author: BROTMAN, District Judge.

text:
    Harriette TABAS, Plaintiff, v. Robert E. MULLANE, et al., Defendants. Eli BALLAN and Harry Lewis, Plaintiffs, v. Robert E. MULLANE, et al., Defendants. Isabel HEFFLER, Plaintiff, v. William T. O’DONNELL, Sr., et al., Defendants.
    Civ. A. Nos. 84-309, 84-406 and 84-776.
    United States District Court, D. New Jersey.
    Jan. 10, 1985.

      Philip S. Fuoco, Haddonfield, N.J., and Stuart H. Savett, Barbara A. Podell, Kohn, Savett, Marion & Graf, P.C., Philadelphia, Pa., and Sherrie R. Savett, Stephen A. Whinston, Berger & Montague, P.C., Philadelphia, Pa., and Stanley Nemser, I. Stephen Rabin, Patricia I. Avery, Wolf Popper Ross Wolf & Jones, New York City, for plaintiffs.
    H. Curtis Meanor, Lowenstein, Sandler, Brochin, Kohl, Fisher, Boylan & Meanor, Roseland, N.J., and William D. Heinz, Jenner & Block, Chicago, Ill., for defendant William T. O’Donnell, Sr.
    John E. Martindale, Benesch, Friedlander, Coplan & Aronoff, Cleveland, Ohio, for defendant Bally Mfg. Corp.
    Clive S. Cummis, Sills Beck Cummis Zuckerman Radin & Tisehman, P.A., Newark, N.J., for defendants Bally Mfg. Corp. and Directors of Bally Mfg. Corp.
    Randy Herndon, Steven J. Rothschild, Skadden, Arps, Slate, Meagher & Flom, Wilmington, Del., for Directors of Bally Mfg. Corp.
   OPINION

BROTMAN, District Judge.

Plaintiffs bring this derivative action under the court’s diversity jurisdiction, 28 U.S.C. § 1332. Defendants move to dismiss plaintiffs’ petition for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6). Defendants also move, in the alternative, to stay this proceeding pending the disposition of a similar action in the Delaware Chancery Court. The court heard oral argument on these motions on November 16, 1984. Having considered the submissions and arguments of the parties, and for the reasons provided below, this court will deny defendants’ motion for a stay and grant and deny, in part, defendants’ motion to dismiss.

Procedural History

This is a consolidated derivative complaint. Plaintiffs Harriette Tabas, on January 11, 1984, Eli Bailan and Harry Lewis, on January 31, 1984, and Isabel Heffler, on February 29, 1984, filed derivative actions against nominal defendant Bally Manufacturing Corporation (“Bally”) and defendants William T. O’Donnell, Sr., Robert E. Mullane, Walter Wechsler, James M. Rochford, James R. Cowan, George N. Aronoff, and Patrick L. O’Malley, Officers and/or Directors of Bally. On August 10, 1984, plaintiffs filed a consolidated derivative action complaint against Bally, O’Donnell, and the named director defendants.

In summary, plaintiffs allege that defendants breached their fiduciary duty to Bally and its shareholders and wasted the corporation’s assets by embarking on a scheme to enrich O’Donnell. The three principal elements of this scheme are alleged to include:

(1) On January 6, 1984, the director defendants caused Bally to purchase O’Donnell’s Bally stock at $25 per share, for $17.3 million, a premium of approximately 20 percent above the market price and also to purchase his Bally’s Park Place stock at $15 per share, which had a market price of 13½ and 14⅛. Bally’s directors approved this plan despite the fact that O’Donnell had previously agreed to divest his stock.

(2) In 1979, Bally extended O’Donnell’s employment for five years and raised his salary, effective January 1, 1980, despite the fact that O’Donnell was under investigation by the Division of Gaming Enforcement of the New Jersey Casino Control Commission (“Commission”). In December 1979, O’Donnell resigned all positions with Bally. In 1981, Bally paid O’Donnell $2,112,000 in settlement of all purported claims he might have made pursuant to his employment contract. Plaintiffs argue that Bally should not have paid O’Donnell, because he breached the agreement by failing to perform the contracted services.

(3) In July 1983, Bally paid $1.9 million to a partnership in which O’Donnell had a two-sevenths interest, for the purchase of the premises at which its former headquarters were located, as well as an additional $292,000 as a lease termination charge. Plaintiffs allege that Bally received no consideration for this additional lease termination payment because it had already purchased the building and the payment exceeded the annual rent.

Plaintiffs also filed derivative suits in the Delaware Chancery Court in January and February 1984 and consolidated their Delaware complaint on August 7, 1984. Shareholders have also filed similar actions against defendants in the United States District Court for the Northern District of Illinois.

Defendants move to dismiss these complaints pursuant to Fed.R.Civ.P. 23.1 for plaintiffs’ failure to make demand prior to bringing this derivative action. Plaintiffs argue that defendants are neither disinterested nor independent and their actions are so egregious as to strip them of protection under the business judgment rule and render demand futile. Defendants further move to stay this proceeding pending resolution of defendants’ motion to dismiss in the Delaware court.

I. Motion to Stay This Proceeding

Defendants argue that the court should stay this action because the consolidated complaint duplicates one previously filed in Delaware, involves the same attorneys, seeks identical relief and requires the determination of Delaware law. For a discussion as to the legal standards for granting a stay in deference to ongoing state proceedings, we turn to the Supreme Court’s analysis in Will v. Calvert Fire Insurance Co., 437 U.S. 655, 98 S.Ct. 2552, 57 L.Ed.2d 504 (1978).

It is well established that “the pend-ency of an action in state court is no bar to proceedings concerning the same matter in the Federal Court having jurisdiction.” Will, supra at 662, 98 S.Ct. at 2557, quoting McClellan v. Carland, 217 U.S. 268, 282, 30 S.Ct. 501, 505, 54 L.Ed. 762 (1910). There is no question that the court has jurisdiction over this matter pursuant to its diversity power. See 28 U.S.C. § 1332. It is equally well settled that a district court is “under no compulsion to exercise that jurisdiction” where a controversy may be settled more expeditiously in state court. Id. 437 U.S. at 662-63, 98 S.Ct. at 2557, quoting Brillhart v. Excess Insurance Co., 316 U.S. 491, 494, 62 S.Ct. 1173, 1175, 86 L.Ed. 1620 (1942).

The decision as to whether to defer to the state court is “largely committed to the ‘carefully considered judgment’ of the district court.” Id. 437 U.S. at 663, 98 S.Ct. at 2557. The Supreme Court noted that:

[ojrdinarily it would be uneconomical as well as vexatious for a federal court to proceed in a declaratory judgment suit where another suit is pending in state court and presenting the same issues, not governed by federal law, between the same parties. Gratuitous interference with the orderly and comprehensive disposition of a state court litigation should be avoided.

Id. at 663-64, 98 S.Ct. at 2558, quoting Brillhart, supra 316 U.S. at 495, 62 S.Ct. at 1175. It is true, as plaintiff argues, that the Supreme Court emphasized in Colorado River Water Conservation District v. United States, 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976), “the virtually unflagging obligation of the federal courts to exercise the jurisdiction given them.” Id. at 817, 96 S.Ct. at 1246. The court noted that the language

underscores our conviction that a district court should exercise its discretion with this factor in mind, but in no way undermines the conclusion of Brillhart that the decision whether to defer to the concurrent jurisdiction of a state court is, in the last analysis, a matter committed to the district court’s discretion.

Will, supra, 437 U.S. at 664, 98 S.Ct. at 2558. As Justice Cardozo has held,

[t]he power to stay proceedings is incidental to the power inherent in every court to control the disposition of the causes on its docket with economy of time and effort for itself, for counsel, and for litigants. How this can best be done calls for the exercise of judgment, which must weigh competing interests and maintain an even balance.

Landis v. North American Company, 299 U.S. 248, 57 S.Ct. 163, 81 L.Ed. 153 (1936).

Factors which the court should consider and balance in determining whether to stay an action include:

(1) ease of access to sources of proof
(2) availability of compulsory process for attendance of hostile witnesses
(3) the possibility of viewing premises, if appropriate
(4) the enforceability of any judgment rendered
(5) the efficiency of the litigation
(6) the progress of the litigation already commenced in state court, and
(7) the applicability of state and/or federal law.

Gilbane Building Company v. Nemours Foundation, 568 F.Supp. 1085 (D.Del. 1983); ABCKO Music, Inc. v. Beverly Glen Music, Inc., 554 F.Supp. 410 (S.D.N.Y.1983); National Bank of Detroit v. United States, 1 Cl.Ct. 712 (Cl.Ct.1983). However, the moving party has the burden to demonstrate sufficient grounds to warrant a stay. Gilbane, supra; Kraftsman Container Corp. v. Finkelstein, 461 F.Supp. 245 (S.D.N.Y.1978).

The possibility of multiple suits is greater in the derivative action context than it is in most other types of litigation. See Amdur v. Lizars, 372 F.2d 103 (4th Cir.1967); Klein v. Walston & Co., 432 F.2d 936, 937 (2nd Cir.1970). To avoid overburdening defendant corporations, district courts have granted stays only in deference to a previously commenced state court action which can adjudicate the rights of all parties concerned. See Amdur, supra. In Amdur, the Fourth Circuit found a stay warranted where plaintiffs commenced a state action fully ten months prior to the federal suit. The court further found that plaintiffs had aggressively litigated the state action to a point where it was “appreciably more advanced” than the federal action. The parties had conducted numerous hearings, solicited and secured documentation and filed an answer on the merits. The court stressed that by granting a stay under these circumstances, it prevented any undue:

inconvenience, loss of time, and expense inflicted upon the corporate defendant, and the danger that its treasury may be depleted by litigation supposedly prosecuted for its benefit.

Amdur, supra at 107; Ferguson v. Tabah, 288 F.2d 665 (2nd Cir.1961); Mottolese v. Kaufman, 176 F.2d 301 (2nd Cir.1949). Despite these policy concerns, the Fourth Circuit still suggested that “should plaintiffs prefer to proceed in federal forum, the District Court may lift its stay order____” Amdur, supra at 108.

The circumstances in this case do not warrant a stay based on the grounds articulated above. First, no previously filed, significantly litigated, or more advanced state action exists. Plaintiffs filed both their federal and state actions during roughly the same period of time — January and February 1984. They consolidated their state and federal actions during the same week in August 1984. The defendants’ motion to dismiss — decided by this court today — has yet to be heard in the state court.

Defendants have failed to provide this court with any evidence that the state court will be able to adjudicate the rights of all the parties to this action. They merely attach a copy of plaintiffs’ state court brief to their own. This brief, however, addresses only the motion to dismiss for failure to make demand and not the ultimate relief sought by the parties. Plaintiffs raise unrebutted allegations that the Delaware court may not be able to adjudicate the rights of defendant O’Donnell, due to lack of in personam jurisdiction.

An order for expedited discovery has been entered in the state court proceeding. However, only the depositions of defendants Mullane, Aronoff and O’Donnell have been taken. Both parties have entered a stipulation that they can use these depositions in both the federal and state actions. One court has found the presence of such an agreement sufficient to deny a stay in a shareholder derivative action. Kaufman v. Jeffords, 268 F.Supp. 784 (S.D.N.Y.1967). Defendants make no showing that further prosecution of the federal action will deny them access to sources of proof, hostile witnesses, or any judgments rendered in the future. The court finds, therefore, that defendants offer no evidence that a stay of the federal action will promote the efficient handling of this litigation.

Finally, the court rejects defendants’ arguments that it should defer to the Delaware court for consideration of novel issues of state law. The issues arising in this complaint have been subject to repeated, extensive and thorough analysis by the Delaware courts, most recently in the eases of Aronson v. Lewis, 473 A.2d 805 (Del.Supr.1984) and Pogostin v. Rice, 480 A.2d 619 (Del.Supr.1984). The United States Supreme Court has held that:

the difficulties of ascertaining what the state courts may hereafter determine the state law to be do not in themselves afford a sufficient ground for a federal court to decline to exercise its jurisdiction to decide a case which is properly brought to it for decision.

Meredith v. City of Winter Haven, 320 U.S. 228, 235, 64 S.Ct. 7, 11, 88 L.Ed. 9 (1943).

The court finds that defendants have failed to meet their burden to justify the imposition of a stay and therefore, the court will deny their motion.

II. Motion to Dismiss

The director defendants have moved under Federal Rule of Civil Procedure 12(b)(6) for an order dismissing this action on the ground that plaintiffs failed to make demand on Bally’s Board of Directors or alleged particularized facts demonstrating demand futility as required by Federal Rule of Civil Procedure 23.1.

A. The Standard for Demand Futility

Plaintiffs argue that they are excused from making demand upon Bally’s directors because of its futility. State law determines whether plaintiffs are excused from the demand requirement. Lewis v. Curtis, 671 F.2d 779, 785 (3rd Cir.), cert. denied, 459 U.S. 880, 103 S.Ct. 176, 74 L.Ed.2d 144 (1982). The local law of the state of incorporation will be applied to determine the existence and extent of a director’s or officer’s liability to its shareholders, in the absence of another state with a more significant relationship. Bally is a Delaware corporation. Both parties argue Delaware law should apply. The court finds that no other state has a more significant relationship to the parties and the transaction, and therefore, the court must apply Delaware law. See Restatement (Second) Conflicts of Laws § 309.

The Supreme Court of Delaware has held that “[a] cardinal precept of the General Corporation Law of the State of Delaware is that its directors, rather than shareholders, manage the business and affairs of the corporation.” Aronson v. Lewis, 473 A.2d 805, 811 (Del.Supr.1984). The Delaware statute provides that:

The business and affairs of a corporation organized under this chapter shall be managed by or under the direction of a board of directors except as may be otherwise provided in this Chapter or in its certificate of incorporation.

8 Del.C. § 141(a). See Aronson, supra at 811.

Federal Rule of Civil Procedure 23.1, which is similar to Delaware Chancery Rule 23.1, provides that:

In a derivative action brought by one or more • shareholders or members to enforce a right of a corporation ... [t]he complaint shall ... allege with particu larity the efforts, if any, made by the plaintiff to obtain the action he desires from the directors of comparable authority and, if necessary, from the shareholders or members, and the reasons for his failure to obtain the action or for not making the effort.

Fed.R.Civ.P. 23.1 (emphasis added). This demand function is consistent with the principles of Delaware corporate law and ensures that shareholders exhaust intracorporate remedies as a prerequisite to instituting a derivative action. In this manner, the corporation has an opportunity to correct the wrong and avoid suit or to bring and control litigation otherwise brought in its behalf.

The Supreme Court of Delaware recently reviewed state law in this area and articulated a revised standard for evaluating the futility of making a demand on the Board of Directors. See generally Aronson, supra. The test demonstrates that the question of demand futility is inextricably bound to the issues of business judgment and the standards of that doctrine’s applicability. Id. at 812; Pogostin v. Rice, 480 A.2d 619 (Del.Supr.1984). The business judgment rule is an “acknowledgement of the managerial prerogatives of Delaware directors under § 141(a)” and presumes that in making a decision, the directors “acted on an informed basis, in good faith, and in the honest belief that the action taken was in the best interests of the company.” Aronson, supra at 812. The test requires a bifurcated analysis. To excuse demand, the court:

must decide whether, under the particularized facts alleged, a reasonable doubt is created that: (1) the directors are disinterested and independent and (2) the challenged transaction was otherwise a product of a valid exercise of business judgment. Hence, the [court] must make two inquiries, one into the independence and disinterestedness of the directors and the other into the substantive nature of the challenged transaction and the board’s approval thereof.

Id. at 814-15 (emphasis added). If the court, in the exercise of its sound discretion, “is satisfied that a plaintiff has alleged facts with particularity which, taken as true, support a reasonable doubt as to either aspect of the Aronson analysis, the futility of demand is established and the court’s inquiry ends.” Pogostin, supra at 624.

The questions of disinterestedness and independence of directors:

are measured in relation to certain fundamental principles. Directorial interest exists whenever divided loyalties are present, or a director has either received, or is entitled to receive, a personal financial benefit from the challenged transaction which is not equally shared by the stockholders.. The question of independence flows from an analysis of the factual allegations pertaining to the influences upon the directors’ performance of their duties generally, and more specifically in respect to the challenged transaction. The second, or business judgment inquiry of Aronson, focuses on the substantive nature of the challenged transaction and the board’s approval thereof. A court does not assume that the transaction was a wrong to the corporation requiring corrective measures by the Board. Rather, the transaction is reviewed against the factual background of the complaint to determine whether a reasonable doubt exists at the threshold that the challenged action was a valid exercise of business judgment.

Id.

In adopting the “reasonable doubt” test, Aronson specifically rejected the “reasonable inference” test previously employed by the Delaware courts in order to avoid the situation in which “demand futility becomes virtually automatic.” Aronson, supra at 814. The inference must be so compelling as to create a reasonable doubt. Id.; Kaufman v. Belmont, 479 A.2d 282, 289 (Del.Ch.1984). The demand requirement, therefore, cannot be lightly disregarded and the plaintiffs must consider the consequences if they choose to avoid seeking redress through the corporation. Kaufman, supra at 286. The burden is on the plaintiff to show that the requirements of the rule have been satisfied. Kaufman v. Beal, Civ.Act. Nos. 6485, 6526 (Del.Ch. Feb. 25, 1983) slip op. at 4. See Lewis v. Curtis, supra; In re Kauffman Mutual Fund Actions, 479 F.2d 257 (1st Cir.), cert. denied, 414 U.S. 857, 94 S.Ct. 161, 38 L.Ed.2d 107 (1973). Stricter pleading requirements are imposed than the usual requirement that the allegations of the complaint must only give fair notice of a claim. Kaufman v. Beal, supra at 5. For the purposes of deciding whether plaintiffs meet the requirements of this test, the court may consider only the allegations contained in the plaintiffs’ consolidated action. All well pled facts are assumed to be true. Pogostin, supra at 622; Aronson, supra at 815; Lewis v. Hutt, No. 6752 (Del.Ch. Sept. 4, 1984) slip op. at 9-10.

Board decisions carry a strong presumption of good faith and validity. Only where officers and directors are under an influence which sterilizes their discretion can they be considered improper persons to conduct litigation on behalf of the corporation. Only then would demand be futile. Aronson, supra at 814.

The plaintiffs must allege facts with particularity regarding such interest and control. The good faith presumption can only be rebutted by alleging “such facts as would demonstrate through personal or other relationships” that a majority of the directors are beholden to the controlling person. Id. at 815; Kaufman v. Beal, supra at 11. At minimum, the plaintiff must show “some sort of bad faith” by the directors. Johnson v. Trueblood, 629 F.2d 287, 292 (3rd Cir.1980), cert. denied, 450 U.S. 999, 101 S.Ct. 1704, 68 L.Ed.2d 200 (1981). See Pogostin, supra at 625 (need to show “actual fraud”).

Mere allegations of directorial approval of a transaction, “absent particularized facts supporting a breach of fiduciary duty claim, or otherwise establishing the lack of independence or disinterestedness of a majority of the directors, is insufficient to excuse demand.” Aronson, supra at 817. Allegations regarding a director’s interest in typical board perquisites, prestige, or a motive to retain control, without more, does not constitute bad faith, unless the court chooses to ignore the realities of modern corporate life. Johnson, supra; Panter v. Marshall Field & Co., 646 F.2d 271, 294 (7th Cir.), cert. denied, 454 U.S. 1092, 102 S.Ct. 658, 70 L.Ed.2d 631 (1981) (Normal duties of a director and payment of normal director’s fees insufficient to show interest or lack of independence). To hold otherwise would taint every transaction approved by a board.

The court rejects plaintiffs’ argument that directors have an improper interest in the alleged transactions because they would have to initiate suit against themselves. The law is clear that this “bootstrap argument” must fail and “raises no legally cognizable issue under Delaware corporate law.” Aronson, supra at 818.

The court now turns to its evaluation of each specific transaction.

1. The Stock Purchase

The Delaware General Corporate Law confers broad discretion upon directors in the issuance of stock options and rights and authorizes a corporation to purchase its own stock. See 8 Del.C. § 160(a). Mere approval of the stock agreement does not support a claim for lack of independence under Delaware law or strip the presumption of good faith and independence from the directors. Aronson, supra at 815.

The court has constructed the following factual chronology regarding the stock transaction from plaintiffs’ pleadings:

1. Defendant O’Donnell entered into an employment contract to serve as the President of Bally effective January 1, 1976. Consolidated Complaint at ¶ 38. Between January 1, 1976 and December 16, 1979 O’Donnell became and/or served as Chairman of the Board of Bally, in addition to its President. Id. at ¶ 6.

2. On December 5, 1979, O’Donnell entered into an agreement with an unnamed party, allegedly in connection with the issuance of a temporary casino permit to Bally’s Park Place, a subsidiary of Bally’s, to resign as an officer and director of Bally and its subsidiaries and enter into an irrevocable trust agreement with respect to his shares of Bally common stock. Id. at ¶¶ 19, 20.

3. On December 29, 1980, the Casino Control Commission denied O’Donnell a license and required the continuation of the trust pending the divestiture of his Bally and Bally’s Park Place stock. Id. at ¶ 23. O’Donnell unsuccessfully appealed this ruling. Id. at ¶ 24.

4. O’Donnell placed his Bally and Bally’s Park Place stock in a trust on September 20, 1983, pursuant to a divestiture plan approved by the Casino Control Commission. Id. at ¶ 23.

5. In November 1983, the Casino Control Commission learned O’Donnell had pledged his Bally stock as collateral, inter alia, for a loan. Id. at ¶ 26.

6. O’Donnell caused the release of his Bally stock from the pledge and entered into a trust agreement for divestiture dated December 15, 1983. Id. at ¶ 26.

7. On January 6, 1984, Bally agreed to purchase 690,000 shares of its common stock held by O’Donnell at $25 per share, for $17.9 million, a premium of approximately 20% over market price. Bally agreed to bear the cost of O’Donnell’s defense to any legal actions resulting from this buy-out. Id. at ¶ 28.

8. Bally purchased the 43,803 shares of Bally’s Park Place stock owned by O’Donnell at $15 per share, exceeding the closing prices of the stock on January 5 and 6, 1984, which were 13½ and 14⅛ respectively. Bally purchased these shares because the by-laws of Bally’s Park Place prevented Bally’s Park Place from repurchasing its own shares for a price higher than the market price. Id. at ¶ 37.

The plaintiffs fail to show any “causal link” between O’Donnell’s alleged control over Bally’s directors and the approval of the stock transaction. See Aronson, supra at 816. Although O’Donnell had served as Chairman of the Board and President of Bally, he resigned on December 16, 1979, and subsequently placed his stock in a trust. The alleged wrongful acts by director defendants all occurred after that date.

The Delaware Supreme Court has held that in the demand context, “[s]tock ownership alone, at least when it amounts to less than a majority interest, is not sufficient proof of domination or control.” Aronson, supra at 815. Kaplan v. Centex Corp., 284 A.2d 119 (Del.Ch.1971). Aronson held that a shareholder who owned a 47 percent interest in the company and had elected most of the members of the Board of Directors did not exercise the control needed to enable the court to excuse demand in a derivative suit. Id. It is also insufficient to charge that the directors were nominated and elected at the behest of those controlling. Id. at 816. Plaintiffs allege no particular facts which suggest that O’Donnell controlled a majority of the Board, either from a position of management, membership on the Board itself, or as an owner of stock, the traditional incidences of control.

Plaintiffs also allege that O’Donnell’s son held the positions of Vice President of Bally and President of Aladdin’s Castle, Inc., a Bally subsidiary and that his son-in-law served as Vice President, Secretary and General Counsel to Bally. Consolidated Complaint at ¶ 52(b). However, “the mere serving.. .as an officer of a corporation [does not] demonstrate control or domination.” Kaufman v. Beal, supra at 11. The court also finds that statements by defendants praising O’Donnell and his services are insufficient to raise a reasonable doubt as to their loyalty to the company. Consolidated Complaint at ¶ 52(a).

Plaintiffs allege that defendant directors have an interest in this matter because the company indemnified and financed O’Donnell’s legal efforts to reverse the Casino Control Commission’s opinion, Consolidated Complaint at ¶ 25, and agreed to indemnify O’Donnell in any action challenging the buy-back of his shares. Id. at ¶ 29. These facts are insufficient to excuse demand.

The Delaware Corporate Law specifically authorizes corporations to indemnify present and former directors and officers. 8 Del.C. § 145. Board members have no personal interest arising from these obligations. The corporation merely has an obligation to pay the legal bills. Plaintiffs do not allege that Bally agreed to conduct O’Donnell’s defense.

Plaintiffs also claim that defendant Aronoff has an interest. Bally paid the law firm of Benesch, Friedlander, Coplan & Aronoff, of which Aronoff is a name partner, legal fees of $1,450,000 in 1979, $896,000 in 1980, more than $1,000,000 in 1982 and approximately $1,300,000 in 1983. Aronoff has a longstanding business relationship with O’Donnell and is a member of the Compensation and Stock Options Committee. Consolidated Complaint at ¶ 11. However, plaintiffs do not allege that Aronoff acted improperly at any time or that the firm failed to provide the services warranting these fees. Without more, these allegations are insufficient to overcome the presumption of validity provided to the actions of directors.

Plaintiffs argue that under the stock buy-out agreement, the directors decided that any action brought to challenge the transaction would be "spurious and without merit,” and thus prejudiced any shareholder demand petition. Id. at ¶ 53. The court finds this objection to be without merit. It constitutes mere precatory language on the part of the directors, and only suggests their reasoned assent to the transaction. For the directors to decide otherwise could leave them vulnerable to attack on business judgment grounds.

Plaintiffs do raise sufficient particular allegations as to the director’s lack of “care, attention, and sense of individual responsibility” in the performance of their duties to create a reasonable doubt as to their independence and overcome the presumptions of the business judgment rule. Aronson, supra at 816. See Lewis v. Hutt, supra at 10. Under the business judgment rule, director liability is predicated upon wrongs equal to or exceeding gross negligence. Aronson, supra at 812. Plaintiffs allege that the defendant directors knowingly and needlessly wasted the corporation’s assets and call into question their due care. Gimbel v. Signal Cos., Inc., 316 A.2d 599 (Del.Ch.1974), aff'd per curiam, 316 A.2d 619 (Del.Supr.1974). Such lack of due care may expose board members to potential liability. Kaufman, supra at 14.

The plaintiffs further allege that Bally did not have to purchase O’Donnell’s stock, at a premium or otherwise, as he was required to divest it pursuant to an order from the New Jersey Casino Control Commission. Failure to divest his interest in Bally’s would subject him to potential civil and criminal liability. Consolidated Complaint at ¶ 33. Therefore, Bally’s decision to buy out his shares at a premium of 20 percent above the market price grossly wasted corporate assets. Plaintiffs contend that Bally had a market for its shares sufficient to accommodate the divestiture and that 35 million shares of Bally common stock traded on the open market last year. Id. at ¶ 5. Plaintiffs also allege that Bally’s directors forced Bally to buy back O’Donnell’s Bally’s Park Place shares, in order to circumvent a by-law which prevented Bally’s Park Place from purchasing its own shares above market price, and thus further wasted Bally’s corporate assets. Id. at ¶ 37.

Plaintiffs plead that the New Jersey Casino Control Commission stated that Bally “did not have to purchase” O’Donnell’s stock, and that the buy-out was “not necessary to effect the divestiture of the O’Donnell shares.” The Commission reported that the manner in which the buy-back agreement was reached was “troubling” and cause of “some concern.” Id. at ¶ 32. The plaintiffs further allege that the directors did not act on an informed basis and approved the transaction “partly absent any meaningful negotiations” as a “hastily called telephonic meeting.” The directors were not informed about the purpose of the meeting in advance. Id. at ¶ 54(ii). Plaintiffs offer particularized facts that the transaction came at a time of significant decline in income, stock price, and profitability for Bally. Id. at ¶¶ 35, 36.

The court finds that the plaintiffs’ allegations, considered together, raise a reasonable doubt as to the directors’ independence and business judgment. Therefore, the court denies defendants’ motion to dismiss for failure to make demand as to the stock purchases.

2. The Employment Contract

Delaware Law provides that “[ejvery corporation created under this Chapter shall have the power to appoint such officers and agents as the business of the corporation requires and to pay or otherwise provide to them suitable compensation.” 8 Del.C. 122(5). Directors carry a good faith presumption in their establishment of employment relationships. Kaufman v. Beal, supra at 15. As a result, courts are reluctant to inquire into the reasonableness of executive compensation, especially if it is fixed by a disinterested board of directors. Wilderman v. Wilderman, 315 A.2d 610, 615 (Del.Ch.1974).

Plaintiffs plead that the defendant directors acted improperly in both the making and the termination of the employment agreement between Bally and O’Donnell. The court has constructed the following factual chronology from plaintiffs’ pleadings.

1. Defendant O’Donnell entered into an employment contract to serve as the President of Bally effective January 1, 1976. Consolidated Complaint at ¶ 38. Between January 1, 1976 and December 16, 1979, O’Donnell became and/or served as Chairman of the Board of Bally, in addition to its President. Id. at ¶ 6.

2. The Board of Directors increased O’Donnell’s salary to $275,000 per year, effective January 1, 1978. Id.

3. On January 25, 1978, Bally applied to the Casino Control Commission for a casino license. On February 24, 1978, Bally’s Park Place, a subsidiary of Bally’s, applied for a casino license. Id. at ¶ 16.

4. As a result of these applications, the Division of Gaming Enforcement began an investigation into the qualifications of the companies and their officers and directors, including O’Donnell. Id. at ¶ 18.

5. In November 1979, the Board of Directors increased O’Donnell’s salary to $350,000, effective January 1, 1980, “with discretionary bonuses and other employment benefits.” Id. at ¶¶ 38, 40. This agreement extended his term of employment for five years, the longest such extension to date. Id.

6. On December 5, 1979, O’Donnell entered into an agreement with an unnamed party, allegedly in connection with the issuance of the temporary casino permit to Bally’s Park Place, to resign as an officer and director of Bally and its subsidiaries and enter into an irrevocable trust agreement with respect to his Bally shares of common stock. Id. at ¶ 20.

7. Pursuant to the December 5, 1979 agreement, O’Donnell resigned all positions held by him with Bally and its subsidiaries on December 16, 1979. Id. at ¶ 38.

8. On August 20, 1980, the Division of Gaming Enforcement filed a report and Statement of Issues, recommending, in part, that the Casino Control Commission deny a license to O’Donnell. Id. at ¶¶ 22, 23.

9. Following a full hearing, the Casino Control Commission issued an opinion on December 29, 1980 denying O’Donnell a license. Plaintiffs allege that “[ejonsequently” the Commission “foreclosed defendant O’Donnell from playing any role in the management or in the formulation of policy of Bally and Bally’s Park Place____” Id. at ¶ 23.

10. In February 1981, Bally and O’Donnell entered into an agreement whereby Bally paid defendant O’Donnell $2,112,000 as settlement of any claims with respect to termination of the employment agreement. Id. at ¶ 40.

Plaintiffs allege that defendants violated their fiduciary duty to the company and wasted Bally’s assets by (1) approving a new contract between O’Donnell and Bally when it knew O’Donnell was being investigated, and (2) buying out the employment agreement even though O’Donnell was prohibited from performing services for Bally and its subsidiaries.

First, plaintiffs fail to allege any particular facts which indicate that the defendant directors had an interest' in or failed to exercise judgment independently with regard to either the approval of the extension of employment or the termination of the contract. Plaintiffs’ allegations fail to go beyond mere conclusory statements that Bally paid O’Donnell more than arguably due him and that he failed to perform his contracted services. See Aronson, supra at 817.

Plaintiffs allege that directors should have refrained from extending O’Donnell’s contract, given the investigation by the Division of Gaming Enforcement. However, the Division did not make an adverse recommendation regarding O’Donnell of any kind until August 12, 1980, fully eight months after the directors extended his contract. Plaintiffs further fail to allege that the investigation was more than routine, as a result of Bally’s Park Place’s application for licensure, or that it pertained to only O’Donnell. Plaintiffs fail to allege that the directors knew or should have known that the Division was investigating any particular acts of wrongdoing. Plaintiffs fail to allege that the corporate directors extended his contract and raised his salary after his “agreement” of December 5, 1979 to resign and place his stock in trust. In fact, plaintiffs do not even identify the parties to the agreement. Plaintiffs only infer that the issuance of Bally’s Park Place’s temporary casino permit led to O’Donnell’s resignation.

Plaintiffs do note that O’Donnell served as both Chairman of the Board and President of Bally until his resignation. Consolidated Complaint at ¶ 6. His duties as Chairman extended far beyond his interest in Bally’s Park Place, one of the company areas of concern. They note that defendant Mullane, in a letter to shareholders included in Bally’s 1980 Annual Report, praised O’Donnell as “the man most responsible for the success of Bally’s over the years.” He referred to Bally and its subsidiaries as “companies which Mr. O’Donnell formed and personally guided from their inception.” The letter stated management’s collective “great sorrow about the decision [of the Commission] affecting Bill O’Donnell.” Id. at ¶ 52(a). Given this glowing evaluation of O’Donnell’s performance, it is not surprising that the Board voted him a salary increase. As to the timing of the increase, plaintiffs allege that O’Donnell received only one other raise, effective January 1, 1978, two years after the commencement of his contract. His second and contested raise follows this initial increase by another two year period. The court cannot find that, as Chairman and President of Bally, O’Donnell received unreasonable or untimely compensation.

Plaintiffs argue that as a result of the Casino Control Commission’s denial of O’Donnell’s license, he could not perform services for Bally under his contract. However, they fail to allege that the Commission had the power to terminate and did so terminate the contract between Bally and O’Donnell, thereby making it impossible for O’Donnell to render those services. The court cannot infer that the “agreement” of December 5, 1979 which led to O’Donnell’s resignation, voided the employment agreement. The complaint highlights Bally’s dilemma following the Commission’s refusal to grant O’Donnell’s license. Bally could either choose to maintain its longstanding and profitable relationship with O’Donnell — at great peril to its own Atlantic City casino licenses — or it could terminate its relationship with O’Donnell and maintain its lucrative business in the state. Bally chose to retain its Atlantic City Casino and sever ties to O’Donnell, and implemented its decision by buying out the remaining interest in O’Donnell’s contract.

The court does not find the inferences which can be drawn from the pleadings sufficiently compelling to create a reasonable doubt as to defendants’ business judgment in approving the agreements, as required by Aronson. Plaintiffs having failed to make demand upon the corporation, the court dismisses their claims against the director defendants arising out of the employment agreements.

3. The Land Purchase and Lease Termination

The Delaware law authorizes corporations to purchase and lease real property. Such board-approved transactions carry a presumption of propriety. Tabas v. Crosby, Civ.Act. No. 6619 (Del.Ch. July 23, 1982), aff'd sub nom. Geller v. Tabas, 462 A.2d 1078 (Del.Supr.1983).

Plaintiffs allege that for several years, Bally maintained a corporate headquarters at 2640 Belmont Avenue, Chicago, Illinois, and paid an annual rent of $219,000. Bally rented the office space from a partnership in which O’Donnell owned a two-sevenths interest under a lease “that extended through 1983.” In 1983, Bally moved its corporate headquarters to 8700 Bryn Mawr Avenue. In July 1983, the directors “then in office” caused Bally to purchase the 2640 Belmont Avenue premises for $1.9 million. The directors further caused Bally to pay a lease termination charge of $292,-000. Consolidated Complaint at ¶ 41. Plaintiffs call these payments excessive and a waste of corporate assets.

Plaintiffs fail to offer any particularized facts regarding the impropriety of this transaction beyond the mere conclusory allegations of “excessive costs.” Such conclusory allegations were flatly rejected as insufficient in Aronson. See Aronson, supra at 816-18. In the demand-futile context, a plaintiff charging domination and control of one or more of the directors must allege particularized facts manifesting “a direction of corporate conduct in such a way as to comport with the wishes or interests of the [person] doing the controlling.” Id. at 816, quoting Kaplan, supra at 123. Plaintiffs offer no facts which address their general allegations as to the interest and/or lack of independence of the directors.

Importantly, plaintiffs do not argue that the leasehold interest was bargained for separately. The court construes the pleading to state that the parties bargained for an aggregate purchase price of $2,192,000, apportioned between the purchase price and the leasehold interest. Further, plaintiffs do not include any allegations as to when the lease terminated — a fact necessary to evaluate the consideration paid to the leasehold interest. Plaintiffs ask the court to infer that the lease would have terminated six months after the July 1983 purchase date because the lease “extended” through 1983, and therefore, a lease termination charge of $292,000 would be excessive on its face, given the annual rental fee of $219,000. The court emphasizes that this is the type of inference rejected in Aronson, in deference to the stated public policy behind the demand provisions. See Aronson, supra at 811. Plaintiffs must plead facts with particularity to overcome the presumption in favor of the validity of the transaction. Here plaintiffs omit any allegations as to when the lease terminated. The fact that the lease “extended” through 1983 provides no clear information as to its expiration, and is thus, insufficient.

Plaintiffs argue in their briefs that they “suspect” that the consideration for the interest in the property was excessive and “will be the subject of prompt discovery.” See Plaintiffs’ Brief, September 26, 1984, at p. 24. However, “[i]n the Rule 23.1 context, only the pleadings are considered and the plaintiff is not entitled to supplement his allegation of demand futility.” Kaufman, supra at 15. The court cannot conclude, under Aronson, that the facts, as alleged, create the reasonable doubt needed to waive the demand requirement. Therefore, the court grants defendants’ motion to dismiss for failure to make demand as to the land purchase and lease termination.

4. Scheme to Enrich O’Donnell

Plaintiffs allege that the above transactions, taken together, constitute a scheme — “a continuous course of conduct and business to unlawfully and improperly enrich defendant O’Donnell and to circumvent the directives of the Casino Control Commission.” Consolidated Complaint at ¶ 15. It is true that each of these transactions involve O’Donnell. However, plaintiffs fail to offer facts that the same directors approved the transactions, and even if they did, that the directors were not disinterested or independent.

Bally had a reasonable business purpose, as articulated by plaintiffs, in extinguishing its business connections with O’Donnell. Failure to eliminate its relationship with O’Donnell could have jeopardized its license to do business in Atlantic City. See, e.g., Consolidated Complaint at ¶¶ 20, 23, 25, 26 and 34. The pleading demonstrates that Bally severed its ties to O’Donnell methodically, over a period of nearly five years, and kept its casino license as a consequence.

The court has thoroughly considered the plaintiffs’ allegations as a group and finds that they do not create the reasonable doubt needed to excuse demand.

An appropriate order will be entered.


source: Caselaw Access Project

author: BATTIN, Chief Judge.

license: Public Domain

text:
    BASIN ELECTRIC POWER COOPERATIVE, Plaintiff, v. DEPARTMENT OF PUBLIC SERVICE REGULATION, MONTANA PUBLIC SERVICE COMMISSION and Thomas Schneider, John Driscoll, Howard Ellis, Clyde Jarvis and Danny Oberg as Commissioners; United States Department of Energy; Donald P. Hodel, as Secretary of United States Department of Energy; Western Area Power Administration; Robert L. McPhail, As Administrator of Western Area Power Administration; Bonneville Power Administration and Peter T. Johnson as Administrator of Bonneville Power Administration, Defendants.
    No. CV-84-138-H.
    United States District Court, D. Montana, Helena Division.
    Jan. 11, 1985.

      Stephen H. Foster, Holland & Hart, Billings, Mont., and Robert T. Connery, Robert M. Pomeroy, Jr., Michael J. Brennan, Holland & Hart, Denver, Colo., for plaintiff.
    Eileen E. Shore, Robert A. Nelson, Staff Attys., Helena, Mont., for Dept. of Public Service Regulation, Montana Public Service Com’n, Thomas Schneider, John Driscoll, Howard Ellis, Clyde Jarvis and Danny Oberg.
    Frank D. Meglen, Asst. U.S. Atty., Billings, Mont., for U.S. Dept. of Energy, Donald P. Hodel, Western Area Power Admin., Robert L. McPhail and Bonneville Power Admin.
   MEMORANDUM OPINION

BATTIN, Chief Judge.

Plaintiff Basin Electric Power Cooperative (Basin Electric) has filed a second motion for summary judgment in the above-captioned case. Plaintiff asserts that defendant Montana Public Service Commission (PSC) lacks statutory authority and does not have standing to raise any claims for relief set forth in its cross-claim. Specifically, the PSC is claiming violations of the National Environmental Policy Act (NEPA), 42 U.S.C. §§ 4321-4347. For reasons stated below, plaintiffs second motion for summary judgment is granted.

FACTS

On April 15, 1982, Basin Electric, a North Dakota electric cooperative corporation, and the Western Area Power Administration (WAPA), a federal electric power marketing agency, entered into a contract for the sale of power from the Antelope Valley Station electric generating plant in North Dakota for use by consumers in central California. The contract provided that WAPA would purchase 185 MW of power per year from Basin Electric for a five-year period. At the time that Basin Electric and WAPA began negotiations no Pacific Northwest utility was willing to commit to supplying the power, although surpluses now exist and power could come from closer sources.

The contract called for the power to be delivered by Basin Electric to WAPA at Miles City, Montana. WAPA then entered into a proposed Memorandum of Understanding (MOU) with the Bonneville Power Administration (BPA), a federal electric power marketing agency, for transmission of the power across Montana. The BPA prepared an Environmental Assessment (EA) of the proposed MOU, concluding that the MOU, as amended, was not a major federal action requiring preparation of an Environmental Impact Statement (EIS).

The PSC challenges Basin Electric’s sale of power to WAPA on the grounds that WAPA and BPA have violated NEPA by failing to provide (1) an EA or an EIS on the Basin Electric-WAPA contract; (2) an EIS on the MOU; or (3) an EIS on the Intertie Access Policy of the BPA, which is implicated by the MOU. The PSC claims that the sale of power will degrade the human environment, to the detriment of Montana ratepayers, and that the PSC has a right under NEPA to comment on the environmental impact of the sale. However, the Court finds that the PSC lacks authority and standing to assert such claims.

DISCUSSION

A. Statutory Authority

The PSC asserts that Montana’s public utility law expressly gives the PSC both specific and general powers covering a comprehensive field of regulation. The PSC contends that the Commission is given “full power of supervision, regulation, and control” of public utilities, Mont.Code Ann. § 69-3-102 (1983), which includes responsibility for conservation and environmental quality. Thus, the PSC argues, it is authorized to enforce environmental standards, and its regulatory jurisdiction clearly extends to concerns applicable to NEPA. The Court does not agree.

The Montana PSC’s duty, as defined by statute, is “to supervise and regulate the operations of public utilities, common carriers, railroads, and other regulated industries listed in this title.” Mont.Code Ann. § 69-1-102 (1983). A “public utility” is defined as a corporation that owns, operates, or controls any plant or equipment in Montana for production or delivery of power. Mont.Code Ann. § 69-3-101(1) (1983). Therefore, even if the Commission were vested with the full powers advocated by the PSC, such powers only extend to public utilities in Montana. The PSC has no statutory authority to challenge the contract executed between Basin Electric, a North Dakota corporation, and WAP A, a federal agency.

Despite the PSC’s assertions, nothing in Title 69 can be construed as giving the PSC statutory power to enforce environmental standards. While the commission has the power “to do all things necessary and convenient” in the exercise of its powers, Mont.Code Ann. § 69-3-103(1) (1983), those powers are limited to matters affecting rates and services. The PSC has the power to encourage conservation but the power is limited to including conservation purchases or investments in a utility’s rate base. Mont.Code Ann. § 69-3-712(1) (1983). There is no statutory indication under Title 69 that the legislature intended to extend the PSC’s powers beyond the obvious scope of express rate-making authority, and no Montana case law suggests otherwise. Had the legislature desired to extend the PSC’s powers, it would have clearly granted the PSC power to enforce environmental standards.

Likewise, the Montana Major Facility Siting Act, Mont.Code Ann. §§ 75-20-101 to -1205 (1983), provides no statutory authority for the PSC’s position. The Major Facility Siting Act is an environmental planning statute. The Act provides that no power or energy conversion facility may be constructed or operated within Montana without a certificate of environmental compatibility and public need. Mont.Code Ann. § 75-20-102 (1983).

The Act does not extend the PSC’s powers beyond its designated area of expertise. Any application for construction is served on state agencies such as the departments of public service regulation, commerce, highways and revenue. Mont.Code Ann. § 75-20-211(3) (1983). Each department must then report information relating to the impact of the proposed site on each department’s area of expertise. Mont.Code Ann. § 75-20-216(5) (1983). Such statutes do not indicate that the PSC has any special interest in conservation and environmental standards beyond impacts upon its ratemaking authority. The PSC has not been singled out as an agency with a particular interest or expertise in environmental matters. Without express statutory authority for the PSC to challenge federal actions under NEPA, the PSC must acquire standing to seek judicial review.

B. Standing to Seek Judicial Review

Defendant PSC’s cross-claim seeks judicial review under the Administrative Procedure Act (APA), 5 U.S.C. §§ 701-706, of the actions taken by the WAPA and BP A. The PSC seeks to enjoin and invalidate the power transfer in issue pending agency compliance with NEPA. Basin Electric, as well as WAPA, challenges the PSC’s standing to assert its cross-claim.

Standing under the general review provisions of the APA requires a finding that the PSC has suffered an “injury in fact” and that the injury is “arguably within the zone of interest to be protected or regulated” by NEPA. See Association of Data Processing Organizations, Inc. v. Camp, 397 U.S. 150, 152-153, 90 S.Ct. 827, 829-830, 25 L.Ed.2d 184 (1970).

The requisite injury will arise from an impairment of the PSC’s discharge of its statutory obligations. Washington Utilities and Transportation Comm’n v. F.C.C., 513 F.2d 1142, 1149 (9th Cir.), cert. denied, 423 U.S. 836, 96 S.Ct. 62, 46 L.Ed.2d 54 (1975). Thus, if actions by WAPA and BPA have interfered with the PSC’s rate-making authority, the PSC has standing. Injuries complained of by the PSC include degradation of the human environment (cross-claim, ¶ 48), interference with Pacific Northwest conservation opportunities (cross-claim, ¶ 22), denial of the right to comment on the environmental impact of WAPA’s actions (cross-claim, ¶ 50), and increased electric rates to Montana ratepayers (cross-claim, ¶ 49).

The PSC, as previously discussed, is not responsible for environmental quality. It is not required to develop and enforce environmental or conservation standards so the challenged action has not impaired the PSC’s statutory obligations. No injury can be found based on the PSC’s environmental claims. The PSC acts from a generalized “motivation” and its concern is shared by citizens generally. Schlesinger v. Reservists Committee to Stop the War, 418 U.S. 208, 216-217 and 225-226, 94 S.Ct. 2925, 2929-2930 and 2934-2935, 41 L.Ed.2d 706 (1974).

The PSC’s claim of increased electric rates to Montana ratepayers must fail because injuries based on the PSC’s rate-making authority do not fall within the “zone of interests” to be protected by NEPA. Without environmental claims, the PSC has no standing to challenge the transfer under NEPA. Port of Astoria, Oregon v. Hodel, 595 F.2d 467, 475 (9th Cir.1979). Based on an examination of the character and interests of the PSC and the issues in dispute, the Court finds that the PSC fails to meet either prong of the APA standing test, and the PSC has no standing to assert any of the counts set forth in its cross-claim.

The PSC seeks to challenge what it terms a costly and unnecessary 2,000-mile transfer of electricity. It is attempting to use an environmental guise to challenge the transfer so that Pacific Northwest energy sources can be used, which would create a market for surpluses and spur conservation. However, the PSC has erroneously characterized its authority to include environmental interests. Therefore, the PSC’s cross-claim is dismissed and Basin’s second motion for summary judgment is granted.

An order conforming to this Memorandum Opinion shall be issued by the Court.

      . The Montana Supreme Court has recently declined to rule on the scope or extent of the powers of the PSC under Title 69, Chapter 3. Montana Power Company v. Public Service Commission of the State of Montana, Mont., 692 P.2d 432 (1984).


author: SACHS, District Judge.

text:
    UNITED STATES of America, Plaintiff, v. Richard J. SERVAES and Mary I. Servaes, Defendants.
    No. 83-6058-CV-SJ-6.
    United States District Court, W.D. Missouri, W.D.
    Jan. 23, 1985.

      Linda L. Parker, Asst. U.S. Atty., Kansas City, Mo., for plaintiff.
    Dale Reesman, Williams, Reesman & Tate, Boonville, Mo., for defendants.
   MEMORANDUM AND ORDER

SACHS, District Judge.

The parties’ pending cross-motions for summary judgment in the above-captioned case present a dispute between the Farmers Home Administration (FmHA) and farmer-borrowers in Buchanan County, Missouri. The defendants, Richard J. and Mary I. Servaes, obtained FmHA farm loans in 1979 and 1980 and executed promissory notes and security agreements covering their farmland as collateral. Security for the loans was provided in part by the execution of two deeds of trusts which conveyed the defendants’ real estate to the Missouri state director of the FmHA as trustee. For reasons to be discussed later in this memorandum, the FmHA accelerated all of the defendants’ loans in August of 1981 (and again in February of 1982) and proceeded to purchase the defendants’ real property at a non-judicial foreclosure sale on September 7, 1982 after a number of unsuccessful administrative appeals by the defendants. The present action was commenced by the Government for adjudication of title to the real property, for possession of the premises, for a writ of assistance directing the United States Marshal to put the FmHA in possession of the premises, and for damages resulting from defendants’ refusal to vacate the premises after due demand was made. On May 1, 1984, this court granted defendants leave to file their first amended answer and counterclaim. The counterclaim invokes various statutory and constitutional provisions and asks the court to enjoin plaintiff’s efforts to foreclose and gain possession of the premises until defendants are given the opportunity to apply for and obtain various loans for which they qualify and until the plaintiff promulgates national regulations which “fully implement adequate loan servicing regulations, policies, and procedures, including deferment, for the farm programs under the Act [Consolidated Farm and Rural Development Act (CFRDA)].” The parties have now submitted a Stipulation of Facts and have fully briefed their respective claims.

Eligibility for loan moratorium program pursuant to 7 U.S.C. § 1981a

A 1978 amendment to the Consolidated Farm and Rural Development Act of 1961 was enacted by Congress to provide temporary relief to farmers unable to meet their debt obligations to the FmHA. That amendment provides, in part:

In addition to any other authority that the Secretary may have to defer principal and interest and forego foreclosure, the Secretary may permit, at the request of the borrower, the deferral of principal and interest on any outstanding loan made, insured, or held by the Secretary under this chapter, or under the provisions of any other law administered by the Farmers Home Administration, and may forego foreclosure of any such loan, for such period as the Secretary deems necessary upon a showing by the borrower that due to circumstances beyond the borrower’s control, the borrower is temporarily unable to continue making payments of such principal and interest when due without unduly impairing the standard of living of the borrower. 7 U.S.C. § 1981a

The substantive and procedural requirements that this new provision imposes on the Secretary of Agriculture were the subject of the Eighth Circuit decision in Allison v. Block, 723 F.2d 631 (1983). The farmer-plaintiffs in Allison sought declaratory and injunctive relief from the acceleration of their FmHA loans and foreclosure on their property on the ground that the Secretary’s failure to promulgate adequate loan deferral regulations under 7 U.S.C. § 1981a constituted disregard for that statute, a violation of plaintiffs’ due process and equal protection rights, and an abuse of discretion. The Eighth Circuit affirmed Judge Wright’s injunction against foreclosure proceedings based on the Secretary’s failure to comply with the loan moratorium amendment to the Act. See Allison v. Block, 556 F.Supp. 400 (W.D.Mo.1982). Specifically, the court of appeals agreed with Judge Wright that “section 1981a creates a right to have certain uniform procedures established and requires the Secretary to develop substantive standards applicable to deferral applications.” 723 F.2d at 634. The court rejected the Secretary’s argument that implementation of § 1981a was to be left to the discretion of the Department of Agriculture. After examining the legislative history underlying the 1978 amendment, the Eighth Circuit concluded that Congress “intended the Secretary to give notice of the availability of section 1981a relief to all CFRDA borrowers subject to loan acceleration or foreclosure and to establish a uniform procedure under which borrowers can make the requisite requests and prima facie showing [of eligibility].” Id. The current regulations did not satisfy these notice and hearing requirements and, therefore, an injunction against foreclosure was justified on procedural grounds alone. In addition, the Secretary had “abdicated” his responsibilities under § 1981a by his failure to develop “substantive standards at the agency level to guide ... [his] discretion in making individual deferral decisions.” Id. at 637. In sum, foreclosure of the plaintiffs’ farm was enjoined until the Secretary of Agriculture fully implemented the loan deferral statutory provision.

The parties in the present case have stipulated that the “Farmers Home Administration did not implement the provisions of 7 U.S.C. Section 1981a in its dealing with defendants.” Stipulation of Facts, paragraph 15. Defendants further allege that they were never given notice of possible deferral relief available under this statute. Rather than rearguing the merits of Allison or contending that subsequent action by the FmHA has brought the Department of Agriculture into compliance with the Eighth Circuit’s interpretation of 7 U.S.C. § 1981a, the plaintiff here asserts that defendants are not entitled to invoke the rights and remedies created by that statute (as elaborated in Allison) because (1) misconduct in connection with the loan destroys their standing to invoke these rights and (2) they failed to exhaust their administrative remedies prior to bringing their counterclaim. For the reasons discussed below, the court holds that plaintiff’s standing and exhaustion arguments are without merit and that defendants are entitled to injunctive relief along the lines approved by the Eighth Circuit in Allison.

Plaintiff’s standing argument is based in large part on the language of 7 U.S.C. § 1981a. The Secretary’s loan deferral authority granted in this provision is limited to situations in which because of circumstances beyond the borrower’s control, “the borrower is temporarily unable to continue making payments of such principal and interest____” The Government contends that if an independent ground exists for acceleration and foreclosure other than the farmer’s nonpayment of his FmHA loans, then the farmer lacks standing to raise the loan deferral or moratorium defense because he would be subject to foreclosure anyway for nonmonetary default. The borrower would suffer no injury from the non-implementation of 7 U.S.C. § 1981a because even if a loan moratorium was available based on the nonpayment of loans, that program would not cure or assuage the borrower’s other default. In the present case, plaintiff asserts that the independent ground for acceleration of the promissory notes was the defendants’ failure to account for the disposition of crops pledged to FmHA as security for the loans. The first notice to the defendants of the acceleration of their debt, an August 24, 1981 letter from the state director of the FmHA, stated that default had occurred “by failure to pay installments of principal and interest when due, permitting the same to become delinquent, and due to your alleged disposal of property covered by the security agreement without the consent of the Government.” (emphasis added) Exhibit 8, attachment to Stipulation of Facts.

A similar standing argument was presented to Judge Wright in Chandler v. Block, 589 F.Supp. 876 (W.D.Mo.1983). In that case, FmHA foreclosure proceedings were commenced because of non-payment of loans and the alleged disposal of secured property. Judge Wright concluded that the farmer-plaintiff did have standing to challenge violation of 7 U.S.C. § 1981a because “[t]he administrative record demonstrates that the reasons for foreclosure in this case, non-payment and disposal of secured party, were concurrent and not independent grounds.” 589 F.Supp. at 881. Because a review of the pertinent documents revealed that foreclosure proceedings would not have been instituted “if the sole basis for the default had been the alleged collateral conversion,” the plaintiffs were harmed by the Secretary’s failure to implement the loan deferral statute. Id. I accept the analysis by Judge Wright in Chandler, and the analogy to this case, in particular the conclusion that disposal of secured property is not a basis for foreclosure independent of the farmers’ monetary default — nonpayment of their FmHA loans. The letters sent by the FmHA to the defendants in the present case indicate that the primary reason for the acceleration and foreclosure was the Servaes’ monetary default. For example, a November 6, 1981 letter from John Garrett, acting district director of the FmHA, to the defendants informed the Servaeses that foreclosure would be delayed until the harvesting and selling of defendants’ 1980 and 1981 crops. The defendants were directed to pay the FmHA $35,000 “[a]s these sales are completed”; “[i]f this crop is not sold and the Farmers Home Administration is not paid this amount by December 15,1981, then foreclosure proceedings will be resumed without further delay.” This grace period given the defendants shows that the FmHA’s ultimate decision to foreclose was to be based on whether defendants would make a significant payment on the loans in order to cure, at least in part, their monetary default. While this November 6, 1981 letter also instructs the defendants “to account for proceeds from mortgaged property until your loans are paid in full,” there is every reason to believe that adequate debt payments would have shielded defendants from foreclosure regardless of their disposition of collateral. The August 24, 1981 letter spoke of the defendants’ alleged disposal of collateral and their monetary default. Had the Secretary intended to rely on the former factor as an independent basis for acceleration foreclosure, presumably more than allegations of collateral disposal would have been cited. Concrete instances of conversion or unlawful disposal would likely have been described and verified.

The court also notes on this subject the factual finding made by Judge Wright that, according to an FmHA official who testified at the trial of Chandler v. Block, “a number of borrowers sell collateral without the prior consent of the FmHA but ... the agency institutes acceleration and foreclosure proceedings only when loan payments are not made.” 589 F.Supp. at 881-82.

The Government cites a slip opinion issued by this court in Turnbull v. Block, No. 82-6053-CV-SJ (November 1, 1982). That decision, denying a preliminary injunction because of questions regarding a farmer-plaintiff’s standing to bring an action to enjoin the Secretary from refusing to implement a loan moratorium program pursuant to 7 U.S.C. § 1981a, can be distinguished from the present lawsuit because I made a tentative finding in Turnbull that “the decision to accelerate payment of plaintiffs’ loan was based on the failure to account for security.” Id. at 2. Footnote 1 in the Turnbull decision, however, does indicate that the nonmonetary default may have been only one factor in the decision to accelerate, with the failure to make payments also a contributing factor. If that is the case, the facts in Turnbull may be comparable to the situation presented in Chandler and the present action. Although Judge Wright’s efforts to distinguish Turnbull, therefore, may not be entirely satisfactory, principles of “comity and uniformity” dictate that substantial deference and sometimes controlling deference be given to the considered rulings of a colleague on a multi-judge court. See In re Airport Car Rental Anti-trust Litigation, 521 F.Supp. 568, 571-72 (N.D.Cal.1981), aff'd 693 F.2d 84 (9th Cir.1982). “Orderly functioning of the judicial process” is advanced when the accident of assignment does not materially affect the outcome of litigation.

Particular deference is due the decisions of a judge who has entered final judgment in companion litigation based on the principles considered and adopted. A special effort should also be made to conform one’s rulings to opinions that a fellow judge in the district has considered important enough to be published. Because the Chandler decision was published, unlike my ruling in Turnbull, the former opinion is more likely to be relied on by members of the bar and by parties involved in similar litigation in this district.

It should also be noted that the Secretary had the opportunity to appeal Judge Wright’s opinion in Chandler but chose not to do so. This significant legal development occurred after my Turnbull decision. In effect, what the plaintiff is now seeking is for this court to disregard a colleague’s holding which it could have challenged previously on appeal. I decline to do circuitously what the Government might have done directly. Forum shopping should not be encouraged.

Because, at the very least, the alleged disposal of collateral by these defendants was only a concurrent reason for acceleration and foreclosure, this court finds the Chandler decision to be both compelling and on point. That a substantial reason for the FmHA's actions was the monetary default of the defendants is enough to give these borrowers standing to challenge the Secretary’s admitted failure to implement the provisions of 7 U.S.C. § 1981a (concerning loan deferrals or moratoriums for farm borrowers who are temporarily unable to make payments).

The Government contends, in the alternative, that the defendants are precluded from the type of challenge to administrative action approved by the Eighth Circuit in Allison v. Block because of their failure to exhaust their administrative remedies. Specifically, the plaintiff points to an April 16, 1982 letter that advised the defendants that they had 30 calendar days in which to request further administrative review of an adverse decision. Exhibit 11, attachment to Stipulation of Facts. “Defendants requested additional review by the administrator on May 28, 1982, but were advised that their failure to apply prior to May 16, 1982, concluded the administrative review of their case.” Stipulation of Facts, paragraph 11. Plaintiff asserts that the defendants’ failure to comply with the established procedure for administrative appeals means that they cannot raise their counterclaim in a federal court action; the Government cites the “well-established rule” that aggrieved parties must exhaust their administrative remedies prior to filing an action for judicial review.

A strict enforcement of the exhaustion of administrative remedies rule would be particularly inappropriate here because one element of the injunction approved in Allison v. Block was a requirement that the Secretary give notice of “the availability of section 1981a relief” to all CFRDA borrowers subject to acceleration or foreclosure before foreclosure is undertaken. 723 F.2d at 634, 636. Defendants have alleged that at no time were they given notice of “possible loan servicing tools, including emergency or disaster loans for which they qualify, or deferral relief.” If without notice or knowledge of their possible remedies under 7 U.S.C. § 1981a, the defendants cannot have been expected to raise their loan deferral or moratorium claims during the administrative process. Presumably, defendants did not learn of this avenue of relief until after the completion of the administrative review process. Since one of the objections offered by defendants to the Government’s foreclosure action is the lack of notice of section 1981a relief, it makes no sense to penalize the defendants for not bringing to the attention of the Secretary a claim that it was the Secretary’s duty, under Allison, to bring to their attention. Accordingly, defendants’ failure to comply with the thirty-day deadline imposed by the Secretary (or the FmHA) will not be construed as a bar to a consideration of their claims based on 7 U.S.C. § 1981a.

Because the FmHA did not implement the provisions of the 1978 loan deferral amendment to the CFRDA in its dealings with defendants (Stipulation of Facts, paragraph 15) and because defendants are entitled to contest this failure to act, relief pursuant to the injunction approved by the Eighth Circuit in Allison v. Block, 723 F.2d 631, is appropriate. Further actions by the plaintiff to execute on its Trustee Deed under Power of Sale or to obtain possession of the disputed premises will be enjoined until the Secretary has satisfied the procedural and substantive requirements imposed in Allison vis-a-vis these particular defendants. See footnote 1 of this order for a brief description of the conditions of the injunction approved in Allison.

Eligibility for National Disaster Emergency Loans

Defendants challenge the Government’s actions in implementing emergency farm loan legislation, 7 U.S.C. § 1961 et seq. Two related allegations are made. First, defendants argue that the “area designation” regulations promulgated by the Secretary are contrary to congressional intent to have loan eligibility determined on a case-by-case basis. Second, the plaintiff is accused of failing to provide defendants with notice of the provisions of the disaster loan program and with an opportunity to be heard. Similar challenges to an FmHA foreclosure were ruled by Judge Wright in Chandler; this court finds Judge Wright’s conclusions to be compelling and, therefore, will grant the defendants the same relief afforded to the Chandlers.

As discussed in greater detail in Chandler, 589 F.Supp. at 883-885, prior to a 1978 Amendment to the Consolidated Farm and Rural Development Act, 7 U.S.C. § 1961 “provided that the Secretary should designate areas where a natural disaster substantially affected farmers and make loans available in those areas.” This area designation scheme was deleted in the 1978 amendment. 7 U.S.C. § 1961(a) now provides that the Secretary shall make loans to applicants whose “farming, ranching, or aquaculture operations have been substantially affected by a natural disaster in the United States or by a major disaster or emergency designated by the President____” “The legislative history of § 1961(a) indicates that the area designation requirement was abolished so that the Secretary would be able to make loans more readily available to eligible farmers,” regardless of whether they lived in counties that had been designated as disaster areas. 589 F.Supp. at 883. 7 U.S.C. § 1970 (1984 Supp.) defines an eligible farmer as one who has substained at least a 30% loss of normal per acre or per animal production, “or such lesser per centum of loss as the Secretary may determine,” as a consequence of the disaster. The Department of Agriculture, however, has never ceased applying area designation requirements for eligibility for natural disaster emergency loans. The regulations currently in effect provide for emergency loans to applicants “having qualifying severe physical and/or production losses within a county named by FEMA as eligible for Federal assistance under a major disaster or emergency declaration by the President or under a natural disaster determination by the Secretary of Agriculture.” 7 C.F.R. § 1945.20 (1984). While it is not entirely clear how the Secretary’s procedures in operating the emergency loan program have changed over the past few years (defendants, for example, cite to a January 10, 1983 letter from the Comptroller General of the United States to Senator Eagleton as well as the 1982 Emergency Operations Handbook for USDA State and County Emergency Boards), it is clear that the Secretary continues to use an area designation approach. The Government concedes in its brief in opposition to the defendants’ summary judgment motion that 7 C.F.R. § 1945.20 does implement such an area designation procedure. It is this practice that Judge Wright condemned in Chandler. “Plaintiffs must be given the opportunity to apply for the disaster loans. The plaintiffs cannot be denied emergency loans because Howard County was not formally declared a disaster county.” 589 F.Supp. at 884-85.

The Government argues that the Servaeses cannot be heard to complain about the Secretary’s operation of the natural disaster loan program because they have never applied for such assistance. A similar contention was described as “merit-less” by Judge Wright “because the plaintiffs were never informed that disaster relief was available.” Id. at 885. While I am somewhat troubled that defendants apparently did not raise the issue of their eligibility for natural disaster loans until after the filing of the present wrongful detainer action, an unresolved factual issue remains as to whether, as defendants claim in the suggestions in support of their summary judgment motion, the Servaeses had no notice of the emergency or disaster loan programs prior to the foreclosure sale. Consequently, summary judgment for the Government is not appropriate at this time. Plaintiff is directed to consider defendants’ application for disaster relief under 7 U.S.C. § 1961 if an application is filed within a reasonable time, not to exceed 60 days from the date of this order. Defendants may not be denied such relief merely because the county in which their farm is situated was not declared a disaster county-

Defectiveness of Foreclosure Sale

Defendants also seek to retain possession of their farm on the basis of alleged statutory and constitutional errors in the foreclosure sale. Because of the possibility that defendants will qualify for a loan deferral or for natural disaster loans under the first two parts of this order, the court believes that the more efficient approach would be to postpone ruling on the challenges to the foreclosure sale. When and if defendants’ application for relief under 7 U.S.C. 1981a and 7 U.S.C. § 1961 is legitimately denied, the court can then examine the prior foreclosure sale and determine if proper procedures were employed. If defendants were determined to be eligible for the statutory relief discussed above, however, the need to foreclose on the premises might be removed or, at least, postponed. Accordingly, no decision on defendants’ 6th-9th reasons for summary judgment is required at this time.

In accordance with the foregoing, plaintiff is hereby enjoined from executing on its Trustee Deed under Power of Sale and from obtaining possession of the disputed premises without the consent of the defendants until such time as the necessary compliance with 7 U.S.C. § 1981a and 7 U.S.C. § 1961, as described in this order, is made. Jurisdiction is retained to give either party further relief based on future developments. SO ORDERED.

      . "For purposes of the present appeal, we affirm the injunction against foreclosure on the Allisons’ farm not only pending proper notice of the procedures developed to process section 1981a requests, as previously discussed, but also pending publication of uniform substantive regulations or a reasoned decision on their particular request consistent with section 1981a requests nationwide." Id. at 638.

      . The practice of deferring to the prior decisions of other judges of the same court, particularly published decisions, may be compared with the appellate practice in which a subsequent panel is bound by a prior panel decision. E.g., Ridgley v. Ceres, Inc., 594 F.2d 1175, 1178 (8th Cir.1979) (Ross, J., concurring), United States v. Bohn, 508 F.2d 1145, 1147 n. 3 (8th Cir.), cert. denied, 421 U.S. 947, 95 S.Ct. 1676, 44 L.Ed.2d 100 (1975). Schultz v. Onan Corp., 737 F.2d 339, 346 n. 5 (3rd Cir.1984) (formal rule making "reported panel decisions" binding on subsequent panels).

      . Exhaustion of administrative remedies has been excused in some cases "when there is nothing to be gained from the exhaustion ... and the harm from the continued existence of the administrative ruling is great.” Wolff v. Selective Service Local Bd. No. 16, 372 F.2d 817, 825 (2d Cir.1967). Because the Government has stipulated that the FmHA did not implement the loan deferral provisions of 7 U.S.C. § 1981a in its dealings with the defendants, the court agrees with the defendants that further resort to administrative appeals would have been futile. Apparently, it was the settled policy of the FmHA to deny relief to farmer-debtors under that statute.


author: ROBERT D. POTTER, Chief Judge.

text:
    Rachel DEEN, Plaintiff, v. The GREAT ATLANTIC & PACIFIC TEA COMPANY, INC., a corporation; Ned T. Lewandowski, Sam Mudd, and Gary Lowery, individually and as agents of the Great Atlantic & Pacific Tea Company, Inc., Defendants.
    No. C-C-84-530-P.
    United States District Court, W.D. North Carolina.
    Jan. 23, 1985.

      Michael Sheely, Charlotte, N.C., for plaintiff.
    James M. Powell, Thomas A. Bright, Haynsworth, Baldwin, Miles, Johnson, Greaves & Edwards, P.A., Greenville, S.C., for defendants.
   ORDER

ROBERT D. POTTER, Chief Judge.

THIS MATTER is before the Court on motion of the Defendants to dismiss for lack of subject matter jurisdiction, motion of the Defendants to dismiss for failure to state a claim upon which relief can be granted, motion of the Defendants for a more definite statement, motion of the Defendants for an extension of time in which to respond to discovery, and motion of the Defendants for a protective order to stay discovery. The Court also has before it for consideration the Plaintiff’s motion for leave to amend the Complaint. Each motion is discussed seriatim.

A. MOTION FOR LEAVE TO AMEND THE COMPLAINT

Having carefully considered the matter, and the Defendants having failed to file any objection to the motion, the Court is of the opinion that pursuant to Fed.R.Civ.P. 15(a), justice requires that leave be granted. As will be discussed herein, allowing the amended Complaint negates the majority of objections asserted by the Defendants with respect to the sufficiency of the original Complaint.

B. MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM UPON WHICH RELIEF CAN BE GRANTED

The Complaint consists of six causes of action. The first three causes of action are against the Defendant Atlanta and Pacific Tea Company (“A & P”) for violations of the Age Discrimination Employment Act (“ADEA”). 29 U.S.C. § 621 et seq. The fourth and fifth causes of action are against A & P under pendent state law claims for breach of contract and infliction of emotional distress. The sixth cause of action is against the corporate Defendant A & P and the individual Defendants, Ned T. Lewandowski, (“Lewandowski”), Sam Mudd (“Mudd”), and Gary Lowery (“Lowery”), for infliction of emotional distress. The Defendants attack varying aspects of each cause of action.

1. ADEA

The Defendants correctly contend that the ADEA does not allow prejudgment interest and therefore any claim for prejudgment interest must be deleted. Although the original Complaint requested prejudgment interest the Amended Complaint deleted the prejudgment interest request under the first through third causes of action. Therefore, the matter is moot.

2. Infliction of Emotional Distress

The Defendants contend this claim should be dismissed because the Complaint fails to allege extreme and outrageous conduct, severe emotional distress, and the existence of a duty owed. The Court, however, is of the opinion that the Defendants’ arguments are without merit. For instance, and without repeating every allegation of the Complaint, the original Complaint states that:

plaintiff has sufferend from severe emotional distress, feelings of selfworthlessness, feelings of self-destruction, shame, loss of weight, loss of appetite, irregular heartbeat, head pain, chest pains and nausea____ She has incurred bills as follows: (a) In excess of $1,795.00 for psychotherapy, (increasing at a rate of at least $120.00 per month), (b) Hospital bills of $2,952.00 (c) Medication bills in excess of $520.02, (increasing at a rate of $57.78 per month). She has been under heavy medication and is undergoing psychotherapy.

The above statement is more than sufficient to constitute an allegation of severe emotional distress, and the Defendant’s argument that the Complaint fails to allege severe emotional distress is obviously meritless. The Court, therefore, after reviewing the Amended Complaint in its entirety is of the opinion that the Complaint states a valid claim for negligent and intentional infliction of emotional distress. If the Defendants determine during discovery that the undisputed facts entitle the Defendants to judgment as a matter of law, then the Defendants should move for summary judgment.

3. Breach of Contract

The Defendants contend that the claim for recovery of consequential mental anguish damages should be dismissed because the Complaint does not allege the three elements required for recovery in Stanback v. Stanback, 297 N.C. 181, 254 S.E.2d 611 (1979). The amended Complaint cures this defect by alleging that the Plaintiff entered into the contract in order to regain a positive self-image and to regain her dignity and mental stability. Therefore, the claim for consequential damages should not be dismissed at the pleading stage.

In addition the Defendants move for dismissal of the punitive damage claim. The contract claim, however, is coupled with the identifiable tort of intentional infliction of emotional distress, which tort contains an element of aggravated conduct. 254 S.E.2d at 621-23. The claim for punitive damages, therefore, survives the motion to dismiss.

C. MOTION FOR A MORE DEFINITE STATEMENT

The amended Complaint filed by the Plaintiff has cured any alleged deficiencies raised in the Defendant’s motion for a more definite statement of the claim for negligent infliction of emotional distress. Therefore, the motion should be denied.

D. MOTION TO DISMISS FOR LACK OF SUBJECT-MATTER JURISDICTION

The Plaintiff has raised three pendent state claims in her Complaint. One claim is for breach of the settlement agreement and the other two claims are for intentional or negligent infliction of emotional distress. The Defendants move to dismiss the state law claims for lack of subject-matter jurisdiction. They contend that the Court should not exercise pendent jurisdiction over the state law claims because it would circumvent the scope of remedies under the ADEA which excludes compensatory, special and punitive damages.

In United, Mine Workers v. Gibbs, 383 U.S. 715, 86 S.Ct. 1130, 16 L.Ed.2d 218 (1966) the Supreme Court established a two step inquiry to determine whether a court can exercise pendent jurisdiction over related state claims. First, the court must determine whether it has power under the Constitution to hear the state claim. The court must find that the state and federal claims “derive from a common nucleus of operative facts” and the claims are such that the plaintiff “would ordinarily be expected to try them all in one judicial proceeding.” 383 U.S. at 725. Second, if the power to hear exists, then the court must decide whether in its discretion pendent jurisdiction should be exercised.

In deciding whether to exercise jurisdiction the Court considers a myriad of factors, including the interests of convenience, judicial economy, fairness to the litigants, the predominance of state issues, jury confusion and needless friction caused by unsettled questions of state law.

The Defendants concede and the Court agrees that the Court has the power to hear the Plaintiffs state claims. The Plaintiff asserts three serious claims under the ADEA, the state claims arise from the exact same facts which support the ADEA claims and these claims would ordinarily be tried in one proceeding.

The Defendants strenuously urge the Court to decline to exercise jurisdiction because the relief sought in the pendent claims would circumvent the limited scope of relief available under ADEA. In Frykberg v. State Farm Mutual Automobile Insurance Company, 557 F.Supp. 517, 519 (W.D.N.C.1983) an identical argument was raised with respect to the exercise of pendent jurisdiction over a claim for intentional infliction of emotional distress which claim arose out of the same facts as the claim under Title VII, 42 U.S.C. § 2000e et seq. In Frykberg the defendant’s argument was rejected, the Court discerning a significant difference between the doctrine of preemption and the doctrine of pendent jurisdiction. This Court agrees with the rational in Frykberg:

Defendants argue that the remedies available under state law, particularly compensatory and punitive damages and the right to a jury trial, would circumvent and subvert the equitable and remedial purposes of Title VII. See, Gerlach v. Michigan Bell Telephone Co., [448 F.Supp. 1168 (1978)] supra at 1173. Since the doctrine of pendent jurisdiction, however, unlike that of federal preemption, determines not the scope of the remedies available but only the forum in which the claims are tried, it would seem a matter of indifference to the federal court whether the state law remedies complement those available under federal law. If the federal court were to decline pendent jurisdiction, the state law claims would presumably be litgated in the state courts, and the effect of the state law remedies upon Title VII policies would be the same. As long as other considerations of fairness and convenience weigh in favor of pendent jurisdiction, therefore, there is no reason why a federal court should refuse pendent jurisdiction simply because state law provides remedies above and beyond those provided Congress. Defendants further argue that the state law claims and remedies will predominate over the Title VII claims and remedies, and that the divergent legal theories will tend to confuse the jury. It does not appear, however, that the state issues here will “substantially” predominate over the federal issues. Plaintiffs’ Title VII claims are widespread and comprehensive, and clearly form the mainstay of the action.
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Because the advantages of trying all of plaintiffs’ claims in one action are great and the state law claims should neither unduly complicate the issues nor substantially predominate over the federal claims, I conclude that the exercise of pendent jurisdiction is appropriate in this case. Defendants’ motion to dismiss the state law claim as beyond the court’s pendent jurisdiction will therefore be denied.

557 F.Supp. at 519, quoting, Guyette v. Stauffer Chemical Co., 518 F.Supp. 521, 524-25 (D.N.J.1981).

The remaining factors to consider in deciding whether to exercise pendent jurisdiction all weigh in favor of the exercise of jurisdiction. The North Carolina Supreme Court in Dickens v. Puryear, 302 N.C. 437, 276 S.E.2d 325 (1981) has adjudicated and defined the perimeters of the tort of intentional infliction of emotional distress. Further, there are not any novel contract issues appearing which would involve unnecessary adjudication of unsettled questions of state law. The interests of convenience, judicial ecomony and fairness are better served by the economy of one trial in one forum, when the claims arise out of the same facts and the proof will probably encompass testimony from the same witnesses.

As there is not complete diversity in this case, the Court must also decide whether it can and should assert pendent party jurisdiction over the individual Defendants. A court should be more cautious in exercising pendent party jurisdiction. Aldinger v. Howard, 427 U.S. 1, 18, 96 S.Ct. 2413, 2422, 49 L.Ed.2d 276 (1976). When the Gibbs’ criteria are satisfied, however, the court has the power to exercise jurisdiction over the pendent parties. As was the situation with the individual Defendant supervisory employee in Frykberg, this Court is of the opinion that jurisdiction can and should be exercised over the individual Defendant supervisory employees in the instant case. 557 F.Supp. at 520.

In light of the above, the Court is of the opinion that the Defendants’ motion to dismiss for lack of subject-matter jurisdiction should be denied.

E. MOTIONS TO STAY OR EXTEND DISCOVERY

The Defendants’ motions to stay or extend discovery were premised on resolution of the outstanding motions. The Court having resolved all outstanding motions thus delineating the areas of permissible discovery, a stay or an extension is no longer justified. Accordingly, the Defendants should have thirty days from the filing of this Order to respond to the discovery previously served by the Plaintiff. The Pretrial Order entered simultaneously herewith will control the time in which discovery expires.

IT IS, THEREFORE, ORDERED that:

(1) The Plaintiff’s motion to amend her Complaint is GRANTED;
(2) The alternative motions of Defendants, Lewandowski, Mudd, and Lowery to dismiss for lack of subject-matter jurisdiction and failure to state a claim are DENIED;
(3) The motion of Defendant A & P to dismiss for lack of subject-matter jurisdiction is DENIED;
(4) The motion of Defendant A & P to dismiss for failure to state a claim is DENIED;
(5) Defendants’ alternative motion for a more definite statement of negligent infliction of emotional distress is DENIED;
(6) Defendants’ motion for an extension of time is DENIED; and
(7) Defendants’ motion for a protective order to stay discovery is DENIED.

      . The motion for a stay refers to a motion for summary judgment on the ADEA counts. No such motion has been filed with the Court. The Plaintiff filed a response to Defendants’ "motion to dismiss ADEA claims”. No such motion has ever been filed with the Court. Also, the Plaintiff’s response appears to deal with the “defenses" raised in the Answer. Defenses do not constitute motions. By this Order the Court has resolved all pending motions.