text:
    Casey OSTROWSKI, Plaintiff, v. Margaret HECKLER, Secretary of Health and Human Services, Defendant.
    No. 84 C 1908.
    United States District Court, N.D. Illinois, E.D.
    May 6, 1985.

      Donald A. Shapiro, Chicago, Ill., for plaintiff.
    Tom Walsh, Asst. U.S. Atty., Chicago, Ill., for defendant.
   MEMORANDUM OPINION AND ORDER

ASPEN, District Judge:

Casey Ostrowski seeks judicial review of the decision of the Secretary of Health and Human Services (“the Secretary”) denying him disability benefits under Titles II and XVI of the Social Security Act. 42 U.S.C. § 401 et seq. (Title II or “SSDI”); § 1381 et seq. (Title XVI or “SSI”). The parties have filed cross-motions for summary judgment. Because the decision of the Secretary contains errors of law and is not supported by substantial evidence, we vacate the denial of benefits and remand for further proceedings.

I.

The following is a brief summary of the facts as revealed by the administrative record. We will develop other facts as they become relevant to the legal issues raised by Ostrowski’s appeal.

Ostrowski is now 41 years old. From 1966 to 1980 he worked at several jobs, including bus driver, medical courier, and production control. He held most of his jobs for no more than a few months each, and has not worked since February, 1980. He claims he is disabled because of severe back pain and of severe psychological problems. Both problems have a long history.

He first had back surgery, a “lumbar laminectomy,” in 1975. In late 1980 he exacerbated his condition, and was experiencing severe pain. In January, 1981 he had a second laminectomy at Lakeside V.A. Hospital for a herniated nucleus pulposus at L4-L5. While his condition admittedly improved following this operation, he continued to experience recurrent severe pain, and was admitted to Lakeside V.A. in June, 1981, and was treated again for pain in August, 1982, but there was no evidence then of radiculopathy or sciatica. His examination in August, 1981 by the Consultative Examiner hired by the Secretary revealed degenerative disc disease at L4-L5 and minimal osteoarthritis. He could walk with a slight limp for about two blocks, had good muscle strength, and somewhat limited flexibility. None of the various doctors who examined him expressed doubt that Ostrowski was experiencing pain or that this pain lacked a basis in an observable medical condition.

Ostrowski testified at his Administrative Law Judge (“AU”) hearing on October 27, 1982 that his back pain is severe and is felt in his neck and legs as well. He generally does not leave his house for more than a few hours at a time; does very little housework; cannot sit for more than two or three hours; and has difficulty driving, bending or stooping. He spends much of his time watching television. At other times during the last few years he had been able to do some housework and driving. His pain appears to have been varied in severity.

Ostrowski’s emotional problems have also lasted many years. He has been in and out of mental institutions at least ten times since 1965. That year he was hospitalized for a type of paranoid psychosis. In 1968, he was hospitalized for “a nervous breakdown.” In 1971 and 1973, he was hospitalized for depression. In 1974 he was treated for an unknown psychiatric disorder. In 1979 he was again hospitalized for depression, and a second time for an unknown disorder. In February, 1980 he was hospitalized for bipolar affective disorder, and again in June, 1980 for an unknown disorder. In September, 1980 he was hospitalized for two months for bipolar affective disorder. In 1982 he was treated as an outpatient for severe depression. During the past twenty years he has received sporadic psychotherapy.

The most detailed evidence of his psychiatric problems is contained in the records of his September, 1980 hospital admission and his October, 1981 examination by a consultative examiner, Dr. Benson, hired by the Secretary: When admitted to the hospital in 1980 he was alert and not hallucinatory, but was suicidal with moods rapidly shifting from depressed to anxious. When discharged in November, 1980 he was alert, coherent, non-psychotic, and non-suicidal, but was still depressed and mildly anxious with poor insight and judgment. In October, 1981 Dr. Benson opined that Ostrowski was dreamy but not overly psychotic; that he had had significant psychotic symptoms in the past; that he had a major affect disorder in current remission; that he could perform routine repetitive tasks, follow orders, and respond to normal work pressures. He was not suicidal, hallucinatory, delusional or depressed during that visit.

Ostrowski applied for SSI and SSDI benefits in July, 1981. In August and September of 1981 his claims were denied initially, and the denials were affirmed on reconsideration in February, 1982. A de novo hearing before an AU was held in October, 1982, and the AU issued an opinion denying the SSDI claim in February, 1983. The Appeals Council affirmed this denial but remanded the matter to the AU because he had not ruled on Ostrowski’s SSI claim. On December 29, 1983, the ALJ denied the SSI claim in an opinion mirroring his earlier one. The Appeals Council affirmed. This suit for judicial review followed.

II.

A person is “disabled” under the Social Security Act if he cannot “engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months.” 42 U.S.C. § 423(d)(l)(A)(SSDI). The Secretary uses a five-step inquiry in deciding whether a claimant is disabled. The Seventh Circuit has stripped the process of its regulatory jargon and nuances, summarizing it as follows:

(1) Is the claimant presently unemployed? (2) Is the claimant’s impairment “severe”? (3) Does the impairment meet or exceed one of a list of specific impairments? (4) Is the claimant unable to perform his or her former occupation? (5) Is the claimant unable to perform any other work within the economy? An affirmative answer leads either to the next step or, on steps 3 and 5, to a finding that the claimant is disabled. A negative answer at any point, other than point 3, stops inquiry and leads to a determination that the claimant is not disabled.

Halvorsen v. Heckler, 743 F.2d 1221, 1225 (7th Cir.1984), quoting, Garfield v. Schweiker, 732 F.2d 605, 607 n. 2 (7th Cir.1984); see also 20 C.F.R. § 404.1521 (1984). In reviewing the Secretary’s application of this process, we must uphold her decision as long as her factual findings are supported by substantial evidence and she used the correct legal standards. E.g., Halvorsen, 743 F.2d at 1225. “Substantial evidence” means “such relevant evidence as a ‘reasonable mind accept[s] as adequate to support a conclusion,” considering the record as a whole. E.g., Taylor v. Schweiker, 739 F.2d 1240, 1241 (7th Cir. 1984), quoting, Richardson v. Perales, 402 U.S. 389, 401, 91 S.Ct. 1420, 1427, 28 L.Ed.2d 842 (1971). The “substantial evidence" standard requires the Secretary to base her decision on a careful consideration of all the relevant evidence; she cannot single out those fragments of the record which tend to support her conclusion. Switzer v. Heckler, 742 F.2d 382, 385-86 (7th Cir.1984); Taylor, 739 F.2d at 1243; Garfield, 732 F.2d at 609-10. In reviewing the ALJ’s decision we should consider: (1) the clinical findings of treating and examining physicians; (2) the diagnoses of those physicians; (3) the subjective evidence of pain and disability as testified to by the plaintiff and as observed by others; and (4) the claimant’s educational background, work history, and present age. Whitney v. Schweiker, 695 F.2d 784, 786 (7th Cir.1982). With these basic principles in mind, we turn to the Secretary’s treatment of Ostrowski’s claim.

III.

In evaluating Ostrowski’s claim, the AU considered his back condition and mental condition separately. He determined first that Ostrowski’s back condition was not severe enough to meet or equal the “listed impairments” (“the listings”) of the regulations. He thus held that Ostrowski did not pass step 3 of the five-step inquiry outlined above. The AU next concluded that “could sit, stand or walk for 6 to 8 hours per day” and thus had the “residual functional capacity” to return to several of his previous jobs, such as medical courier or production controller. As such, Ostrowski had failed to pass step 4 of the inquiry and was denied benefits. The AU next determined that Ostrowski’s emotional illness did not “significantly limit his ability to perform basic work-related functions for any period of 12 consecutive months ...” This amounted to a conclusion that Ostrowski failed to pass step 2 of the inquiry, i.e., his mental impairment was not severe. See 20 C.F.R. § 404.1521(a) (1984) (impairment not severe if it does not significantly limit physical or mental abilities to do basic work activities). The Court concludes that neither conclusion of the AU is supported by substantial evidence.

The AU made his most glaring error in analyzing the mental impairment claim. Although acknowledging that Ostrowski has a long history of emotional illness, the AU focussed on two snapshots of that history — the November 1980 report of the discharge from a mental hospital and the October 1981 consultative exam of Dr. Benson — in concluding that Ostrowski’s mental impairment was not severe. In so doing, the AU failed to consider the record as a whole. He makes no mention of and does not consider the evidence of Ostrowski’s ten or so hospitalizations over a period of about 18 years. He also does not address the obvious fact that Ostrowski apparently did not hold down a job for more than a few months at a time. These facts, combined with his testimony, suggest that Ostrowski’s mental impairment is far more severe than acknowledged by the AU. Cf. Halvorsen, 743 F.2d at 1226 (error for AU to not address evidence concerning why claimant lost previous jobs). Given the 18 year history of repeated hospitalizations, we think the AU placed too much weight on the opinion of Dr. Benson, who saw Ostrowski only one day during a period of remission. The AU should not have relied on that report without fully considering and evaluating the other evidence of multiple hospitalizations.

The AU’s treatment of the November, 1980 report underscores the selective focus of his inquiry. He first erroneously stated that the report was dated September, 1980. That was the month Ostrowski was admitted to the hospital. The AU does not mention that the November, 1980 report upon which he relies followed two months of hospitalization. The AU did not describe or consider Ostrowski’s condition in September, even though it is detailed in that report. While the report states that Ostrowski was alert and not delusional or suicidal in November when discharged, it also states that he was suicidal, severely-depressed and anxious in September when admitted. The AU focussed only on the half of the report that supported his conclusion, not the whole report, just as he selected only part of the record to base his decision on.

As we noted earlier, the Seventh Circuit has repeatedly held that an AU must consider all of the relevant evidence, including that which counters his ultimate conclusion. E.g., Zalewski v. Heckler, 760 F.2d 160, 166-167 (7th Cir.1985); Garfield, 732 F.2d at 609-10; Zalewski v. Schweiker, 732 F.2d 75, 78-79 (7th Cir.1984). He need not discuss every piece of evidence and testimony; but he “must articulate at some minimal level his analysis of the evidence in cases where considerable evidence is presented to counter the agency’s position.” Garfield, 732 F.2d at 609. On remand the ALJ must consider the reports he relied on in the context of all of the relevant evidence in the record. The ALJ should consider Ostrowski’s claim in the context of two decades of hospitalizations, not in the context of two days of relative lucidity. In reviewing the whole record, the ALJ should also consider Ostrowski’s testimony concerning his difficulties dealing with stress in previous jobs, as well as with his family. If he rules against Ostrowski, he should either make a credibility determination or articulate how his testimony weighs in the context of the record as a whole. See Zblewski, 732 F.2d at 78 (AU must explicitly and reasonably reject claimant’s testimony concerning pain if he is to deny benefits); Halvorsen, 732 F.2d at 1226 (AU must articulate grounds for rejecting testimony supporting claimant’s case).

In sum, we hold that the AU’s conclusion that Ostrowski’s mental impairment was not severe is not supported by substantial evidence in the whole record. We express no opinion on the ultimate issues of whether Ostrowski’s impairment is in fact severe, whether it meets or equals the listings of impairments, or, if not, whether he has the residual functional capacity to work. That is for the Secretary to determine as an initial matter on remand after consideration of all relevant evidence and factors described above.

The ALJ made similar errors of omission in assessing Ostrowski’s claim of back impairment. Were the ALJ able to rely only on the medical reports in the record, we would probably uphold his finding of no disability. We need not reach this issue because he again neglected to consider all of the relevant evidence in the record. Most significantly, the ALJ did not explicitly evaluate Ostrowski’s considerable testimony concerning his back pain. Ostrowski testified that he regularly feels severe pain in his back, neck, and legs. Sometimes he cannot sit or stand for extended periods in one spot, and needs to lie down. It is clear that his testimony, if credible, suggests that his back ailment would significantly impair his work related functions. In finding that Ostrowski failed to meet the listed impairments, the AU did not explicitly factor Ostrowski’s testimony of pain into his analysis. It could be (although from the record we cannot tell) that Ostrowski’s pain is so severe that he “equals,” if not “meets,” the listings. Under the regulations, a person can be found disabled if his condition substantially equals, rather than precisely meets, the listed impairment. See 20 C.F.R. § 404.-1521(d); § 404.1526 (1984) However, the AU did not explicitly evaluate the pain factor, and therefore implicitly decided that Ostrowski's complaints of severe pain were not substantial or credible enough to warrant a finding that he met or equalled the listings. Even if Ostrowski did not equal the listings, the AU’s subsequent finding that he could perform his past jobs because he “could sit, stand or walk” for 6 to 8 hours per day also did not take his corm plaints of pain into account. In reaching his decision, the AU, without explaining why, implicitly rejected or discounted Ostrowski’s testimony, which, if all true, indicated that he could not meet the demands of his previous jobs. As we noted earlier, such gaps in the AU’s analysis warrant reversal and remand of the decision denying benefits. See Taylor, 739 F.2d at 1243-44 (ALJ erroneously ignored claimant’s testimony regarding her limitations); Zblewski, 732 F.2d at 78-79 (AU erroneously ignored claimant’s testimony concerning pain and other symptoms).

Our decision concerning Ostrowski’s complaints of pain is in harmony with the regulations and the new Disability Reform Act of 1984, Pub.L. No. 98-460, 98 Stat. 1794 (enacted October 9, 1984) (“Reform Act”), which created the following standard for evaluating pain:

An individual’s statement as to pain or other symptoms shall not alone be conclusive evidence of disability as defined in this section; there must be medical signs and findings, established by medically acceptable clinical or laboratory diagnostic techniques, which show the existence of a medical impairment that results from anatomical, physiological, or psychological abnormalities which could reasonably be expected to produce the pain or other symptoms alleged and which, when considered with all evidence required to be furnished under the paragraph (including statements of the individual or his physician as to the intensity and persistence of such pain or other symptoms which may reasonably be accepted as consistent with the medical signs and findings), would lead to a conclusion that the individual is under a disability. Objective medical evidence of pain or other symptoms established by medically acceptable clinical or laboratory techniques (for example, deteriorating nerve or muscle tissue) must be considered in reaching a conclusion as to whether the individual is under a disability.

Reform Act, § 3(a)(1) (amending 42 U.S.C. § 423(d)(5)). This standard will be in effect until at least January 1, 1987. Id., § 3(a)(3). This pain standard was intended to codify the Secretary’s existing regulations concerning pain, i.e., 20 C.F.R. §§ 404.1529, 416.929 (1984). See S.Rep. No. 466, 98th Cong., 2d Sess. 24 (1984). It supersedes inconsistent existing case law. See generally S.Rep. No. 466, supra at 23-24; H.R.Rep. No. 618, 98th Cong., 2d Sess. 28-29 (1984), U.S.Code Cong. & Admin.News 1984, pp. 3038, 3065 (Conference Committee Report); 131 Cong.Rec. S11458 (daily ed. Sept. 19, 1984) (remarks of Sen. Long on pain issue).

In this case it is quite likely that Ostrowski’s subjective complaints of pain are grounded, as they must be, in “medical signs and findings ... which show the existence of a medical impairment that results from anatomical ... abnormalities which could reasonably be expected to produce the pain ... alleged.” Reform Act, § 3(a)(1). Ostrowski’s back ailments are well documented, requiring surgery more than once to correct a herniated nucleus pulposa. Several doctors have prescribed drugs for the pain, which suggests that they believe the pain is real and grounded in objective medical evidence. No evidence suggests that any doctor doubted Ostrowski’s reports concerning his pain, either before or after the surgery. The consultative examination by Dr. Bacalla, which occurred well after Ostrowski’s last surgery, revealed that Ostrowski still had degenerative disc disease and osteoarthritis. The upshot of this and other evidence we have not mentioned is that Ostrowski’s pain appears to have a solid basis in objective medical findings. The Reform Act states, the issue of “objective medical evidence of pain ... must be considered in reaching a conclusion as to whether the individual is under a disability.” Id. On remand the AU should determine whether the intensity and persistence of Ostrowski’s pain is reasonably consistent with the medical evidence, and if it is, whether the pain in combination with all the other evidence warrants a conclusion that Ostrowski equals the listings or lacks the residual functional capacity to perform his previous jobs or other work in the national economy. The AU improperly failed to factor Ostrowski’s complaints of pain into his findings that Ostrowski is not disabled. The AU must do so on remand, and determine anew whether Ostrowski is disabled.

Although the issue was not mentioned by the parties, we note for purposes of guidance to the AU that he also did not consider whether the combination of Ostrowski’s back and mental impairments rendered him disabled. The regulations required the AU to consider the combined effects of “unrelated” impairments if each was “severe” by itself. See § 404.1522 (1984); § 404.1526(a) (1984) (combine to determine if claimant equals listings); § 404.-1545(a) (1984) (combine to determine if claimant lacks residual functional capacity to work). It might be that the AU did not combine Ostrowski’s impairments because he considered them “unrelated” and the mental one not “severe.” Under the Reform Act, the AU must consider the combined effects of unrelated impairments even if each is not “severe” in isolation. See Reform Act, Sec. 4(a)(1). That section reflects the common sense notion that a claimant is a whole person with a range of problems, and must be considered as such. Thus, under the new Act Ostrowski should not be split (as he was) into a “back case” and a “psychiatric case” without regard to the fact that he suffers from both ailments at the same time. In tandem the ailments might render him “disabled” while each one in isolation might not.

Even under the old standard, the AU probably erred in not considering the combined effects of Ostrowski’s impairments because the two are not necessarily “unrelated.” In reviewing Ostrowski’s testimony we noticed that his back condition might exacerbate his mental impairment and vice versa. For example, he testified in more than one place that his bad back is one of the things contributing to his severe depression. Similarly, he apparently uses his back pain to discount the other causes of his depression: a May 26, 1981 report of a psychologist, Dr. Choca, states that throughout Ostrowski’s hospitalization he “kept wanting to see all of his problems as resulting from the back pain.” Indeed, this doctor opined that Ostrowski’s psychological problems in turn exacerbated the extent of his perceived back pain. In sum, there appears to be a feedback between Ostrowski’s two impairments, which the ALT should consider on remand.

IV.

For the foregoing reasons, the Secretary’s decision to deny Ostrowski disability benefits is not supported by substantial evidence in the record as a whole. We therefore reverse her decision, and remand this case for further proceedings consistent with this opinion. It is so ordered.

      . Both disability programs, SSI and SSDI, establish the same legal standard for disability. See 42 U.S.C. § 423(d)(1)(A) (SSDI); 42 U.S.C. § 1382c(a)(3)(A) (SSI). The differences between the programs are not medically-related and are not directly relevant to this case. SSI is essentially a welfare-benefits program, providing income to disabled people whose income and resources fall below a prescribed level. SSDI is essentially an "insurance” program, providing benefits to disabled people who have met certain earnings requirements in their work history.

      . Actually, the suit was filed shortly before the Appeals Council issued its second decision. In an earlier unpublished opinion we dealt with the jurisdictional problems raised by the splitting of the SSI and SSDI claims. See Ostrowski v. Heckler, No. 84 C 1908 (N.D.Ill. Nov. 16, 1984).

      . Ostrowski claims that his back condition meets or equals Listed Impairment No. 1.05C, which provides:
      1.05 Disorders of the spine:
      C. Other vertebrogenic disorders (e.g., hereniated nucleus pulposus, spinal stenosis) with the following persisting for at least 3 months despite prescribed therapy and expected to last 12 months. With both 1 and 2:
      1. Pain, muscle spasm, and significant limitation of motion in the spine; and
      2. Appropriate radicular distribution of significant motor loss with muscle weakness and sensory and reflex loss.
      20 C.F.R. Part 404 (Appendix 1), § 1.05C (1984).

      . The ALJ did not specify whether Ostrowski met step 2, i.e., whether his back impairment was "severe.” Since he reached step 3, we assume that he found that Ostrowski’s back condition was severe, since that finding is a prerequisite to considering the Listed Impairments.

      . That is why, we assume, the ALJ did not consider whether Ostrowski met one of the Listed Impairments or, if not, whether he had the “residual functional capacity” to work. Ostrowski claims that his mental condition meets or equals Listed Impairment No. 12.03, which provides:
      12.03 Functional psychotic disorders (mood disorders, schizophrenias, paranoid states). With both A and B:
      A. Manifested persistence of one or more of the following clinical signs:
      1. Depression (or elation): or
      2. Agitation; or
      3. Psychomotor disturbances; or
      4. Hallucinations or delusions: or
      5. Autistic or other regressive behavior; or
      6. Inappropriateness of affect; or
      7. Illogical association of ideas;
      B. Resulting persistence of marked restriction of daily activities and constriction of interests and seriously impaired ability to relate to other people.
      20 C.F.R. Part 404 (Appendix 1), § 12.03 (1984).

      . Were Ostrowski consistently like he appears in his description in Dr. Benson's report, we would not hesitate to uphold the AU’s findings that his disability is not severe. But the record as a whole shows that Ostrowski's condition is uneven. He undeniably is often not as lucid as he was at Dr. Benson’s office, as his ten hospitalizations suggest. The ALJ cannot merely rely on Dr. Benson’s snapshot of Ostrowski. He must consider that "picture” in the context of all the evidence to evaluate Ostrowski as a whole person.

      . In view of these concerns, it might be appropriate (although we leave the decision to the Secretary) to have another consultative exam, which focusses not only on Ostrowski’s condition on the day of the visit, but also on his history of recidivism and how that bears on his ability to engage in substantial gainful activity. A claimant who can hold down a job for a short period does not necessarily engage in "substantial gainful activity.” See, e.g., Halvorsen, 743 F.2d at 1226-27. In that case, the Court held that the AU had attached too much weight to the claimant’s ability to work for periods of three months or so. The ability to engage in substantial gainful activity implies the ability to hold down a job for longer than a few months at a time. Ostrowski’s recurring mental problems, as well as his fluctuating back pain, when combined with his sporadic work history, suggest that his ability to work does not last more than a few months at a time, if that long. The AU should consider these factors on remand.

      . Moreover, the AU misconstrued certain evidence. For example, in concluding that Ostrowski could perform “light work,” the AU relied in part on a report of one of Ostrowski’s treating physicians who (according to the AU) released Ostrowski in June, 1981 from the hospital with the opinion that "he could perform light work and he had recovered from his surgery.” What the doctor actually wrote was that Ostrowski "is now able to resume light activities" (emphasis added). This is a far cry from an opinion that he could perform "light work." And while Ostrowski undoubtedly improved following that visit to the hospital, the doctor did not indicate that he had "recovered.” Of course, this particular error of the AU’s is slight by itself. But taken together with his selective focus in other areas of his analysis, the error reinforces our conclusion that he did not review the whole record with the care it deserves.

      . In determining "medical equivalence” the Secretary considers the patient's symptoms, signs, and laboratory findings.” 20 C.F.R. § 404.-1526(a) (1984). "Symptoms” include complaints of pain, which must be based in "signs” or "laboratory findings” to be considered in determining medical equivalence. See 20 C.F.R. §§ 404.1528, 1529 (1984). We discuss the consideration of pain in more detail below at 1116— 1117.

      . Like Ostrowski’s psychiatric ailments, his back pains appear to grow and subside periodically. Thus, the ALT should consider the whole record of pain, not a snapshot approach, as we ruled above in connection with the psychiatric claim.

      . In the last paragraph of his opinion the ALJ does use the word "combination.” But we see no evidence that he did combine the two impairments. Nor did he combine the impairments in doing his "residual functional capacity” analysis.

      . That Act provides in relevant part:
      In determining whether an individual’s physical or mental impairment or impairments are of a sufficient medical severity that such impairment or impairments could be the basis of eligibility under this section, the Secretary shall consider the combined effect of all of the individual’s impairments without regard to whether any such impairment, if considered separately, would be of such severity. If the Secretary does find a medically severe combination of impairments, the combined impact of the impairments shall be considered throughout the disability determination process.
      Pub.L. 98-460, Sec. 4(a)(1). While this standard was obviously not in effect when the ALJ first ruled on this case, it will be in effect on remand. See Reform Act, Sec. 4(c) (section effective for determinations made on or after December 1, 1984, first day of first month beginning 30 days after passage of Act).

      . We need not decide whether under the old regulations the ALJ erroneously failed to combine the impairments and consider this feedback, since we are remanding the case for other reasons. However, on remand he must now combine the impairments under the Reform Act.


source: Caselaw Access Project

author: ASPEN, District Judge:

license: Public Domain

text:
    HARRIS TRUST AND SAVINGS BANK, as Executor of the Estate of Mary Ellis, Plaintiff, v. James ELLIS; Moline Consumers Company, an Illinois corporation; First National Bank of Moline, a national banking association; and Duff and Phelps, Inc., an Illinois corporation, Defendants.
    No. 84 C 5148.
    United States District Court, N.D. Illinois, E.D.
    May 6, 1985.

      Michael K. Murtaugh, Thomas Doyle, Robert C. Boling, Baker & McKenzie, Chicago, Ill., for plaintiff.
    Brian J. Redding, Chadwell & Kayser, Roger Pascal, Schiff, Hardin & Waite, Joseph E. Coughlin, Shelly L. Rice, Lord, Bissell & Brook, Chicago, Ill., for defendants.
   MEMORANDUM OPINION AND ORDER

ASPEN, District Judge:

Plaintiff Harris Trust and Savings Bank (“Harris”) brings this action as executor of the estate of Mary Ellis against defendants James Ellis, Moline Consumers Company (“Moline Consumers”), the First National Bank of Moline (“the Bank”), and Duff and Phelps, Inc. (“Duff and Phelps”) alleging violations of the Securities Exchange Act of 1934, 15 U.S.C. § 78a et seq.) the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. §§ 1961-68; the Investment Advisers Act, 15 U.S.C. § 80b-l et seq.) and various state laws. Presently before the Court are motions to dismiss or for summary judgment filed by each of the defendants, as well as a memorandum by defendants questioning the compliance of Harris’ counsel with General Rule 39 of the United States District Court for the Northern District of Illinois. For the reasons set forth below, defendants’ motions to dismiss and for summary judgment are granted.

FACTS

This case begins with the death in 1968 of Mary Ellis’ husband Oscar. Until he died, Oscar played a substantial role in the management of Moline Consumers, which he had founded with Charles Loptien. Oscar’s estate included real estate, 6,350 shares of Moline Consumers common stock, and other personal property. Under his will, Oscar’s estate was divided into a marital trust for the benefit of his wife Mary and a residuary trust for the benefit of Oscar’s children, James and Bette. The will named the Bank as the executor of the estate and trustee of the two trusts.

The marital and residuary trusts were funded in June of 1981. Of the 6,350 shares of Moline Consumers stock, 3,263 were distributed to the marital trust and 3,087 were distributed to the residuary trust. On June 18, 1981, the Bank (as trustee of the marital trust) agreed to sell the 3,263 shares to Moline Consumers for $884,273.00, or $271.00 each, conditioned upon approval by the Circuit Court for Rock Island County. The Circuit Court gave its approval on September 15, 1981, and the sale was consummated. This 1981 transaction is the primary focus of this case.

Briefly summarized, the amended complaint alleges that the 1981 sale resulted from a complex plan by defendant James Ellis to concentrate control of Moline Consumers in his hands. Harris claims that during the administration of Oscar’s estate, James was a Moline Consumers shareholder, was the president of Moline Consumers, was a director of the Bank, controlled substantial deposits at the Bank, and held a beneficial interest in the Moline Consumers stock allocated to the residuary trust. James allegedly used his influence in these positions improperly to exclude other shareholders from control of Moline Consumers. As a result of his and the other defendants’ machinations, Harris asserts that James was able to arrange the sale of Moline Consumers stock from the marital trust to the company for $271.00 per share when the fair market value of the shares actually exceeded $1,400.00 each.

Defendants argue that Harris is precluded by the doctrines of res judicata and collateral estoppel from relitigating the material factual allegations of the amended complaint, because they have been resolved already by a long series of final orders of Illinois courts. Defendants also raise specific objections applicable to each of the amended complaint’s counts. We turn now to a discussion of the objections relating to the different federal law counts.

SECURITIES EXCHANGE ACT OF 1934

In Counts I, II and XII, Harris alleges that the defendants violated, or aided and abetted the violation of, Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78®, and Rule 10b-5 of the Securities Exchange Commission, 17 C.F.R. 240.10b-5. Defendants argue that these counts must fail as a matter of law because Mary Ellis was not sufficiently involved in any investment decisions for there to be fraud “in connection with” the sale of the Moline Consumers stock allocated to the marital trust. We agree.

In Santa Fe Industries, Inc. v. Green, 430 U.S. 462, 97 S.Ct. 1292, 51 L.Ed.2d 480 (1977), the Supreme Court made it clear that not all breaches of fiduciary duty involving a securities transaction constitute a violation of the federal securities laws. Rather, the Court stated that a claim of fraud and fiduciary breach would state a cause of action under Rule 10b-5 only if the conduct alleged could be fairly viewed as “manipulative or deceptive” within the meaning of section 10(b). Id. at 472-74, 97 S.Ct. at 1300-1301.

The Seventh Circuit applied the holding of Santa Fe to the situation presented by this case, where a trustee allegedly breached its fiduciary duty in connection with a sale of securities owned by the trust, in O’Brien v. Continental Illinois National Bank and Trust Company of Chicago, 593 F.2d 54 (7th Cir.1979). The trustee in O’Brien was vested with sole discretionary power to purchase and sell securities; the plaintiff-beneficiaries, on the other hand, “were not entitled to receive notice of a contemplated purchase or sale, to participate in the investment decision, or to veto that decision when they learned of it.” Id. at 58. Their sole recourse against an unsatisfactory securities transaction was to terminate the trust agreement or sue for breach of fiduciary duty.

While not ruling categorically that trust beneficiaries could never be deemed purchasers or sellers of securities, the Seventh Circuit refused to recognize a cause of action under section 10(b) or Rule 10b-5 in O’Brien. Id. at 59. The Court of Appeals centered its analysis on whether the plaintiffs had been “denied information that would or might have been useful to them in deciding whether to purchase or sell securities which they actually did purchase or sell.” Id. at 60. Because the plaintiffs had no voice in the investment decision, any nondisclosure related only to whether they should terminate the trust agreement or perhaps initiate some action against the trustee. The Seventh Circuit held that section 10(b) did not apply to that situation: “Information material to the decision whether to terminate the trust or agency agreements is outside the penumbra of § 10(b) as defined in Santa Fe Industries, Inc. v. Green, because such a termination is not a security transaction.” Id. In summary, the Court stated

When the trustee or agent alone makes the investment decision to purchase or sell, his failure to disclose information about the purchase or sale to the beneficiary or agent [sic] does not satisfy the “in connection with” requirement of § 10(b). The enforcement of fiduciary and contractual duties owed by a trustee or agent to the beneficiary or principal is the concern of state law, not the federal securities laws.

Id. at 63.

Defendants argue that O’Brien is indistinguishable from this case. Oscar Ellis’ will granted the Bank, as trustee of the marital trust, full power to retain or sell any of the trust property. The Bank’s power to sell Moline Consumers stock was limited only in that James Ellis was designated an adviser with veto power over proposed sales. Mary Ellis had no role in any “matters concerning corporate stocks”— she was to “be adviser as to all other matters” (emphasis added). Thus, defendants argue, Mary Ellis stood in the same position as the O’Brien plaintiffs, with no investment decisions to make in connection with any security transaction.

Defendants suggest that Mary’s remoteness from the actual securities sale is demonstrated further in Harris’ amended complaint, which “virtually parrots the language deemed insufficient to state a cause of action in O’Brien ”:

61. Mary Ellis and those acting in her interest relied upon the misleading and deceptive conduct, misrepresentations, and omissions of material fact, detailed above, in permitting sale of her shares, in foregoing action to alter the management of the trust and its assets, and in allowing the grossly inadequate funding of her trust and sale of her shares.

Defendants claim that the assertion that their allegedly fraudulent conduct might have led Mary Ellis to refrain from interfering in the administration of her trust or altering its management does not plead any closer a connection with a securities sale than was present in O’Brien. Thus, they argue that the securities claims must be dismissed.

Harris argues that this case is not governed by O’Brien but is actually more analogous to a recent Seventh Circuit case, Norris v. Wirtz, 719 F.2d 256 (7th Cir. 1983), cert, denied, — U.S. —, 104 S.Ct. 1713, 80 L.Ed.2d 185 (1984). Indeed, many of the facts in Norris are quite similar to the present case. Plaintiff Norris was a beneficiary of a trust created from her father’s estate. Defendant Wirtz was an executor and trustee, and he was charged with self-dealing by arranging securities sales from the estate to his closely held corporations. However, Norris differs from this case in one crucial way: plaintiff Norris’ prior approval of the securities sales was required under the will, and the defendants accordingly sought and secured such approval. Id. at 260. As explained above, Oscar Ellis’ will provided for approval only by James Ellis.

Harris asserts that there is a material factual dispute concerning Mary Ellis’ control over the sale of Moline Consumers stock. We disagree. The will provisions make it abundantly clear that, unlike the Norris plaintiff, Mary Ellis had absolutely no say in the stock investment decisions. Any right she had to partially terminate the marital trust by selectively withdrawing assets is akin to the O’Brien plaintiffs’ right to completely terminate the trust. Such a self-help remedy does not make the beneficiary a participant in the trustee’s investment decisions. O’Brien, 593 F.2d at 60.

Harris’ other arguments regarding this issue merit little discussion. Neither the tax code nor any federal banking regulations changed the will and trust provisions so that Mary Ellis made any investment decisions. State common law certainly imposed fiduciary duties on at least some of the defendants. But the fact that there might have been a breach of fiduciary duty does nothing to create a federal securities claim. O’Brien, 593 F.2d at 60-61. Finally, regardless of the Bank’s consistency in arguing how much control it had over the investment decisions regarding Moline Consumers stock, it has never contended that Mary Ellis had any authority under the will in connection with the sale of stock. We find that she in fact had no such authority and thus cannot complain of any fraud “in connection with” any investment decision or securities transaction. Accordingly; defendants must be granted summary judgment on Counts I, II and XII.

RICO

Harris charges in Counts III, IV and V that James Ellis, Moline Consumers and the Bank have violated the civil RICO statute. In particular, Harris alleges violations of 18 U.S.C. § 1962(b) and (c). Section 1962(b) makes it unlawful for any person to maintain or acquire an interest, through a “pattern of racketeering activity”, in an enterprise engaged in or whose activities affect interstate commerce; section 1962(c) prohibits a person from conducting the affairs of an enterprise that is engaged in, or whose activities affect, interstate commerce through a “pattern of racketeering activity.” A “pattern of racketeering activity” is defined in section 1961 as at least two occurrences within ten years of any of several predicate offenses, including mail and wire fraud, bribery, and fraud in the sale of securities.

The amended complaint mentions three types of predicate offenses: mail fraud, wire fraud, and fraud in the sale of securities. As explained in the previous section, Harris has failed to state a claim for any federal securities laws violation. Therefore, Harris must have properly alleged at least two instances of mail or wire fraud which constitute a pattern of racketeering activity.

Defendants argue first that the wire fraud allegations are insufficient jurisdictionally because they lack any reference to an interstate wire transmission. This objection is well taken. The wire fraud statute, 18 U.S.C. § 1343, requires that there be a scheme to defraud and an interstate wire communication made in furtherance of the scheme. E.g., United States v. Freeman, 524 F.2d 337, 339 (7th Cir.1975), cert, denied, 424 U.S. 920, 96 S.Ct. 1126, 47 L.Ed.2d 327 (1976). The amended complaint fails to allege any use of interstate wires, and given the Illinois residence of all the parties it would not be reasonable to infer that any such use occurred. Thus, Harris’ wire fraud allegations are deficient.

Defendants also attack the sufficiency of Harris’ mail fraud allegations. Federal Rule of Civil Procedure 9(b), which requires that in all averments of fraud “the circumstances constituting fraud ... shall be stated with particularity”, applies as well to fraud allegations in civil RICO complaints. Haroco, Inc. v. American National Bank and Trust Co. of Chicago, 747 F.2d 384, 405 (7th Cir.1984), cert. granted, — U.S. —, 105 S.Ct. 902, 83 L.Ed.2d 917 (1985). This Court discussed the standards of Rule 9(b) in D & G Enterprises v. Continental Illinois National Bank and Trust Co. of Chicago, 574 F.Supp. 263, 267 (N.D.Ill.1983):

In describing the circumstances constituting fraud, the plaintiff must describe the “time, place and particular contents of the false representations, as well as the identity of the party making the misrepresentation, and what was obtained or given up thereby.” Bennett v. Berg, 685 F.2d 1053,1062 (8th Cir.1982). Mere conclusory language which asserts fraud, without a description of fraudulent conduct, does not satisfy Rule 9(b). Lincoln Nat. Bank v. Lampe, 414 F.Supp. 1270, 1279 (N.D.Ill.1976).
Where there are allegations of a fraudulent scheme with multiple defendants, the complaint must “inform each defendant of the specific fraudulent acts” which constitute the basis of the action against the particular defendant, Lincoln, 414 F.Supp. at 1278.

Defendants claim that Harris’ mail fraud allegations do not satisfy these requirements, as they fail completely “to state who caused what to be placed in the mails in furtherance of the alleged scheme to defraud and when such mailing was made.” This claim is persuasive. Although Harris has responded to this argument by listing several stages in defendants’ purported fraudulent scheme which are identified in the amended complaint, none of these add any particular details to the conclusory claim that defendants committed mail fraud. The mere assertion of mail fraud is not enough to support a RICO claim. Accordingly, Counts III, IV and V must be dismissed.

INVESTMENT ADVISERS ACT

In Count X, Harris seeks damages for alleged violations by Duff and Phelps of section 206 of the Investment Advisers Act, 15 U.S.C. § 80b-6. This count must be dismissed, as there is no such private right of action. In Transamerica Mortgage Advisors, Inc. (TAMA) v. Lewis, 444 U.S. 11, 100 S.Ct. 242, 62 L.Ed.2d 146 (1979), the Supreme Court held that “there exists a limited private remedy under the Investment Advisers Act of 1940 to void an investment advisers contract, but that the Act confers no other private causes of action, legal or equitable.” Id. at 24, 100 S.Ct. at 249 (footnote omitted). Harris concedes that Transamerica governs this case but argues that it was wrongly decided. Be that as it may, this Court does not sit in review of the Supreme Court. Accordingly. we join the other courts which have followed the Transamerica ruling. E.g., In re Catanella and E.F. Hutton and Co., Inc. Securities Litigation, 583 F.Supp. 1388, 1418-19 (E.D.Pa.1984); Richardson v. Shearson/American Express Co., Inc., 573 F.Supp. 133, 135 (S.D.N.Y.1983). Count X is dismissed.

OTHER COUNTS

The amended complaint’s remaining counts contain various state law claims: breach of fiduciary duty, breach of professional duty, violations of the Illinois Probate Act, and breach of contract. Because all the federal law claims are dismissed, there is no longer any basis for the Court to exercise pendent jurisdiction over the rest of this action. United Mineworkers of America v. Gibbs, 383 U.S. 715, 725-26, 86 S.Ct. 1130, 1138, 16 L.Ed.2d 218 (1966); Americana Healthcare Corp. v. Schweiker, 688 F.2d 1072, 1087 (7th Cir.1982), cert, denied, 459 U.S. 1202, 103 S.Ct. 1187, 75 L.Ed.2d 434 (1983). Thus, the state law claims in Counts VI-IX, XI, and XIII-XV are also dismissed.

For the foregoing reasons, defendants’ motions to dismiss and for summary judgment are granted. It is so ordered.

      . Jurisdiction is asserted under 28 U.S.C. § 1331 and principles of pendent jurisdiction.

      . It was determined in 1983 that an additional 423 shares should have been distributed to the marital trust. Thus, the corrected allocation of stock was 3,686 shares to the marital trust and 2,664 shares to the residuary trust.

      . Because of our disposition of this case we need not reach defendants’ res judicata and collateral estoppel arguments, which apply to both the federal and state law claims.

      . These provisions prohibit the use of manipulative or deceptive practices in connection with the purchase or sale of any security.

      . This delegation of power is made in Section Four, Paragraph C(1) and (2) of the will.

      . Section IV, Paragraph E of Oscar's will delineates the advisory roles to be served by James and Mary Ellis quite clearly: "My son James O. Ellis shall be adviser as to all matters concerning corporate stocks or any sale or acquisition thereof. My wife shall be adviser as to all other matters.”

      . The one old tax case cited by Harris in support of its argument is inapposite.

      . Harris’ only response regarding interstate commerce relates to the general RICO requirement under section 1962 that the enterprise either engage in or pursue activities affecting interstate commerce. This requirement is distinct from the issue raised by defendants, the interstate wire transmission needed to violate section 1343.

      . Moreover, many of the alleged fraudulent acts involve non-parties to this lawsuit. Harris, of course, lacks standing to complain of any injuries to such persons.

      . The parties have also submitted memoranda discussing whether Harris’ counsel complied with General Rule 39 of this Court, which requires attorneys to file with the Court affidavits evidencing ethical conduct and copies of contingent fee agreements. Although it appears that counsel has by now filed everything required by Rule 39, defendants suggest that some (unspecified) sanctions might be in order for the rule violations "which continued for nearly three months until the matter was called to this Court’s attention.” However, the initial noncompliance with Rule 39 was due at least partially to complications resulting from the Illinois probate court’s approval of this litigation before it accepted Harris’ contingent fee proposal. Accordingly, we have determined that no sanctions are warranted. Harris, for its part, accuses the Bank's attorneys with "having launched an unfounded assault on the integrity of plaintiff's counsel” and suggests that they "now be held to the accountability imposed by [Fed.R.Civ.P.] Rule 11 on such conduct.” Both sides in this quarrel have in fact done a fair job of maligning the other, and we decline to impose Rule 11 sanctions on either party.


author: BIGGERS, District Judge.

text:
    The HERNANDO BANK and Gateway Capital Corporation, Plaintiffs, v. Sharon Smith HUFF, William B. Kountz, Jr., Robert A. Kountz, Diane Smith McDowell, and Mrs. Willie W. Kountz, Defendants.
    No. DC83-49-NB-O.
    United States District Court, N.D. Mississippi, Delta Division.
    May 13, 1985.

      Charles M. Merkel, Clarksdale, Miss., William W. Ballard, Hernando, Miss., for plaintiffs.
    John W. Dulaney, Tunica, Miss., for defendants.
   MEMORANDUM OPINION

BIGGERS, District Judge.

This diversity case involves valuation of the stock of several shareholders who dissented to the change of corporate form by plaintiff Hernando Bank, a banking corporation, to a banking corporation owned by a one-bank holding company, plaintiff Gateway Capitol Corporation. In a vote taken on September 9, 1982, a sufficient number of shareholders in the Hernando Bank approved the change in corporate form; thus, the Hernando Bank subsequently became a wholly-owned subsidiary of Gateway Capital Corporation. The defendants herein dissented to the proposed merger and perfected their rights pursuant to Miss.Code Ann. § 79-3-161 (1972) to demand that their stock be purchased by the plaintiff Hernando Bank.

A. Statutory Construction

In accordance with the Mississippi statute, the Hernando Bank obtained an appraisal of the stock from Morgan-Keegan of Memphis, Tennessee. Morgan-Keegan determined that the stock had a fair market value of $78.50 per share, to which the Hernando Bank added accrued dividends and offered the defendants the sum of $80.50 per share. This offer was rejected by the defendants; thus, the plaintiffs seek a court determination of the proper value per share of stock.

Cal-Maine Foods, Inc. v. Duvic, 264 So.2d 383 (Miss.1972) is the only reported decision involving the statute in issue. In that case, the Mississippi Supreme Court found no reversible error in the valuation placed on dissenters’ stock by a chancellor, stating that such determination under Mississippi law is a purely factual issue to be resolved by the trier of fact. Id. at 384. Inasmuch as the absence of case law requires this court to make an “Erie guess” regarding construction of the statute, see Bernhardt v. Polygraphic Co. of America, 350 U.S. 198, 204-05, 76 S.Ct. 273, 277, 100 L.Ed. 199, 206 (1956), the factors viewed by the chancellor provide this court with some guidance. These factors include

the liquidating value, the net asset value, the market value, the asset value, the dividends, the earnings prospects, the nature of the enterprise, the general market conditions, the availability of financing, management’s performance, prospects for dividends, past and future earnings, general economic conditions under which the company was operated, particular industry involved, the trends within that industry, the long range obligations of the company, and the long range prospects of the company, and including the offers of the defendant to the complainant ... and the investing experience of the complainant and of the defendant____

Duvic v. Cal-Maine Foods, Inc., No. 81,-116, slip op. at 9 (Miss.Ch., 1st Jud.Dist. Hinds Cty. July 20, 1971).

The defendants argue that the statute excludes consideration of any purchase offers, since fair value must be determined on the date prior to approval of the proposed corporate action and without reference to appreciation or depreciation in anticipation of such action. This provision indicates to the court that the corporation should be viewed as a going concern, rather than a liquidated entity. However, the statutory prohibition against the consideration of any appreciation or depreciation in anticipation of a corporate merger in no way excludes consideration of purchase offers made for this or comparable corporations. In fact, since the going concern value of a company is generally defined as “its worth as an operating business to another firm or individual,” see Western & Brigham, Essentials of Managerial Finance 443 (6th ed. 1982), such offers have particular relevance. In the case of an offer for a comparable company, the relevance of a purchase offer is not diminished due to the consummation of the sale.

B. Minority Discount

Furthermore, the defendants argue at length that their stock shares should be valued as a pro rata share of the corporation, and that a “minority discount” due to the lack of corporate control in such shares is improper. The defendants strenuously contend that a minority shareholder should not be “punished” for his lack of a controlling interest by discounting his stock, especially since the corporate change in form is involuntary with respect to the dissenter. See Dreiseszun v. FLM Industries, Inc., 577 S.W.2d 902, 906 (Mo.App.1979) (minority discount improper); Woodward v. Quigley, 257 Iowa 1077, 133 N.W.2d 38, 41, modified on rehearing, 257 Iowa 1077, 136 N.W.2d 280 (1965) (same).

Despite the superficial appeal of the defendants’ argument, the court is unconvinced that a minority share of stock should be valued as though it were a controlling share of a corporation. Accordingly, the court concludes that in the present case a minority discount is proper in determining the fair value of the stock of the dissenters.

C. Valuation

Courts universally view three elements in determining the fair value of stock — market value, asset value, and investment (or earnings) value. Valuation of Dissenters’ Stock Under Appraisal Statutes, 79 Harv.L.Rev. 1453, 1457 (1966). However,

all three elements do not have to influence the result in every valuation proceeding. It suffices if they are all considered. Compelling the consideration of all of them, including those which may turn out to be unreliable in a particular case, has the salutary effect of assuring more complete justification by the appraiser of the conclusion he reaches. It also provides a more concrete basis for court review.

Endicott Johnson Corp. v. Bade, 37 N.Y.2d 585, 376 N.Y.S.2d 103, 106, 338 N.E.2d 614, 616 (N.Y.1975). This court approves of the approach adopted in Endicott and other cases, and therefore shall consider all three methods.

1. Market Value Approach

Market value, or fair market value, is “the amount that a purchaser who is willing, but not required to buy, would pay, and that a seller who is willing but not required to sell, would accept”; Bear Creek Water Association v. Town of Madison, 416 So.2d 399, 402 (Miss.1982); furthermore, it is necessary that “both the purchaser and the seller be fully informed of all the circumstances involving the value and use of the property.” Id. at 403. In determining fair market value of stock, the price at which recent sales were made obviously is relevant. Although the market for stock in the Hernando Bank was relatively thin and primarily consisted of insider transactions in non-controlling stock interests, the value at which the stock changed hands is nonetheless significant.

Evidence presented at trial showed that the Hernando Bank issued new shares of stock in 1974 and 1977 at $80.00 and $85.00 per share, respectively. Despite some evidence to the contrary, the court finds that the Hernando Bank experienced healthy growth between such dates and the time of the merger. In making this determination, the court is persuaded by many items of evidence presented at trial. For example, between 1974 when the officers and directors valued new Hernando Bank stock at $80.00 per share, and 1982 when the bank merged, deposits had a 155% increase from $19,100,000.00 to $48,700,-000.00. Furthermore, between 1977 and September 8, 1982, bank assets increased by 70%, from $31,300,000.00 to $53,200,-000.00. In 1977, earnings before securities transactions were 246,000.00; however, 1981 brought a 96% increase to $482,-000.00. Furthermore, loans increased by 70% from $28,700,000.00 in 1977 to $48,-700,000.00 in 1982; however, the loan loss ratio was one of the lowest in the state. Bank capital increased from $2,300,000.00 in 1977 to $3,400,000.00 in 1982, and investments practically doubled from $10,300,-000.00 to $19,000,000.00 during the same period.' The substantial growth is due to both population increase in DeSoto County and the good management of the Hernando Bank.

In view of the substantial growth of the Hernando Bank, this court has difficulty in understanding how the market value of the stock could have decreased to $78.50 per share, as determined by the Morgan-Keegan appraisal. It is even more difficult for this court to accept the plaintiffs’ current contention that Morgan-Keegan erroneously adjusted the value of the stock upward to compensate for a market depression, and that the proper valuation is only $45.00 per share. The court instead is impressed by the fact that there were a number of sales in the $95.00 to $100.00 range in recent years prior to the evaluation date. Furthermore, the court notes that the officers and directors of the Hernando Bank set $95.00 as the price at which the bank’s Employee Stock Option Plan (ESOP) would purchase stock shares. In view of this evidence, the court determines that $95.00 per share is the proper market value.

2. Asset Value Approach

The asset value approach, which involves valuation of the total corporate assets, is most useful in cases wherein the corporation is to be liquidated and the assets sold, since “minority stockholders typically have invested for dividend income or stock appreciation and rarely expect to share in the physical assets.” 79 Harv.L.Rev. at 1460. See also In Re Valuation of Common Stock of Libby, McNeill & Libby, 406 A.2d 54, 66 (Me.1979) (net asset value generally not heavily weighted in stock valuation unless such valuation made for liquidation purposes).

In the present case, the sole evidence submitted regarding the value of .the corporate assets was a fire insurance policy on some of the bank’s assets. Inasmuch as this policy at best is probative only as to the value of the physical corporate assets rather than the corporate realty, and since the present case does not involve a corporate liquidation, the court gives the asset value approach little weight in the present case.

3. Investment Value Approach

The third method used in stock valuation is the investment value approach, wherein the earnings of the company are multiplied by the company’s price-earning ratio. In computing the earnings to be used, courts generally require an average of the earnings for the previous five years, see, e.g., Universal City Studios, Inc. v. Francis I. duPont & Co., 334 A.2d 216, 218 (Del. 1975); Application of Delaware Racing Association, 213 A.2d at 212, excluding extraordinary gains and losses during that period; see, e.g., Gibbons v. Schenley Industries, Inc., 339 A.2d 460, 470 (Del.Ch. 1975); Felder v. Anderson, Clayton & Co., 159 A.2d 278, 284 (Del.Ch.1960). The average annual yearly earnings for the Hernando Bank from 1977 through 1982, using projected earnings for 1982 due to the merger on September 9, 1982, were $340,-000.00.

The plaintiffs, relying in part on the Morgan-Keegan appraisal, suggest a multiplier of 5.61, based upon trades of common stock of purportedly comparable publicly traded bank holding companies in the southeast region of the United States. However, the defendants assert that the Hernando Bank, a non-publicly traded corporation, is not comparable to a publicly traded bank holding company, see 79 Harv.L.Rev. at 1463 (comparison of publicly traded and non-publicly traded corporations unreliable), and further assert that Morgan-Keegan selected these companies as comparables simply because data on such companies was available in their Memphis office. In addition, the defendants contend that the bank holding companies used as comparable by Morgan-Keegan differ greatly from the Hernando Bank in amount of deposits, assets, quality of securities portfolios, non-bank income or loss, loan losses, and issuance of preferred stock.

Instead, the defendants have conducted an exhaustive national search of over 800 complete bank sales and found ten sales that purportedly met the test of comparability with Hernando Bank. See Desmond & Kelly, Business Valuation Handbook 257 (4th ed. 1980) (no requirement that comparable business be located within immediate community). Using a multiplier of twelve, as suggested by the defendants based upon their study, the investment value approach computed on the average earnings for the previous five years yields a result of $102.00 per share for the 40,000 outstanding shares. This result is very close to the fair market value of $95.00 to $100.00 per share established through actual sales.

4. Fair Value of the Stock

The court concludes that the fair value of the stock is $100.00 per share. This result appears to be the fair market value of the stock, and is confirmed through the investment value approach.

D. Costs and Expenses

Miss.Code Ann. § 79-3-161 mandates that costs and expenses of the proceeding shall be assessed against the corporation, unless the court determines that the action of the shareholders in refusing to accept the offer was arbitrary, vexatious, or not in good faith. In view of the court’s disposition of the case, it cannot be said that the shareholders’ actions were improper; thus, the corporation has statutory liability. However, the statute provides that recoverable expenses shall exclude fees and expenses of counsel and experts, although fees and expenses of experts may be allowed if the court determines that the fair value of the shares as determined materially exceeds that amount offered by the corporation. In the present case, the court holds that the fair value of the stock as determined materially exceeds that amount offered. Thus, the court awards to the defendants herein the sum of $5,000.00 as reasonable expenses and fees of their expert witnesses. However, the defendants’ request for attorney fees shall be denied.

E. Interest

Miss.Code Ann. § 79-3-161 further mandates that interest shall be awarded on the judgment from the date on which the vote was taken on the proposed corporate action to the date of payment, at such rate as the court shall deem fair and equitable. Based upon the rate of return in effect for a one-year certificate of deposit on September 9,1982, the court determines that a fair rate of interest on this judgment shall be 10.5%, compounded annually. Such interest on the total $129,200.00 judgment shall run from September 9, 1982 until the judgment is satisfied.

Let an order issue accordingly.

      . The Mississippi Corporate Dissent Statute, Miss.Code Ann. § 79-3-161 (1972), provides in part that upon a proposed change in corporate form,
      any ... shareholder may ... make written demand on the corporation ... for payment of the fair value of such shareholder's shares and, if such proposed corporation action is effected, such corporation shall pay to such shareholder, upon surrender of the certificate or certificates representing such shares, the fair value thereof as of the day prior to the date on which the vote was taken approving the proposed corporate action, excluding any appreciation or depreciation in anticipation of such corporate action.

      . The Mississippi Corporate Dissent Statute, like that of many jurisdictions, provides that "fair value" shall be paid for the stock. Although “fair value” is not statutorily defined, it is generally accepted that the term is not necessarily synonymous with "fair market value,” and instead contemplates an equitable evaluation wherein other relevant factors are considered. See, e.g., In Re Watt & Shand, 452 Pa. 287, 304 A.2d 694 (1973) (fair value is intrinsic value, not necessarily fair market value). The MorganKeegan appraiser testified that he never considered any distinction between “fair value” and "fair market value.”

      . Case law uniformly holds that a dissenting shareholder is entitled to receive his intrinsic share of a going concern. See e.g., Welsh v. Indep. Bank & Trust Co., 1 Conn.App. 14, 467 A.2d 941, 942 (1983); In Re Watt & Shand, 304 A.2d at 697-98; Southdown, Inc. v. McGinnis, 89 Nev. 184, 510 P.2d 636, 640 (1973); Application of Delaware Racing Ass’n, 42 Del.Ch. 406, 213 A.2d 203, 209 (1965); Tri-Continental Corp. v. Battye, 31 Del.Ch. 523, 74 A.2d 71, 76 (1950).

      . The defendants have asserted that $95.00 per share is not the proper fair market value in this case, since such price reflects a minority discount. Inasmuch as the court accepts that a minority discount is proper, the $95.00 sales are relevant in determining fair market value.

      . ($340,000 x 12)740,000 = $102.00 per share.


author: DIANA E. MURPHY, District Judge.

text:
    Dov FRAIZER and Britt Bolesen, husband and wife, Plaintiffs, v. ST. JUDE MEDICAL, INC., Defendant.
    Civ. No. 4-85-144.
    United States District Court, D. Minnesota, Fourth Division.
    May 14, 1985.

      Paul A. Strandness, Minneapolis, Minn., for plaintiffs.
    Scott M. Jefferson, Minneapolis, Minn., for defendant.
   MEMORANDUM OPINION AND ORDER

DIANA E. MURPHY, District Judge.

Plaintiffs Dov Fraizer, a Danish citizen, and Britt Bolesen, his wife, brought this action against St. Jude Medical Inc. (St. Jude), a Minnesota corporation, alleging negligence, strict liability, breach of warranty and loss of consortium and seeking compensatory damages. Jurisdiction is based upon diversity of citizenship, 28 U.S.C. § 1332. The matter is now before the court upon St. Jude’s motion to dismiss for forum non conveniens.

BACKGROUND

Plaintiff Fraizer had a mitral valve prosthesis surgically implanted by Danish doctors in a Danish hospital in March 1980. Defendant manufactured the valve and distributed it in Denmark through its Danish representatives. Plaintiffs allege that Fraizer’s life was endangered when on February 25, 1982, a leaflet of the prosthesis broke off. Surgery was done to replace the allegedly broken valve with another valve. St. Judé states that it studied the failure of the valve in Denmark and also at its facility in St. Paul, and asserts that the failure resulted from misuse by the doctors who implanted it.

St. Jude argues that Denmark is the only proper forum for the suit because much of the evidence is there. It claims that it cannot pursue its theory of the case — product misuse — here because relevant evidence and other parties are beyond the reach of an American court. It would like to implead the doctors and the hospital which implanted the valve. Plaintiffs contend, on the other hand, that defendant has failed to show such oppression and inconvenience as to justify dismissal, especially since the suit was brought in defendant’s home forum.

DISCUSSION

Ruling on a motion to dismiss for forum non conveniens, the court must first determine whether there is an alternative forum and if so, whether the presumption in favor of plaintiffs’ choice of forum has been overcome by the private and public interest factors presented. Piper Aircraft Co. v. Reyno, 454 U.S. 235, 102 S.Ct. 252, 70 L.Ed.2d 419 (1981).

In the instant case, Denmark is a viable alternative forum. The record shows that Denmark has a fault-based tort system which provides a cause of action against product manufacturers, doctors, and hospitals. The five year statute which governs such actions runs from the date of discovery of the negligence and would not bar plaintiffs’ claims. Further, St. Jude has agreed to waive all jurisdictional defenses. Plaintiffs argue that the recovery allowed in a Danish court may be inferior to that awarded in Minnesota under a strict liability theory. The United States Supreme Court in Piper Aircraft Co. v. Reyno, 454 U.S. 235, 102 S.Ct. 252, 70 L.Ed.2d 419 (1981), stated, however, that a forum may be adequate “even though the law applicable in the alternative forum is less favorable to the plaintiffs chance of recovery.” 454 U.S. at 250, 102 S.Ct. at'263. The record shows that plaintiffs will not be deprived of a remedy or treated unfairly in Denmark.

Since an adequate forum exists, the court must determine whether the public and private interest factors justify dismissal. Private factors include 1) relative ease of access to sources of proof, 2) availability of compulsory process for attendance of unwilling witnesses, and 3) all other practical problems that make a trial expeditious and inexpensive. Gulf Oil Corp. v. Gilbert, 330 U.S. 501, 508, 67 S.Ct. 839, 843, 91 L.Ed. 1055 (1947). Public interest factors include 1) avoiding adding to the administrative difficulties of courts with congested calendars, 2) avoiding the imposition of the burden of jury duty upon people of a community which has no relationship to the litigation, 3) promoting the local interest in having localized controversies settled at home, and 4) avoiding problems of conflict of laws and the need for the court to apply foreign law. Id. at 508 — 509, 67 S.Ct. at 843. The relative strength of the forums’ interest in the litigation should also be considered. See Piper Aircraft Co. v. Reyno, 454 U.S. 235, 102 S.Ct. 252, 70 L.Ed.2d 419 (1981).

Three key private interest factors, access to sources of proof, availability of compulsory process, and ability to implead third-party defendants, favor St. Jude. The doctor who implanted the valve is there, as well as the members of the surgical teams which implanted and explanted the valve at the same Danish hospital. These witnesses cannot be compelled to testify in the United States by subpoena. Nor can the court compel production of pertinent documents concerning the custody or testing of the valve or surgical procedures. Thus, the inability to implead potential third-party defendants prevents St. Jude from presenting an effective defense in this court.

To be sure, plaintiffs require evidence located in Minnesota concerning the design and manufacture of the valve. St. Jude has agreed, however, to produce in Denmark at its own expense all witnesses and documents under its custody and control that are deemed discoverable. Plaintiffs speculate that critical witnesses may no longer be with St. Jude and thus, not subject to process in Denmark. They have not shown, however, that any employees have in fact left. In any event, plaintiffs could take the depositions of these witnesses.

Moreover, even though defendant could bring a contribution and indemnity action in Denmark if it were found liable after trial here, it would be more convenient and conserve judicial resources if all the claims could be resolved in one trial. See Piper Aircraft Co. v. Reyno, 454 U.S. 235, 259, 102 S.Ct. 252, 268, 70 L.Ed.2d 419 (1981).

In addition, the public interest factors balance in defendant’s favor. While there is a local interest in holding Minnesota residents accountable for their actions under Minnesota tort law, the state also has a strong interest in ensuring that its corporations have access to adequate procedures to defend themselves and vindicate their rights. Moreover, Denmark has a significant interest in setting the standards that a foreign manufacturer must meet to sell products there. Plaintiffs reside in Denmark, the valve was marketed and inserted there, and the injury occurred there. Under these circumstances, it is most appropriate to judge the defendant’s conduct by the standards of the community affected by its actions. See Dahl v. United Technologies Corp., 632 F.2d 1027 (3d Cir.1980). Harrison v. Wyeth Laboratories Div. of Am. Home Products Corp., 510 F.Supp. 1 (E.D.Pa.1980), affd mem., 676 F.2d 685 (3rd Cir.1982).

The public also has an interest in avoiding further congestion of this court’s calendar when another forum exists which would be more convenient. Additionally, public interest factors favor dismissal where the court would be required to untangle choice of law problems and analyze foreign law. Gulf Oil Corp. v. Gilbert, 330 U.S. 501, 67 S.Ct. 839, 91 L.Ed. 1055 (1947).

ORDER

Accordingly, based upon the above, and all the files, records, and proceedings herein, IT IS HEREBY ORDERED that the motion of St. Jude Medical Inc. to dismiss for forum non conveniens is granted and plaintiffs’ complaint is dismissed without prejudice.

      . The same result would be reached under Minnesota law. See Hague v. All State Ins. Co., 289 N.W.2d 43, (Minn.1978), aff’d, 449 U.S. 302, 101 S.Ct. 633, 66 L.Ed.2d 521 (1981).

      . It is this inability to implead third-party defendants which distinguishes this case from the facts in Bergquist v. Medtronic, Inc., 364 N.W.2d 887 (Minn.Ct.App.1985), a case heavily relied upon by plaintiffs. Bergquist did not involve third-party allegations of medical negligence, but was a straight products liability action.


author: HADEN, Chief Judge.

text:
    Beni F. PAYNE, Plaintiff, v. FMC CORPORATION, Defendant.
    Civ. A. No. 84-2063.
    United States District Court, S.D. West Virginia, Charleston Division.
    May 21, 1985.
    Douglas Miller, Charleston, W. Va., for plaintiff.
    Charles Q. Gage, Jackson, Kelly, Holt & O’Farrell, Charleston, W. Va., for defendant.
   ORDER

HADEN, Chief Judge.

At the trial held April 2, 1985, at the close of the Plaintiffs case, the Defendant moved for involuntary dismissal pursuant to Rule 41(b), Federal Rules of Civil Procedure, on the grounds that the Plaintiff had failed to produce evidence establishing a prima facie case of discrimination under Title VII, 42 U.S.C. § 2000e, et seq. The Court in considering this motion finds that the Plaintiff has produced evidence showing the following:

The Plaintiff Beni Payne has been employed by the Defendant FMC Corporation for a period of IIV2 years, and he continues to be so employed. At times relevant to the charge upon which this action is founded, Payne worked in the hydrogen peroxide laboratory. In September, 1981, the Plaintiff became involved in an argument with a nonsupervisory coworker. As a result of this dispute FMC required the Plaintiff to take a 2lk month, paid leave for counseling regarding Payne’s asserted emotional problems. FMC’s September, 1981, actions with respect to Payne became the subject matter of a different charge than that presented here, and this charge was presented to the West Virginia Human Rights Commission. That agency determined the cause adversely to Payne and Payne did not pursue this claim beyond that agency’s determination. The Plaintiff showed that coemployee Daniel Gilreath, who also worked in the peroxide laboratory, was progressed to a Grade 10 — a pay scale level — in the fall of 1982. By Payne’s assessment, Gilreath lacked sufficient experience in “wet chemistry” and did not work in the peroxide laboratory as long as Payne himself had worked there. The relevance of the time in the peroxide laboratory and the expertise with wet chemistry is not apparent. Gilreath is a white man. Payne is a black man. Payne was not progressed to a Grade 10 in December of 1982. This failure to progress forms the basis of the charge prosecuted before this Court.

Payne put on no evidence of statements or conduct of supervisory personnel, or nonsupervisory personnel, which would directly infer race-based animus. Accordingly, the direct approach of establishing a prima facie case of discrimination under U.S. Postal Service v. Aikens, 460 U.S. 711, 103 S.Ct. 1478, 75 L.Ed.2d 403 (1983) does not apply here.

The evidence adduced further fails to show disparate impact theory under Griggs v. Duke Power Co., 401 U.S. 424, 91 S.Ct. 849, 28 L.Ed.2d 158 (1971).

The theory asserted by the Plaintiff is under the proof scheme of McDonnell-Douglas Corp. v. Greene, 411 U.S. 792, 93 S.Ct. 1817, 36 L.Ed.2d 668 (1973) and Texas Department of Community Affairs v. Burdine, 450 U.S. 248, 101 S.Ct. 1089, 67 L.Ed.2d 207 (1981). In order to establish a prima facie case under MeDonnell-Douglas, the Plaintiff must show in this context: (1) that he is a member of a protected class; (2) that he applied for an advancement; (3) that he was rejected for an advancement; and (4) that the advancement was offered to a person who was not in the protected class and who was less qualified than the protected applicant. McDonnell-Douglas, 411 U.S. at 802-03, 93 S.Ct. at 1824-25; Cuthbertson v. Biggers Brothers, Inc., 702 F.2d 454, 458 (4th Cir.1983); Page v. Bolger, 645 F.2d 227, 229-30 (4th Cir.1981). This proof scheme has been held applicable to promotion cases. Bundy v. Jackson, 641 F.2d 934, 951 (D.C.Cir.1981).

The Court experiences some difficulty in the application of this proof scheme to this case for the reason that Gilreath and Payne were apparently considered separately for their respective progressions. The evidence suggests that both Gilreath and Payne could have been progressed and both could have been denied the progression just as well as one granted and one denied the progression. It is not evident that FMC made a choice to progress one over the other.

For the purposes of McDonnell-Douglas, the Plaintiff has shown that he was a member of a protected class; to-wit, that he is a black man. Subject to the Court’s reservations already stated, it could be inferred that Payne applied and was unfavorably considered for a progression or increase in salary. It is also apparent that another person was considered favorably for a progression, although independently of Payne rather than in the alternative to Payne, and this person was not of a protected class.

The Plaintiff’s evidence fails most notably on the issue of qualifications. Other than Payne’s own analysis of his qualifications and Payne’s perception of two deficiencies of Gilreath’s qualifications, the Court is left with qualifications evidence deficient in at least two respects. First, no basis for meaningful comparison is found between Payne and Gilreath. Second, no indication of the relevance of the qualifications addressed have been established. As a result, the Court is left with merely disparate treatment without more. A showing of simple disparate treatment is not sufficient to make out a prima facie case of discrimination actionable under Title VII. Bazemor v. Friday, 751 F.2d 662, 670 (4th Cir.1984).

Accordingly, the Defendant’s Rule 41(b) motion is granted and judgment shall be entered in favor of the Defendant.