author: LUONGO, Chief Judge.

text:
    John TOMCZYSCYN and Josephine Tomczyscyn, Parents and Beneficiaries of Gregory Tomczyscyn, Deceased, v. TEAMSTERS, LOCAL 115 HEALTH & WELFARE FUND.
    Civ. No. 85-0989.
    United States District Court, E.D. Pennsylvania.
    July 26, 1985.
    Paul N. Sandler, Philadelphia, Pa., for plaintiffs.
    Robert C. Cohen, Markowitz & Richman, Philadelphia, Pa., for defendant.
   OPINION

LUONGO, Chief Judge.

Plaintiffs John and Josephine Tomczyscyn have returned to this court following the denial of their request for $15,000.00 in life insurance benefits by the trustees of Teamsters, Local 115 Health and Welfare Fund (“Fund”). Plaintiffs allege that they are entitled to receive the death benefit as beneficiaries of their deceased son Gregory Tomczyscyn. On July 10, 1984, I granted the Fund’s motion for summary judgment in plaintiffs’ initial lawsuit on the ground that plaintiffs had failed to exhaust their right to appeal to the Fund’s trustees. Because the Fund had failed to notify plaintiffs of their appeal rights, however, I granted the motion without prejudice to plaintiffs’ right to file a second action if exhaustion proved unsuccessful. Tomczysciyn v. Teamsters, Local 115 Health and Welfare Fund, 590 F.Supp. 211 (E.D.Pa.1984). Presently before me is the Fund’s motion for summary judgment on the merits of plaintiffs’ claim. I conclude that the trustees’ decision passes muster under the limited standard of review applicable in such cases. I must therefore grant the motion.

I.

As more fully described in my earlier opinion, Gregory Tomczyscyn worked for Air Master Corporation from July, 1981 until August or September, 1981. Air Master was party to a collective bargaining agreement with Teamsters Union Local 115 pursuant to which an employee health and welfare benefit plan was established. One of the provisions of the benefit plan was a $15,000.00 death benefit for covered employees. There is no dispute that Gregory became eligible for the death benefit at some point during his employment with Air Master.

On August 25, 1981 Gregory suffered severe injuries in a work-related accident. Although he made one or two attempts to return to work in August or September, 1981, Gregory did not thereafter resume employment.

Gregory’s separation from Air Master Corporation had a significant impact on his eligibility for benefits under the health and welfare plan. Because Gregory was disabled by his occupational accident, the plan maintained his eligibility for benefits for a period of twenty-six (26) weeks. The plan also enabled Gregory to maintain his eligibility for the death benefit after twenty-six weeks of disability. To continue the death benefit in effect, Gregory was required to submit proof of his “total and permanent disability ... within the twelve month period of disability and yearly thereafter____”

The parties dispute whether Gregory was “totally and permanently” disabled during the interval between his accident and his death. Relying on a determination of eligibility for disability benefits by the Social Security Administration, a waiver of premiums by Gregory’s personal life insurance carrier, and Gregory’s medical records, plaintiffs argue that Gregory’s condition clearly precluded employment at any time after his accident. The Fund attempts to distinguish the decisions of the Social Security Administration and Gregory’s insurance carrier on the ground that the plan requires proof of a disability that is total and permanent. The Fund also interprets Gregory’s medical records as suggesting the possibility that Gregory could eventually return to work.

It is undisputed, however, that Gregory failed to establish his total and permanent disability with the Fund within one year of his accident. Nevertheless, as plaintiffs point out, the Fund accepted payments from Air Master Corporation on Gregory’s behalf for the months of July through September, 1982, several months after his eligibility allegedly ceased. In addition, plaintiffs note that the Fund paid two claims, unrelated medical bills, submitted on behalf of Gregory in October, 1982.

II.

After I granted the Fund’s motion for summary judgment in plaintiffs’ initial lawsuit, plaintiffs exercised their right to appeal their claim to the Fund’s trustees. Advancing essentially the information now before me, plaintiffs argued that Gregory was totally and permanently disabled from the time of his accident, and that sufficient notice of that fact had been given to the Fund. After a hearing at which plaintiffs, assisted by counsel, presented evidence in support of their claim, a subcommittee of the trustees recommended that the claim be denied. The trustees accepted this recommendation, finding that Gregory was not eligible for benefits because of his failure to submit proof of total and permanent disability within one year of the accident and because the medical records did not establish that Gregory met the plan’s disability criteria.

III.

In an action to overturn a denial of benefits by the trustees of an employee benefit plan, the plaintiff bears the burden of establishing that the trustees’ decision was arbitrary and capricious. Gaines v. Amalgamated Insurance Fund, 753 F.2d 288 (3d Cir.1985); Wolf v. National Shopmen Pension Fund, 728 F.2d 182 (3d Cir.1984); Rosen v. Hotel and Restaurant Employees and Bartenders Union, 637 F.2d 592 (3d Cir.), cert. denied, 454 U.S. 898, 102 S.Ct. 398, 70 L.Ed.2d 213 (1981). Judicial review of the trustees’ interpretation of benefit plan documents is similarly restricted to the arbitrary and capricious standard. Where a provision in an employee benefits plan is susceptible of differing interpretations, the trustees’ “interpretation should be upheld even if the court disagrees with it, so long as the interpretation is rationally related to a valid plan purpose and not contrary to the plain language of the plan.” Gaines, 753 F.2d at 289.

Our court of appeals recently emphasized the degree of deference accorded to trustees’ application of benefit plan eligibility requirements. District 2, United Mine Workers of America v. Helen Mining Company, 762 F.2d 1155 (3d Cir.1985). In Helen Mining Company, the court held that the trustees of an employee benefit plan did not act arbitrarily and capriciously in denying a claim related to surgery for which the claimant had not sought or obtained prior approval. The court rejected the claimant’s argument that the trustees should not be permitted to rely on the plan’s prior approval rule where the medical necessity of the surgery was admitted. The court held that:

When the trustees have consistently and literally followed an unambiguous benefit eligibility requirement that was bargained for and that was set forth in an employee benefit plan, that action cannot be called arbitrary and capricious by a court unless enforcement would violate federal law or policy.

762 F.2d at 1160. The court of appeals based its decision on United Mine Workers of America Health and Retirement Funds v. Robinson, 455 U.S. 562, 102 S.Ct. 1226, 71 L.Ed.2d 419 (1982), which the court interpreted to preclude judicial review of the reasonableness of trustees’ enforcement of collectively bargained benefit plan eligibility requirements.

In the case at bar, plaintiffs’ formidable burden is increased by the fact that the trustees rested their denial of benefits on alternative grounds. The trustees concluded that Gregory did not meet the plan’s disability requirement, but that even if he did, Gregory had failed to submit proof of his condition within the period required by the plan. For plaintiffs to prevail, they must show that the trustees’ decision cannot stand on either ground.

Plaintiffs contend that the trustees’ decision is arbitrary and capricious primarily because: (1) the trustees failed properly to consider the Social Security Administration’s award of disability benefits, (2) the trustees failed to consider adequately the waiver of premiums by Gregory’s life insurance carrier, and (3) the Fund failed to follow its own rules and regulations by interpreting the plan to require proof of total and permanent disability within one year after the accident as opposed to one year after the final employer contribution to the Fund on Gregory’s behalf. The Fund responds that both the trustees’ assessment of Gregory’s medical condition and their interpretation of the plan’s eligibility requirements are supported by the information presented to the trustees.

After careful consideration of the record, I conclude that the trustees’ denial of death benefits because of Gregory’s failure to provide timely proof of total and permanent disability is not arbitrary and capricious. I therefore find it unnecessary to decide whether the trustees acted arbitrarily and capriciously in holding the record insufficient to establish total and permanent disability.

As noted above, it is undisputed that Gregory failed to establish total and permanent disability with the Fund within one year of his accident. In denying plaintiffs’ claim for the death benefit, the trustees interpreted the relevant provision of the health and welfare plan to require such proof within one year of the onset of disability. The plan states:

Total and Permanent Disability

If prior to age 60, you become totally and permanently disabled, your eligibility for the death benefit will continue on the following basis in twelve month increments. For continuation, proof of total and permanent disability must be presented within the twelve month period of disability and yearly thereafter to continue your coverage for the benefit.

I cannot say that the trustees’ construction of the emphasized language is irrational; indeed it appears correct. Moreover, the trustees’ interpretation serves the legitimate interest of compelling former employees to assert their claims at a time when the Fund can investigate the basis of an alleged disability.

I am likewise satisfied that enforcement of the trustees’ interpretation is not arbitrary and capricious on the facts of this case. While I recognize that it would be arbitrary and capricious to demand compliance with a benefit plan provision that did not fairly apprise the participant of his affirmative duty to establish eligibility, the provision at issue here, while imperfect, provided adequate warning.

Plaintiffs contend that the plan should be interpreted as permitting an employee to establish total and permanent disability within one year after the employer ceases forwarding contributions on a disabled employee’s behalf. This interpretation is not persuasive. The plan requires proof of disability to be made within, not after, the “twelve month period of disability.” Even if I were in agreement with plaintiffs’ reading of the plan, however, I could not reject the trustees’ plausible decision to the contrary.

Apparently recognizing the strength of the Fund’s position, plaintiffs argue that application of the plan’s eligibility requirement is unfair, and that the requirement should not be strictly applied where the Fund can demonstrate no prejudice from the former employee’s failure to provide timely notice. This argument is similarly unpersuasive. In essence, plaintiffs invite me to review the reasonableness of the trustees’ application of the plan’s eligibility requirement. Although I acknowledge that the trustees’ enforcement of the requirement in this case seems harsh, I cannot substitute my judgment for that of the trustees.

In short, I conclude that the trustees’ decision to deny plaintiffs’ claim for death benefits because of Gregory’s failure to comply with the plan’s eligibility requirement is not arbitrary and capricious. I will therefore grant the Fund’s motion for summary judgment.

      . The plan provided:

        Eligibility for Disabled Employees

      If you become disabled while you are eligible for benefits and such disability entitles you to weekly disability benefits, workmens compensation benefits, or benefits under any occupational disease act or unemployment security legislation, you will be credited with employer contributions for the purpose of continuing eligibility for benefits for the duration of the disability, but not longer than a period of twenty-six (26) weeks from the first days of the disability as determined by a doctor’s certificate.
      Teamsters Union Local No. 115 Health and Welfare Plan at 7.

      . Id. at 11.

      . Because the trustees reasonably decided that notice of total and permanent disability had to be given within one year after the onset of disability, Air Master Corporation’s erroneous payments on Gregory’s behalf from July, 1982 through September, 1982 did not affect the length of time during which Gregory could have established his condition. The Fund’s payment of miscellaneous medical bills for Gregory in October, 1982 was similarly inconsequential. With respect to the Fund's payments, I note also that plaintiffs have failed to establish any basis from which a factfinder could conclude that the payments misled Gregory into believing that his death benefits eligibility requirement had been satisfied. Indeed, according to the trustees' interpretation of the plan, Gregory's ability to comply with the notice requirement had ceased in August or September, 1982, before the Fund made any such payments.

      . Plaintiffs’ argument on this point is confusing. Plaintiffs assert that Gregory received his last medical payment on June 30, 1982. Plaintiffs then "adopt" that date to "illustrate” Gregory’s compliance with the plan's eligibility requirement. I see no reference in the record to a disability payment to the decedent on June 30, 1982. More importantly, even if the health and welfare plan provided for disability payments to injured employees during their period of disability, Gregory’s receipt of such a payment on June 30, 1982 did not guarantee him an additional year to establish his disability as total and permanent.

      . Plaintiffs also argue that Gregory and John Tomczyscyn made persistent efforts before Gregory's death to obtain information about his eligibility for benefits. The impact of these arguments is unclear, but plaintiffs appear to be seeking to estop the Fund from relying on the plan’s eligibility requirement. So construed, plaintiffs’ argument cannot succeed. Although I recognize that the principle of estoppel is applicable in employee benefits cases, Rosen v. Hotel and Restaurant Employees and Bartenders Union, supra, plaintiffs have identified no statement or conduct of a Fund agent on which Gregory could have reasonably relied to his detriment. Indeed, the deposition of John Tomczyscyn establishes that Gregory received his benefits book at least as early as June 14, 1982, some seven months before Gregory’s death. Despite the benefit book’s explanation of the plan’s eligibility requirement, Gregory did not seek to establish total and permanent disability before his death.


source: Caselaw Access Project

author: CARL O. BUE, Jr., District Judge.

license: Public Domain

text:
    Michael ZERNICEK v. PETROLEOS MEXICANOS (PEMEX), Rayos X Industrial De Mexico S.A.
    C.A. No. H-84-8.
    United States District Court, S.D. Texas, Houston Division.
    July 26, 1985.

      Charles M. Haden, Houston, Tex., for plaintiff.
    Douglas S. Johnston, Crady & Peden, Houston, Tex., for defendant Petróleos Mexicanos (Pemex).
   FINDINGS OF FACT AND CONCLUSIONS OF LAW

CARL O. BUE, Jr., District Judge.

Plaintiff brought this personal injury action in state court pursuant to the Jones Act, the general maritime law and the common law of negligence, alleging that the accident made the basis of this suit (i.e., the overexposure of radiation) was caused by the unseaworthiness of the vessels on which plaintiff was working and/or by the negligence of the defendant, Petróleos Mexicanos (hereinafter “Pemex”) and Rayos X Industrial de Mexico S.A. (hereinafter “Rayos X”).

This Court acquired jurisdiction of the action pursuant to 28 U.S.C. § 1441(d), whereby the defendant Pemex petitioned for removal on the basis of its being a “foreign state” as such term is defined in section 1603(a) of Title 28, United States Code. The Court is, therefore, exercising its original jurisdiction over an action against a foreign state. 28 U.S.C. § 1330. Shortly after removal from state court, defendant Pemex sought an order of dismissal for want of jurisdiction under the Foreign Sovereign Immunities Act of 1976 (hereinafter “FSIA” or “the Act”). Although such challenge to the jurisdiction has heretofore been denied by the Court, leave was granted to defendant Pemex to re-urge the same at a later date.

On May 81, 1985, the case was tried to the Court without a jury, defendant Rayos X making no appearance. At the commencement of plaintiff’s case, defendant Pemex moved again to dismiss on jurisdictional grounds. At the time defendant so moved, the Court had serious doubts that jurisdiction over defendant Pemex could be established; nonetheless, out of an abundance of caution, the Court deferred a ruling on defendant’s motion so that all evidence relative to the jurisdictional question could be developed fully.

Accordingly, having heard the testimony and having reviewed all of the documentary evidence, the Court hereby enters these Findings of Fact and Conclusions of Law, concluding that the Court does not have subject matter jurisdiction of plaintiffs claim against Pemex or in personam jurisdiction of Pemex under the Foreign Sovereign Immunities Act. Therefore, plaintiffs cause of action as to defendant Pemex should be dismissed.

FINDINGS OF FACT

In 1980, Pemex and CCC, executed a general contract whereby CCC would provide or subcontract certain services with regard to the oil and gas exploration production operations being conducted by Pemex in the Bay of Campeche off of the Yucatan Peninsula in the Republic of Mexico. (Plaintiffs Exhibit No. 13). In addition, Pemex contracted with Rayos X, another business entity organized under the laws of Mexico, to photograph and inspect pipe welds at the production site by the use of radiological isotopes held in metal containers. Thereafter, in 1981 and 1982, CCC entered into subcontracts with Brown & Root whereby Brown & Root would provide all or part of the services required by the General Contract. (Plaintiffs Exhibits Nos. 14 and 15).

In April of 1981, several years under the employ of Brown & Root, Michael Zernicek commenced his tour of duty in the Bay of Campeche where he served as a pipefitter foreman and later as a general foreman for the Pemex exploration production project. He was assigned to a fleet of vessels, owned or otherwise provided by CCC, which were in proximity to the fixed platform then under construction. His primary role was to carry out or supervise any necessary piping or other structural work for the platform.

This personal injury cause of action arose out of events occurring during the period of October, 1981 through April, 1982 while plaintiff was serving his tour in the Bay of Campeche. (Pretrial Order at 2). Although the exact date, time, and place of exposure is unclear from the record, it is clear that while under the employ of Brown & Root at the Bay of Campeche job site, plaintiff suffered an overexposure of radiation. Such radiation emanated from materials owned, used and controlled by Rayos X. Plaintiff became ill during the fall and winter months of 1981 and after initial treatment in Mexico, returned to the United States for medical evaluation and care where in January of 1982, he was diagnosed as having acute and resolving radiation sickness. The symptoms of the radiation sickness have now reached a plateau in the form of disabling headaches, nausea, diarrhea and weakness. (George Whalen, M.D.) Upon his return to the United States, plaintiff continued under the employ of Brown & Root until he initiated this lawsuit in June of 1982. Although he has since been employed for short periods of time, Mr. Zernicek, now 34 years of age, is currently unemployed.

CONCLUSIONS OF LAW

Foreign Sovereign Immunity

Passed in 1976, the FSIA codified the restrictive theory of sovereign immunity and attempted to provide a uniform statutory procedure for establishing subject matter and personal jurisdiction over foreign sovereign entities. Verlinden B.V. v. Central Bank of Nigeria, 461 U.S. 480, 485, 103 S.Ct. 1962, 1967, 76 L.Ed.2d 81 (1983); Vencedora Oceanico Navigacion v. Compagnie Nationale Algerienni de Navigation, 730 F.2d 195 at 198, reh’g en banc denied, 734 F.2d 1479 (5th Cir.1984). See generally, H.R.Rep. No. 94-1487, 94th Cong., 2d Sess., reprinted in 1976 U.S.Code Cong. & Ad.News 6604 (hereinafter “H.R. Rep.”).

The FSIA grants sovereign immunity to foreign states, their agencies and instrumentalities, except as provided by the Act. There is personal jurisdiction when foreign states are served with adequate notice as specified in the Act and when subject matter jurisdiction is present. 28 U.S.C. § 1330(b) (1977). Under section 1330(a), subject matter jurisdiction is present whenever the foreign state enjoys no immunity from the claim as provided in sections 1605-1607, the listed exceptions to immunity. These exceptions establish in certain specified types of cases the necessary contacts that must exist before United States courts can exercise jurisdiction.

Plaintiff argues that the district court has jurisdiction under section 1605(a)(1), the “waiver” clause, providing for jurisdiction over certain cases in which the foreign state “has waived its immunity either explicitly or by implication,” and under section 1605(a)(2), clause three, providing for jurisdiction over certain eases relating to the commercial activities of a foreign state. The Court now turns to these sections, noting that the party claiming FSIA immunity, in this instance Pemex, bears the burden of proving their nonapplicability. Vencedora Oceanico Navigacion, 730 F.2d at 199; Arango v. Guzman Travel Advisors Corp., 621 F.2d 1371, 1378 (5th Cir.1980).

Section 1605(a)(1)

Plaintiff first argues that the Court should find subject matter jurisdiction under 1605(a)(1). Section 1605(a)(1) provides in relevant part:

ía) A foreign state shall not be immune from the jurisdiction of courts of the United States or of the States in any case—
(1) in which the foreign state has waived its immunity either explicitly or by implication ...

28 U.S.C. § 1605(a)(1).

Plaintiff contends that Pemex implicitly, if not explicitly, waived its sovereign immunity. This waiver is evidenced, in his view, because Pemex gave express consent to CCC to enter into any required subcontracts with Brown & Root (Appendix A at 2); and because pursuant to that consent clause, CCC agreed with Brown & Root that the law of the State of Texas would govern and control any claims based upon the acts or omissions of the parties. (Appendix B at 4). According to plaintiff, his viewpoint that the 28 U.S.C. § 1605(a)(1) exception applies is supported by the following legislative history of the Act:

With respect to implicit waivers, the courts have found such waivers where a foreign state has agreed ... that the law of a particular country should govern a contract.

H.R. Report, supra, at 6617.

Further, plaintiff argues that CCC was a sham corporation, a “straw-man”, created and organized in an attempt to shield Pemex from liability or jurisdiction of the United States courts, and that such interposition resulted in circumvention of the Act by Pemex. Citing Anderson v. Abbott, 321 U.S. 349, 64 S.Ct. 531, 88 L.Ed. 793, reh’g denied, 321 U.S. 804, 64 S.Ct. 845, 88 L.Ed. 1090 (1944) and Edwards Co., Inc. v. Monogram Indus., Inc., 713 F.2d 139 (5th Cir.1983), reh’g en banc, 730 F.2d 977 (5th Cir.1984), plaintiff asserts that the interposition of a corporation will not be allowed to defeat a legislative policy, whether that was the aim or only the result of the arrangement; and that the paramount policy here to be protected vis a vis the FSIA is the welfare of the United States citizens who are deliberately subjected to a known danger by Pemex.

The legislative history of the FSIA gives three examples of cases in which courts have found implied waivers: (1) a foreign state has agreed to arbitration in another country; (2) a foreign state has agreed that a contract is governed by the law of a particular country; and (3) a foreign state has filed a responsive pleading in a case without raising the defense of sovereign immunity. H.R. Report, supra, at 6617. Since the FSIA became law, courts have been reluctant to stray beyond these examples when considering claims that a nation has implicitly waived its defense of sovereign immunity. Frolova v. Union of Soviet Socialist Republics, 761 F.2d 370, 377 (7th Cir.1985).

Cases involving arbitration clauses illustrate that provisions allegedly waiving sovereign immunity are narrowly construed. Courts have found an implicit waiver under section 1605(a)(1) in cases involving contracts in which a foreign state has agreed to arbitrate disputes without specifying jurisdiction in a particular country. See, e.g., Birch Shipping Corp. v. Embassy of United Republic of Tanzania, 507 F.Supp. 311, 312 (D.D.C.1980); or where another nation has stipulated that American law should govern any contractual disputes, see Resources Dynamics Int’l, Ltd. v. General People’s Comm., 593 F.Supp. 572, 575 (N.D.Ga.1984). But most courts have refused to find an implicit waiver of immunity to suit in American courts from a contract clause providing for arbitration in a country other than the United States. Frolova, 761 F.2d at 372.

Another indication that the implicit waiver clause of section 1605(a)(1) is narrowly construed is the line of cases holding that a country’s waiver of immunity does not apply to third parties not privy to the contract. See Keller v. Transportes Aereos Militares Ecuadorianis, 601 F.Supp. 787, 788-89 (D.D.C.1985); Ohntrup v. Firearms Center, Inc., 516 F.Supp. 1281, 1285 (E.D.Pa.1981). Thus courts rarely find that a nation has waived its sovereign immunity, particularly with suits brought by third parties, without strong evidence that this is what the foreign state intended. See Maritime Int’l Nominees Establishment v. Republic of Guinea, 693 F.2d 1094, 1100 n. 10 (D.C.Cir.1982) (Congress contemplated waivers of a much more specific and explicit nature than the one constructed by plaintiff), cert. denied, — U.S. -, 104 S.Ct. 71, 78 L.Ed.2d 84 (1983). Castro v. Saudi Arabia, 510 F.Supp. 309, 312 (W.D.Tex.1980) (there must be intentional and knowing relinquishment of sovereign immunity defense) citing Mitchell v. Aetna Casualty & Surety Co., 579 F.2d 342, 347 (5th Cir.1978).

In the case at bar, Pemex executed a written contract with CCC under which CCC was to provide equipment and perform construction services for Pemex in the Bay of Campeche. (Plaintiff’s Exhibit No. 13). CCC subcontracted significant portions of the work to Brown & Root (Plaintiff’s Exhibits Nos. 14 and 15). Brown & Root employed plaintiff. Pemex knew that CCC would in all probability use Brown & Root as its subcontractor. (Plaintiff’s Exhibit No. 13). Brown & Root knew that Pemex was the owner of the project on which Brown & Root would be working. (Plaintiff’s Exhibits Nos. 14 and 15). The Pemex-CCC contract specifies that Mexican law will apply and that Mexican courts will have exclusive jurisdiction of any PemexCCC disputes. (Appendix A at 8). The CCC-Brown & Root contract specifies that United States law will apply and that United States courts will have jurisdiction with respect to any Brown & Root-CCC disputes. (Appendix B at 4). There is no provision in any contract under which Pemex purports to agree that United States laws will be applicable or that United States courts will have jurisdiction. Moreover, upon a close reading of the contracts, it is evident that Brown & Root was aware that they must be specific as to Pemex in their contract with CCC if they expected Pemex to be contractually bound. {See Appendix B). On the basis of these facts, it is clear that Pemex neither explicitly nor implicitly waived its immunity from suit in the United States with respect to the plaintiffs claim.

Further, it is the Court’s view that plaintiff’s “strawman” theory must fail, as there is no evidence that CCC was a “strawman” which can be disregarded for purposes of determining jurisdiction under the FSIA. There is no evidence that CCC was organized for an improper motive; rather, the record is clear that CCC’s existence was essential in order for Pemex to comply with applicable Mexican law which obligated Pemex to contract with Mexican business entities. (Deposition of Mr. Victor Rubio at 27). There is nothing to suggest that CCC failed to maintain a corporate identity separate from Brown & Root or that Brown & Root effectively controlled the business affairs of CCC. Although plaintiff offered testimony that most of the construction workers were North Americans, plaintiff, Robert Browning and Victor Valdez all testified that there were numerous Mexican nationals engaged in the construction work. Moreover, given the fact that Pemex was completely unrelated to CCC, there exists no confusion of identity or ambiguity as to the separateness of CCC and Pemex as is required in Edwards and Abbott.

Finally, case law clearly establishes that the focus of analysis for determining whether a foreign sovereign has impliedly waived its immunity must be on the acts of the foreign sovereign, not others. See Maritime Int’l. Nominees Establishment v. Republic of Guinea, 693 F.2d at 1102; Transam. S.S. Corp. v. Somali Democratic Republic, 590 F.Supp. 968, 974 (D.D.C.1984). In the opinion of this Court, there is nothing in the record to suggest that Pemex consented to being bound by foreign law or being subject to proceedings in a foreign forum.

Section 1605(a)(2)

Plaintiff argues next that the Court should find subject matter jurisdiction under the third clause of 1605(a)(2). Section 1605(a)(2) provides in relevant part:

(a) A foreign state shall not be immune from the jurisdiction of courts of the United States or of the States in any case—
(2) in which the action is based upon ... an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States ...

28 U.S.C. § 1605(a)(2).

Plaintiff contends that as a result of the radiation sickness suffered by him and induced by Pemex’s acts in the Bay of Campeche, he has suffered direct effects of radiation exposure while in the United States between tours of Bay of Campeche duty (during the period of April 1981 through April 1982). This is so, according to plaintiff, because radiation sickness is an ongoing malady which affects the cell growth in the human body. Moreover, plaintiff asserts that because of the nature of his ailment, the ongoing direct effects of the radiation exposure have manifested themselves, in the first instance and for the first time, here in the United States, constituting a “direct effect” in the United States as that term is understood under the FSIA.

Case law dealing with the “direct effect” issue in the context of a personal injury claim based on activity occurring outside the United States has consistently held that subsequent receipt of medical attention and the lingering effects of the injury after the claimant has returned to the United States does not satisfy the “direct effect” requirement. Yugoexport, Inc. v. Thai Airways Int’l., Ltd., 749 F.2d 1373, 1375 (9th Cir.1984) (either an injury or an act must occur in the United States for jurisdiction to exist), cert. denied, — U.S. -, 105 S.Ct. 2326, 85 L.Ed.2d 844 (1985); Berkovitz v. Islamic Republic of Iran, 735 F.2d 329, 332 (9th Cir.1984), cert. denied, — U.S. —, 105 S.Ct. 510, 83 L.Ed.2d 401 (1984) (death of American in political violence in Iran did not have sufficient direct effect in the United States); Close v. Am. Airlines, Inc., 587 F.Supp. 1062, 1065 (S.D.N.Y.1984); Harris v. VAO Intourist, 481 F.Supp. 1056 (E.D.N.Y.1979); Upton v. Empire of Iran, 459 F.Supp. 264, 266 (D.D.C.1978), aff'd mem., 607 F.2d 494 (D.C.Cir.1979). In short, courts have uniformly held that a personal injury suffered outside the United States does not form a basis for jurisdiction under the third clause, even if the injury lingers after the plaintiff returns to the United States.

The decision in Close is most directly applicable to this case. In Close, the plaintiff, a citizen of Connecticut, was injured at an airport in Jamaica when jet wash from an airplane knocked her down. She incurred medical expenses and was disabled from continuing her occupation. The court held that the economic impact of her injuries in the United States and her disability in the United States did not constitute a “direct effect” under the third clause of 28 U.S.C. § 1605(a)(2). Accordingly, the complaint was dismissed for want of jurisdiction. Nonetheless, the plaintiff in the case sub judice seeks to distinguish the overwhelming weight of case authority by urging that the effects of radiation exposure are not manifest for a long period of time after the exposure. In the Court’s view, this theory, though creative and novel, raises a distinction without a difference.

The acts of Pemex about which plaintiff complains are alleged failures by Pemex adequately to supervise Rayos X. Plaintiff was exposed to radiation only at the jobsite in the Bay of Campeche. He became ill at that location. He received medical treatment in Mexico. He returned to the United States where he received and does receive additional medical treatment. Accordingly, the distinction proffered by plaintiff simply demonstrates that plaintiff’s claimed “direct effect” is just as obscure, uncertain and indirect as was the case in Close and affords no basis for altering the analysis or results in the prevailing case law. Accordingly, the court concludes that plaintiff’s claim of jurisdiction under the third clause of section 1605(a)(2) must fail.

Conclusion

Having considered both theories offered by plaintiff to support his claim of jurisdiction over the defendant, Pemex, the Court is of the view that neither may succeed. Consequently, the Court concludes that Pemex enjoys sovereign immunity as a matter of law, which immunity bars this action as to it. Accordingly, defendant Pemex’s motion to dismiss is granted.

In the event that any of the foregoing Findings of Fact constitute Conclusions of Law, they are adopted as such. In the event that any of the foregoing Conclusions of Law constitute Findings of Fact, they are adopted as such.

The defendant is directed to submit a final judgment incorporating by reference the Court’s Findings of Fact and Conclusions of Law within twenty (20) days of receipt hereof.

APPENDIX A

The general contract as executed by Pemex and CCC provided, in relevant part, that:

1. PEMEX and the CONTRACTOR
[CCC] declare that they acknowledge and accept the partial subcontracting of the works which are the subject of this Contract, with the DESIGNATED SUBCONTRACTOR [Brown & Root]. (Plaintiff’s Exhibit 13, at 2).
2. TWO — SUBCONTRACTING
PEMEX ... gives its express consent so that the CONTRACTOR may subcontract a partial or total rendering of the works and/or services agreed upon with the DESIGNATED SUBCONTRACTOR. Thus, said CONTRACTOR shall be authorized to enter into all contracts required with said DESIGNATED SUBCONTRACTOR in order to carry out the aforementioned subcontracting. (Id. at 3).
3. THREE — LIABILITY
Independently of the agreement stipulated in the previous clause, the CONTRACTOR ... acknowledges and accepts that he shall be solely and directly responsible before PEMEX for ... fulfilling each and every one of the stipulations contained in this Contract. (Id.).
4. FOUR — AMOUNT OF WORKS AND SERVICES
PEMEX shall pay the DESIGNATED SUBCONTRACTOR ... in U.S. dollars, directly at the bank appointed by the DESIGNATED SUBCONTRACTOR ... (Id. at 4).
5. SIX — PROGRAM
PEMEX shall at all times hereunder have the right to make changes in the work and/or services ... (Id. at 5).
6. ELEVEN — SUPERVISION OF WORK AND/OR SERVICES
PEMEX ... shall be entitled to supervise, at all times, the quarters services covered hereunder ... The CONTRACTOR is required to have at the job site an expert representing said CONTRACTOR ... previously accepted by PEMEX. (Id. at 8).
7. TWENTY-ONE — SUBCONTRACTING
For the purposes of this Contract, the term “subcontracting” shall refer to an act whereby the CONTRACTOR entrusts to another company the total or partial performance of the work and/or services, subject of the Contract.
In any case of subcontracting, the CONTRACTOR shall be responsible for the performance of the Works and/or services. (Id. at 16).
8. TWENTY-FIVE — CONCILIATION AND APPLICABLE LAWS
If any discrepancy should arise with respect to the interpretation of non-fulfillment of the rights and/or obligations established in this Contract, ... either party may resort to the Federal Courts of Mexico City, Federal District, to the jurisdiction whereof the parties submit expressly, waiving any other. (Id. at 19, 20).

APPENDIX B

The Subcontract, as executed by CCC and Brown & Root, Inc., in 1981 and 1982 are virtually identical and provide in relevant part that:

1. COMMENCEMENT OF THE WORK
Subcontractor agrees to commence the Sublet Work in accordance with the General Contract ... (Plaintiff’s Exhibits Nos. 14 and 15 at 3).
2. APPLICABILITY OF GENERAL CONTRACT
General Contractor shall provide Subcontractor with the General Contract terms governing the Sublet Work. Subcontractor agrees to perform the Sublet Work in accordance with such terms so far as applicable to the Sublet Work. General Contractor shall be bound to the Subcontractor by all of the obligations that the Owner assumes to the General Contractor under the General Contract and by all the provisions thereof affording remedies and redress to the General Contractor from the Owner, except as otherwise expressly provided herein. Subcontractor shall have an opportunity to be present and to submit evidence in any arbitration or other proceeding involving its rights, provided such is agreeable to the Owner. Subcontractor shall make any claim for extras, request for extensions of time and claim for damages or otherwise, authorized by this Subcontract and give any notices provided for in the General Contract or in this Subcontract to the General Contractor in the manner provided in the General Contract for like claims ... (Id. at 5, 6).
3. QUALITY OF THE WORK AND LIABILITY
Subcontractor shall perform the Sublet Work in accordance with good professional practices and with due skill, diligence and care normally employed by reputable and comparable international organizations subject to the terms of the General Contract and this Subcontract. (Plaintiffs Exhibit No. 14 at 9; Plaintiffs Exhibit No. 15 at 8).
4. GOVERNING LAW
It is agreed by and between the parties hereto for themselves and all persons claiming under them that the laws of the State of Texas, United States of America, shall be the laws applicable to the interpretation of this Subcontract and such laws shall govern and be followed in the construction and interpretation of all of its terms. It is also agreed that all acts or omissions of the parties occurring within the course and scope of the performance of this Subcontract shall be governed and controlled by the laws of the State of Texas, United States of America, and that accordingly, the respective rights and liabilities of the parties both in tort and in contract with relation to all such acts or omissions shall be governed by the laws of the State of Texas ... (Plaintiffs Exhibit No. 14 at 13; Plaintiffs Exhibit No. 15 at 11).
5. POLLUTION CONTROL
General Contractor shall use its best efforts to include, in each General Contract entered into between Owner and General Contractor which calls for Sublet Work to be offered to Subcontractor, a clause covering pollution, which clause shall be identical to or substantially follow the language contained in the draft attached hereto ... (Plaintiffs Exhibit No. 14 at 19; Plaintiff’s Exhibit No. 15 at 16).
6. TAXES
General Contractor shall use its best efforts to have a clause inserted in the General Contract in each case which is identical to or substantially similar to the clause contained in the draft attached hereto ... (Plaintiff’s Exhibit No. 14 at 19).
7. SUBCONTRACTOR AS “INDEPENDENT CONTRACTOR”
In the performance of the Sublet Work the Subcontractor is an independent contractor with the right to supervise, manage and control the performance of the details thereof, General Contractor and Owner being interested only in the results of the same and being entitled to inspect the performance of the Sublet Work by Subcontractor only to the extent necessary to assure such results. (Plaintiff’s Exhibit No. 14 at 20; Plaintiffs Exhibit No. 15 at 16).

      . Original defendants Brown & Root, Inc. (hereinafter "Brown & Root”) and Corporación de Construcciones de Campeche, S.A. de C.V. (hereinafter "CCC") have been effectively dismissed from this suit pursuant to the Court’s Final Judgment which was entered on April 22, 1985 following the compromise and settlement of plaintiff’s claims against them.

      . CCC is a private Mexican business organization owned 49% by Brown & Root and 51% by Corporation de Industrius y Construcciones S.A. C.V., another private Mexican business organization which in turn is owned by an individual unrelated to Pemex. (Deposition of Patrick Hays at 20).

      . The provision conferring jurisdiction in the Act, 28 U.S.C. § 1330(a), creates in district courts:
      original jurisdiction without regard to amount in controversy of any non-jury civil action against a foreign state as defined in Section 1603(a) of this title as to any claim for relief in personam with respect to which the foreign state is not entitled to immunity either under Sections 1605-1607 of this title or under any applicable international agreement.

      . The parties agree that Mexico is a foreign state and that Pemex is an agency or instrumentality of such state within the meaning of the FSIA. It is also agreed that Pemex is engaged in cominercial activity outside the territory of the United States.

      . The general grant of foreign sovereign immunity in the FSIA provides:
      Subject to existing international agreements to which the United States is a party at the time of enactment of this Act, a foreign state shall be immune from the jurisdiction of the courts of the United States and of the States except as provided in Sections 1605 to 1607 of this chapter.
      28 U.S.C. § 1604.

      . Service of adequate notice is also not at issue.

      . Having determined that no legal basis for in personam on subject matter jurisdiction exists as to defendant Pemex, the Court need not reach the other substantive issues in this action as to it.

       Within the three relevant contracts and subcontracts, PEMEX is referred to as "Owner”, CCC as "Contractor”; and Brown & Root as "Subcontractor”.


author: SAROKIN, District Judge.

text:
    Anthony DeSANTIS, Plaintiff, v. Thomas RICCI, Peter Torro, John Does, and New Jersey Sports and Exposition Authority, Defendants.
    Civ. A. No. 85-894.
    United States District Court, D. New Jersey.
    June 28, 1985.

      Samuel R. DeLuca, Jersey City, N.J. (by Donald R. Venezia, Jersey City, N.J.), for plaintiff.
    Zucker, Facher & Zucker, West Orange, N.J. (by William H. Johnson, III, West Orange, N.J.), for defendant N.J. Sports & Exposition Authority.
   OPINION

SAROKIN, District Judge.

Plaintiff Anthony DeSantis brings this action against the New Jersey Sports and Exposition Authority (“the Authority”) and certain of its security guards pursuant to 42 U.S.C. § 1983, and various state tort theories. In particular, plaintiff alleges that, on January 21, 1984, he went to the Byrne Meadowlands Arena, owned and operated by the Authority, for purposes of attending a basketball game. Upon entry, plaintiff inquired as to where he could obtain a drinking mug, which was advertised as a promotional give-away free to patrons of the Arena that evening. Plaintiff was told that all such mugs had already been given away. Perplexed, plaintiff asked to speak to someone in charge.

According to plaintiff, various Arena security guards, who are defendants herein, responded to this complaint by beating plaintiff, handcuffing him and ultimately filing a criminal complaint against him, for creating a disturbance. See Complaint, Exh. A. Such complaint was dismissed on February 8, 1984 for failure to prosecute. On February 22, 1985, plaintiff filed the instant Complaint, alleging violations of his constitutional rights, as well as malicious abuse of process, false arrest, assault and battery, false imprisonment, malicious prosecution and negligence. Defendant now moves to dismiss for lack of subject matter jurisdiction, Fed.R.Civ.P. 12(b)(1), arguing that the eleventh amendment bars the prosecution of plaintiffs claim in federal court.

The eleventh amendment to the Constitution of the United States provides:

The judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by Citizens of another State, or by Citizens or Subjects of any Foreign State.

Such amendment was added after the Supreme Court decision in Chisholm v. Georgia, 2 Dall. 419, 1 L.Ed. 440 (1793), allowing a citizen of South Carolina to sue the State of Georgia in federal court.

The decision “created such a shock of surprise that the Eleventh Amendment was at once proposed and adopted.” Monaco v. Mississippi, 292 U.S. 313, 325 [54 S.Ct. 745, 749, 78 L.Ed. 1282] (1934).
* * * 5f5 * *
The Amendment’s language overruled the particular result in Chisolm, but [the Supreme] Court has recognized that its greater significance lies in its affirmation that the fundamental principle of sovereign immunity limits the grant of judicial authority in Article III. Thus, in Hans v. Louisiana, 134 U.S. 1 [10 S.Ct. 504, 33 L.Ed. 842] (1890), the Court held that, despite the limited terms of the Eleventh Amendment, a federal court could not entertain a suit brought by a citizen against his own State. After reviewing the constitutional debates concerning the scope of Art. Ill, the Court determined that federal jurisdiction against unconsenting States “was not contemplated by the Constitution when establishing the judicial power of the United States.” Id. at 15 [10 S.Ct. at 507]. See Monaco v. Mississippi, supra, 292 U.S. at 322-23 [54 S.Ct. at 747-48],

Pennhurst State School & Hospital v. Halderman, 465 U.S. 89, 104 S.Ct. 900, 906-07, 79 L.Ed.2d 67 (1984) (footnote omitted).

Here, the issue presented is whether the Authority is to be deemed the State for eleventh amendment purposes. The Court of Appeals for the Third Circuit has listed the following as the criteria to be applied in deciding such issue.

Local law and decisions defining the status and nature of the agency involved in its relation to the sovereign are to be considered, but only one of a number that are of significance. Among the other factors, no one of which is conclusive, perhaps the most important is whether, in the event plaintiff prevails, the payment of the judgment will have to be made out of the state treasury; significant here also is whether the agency has the funds or the power to satisfy the judgment. Other relevant factors are whether the agency is performing a governmental or proprietary function; whether it has been separately incorporated; the degree of autonomy over its operations; whether it has the power to sue and be sued and to enter into contracts; whether its property is immune from state taxation, and whether the sovereign has immunized itself from responsibility for the agency’s actions.

Blake v. Kline, 612 F.2d 718, 722 (3d Cir.1979), cert. denied, 447 U.S. 921, 100 S.Ct. 3011, 65 L.Ed.2d 1112 (1980), quoting Urbano v. Board of Managers of New Jersey State Prisons, 415 F.2d 247, 250-51 (3d Cir.1969), cert. denied, 397 U.S. 948, 90 S.Ct. 967, 25 L.Ed.2d 129 (1970). See also Hall v. Medical College of Ohio at Toledo, 742 F.2d 299, 302 (6th Cir.1984); Fouche v. Jekyll Island—State Park Authority, 713 F.2d 1518, 1520 (11th Cir.1983), citing Mt. Healthy City School District Board of Education v. Doyle, 429 U.S. 274, 280, 97 S.Ct. 568, 572, 50 L.Ed.2d 471 (1977) (“The issue here ... turns on whether the Mt. Healthy Board of Education is to be treated as an arm of the State partaking of the State’s Eleventh Amendment immunity, or is instead to be treated as a municipal corporation or other political subdivision to which the Eleventh Amendment does not extend. The answer depends, at least in part, upon the nature of the entity created by state law.”). The court here endeavors to apply such criteria, essentially without the assistance of the parties, whose cursory submissions do not do justice to this important issue of first impressions.

By way of background, the Authority was created by the New Jersey Sports and Exposition Authority Law, enacted in 1971. N.J.Stat.Ann. 5:10-1 et seq. (“the Law”). The purposes of the Authority are spelled out in the Law, and include “the general welfare, health and prosperity of the people of the State,” the provision of recreation, forums and expositions for the public, the promotion of industry, and the “needed development of [the] meadowlands.” N.J. Stat.Ann. 5:10-2. The Law describes the Authority as “an instrumentality of the State exercising public and essential governmental functions” such that its activities “shall be deemed and held to be an essential governmental function of the State.” N.J.Stat.Ann. 5:10-4(a). Its revenues are “deemed and held to be applied in support of government.” Ibid.

The Authority consists of the State Treasurer, the Attorney General, and a member of the Hackensack Meadowlands Development Commission to be selected by the Governor, all members ex officio, plus six members appointed by the Governor for four-year terms, with the advice and consent of the State Senate. N.J.Stat.Ann. SiHMib). The Governor also appoints the chairman of the Authority, N.J.Stat.Ann. 5:10 — 4(d), and may remove or suspend Authority members, N.J.Stat.Ann. 5:10-4(c), and even veto their actions. N.J.Stat.Ann. 5:10 — 4(i). Additionally,

The authority may be dissolved by act of the Legislature on condition that the authority has no debts or obligations outstanding or that provision has been made for the payment or retirement of such debts or obligations. Upon any such dissolution of the authority all property, funds and assets thereof shall be vested in the State.

NJ.Stat.Ann. 5:10-4(h).

The Authority may sue and be sued, lease property, borrow money, enter into contracts, make bylaws, rules and regulations, etc. N.J.Stat.Ann. 5:10-5. See also N.J.Stat.Ann. 5:10-11 (covenants to secure payment). The revenues realized by the Authority are to be utilized in accordance with statute: first, for operation and maintenance; second, to repay outstanding obligations; third, to make repairs and improvements; fourth, to make certain payments in lieu of taxes to the municipality in which its property is located; fifth, to pay additional amounts to compensate such municipality for any tax revenue lost as a result of lands acquired by the Authority; and sixth, the balance is to be deposited in the General State Fund, for use as a debt service to repurchase outstanding bonds, see NJ.Stat.Ann. 5:10-14.1, or for expenditures by the Meadowlands Commission pursuant to N.J.Stat.Ann. 13:1B-13 et seq., 13:17-1 et seq. See generally N.J.Stat. Ann. 5:10-6(b).

The Authority is authorized to issue bonds “in such principal amounts as in the opinion of the authority shall be necessary to provide sufficient funds for any of its corporate purposes.” N.J.Stat.Ann. 5:10-10(a). Except where guaranteed by the State, pursuant to referendum, the issuance of such bonds does not require State approval, and does not give rise to any liability on the part of the State. N.J. Stat.Ann. 5:10-10(f)-(g). Nor, absent such authorization, may the Authority otherwise incur indebtedness or liability on behalf of or payable by the State. N.J.Stat.Ann. 5:10-10(h). It may, however, contract to relocate public highways, N.J.Stat.Ann. 5:10-8, and may exercise the power of eminent domain. N.J.Stat.Ann. 5:10-9. The State, in turn, has promised not to alter or interfere with the obligations incurred by the Authority. N.J.Stat.Ann. 5:10-15.

The Authority’s actions are, additionally, highly regulated by the State. Thus, for example, annual reports are required, N.J. Stat.Ann. 5:10-19, public bidding mandated, N.J.Stat.Ann. 5:10-21.1-21.6, the size of the Meadowlands complex limited, N.J.Stat. Ann. 5:10-22, and environmental factors considered in running the complex. N.J. Stat.Ann. 5:10-23. In return, the Authority is exempt from state and local taxes, though it may enter into agreements to pay them. N.J.Stat.Ann. 5:10-18.

Application of the Blake v. Kline factors to the Authority yields the following conclusions. First, local law regarding the authority is clear and straightforward: in 1972, the Supreme Court of New Jersey upheld the constitutionality of the Law, and discussed it at some length. New Jersey Sports & Exposition Authority v. McCrane, 61 NJ. 1, 292 A.2d 545 (1972), appeal dismissed, 414 U.S. 991,94 S.Ct. 343, 38 L.Ed.2d 230 (1973). For example, the Court held that “it was well within the discretion of the Legislature to find that the sports and exposition complex as described and authorized in the statute is a public project and serves a public purpose.” 61 N.J. at 15-16, 292 A.2d 545. See also Id. at 23, 292 A.2d 545. It thus agreed that the Authority’s role is governmental, rather than proprietary, in nature. The Court also construed the statute to hold that the debts of the Authority are not liabilities of the State, 61 NJ. at 16-17, 292 A.2d 545, that it is not dependent upon the Legislature for appropriations, 61 NJ. at 21-22, 292 A.2d 545, and that it is likely to produce substantial revenues, some of which will go to the State treasury. 61 N.J. at 24, 292 A.2d 545. See also Horsemen’s Benevolent and Protective Association v. Atlantic City Racing Association, 98 N.J. 445, 455, 487 A.2d 707 (1985) (the Law does not involve direct or indirect public expenditures).

Additionally, it now appears that the Authority is immune from suit under the New Jersey Tort Claims Act, N.J.Stat.Ann. 59:1-1 et seq. Thus, in Rodriguez v. New Jersey Sports & Exposition Authority, 193 N.J.Super. 39, 472 A.2d 146 (App.Div.1983), certif. den., 96 N.J. 291, 475 A.2d 586 (1984), the court assumed the Authority to be a “public entity” and held that it was immune, pursuant to the provisions of the Act, for the criminal assault and robbery of a patron allegedly due to the failure to provide adequate and effective security. 193 NJ.Super. at 42-44, 472 A.2d 146.

Courts have not otherwise discussed the Law in any general way, focusing instead on particular problems that have arisen, regarding, for example, bidding, see Autotote Ltd. v. New Jersey Sports & Exposition Authority, 85 N.J. 868, 427 A.2d 55 (1981), horse racing, see Township of Cherry Hill v. New Jersey Racing Commission, 131 N.J.Super. 125, 328 A.2d 653 (L.Div.), aff'd, 131 N.J.Super. 482, 330 A.2d 600 (App.Div.1974), or the environment. See Wullamey v. Werblin, 364 F.Supp. 237 (D.N.J.1973); In re Sports Complex Hackensack Meadowlands, 62 N.J. 248, 300 A.2d 337 (1973), cert. denied, 414 U.S. 989, 94 S.Ct. 291, 38 L.Ed.2d 228 (1973). Though not to be characterized as “local law,” also illuminating is the decision of the Third Circuit in International Society for Krishna Consciousness v. New Jersey Sports and Exposition Authority, 691 F.2d 155 (3d Cir.1982). There, the court held that, while the Meadowlands Sports Complex was an instrumentality of the State, and thus, that it may engage in state action within the meaning of section 1983, 691 F.2d at 159, nonetheless, it was not a “public forum” for first amendment purposes. Interestingly, the court wrote:

... the Meadowlands is a commercial venture by the state. It is designed to bring economic benefits to northern New Jersey, and is expected to generate at least enough revenue to meet its current expenses and debt service. It earns money by attracting and entertaining spectators with athletic events and horse races. The complex is not intended to be a public forum____
Although the sports complex is not a public forum, it is owned and operated by the state. The government’s obligation to observe the Constitution does not cease when it is acting in a proprietary capacity____

691 F.2d at 161.

These decisions create the framework for the Blake v. Kline analysis. Certainly, they do not determine the outcome of such analysis. Indeed, the decisions reveal the ambivalent nature of the Authority — a “public project [for] a public purpose,” McCrane, supra, 61 N.J. at 16, 292 A.2d 545, but “acting in a proprietary capacity,” International Society, supra, 691 F.2d at 161, independent of the public fisc in that it does not create liabilities therefor or draw appropriations therefrom, Horsemen’s Benevolent and Protective Association, supra, 98 N.J. at 455, 487 A.2d 707; McCrane, supra, 61 N.J. at 21-22, 292 A.2d 545, yet bound to disgorge any profits to the State. Id. at 24, 292 A.2d 545. Nor finally is the Authority’s partial immunity under the New Jersey Tort Claims Act dispositive of its eleventh amendment defense, although it is an indication that local courts consider the Authority a public entity for at least some purposes. But see infra at 421-422.

The other pertinent factors, the court believes, militate against a finding that the Authority is an alter ego of the State. First, and perhaps most importantly, see Blake v. Kline, supra, 612 F.2d at 723 (“The most important factor in the determination of the eleventh amendment immunity is whether judgment will have to be paid from the state treasury”), citing Ford Motor Co. v. Department of Treasury, 323 U.S. 459, 464, 65 S.Ct. 347, 350, 89 L.Ed. 389 (1945); see generally Edelman v. Jordan, 415 U.S. 651, 663, 94 S.Ct. 1347, 1355, 39 L.Ed.2d 662 (1974), in the event plaintiff prevails, the payment of the judgment will not have to be made out of the state treasury. Indeed, the Law is clear: the Authority cannot incur liability on the part of the State. See N.J.Stat.Ann. 5:10-10(f)-(h). Of course, as defendant argues, to the extent that such liability diminishes the surplus earned by the Authority, it indirectly comes from proceeds that would otherwise go to the State treasury. See NJ.Stat. Ann. 5:10 — 6(b)(6). However, this argument proves too much and could lead to the conclusion that any expenditure of money by anyone, to the extent that it diminishes his or her tax liability, is an expenditure of the State. In fact, the Authority is self-sustaining, see McCrane, supra, 61 N.J. at 10, 292 A.2d 545, and any legal liabilities which it incurs must be paid out of its own revenues. Nor may plaintiff, by virtue of this lawsuit, obtain a judgment against the State. Hence, the first prong of the test argues strongly against the eleventh amendment bar here set up by defendant.

Second, as the Court of Appeals for the Third Circuit held, notwithstanding the clear governmental interest that is furthered by the Authority, and the constant invocation of that interest by the Legislature, see N.J.Stat.Ann. 5:10-2, 5:10-4(a), and courts of New Jersey, see McCrane, supra, 61 N.J. at 15-16, 23, 292 A.2d 545, the Authority exercises an essentially proprietary function. See International Society, supra, 691 F.2d at 161. See also Morrison-Knudsen Co. Massachusetts Bay Transportation Authority, 573 F.Supp. 698, 704 (D.Mass.1983) (court holds that Authority functions in proprietary fashion, notwithstanding state court decision to the contrary). It is self-sustaining and requires no governmental subsidies, though it may yield a profit, for the benefit of the State. Moreover, the activity in which the Authority engages, selling tickets — at market value — in exchange for providing entertainment, or creating facilities for gambling, is thq type of activity generally engaged in by private enterprise. The court thus concludes that the second prong of the Blake v. Kline test favors plaintiff for purposes of the instant motion.

Third, the parties do not discuss whether the Authority has been separately incorporated. It appears that it has not: though “established in the Department of Community Affairs” as “a body corporate and politic, with corporate succession,” N.J. StatAnn. 5:10-4(a), and possessed of many prototypically corporate powers, see, e.g., N.J.Stat.Ann. 5:10-5(c) (power to make and alter bylaws), the Authority is nonetheless described as “an instrumentality of the State.” Hence, for purposes of this motion, the court assumes that the Authority is not separately incorporated. It does not, however, consider such fact to be particularly significant.

Fourth, and perhaps most difficult of resolution, is the question of the Authority’s autonomy. Such question is shrouded in the confusion caused by the Law. On the one hand, such Law allows the Governor to appoint, and to terminate the appointments of, all members of the Authority, and even to veto the Authority’s actions. But see New Jersey Turnpike Authority v. Parsons, 3 N.J. 235, 243, 69 A.2d 875 (“The fact that the members of the Turnpike Authority are appointed by the Governor with the advice and consent of the Senate rather than elected by the voters in nowise alters the status of the Turnpike Authority as an independent corporate entity any more than does the similar appointment of members of the Port of New York Authority, or members of the Interstate Sanitation Commission.”) (citations omitted). Moreover, the State Treasurer and Attorney General sit on the Authority as members ex officio. Similarly, the Authority functions in a highly regulated setting: everything from the way in which it spends its revenues, N.J.Stat.Ann. 5:10-6(b), to its capacity for growth, see N.J. Stat.Ann. 5:10-22, are limited by State statute. On the other hand, the Authority is authorized to exercise a great deal of independent corporate action, see N.J.Stat.Ann. 5:10-5, 5:10-11, including raising funds by issuing bonds, see N.J.Stat.Ann. 5:10-10, action with which the State cannot, by statute, interfere. N.J.Stat.Ann. 5:10-15. See McCrane, supra, 61 N.J. at 12, 292 A.2d 545. Hence, the applicable Law reveals an Authority which, while subject to strict controls, appears to operate with a great deal of autonomy. See Id. at 14, 292 A.2d 545. Nor does defendant set forth facts to the contrary. In combination with the Authority’s fiscal autonomy, discussed supra, this autonomy leads the court to conclude that this factor too militates against a finding that the Authority is the alter ego of the State for eleventh amendment purposes.

Fifth, it is clear that the Authority has the capacity to sue and be sued and to enter into contracts, although its capacity to be sued, at least under the New Jersey Tort Claims Act, is limited by virtue of the Rodriguez decision. See supra at 420 and n. 4. That decision certainly supports the contentions of defendant. Taken alone, however, it does not render the Authority immune from suit in the federal courts. Thus, for example, the Tort Claims Act, by its terms, applies to municipalities, see N.J. Stat.Ann. 59:1-3 (definition of “public entity,” including “municipality” and “public authority”); however, the United States Supreme Court has made clear that municipalities are not alter egos of the State for eleventh amendment purposes. See, e.g., Mt. Healthy City Board of Education v. Doyle, supra, 429 U.S. at 280, 97 S.Ct. at 572 (citing cases). See also Sixth Camden Corp. v. Township of Evesham, County of Burlington, 420 F.Supp. 709, 717-18 (D.N.J.1976), citing S.J. Groves & Son Co. v. New Jersey Turnpike Authority, 268 F.Supp. 568, 574 (D.N.J.1967). Thus, the New Jersey Tort Claims Act cannot be dispositive of the jurisdictional questions here presented. In light of the other considerations discussed herein, the court finds the Authority liable to suit in federal court notwithstanding the holding of Rodriguez.

Sixth, is the fact that Authority property is immune from State taxation. See N.J. Stat.Ann. 5:10-18. However, the court does not find this fact to be dispositive in light of all of the above.

Finally, it is also correct that the State has immunized itself from liability for the actions of the Authority. See N.J.Stat. Ann. 5:10-10(f)-(h). This, of course, supports the court's conclusion that eleventh amendment immunity is not properly invoked in this case.

In sum, application of the Blake v. Kline factors to this case leaves the court persuaded that defendant’s motion to dismiss must be denied. The financial independence of the Authority, see supra at 420, the proprietary nature of its function, see supra at 420, its statutorily mandated autonomy to act as do other corporations, see supra at 421, the fact that it may sue or be sued, see supra at 421-22, and that it may not create liability for the State, see supra at 422, all point toward the existence of an entity independent of, if related to, the State; these factors outweigh those other factors, including those not explicitly discussed herein, such as the Authority’s eminent domain power, but compare Morrison-Knudsen, supra, 573 F.Supp. at 704 (eminent domain power implies autonomy) with Gibson-Homans, supra, 560 F.Supp. at 114 (eminent domain power implies state alter ego status), supporting a contrary finding. Nor is the pertinent caselaw to the contrary. Thus, for example, the decision of the court in GibsonHomans, supra, that the New Jersey Transit Corp. had eleventh amendment immunity, was based upon several factors not present here, namely that New Jersey Transit received significant state subsidies, that judgments against New Jersey Transit would result in still greater subsidies and would thus come out of the State treasury, and that New Jersey Transit was generally treated as would any other public state agency, in terms of which statutes would be applied to it. 560 F.Supp. at 114. None of these factors apply in the instant case, although others, such as the Governor’s appointment of the Authority, do. 560 F.Supp. at 113. Moreover, in S.J. Groves & Sons, supra, the court came to a conclusion in accord with that reached here, regarding the New Jersey Turnpike Authority, holding that

... New Jersey has created a public corporation with substantial fiscal and managerial autonomy and has insulated the State treasury from the Authority’s obligations and liabilities. The Authority acquires property, enters contracts and sues on its own behalf, but for organizational purposes it is pigeonholed in the State Highway Department. That it performs an essential governmental function is not disputed. Nevertheless, New Jersey courts repeatedly have held that its fortunes were not so closely tied to the State as to make it a mere nominee or alter ego. In light of all these factors, the Authority is not protected by the Eleventh Amendment as a matter of law.

268 F.Supp. at 578 (emphasis in original). Hence, despite the fact that the State expended some monies allocable to the Turnpike Authority, 268 F.Supp. at 576, the court found a statute quite similar to the one here at issue not to give rise to eleventh amendment immunity. Compare N.J. Stat.Ann. 5:10-1 et seq. with N.J.Stat.Ann. 27:23-1 et seq. Nor is either Authority an executive agency as in Aerated Products Co. v. Department of Health of New Jersey, 159 F.2d 851, 853-54 (3d Cir.1947).

Cases from other jurisdictions are also in accord, or are readily distinguishable. See, e.g., Hall v. Medical College of Ohio, supra, 742 F.2d at 302-07 (state medical school immune from eleventh amendment where it receives substantial state monies, performs a governmental function, does not exercise corporate powers, and lacks autonomy); Harvey & Harvey, Inc. v. Delaware Solid Waste Authority, 600 F.Supp. 1369, 1372-74 (D.Del.1985) (Delaware Solid Waste Authority not alter ego of the state despite the fact that it is appointed and monitored by the Governor, where it may raise its own funds and may not incur liability on the part of the State); Hutchins v. Board of Trustees of Michigan State University, 595 F.Supp. 862-864-68 (W.D. Mich.1984) (following Hall)-, Herer v. Burns, 577 F.Supp. 762, 763-64 (W.D.Va.1984) (state hospital alter ego of the State where it is controlled by the State, has its budget appropriated by the State, cannot sue or be sued, enter into contracts or own property, etc.); Smith v. New Castle County Vocational-Technical School District, 574 F.Supp. 813, 817-18 (D.Del.1983) (school district not alter ego of the State, notwithstanding appointment of Board by the State, extensive State regulation, and possibility that State will pay judgments against it); Morrison-Knudsen, supra, 573 F.Supp. at 700-05 (Massachusetts Bay Transportation Authority not an arm of the State notwithstanding State’s liability to bondholders and subsidization of Authority, where Authority has significant autonomy and acts in a proprietary capacity). For these reasons, defendant’s motion to dismiss must be denied. An appropriate order will issue.

      . Members are required to take an oath of office and execute performance bonds. NJ.Stat. Ann. 5:10 — 4(c), (e). They are not, however, compensated. N.J.Stat.Ann. 5:10-4(f).

      . The McCrane Court appeared, ultimately, to characterize the Authority as “an independent autonomous authority or agency” with which the State essentially contracts to perform certain governmental functions. 61 N.J. at 14, 292 A.2d 545.

      . The Authority’s coverage under the New Jersey Tort Claims Act is but one consideration in determining to what extent the Authority should be adjudged the alter ego of the State. In Gibson-Homans Co. v. New Jersey Transit Corp., 560 F.Supp. 110 (D.N.J.1982), Judge Stern of this court canvassed other statutory schemes pertinent to this inquiry, there finding New Jersey Transit to be subject to the terms of the New Jersey Contractual Liability Act, N.J.Stat.Ann. 59:13-1 et seq., cited in N.J.Stat.Ann. 27:25-19, the New Jersey Employer-Employee Relations Act, N.J.Stat.Ann. 34:13A-1 et seq., cited in N.J. Stat.Ann. 27:25-14(c), the State Expenditures Limitation Act, N.J.Stat.Ann. 52:9H-5 et seq., cited in N.J.Stat.Ann. 27:25-14(c), and the New Jersey Open Public Meetings Act, N.J.Stat.Ann. 10:4-6 et seq., cited in N.J.Stat.Ann. 27:25-4(g), and that its funds are deposited in the New Jersey Cash Management Fund. N.J.Stat.Ann. 52:18A-90.4. Based in part upon these findings, Judge Stern held New Jersey Transit to be the alter ego of the State, for diversity and eleventh amendment purposes. 560 F.Supp. at 114. For the reasons set forth below, the court here finds the opposite with respect to the New Jersey Sports and Exposition Authority. However, it notes that the parties — and particularly the moving party — have not cited any of these statutes for purposes of this motion, with the exception of the state Tort Claims Act. Unlike the statute creating the New Jersey Transit Corporation, the Law does not explicitly incorporate these statutes into its text. Should the parties so wish, the court will, of course, entertain a motion for reconsideration based upon these statutes, should they be shown to apply.

      . As Rodriguez makes clear, the Authority's immunity in that case was based upon "the specific immunit[y] granted public entities ... from liability for injuries and damages from the failure to provide police protection____” 193 N.J.Super. at 42, 472 A.2d 146.

      . Defendant may wish to adduce facts beyond the face of the statute to support its claim of eleventh amendment immunity. Blake v. Kline, supra, 612 F.2d at 726. By denying this motion, the court acts on the basis of the record before it. As with all motions to dismiss for lack of subject matter jurisdiction, such denial is therefore without prejudice. See Fed.R.Civ.P. 12(h)(3).


author: BECHTLE, District Judge.

text:
    PHIL GREER & ASSOCIATES, INC. v. CONTINENTAL BANK v. NRG ENTERPRISES, INC. and Jerome J. Kerwin.
    Civ. A. No. 82-2654.
    United States District Court, E.D. Pennsylvania.
    July 29, 1985.
    Howard J. Kaufman, Christine Fritton, Philadelphia, Pa., for plaintiff.
    Alan C. Gershenson, Philadelphia, Pa., for Continental Bank.
    Kenneth M. O’Brien, Roger D. Susanin, King of Prussia, Pa., for NRG Enterprises, Inc. and Jerome J. Kerwin.
   MEMORANDUM AND ORDER

BECHTLE, District Judge.

Presently before the court are cross-motions for summary judgment. For the reasons stated herein, defendant’s motion will be granted and plaintiff’s motion will be denied.

FACTS

In December 1981, and January 1982, plaintiff agreed to purchase pipe valued at $300,000.00 from Transcontinental Casing, Inc. (“Transcontinental”). Transcontinental expressly and impliedly warranted that the pipe would meet quality standards promulgated by the American Petroleum Institute, or, in other words, it was free of defects, was of merchantable quality, and was fit for the particular purpose intended.

After the contract between Transcontinental and plaintiff was executed, Transcontinental and Lincoln Bank (“bank”), on February 19, 1982, entered into an accounts receivable financing arrangement. This arrangement was negotiated on behalf of Transcontinental by Paul Murray, President of NRG Enterprises, Inc. (“NRG”), and Jerome J. Kerwin, an officer and 50% shareholder of Transcontinental and the sole shareholder of NRG. A. Gerard Cunningham, a Senior Vice-President of the bank, acted on behalf of the assignee bank.

On February 19, 1982, the bank placed the loan proceeds of $267,709.90 in a Certificate of Deposit (“CD”) in the name of NRG. As additional security Transcontinental assigned the two Transcontinental invoices for the sale of the pipe to plaintiff. The bank was required to release the loan proceeds from the CD to Transcontinental as plaintiff made the payments on the invoices.

Throughout the period of its relationship with Transcontinental, the bank has been a creditor with loans fully collateralized by CD’s. The bank did not investigate the creditworthiness of Transcontinental, NRG, or the companies' principals, nor did the bank or its agents inspect the quality of the pipe sold by Transcontinental. Moreover, the bank never became involved in any way with the management of or decision-making process at Transcontinental.

After each invoice was assigned to the bank, the bank notified plaintiff of the assignment and of plaintiff’s legal obligation to pay the amounts of the invoices to the bank. So notified, plaintiff paid the bank $174,423.23.

The pipe ultimately proved to be seriously defective and virtually worthless. Plaintiff did not discover the defect prior to making the payments to the bank because the defect was not visible to the naked eye and electronic inspection had not yet been completed.

Since the pipe was virtually worthless, plaintiff sued the bank to recover the funds which plaintiff paid to the bank. Plaintiff’s theories of recovery are as follows: (1) Title 13 Pa.Cons.Stat.Ann. § 9318(a) provides that an assignee’s rights are “subject to ... any ... claim” arising from the contract between the assignor and account debtor. Plaintiff argues that an account debtor can, therefore, assert any affirmative claims which it has against the assign- or against the assignee. In this case, plaintiff asserts that it is entitled to recover payments made to the bank where the goods sold by Transcontinental are defective (plaintiffs “statutory theory”); and (2) under Pennsylvania law, plaintiff has a claim of restitution.

Both plaintiff and the bank move for summary judgment. DISCUSSION

1. Plaintiffs 13 Pa.Cons.Stat.Ann. § 9318(a) Theory

Title 13 Pa.Cons.Stat.Ann. § 9318(a) provides:

Unless an account debtor has made an enforceable agreement not to assert defenses or claims arising out of a sale as provided in section 9206 (relating to agreement not to assert defenses against assignee) the rights of an assignee are subject to:
(1) all the terms of the contract between the account debtor and assignor and any defense or claim arising therefrom; and
(2) any other defense or claim of the account debtor against the assignor which accrues before the account debtor receives notification of the assignment.

Construction of the language “subject to ... any ... claim arising therefrom” under Pennsylvania law is the key to the analysis of plaintiff’s statutory theory. Briefly stated, if this court finds that the Pennsylvania Supreme Court would interpret the statutory language to allow an account debtor to assert affirmative claims against an assignee, defendant's motion will be denied. On the other hand, if Pennsylvania law would not permit an account debtor to assert affirmative claims against an assignee, defendant’s motion will be granted.

The court believes that the place to start the analysis is the Uniform Commercial Code, Comment-1972, No. 1, which states:

Subsection (1) makes no substantial change in prior law. An assignee has traditionally been subject to defenses or set-offs existing before an account debt- or is notified of the assignment. When the account debtor’s defenses on an assigned claim arise from the contract between him and the assignor, it makes no difference whether the breach giving rise to the defense occurs before or after the account debtor is notified of the assignment (paragraph (l)(a)). The account debtor may also have claims against the assignor which arise independently of that contract: an assignee is subject to all such claims which accrue before, and free of all those which accrue after, the account debtor is notified (paragraph (l)(b)). The account debtor may waive his right to assert claims or defenses against an assignee to the extent provided in Section 9-206.

With this in mind, the court turns to the question of whether the Pennsylvania Supreme Court would permit, either before or after Pennsylvania enacted the UCC, the account debtor to sue affirmatively the assignee to recover proceeds paid to the assignee, who was rightly entitled to recover those proceeds, when the goods supplied by the assignor to the account debtor were defective. The parties do not direct the court’s attention to, and the court in its own research does not find, any Pennsylvania Supreme Court cases enunciating the Pennsylvania rule. The Court of Common Pleas of Philadelphia County, however, considered a related issue in K Mart Corp. v. First Pennsylvania Bank, 16 Pa. D & C3d 509 (C.P.Phila.1980). In KMart, plaintiff buyer (“account debtor”) always paid its supplier’s assignee the full purchase price on shipments over an eight year period and always deducted credits from later payments on subsequent shipments when it discovered defects in the prior shipment’s merchandise. The K Mart court permitted the account debtor to seek to recover payments made for goods which it later found to be defective, because there was a prior understanding between the assignee and the account debtor that the assignee was not entitled to payment of or to retain “funds which should not have been paid to it initially.” Id. at 517.

K Mart is not controlling in the instant case. The prior understanding in K Mart that the account debtor was entitled to all the proceeds paid initially to the assignee is not present in the present case. On the contrary, the parties do not dispute that the bank was entitled to receive the funds paid to it initially.

The Restatement (Second) of Contracts § 336 and certain of its Comments provide the court with instruction and the basis for a prediction that the Pennsylvania Supreme Court would follow the Restatement rule. The Restatement provides, in relevant part:

The right of an assignee is subject to any defense or claim of the obligor which accrues before the obligor receives notification of the assignment, but not to defenses or claims which accrue thereafter except as stated in this Section or as provided by statute.

Restatement (Second) of Contracts § 336(2)(1.974), Comment C, interprets the phrase “claim of the obligor” as follows:

c. Accrued claims. Statutes or rules of court commonly permit an obligor when sued to assert by way of set-off or counterclaim in the same action such claims as he has against the plaintiff, whether related to the plaintiff's claim or not. See, e.g., Rule 13 of the Federal Rules of Civil Procedure. In appropriate circumstances the obligor may use defensively against an assignee an offsetting claim against the assignor, although the assignee is not subject to affirmative liability on such a claim unless he contracts to assume such liability. See § 328; Uniform Commercial Code §§ 2-210, 9-317.
Set-off against an assignee has sometimes been limited to-cases where both offsetting claims were fully matured at the time of assignment. The modern rule, however, unless a statute provides otherwise, turns on the time the obligor receives notification of assignment and applies even though the assigned right has not then matured. See Uniform Commercial Code § 9-318.

Restatement (Second) of Contracts, § 336, Comment C (1979).

The court believes that the Restatement rule, which does not permit an account debtor with adequate notice of the assignment to make an affirmative claim against the assignee, is founded on sound public policy considerations. Those considerations were set forth by the United States Court of Appeals for the First Circuit in Michelin Tires (Canada) Ltd. v. First National Bank of Boston, 666 F.2d 673 (1st Cir.1981), which was decided under Massachusetts law.

We are unwilling to impose such an obligation on the banks of the Commonwealth without some indication that this represents a considered policy choice. By making the bank a surety, not only will accounts receivable financing be discouraged, but transaction costs will undoubtedly increase for everyone.
We simply do not believe that the banks are best suited to monitor contract compliance. The party most interested in adequate performance would be the other contracting party, not the financier. Given this natural interest, it seems likely to us that while the banks will be given additional burdens of supervision, there would be no corresponding reduction in vigilance by the contracting parties, thus creating two inspections where there was formerly one. Costs for everyone thus increase, without any discernible benefit. It is also difficult to predict the full impact a contrary decision would have on the availability of accounts receivable financing in general.

Id. at 679-680. In the instant case the same rationale supports the conclusion that the Restatement rule is a better rule and the one that the Pennsylvania Supreme Court would adopt. It is obvious that a creditor, providing financial support to many commercial borrowers in a vast variety of industries, should not be legally obligated or reasonably expected to inspect all of the goods delivered by its borrowers to their customers. It is difficult to-perceive how such a responsibility could be carried out without making the bank a party to the manufacturing and selling function. Such an obligation would be an unrealistic burden on commerce in the Commonwealth of Pennsylvania as well as outside the Commonwealth regarding interstate transactions. Such a burden also includes the consequent difficulty or even unavailability of credit and surely extraordinary cost increases. Credit would be much harder to receive and more expensive.

The Commonwealth’s financial system would be equally burdened if the bank was obligated to make a thorough investigation of the financial well-being of all of its assignors and to notify all of its account debtors. First, the court does not believe that Pennsylvania, enacting the UCC, intended the inconsistent situation that; where an assignment occurred, the seller’s assignee should be obligated to investigate the creditworthiness of its assignor on behalf of the buyer-account debtor, but where no assignment occurred, the buyer should be obligated to determine the creditworthiness of the seller. Additionally, the court does not believe that 13 Pa.Cons.Stat.Ann. § 9318(a) is intended to allow the buyer for no additional consideration to secure an additional unexpected source to recover from in the event the debtor’s arrangement with the party he contracted with does not work out. Moreover, the court believes that it is inappropriate to permit the buyer-account debtor to recover from the seller’s assignee when the account debtor had the opportunity to consider some special arrangement to protect itself such as that in the K Mart case. For these reasons, the court believes that the rule proposed by plaintiff would unreasonably burden the financial system and commerce in Pennsylvania.

Accordingly, the court finds that the Pennsylvania Supreme Court probably would adopt the Restatement rule. Consequently, defendant’s motion for summary judgment on plaintiff’s statutory claim will be granted. .

2. Plaintiffs Restitution Theory

The court predicts that the Supreme Court of Pennsylvania, having adopted Restatement of Restitution, § 14(1) (1937) in Commonwealth of Pennsylvania Department of General Services v. Collingdale Millwork Company, 71 Pa.Commw. 286, 454 A.2d 1176 (Pa.Commw.Ct.1983), would also adopt the following subsection, Restatement of Restitution, § 14(2) (1937). That section reads as follows:

An assignee of a non-negotiable chose in action who, having paid value therefor, has received payment from the obligor is under no duty to make restitution although the obligor had a defense thereto, if the transferee made no misrepresentation and did not have notice of the defense.

Restatement of Restitution, § 14(2) (1937).

Applying this rule to the present case, the court holds: (1) that the bank paid value for the assignment; (2) that the bank received, as it was entitled to receive, payments from plaintiff; (3) that the bank made no misrepresentation; and (4) that the bank did not have notice of the defective nature of the pipe.

In accord with this holding is the following illustration from the Restatement of Restitution:

A falsely represents to B that he has done work for him to the value of $100 and B gives to A a non-negotiable note for that amount. A assigns the note to C who pays value therefor and has no reason to know of A’s fraud. B pays the amount of the note to C. B is not entitled to restitution from C.

Restatement of Restitution, § 14 (1937). Also in accord with this holding is Michelin Tires, supra.

Consequently, plaintiffs restitution theory cannot withstand the bank’s motion for summary judgment.

CONCLUSION

Accordingly, the bank’s motion for summary judgment will be granted. Plaintiff’s motion for summary judgment will be denied.

      . Transcontinental purchased the pipe in this case from NRG Enterprises, Inc. on credit, and Transcontinental, in turn, sold the pipe to plaintiff.

      . Defendant is Lincoln Bank's successor in interest.

      . The other 50% of Transcontinental was owned by Richard A. Sparks.

      . Apparently, a third invoice came to be assigned to the bank. The date of that assignment has not been specified by the parties. Presumably, the financial arrangement was the same as that concerning the first two invoices.

      . The financial package was virtually risk-free to the bank. In retrospect, from the bank’s point of view, the structure of the loan was sound because the bank held cash collateral rather than security positions on Transcontinental's two assets: its inventory and $373,927.00 accounts receivable. The inventory was the pipe which is now alleged to be defective. At the time of the loan to the present, NRG held a prior security interest in the pipe. Transcontinental's accounts receivable was created by the sale of the pipe.
      At the time of the loan, Cunningham, assessing the structure of the financial package, considered also that Transcontinental was incorporated in October 1981, only five months prior to the funding of the loan, that it had virtually no cash, and that its total paid-in capital was $50,-000.00.

      . Of this $174,423.23 amount, $32,376.31 was first paid by plaintiff directly to Transcontinental which endorsed the check over to the bank. The remaining amount was paid by plaintiff directly to the bank.

      . For purposes of this opinion, the court assumes that the defect in the pipe was latent and could not be discovered without extensive and lengthy tests.

      . Fed.R.Civ.P. 56 provides, in pertinent part: The judgment sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.

      . Plaintiff tries to distinguish Michelin Tires on the ground that the assignee in Michelin Tires maintained an assignment of all of the seller’s accounts receivable and contract rights for approximately 20 years and the bank, in the present case, was assigned only three invoices.
      This distinction is without merit. The court does not believe that a bank whose loan is fully secured should be saddled with the legal obligation to inspect the product identified under even three invoices and delivered to a merchant.