975). However, these cases are inapposite because they all involved co-defendants in particular crimes who were sentenced by different judges, a situation which substantially increases the risk of prejudicial disparities in sentencing. Shope involved disparate sentences handed out by judges in the same district but different divisions, 509 F.Supp. at 1171; McRoy involved disparate sentences due to the government’s election to prosecute what was “basically a single prosecution in two different judicial districts,” 452 F.Supp. at 600; the disparity in Rubinson arose out of a different judge’s decision to grant a more culpable co-defendant’s motion for a reduction of sentence, 426 F.Supp. at 267; and DelToro also involved sentences imposed by different judges. 405 F.Supp. at 1164. The only other case cited by Defendant on the disparity issue is United States v. Busic, 587 F.2d 577 (3rd Cir.1978), rev’d, 446 U.S. 398, 100 S.Ct. 1747, 64 L.Ed.2d 381 (1979), on remand, 639 F.2d 940 (3rd Cir.1981), and apparently Defendant’s citation stems from footnote 6 in the first Third Circuit opinion. Footnote 6 simply recommends that the District Court on remand not permit a Defendant who fired his weapon at federal agents to receive a lesser sentence than a co-defendant who never drew his gun, a recommendation which this Court views as entirely reasonable. But every case involving the sentencing of co-defendants must be examined in light of its own particular and unique circumstances.

Judge Young expressed this general notion quite eloquently when he stated in United States v. Shope, 509 F.Supp. at 1171, that:

... [t]his Court has often said, both orally and in published writings, that the idea of disparity of sentencing is a myth; that actually violators of any particular statute do not receive disparate sentences, even though the severity of the sentences varies, because no two offenders are ever identical, and usually the circumstances of the offenses are not identical either. Identity is the basic element of disparity ... (emphasis added)

In the case at bar, the two offenders were anything but “identical” and even though the violations to which they pleaded guilty were not the same, the differences between the individuals were so striking as to warrant imprisonment for Sheppard and probation for Huber. Accordingly, the Court concludes that Sheppard's disparity argument is without merit.

V. Defendant’s Family Hardship Argument

This Court recognizes that excessive hardships on a Defendant’s family have been recognized as a valid justification for granting a Rule 35(b) motion. Irizzary v. United States, 58 F.R.D. 65, 67 (D.Mass.1973); United States v. Orlando, 206 F.Supp. 419, 420-21 (E.D.N.Y.1962). On the other hand, it is well settled that the District Courts also have discretion to deny a Rule 35(b) motion predicated on family hardship. United States v. Bedrosian, 631 F.2d 582, 583 (8th Cir.1980). In the case at bar, it is unfortunate that the three children residing in Sheppard’s home are experiencing financial and medical difficulties. However, all of the children are adults (Sheryl is 27, Steven is 23, and Brian is 21), and Sheryl’s hypoglycemia was described by her doctor as “mild.” The Court therefore does not find the hardships experienced by the Sheppard children to be so severe as to warrant a reduction of sentence, and accordingly will not grant Defendant’s motion on this basis.

VI. Defendant’s Parole Ineligibility Argument

The Defendant also contends that his Rule 35(b) motion should be granted because this Court’s “original expectations” as to how long Sheppard actually would be imprisoned are being frustrated by the Parole Commission’s application of its guidelines. The Court is aware that Sheppard has been placed in Category 6 pursuant to 28 C.F.R. § 2.20 (1984), which carries a parole prognosis of 40-52 months. The Court further realizes that although Defendant technically will be eligible for parole after serving one year (one-third of his sentence) under 18 U.S.C. § 4205(a), his chances for parole are virtually nil due to his being placed in Category 6, which is a high “severity of offense” rating. In addition, the Court recognizes that the Defendant is likely to serve in the range of two to two and one-half years based on his current sentence and the Parole Commission Guidelines. However, the Court at the time of sentencing did not possess any specific intent or expectation concerning a prospective parole date for the Defendant. To verify this, the Court asked its court reporter to review her stenographic notes of Sheppard’s sentencing hearing for any such expressions of intent on the part of the Court and none were discovered. Under these circumstances, the Court’s “intention” or “expectations” have not been frustrated and Defendant’s parole ineligibility argument is without merit.

VII. Conclusion

The Defendant’s Rule 35(b) motion is addressed to the discretion of this Court, and this Court’s ruling will not be overturned on appeal unless it is clear that its discretion has been abused. United States v. Stumpf 476 F.2d 945, 946 (4th Cir.1973). Thus, counsel for the Defendant is correct in asserting that, unlike an appellate court reviewing a Rule 35(b) motion, this Court has relatively broad discretion to rule upon the motion as it deems appropriate. Cognizant of this weighty responsibility, the Court has reviewed the Presentence Reports of Sheppard and Huber, reflected upon the briefs and arguments submitted by counsel, and reassessed its initial disposition of the cases of Sheppard and Huber. Having undertaken a thorough review of all the circumstances surrounding the sentencing of the Defendant, the Court can find no factual or legal considerations which warrant reducing the original sentence imposed upon Sheppard. Accordingly, it hereby is ORDERED that the Defendant’s Rule 35(b) motion for a reduction of sentence is DENIED.


author: CURTIN, Chief Judge.

text:
    Georgiana McDERMOTT, on Behalf of Jason SKYE, Plaintiff, v. SECRETARY OF HEALTH AND HUMAN SERVICES, Defendant.
    No. CIV-81-174C.
    United States District Court, W.D. New York.
    June 25, 1985.
    Neighborhood Legal Services, Inc., Buffalo, N.Y., for plaintiff; Olney H. Clowe, Buffalo, N.Y., of counsel.
    Salvatore R. Martoche, U.S. Atty., Buffalo, N.Y., for defendant; Matthew J. Murphy III, Asst. U.S. Atty., Buffalo, N.Y., of counsel.
   CURTIN, Chief Judge.

Jason Skye is the natural son of Georgiana McDermott and the stepson of Bryan McDermott. Bryan and Georgiana were married on May 12, 1979. Jason is severely disabled, and the extent of his disability is not an issue in this case. The issue here is whether certain portions of Bryan McDermott’s income are to be “deemed” as income to Jason, thus disqualifying Jason as a recipient of Supplemental Security Income benefits. In a proper case, the regulations promulgated pursuant to the Social Security Act permit attributing the income of another to one who claims benefits under the Act. See, 20 C.F.R. §§ 416.1160-1169.

I.

Prior Proceedings

The plaintiff’s eligibility for benefits was twice considered by an Administrative Law Judge [AU], A hearing was held on April 20, 1980, and the AU’s first decision was issued eight days later. The AU found that, pursuant to 42 U.S.C. § 1382c(f)(2), it would be “inequitable under the circumstances” to attribute Bryan McDermott’s income to the plaintiff. Record at 10.

The Appeals Council reversed the AU’s decision. The Appeals Council rejected the AU’s interpretation of the statutory language “inequitable under the circumstances” (42 U.S.C. § 1382c(f)(2)). Whereas the AU cited the particular hardships endured by Jason Skye and the strains put upon his stepfather’s small income, the Appeals Council stated that the “circumstances” making income attribution inequitable are limited to those listed in the regulations. Applying the regulations, the Appeals Council held that some of Bryan McDermott’s income must be attributed to Jason. The result was a finding that Jason was ineligible to receive benefits. Record at 5-6. The plaintiff appealed from that decision.

In an order dated June 9, 1983, the court remanded the case to the Secretary. The regulations (i.e., 20 C.F.R. §§ 416.1161(a)) provide for deductions from a parent’s income which is attributable to a claimant. The AU’s decision in favor of the plaintiff merely stated that attribution would be inequitable. No findings were made concerning the applicability of the exceptions listed in 20 C.F.R. § 416.1161(a). The Appeals Council also failed to make such findings. The court remanded the case to the Secretary so that she could determine if any of Bryan McDermott’s income should be exempted pursuant to the regulations.

On remand, a supplemental hearing was held by the same AU on October 5, 1983. On November 15, 1983, the AU found that Bryan McDermott was required to make alimony and child support payments under a state court order and decided that the amounts of these payments should be excluded from the income deemed to Jason. The AU also decided that amounts garnished from Mr. McDermott’s wages under state court judgments should not be deemed to Jason. Finally, the AU held that 1) the basis for determining Jason’s deemed income should be Mr. McDermott’s net income and 2) that Mr. McDermott’s payment of medical expenses for Jason and for a son by a previous marriage was not supported by sufficient evidence. Record at 126.

The Appeals Council modified the AU’s recommended decision. It adopted the finding that alimony and child support payments should not be deemed to Jason. It also adopted the finding that there was insufficient evidence to substantiate certain medical expenses. However, the Appeals Council held that other amounts garnished from Mr. McDermott’s wages should not be excluded for deeming purposes and that the basis for calculating deemed income is Bryan McDermott’s gross wages. Record at 119. The plaintiff appeals from this decision pursuant to sections 205(g) and 1631(c)(3) of the Social Security Act (42 U.S.C. §§ 405(g), 1383(c)(3)).

II.

Discussion

The aspects of the Secretary’s decision which are challenged here are: 1) her conclusion that the deeming regulations list all of the items excludable from the income deemed to a plaintiff, thus making individualized determinations of “inequity” unnecessary; 2) her finding that the medical expenses for Jason and a son by a previous marriage were unsupported; 3) use of gross income as the basis for calculating deemed income; and 4) the conclusion that amounts garnished from wages are not ex-cludable from the income deemed to Jason.

A. Effect of Regulations

Recent case law developments have supported the Secretary’s position that 42 U.S.C. § 1382c(f)(2) does not require the Secretary to consider factors other than those listed in the regulations when determining whether deeming income to a claimant would be “inequitable under the circumstances.” Fleshman On Behalf of Fleshman v. Heckler, 709 F.2d 999 (5th Cir.1983), cert. denied, — U.S. -, 104 S.Ct. 727, 79 L.Ed.2d 188 (1984); Hammond v. Secretary of Health, Education, and Welfare, 646 F.2d 455 (10th Cir.1981); Kollett v. Harris, 619 F.2d 134 (1st Cir.1980). These cases are consistent with the principle that the Secretary’s broad authority to promulgate regulations implementing such imprecise statutory language as “inequitable” allows her to rely exclusively upon reasonable regulations in lieu of engaging in ease-by-case determinations. Fleshman, 709 F.2d at 1002-04. Accordingly, I conclude that it was not legal error for the Secretary to rely exclusively upon the regulations.

B. Medical Expenses

Bryan McDermott testified that he has spent $2,500 in out-of-pocket medical expenses for his son by a prior marriage. This responsibility is imposed upon him by a court order which is incorporated into the divorce decree which ended his prior marriage. Record at 165, 170. Payments of this sort are excluded from income deemed to claimants. 20 C.F.R. § 416.1161(a)(10).

The AU stated that he “did not necessarily doubt” Mr. McDermott’s approximation. Nonetheless, he did not accept the testimony because there was no verification for the amount claimed. Record at 126. The Appeals Council approved this finding, stating that “the record does not contain adequate evidence concerning the amount of medical expenses paid from Mr. McDermott’s income. Record at 119.

It hardly needs to be repeated that reviewing courts cannot substitute their own fact findings for those of the Secretary, even if the court is nearly certain that its findings would be different. This is a case where the Secretary’s conclusion is harsh, but not unreasonable. It was not unreasonable for the Secretary to reject expense approximations that were not verified by written records. Accordingly, I conclude that the Secretary did not err when she refused to exclude $2,500 which Mr. McDermott said he paid for medical care for his son by a previous marriage.

The Secretary disallowed payments for Jason Skye’s medical expenses for the same reason. It should be noted that these types of expenditures are not listed in the regulations concerned with deemed income and deductions therefrom. Rather, they are dealt with in the sections concerned with calculating the income earned by the claimant directly. See, 20 C.F.R. §§ 416.-1100, 416.1103(a)(1). This raises the question of whether the regulations concerning deemed income are applicable and, therefore, whether medical expenses of this sort could ever be excluded from deemed income. That question need not be answered in the present case, because the Secretary disallowed the exclusion on evidentiary grounds. Although, another fact finder may well have accepted the testimonial evidence offered on this matter, the Secretary had the right to reject it.

C. Garnished Wages

The Secretary determined that the portion of Bryan McDermott’s wages which are garnished for the purpose of satisfying old judgments must be deemed to Jason. There is no exemption listed in 20 C.F.R. § 416.1161(a) that mentions garnishments. Nonetheless, the court con-eludes that it was error to deem this income to the claimant, Jason Skye.

Attributing garnished wages to a claimant is not consistent with the reasons why the income attribution regulations were promulgated. Income of a parent is attributed to a disabled child because, presumably, the money is both available to the parent and usable by the parent to provide for the feeding, clothing, and sheltering of his or her disabled child. Accordingly, the regulations take account of the fact that a parent’s income must, in part, be used to meet the needs of his or her other non-disabled (i.e., “ineligible”) children. Amounts required to support ineligible children are not included in the income attributed to the disabled child. See, 20 C.F.R. §§ 416.-1160(a)(2), 416.1165(b), 416.1163(b). The regulations caution that, even if the money presumed to be usable for supplying the needs of the disabled child is not actually used for that purpose, the attribution rules must be applied anyway. 20 C.F.R. § 416.-1160(a)(2). However, even this statement assumes that the money is available for the purposes which the law presumes it will be used.

In the case of garnished wages, the money is not available even to the earner. Mr. McDermott never gets the garnished funds, and they are, therefore, totally unavailable to Jason. Consequently, it is improper to attribute Mr. McDermott’s garnished income to Jason. The Secretary erred in doing so.

D. Basis for Calculating Deemed Income

The Appeals Council determined that the basis for computing deemed income must be Mr. McDermott’s gross wages. This is correct. The regulations define income as including “earned” and “unearned” gain. 20 C.F.R. § 416.1104. Earned income includes, among other things, wages. Wages are defined as “what you receive (before any deductions) for working as someone else’s employee.” 20 C.F.R. § 416.110(a). It is clear that “deductions” refer to such things as income tax. Since the regulations deal with this subject (in contrast to the subject of garnishments) by such a clear implication, the court concludes that the Secretary was correct in determining that gross income is the basis from which deemed income is calculated.

III.

Conclusion

The decision of the Secretary is affirmed in part, reversed in part, and remanded. It is reversed insofar as the Secretary failed to exclude the amounts garnished from Mr. McDermott’s wages from the income deemed to Jason. In all other respects, the decision is affirmed. The case is remanded to the Secretary to determine, in light of today’s decision by the court, Jason Skye’s eligibility to receive Supplemental Security Income benefits.

So ordered.

      . The court does not believe that “deductions” refer to such things as garnishments. Garnishments are subtracted from the income which eventually finds its way into the earner’s hands, but they are quite different from what we normally call “deductions." When earners speak of deductions, they refer to items that are taken out of gross pay in accordance with tax laws and the terms of the employer-employee relationship. Garnishments are extraordinary and involuntary subtractions from one’s income. Two persons earning the same income before “deductions” are not comparable providers for their dependents if one earner has his wages garnished.