author: KOCORAS, District Judge:

text:
    Usha HARPALANI, Jaideep Harpalani, a minor, by his mother and next friend Usha Harpalani; and Haresh Harpalani, a minor, by his mother and next friend Usha Harpalani, Plaintiffs, v. AIR INDIA, INC., Defendant.
    No. 85 C 244.
    United States District Court, N.D. Illinois, E.D.
    Sept. 30, 1985.

      John Scott Hoff, Jeffrey O. Rubin, Lapin, Hoff, Spangler & Greenberg, Chicago, 111., for plaintiffs.
    David L. Carden, Lee Ann Russo, Coffield, Ungaretti, Harris & Slavin, Chicago, 111., for defendant.
   MEMORANDUM OPINION

KOCORAS, District Judge:

The plaintiffs, Usha Harpalani and her two children, Jaideep and Haresh Harpalani, are United States citizens who reside in Naperville, Illinois. In March, 1983, they booked round trip air transportation on Air India from New York to Bombay, India through Air India agents in Chicago. After arriving in India in August, 1983, Usha Harpalani allegedly contacted Air India agents in Poona, India and confirmed reservations for their return flight at 1:05 a.m. on August 24, 1983. When the Harpalanis reported to the Air India counter at the Bombay airport on the evening of August 23 for preflight check-in, Air India employees advised them that the flight was overbooked and that they would not be allowed to board. The complaint further alleges that Air India refused endorse the Harpalanis’ tickets to other airlines which had flights from Bombay to New York that evening but instead advised the Harpalanis to “try again tomorrow.” Complaint 1121. Air India allegedly refused to board the Harpalanis or endorse the tickets for the following six days until on August 31, 1983, the Harpalanis were permitted to board an Air India flight from Bombay to New York.

The Harpalanis seek to recover damages for the delay, including inconvenience and monetary loss such as the cost of meals and lodging in Bombay, telephone expenses and Usha Harpalani’s lost wages. The complaint alleges violations of the Warsaw Convention, specified federal regulations, the Illinois Consumer Fraud and Deceptive Business Practices Act and breach of contract.

Air India has moved to dismiss on several grounds. Air India asserts that Counts I and II fail to state a claim under Article 19 of the Warsaw Convention and the federal regulations, respectively, and in the alternative that if Count I does state a cognizable claim under the Warsaw Convention that the remaining counts should be dismissed because the Convention provides an exclusive remedy. Air India also moves for dismissal on forum non conveniens grounds. Finally, Air India asks the court to strike the Harpalanis’ jury demand, pursuant to 28 U.S.C. § 1330. The motion to dismiss will be granted in part and denied in part; the motion to strike the jury demand will be granted.

I.

The Warsaw Convention

A. Does Count I state a cause of action under the Warsaw Convention?

The Warsaw Convention applies to all international transportation of persons, baggage, or goods performed by aircraft for hire. Warsaw Convention, done Oct. 12, 1929, art. 1, note following 49 U.S.C. § 1502. For purposes of the Convention, “international transportation” includes any transportation in which both the places of departure and destination are within the territory of signatories to the Convention. Id. Both the United States and India are signatories.

Article 19 of the Convention provides:

The carrier shall be liable for damage occasioned by delay in the transportation by air of passengers, baggage, or goods.

Id. art. 19. While few reported cases discuss Article 19, those few suggest that Article 19 provides a cause of action in cases such as this one. See Mahaney v. Air France, 474 F.Supp. 532 (S.D.N.Y.1979) (recovery under Article 19 of cost of ground transportation necessitated by “bumping” by airline barred by statute of limitations), Hill v. United Airlines, 550 F.Supp. 1048, 1054 (D.Kan.1982).

Air India urges this court to adopt the reasoning of the court in Brunwasser v. Trans World Airlines, Inc., 541 F.Supp. 1338 (W.D.Pa.1982) and rule that the bumping does not fall within the phrase “in the transportation by air.” The facts of Brunwasser are clearly distinguishable from those of the case at hand, however. In Brunwasser, the plaintiff purchased in February of 1981 non-stop round-trip tickets on TWA from Pittsburgh to London in September of that year. When TWA later cancelled the flight, the airlines contacted the plaintiff in June and offered three alternatives to the previously scheduled flight: (1) a non-stop flight on another day, (2) travel on the date originally scheduled but with a stop in New York, or (3) a refund of the purchase price of the tickets. The plaintiff, finding none of the alternatives acceptable, filed suit, claiming that cancellation of the flight violated Article 19 of the Warsaw Convention. The court held that the cancellation did not amount to a delay “in the transportation by air.” The court felt that the phrase should be construed narrowly and adopted the definition found in Article 18 of the Convention, which deals with airline liability for lost or damaged baggage:

The transportation by air within the meaning of [this article] shall comprise the period during which the baggage or goods are in the charge of the carrier, whether in an airport or board an aircraft ...

Warsaw Convention, art. 18(2). This definition, however, applies only to Article 18 of the Convention; that the drafters did not provide a similar definition for Article 19 is significant. Furthermore, the Harpalanis, unlike the plaintiff in Brunwasser, were at the airport and in the charge of the carrier, as Air India controlled whether or not they left that night, at the time of the bumping.

The Brunwasser court also applied the three-prong test used by courts to determine whether a sufficient nexus exists between personal injury and air travel to state a claim under Article 17 of the Convention: the location of the accident, the activity in which the injured person was engaged, and the control by the defendant of the injured person at the time of the accident. Brunwasser, 541 F.Supp. at 1344. The court found that the test was not met because the acts complained of “occurred long before [the plaintiff] was to engage in any air travel with the defendant,” and because by offering the alternatives, TWA never exercised any significant control over the plaintiffs actions. Id. at 1345. In the instant case, the Harpalanis were notified of the bumping at the airport just two hours before take-off. Furthermore, because Air India refused to endorse the tickets and did not offer the Harpalanis any alternatives, Air India exercised complete control over whether the Harpalanis left India.

Air India also argues that recognizing that the Harpalanis have a cause of action under Article 19 would defeat the purpose of the Convention to limit the liability of international air carriers. That purpose is met by subjecting claims within the Warsaw Convention to a $75,000 ceiling on damages, not by reading out of the Convention those claims that clearly fall within it. Indeed, deciding that this bumping was not actionable under the Convention would permit the Harpalanis to proceed under another theory, such as breach of contract, under which the airline’s liability would be unlimited.

Therefore, Count I does state a cause of action under the Warsaw Convention and the motion to dismiss will be denied as to Count I.

B. Does the Warsaw Convention provide the exclusive remedy?

Air India argues that if Article 19 does state a cause of action, the Warsaw Convention provides an exclusive remedy and therefore all of the remaining counts should be dismissed.

Article 24 of the Convention provides in relevant part:

In the cases covered by articles 18 and 19 any action for damages, however founded, can only be brought subject to the conditions and limits set out in this convention.

The circuit courts of appeal which have discussed Article 24 have different understandings of the article’s meaning. The Ninth Circuit, in In re Mexico City Aircrash of October 31, 1979, 708 F.2d 400, 414 n. 25 (9th Cir.1983) suggested that alternative legal bases of action remained available but that neither the liability limits of the Convention nor its limitation period may be circumvented by resort to such an alternative basis. The Fifth Circuit has squarely held, however, that where the Warsaw Convention provides an independent cause of action, it provides the exclusive remedy thereby preempting other state or federal law claims, Boehringer-Mannheim Diagnostics, Inc. v. Pan American World Airways, Inc., 737 F.2d 456 (5th Cir.1984), cert. denied, — U.S.-, 105 S.Ct. 951, 83 L.Ed.2d 959 (1985) and both the Second and Third Circuits have indicated that they would follow this approach. See Benjamins v. British European Airways, 572 F.2d 913 (2d Cir.1978), cert. denied, 439 U.S. 1114, 99 S.Ct. 1016, 59 L.Ed.2d 72 (1979), Abramson v. Japan Airlines Co., 739 F.2d 130, 134 (3d Cir. 1984), cert. denied, — U.S.-, 105 S.Ct. 1776, 84 L.Ed.2d 835 (1985). The view that the Warsaw Convention provides an exclusive remedy furthers the dual purposes of the Convention to establish a uniform body of world-wide liability rules to govern international aviation and to limit of liability of international air carriers. Reed v. Wiser, 555 F.2d 1079, 1089-90 (2d Cir.), cert. denied, 434 U.S. 922, 98 S.Ct. 399, 54 L.Ed.2d 279 (1977).

The Harpalanis argue that their allegations of willful misconduct on the part of Air India, if proven, would permit them to circumvent the exclusivity of the Convention. They rely on Article 25(1) of the Convention which provides:

The carrier shall not be entitled to avail himself of the provisions of this convention which exclude or limit his liability, if the damage is caused by his wilful misconduct____

Warsaw Convention, art. 25(1).

Air India concedes that if willful misconduct on its part is shown, the $75,000 limitation on liability may be disregarded. The parties have not directed our attention to any cases and our initial research has revealed no cases which suggest that a showing of willful misconduct would permit recovery under alternative legal theories. Rather, we read Article 25 to preclude a defendant whose misconduct was willful from defending on the grounds that it is not liable beyond specified limits or for certain types of injury. For this reasons, the allegations or proof of willful misconduct will not permit the Harpalanis to proceed on alternative theories. The claim under the Warsaw Convention provides the exclusive remedy for delays in the transportation by air. Therefore, Counts II, III and IV will be dismissed without addressing the legal sufficiency of the claim under the federal regulations.

III.

Forum Non Conveniens

Air India also seeks to dismiss the complaint on the ground of forum non conveniens, contending that this suit is more properly brought in an Indian forum. The Supreme Court listed factors to be considered in determining whether an action should be dismissed on forum non conveniens grounds in Gulf Oil Corp. v. Gilbert, 330 U.S. 501, 67 S.Ct. 839, 91 L.Ed. 1055 (1947). Unless the balance of factors is in the defendant’s favor, however, the plaintiff’s choice of forum is not to be disturbed. Id. at 508, 67 S.Ct. at 843.

Private interests of the litigants to be considered include relative ease of access to sources of proof, availability of compulsory process for the attendance of unwilling witnesses and the cost of attendance of willing witnesses, and all other practical problems. Air India employees who may testify as to the occurrences in Bombay are located in India. However, the Harpalanis, whose testimony on the events in Bombay and the additional costs and inconvenience they experienced will be crucial, reside in the Chicago area. Nor do the public interests weigh heavily in favor of an Indian forum. The law that will apply, that of the Warsaw Convention, would be the same in either forum. Air India asserts that India has the “greater interest in deciding this controversy arising from the alleged conduct of Air India, a government entity.” Mem. in Support of Motion to Dismiss, p. 18. The residents of this community, however, have an equal interest in the alleged mistreatment of the Harpalanis by the airline. Because the balance of factors does not strongly favor either forum, the plaintiffs choice of forum will not be disturbed. The motion to dismiss on the ground of forum non conveniens is denied.

IY.

Availability of a Jury Trial

Air India also seeks to have the Harpalanis’ demand for a jury trial struck under 28 U.S.C. § 1330(a). That section provides:

The district courts shall have original jurisdiction without regard to amount in controversy of any nonjury civil action against a foreign state as defined in section 1603(a) of this title as to any claim for relief in personam with respect to which the foreign state is not entitled to immunity under either section 1605-1697 of this title or under any applicable international agreement.

28 U.S.C. § 1330(a). Under section 1603 foreign state includes “a political subdivision of a foreign state or an agency or instrumentality of a foreign state as defined in subsection (b).” Under that subsection, an agency or instrumentality of a foreign state means any entity:

(1) which is a separate legal person, corporate or otherwise, and
(2) which is an organ of a foreign state or political subdivision thereof, or a majority of whose shares or other ownership interest is owned by a foreign state or political subdivision thereof, and
(3) which is neither a citizen of a State ... nor created under the laws of any third country.

28 U.S.C. § 1603(b). Air India is wholly owned by the government of India and therefore qualifies as a foreign state under section 1603.

Although section 1330 does not, on its face, preclude trial by jury in actions against foreign states, courts of appeals faced with the issue have uniformly so held. Arango v. Guzman Travel Advisors, 761 F.2d 1527 (11th Cir.1985), Goar v. Compania Peruana de Vapores, 688 F.2d 417 (5th Cir.1982), Ruggiero v. Compania Peruana de Vapores, 639 F.2d 872 (2d Cir.1981), Rex v. Compania Peruana de Vapores, 660 F.2d 61 (3d Cir.1981), cert. denied, 456 U.S. 926, 102 S.Ct. 1971, 72 L.Ed.2d 441 (1982), Williams v. Shipping Corp. of India, 653 F.2d 875 (4th Cir.1981), cert. denied, 455 U.S. 982, 102 S.Ct. 1490, 71 L.Ed.2d 691 (1982).

The legislative history of the section also indicates that jury trials are not available under section 1330(a). H.Rep. No. 1487, 94th Cong., 2d Sess. 13 reprinted in 1976 U.S.Code Cong. & Ad.News 6604, 6611-12; S.Rep. No. 1310, 94th Cong., 2d Sess. 12.

The Harpalanis argue that “a separate legal person, corporate or otherwise,” whose controlling shares are owned by a foreign state is not precluded from being a citizen or subject of a foreign state for purposes of the diversity statute, 28 U.S.C. § 1332(a)(2), and therefore that jurisdiction is also proper under that section, which imposes no restriction on jury trials. Such an interpretation would permit plaintiffs to sue state-owned corporations under section 1330(a), with a bar to a jury demand by either side, or elect to sue under section 1332(a)(2) and have a jury in any case ordinarily triable to a jury. This court agrees with other courts which have addressed this argument that no such option exists. “The same entity cannot be both a foreign state and a citizen or a subject of a foreign state____ The conclusion is inescapable from the language of the statute that Congress meant section 1330 to be the exclusive means whereby a plaintiff may sue any foreign state as defined in section 1603(a).” Ruggiero, 639 F.2d at 875.

The Harpalanis also argue that the definition of “foreign state” in section 1603 applies only to chapter 97, not to chapter 85 where section 1330 is located. Although section 1603 begins with the phrase “[f]or the purposes of this chapter,” the argument must fail as section 1330 specifically refers to the definition in section 1603.

The Harpalanis advance the argument that jurisdiction exists under 28 U.S.C. § 1331, the federal question statute, and that they are entitled to a jury trial through that section. The result would be that a plaintiff suing a foreign state on a federal question could have a jury trial while a person suing a foreign state on a nonfederal question could not. In the words of the Second Circuit:

The courts must learn to accept that, in place of the familiar dichotomy of federal question and diversity jurisdiction, the Immunities Act has created a tripartite division — federal question cases, diversity cases and actions against foreign states. If a case falls within the third division, there is to be no jury trial even if it might also come within the other two.

Ruggiero, 639 F.2d at 876.

Finally, the Harpalanis argue that striking their jury demand would violate their Seventh Amendment right to a jury trial. The Second Third, Fourth, Fifth, and Eleventh Circuits have disposed of this argument by noting that the Seventh Amendment only preserves a right to trial where one existed at common law; it does not create a right to trial by jury. Since no right to a jury trial existed in 1791 with respect to a suit against a foreign government or an instrumentality thereof, no right to a trial by jury exists here. Arango, 761 F.2d 1534-35, Goar, 688 F.2d at 423-28, Ruggiero, 639 F.2d at 878-81, Rex, 660 F.2d at 65-69, Williams, 653 F.2d at 881-83.

The Harpalanis also rely on Pernell v. Southall Realty, 416 U.S. 363, 94 S.Ct. 1723, 40 L.Ed.2d 198 (1974) and Curtis v. Loether, 415 U.S. 189, 94 S.Ct. 1005, 39 L.Ed.2d 260 (1974) to support their argument that a jury trial must be available because this action involves remedies traditionally enforced at law. It is not enough, however, that the nature of the complaint is legal; the action must also be brought against a defendant who was suable at common law in 1791. Williams, 653 F.2d at 883.

CONCLUSION

The Harpalanis have stated a cause of action under Article 19 of the Warsaw Convention for “delay in the transportation by air.” Because the remedy under the Convention is exclusive, the remaining counts of the complaint are dismissed. The motion to dismiss on the ground of forum non conveniens is denied. The jury demand is struck pursuant to 28 U.S.C. § 1330(a).

      . Air India argues that a determination that "bumping" claims properly fall within the strictures of Article 19 would open the doors of the federal courts to claimants seeking to litigate simple contract claims against an international air carrier. The floodgates argument has not persuaded courts to deny remedies for personal injuries or loss or damage to baggage under other articles of the Convention. Furthermore, the doors to the federal courts are already open to plaintiffs who claim they were “bumped” in a discriminatory fashion. See Federal Aviation Act § 404(b), 49 U.S.C. § 1374(b).


source: Caselaw Access Project

author: ROYNER, District Judge.

license: Public Domain

text:
    UNITED STATES of America, Plaintiff, v. Ray CRISPEN, et al., Defendants.
    No. 84 C 10581.
    United States District Court, N.D. Illinois, E.D.
    Oct. 2, 1985.

      Anton R. Valukas, U.S. Atty., Elizabeth Stein, Asst. U.S. Atty., Chicago, 111., for plaintiff.
    Mark L. Prager, John L. Hines, Jr., Schwartz, Cooper, Kolb & Gaynor Chtd., Chicago, 111., for defendants.
   MEMORANDUM OPINION AND ORDER

ROYNER, District Judge.

On April 7, 1980, Crispen, Inc. borrowed the sum of $167,000 from First National Bank and Trust Company of Evanston which subsequently assigned the loan to the Small Business Administration (“SBA”), as part of the Loan Guaranty Program. Ray G. Crispen and Joanne Crispen (the “Crispens”) executed an SBA form guaranty and a mortgage on their home. A note evidencing the indebtedness was also signed on behalf of Crispen, Inc. by Ray G. Crispen as its President. The guaranty specifically waived the guarantor’s right to notice of the time or place of sale of the collateral in the event default occurred. The guaranty further provided that it should be construed and enforced in accordance with applicable federal law.

Crispen, Inc. subsequently defaulted on the loan. Crispen, Inc. and Ray and Joanne Crispen, as guarantors, were notified of the default and demand for payment by certified mail on October 1, 1980. The corporation’s letter was returned as unclaimed. The Crispens assert that they never received the letters.

The SBA sent notice to the Crispens’ attorney on November 25, 1981 of a private sale of the assets to be held November 30, 1981. On October 14, 1981 there had been an independent appraisal of the Crispens equipment determining the value of the assets to be $60,000. The November sale raised $94,000, which was applied to reduce the outstanding indebtedness of Crispen, Inc.

After failing in negotiations to settle the matter of the remaining outstanding debt, the government filed this action on December 11, 1984 to foreclose on the note and accompanying instruments. The government seeks the principal sum of $89,141.98 plus interest accruing at the rate of $54.48 per day.

On May 2, 1985, the government filed its motion for summary judgment on the pleadings pursuant to Rule 12(c) of the Federal Rules of Civil Procedure. Because the motion and response refer to matters outside the pleadings, in accordance with Rule 12(c), the motion will be treated as one for summary judgment and disposed of as provided by Fed.R.Civ.P. 56.

In support of its motion, the government submitted the affidavit of Paul Huska, Loan Specialist, Liquidation Division, Small Business Administration. The affidavit attests to the Bank’s assignment of note, guaranty, and mortgage to the SBA. It also attests to the default by Crispen, Inc. and the notice and demand made to the Crispens. Certification of Official Documents and Certified Transcripts of Account were also presented.

In their response to the motion for judgment on the pleadings or for summary judgment, the Crispens assert that the SBA failed to comply with Section 9-504 of the Uniform Commercial Code (“U.C.C.”), Ill.Rev.Stat. ch. 26, § 9-504, which requires notice of the sale. They also assert that failure to conduct the November, 1981 sale within the bounds of commercial reasonableness as required by Section 9-504 precludes entry of summary judgment against them.

On June 13, 1985, the Crispens filed a motion for leave to file additional affirmative defenses. The motion was made to conform the answer to their response to the government’s motion for judgment on the pleadings or for summary judgment. The affirmative defenses which the Crispens sought to file are: (1) Section 9-504 applies to the November, 1981 sale; (2) the sale was commercially unreasonable due to lack of notice; (3) the SBA is barred by the equitable doctrine of laches from collecting sums due under the note; and (4) the note and guaranty have contradictory terms regarding the applicable interest rate, thereby raising a material issue of fact.

After an examination of all the pleadings and affidavits, this Court concludes that there are no issues of material fact, and thus grants summary judgment under Rule 56 of the Federal Rules of Civil Procedure. The defendants’ motion for leave to file additional defenses is also granted. As a matter of law, however, the affirmative defenses the defendants seek leave to file do not affect the Court’s disposition of this case in granting summary judgment for the government.

The Application of Section 9-504 and the Commercial Reasonableness of the Sale

The Crispens assert that the government cannot collect from them on the guaranty because the SBA failed to notify them prior to its sale of the business equipment and failed to dispose of the equipment in a commercially responsible manner as is required by Section 9-504(3) of the U.C.C. Section 9-504(3) of the U.C.C. provides:

Disposition of the collateral may be by public or private proceedings and may be made by way of one or more contracts. Sale or other disposition may be as a unit or in parcels and at any time and place and on any terms but every aspect of the disposition including the method, manner, time, place and terms must be commercially reasonable. Unless collateral is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market, reasonable notification of the time after which any private sale or other intended disposition is to be made shall be sent by the secured party to the debtor, if he has not signed after default a statement renouncing or modifying his right to notification of sale. In the case of consumer goods no other notification need be sent. In other cases notification shall be sent to any other secured party from whom the secured party has received (before sending his notification to the debtor or before the debtor’s renunciation of his rights) written notice of a claim of an interest in the collateral. The secured party may buy at any public sale and if the collateral is of a type customarily sold in a recognized market or is of a type which is the subject of .widely distributed standard price quotations he may buy at private sale.

Ill.Rev.Stat. ch. 26, § 9-504(3). The government contends that the guaranty was “unconditioned” and free of the restrictions relating to method, manner, time, and place of disposing of the collateral and that, in any event, the Crispens specifically waived those defenses in signing the guaranty.

Although Section 9-501 of the U.C.C. clearly bars such a waiver by the debtor, a series of cases involving actions by the government to recover on SBA loan guarantees, and construing language similar to that found in the guaranty signed by the Crispens, have allowed such waivers. Guarantors have been precluded from raising such defenses against the government on the principle that the guaranty is “unconditional”.

For example, in United States v. Lattauzio, 748 F.2d 559, 562 (10th Cir.1984), the court held that guarantors on an SBA loan waived the commercial reasonableness defense of Section 9-504 in signing the guaranty. Similarly, in United States v. Kurtz, 525 F.Supp. 734 (E.D.Pa.1981), aff'd without opinion, 688 F.2d 827 (3d Cir.1982), cert. denied, 459 U.S. 991, 103 S.Ct. 347, 74 L.Ed.2d 387 (1982), the court held that a guarantor on an SBA guaranty waived by contract the protections afforded by the U.C.C., including the right to notice. The court specifically recognized Section 9-501’s proscription on waiver, but based its decision on the tendency of courts to permit SBA loan guarantors to waive Section 9-504 protections. Id. at 745-46. An identical waiver was also upheld in National Acceptance Co. of America v. Wechsler, 489 F.Supp. 642, 548 (N.D.Ill.1980).

As with any contract, the language of the guaranty must be examined to determine the rights and obligations of the parties. Where the terms of a contract of guaranty are unequivocal, the plain language of the guaranty controls. The guaranty must be interpreted according to the language used because it is presumed that the parties meant what their language clearly imparts. IIT Diversified Credit Corp. v. Kimmel, 508 F.Supp. 140 (N.D.Ill.1981).

In United States v. Fisher, 460 F.Supp. 297 (E.D.Wisc.1978), the court found the commercial reasonableness defense was precluded by the express language of the guaranty. The guaranty agreement involved in Fisher granted the following powers to the lender:

In the event of the nonpayment when due, whether by acceleration or otherwise, of any of the liabilities, or in the event of default in the performance of any obligation comprised in the collateral, to realize on the collateral or any part thereof, as a whole or in such parcels or subdivided interests as Lender may elect, at any public or private sale or sales, for cash or on credit or for future delivery, without demand, advertisement or notice of the time or place of sale or any adjournment thereof (the Undersigned hereby waiving any such demand, advertisement and notice to the extent permitted by law), or by foreclosure or otherwise, or to forbear from realizing thereon, all as Lender in its uncontrolled discretion may deem proper, or to purchase all or any part of the collateral for its own account at any such sale or foreclosure, such powers to be exercised only to the extent permitted by law.

Fisher, 460 F.Supp. at 298-99.

The language of the Crispens’ guaranty is exactly the same as the language of the guaranty in Fisher. The guaranty here provides the following powers to the lender, in pertinent part:

In the event of the nonpayment when due, whether by acceleration or otherwise, of any of the Liabilities, or in the event of default in the performance of any obligation comprised in the collateral, to realize on the collateral or any part thereof, as a whole or in such parcels or subdivided interests as Lender may elect, at any public or private sale or sales, for cash or on credit or for future delivery, without demand, advertisement or notice of the time or place of sale or any adjournment thereof (the Undersigned hereby waiving any such demand, advertisement and notice to the extent permitted by law), or by foreclosure or otherwise, or to forbear from realizing thereon, all as Lender in its uncontrolled discretion may deem proper, and to purchase all or any part of the collateral for its own account at any such sale or foreclosure, such powers to be exercised only to the extent permitted by law____

(Emphasis added.)

Most significantly, the Seventh Circuit has recently held that a guarantor waived her right to notice and to a commercially reasonable sale when she signed a guaranty whose language was also apparently identical to the language at issue in this case. United States v. Meadors, 753 F.2d 590, 593-94 (7th Cir.1985). Although the Seventh Circuit relied in part on Indiana law, it expressly stated that “[fjederal law governs questions involving rights of the United States arising under nationwide federal programs.” Id. at 592. Obviously, this Court is bound by decisions of the Seventh Circuit.

This Court, in reviewing the terms of the SBA’s guaranty in light of the principles and case law set forth above, finds that although Section 9-504 does apply, the Crispens expressly waived Section 9-504 by signing the guaranty.

Even if this Court were to conclude that the SBA had an obligation to send notice to the Crispens despite their waiver of Section 9-504, there still would remain no genuine issue of material fact with respect to their actual receipt of reasonable notice and with respect to the commercial reasonableness of the disposition of Crispen, Inc.’s assets. First, despite the Crispens’ assertion that they did not receive the notice of default and demand for payment sent by certified letter dated October 1, 1981, the SBA has submitted the certified mail receipts signed by Joanne Crispen indicating that she did indeed receive both her letter and that sent to her husband on October 10, 1981. Thus, there is no basis in fact for the Crispens’ denial that they received the October 1 letters absent an affidavit that the signatures were not those of Joanne Crispen.

Second, the SBA affidavit attests that its letters of November 6, 13, and 25, 1981, sent to the Crispens’ attorney, gave the Crispens actual notice of the sale. It is well settled that a secured creditor can satisfy the notice requirement by sending notification to a proper party; it is not necessary that the debtor receive it. J.J. White & R.S. Summers, Uniform Commercial Code § 26-10 (2d ed. 1980).

To be considered “genuine” for Rule 56 purposes, a material issue must be established by “sufficient evidence supporting the claimed factual dispute.” First National Bank of Arizona v. Cities Service Co., Inc., 391 U.S. 253, 88 S.Ct. 1575, 20 L.Ed.2d 569 (1968). Moreover, to defeat the government’s summary judgment motion, the defendants were obligated to submit affidavits or other admissible evidence to dispute the facts established by the government’s affidavits; they cannot rely on mere denials. United States v. Bob Stofer Oldsmobile-Cadillac, Inc., 766 F.2d 1147, 1150-52 (7th Cir.1985); Berghoff Restaurant Co., Inc. v. Lewis W. Berghoff, Inc., 499 F.2d 1183, 1186 (7th Cir.1974). The Crispens have not done so.

Nor do the Crispens contend that their attorney did not receive the November 25, 1985 letter notifying them of the impending sale of assets. Thus, the Crispens received all the notice to which they were entitled under Section 9-504 even if they did not waive Section 9-504. National Acceptance Co. of America v. Medlin, 538 F.Supp. 585, 587 (N.D.Ill.1982). (Notice sent to attorney fulfills the purposes of the notice requirement of Section 9-504(3).)

Finally, that the sale itself was commercially reasonable is established by the fact that the ultimate recovery credited to the loan balance was substantially in excess of the appraised auction value. And, even if the sale price was too low, as the Crispens contend, absent fraud, mistake, or illegal practices in the sale, it can still be commercially reasonable. Bryant v. American National Bank & Trust Co. of Chicago, 407 F.Supp. 360, 366 (N.D.Ill.1976). Even the Crispens do not contend that the SBA engaged in such conduct. Instead, they merely assert on information and belief that the $94,000 amount realized by the SBA on the sale of Crispen, Inc.’s assets was “substantially lower than the SBA could have received had it properly advertised and otherwise pursued recognized markets for the assets of Crispen, Inc.” (Affidavit of Ray Crispen, ¶ 6.) Statements in affidavits made upon information and belief may, of course, be disregarded as not meeting the personal knowledge requirement of Rule 56. Automatic Radio Manufacturing Co. v. Hazeltine Research, 339 U.S. 827, 831, 70 S.Ct. 894, 896, 94 L.Ed. 1312 (1950); Cohen v. Ayers, 449 F.Supp. 298, 321 (N.D.Ill.1978), aff'd, 596 F.2d 733 (7th Cir.1979).

This Court holds that the waiver in the guaranty is valid against the Crispens. Alternatively, even if the proscription on the Section 9-504 waiver were enforced, the requirements imposed by the U.C.C. were in fact fulfilled by the SBA.

The Doctrine of Laches

The Crispens assert that the equitable doctrine of laches must bar the government from seeking a deficiency. The Crispens claim the loan is subject to all the defenses in law and in equity which existed against the First National Bank of Evanston.

The Crispens’ assertion is without merit. It is well established that the United States is not subject to the defense of laches. United States v. Summerlin, 310 U.S. 414, 416, 60 S.Ct. 1019, 1020, 84 L.Ed. 1283 (1940) (The United States had been assigned a claim against an estate, and the Court held that the doctrine of laches and the statute of limitations could not be asserted against the United States). Courts have consistently adhered to this principle.

Applicable Interest Rate

The Crispens assert that the note and guaranty are contradictory in their terms. They allege that the note requires that upon default the interest rate shall be fixed at the prime rate at the time of default. The guaranty purportedly fixes the rate at 2% per annum above the prime rate. The government contends that the wording of the guaranty only describes the note and that the terms of the note control. This Court agrees.

In any event, the purported contradiction in interest rates does not bar the government’s right to recovery. The Crispens must be deemed to have knowledge of the terms of the instruments when they executed them. Even if the Crispens are correct in their contention that the interest rate provided by the guaranty contradicts that provided by the note, the government here is seeking the interest rate provided by the note. The Crispens do not contend that the interest rate provided in the note is ambiguous.

Upon examining the note, this Court finds that the note is unambiguous in its provision that the interest rate shall be frozen to the prime rate at the time of default. It provides:

In the event of default ..., the rate of interest on both the guaranteed and unguaranteed portions of the unpaid principal balance shall become fixed at the rate in effect as to the initial date of default.

Based upon the plain language of each instrument together with the Crispens’ pleadings and affidavits, this Court concludes that there are no genuine issues of material fact regarding the applicable interest rate due and owing to the government.

Conclusion

For the foregoing reasons, this Court finds that no genuine issues of material fact exist regarding the rights of the government and the Crispens under the guaranty. The SBA’s disposition of the equipment of Crispen, Inc. was commercially reasonable. The doctrine of laches is a defense not available against the United States. Furthermore the Crispen’s have failed to raise an issue of fact regarding the fixed interest rate they are liable to pay. The government’s motion for summary judgment against the Crispens is, therefore, granted.

Judgment will enter as follows: Summary judgment is entered in favor of the Small Business Administration in the principal sum of $89,141.98 plus interest accruing at the rate of $54.48 per day from default to the date of this opinion. The government has a valid and subsisting lien on all of the property covered by the mortgage for the amounts due the United States, and prior and superior to the claims or interest of any of the defendants. If the amounts due are not paid within 30 days from the date of this opinion, the government has the right to foreclose on and sell the mortgaged real property of the Crispens. The Court recognizes the government’s lien upon the mortgaged property and adjudges the lien to be superior to the claims and interests of the Crispens. The Crispens, and all persons claiming by, through, and under them subsequent to the commencement of this action are barred and foreclosed of all title and equity of redemption in and to the mortgaged property. The United States Marshal may sell the property and take from the proceeds the amount of $89,141.98 plus interest accruing in the amount of $54.48 per day from the date of default until the date of this opinion. Also, such moneys as the government may expend for taxes, insurance premiums, title costs or other necessary actions to carry out the covenants contained in the note, guaranty and mortgage, together with the costs of this action, with interest on the sum due as allowed by law to the date of sale may also be retained from the proceeds. The United States Marshal may employ an auctioneer to conduct such a sale. The Small Business Administration has the right to bid on the real property. Upon the saleof the property a Marshal’s Certificate of Sale must be issued to the purchaser at the sale. If the amount paid to the government from the proceeds of such foreclosure sale is insufficient to pay the sums due the government under this decree, then a judgment shall be issued against the Crispens for the amount of the deficiency. The Crispens are enjoined from committing waste upon the real property or doing any other act which may impair the value of the property.

It is so ordered.

      . To prevail on a motion for summary judgment, a party has the burden of establishing that there is no genuine issue of material fact. Korj v. Ball State University, 726 F.2d 1222 (7th Cir.1984). Any inferences to be drawn from the underlying facts must be viewed in the light most favorable to the non-moving party. Hermes v. Hein, 742 F.2d 350 (7th Cir.1984). The existence of a factual dispute, however, only precludes summary judgment if the disputed fact is outcome-determinative. Big O Tire Dealers, Inc. v. Big O Warehouse, 741 F.2d 160, 163 (7th Cir.1984). '“A material issue of fact is one that affects the outcome of the litigation and requires a trial to resolve the parties’ differing versions of the truth.’ ” Korf, 726 F.2d at 1226, quoting Admirality Fund v. Hugh Johnson & Co., 677 F.2d 1301, 1306 (9th Cir.1982).

      . Section 9-501(3) provides:
      To the extent that they give rights to the debtor and impose duties on the secured parties, the rules stated in the subsections referred to below may not be waived or varied except as provided with respect to compulsory disposition of collateral (subsection(s) of Section 9-504 and Section 9-505) and with respect to redemption of collateral (Section 9-506) but the parties may by agreement determine the standards by which the fulfillment of these rights and duties is to be measured if such standards are not manifestly unreasonable.

      . The court in National Acceptance Co. of America, supra, held that Section 9-501(3) provided no impediment to a waiver of a guarantor’s rights under Section 9-504(3) of the U.C.C.
      By contrast, in Commercial Discount Corp. v. King, 515 F.Supp. 988, 990 (N.D.Ill.1981), upon which the Crispens heavily rely, the court held that Sections 9-501(3) and 9-504(3) “in combination clearly render a ... a pre-default waiver of the right to notice void.” This Court chooses to follow the ruling in National Acceptance, supra, rather than to focus on the distinction between pre-default and post-default waivers of the notice requirement. If, despite Section 9-501(3), the waiver of certain rights is permitted, as the case law cited above indicates, then it makes no difference whether the waiver is signed pre-default or post-default.

      . The November 25, 1981 letter was sent to the Crispens’ counsel because the Crispens themselves were not in the country at the time.

      . Section 1-201(38) of the U.C.C. reads as follows:
      "Send” in connection with any writing or notice means to deposit in the mail or deliver for transmission by any other usual means of communication with postage or cost of transmission provided for and properly addressed and in the case of an instrument to an address specified thereon or otherwise agreed, or if there be none to any address reasonable under the circumstances. The receipt of any writing or notice within the time at which it would have arrived if properly sent has the effect of a proper sending.

        See also Hawkins v. General Motors Acceptance Corp., 250 Md. 146, 242 A.2d 120, 5 U.C.C.Rep. Serv. (Callaghan) 556 (1968) (merely sending notice sufficient).

      . This Court regards the defendants’ argument that the SBA has offered no competent evidence that it sent notice to the Crispens as wholly without merit, if not frivolous. The Crispens contend that the November 25, 1981 letter to the Crispens’ attorney, Mark Prager, “is of little or no probative value" because "[t]here is no testimony establishing the identity of Mark Prager, his relationship to the Crispens, any obligation of his to notify the Crispens, his authority to receive notice or that the letter was in fact sent." In light of the fact that Mark Prager is also the very same attorney who is representing the Crispens in this Court, he, at the very least, had an obligation to submit his own affidavit establishing that he did not receive the letter or did not have their authority to receive notice if such were the case. He did not do so. Attorneys, who are officers of the court, should not make such "clever” but deceiving arguments without a basis in fact. Fed.R.Civ.P. 11. Moreover, the defendants’ argument is also invalid because it assumes that the government contends that only the November 25, 1981 letter provided notice of the sale, whereas the government in fact contends that the entire series of correspondence dated November 1, 6, and 25, 1981, attached to its affidavits, from the SBA to the Crispens’ counsel constituted notice of the sale. The Crispens' argument that notice was not timely because the sale occurred five days after November 25 is, for the same reasons, without merit.

      . See e.g., Berliant v. Commissioner of Internal Revenue, 729 F.2d 496, 500 (7th Cir.1984), cert. denied, Kraft v. Commissioner, — U.S. -, 105 S.Ct. 174, 83 L.Ed.2d 109 (1984) (dicta); Chevron, U.S.A., Inc., v. United States, 705 F.2d 1487, 1491 (9th Cir.1983); United States v. Hughes House Nursing Home, Inc., 710 F.2d 891, 895 (1st Cir.1983).


author: EDWARD C. REED, Jr., District Judge.

text:
    Carroll Eugene BARNES, Petitioner, v. Vernon G. HOUSEWRIGHT, et al., Respondents.
    No. CV-R-85-195-ECR.
    United States District Court, D. Nevada.
    Oct. 3, 1985.

      Carroll Eugene Barnes, in pro. per.
    No appearance for respondents.
   MEMORANDUM DECISION AND ORDER

EDWARD C. REED, Jr., District Judge.

This matter is before the Court on Petitioner’s objection to the Report and Recommendation of U.S. Magistrate Phyllis Halsey Atkins. Petitioner’s pro se 28 U.S.C. § 2254 petition for a writ of habeas corpus alleges that he was sentenced to prison for a term of thirty years without the benefit of representation by counsel at the sentencing hearing. He contends that he did not voluntarily and intelligently waive his right to counsel at the hearing. The questions he has raised are (1) whether the trial court erred in permitting Petitioner’s appointed counsel to withdraw from the case without appointing a substitute counsel, (2) whether Petitioner had a right to representation by counsel at the sentencing stage of the proceedings, and (3) whether the trial court made proper inquiry as to Petitioner’s decision to represent himself at the sentencing hearing.

The Magistrate granted leave for Petitioner to proceed in forma pauperis but determined “that the petition should be dismissed prior to service on respondents for the reason that it is a minor variation of an issue presented in a prior petition, decided on the merits, and which could or should have been presented in that petition.” The prior petition culminated in an order of this Court, reported in Barnes v. Housewright, 603 F.Supp. 330 (D.Nev.1985), holding that the trial court’s denial of Petitioner’s motions to substitute appointed counsel due to conflict resulting from his refusal to cooperate with counsel before and during the trial did not violate the Sixth Amendment. The order found that the trial judge had conducted a legally sufficient inquiry into the reasons for Petitioner’s dissatisfaction with his counsel. Id. at 332.

Magistrate Atkins’ Report states that she has reviewed the trial transcript. It reflects that the essence of Petitioner’s dissatisfaction was that he wanted to direct his own defense, with appointed counsel to act in an advisory role. The counsel refused to accept such role and did control the defense.

At the sentencing hearing, Petitioner again remonstrated against counsel’s continued representation of him. The trial judge then gave him the choice of continuing to be represented by the same appointed counsel or, in the alternative, to proceed without counsel. Petitioner responded, “He does not represent me, sir, and I choose to speak for myself.” The judge told him, “Okay. Go ahead.” Appointed counsel then asked that his office (the Public Defender) be discharged from any further responsibility. The trial court granted the request “[b]ecause the defendant chooses to exercise his right to proceed in proper person____” Petitioner then commented: “Seems a very inappropriate time for him to do that.” The hearing continued with Petitioner representing himself.

The Magistrate felt that the instant petition comes within the intendment of Rule 9(b) of Rules Governing § 2254 Cases in the United States District Courts, which reads:

“A second or successive petition may be dismissed if the judge finds that it fails to allege new or different grounds for relief and the prior determination was on the merits or, if new and different grounds are alleged, the judge finds that the failure of the petitioner to assert those grounds in a prior petition constituted an abuse of the writ.”

Petitioner’s objection faults the Magistrate’s analysis by pointing out that the question before the Court is not whether he had the right to reject assigned counsel and demand another, but whether Petitioner should have been allowed to proceed at the sentencing hearing without the assistance of counsel absent an intelligent waiver of the right to proceed with counsel. He maintains that the trial court failed to ascertain whether he was competent to represent himself. As to the failure to raise the issue in his prior petition for a writ of habeas corpus, Petitioner lays the blame with the appointed counsel who represented him in that proceedings. Petitioner notes that he is a layman whose legal education has come from bit-by-bit piecemeal learning.

Appointed counsel did represent Petitioner in his prior petition for a writ of habeas corpus made to this Court. The Magistrate has correctly concluded that the ground for the instant petition (absence of counsel at sentencing) could have been presented in the prior petition, which was grounded on ineffective assistance of counsel prior to and during trial. The Fifth Circuit has held that an habeas corpus petitioner is bound by the knowledge chargeable to his counsel in a prior petition. Jones v. Estelle, 722 F.2d 159, 162, 163 (5th Cir.1983). However, this is only one factor in determining whether the later petition should be dismissed pursuant to Rule 9(b) because the failure of the petitioner to assert the new ground in the prior petition constituted an abuse of the writ. Id. 28 U.S.C. § 2244(b) specifies that a United States judge need not entertain a subsequent petition unless satisfied that the petitioner did not deliberately withhold, in his earlier petition, the newly asserted ground. Johnson v. Copinger, 420 F.2d 395, 399 (4th Cir.1969). The Government has the burden of pleading that the petitioner has so abused the writ. United States v. Donn, 661 F.2d 820, 823 (9th Cir.1981). If doubt arises as to whether the ground for the subsequent petition is the same or different from that of the earlier one, such doubt should be resolved in favor of the petitioner. Polizzi v. United States, 550 F.2d 1133, 1136 (9th Cir.1976). Further, § 2244(b) provides that a district court may not refuse to entertain the second petition unless the denial in the first proceeding was after a hearing. Hutchinson v. Craven, 415 F.2d 278, 280 (9th Cir.1969). The records in both the instant proceeding and the prior one affirmatively show that no hearing was held. Thus, the Government has not pleaded abuse of the writ, for it has not been served with the later petition, and it is clear that the denial of the earlier petition was not after a hearing. Procedurally, then, the Magistrate’s recommendation that the instant petition be dismissed without service on the respondent must be rejected.

A trial judge need not permit the hybrid representation of a criminal defendant through the use of standby or advisory counsel. McKaskle v. Wiggins, 465 U.S. 168, 181-85, 104 S.Ct. 944, 953-54, 79 L.Ed.2d 122 (1984); Locks v. Sumner, 703 F.2d 403, 407-08 (9th Cir.1983). Nevertheless, sentencing is a critical stage of a criminal proceeding, so that the Due Process Clause entitles a defendant to assistance of counsel. Gardner v. Florida, 430 U.S. 349, 358, 97 S.Ct. 1197, 1204, 51 L.Ed.2d 393 (1977). In imposing sentence a judge moves within a large area of discretion and doubts, so that every consideration urged by counsel for the defendant may be helpful. Carter v. Illinois, 329 U.S. 173, 178, 67 S.Ct. 216, 220, 91 L.Ed. 172 (1946). The necessity for aid of counsel in marshaling the facts, introducing evidence of mitigating circumstances and generally presenting the defendant’s case is apparent. McConnell v. Rhay, 393 U.S. 2, 4, 89 S.Ct. 32, 33, 21 L.Ed.2d 2 (1968).

Although a defendant may waive his right to counsel, a higher degree of competency is required to waive counsel than to stand trial. Evans v. Raines, 705 F.2d 1479, 1480 (9th Cir.1983); Sieling v. Eyman, 478 F.2d 211, 213 (9th Cir.1973). The decision to waive counsel must be made knowingly and intelligently. United States v. Rylander, 714 F.2d 996, 1005 (9th Cir.1983). “Knowingly” may be equated with intentionally. Johnson v. Zerbst, 304 U.S. 458, 464, 58 S.Ct. 1019, 1023, 82 L.Ed. 1461 (1938). “Intelligently” means that the defendant was sufficiently informed of the consequences of his decision. Evans v. Raines, 705 F.2d 1479, 1480 (9th Cir.1983). A knowing and intelligent waiver ordinarily requires a discussion on the record between the judge and the defendant as to the dangers of self-representation. United States v. Rylander, supra at 1005. Here the record is ambiguous as to whether Petitioner knowingly or intentionally waived his right to the assistance of counsel at his sentencing. This ambiguity arises from his comment, “Seems a very inappropriate time for him to do that”, when his counsel’s motion to withdraw from the case was granted by the trial judge during the sentencing hearing.

IT IS, THEREFORE, HEREBY ORDERED that the Clerk of Court shall serve a copy of the petition for a writ of habeas corpus, filed herein April 23,1985, together with a copy of this Memorandum Decision and Order, upon the Director of the Nevada Department of Prisons and upon the Nevada Attorney General, such service to accomplished by certified mail.

IT IS FURTHER ORDERED that said respondents shall have twenty (20) days from the date of such service within which to answer the petition in accordance with the requirements of Rule 5 of the Rules Governing Section 2254 Cases in the United States District Courts.


author: FRYE, Judge:

text:
    VEREX ASSURANCE, INC., Plaintiff, v. MADUFF MORTGAGE CORPORATION, John Hanson Savings and Loan, Inc., and First City Federal Savings and Loan Association, Defendants.
    Civ. No. 83-1637-FR.
    United States District Court, D. Oregon.
    Oct. 7, 1985.

      Jack F. Olson, Susan D. Marmaduke, Jack F. Olson & Associates, Portland, Or., for plaintiff.
    David B. Markowitz, Markowitz & Her-bold, Portland, Or., for defendant Maduff Mortg. Corp.
    John Uffelman, Mervin W. Brink, Brink, Moore, Brink & Peterson, Hillsboro, Or., for defendant John Hanson Sav. and Loan, Inc.
    Bruce G. Berning, Portland, Or., for defendant First City.
   FRYE, Judge:

OPINION AND ORDER

The matters before the court are:

1. Defendant Maduff Mortgage Corporation’s motion in limine;

2. Plaintiff’s motion for summary judgment affirming its non-liability under the insurance policies;

3. Plaintiff’s motion for summary judgment dismissing defendants’ counterclaims against it;

4. Defendant Maduff Mortgage Corporation’s motion for partial summary judgment dismissing plaintiff’s suit for rescission.

The parties to this action are:

1. Plaintiff Verex Assurance, Inc. (Verex), a private mortgage insurance company engaged in the business of insuring loans secured by interests in real estate.

2. Defendant Maduff Mortgage Corporation (Maduff), a mortgage banker engaged in the business of making construction loans and originating first mortgage home loans for sale in the secondary mortgage market.

3. Defendant John Hanson Savings and Loan Association (John Hanson), a savings and loan institution which, among other things, purchases first mortgage home loans on the secondary loan market.

4. Defendant First City Federal Savings and Loan Association, now known as Cross-land Savings FSLA (Crossland), a savings and loan institution which, among other things, purchases first mortgage home loans on the secondary loan market.

VEREX’s MOTION FOR SUMMARY JUDGMENT

On or about October, 1980, Verex issued a standard master policy of insurance to Maduff, thereby establishing a business relationship between Verex and Maduff. Prior to August, 1982, Verex issued a “100% Coverage Master Policy” to Maduff, which enabled Maduff to submit to Verex requests for insurance coverage on loans Ma-duff might make which were secured by real estate.

During August, 1982, Verex received documentation from a real estate development corporation on sixteen properties in Harney Valley and nine properties in Clymore Court and a request from Maduff for insurance coverage on the loans Maduff contemplated making on the 25 properties. When Verex received the documentation, it evaluated the information therein, assessed the risks involved, and then issued to Ma-duff “Commitments for Insurance.” These Commitments described the loans Verex was willing to insure: the purchase price, the down payment, and the borrower’s equity as reflected by the ratios of the loans to the values of the properties securing the loans. Attached to the Commitments for Insurance were Certificates of Insurance for the 25 loans upon the terms and conditions set out in the Commitments for Insurance. The Commitments for Insurance provided that:

... any revision of the terms and conditions submitted to you on this commitment, without prior consent of Verex ,.. may at Verex ... option invalidate this commitment and certificate. (Emphasis added.)

After receiving the Commitments for Insurance and the tendering of the Certificates of Insurance, Maduff funded loans on the 25 properties. In September, 1982, Ma-duff assigned/sold the loans secured by the 16 Harney Valley properties and the Commitments for Insurance issued by Verex to John Hanson for a total of $1,136,339.64. In December, 1982, Maduff assigned the loans secured by the nine Clymore Court properties and the Commitments for Insurance issued by Verex to Crossland for $80,000 per property.

When the sales closed, Maduff sent the Certificates of Insurance back to Verex, thereby consummating the insurance contracts. Maduff did not tell Verex that, contrary to the terms and conditions of the Commitments for Insurance, the actual sales price of the property was in every case less than the amount of the loan. Maduff did not tell Verex that, contrary to the terms and conditions of the Certificates of Insurance, the loan to value ratio of each of the transactions was not as represented in the terms and conditions of the Commitment for Insurance.

The court finds no evidence of any misrepresentations on the part of any party to this action, but the court concludes that the actual transactions relating to these 25 properties did not comport with the terms of the insurance contracts issued by Verex. The loans for which defendants seek reimbursement vary significantly from the risks which Verex agreed to insure and which were described in the Certificates of Insurance. Therefore, Verex has a contractual right to rescind its contracts. However, Maduff contends that by its negligent or tortious conduct Verex is estopped to do so, or by accepting renewal premiums on the 25 insurance certificates in September and October, 1983, Verex has waived its contractual right to rescind the contract.

In October, 1982, Verex made an appraisal on one of the properties because it had received a report suggesting irregularities surrounding the loan applications. The appraisal revealed/suggested that the properties were probably over-appraised by about ten percent. The Maduff account was then put in an “X” risk status. Also, about this time, Verex had reason to believe that many of the borrowers had inadequate incomes to support the negative cash flows on their properties.

Maduff contends in its counterclaims that Verex failed to inform it of the facts that Verex had discovered in its post-underwriting review; that Verex had a duty to so disclose; that the facts not disclosed were material to Maduff s business transactions; and that if Verex had promptly disclosed such facts, Maduff would have undertaken its own investigation. Maduff contends that in reliance upon Verex’s agreements to issue insurance, it approved the insurance contracts and disbursed funds which it would not have disbursed had the problems known to Verex been known to Maduff.

The court finds that there is no evidence of tortious or negligent acts on the part of Verex and that the legal theories of estoppel and waiver cannot apply under the circumstances of this case. The Commitments for Insurance provide in clear language that Verex reserves the right to rescind the contracts at its option when any modification of the terms and conditions of the Commitments for Insurance takes place without its consent. No further obligations are imposed on Verex. While equitable principles can act as a bar to rescission, given the undisputed facts of this case and the unambiguous contractual language, the court concludes that Verex is entitled to rescind these contracts.

IT IS HEREBY ORDERED that:

1. Defendant Maduff Mortgage Corporation’s motion in limine is MOOT.

2. Plaintiff’s motion for summary judgment affirming its non-liability under the insurance policies is GRANTED

3. Plaintiff’s motion for summary judgment dismissing defendants’ counterclaims against it is GRANTED.

4. Defendant Maduff Mortgage Corporation’s motion for partial summary judgment dismissing plaintiff’s suit for rescission is DENIED.


author: BILLINGS, District Judge.

text:
    UNIVERSITY HEALTH CENTER, INC. v. UNITED STATES of America.
    Civ. A. No. 84-299.
    United States District Court, D. Vermont.
    Oct. 7, 1985.
    B. Michael Frye, Paul, Frank & Collins, Burlington, Vt., for plaintiff.
    M. Ellen Carpenter, Trial Atty., Tax Div., Dept, of Justice, Washington, D.C., and Donald J. Rendall, Jr., Asst. U.S. Atty., Rutland, Vt., for defendant.
   ORDER

BILLINGS, District Judge.

This matter is before the Court on the cross-motions of plaintiff University Health Center, Inc. (UHC) and the United States of America for summary judgment. The parties have stipulated to the essential facts. For the reasons recited below, the motion of the United States for summary judgment is GRANTED and the motion of UHC is DENIED.

FACTS

In this action, UHC seeks a refund of $52,015.00 of Federal Insurance Contributions Act (FICA) taxes paid or withheld for the years 1980, 1981,1982 and 1983. Plaintiff UHC is a tax exempt organization under I.R.C. § 501(c)(3). It is exempt from federal income tax pursuant to I.R.C. § 501(a).

Pursuant to I.R.C. § 403(b), during the years 1980, 1981, 1982 and 1983, UHC maintained a retirement annuity plan for its employees. Participating employees accepted a percentage reduction in wages in exchange for contributions made by UHC to purchase annuity contracts. The salary reduction contracts are legally binding and irrevocable with respect to amounts earned during the contractual period. All annuity contributions made by UHC were excluded from the gross income of the employees for federal income tax purposes. Pursuant to I.R.C. § 3402(a), federal income tax withholding did not apply to the payments.

However, under I.R.C. § 403(b)(1), UHC timely paid FICA taxes on all monies contributed to the annuity plans. For the years at issue, UHC paid total FICA taxes of $52,015.00. This sum was made up of FICA taxes paid directly by UHC as the employer, and of FICA taxes withheld from the gross wages of the employees. On or about November 23, 1983, UHC filed with the Internal Revenue Service four claims for refunds for the FICA taxes paid on monies contributed to the annuity plans. UHC claimed the amounts so contributed were not wages for FICA tax purposes. On February 9, 1984, the District Director of the Internal Revenue Service disallowed the claims for refunds.

DISCUSSION

I.R.C. § 403(b) authorizes tax exempt organizations to purchase annuity contracts for their employees. The amount contributed is excluded from the wages of the employee for the purpose of calculating federal income tax. Income tax is deferred until there is a distribution of gross income under the annuity. I.R.C. § 61(a)(9). No FICA tax applies at the time of distribution of the annuity, as I.R.C. § 3121 excludes annuities from the FICA definition of wages. Rev.Rul. 65-208, 1965-2 C.B. 383, stated that salary reduction amounts used to purchase annuities constituted wages subject to FICA taxes. UHC complied with this ruling during the years at issue.

UHC bases its present position on Rowan v. United States, 452 U.S. 247, 101 S.Ct. 2288, 68 L.Ed.2d 814 (1981). In that case, the United States Supreme Court held that wages, for both FICA and income tax purposes, did not include amounts expended for meals and lodging furnished to an employee for the convenience of the employer. This case did not extend the FICA exclusion to salary reduction amounts contributed to annuity plans. Subsequently, Congress enacted legislation that codified Rev. Rul. 65-208. Social Security Amendments Act of 1983, Pub.L. No. 98-21, 97 Stat. 65. This law limited the application of Rowan to the particular facts of that case. The Deficit Reduction Act of 1984, Pub.L. No. 98-369, 98 Stat. 494, further clarified Rowan by stating that the case could not apply retroactively to any payments of FICA taxes made pursuant to Rev.Rul. 65-208.

These Congressional actions evidence a forthright federal policy to include in wages for FICA purposes any contributions to annuity plans made in lieu of salary payments. Otherwise, employees could, by contract, determine what portion of their remuneration would be subject to the payment of FICA taxes. The majority opinion in Temple University v. United States, 769 F.2d 126, (3d Cir.1985) supports this interpretation of the relevant statutes. This Court regards the opinion in Temple as controlling, and incorporates the reasoning of the Temple majority as part of this opinion.

CONCLUSION

There being no genuine issue regarding any material fact, and defendant being entitled to judgment as a matter of law, the motion of the United States for summary judgment is GRANTED and the motion of UHC for summary judgment is DENIED.


author: PEREZ-GIMENEZ, Chief Judge.

text:
    Daniela Falu RIVERA, Plaintiff, v. SECRETARY OF HEALTH AND HUMAN SERVICES, Defendant.
    Civ. No. 84-0149(PG).
    United States District Court, D. Puerto Rico.
    Oct. 8, 1985.
    Rafael Carreras Valle, Río Piedras, P.R., for plaintiff.

      Fidel A. Sevillano-Del Rio, Asst. U.S. Atty., Hato Rey, P.R., for defendant.
   OPINION AND ORDER

PEREZ-GIMENEZ, Chief Judge.

This is an action brought under Section 205(g) of the Social Security Act, as amended, (the Act) for review of the decision of the Secretary of Health and Human Services (the Secretary) which denied plaintiffs application for a period of disability and disability insurance benefits.

Plaintiff is a forty-nine-year-old woman with a twelfth-grade education and over twenty years of work experience as a welder (Tr. 35). On October 5, 1976, she reported backaches to the State Insurance Fund due to the type of work she performed as a factory operator. She filed an application for disability benefits on March 19, 1979. This Court sustained the denial of the administative law judge (AU) of her claim. The U.S. Court of Appeals for the First Circuit affirmed. Falu v. Secretary of Health and Human Services, 703 F.2d 24 (1st Cir.1983).

Plaintiff applied again for disability benefits on March 1, 1983, claiming she had been unable to work since September of 1980 due to a nervous condition and back pain (Tr. 70-73, 79). Plaintiff was insured for disability insurance benefit purposes until March 31, 1982 (Tr. 9). This application was denied at the initial stages of the administrative proceedings. The AJL found, after a de novo review of the record, that plaintiff was not under a disability (Tr. 10). The Appeals Council approved the AU’s decision, which became the final decision of the Secretary. This case was inadvertently remanded by this Court in accordance with Section 2(d)(2) of the Act and was reinstated on August 2, 1985.

The sole question for this Court is whether the Secretary’s determinations are supported by substantial evidence on the record as a whole. 42 U.S.C. 405(g); Richardson v. Perales, 402 U.S. 389, 401, 91 S.Ct. 1420, 1427, 28 L.Ed.2d 842 (1971); Falu v. Secretary of Health and Human Services, 703 F.2d 24, 28 (1st Cir.1983). Substantial evidence is such relevant evidence as a reasonable mind might accept as adequate to support a conclusion. Universal Camera v. N.L.R.B., 340 U.S. 474, 477, 71 S.Ct. 456, 459, 95 L.Ed. 456 (1951).

The AU concluded that the claimant had a status post-lumbo sacral sprain and a moderate anxiety disorder, but that she did not have a severe impairment. Therefore, the AU found that she was not disabled. The AU considered both the non-exertional and exertional impairment to reach his conclusion.

After a thorough consideration of all the evidence in this case, as well as the Secretary’s findings and the issues presented by this appeal, this Court concludes that the Secretary's determination is supported by substantial evidence on the record as a whole.

Pursuant to the Act, the Secretary established Social Security Administration Regulation No. 4. Said Regulation provides for a set order to evaluate disability (20 C.R.F. § 404.1520(a)). In addition, a claimant’s impairment must meet the 12-month duration requirement before being found disabling. If it is determined that a claimant is or is not disabled at any point in the review, further review is not necessary. 20 C.F.R. § 404.1520(a). In following the set order, the AU concluded that a decision on whether the claimant is disabled cannot be made based on work activity (the first step in the sequence). He did, however, use the second step to determine whether the claimant was disabled. Under this second step (20 C.F.R. § 404.1520(c)) if the impairment is not severe, a finding must be made that the individual is not disabled, regardless of age, education and work experience. To have a severe impairment the impairment or combination of impairments must significantly limit the claimant’s physical or mental ability to do basic work activities. “Basic work activities” is defined in 20 C.F.R. § 404.1521(b). This section states:

(b) Basic work activities. When we talk about basic work activities, we mean the abilities and aptitudes necessary to do most jobs. Examples of these include—
(1) Physical functions such as walking, standing, sitting, lifting, pushing, pulling, reaching, carrying or handling;
(2) Capacities for seeing, hearing, and speaking;
(3) Understanding, carrying out and remembering simple instructions;
(4) Use of judgment;
(5) Responding appropriately to supervision, co-workers and usual work situations; and
(6) Dealing with changes in a routine work setting.

According to the AU, the medical evidence in the record indicated that the claimant had a mild to moderate status post-lumbo sacral sprain, no evidence of neurological deficit, and no marked loss of motion. He also found no medical evidence to support plaintiff’s allegation of severe pain (Tr. 10). Such determinations are supported by substantial evidence on the record as a whole. In August of 1981, a clinical evaluation showed a mild diminishment of the lumbar lordosis and pain on deep palpation. Although there was a somewhat restricted range of motion, plaintiff could squat, sit, kneel, and the neurological examination was negative (Tr. 118).

Dr. Godreau also found on May 7, 1982, that plaintiff could occasionally bend, squat, crawl, climb and reach above shoulder level (Tr. 157).

Dr. Molinari felt there was a moderate scoliosis to the left, apex at L-3. He felt the claimant could be trained to perform activities that did not require prolongued standing, walking or repeated bendings. He felt that the plaintiff should not carry more than moderate weights (Tr. 131). An electromylogram and a lumbar myelogram were both normal (Tr. 136).

Dr. Marchan Matta also found that there was a moderate levoscoliosis. The pedicles and vertebral bodies were intact and the intervertebral spaces were well preserved (Tr. 155). The reviewing physician at the Department of Health and Human Services stated that the back did not show severe spasms nor muscular weakness (Tr. 111).

In summary, the evidence of the record did show that plaintiff has a mild to moderate sacral spasm but not severe enough to impede her from performing basic work activities. Plaintiff was able to squat, sit, kneel and walk. The neurological examination was negative and an electromyelogram, as well as a lumbar myelogram, were normal.

In relation to plaintiff’s alleged nervous condition, the AU’s findings of a moderate anxiety disorder and of no severe impairment that would bar plaintiff from performing any of the basic work activities was supported by substantial evidence on the record as a whole. The AU found, among other things, that by August 3, 1982, there were only somatizations, moderate anxiety and sadness (Tr. 10).

A special medical report dated March 5, 1980, found plaintiff to be coherent, logical and cooperative. Although her memory was poor for recent events,, she was diagnosed as having a moderate anxiety reaction (Tr. 126). A later report from Dr. Ramón Piñero Rivera found plaintiff to be coherent and oriented in person, place and time. He also found her to complain of multiple somatic ailments, but that there were no delusional ideas or perceptual disturbances (Tr. 125).

Dr. Hernández’ report, dated September 24, 1980, showed that plaintiff had a low average total I.Q. The plaintiff could evaluate social, institutional and family practices with a conventional judgment and could respond to ordinary situations with common sense. Plaintiff could perform numerical reasoning and other intellectual tasks, such as memorize material. Dr. Hernández also found that plaintiff had moderate features of depression, anxiety and tension, but these features would not keep her from her concrete vocational interests. Her vocational interests rested in working in a pastry shop. There was also ability for sewing. The doctor also found that there were suicidal ideas and feelings but that these were moderate. He did not discover moments where his client tried to commit suicide (Tr. 141).

The medical evidence from the State Insurance Fund, in Carolina, Puerto Rico, covering the dates of August 25, 1980, to March 30, 1981, shows that plaintiff made remarkable improvement at the Occupation Therapy Program. The plaintiff became more alert and positive and with desire to get better. She related well with therapy members and maintained a friendly relation. She was observed to have a lot of manual dexterity and creativity (Tr. 191).

The final psychiatric report from the State Insurance Fund by Dr. Hoyos found plaintiff to have a moderate anxiety disorder. The report covered five interviews starting on March 1, 1982, up to August 3, 1982. At the first interview the examiner found plaintiff neither anxious nor depressed. Her flow of thought was logical and coherent and there were neither psychoses nor hallucinations. During the second interview the patient indicated she felt worse. She said she saw monsters, that she was afraid and had headaches, back pains and felt like crying. She complained of the same symptomatology up to the fifth interview; however, the doctor found that objectively plaintiff looked better (Tr. 167-168).

In summary, the AU’s findings that plaintiff's nervous condition was not a severe impairment is supported by substantial evidence on the record as a whole. She was logical and coherent, she had use of judgment and could relate to others. Plaintiff could perform numerical reasoning and other intellectual tasks such as memorize material.

Plaintiff alleges that she meets the Listing of Impairment, Appendix I, Subpart P, Part IV, of the Secretary’s Regulations, 20 C.F.R., Appendix I, (1983) Section 12.04, which in pertinent part provides:

Functional nonpsychotic disorders (psychophysiologic neurotic and personality disorders,...) with both A and B:

A. Manifested persistence of one or more of the following clinical signs:

1. ...; or
2. Recurrent and persistent periods of anxiety, with tension, apprehension, and interference with concentration and memory; or____

B. Resulting persistence of marked restriction of daily activities and construction of interest and deterioration in personal habits and seriously impaired ability to relate to other people.

The ALT, however, was not bound to consider the above for 20 C.F.R. § 404.1520 states that if at any point in the review of the set order established by the regulations a claimant is found either disabled or not disabled, further review is not required. The above was the third step in the review while the AU’s determination was based on the second step. Furthermore, assuming that the third step was used, there is no evidence in the record to show that there was interference with her concentration and of her ability to relate to other people. The record showed she was logical and coherent each time she had interviews with the physicians (Tr. 125, 167-168), and the record also shows she could relate well to other people even though she claimed she spent most of her time at home (Tr. 126, 191).

Therefore, this Court finds that there is substantial evidence in the record as a whole to support the Secretary’s conclusion that both the nervous and back conditions were slight in nature and that there was no severe impairment to render the defendant disabled within the meaning of the Act.

On October 3, 1985, plaintiff filed a motion asking this Court to consider new and material evidence and to reverse the Secretary’s decision. Said motion presents a report from the Department of Social Services’ Vocational Rehabilitation, dated March 8, 1985. However, such report can not be considered by this Court as pertinent evidence to reverse the final decision of the Secretary. Plaintiff was insured for disability insurance benefit purposes only until March 31,1982. This report is too far away from her insured period. Furthermore, for the same reasons, this Court would not have remanded the case to the ALJ for further consideration.

WHEREFORE, in light of the applicable law and jurisprudence, the Secretary’s decision is hereby AFFIRMED.

IT IS SO ORDERED.


author: LIMBAUGH, District Judge.

text:
    Dennis SHAW, Frances Shaw, Plaintiffs, v. REPUBLIC NATIONAL LIFE INSURANCE CO., the Traveler’s Insurance Co., Defendants.
    No. 84-313C(5).
    United States District Court, E.D. Missouri, E.D.
    Oct. 8, 1985.
    Padberg, McSweeney, Slater & Merz, Michael J. Coleman, St. Louis, Mo., for plaintiffs.
    Armstrong, Teasdale, Kramer & Vaughn, Clark H. Cole, Evans & Dixon, Eugene K. Buckley, Laura B. Allen, St. Louis, Mo., for defendants.
   MEMORANDUM

LIMBAUGH, District Judge.

This matter is before the Court for a decision on the merits. The parties have stipulated to the facts of the case. After consideration of the facts, the Court hereby makes the following findings of fact and conclusions of law, as required by Rule 52 of the Federal Rules of Civil Procedure.

Findings of Fact

On December 9, 1981, plaintiff Dennis Shaw, an employee of St. Louis Postal Employees Credit Union, enrolled under his employer’s group health policy GA-644670 LM issued by The Travelers Insurance Company (Travelers). The Travelers policy was in force at all relevant times.

Plaintiff Dennis Shaw did not make a written election of dependent coverage, nor did he intend to do so under his Travelers policy, at any relevant time, although he did make such an election on or about August 10, 1983, subsequent to the events involved in this lawsuit.

Plaintiff Frances Shaw was at all relevant times Dennis Shaw’s wife and an insured under group health policy No. 17640 issued by Republic National Life Insurance Company (Republic) to her employer, Landmark Bancshares Corporation. The Republic policy was in force at all relevant times. Plaintiff Frances Shaw made a valid election of dependent coverage under the Republic policy. The election was in force at all relevant times.

On June 30, 1983, plaintiff’s son, Charles Joshua Shaw was born. Charles’ condition at birth required immediate surgery, which was performed at a total cost to plaintiffs in the amount of $25,658.32 for medical expenses incurred during the first thirty-one days after Charles’ birth.

The Coordination of Benefits clause in the Travelers policy provides in pertinent part:

“SECTION 12 — CO-ORDINATION OF BENEFITS
* * # # * *

DEFINITIONS

‘Plan’ means any plan providing benefits or services for or by reason of medical or dental care or treatment, which benefits or services are provided by (i) group, (ii) Group Blue Cross, Group Blue Shield, group practice, individual practice and other prepayment coverage, (iii) any coverage under labor management trusteed plans, union welfare plans, employer organization plans, or employee benefit organization plans, and (iv) any coverage under governmental programs, and any coverage required or provided by any statute, except Title XVIII and XIX of the Social Security Act, as enacted or amended.
The term ‘Plan’ shall be construed separately with respect to each policy, contract, or other arrangement for benefits or services and separately with respect to that portion of any such policy, contract, or other arrangement, which reserves the right to take the benefits or services of other Plans into consideration in determining its benefits and that portion which does not.
‘This Plan’ means that portion of this policy which provides the benefits that are subject to this provision.
‘Allowable Expense’ means any necessary, reasonable, and customary item of expense at least a portion of which is covered under at least one of the Plans covering the person for whom claim is made.
When a Plan provides benefits in the form of services rather than cash payments, the reasonable cash value of each services rendered shall be deemed to be both an Allowable Expense and a benefit paid.
‘Claim Determination Period’ means calendar year.

EFFECT ON BENEFITS

(1) This provision shall apply in determining the benefits as to a person covered under this Plan for any Claim Determination Period if, for the Allowable Expenses incurred as to such person during such period, the sum of
(a) the benefits that would be payable under this Plan in the absence of this provision, and
(b) the benefits that would be payable under all other Plans in the absence therein of provisions of similar purpose to this provision

would exceed such Allowable Expenses.

(2) As to any Claim Determination Period with respect to which this provision is applicable, the benefits that would be payable under this Plan in the absence of this provision for the Allowable Expenses incurred as to such person during such Claim Determination Period shall be reduced to the extent necessary so that the sum of such reduced benefits and all the benefits payable for such allowable Expenses under all other Plans, except as provided in item (3), shall not exceed the total of such Allowable Expenses. Benefits payable under another Plan include the benefits that would have been payable had claim been duly made therefor.
(3) If
(a) another plan which is involved in item (2) and which contains a provision co-ordinating its benefits with those of this Plan would, according to its rules, determine its benefits after the benefits of this Plan have been determined, and
(b) the rules set forth in item (4) would require this Plan to determine its benefits before such other Plan.
Then the benefits of such other Plan will be ignored for the purposes of determining the benefits under this plan.
(4) For the purposes of item (3), the rules establishing the order of benefit determination are:
(a) The benefits of a Plan which covers the person on whose expenses claim is based other than as a dependent shall be determined before the benefits of a Plan which covers such person as a dependent.
(b) The benefits of a Plan which covers the person on whose expenses claim is based as a dependent of a male person shall be determined before the benefits of a Plan which covers such person as a dependent of a female person.
(c) When rules (a) and (b) do not establish an order of benefit determination, the benefits of a Plan which has covered the person on whose expenses claim is based for the longer period of time shall be determined before the benefits of a Plan which has covered such person the shorter period of time.
* * * * * *

FACILITY OF PAYMENT

Whenever payments which should have been made under this Plan in accordance with this provision have been made under any other Plans, the Insurance Company shall have the right, exercisable alone and in its sole discretion, to pay over to any organizations making such other payments any amounts it shall determine to be warranted in order to satisfy the intent of this provision, and amounts so paid shall be deemed to be benefits paid under this Plan and, to the extent of such payments, the Insurance company shall be fully discharged from liability under this Plan.”

The Coordination of Benefits clause in the Republic policy provides as follows:

“Co-ordination of Benefits Provision
The provision will co-ordinate the health benefits payable as described on the preceding pages (except any Accidental Death and or any Weekly Income Insurance) with similar benefits payable under other plans. The other plans are those providing benefits and services in connection with medical or dental care and treatment, which benefits and services are provided by coverage (1) toward the cost of which an employer make contributions or for which an employer makes payroll deductions, (2) under or through action of any government or tax-supported program, or (3) regulated by or through action of any governmental automobile reparations act but only to the extent of the basic reparations provided without fault under any such act. WHEN THIS PROVISION IS APPLICABLE
This provision is applicable when the total benefits that would be payable in the absence of any co-ordination of benefits provision under our Plan and under all other plans covering an individual exceed the Allowable Expenses incurred during a Claim Determination Period.
An Allowable Expense is any necessary, reasonable and customary item of expense, at least a portion of which is covered under at least one of the plans covering the individual with respect to whom a claim is made. A Claim Determination Period is a calendar year.

WHAT HAPPENS WHEN THIS PROVISION IS APPLICABLE

One of the 2 or more plans involved is the Primary Plan and the other plans are Secondary Plans. The Primary Plan pays benefits first and without consideration of the other plans. The Secondary Plans then make up the difference up to the total Allowable Expenses. No plan will pay more than it would have paid without this special provision. If one plan has no co-ordination of benefits provision, it automatically is Primary.
A plan may be Primary if it covers the individual as an employee and Secondary if it covers the individual as a dependent. However, if the individual is covered as a dependent under 2 or more plans, the plan which covers such individual as a dependent of a male person is Primary. Also if the above conditions do not apply, a plan may be primary if it covers the individual the longer period of time and Secondary if it covers the individual the shorter period of time.
Information necessary to the administration of this provision will be required at the time a claim is submitted.”

Plaintiffs made timely claims under the Travelers and Republic policies for coverage of their son’s medical expenses. Travelers denied, coverage on the basis that Dennis Shaw had never elected family or dependent coverage at or before the time his son incurred the medical expenses. Republic denied the claim in question on the basis that the Coordination of Benefits clauses under the respective policies, read in conjunction with the Missouri “Newborn Act”, § 376.406 R.S.Mo. (1978), establishes the Travelers plan as the primary plan and the Republic plan as the secondary plan and that, therefore, Republic was responsible for only 20 percent of the expenses in question.

Thereafter, Republic paid Charles’ total medical expenses in the amount of $25,-658.32 “purely as an accommodation to the interests of plaintiffs and their son,” as per the terms of the General Release and Assignment executed by plaintiffs and Republic. To date, Travelers has paid no amount whatsoever relative to Charles’ expenses, notwithstanding demands by plaintiffs and Republic.

The issue before the Court involves only Republic’s claim against Travelers for reimbursement of expenses paid to plaintiffs. Plaintiffs have also assigned a claim to Republic for “vexatious refusal damages” from Travelers. Plaintiffs have settled their differences with Republic and have been made whole; consequently, they have no interest in the outcome of this litigation.

Conclusions of Law

The primary issue for this Court to decide is whether the Missouri Newborn Statute, § 376.406 R.S.Mo. (1978), applied to plaintiff Dennis Shaw’s group health policy with Travelers.

The statute' provides in pertinent part:

1. All individual and group health insurance policies ... which provide coverage for a family member of the insured or subscriber shall, as to such family member’s coverage, also provide that the health insurance benefits aplicable for children shall be payable with respect to a newly born child of the insured or subscriber from the moment of birth.
2. The coverage for newly born children shall consist of coverage of injury or sickness including the necessary care and treatment of medically diagnosed congenital defects and birth abnormalities.
3. If payment of a specific premium or subscription fee is required to provide coverage for a child, the policy or contract may require that notification of birth of a newly born child and payment of the required premium or fees must be furnished to the insurer or nonprofit service or indemnity corporation within thirty-one days after the date of birth in order to have the coverage continue beyond such thirty-one day period.
4. The requirements of this section shall apply to all insurance policies and subscriber contracts delivered or issued for delivery in this state more than one hundred twenty days after August 13, 1974.
5. For the purposes of this section, any review, renewal, extension, or continuation of any plan, policy, or contract or of any of the terms, premiums, or subscriptions of the plan, policy, or contract shall constitute a new delivery or issuance for delivery of the plan, policy or contract.

The parties agree that the plain and unambiguous language of a statute requires no construction. L & R Distributing Co., Inc. v. Missouri Department of Revenue, 648 S.W.2d 91, 95 (Mo.1983).

Defendant Republic argues that the Newborn Statute creates dependent coverage under Dennis Shaw’s policy. Defendant Travelers argues that the statute creates insurance for a newborn child at birth only if the insured already has obtained family or dependent coverage.

Upon review of the applicable statute, the Court finds that Travelers interpretation is persuasive. The statute can be construed to operate only to cause an insured’s family or dependent coverage to apply automatically to a newborn child at birth. Since Dennis Shaw’s policy did not include dependent coverage at Charles’ birth, the Travelers’ policy did not cover the expenses incurred subsequent to Charles’ birth. Accordingly, since the Court finds Dennis Shaw’s policy provided no coverage, the issues of which policy is the primary or secondary insurer and of “vexatious refusal” need not be reached. Therefore, judgment on defendant Republic’s cross-claim against Travelers will be entered for Travelers.