author: SHABAZ, District Judge.

text:
    WAUKESHA ENGINE DIVISION, A DIVISION OF DRESSER INDUSTRIES, INC., Plaintiff, v. The DEPARTMENT OF INDUSTRY, LABOR AND HUMAN RELATIONS OF the STATE OF WISCONSIN, and Howard S. Bellman, in his official capacity as Secretary of the Department of Industry, Labor and Human Relations of the State of Wisconsin, and Merry F. Tryon, in her official capacity as Administrator, Equal Rights Division, of the Department of Industry, Labor and Human Relations of the State of Wisconsin, Defendants.
    No. 85-C-286.
    United States District Court, W.D. Wisconsin.
    Oct. 11, 1985.

      Michael H. Auen, of Foley & Lardner, Madison, Wis., for plaintiff.
    David C. Rice, Asst. Atty. Gen., Madison, Wis., for defendants.
   SHABAZ, District Judge.

Plaintiff, Waukesha Engine Division, contends that the prohibition against involuntary retirement set forth in Wisconsin Statute § 111.33(2)(b) (1983-84) is preempted by the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. §§ 1001-1461; the Labor Management Relations Act (“LMRA”), 29 U.S.C. §§ 141-187; and the Age Discrimination in Employment Act (“ADEA”), 29 U.S.C. §§ 621-634. The plaintiff seeks a declaratory judgment, pursuant to 28 U.S.C. §§ 2201-02, that Wis.Stat. § 111.33(2)(b) conflicts with the Federal Statutes mentioned above. The plaintiff also asks that defendant, The Department of Industry, Labor and Human Relations of the State of Wisconsin, be enjoined from enforcing the provisions against involuntary retirement set forth in Wis.Stat. § 111.33(2)(b).

This action is before the Court on plaintiff’s motion for summary judgment. Plaintiff and defendant have agreed on a joint stipulation of facts. Therefore, there is no genuine issue as to any material fact in the case and the case is appropriate for summary judgment.

Facts

Dresser Industries, Inc. is a diversified, publicly held corporation. Plaintiff Wauke-sha Engine Division is a division of Dresser Industries, Inc. Waukesha Engine Division has major sales offices in four states and five countries, and manufacturing facilities in two states. One of those manufacturing facilities is located in Waukesha, Wisconsin.

Defendant The Department of Industry, Labor and Human Relations of the State of Wisconsin (“the department”), administers the Wisconsin Fair Employment Act (“WFEA”). Defendant Howard S. Bellman, Secretary of the Department, has overall responsibility for all aspects of the Department's operations, including administration of the WFEA. Defendant Merry F. Tryon, Administrator of the Equal Rights Division of the Department, has primary responsibility for supervising and administering cases brought under WFEA.

Plaintiff employs approximately 890 persons in its Waukesha, Wisconsin facility. Approximately 500 of these persons are hourly employees; the remainder are paid by salary. Plaintiffs hourly employees at its Waukesha facility are represented for collective bargaining purposes by District 10, International Association of Machinists and Aerospace Workers, AFL-CIO (“the Union”). The Union has negotiated about the hourly employees’ wages, hours, and other terms and conditions of their employment with management at the Waukesha, Wisconsin facility since 1939. In 1947, management of the Waukesha, Wisconsin facility created a pension benefit plan for the hourly, as well as the salaried, employees. The normal retirement date in that plan was age 65. In 1955, the plan was amended to allow employees to work beyond age 65 if the employees obtained management’s consent to do so. In 1957, management and the Union agreed during their negotiations to incorporate by reference the terms of the pension plan into their collective bargaining agreement. The terms of the pension plan have been incorporated by reference into every subsequent labor agreement as well. In 1963, management and the Union also agreed to include the age 65 mandatory retirement date of the pension plan in the collective bargaining agreement. The parties further agreed to remove from the pension plan and omit from the collective bargaining agreement the provision which previously allowed hourly employees to work beyond the mandatory retirement date with management’s consent. In 1973, the parties agreed that hourly employees would be allowed to work beyond the mandatory retirement date to age 66, provided that management consented and no other employees capable of doing the work were on layoff. In 1979, plaintiff and Union changed the mandatory retirement terms in the collective bargaining agreement and the pension plan to comply with the 1978 amendments to the Age Discrimination in Employment Act (ADEA), 29 U.S.C. §§ 621-634. Thus, any employee reaching age 65 on or after January 1,1979 could not be involuntarily retired before age 70.

The parties’ most recent collective bargaining agreement, effective October 16, 1984, contains mandatory retirement provisions identical to those contained in the 1979 agreement. The current agreement provides, in pertinent part, that:

The Normal Retirement Date for this Plan is the last day of the calendar month during which you reach age sixty-five (65). Prior to January 1, 1979, retirement was mandatory immediately upon reaching your Normal Retirement Date, unless continuation of employment past that date was approved by the Company, but not beyond attainment of age sixty-six (66). If an employee reaches age sixty-five (65) on or after January 1, 1979, however, mandatory retirement on account of age is deferred until age seventy (70) in keeping with the 1978 amendments to the Age Discrimination in Employment Act.
Retirement shall be mandatory on the last day of the calendar month during which the employee reached the seventieth (70) birthday.

The plan provides that employees working past their normal retirement dates will receive no Benefit Accrual Service or Participation Service for such time. However, the plan continues to provide such persons with pension benefits calculated by the benefit level in effect at the time of their actual retirement.

The current collective bargaining agreement incorporates the terms of the current pension plan as well. The current pension plan similarly provides that retirement will “be automatic upon a Participant attaining Age 70.”

Since 1957, plaintiff and the Union have also agreed that certain group insurance benefits (e.g., hospital, life, and medical) would be provided to active and retired hourly employees. The current group insurance plans for active and retired hourly employees are referred to in the collective bargaining agreement. Plaintiff provides different group insurance benefits to active and retired employees. For example, hourly retirees at Waukesha do not receive permanent and total disability insurance, vision care expense benefits, or comprehensive dental expense benefits. Furthermore, retired employees and their dependents do not receive major medical expense benefits while they are eligible for Medicare.

The group insurance plans for active and retired hourly employees also refer to, and are interrelated with, the hourly pension plan. For example, the active employee plan provides that a person loses his eligibility for group life insurance if he does not retire pursuant to the pension plan. Similarly, the retiree plans make retirement pursuant to the pension plan a condition of eligibility for retiree group insurance benefits.

Plaintiff also employs some 390 salaried employees at its Waukesha, Wisconsin facility. Plaintiff regularly transfers salaried employees between the Waukesha, Wisconsin facility and locations outside of Wisconsin in the ordinary course of its business. In addition, some salaried employees who report to management at the Waukesha, Wisconsin facility work and reside outside of Wisconsin.

The 390 salaried employees at plaintiff’s Waukesha, Wisconsin facility also receive pension benefits — through the Dresser Retirement Income Plan (DRIP). The DRIP covers over 11,250 salaried employees working in 43 states and the District of Columbia, as well as approximately 4000 retirees and other beneficiaries. The present DRIP first became effective May 1, 1983. Plaintiff has amended the DRIP several times. When plaintiff last amended the DRIP, the latest effective date stated therein was May 16, 1985.

The DRIP states that the Normal Retirement Date for salaried employees is age 65 and further provides that:

As to periods prior to January 1, 1979, employment beyond Normal Retirement must have been specifically approved by the Company. As to periods commencing on or after January 1, 1979, employment beyond Age 70 is prohibited. Provided that a Participant’s employment shall be terminated as of the date (prior to Age 70, but not earlier than Age 65) that such Participant (1) has been employed in an executive or high policy making capacity with the Employer for at least the two consecutive years immediately preceding the termination date; and (2) is entitled or eligible to receive in the aggregate from all defined benefit and all defined contribution plans maintained by the Employer (exclusive of benefits provided for by employee contributions) annual benefits equal in value to a single life annuity without ancillary benefits of at least $27,000.

As with its hourly plan, plaintiff added this provision to comply with the 1978 amendments to the ADEA. Plaintiff is in the process of amending the DRIP to comply with § 802(c)(1) of the Older Americans Act Amendments of 1984, Pub.L. 98-459, that raises the minimum benefit level for retirement of bona fide executives or high policymakers to $44,000. Plaintiff presently is administering the plan by those increased terms.

The salaried persons plaintiff employs at Waukesha also participate in the company’s standard group insurance plans, which cover approximately 10,000 employees nationwide. These plans were last amended January 1, 1985, and became effective as amended on that date. Plaintiff provides different group insurance benefits to active salaried employees and retired salaried employees. For example, accidental death and dismemberment insurance and dental benefits completely terminate at retirement. Similarly, long-term disability benefits terminated at age 70. Life insurance benefits are substantially reduced at retirement. Moreover, plaintiff assumes only secondary responsibility for the medical and hospital benefits of its salaried retirees. The group insurance plan for active and retired salaried employees refers to, and is interrelated with, the DRIP. For example, disability benefits are not payable once a person is retired pursuant to DRIP. Similarly, persons are eligible for group retiree insurance benefits as retirees only if they terminate after age 55 with at least nine years of service as determined under the provisions of the DRIP.

The pension and group insurance plans contained in both the pension plan and collective bargaining agreement for hourly and salaried employees, active or retired, are “employee benefit plans” within the meaning of the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. §§ 1002(l)-(3). Furthermore, the United States Internal Revenue Service has approved these plans as meeting the requirements of its rules and regulation. Plaintiff is a fiduciary of the plans. The group insurance benefits that plaintiff provides to its salaried, hourly, and retired employees (with the exception of life and accidental death and dismemberment benefits) are provided under and pursuant to a self-insured plan. That plan is an employee “welfare benefit plan” within the meaning of ERISA, 29 U.S.C. § 1002(1). Persons covered by these pension and insurance plans receive substantial benefits from them, and none of the plans are subterfuges to evade the purposes of any age discrimination law. Furthermore, as noted above, plaintiff has consistently amended the plans to comply with the changing requirements of the ADEA.

Prior to September 1, 1984, WFEA contained provisions parallel to those of the ADEA. That is, employers in Wisconsin were entitled to involuntarily retire, pursuant to a bona fide employee benefit plan, any hourly or salaried employee reaching age 70. Also, employers were entitled to involuntarily retire certain bona fide executives or high policymakers between the ages 65-69. On September 1, 1984, however, the State of Wisconsin amended the WFEA. As amended, § 111.33 of WFEA prohibits employers from making employment decisions turn on a person’s age — if age 40 or over. Furthermore, as amended, § 111.33 prohibits any retirement plan or system from requiring or permitting the involuntary retirement of any individual age 40 or over because of that individual’s age. The 1984 amendments also expressly repeal the earlier WFEA provision which allowed Wisconsin employers involuntarily to retire certain bona fide executives and high policymakers between the ages of 65-69.

The amended WFEA became effective immediately for retirement and insurance plans incorporated in collective bargaining agreements negotiated after September 1, 1984. The current collective bargaining agreement between plaintiff and the Union was negotiated after September 1, 1984 and became effective October 16, 1984. Therefore, the amended WFEA is applicable to the retirement and insurance plans for hourly employees incorporated in that collective bargaining agreement. The amended WFEA includes a two-year grace period, ending September 1, 1986, for non-collectively bargained retirement and insurance plans in existence on September 1, 1984. For all other retirement and insurance plans, the amended law was applicable as of its effective date — September 1, 1984. The DRIP and group insurance plans provided to plaintiff’s salaried employees have amendments which became effective after the September 1, 1984 date.

The amended WFEA renders the mandatory retirement provisions contained in both the pension plan and collective bargaining agreement for hourly employees unlawful on their face. Plaintiff and the Union are prohibited from implementing the mandatory retirement provisions and from including such provisions in their agreements in the future. The amended WFEA has or will render the mandatory retirement provision in the DRIP unlawful on its face. WFEA prohibits plaintiff from involuntary retiring any salaried employee, even though that employee lawfully could be retired if he was working in another state. WFEA also prohibits plaintiff from involuntarily retiring bona fide executives and high policymakers in Wisconsin, even though it lawfully could do so in other states.

The amended WFEA will also result in higher costs for the employee benefit plans. An hourly retiree’s pension benefits are calculated according to the benefit level in effect at retirement. Because the amended Wisconsin law prohibits involuntary retirement of employees at a designated age, the monthly benefit due to hourly employees who retire after age 70 will be higher. Also, persons who otherwise would be required at a certain age to seek their group insurance benefits from plaintiff’s retiree insurance plans can continue to seek such benefits from the plans created for active employees. As a consequence, the active employee insurance plans cover an expanded population and the cost of maintaining and administering those plans is raised to plaintiff.

Several of plaintiff’s employees, hourly and salaried, are nearing their mandatory retirement dates. One of the hourly employees, T.A. Findley, turned 70 on April 19, 1985. He told plaintiff that, in light of the WFEA amendments, he intends to continue working. If plaintiff were involuntarily to retire Findley or any other employee after their seventieth birthday, it could be prosecuted under the amended WFEA. If plaintiff does not involuntarily retire Findley or any other employee after their seventieth birthday, it will unilaterally have changed the terms of its collective bargaining agreement and pension/insurance plans.

Discussion of Law

This case involves an actual and real controversy between the parties over the enforceability of Wis.Stat. § 111.33(2)(b) and is appropriately brought under 28 U.S.C. § 2201. The Court has jurisdiction of this action under 28 U.S.C. § 1331, and under 29 U.S.C. § 1132.

The Wisconsin Fair Employment Act (“WFEA”) prohibits employment discrimination based on age against individuals forty-years of age or older. Wis.Stat. §§ 111.-321, 111.33 (1983-84). It is not employment discrimination because of age “[t]o implement the provisions of any retirement plan or system of any employer if the retirement plan or system is not a subterfuge to evade the purposes of ... [the Wisconsin Fair Employment Law].” However, “[n]o plan or system may excuse the failure to hire, or require or permit the involuntary retirement of, any individual ... because of that individual’s age.” Wis.Stat. § 111.-33(2)(b).

Plaintiff contends that the prohibition against involuntary retirement set forth in Wis.Stat. § 111.33(2)(b) is preempted by the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. §§ 1001-1461; the Labor Management Relations Act (“LMRA”), 29 U.S.C. §§ 141-187; and the Age Discrimination in Employment Act (“ADEA”), 29 U.S.C. §§ 621-634.

In deciding whether a federal law preempts a state statute, the Court must determine Congress’ intent in enacting the federal law at issue. Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 95, 103 S.Ct. 2890, 2899, 77 L.Ed.2d 490 (1983). “Pre-emption may be either express or implied, and ‘is compelled whether Congress’ command is explicitly stated in the statute’s language or implicitly contained in its structure and purpose.’ Jones v. Rath Packing Co., 430 U.S. 519, 525 [97 S.Ct. 1305, 1309, 51 L.Ed.2d 604] (1977).” Shaw, 463 U.S. at 95, 103 S.Ct. at 2899.

The Court will address the issue of whether ERISA preempts Wis.Stat. § 111.-33(2)(b) first. ERISA subjects to federal regulation employee pension and welfare plans. Congress explicitly provided, in section 514(a) of ERISA, 29 U.S.C. § 1144(a), that ERISA preempts “any and all State laws insofar as they may now or hereafter relate to any employee benefit plan” covered by ERISA. The United States Supreme Court has recently construed the phrase “relates to” in Shaw v. Delta Air Lines, Inc., 463 U.S. 85,103 S.Ct. 2890, 77 L.Ed.2d 490 (1983). According to the Court, “[a] law ‘relates to’ an employee benefit plan, in the normal sense of the phrase, if it has a connection with or reference to such a plan.” Shaw, 463 U.S. at 96-97, 103 S.Ct. at 2900. The Court went on to say:

Congress used the words “relate to” in § 514(a) in their broad sense. To interpret § 514(a) to preempt only state laws specifically designed to affect employee benefit plans would be to ignore the remainder of § 514____ Nor, given the legislative history, can § 514(a) be interpreted to preempt only state laws dealing with the subject matters covered by ERI-SA — reporting, disclosure, fiduciary responsibility, and the like. The bill that became ERISA originally contained a limited pre-emption clause, applicable only to state laws relating to the specific subjects covered by ERISA. The Conference Committee rejected these provisions in favor of the present language, and indicated that the section’s pre-emptive scope was as broad as its language.

Shaw, 463 U.S. at 98, 103 S.Ct. at 2900-01. Based upon its broad interpretation of the clause “relate to,” the Supreme Court in Shaw held that the New York Human Rights Law, which forbid discrimination in employee benefit plans on the basis of pregnancy, was preempted by ERISA to the extent it prohibited practices that were lawful under federal law.

In Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504,101 S.Ct. 1895, 68 L.Ed.2d 402 (1981), the United States Supreme Court held that ERISA preempted a New Jersey statute that did not allow employers to reduce a retiree's pension benefit by an amount equal to the retiree’s workers’ compensation award. The Court stated: “It is of no moment that New Jersey intrudes indirectly through a worker’s compensation law, rather than directly, through a statute called ‘pension regulation.’ ERISA makes clear that even indirect state action bearing on private pensions may encroach upon the area of exclusive federal concern.” Alessi, 451 U.S. at 525, 101 S.Ct. at 1907.

Other cases in which state statutes have similarly fallen prey to ERISA’s broad preemption are: Stone & Webster Engineering Corp. v. Ilsley, 690 F.2d 323 (2d Cir. 1982), affd, 463 U.S. 1220, 103 S.Ct. 3564, 77 L.Ed.2d 1405 (1983) (preempting Connecticut statute that required employers to provide certain health and life insurance benefits to injured workers); Champion International Corp. v. Brown, 731 F.2d 1406 (9th Cir.1984) (preempting provisions of Montana’s age discrimination law that required service accrual for employees working after age 65); General Motors Corp. v. California State Board of Equalization, 600 F.Supp. 76 (C.D.Cal.1984) (preempting California insurance franchise tax as applied to ERISA plan); Council of Hawaii Hotels v. Agsalud, 594 F.Supp. 449 (D.Hawaii 1984) (preempting Hawaii law requiring employers to provide prepaid health benefits for employees), Davis v. Line Construction Benefit Fund, 589 F.Supp. 146 (W.D.Mo.1984) (preempting Missouri subrogation rules as applied to ERISA plan).

Other state statutes and actions, however, which “affect employee benefit plans in too tenuous, remote, or peripheral a manner to warrant a finding that the law ‘relates to’ the plan,” have survived an ERISA preemption challenge. Savings & Profit Sharing Fund of Sears Employees v. Gago, 717 F.2d 1038, 1040 (7th Cir.1983). Cases in which the Court held that state action was not preempted by ERISA are: Savings & Profit Sharing Fund of Sears Employees v. Gago, 717 F.2d 1038 (7th Cir.1983) (Wisconsin law governing property settlements pursuant to divorce not preempted); American Telephone & Telegraph Co. v. Merry, 592 F.2d 118 (2d Cir.1979) (Connecticut court order garnishing pension plan to fulfill alimony and support obligation not preempted by ERISA); Lane v. Goren, 743 F.2d 1337 (9th Cir.1984) (California statute prohibiting discrimination in hiring, promotion and salary not preempted by ERISA); and Rebaldo v. Cuomo, 749 F.2d 133 (2d Cir.1984) (New York law that prohibited hospitals from establishing in-patient charges for self-insured employee benefit plans other than as authorized by statute not preempted by ERISA).

The Court concludes that Wis.Stat. § 111.33(2)(b) does “relate to” an employee benefit plan covered by ERISA. Wis.Stat. § 111.33(2)(b) “has a connection with or reference to such an [employee benefit] plan.” The involuntary termination provision of Wis.Stat. § 111.33(2)(b) specifically applies to a retirement plan or system of any employer. In addition, the involuntary termination provisions of the Wisconsin statute control what terms may be included in an employee benefit plan. Under the Wisconsin statute, an employee benefit plan could not contain a mandatory termination provision for employees 70 years old or older or for bona fide executives between the ages of 65 and 70. Such terms would otherwise be lawful under federal law. Clearly, the effect that Wis.Stat. § 111.33(2)(b) has on employee benefit plans covered by ERISA is not too tenuous, remote, or peripheral to warrant a finding that the law “relates to” an employee benefit plan.

The Court’s conclusion that Wis.Stat. § 111.33(2)(b) “relates to” employee benefit plans is supported by case law. The Court of Appeals for the Seventh Circuit and the Wisconsin Court of Appeals have both held that the Wisconsin Fair Employment Act’s general nondiscrimination provisions “relate to” ERISA plans. See Bucyrus-Erie Co. v. Department of Industry, Labor & Human Relations, 599 F.2d 205, 208-210 (7th Cir.1979), cert. denied, 444 U.S. 1031, 100 S.Ct. 701, 62 L.Ed.2d 667 (1980); Goodyear Tire & Rubber Co. v. Department of Industry, Labor & Human Relations, 87 Wis.2d 56, 72-73, 273 N.W.2d 786, 793-795 (Ct.App.1978). If the general nondiscrimination provisions of the Wisconsin Fair Employment Act “relate to” ERISA plans, the more specific involuntary retirement prohibition of Wis.Stat. § 111.33(2)(b) must also.

ERISA preempts “any and all State laws insofar as they may now or hereafter relate to any employee benefit plan” covered by ERISA. Wisconsin Statute § 111.-33(2)(b) does relate to employee benefit plans covered by ERISA. Accordingly, Wis.Stat. § 111.33(2)(b) is preempted by ERISA to the extent that Wis.Stat. § 111.-33(2)(b) applies to employee benefit plans covered by ERISA.

Plaintiff asks the Court to declare, pursuant to 28 U.S.C. § 2201-02, that Wis. Stat. § 111.33(2)(b) is invalid as applied to plaintiff’s collective bargaining agreement and pension/insurance plans. The plaintiff also asks the Court to enjoin defendants from compelling, or attempting to compel, plaintiff to abandon, adjust or alter the involuntary retirement provisions found in its collective bargaining agreement and pension/insurance plans.

Since Wis.Stat. § 111.33(2)(b) is preempted by ERISA to the extent that Wis.Stat. § 111.33(2)(b) applies to employee benefit plans covered by ERISA, Wis.Stat. § 111.-33(2)(b) is invalid as applied to plaintiff’s collective bargaining agreement and pension/insurance plans if the collective bargaining agreement and pension/insurance plans are employee benefit plans covered by ERISA. The parties have stipulated that the pension and group insurance plans contained in both the pension plan and collective bargaining agreement for hourly and salaried employees, active or retired, are “employee benefit plans” within the meaning of ERISA. The parties have also stipulated that the group insurance benefits that plaintiff provides to its salaried, hourly, and retired employees are provided under and pursuant to a self-insured plan that is an employee “welfare benefit plan” within the meaning of ERISA. Based upon these stipulated facts, the Court concludes that Wis.Stat. § 111.33(2)(b) is invalid as applied to the plaintiff’s pension and group insurance plans contained in both the pension plans and collective bargaining agreement for hourly and salaried employees.

The Court finds that declaratory relief pursuant to 28 U.S.C. § 2201-03 is appropriate. The Court declares that Wis. Stat. § 111.33(2)(b) is preempted by ERISA to the extent that § 111.33(2)(b) applies to an employee benefit plan covered by ERISA. More specifically, the Court declares that Wis.Stat. § 111.33(2)(b) is invalid as applied to plaintiff’s pension and group insurance plans contained in both the pension plans and collective bargaining agreement for hourly and salaried employees.

The Court also finds that injunctive relief is appropriate. Accordingly, the Court enjoins the defendant, their agents, successors, and employees from compelling or attempting to compel, plaintiff to abandon, adjust, or alter the involuntary retirement provision found in its collective bargaining agreement and pension plans to the extent that such involuntary retirement provision is consistent with federal law.

Since the Court has found that Wis.Stat. § 111.33(2)(b) is preempted by ERISA to the extent that it applies to an employee benefit plan covered by ERISA and has granted plaintiff its requested relief, the Court will not address the issue of whether Wis.Stat. § 111.33(2)(b) is preempted by the LMRA or the ADEA.

Plaintiff also requests its costs and attorney’s fees in this action pursuant to 29 U.S.C. § 1132(g). Under 29 U.S.C. § 1132(g)(1), the Court may in its discretion allow reasonable attorney’s fees and costs of action in any action under ERISA by a participant, beneficiary, or fiduciary. This action is an action under ERISA brought by plaintiff as fiduciary.

Bittner v. Sadoff & Rudoy Industries, 728 F.2d 820 (7th Cir.1984) sets forth two tests a district judge could use to evaluate a fee request under 29 U.S.C. § 1132(g)(1). The first test, that consists of five-factors, generally applies in situations where a plaintiff employee asks for attorney’s fees after successfully alleging an employer’s violation of ERISA. The five factors are:

(1) the degree of the offending parties’ culpability or bad faith; (2) the degree of the ability of the offending parties to satisfy personally an award of attorneys’ fees; (3) whether or not an award of attorneys’ fees against the offending parties would deter other persons acting under similar circumstances; (4) the amount of benefit conferred on members of the pension plan as a whole; and (5) the relative merits of the parties’ positions.

Bittner, 728 F.2d at 828. This test, however, provides little guidance in determining whether attorneys fees and costs should be awarded where an action seeks to invalidate a state statute, because the importance of factors such as bad faith, deterrence and personal finances are minimized.

A more appropriate test to determine whether attorney’s fees should be awarded in an action seeking to invalidate a state statute is the second test which allows a prevailing party attorney’s fees unless the losing party’s position was substantially justified or unless some special circumstance makes such an award unjust. Bitt-ner, 728 F.2d at 830. Under the circumstances of this case, the Court finds that an award granting attorney’s fees to the plaintiff would be unjust. Plaintiff requested and received a declaratory judgment to the effect that Wis.Stat. § 111.33(2)(b) is unconstitutional as applied to its ERISA plans, and an injunction to prevent the defendant from enforcing the provisions of Wis.Stat. § 111.33(2)(b). Plaintiff requested no monetary damages. Defendant, on the other hand is a state agency that was given the responsibility of enforcing a state law that was preempted to the extent it conflicted with ERISA. There was no evidence that the state acted in bad faith in passing the law. Where plaintiff suffered no monetary damages, and where defendant did not act in bad faith, special circumstances indicate that an award of attorney’s fees to the plaintiff would be unjust. Therefore, the Court, in its discretion, denies plaintiff’s request for attorney’s fees and costs.

ORDER

IT IS ORDERED that plaintiff’s motion for summary judgment is granted and a declaratory judgment and permanent injunction in plaintiff’s favor shall be entered accordingly. Plaintiff’s request for attorney’s fees and costs is denied.


source: Caselaw Access Project

author: SUSAN H. BLACK, District Judge.

license: Public Domain

text:
    UNITED STATES of America, Plaintiff, v. Jack CONRAD, Defendant.
    No. 84-561-Civ-J-14.
    United States District Court, M.D. Florida, Jacksonville Division.
    Oct. 11, 1985.
    John Lawlor, III, Jacksonville, Fla., for plaintiff.
    Gordon Blalock, Jacksonville, Fla., for defendant.
   OPINION

SUSAN H. BLACK, District Judge.

Introduction

Plaintiff filed this action on May 21, 1984, seeking damages for breach of contract. The Complaint alleges that the defendant was the high bidder at an auction conducted by the Small Business Administration of the assets of Mackall Printing Company and that the defendant has refused to honor his bid.

On August 2, 1984, the defendant filed an Answer which asserts the following affirmative defenses: first, that plaintiff neither owned nor had an interest in the property being auctioned; second, that defendant withdrew his offer prior to its acceptance; and third, that plaintiff misrepresented the quantity and identity of the goods being auctioned and that defendant relied upon the misrepresentation when making his bid. On August 12, 1985, defendant filed a Motion to Amend Answer which the Court granted on August 19, 1985, adding the following affirmative defenses: fourth, that plaintiff failed to comply with Section 559.27, Florida Statutes (1983), which requires that a tag reflecting the value of an item offered for auction be placed upon each item; and fifth, that the contract sued upon does not satisfy the statute of frauds, Section 672.201, Florida Statutes (1983).

This case was tried by the Court without a jury on August 19, 1985 and September 9, 1985. The Court, having considered the pretrial stipulation of the parties, the trial briefs submitted by counsel, the exhibits, the testimony at trial, and having observed the demeanor of the witnesses, makes the following findings of fact and conclusions of law.

Findings of Fact

1. On or about November 12, 1980, Edward Mackall Gobble obtained a loan from the Small Business Administration (hereinafter “SBA”), pursuant to the Handicap Assistance Loan Program, in the amount of $82,000.00 for the purpose of opening a printing business known as Mackall Printing Service. (Testimony of Scott Dailey).

2. Mr. Gobble executed and delivered to the SBA a note in the amount of the loan and gave the SBA a purchase money security interest in the assets of the business along with a mortgage on his residence. (Testimony of Scott Dailey).

3. On or about August 19, 1983, Mr. Gobble defaulted on his note and on October 5, 1983, Mr. Gobble voluntarily surrendered his business assets, which were located at premises own by Jack Conrad, to the SBA. (Testimony of Scott Dailey).

4. The SBA entered into an agreement with Jack Conrad, the defendant, to rent the premises until an auction of the assets could be held. (Plaintiffs Exhibit 6).

5. Mr. Gobble always operated with the SBA as an individual when he borrowed the funds, delivered his note and surrendered his business assets to the SBA, thereby transferring ownership of the assets to the SBA. (Testimony of Edward Gobble).

6. On November 9, 1983, the SBA held a public auction of the property surrendered by Mr. Gobble at the premises leased from Mr. Conrad. (Testimony of Scott Dai-ley).

7. The SBA hired Louis Boyleston Realty and Auction, Inc. for the purpose of conducting the auction. Louis Boyleston is an experienced auctioneer who has conducted numerous auctions. His clients have included the bankruptcy courts and the SBA. (Testimony of Scott Dailey).

8. Louis Boyleston, of the firm, conducted the auction in two phases, first offering the property in bulk and then in piecemeal. (Testimony of Louis Boyle-ston).

9. An auction conducted in bulk and then in piecemeal is a common practice in the auction industry. The auctioneer first requests bids for all of the items in bulk or in a single lot. Upon the fall of the hammer in the bulk sale, the auctioneer then requests bids on each item in piecemeal or individually. If the sum of all the piecemeal bids does not exceed the highest bulk bid, the bulk bidder takes the property. (Testimony of Louis Boyleston).

10. The terms of the auction and the items included in the auction were published in brochures sent to persons as invitations to attend the auction, were listed in notices posted throughout the premises where the auction took place, were published in brochures on a table in the premises and were announced by the auctioneer pri- or to beginning the auction. (Testimony of Louise Boyleston and Louis Boyleston).

11. All those who attended the auction, including Mr. Conrad, knew or should have known that certain items, including a typesetter clearly marked by a sign stating “NOT IN SALE,” were not included in the auction. (Testimony of Louis Boyleston).

12. Mr. Conrad placed the highest bid of $20,000.00 in the bulk sale; the auctioneer struck down his hammer and called off the property as sold to Mr. Conrad. (Testimony of Louise Boyleston).

13. Immediately after the fall of the auctioneer’s hammer, the auctioneer’s clerk, Louise Boyleston, prepared and signed a memorandum of sale providing Mr. Conrad bid $20,000.00 in the bulk sale. (Testimony of Louise Boyleston, Plaintiff’s Exhibit 4).

14. Several persons left the auction after the bulk sale. (Testimony of Douglas Clayton).

15. After the auctioneer had begun the piecemeal sales, Mr. Conrad approached the auctioneer and informed him that he wanted to rescind his bid. (Testimony of Louis Boyleston).

16. The auctioneer did not accept the withdrawal of the bid. (Testimony of Louis Boyleston).

17. The sum of the piecemeal sales did not exceed Mr. Conrad’s bulk bid and at the end of the auction, the auctioneer announced that the winner of the bulk bid successfully purchased the property. (Testimony of Don Mullins).

18. The SBA left the property on the premises for Mr. Conrad. (Testimony of Scott Dailey).

19. Mr. Conrad has refused to pay for the property. (Testimony of Richard Young).

20. Subsequent to the auction, Mr. Conrad obtained a default judgment for back rent against Edward Gobble and levied on that judgment, resulting in a sheriff’s sale of the property. (Testimony of Jack Conrad).

Conclusions of Law

1. This Court has jurisdiction over the subject matter and the parties to the action pursuant to Title 28, U.S.C. § 1345.

2. The central issue in this case is whether the high bidder in the bulk sale of an auction conducted in bulk and then in piecemeal may withdraw his bid after the fall of the hammer on his bid, but prior to the completion of the piecemeal sales. The attorneys for both parties in briefing this issue indicated that they were unable to find case or statutory law discussing this issue. However, both parties agree that the issue is controlled by the Uniform Commercial Code and the law of contract.

The Court begins with a review of the relevant code section pertaining to auctions. Section 672.328(2), Florida Statutes (1983) provides: “A sale by auction is complete when the auctioneer so announces by the fall of the hammer or in other customary manner.” Furthermore, in an auction with reserve, the auctioneer may withdraw an item from the auction until the fall of the hammer indicating the completion of the sale. Similarly, a bidder may retract his bid until the fall of the hammer. Section 672.328(3), Florida Statutes (1983). It has long been settled that a bid constitutes an offer and the fall of the hammer signifies acceptance. See Blossom v. Milwaukee & Chicago R.R. Co., 70 U.S. (3 Wall.) 196, 18 L.Ed. 43 (1865); Clemens v. United States, 295 F.Supp. 1339, 1340 (D.Or.1968), aff'd 439 F.2d 705 (9th Cir.1971). Thus, the fall of the hammer creates a binding contract between the seller and the high bidder.

However, an auction conducted in bulk and then in piecemeal affects the contract because neither the bulk bidder nor the seller can perform his obligations under the contract until the piecemeal sales are complete. This is analogous to the situation described by Professor Williston: “A contract to sell goods to arrive ‘will impose no liability on either party unless the goods arrive/ but each is irrevocably bound by a contract from the outset.” 5 S. Williston, A Treatise on the Law of Contracts § 666 (3d ed. 1961) (citation omitted). Williston classifies this as a condition precedent to the performance of the contract.

The usual and customary practice in the auction industry supports the conclusion that the fall of the hammer in the bulk sale creates a binding contract between the high bulk bidder and the seller. Once the hammer falls, the bidders know the sale is concluded and several bulk bidders leave the auction, as they did in this case. It is inconsistent to conclude that the customary practice of conducting auctions in bulk and then piecemeal changes the well established significance afforded the falling of the hammer. If the high bulk bidder were allowed to withdraw his bid until all the piecemeal sales were completed, persons who desired to bid only in bulk would have to remain throughout the longer piecemeal auctions before learning whether or not the sale was concluded. Furthermore, allowing the bulk bidder to withdraw his bid at any time up until the end of the piecemeal sales would similarly enable the auctioneer to refuse to accept the bulk bid, to exclude items from the auction, and to accept a higher bulk bid made after the fall of the hammer on the bulk sale but prior to completing all the piecemeal sales. Therefore, for the benefit of the bidders and auctioneer who need to know with certainty when a sale is closed, a binding contract must be formed between the bulk bidder and the seller upon the fall of the hammer in the bulk sale.

The requirement that the sum of all the piecemeal bids does not exceed the bulk bid for the bulk bidder to take the property constitutes a condition precedent to performance of the contract. In the present case, this condition was fulfilled when the piecemeal bids did not exceed the defendant’s bulk bid. The SBA has satisfied its obligations under the contract by leaving the property on the defendant’s premises for him to take possession.

In conclusion, the parties entered into a binding contract upon the fall of the auctioneer’s hammer. The condition precedent to performance, the failure of the piecemeal bids to exceed the bulk bid, was satisfied. Thus, the defendant is obligated to perform, namely to pay the amount of his bid.

3. The Court will address briefly two additional issues. The first is whether Section 559.27, Florida Statutes (1983), which requires the tagging of items offered at auction, provides a meritorious defense. The statute provides, in pertinent part:

(2) The provisions of this section shall not apply: (b) When a value is not expressed by the auctioneer as a guide to the bidder____

Section 559.27(2)(b), Florida Statutes (1983). In the present case, the auctioneer never expressed an opinion as to the value of any of the items being auctioned. Thus, the provisions of the statute do not apply and there was no need to tag the items.

The second issue is whether the contract sued upon satisfies the statute of frauds, which provides, in pertinent part:

(1) [A] contract for the sale of goods for the price of $500 or more is not enforceable by way of action or defense unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought or by his authorized agent or broker.

Section 672.201(1), Florida Statutes (1983).

In the present case, upon the fall of the hammer, the auctioneer’s clerk prepared a memorandum of sale which provided that Mr. Conrad bid $20,000 in the bulk sale. Upon the acceptance of a bid, the auctioneer or the auctioneer’s clerk becomes the agent of the purchaser as well as of the seller for the purpose of drawing up and signing a memorandum of sale in compliance with the statute of frauds. See In re Community Investments Associates I, 14 B.R. 211 (Bankr.E.D.Va.1981); Romani v. Harris, 255 Md. 389, 258 A.2d 187 (1969); see also Restatement (Second) of Contracts, § 135 comment b (1979). Therefore, the writing prepared by the auctioneer’s clerk satisfies the requirements of the statute of frauds.

4. For the reasons stated in this Opinion, the Clerk of the Court is directed to enter judgment for the plaintiff against the defendant in the amount of $20,000.00.

      . Conditions placed upon contracts derived from auction sales are not uncommon. The seller has the right to prescribe the method for conducting the auction as well as any conditions upon the awarding of property. Jones v. Tennessee Valley Authority, 334 F.Supp. 739 (M.D.Fla.1971) (auctioneer first requested bids on tracts individually then in proposed combinations and finally for all tracts together). Courts have held that bidders are bound by conditions and terms of sale as announced by the auctioneer. See United States v. Weisbrod, 202 F.2d 629 (7th Cir.1953), cert. denied, 346 U.S. 819, 74 S.Ct. 32, 98 L.Ed. 345 (1953) (condition in auction that government could withdraw from sale any property prior to its physical delivery did not render contract void for lack of mutuality of obligation and the government’s acceptance of the bid contractually bound the bidder.); United States v. Blair, 193 F.2d 557 (10th Cir.1952) (bidder was bound by announced condition that if bid was not the highest one, the government could rescind the contract, revoke the property and award the property to the highest bidder.); In re Wilson Freight Co., 30 B.R. 971 (Bankr.S.D.N.Y.1983) (bidder at auction sale of tractors was bound by minimum price condition where the condition and terms of sale were announced by the auctioneer.). At least one court has expressly recognized a contract subject to a condition precedent to performance in the auction context. In In re Community Investments Associates I, 14 B.R. 211 (Bankr.E.D.Va.1981), the court held that a bidder was not entitled to property. Even though his bid was the high bid and was accepted by the fall of the auctioneer’s hammer, this created only an executory contract subject to the condition that the high bidder obtain title insurance. The bidder never obtained the insurance, thereby causing the contract to fail.
      In the present case, the bidder is similarly bound by the terms and conditions announced by the auctioneer. The requirement that the piecemeal bids could not exceed the bulk bid for the bulk bidder to take the property results in a contract subject to a condition. If the piecemeal sales exceeded the bulk bid, the contract between the SBA and the defendant would fail.


author: BILLINGS, District Judge.

text:
    Joseph ROY v. Stuart VERCHEREAU, James Hennessey, Thomas D. Ball, each individually and in their official capacities, and State of Vermont Department of Employment and Training.
    Civ. A. No. 84-322.
    United States District Court, D. Vermont.
    Oct. 11, 1985.

      Douglas S. Moore, Brownell & Moeser, Norwich, Vt., for plaintiff.
    Geoffrey Yudien, Civ. Law Div., Montpelier, Vt., for defendants.
   OPINION AND ORDER

BILLINGS, District Judge.

On August 1, 1985, defendants filed with this Court a motion asking this Court to abstain from hearing this case pending state court action. Plaintiff opposed the motion. On September 18, 1985, the Court heard oral arguments. For the reasons recited below the motion is GRANTED. The Court stays this action pending resolution of Grievance of Joe Roy, Docket No. 83-400, (Vt. filed August 10, 1983).

FACTS

Plaintiff worked as a job counselor for the Vermont Department of Employment and Training from June, 1977 to February, 1982. During the last year and a half of his employment he served as an alternate on the union bargaining team for the Vermont State Employees’ Association. Soon after he started his duties with the union, plaintiff alleges that his employer commenced various tactics to force him to refrain from these activities. Complaint, H 12. Plaintiff alleges, inter alia, that because of his union involvement he was subject to surreptitious reviews and placed on probation.

On April 19, 1982, the Vermont State Employees' Association filed a grievance on plaintiff’s behalf. After reviewing the case the Vermont Labor Relations Board dismissed the grievance stating that, notwithstanding anti-union feelings of his supervisors, sufficient legitimate reasons for citing performance deficiencies of plaintiff existed. Plaintiff has appealed the Labor Board’s decision to the Vermont Supreme Court.

Subsequent to his appeal to the Vermont Supreme Court, plaintiff filed this case alleging that defendants denied him his 1st and 14th Amendment rights of free speech and free association and also violated 42 U.S.C. § 1983. Plaintiff seeks a correction of his employment evaluation file, an advanced pay grade to 14 retroactive to December, 1981 with back pay and normal promotions valued at $150,000, punitive damages of $500,000 and costs and attorney’s fees.

DISCUSSION

Federal courts must exercise jurisdiction unless an exception clearly holds against it. See Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 817, 96 S.Ct. 1236, 1246, 47 L.Ed.2d 483 (1976) (“wholly federal concurrent jurisdiction stems from the virtually unflagging obligation of the federal courts to exercise the jurisdiction given them”). Defendants argue that the likelihood of the federal claim being rendered moot by the state court decision, the waste of judicial resources with two forums hearing the case and the existence of judicial review by the Vermont Supreme Court weigh for this Court’s abstention. Memo of defendants dated July 31, 1985 at pp. 3-4.

Plaintiff objects to the motion on grounds that the case is so far along in federal court that few resources will be saved by abstaining and that abstention would force plaintiff to wait until the Vermont Supreme Court hears the matter next spring. Memo of plaintiff dated August 13, 1985, at pp. 1-2. Also, plaintiff contends that the Court should not abstain because this case does not fall within any of the narrowly defined exceptions to federal jurisdiction. Memo of plaintiff dated September 18, 1985, at p. 3. Plaintiff argues that the review of this matter by the Vermont Supreme Court on specific grievance issues does not equate with the review provided by this forum.

A recent decision by Judge Leisure of the Southern District of New York competently surveyed the abstention doctrine. Canaday v. Koch, 608 F.Supp. 1460 (S.D. N.Y.1985) aff'd, 768 F.2d 501 (2d Cir.1985). He discussed in detail two traditional abstention grounds and the recently expounded “wise judicial administration” exception set forth in Colorado River. Id. at 1466-1473. Defendants in this case have focused on the Colorado River exception to persuade the Court to stay the federal proceeding until the state court has heard the appeal.

The Colorado River case involved the review system for adjudicating water rights in the State of Colorado. The United States government brought suit in federal court challenging its water rights against some 1000 water users. One of the defendants brought suit in state court pursuant to Colorado’s review system and subsequently the federal court abstained from hearing the case. After the court of appeals reversed the federal district court’s decision to abstain, the Supreme Court held that the case did not meet any of the recognized abstention exceptions but found that wise judicial administration weighed against the federal court hearing the proceeding.

The Colorado River court discussed four factors that the district court should consider when deciding whether to abstain: (1) whether either court has assumed jurisdiction over property; (2) inconvenience of the federal forum; (3) avoidance of piecemeal litigation, and (4) the order in which the courts obtained jurisdiction. 424 U.S. at 818 [96 S.Ct. at 1246], Will v. Calvert Fire Insurance Co., 437 U.S. 655 [98 S.Ct. 2552, 57 L.Ed.2d 504] (1978) added a fifth factor: whether federal or state law provides the substantive rule to determine the merits. Id. at 667 [98 S.Ct. at 2559] (Blackmun, J. concurring).

Arkwright-Boston Manufacturers Mutual Insurance Company v. The City of New York, 762 F.2d 205, 210 (2d Cir.1985).

Here, there is no real property and no inconvenience of the federal forum. But, the case does present the issue of piecemeal litigation. If the Court decided this case it could result in a flow of labor cases to federal court thereby creating a multiplicity of forums for state labor disputes. Since plaintiff filed first in state court this fact weighs for abstention, although the order of the filing is not controlling. Moses H. Cone Hospital v. Mercury Constr. Corp. 460 U.S. 1, 21, 103 S.Ct. 927, 939-940, 74 L.Ed.2d 765 (1982). The Constitution furnishes the substantive rule determining the merits, but Vermont law also plays a critical role.

At oral argument plaintiffs argued that the most recent discussion of Colorado River in Moses Cone requires this Court to avoid staying this proceeding. In particular plaintiff points out that in Moses Cone the Supreme Court focused on the lack of a sufficient forum in state court to hear all claims. The plaintiff fails to recognize that even without a federal forum, plaintiff, if successful on his appeal, could bring a second state claim of general jurisdiction thus providing the state court with the opportunity to hear all of his claims. West v. Village of Morrisville, 728 F.2d 130, 135 n. 5 (2d Cir.1984) (Oakes, J.) (“Appellant is also free, of course, to let the state court determine all of the issues in the case if she so chooses.”)

Plaintiff contends that Giardina v. Fon-tana, 733 F.2d 1047 (2d Cir.1984), is controlling. Memo of plaintiff dated September 18, 1985 at p. 2. In Giardina, the district court abstained and the court of appeals reversed the abstention. The case concerned plaintiff’s claim that an assign-merit by a daughter of her interest in her father’s estate to her mother was obtained by undue influence and fraud. The district court abstained on grounds that the claim related directly to state probate court jurisdiction. The court of appeals reversed stating the claim was a “garden variety type in federal diversity jurisdiction.” Id. at 1051. The case at bar is neither a diversity claim nor a “garden variety” type and therefore Giardina does not control.

In addition to the Colorado River exception, other grounds call for the Court to avoid hearing the case. Abstention is “appropriate where there have been presented difficult questions of state law bearing on problems of substantial public import whose importance transcends the result in the case at bar.” Louisiana Power & Light Co. v. City of Thibodaux, 360 U.S. 25, 79 S.Ct. 1070, 3 L.Ed.2d 1058 (1959). The Supreme Court in Burford looked beyond the specific case to the potentially disruptive effect on state efforts to establish a coherent policy. Burford v. Sun Oil Co., 319 U.S. 315, 327, 63 S.Ct. 1098, 1104, 87 L.Ed. 1424 (1943) (Supreme Court abstained from deciding suit to enjoin execution of order of State Railroad Commission of Texas.)

In applying the Burford exception, a court must consider factors such as the local nature of the issue, the importance of the issue to the state and the state’s system to resolve the issue. Canaday, 608 F.Supp. at 1469. Regulation of labor grievances presents a classic example of a local affair in which federal intervention is inappropriate. Alabama Pub. Serv. Comm’n v. Southern Ry. Co., 341 U.S. 341, 349, 71 S.Ct. 762, 768, 95 L.Ed. 1002 (1951) (Supreme Court abstained from hearing case involving regulation of intrastate trains). “Interference can take the form of enjoining the state proceedings, or superseding those proceedings”: the latter is the case at bar. Price v. Rust, 527 F.Supp. 569, 572 (D.Ct.1981) (abstention recognized where federal adjudication interfered with state proceedings). Obviously, the State of Vermont seeks to develop a consistent labor policy, and benefits from having a standard review process. 3 V.S.A. § 901. In this regard, the State of Vermont has enacted a specific system of judicial review for labor grievances. 3 V.S.A. § 1003.

For the foregoing reasons the Court abstains from hearing the claims of plaintiff. His claims are so tied to his appeal to the Vermont Supreme Court that it would not be proper for this Court to upstage such an experienced court in state labor matters. The fact plaintiff has presented federal constitutional issues does not prevent this Court from abstaining. Colorado River, 424 U.S. at 815 n. 21, 96 S.Ct. at 1245 n. 21. But, recognizing the limited review of plaintiff’s appeal by the Vermont Supreme Court the Court stays this action pending the outcome of the state action.

SO ORDERED.

      . 3 V.S.A. § 901 (Supp.1985) reads: "It is the purpose and policy of this chapter to prescribe the legitimate rights of both state employees and the state of Vermont and of Vermont state colleges in their relations with each other, to provide orderly and peaceful procedures for preventing the interference by either with the legitimate rights of the other, to protect the rights of individual employees in their relations with labor organizations, to define and proscribe practices on the part of labor, the state of Vermont and Vermont state colleges which are harmful to the general welfare, and to protect the rights of the public in connection with labor disputes.”

      . 3 V.S.A. § 1003 (Supp.1985) reads: "Any person aggrieved by an order or decision of the board issued under the authority of this chapter may appeal on questions of law to the supreme court.”


author: TODD, District Judge.

text:
    J. Frank MANNING, an individual, suing on his own behalf and on behalf of all other persons similarly situated, Plaintiff, v. FORT DEPOSIT BANK, a corporation, Defendant and Third-Party Plaintiff, v. WARING, COX, JAMES, SKLAR & ALLEN, a partnership composed of Allen Cox, Jr., Roane Waring, Jr., Erich William James, Robert Lee Cox, Jerald H. Sklar, Louis F. Allen and Rodger D. Fish, as general partners, Third-Party Defendants.
    No. C-77-1016.
    United States District Court, W.D. Tennessee, E.D.
    Oct. 15, 1985.

      Frank B. Bird of Bird, Navratil & Bird, Maryville, Tenn., for plaintiff.
    Carl H. Langschmidt, Jr., of Boone, Well-ford, Clark, Langschmidt & Apperson, for defendant and third-party plaintiff.
    Leo Bearman, Jr. of Heiskell, Donelson, Bearman, Adams, Williams & Kirsch, Memphis, Tenn., for third-party defendants.
   MEMORANDUM OPINION AND ORDER GRANTING THIRD PARTY PLAINTIFF’S MOTION TO DISQUALIFY AND DENYING THIRD PARTY DEFENDANT’S MOTION TO DISMISS

TODD, District Judge.

Before this court are third party plaintiff's motion to disqualify counsel for third party defendant and third party defendant’s motion to dismiss. The underlying claim in this case alleges violations of the Securities Exchange Act of 1934 by Fort Deposit Bank, the defendant, and third party plaintiff. According to the original complaint, Fort Deposit Bank purchased bonds issued by the Town of Grand Junction, Tennessee, and then offered the bonds for resale, making itself an “underwriter-dealer” of the bonds under Tennessee law. The complaint further alleges that Fort Deposit Bank failed to comply with Tennessee law requiring licensure of such “underwriter-dealers” and that it made fraudulent misrepresentations in the sales of the bonds.

The facts giving rise to the present motions are undisputed. When the original action in this case was filed in 1977, Mr. Daniel B. Hatzenbuehler became involved in the representation of Fort Deposit Bank as a member of the Boone, Wellford, Clark, Langschmidt & Pemberton law firm (Boone Wellford). At the same time that lawsuit was pending, Waring, Cox, James, Sklar & Allen (Waring Cox), the third party defendant in this case, was a defendant in a state court action involving the same bond issue and was represented in that action by the law firm of Heiskell, Donelson, Bearman, Adams, Williams & Kirsch (Heiskell Donel-son). The state court action, in which Waring Cox was sued for legal malpractice for their part in the bond issue, was finally decided by the Tennessee Supreme Court in December 1983.

In April 1984, Mr. Hatzenbuehler joined the Heiskell Donelson firm, after giving notice to Fort Deposit Bank. At that time, Waring Cox was not a party to the present action and Fort Deposit Bank elected to continue Mr. Hatzenbuehler’s employment as its counsel in this action. In October 1984, Fort Deposit Bank decided to join Waring Cox as a third party defendant in the present action and terminated its relationship with Mr. Hatzenbuehler. A third party complaint was filed in December 1984 against Waring Cox, alleging that Waring Cox was liable to Fort Deposit Bank for contribution of any losses that the bank might suffer in the present action against it. Waring Cox moved to dismiss the third party complaint against it on the grounds that the action was barred by the applicable statute of limitations. In February 1985, Fort Deposit Bank moved to disqualify Heiskell Donelson due to Mr. Hat-zenbuehler’s prior involvement in the case.

I. DISQUALIFICATION OF THE HEIS-KELL DONELSON LAW FIRM

Waring Cox concedes that Mr. Hatzen-buehler’s prior representation of Fort Deposit Bank mandates his disqualification but argues that the facts of this ease do not warrant disqualification of the entire Heiskell Donelson firm.

The American Bar Association’s Code of Professional Responsibility (CPR) provides standards of professional conduct for attorneys and law firms practicing before this court. W.D.Tenn.R. 1(c). Disciplinary Rule 5-105(D) of the CPR provides: “If a lawyer is required to decline employment or to withdraw from employment under a Disciplinary Rule, no partner, or associate, or any other lawyer affiliated with him or his firm, may accept or continue such employment.” This rule would clearly prohibit Heiskell Donelson from accepting employment by Waring Cox since Mr. Hatzenbuehler would be required to decline such employment because of his prior representation of Fort Morgan Bank. The situation in this case, however, is not one of accepting employment, but that of continuing to represent an existing client. As such, Disciplinary Rule 5-105(D) is not dis-positive.

Most reported cases involving disqualification of counsel on the grounds of conflicting interests involve competing interests of a former client represented by the attorney in question in a prior proceeding. See, e.g., General Electric Co. v. Valeron Corp., 608 F.2d 265 (6th Cir.1979) cert. denied, 445 U.S. 930, 100 S.Ct. 1318, 63 L.Ed.2d 763 (1980). In such cases, an attorney will be disqualified if the subject matter of the present suit is “substantially related” to the work done for the former client. Melamed v. ITT Continental Baking Co., 592 F.2d 290, 292 (6th Cir.1979). With regard to a disqualified attorney’s partners, “confidences and secrets possessed by [the] attorney are presumptively possessed by other members of his firm” and disqualification of the firm is proper. Kearns v. Fred Lavery/Porsche Audi Co., 573 F.Supp. 91, 96 (E.D.Mich.1983), aff'd, 745 F.2d 600 (Fed.Cir.1984), cert. denied, — U.S. —, 105 S.Ct. 967, 83 L.Ed.2d 971 (1985).

When the representation of the former client occurs in the same litigation, the rationale for disqualification of the attorney and his firm is more pronounced. Canon 4 of the CPR states: “A lawyer should preserve the confidences and secrets of a client.” Canon 9 states: “A lawyer should avoid even the appearance of professional impropriety.” Given the presumption that members of a firm possess the knowledge of their partners, Kearns, supra, disqualification of the entire firm is required when the representation of the former client was in the same law suit. In this manner, the court, the aggrieved party, and the public will be assured that confidential knowledge gained by an attorney from a party will not be used against that party in the same litigation. Other courts that have considered this question are in accord. See, e.g., Cheng v. GAF Corp., 747 F.2d 97 (2d Cir.1984) (Cheng III); Paul E. Iacono Structural Engineering, Inc. v. Humphrey, 722 F.2d 435 (9th Cir.1983); United States v. Kitchin, 592 F.2d 900 (5th Cir. 1979), cert. denied, 444 U.S. 843, 100 S.Ct. 86, 62 L.Ed.2d 56 (1979).

Third party defendant in the present case urges that the “Chinese wall” screening procedure, discussed in Humphrey, supra, should be used to rebut the presumption of shared confidences among members of the law firm. The Chinese wall is erected by a firm in an attempt to “quarantine” a new member with confidential information received from an adversary of one of the firm’s clients. Cheng v. GAF Corp., 631 F.2d 1052, 1058 (2d Cir.1980), (Cheng I), vacated on jurisdictional grounds, 450 U.S. 903, 101 S.Ct. 1338, 67 L.Ed.2d 327 (1981). Elements of the Chinese wall include the size of the firm; the extent of departmentalization within the firm; prohibitions against discussion of the action with the new member; and exclusion of the new member from relevant files, participation in the action, and sharing in firm earnings from the action. See Humphrey, 722 F.2d at 442 n. 10; Cheng I, 631 F.2d at 1057. Although the Chinese wall procedure has been recognized as an effective screening device in cases involving confidences obtained from a former client in a prior proceeding, this Court holds that it will not rebut the presumption of shared knowledge among members of a firm in a conflict involving a former client in the same proceeding.

Finally, this court takes notice of Formal Ethics Opinion No. 81-F-5 of the Board of Professional Responsibility of the Supreme Court of Tennessee. Although not binding on the parties to this action or this court, Formal Ethics Opinions of Tennessee’s Board of Professional Responsibility “constitute a body of principles and objectives upon which members of the [Tennessee] bar can rely for guidance.” Tenn.S.Ct.R. 9, § 26.5(a). In Opinion No. 81-F-5, an attorney who was involved in the representation of seven plaintiffs in personal injury and workmen's compensation actions desired to join a firm that was defending all seven of the actions. After noting that the attorney would be barred from representing the defendants in those cases, the board stated:

When an attorney is barred from representation on the grounds of knowledge actually or presumably acquired from a former representation, then his entire firm is similarly barred.
Even though the attorney did not participate, with his new firm, in any of the cases which he had previously been handling on the other side, the potentiality of his revealing confidential information to his new partners, and the justifiable apprehension of his former clients that he might do so, would be sufficient to disqualify the new firm.

Id. at 2.

Although this court does not question the integrity of Mr. Hatzenbuehler or the efforts made by Heiskell Donelson to screen his knowledge from other members of the firm, the court agrees with the reasoning of Tennessee’s Board of Professional Responsibility. In light of that reasoning and the cases discussed herein, this court holds that the danger of unintentional disclosure of confidential information warrants disqualification of both an attorney and his firm when the attorney, before joining the firm, was in an attorney-client relationship with a party to an existing law suit in which the firm represents an adverse side. Because this case is still early in the discovery phase, disqualification of Heiskell Donelson will not unduly prejudice third party defendant who “has ample time and resources to retain new counsel and prepare for trial.” Kearns, 573 F.Supp. at 96. Accordingly, third party plaintiff’s motion to disqualify Heiskell Donelson as counsel for Waring Cox is granted.

II. THIRD PARTY DEFENDANT’S MOTION TO DISMISS

In its reply to the third party complaint against it, Waring Cox moved to dismiss on the grounds that the action was barred by Tennessee’s one year statute of limitations for legal malpractice claims, Tenn.Code Ann. § 28-3-104 (1980). In its reply to that motion, Fort Deposit Bank asserted that the statute of limitations provided for in the contribution statute, Tenn.Code Ann § 29-11-101 et seq. (1980), governs actions for contribution and that Tenn.Code Ann. § 28-3-104 is not applicable.

The right to contribution in Tennessee is governed by the Uniform Contribution Among Tort-feasors Act (UCATA), as enacted by Tennessee. Tenn.Code Ann. § 29-11-101 et seq. (1980). The UCATA creates a statutory right to contribution, subject only to the exceptions contained in the Act. Tenn.Code Ann. § 29-11-102 (1980). In order for Waring Cox to be liable to Fort Deposit Bank for contribution, the two parties must be “jointly or severally liable in tort” to the plaintiff and Waring Cox must not be excused from liability for contribution by § 29-11-102. Finally, the UCATA provides for a one year statute of limitations on actions for contribution, commencing on the date of satisfaction of judgment on the common liability against the party seeking contribution or, if no judgment exists, commencing on the date of payment to the injured party that discharges the common liability. Tenn.Code Ann. § 29-11-104(c), (d) (1980).

In the various memoranda submitted by Waring Cox in support of its motion to dismiss, several grounds are urged, all of which are without merit. Waring Cox first submits that the action is barred by the general statute of limitations of Tenn.Code Ann. § 28-3-104 (1980) and cites a state case involving Waring Cox and the plaintiff in the present action, Security Bank & Trust Co. v. Fabricating, Inc., 673 S.W.2d 860 (Tenn.1983). In Security Bank & Trust, the Tennessee Supreme Court held that an action against Waring Cox alleging legal malpractice for its part in the sale of the bonds involved in the present case was barred by the one year statute of limitations of Tenn.Code Ann. § 28-3-104. Waring Cox asserts that Security Bank & Trust requires dismissal of the third party complaint against it on principles of res judicata.

The doctrine of res judicata bars a second suit on the same cause of action as a previously determined suit but does not bar a subsequent suit asserting a different cause of action. 1 B J. Moore, Moore’s Federal Practice 110.410[1] (2d ed. 1984). Although the plaintiffs in Security Bank & Trust may have had no enforceable remedy against Waring Cox for the alleged acts of malpractice, the right asserted by Fort Deposit Bank in this case is that of contribution and is independent of the cause of action urged by the plaintiffs in Security Bank & Trust. As noted above, this right to contribution is governed exclusively by the UCATA. A statute of limitations other than that contained in the UCATA has no effect on an action under the UCATA and the party seeking contribution will not be barred by it. See, e.g., City of Kingsport v. SCM Corp., 429 F.Supp. 96, 99 (E.D.Tenn.1976) (noting the “nearly-universal view that the statute of limitations for an action for indemnity or contribution does not commence to run until there has been a payment made or some loss suffered by a party seeking such indemnification or contribution”); DeVore Brokerage Co. v. Goodyear Tire & Rubber Co., 308 F.Supp. 279, 281 (M.D.Tenn.1969) (“the date of the defendant’s performance of any act or failure to act is irrelevant in determining whether to interpose the defense of statute of limitations”); Security Fire Protection Co. v. City of Ripley, 608 S.W.2d 874 (Tenn.Ct.App.1980). See also Beaunit Corp. v. Volunteer Natural Gas Co., 402 F.Supp. 1222 (E.D.Tenn.1975). Although the Sixth Circuit Court of Appeals has not ruled on this issue, other circuits are in accord. ITT Rayonier, Inc. v. Southeastern Maritime Co., 620 F.2d 512, 514 (10th Cir.1980) (discussing the “well-established general rule”); Premier Corp. v. Economic Research Analysts, Inc., 578 F.2d 551 (4th Cir.1978). In light of the foregoing, this court finds that Fort Deposit Bank’s right to contribution is not barred by the general statute of limitations of Tenn.Code Ann. § 28-3-104.

Waring Cox also contends that no right to contribution exists because it is not “jointly or severally liable in tort” to plaintiffs as a result of the Tennessee Supreme Court’s decision in Security Bank & Trust, supra. This argument is based upon the premise that Waring Cox was found not liable to the plaintiffs in Security Bank & Trust. The court in that case did not make such a finding, however, because it was able to dispose of the case on the statute of limitations defense. The statute of limitations is a remedial device only and does not affect the substantive rights of the parties. Hackworth v. Ralston Purina Co., 214 Tenn. 506, 510, 381 S.W.2d 292, 294 (1964); Rankhorn v. Seal-test Foods, 63 Tenn.App. 714, 723, 479 S.W.2d 649, 652 (1971). The cases cited by Waring Cox on this issue are inapposite in that each was decided on substantive grounds and none involved a statute of limitations defense. Because the Security Bank & Trust court never reached the substantive nature of the claim in that case, the opinion in that case cannot be said to have found Waring Cox not liable to the plaintiffs.

Waring Cox next asserts that the state of Tennessee attempted to remedy the conflict between the statute of limitations of the UCATA and other statutes of limitations by enacting Tenn.Code Ann. § 28-1-114 (Supp.1985) in 1978. This statute, passed after the complaint was filed in this case but before the filing of the third party complaint, may or may not be applicable. Because this court holds that the third party complaint is not barred by the statute of limitations of Tenn.Code Ann. § 28-3-104 that section is not addressed.

Finally, Waring Cox asserts that this case involves breach of a fiduciary duty and is therefore excluded from the UCATA by Tenn.Code Ann. § 29-ll-102(g) which states: “This chapter shall not apply to breaches of trust or of other fiduciary obligation.” Although the relationship between an attorney and his client has been held by the Tennessee courts to be a fiduciary one, see, e.g., Cultra v. Douglas, 60 Tenn.App. 116, 124, 444 S.W.2d 575, 579 (1969), this is an action for contribution for damages allegedly due to legal malpractice. An action for legal malpractice arises out of a breach of a “reasonable duty.” Sammons v. Rotroff, 653 S.W.2d 740, 745 (Tenn.Ct.App.1983). Such an action is based upon principles of negligence and may be contrasted to actions in which the attorney is sued on grounds of fraud or breach of fiduciary duty. See Klimek & Wanat, Lawyer Malpractice — A Problem in Want of an Answer, 9 Mem.St.U.L.Rev. 193, 207 (1979); Note, Attorney Malpractice, 63 Colum.L.Rev. 1292, 1292 (1963). No breach of fiduciary duty by Waring Cox is alleged by either the third party complaint or the original complaint in this action. The duty to disclose alleged in Counts 1 and 2 of the complaint was not a fiduciary duty, but one imposed by statute.

Three reported cases specifically dealing with section 1(g) of the UCATA (Tenn.Code Ann. § 29-ll-102(g)) have been found. In all three, the UCATA was found not to apply because a breach of fiduciary duty was involved. All three are easily distinguished from the facts of this case, however, in that the existence of a fiduciary duty either was stipulated or was uncontro-verted. None of the three involved the alleged negligence of an attorney.

In the present case, no express or implied trust is involved and it is not alleged that Waring Cox used the attorney-client relationship to its advantage. Accordingly, this court finds that no breach of “trust or of other fiduciary obligation” by Waring Cox is alleged in this action and Tenn.Code Ann. § 29-ll-102(g) is not applicable.

In light of the foregoing analysis, third party plaintiffs motion to disqualify Heis-kell Donelson as counsel for Waring Cox is granted and third party defendant’s motion to dismiss the third party complaint is denied.

IT IS SO ORDERED.

      . Tenn.Code Ann. § 29-ll-102(a) (1980).

      . Buchbinder v. Register, 634 F.2d 327 (6th Cir. 1980) (defendant accountant alleged to have aided and abetted executor in breaching fiduciary duty to beneficiaries of trust corpus); Fidelity & Deposit Co. of Maryland v. Newman, 109 Mich. App. 620, 311 N.W.2d 821 (1981) (employee appraiser and claims adjuster sued by employer for misappropriation and diversion of funds); Eason v. Lau, 369 So.2d 600 (Fla.Dist.Ct.App. 1978), cert. denied, 368 So.2d 1365 (Fla. 1979) (parties agreed that a breach of trust was involved).

      . Compare Tormo v. Yormark, 398 F.Supp. 1159 (D.N.J.1975), in which an attorney was held to be subject to a contribution action for alleged negligence in selection and supervision of an out-of-state attorney to whom he transferred his clients’ case.