author: ROGERS, District Judge.

text:
    BALLOU CONSTRUCTION COMPANY, INC. as Transferee of Salina Sand Company, Inc. Plaintiff, v. UNITED STATES of America, Defendant.
    No. 79-4138.
    United States District Court, D. Kansas.
    Feb. 12, 1985.
    Tom W. Hampton of Hampton, Royce, Engleman & Nelson, Salina, Kan., for plaintiff.
    G. Scott Nebergall, Trial Atty., Tax Div., Dept. of Justice, Washington, D.C., James P. Buchele, U.S. Atty., Karen M. Humphreys, Asst. U.S. Atty., Topeka, Kan., for defendant.
   MEMORANDUM AND ORDER

ROGERS, District Judge.

This is an action for recovery of federal income taxes by Ballou Construction Company, Inc. (Ballou), as the transferee of Salina Sand Company, Inc. (Salina Sand), for the taxable period ending March 31, 1977. On August 4, 1981, this court entered judgment for Ballou, 526 F.Supp. 403. Thereafter, the United States appealed our decision. On April 29, 1983, the Tenth Circuit Court of Appeals vacated this court’s judgment and remanded the ease for further consideration in light of the Supreme Court’s ruling in United States v. Bliss Dairy, Inc., 460 U.S. 370,103 S.Ct. 1134, 75 L.Ed.2d 130 (1983). Ballou Construction Co., Inc. v. United States, 706 F.2d 301 (10th Cir.1983). This court then ordered briefs and heard oral argument. We are now prepared to rule.

The facts have been stipulated by the parties and were recounted in our previous order in this case. Nevertheless, we shall restate them for the sake of the clarity of this opinion.

Salina Sand was organized under the laws of the State of Kansas in September, 1955. During the course of its existence, Salina Sand was engaged in the business of extracting, processing, and selling sand and gravel from various sand and gravel pits located in Saline County, Kansas. Salina Sand kept its books and filed its income tax returns on the basis of an accrual method of accounting, with a fiscal and taxable year beginning on July 1, and ending on June 30, except for its final fiscal period which began July 1, 1976, and ended March 31, 1977.

On March 1, 1977, the shareholders of Salina Sand entered into an agreement with Ballou, also a Kansas corporation, to sell all of their stock in the company for $750,-000. Salina Sand remained in operation through March 31, 1977. On the following day, Salina Sand was liquidated and dissolved pursuant to section 332. Pursuant to the plan of liquidation, Salina Sand transferred all of its assets to Ballou, effective March 31, 1977, and Salina Sand was thereupon dissolved in accordance with the laws of the State of Kansas. Salina Sand filed its final tax return for the period July 1, 1976 to March 31, 1977.

One of the assets owned by Salina Sand at the time of liquidation was identified as “Sand Deposit in Place.” This asset represented a certain amount of sand which Salina Sand had processed through the first stage of mining, but which had not yet produced income in the normal course of business. The mining and processing of sand can be segregated into three major stages: (1) the removal of dirt and silt commonly referred to as “overburden” located above the sand layer; (2) the pumping of sand from the pit to the processing equipment; and (3) cleansing and separation into various types of sand products with repeated washing and filtering of a raw product taken from the pit. The first stage of removal of overburden is accomplished by the scraping and hauling away of the dirt and silt layers with heavy construction machinery. Under Salina Sand’s method of accounting, the costs of removing overburden were deducted pursuant to section 162(a) as they were incurred rather than as a cost of sand and gravel to be recovered upon sale.

Upon liquidation, the asset “Sand Deposit in Place” was transferred to Ballou. The parties have agreed that the asset was enhanced in value by $20,000 as a result of the removal of the overburden. Pursuant to section 334(b)(2), Ballou claimed a stepped-up basis in the assets received from Salina Sand by allocating the purchase price of the Salina Sand stock proportionately to the assets received based on the respective fair market value. The asset “Sand Deposit in Place” was allocated a basis of $100,000. Subsequently, Ballou took business expense deductions totalling $100,000 as a part of the cost of goods sold, representing its utilization of the asset “Sand Deposit in Place.”

In the examination of the final income tax return of Salina Sand, the Commissioner of Internal Revenue determined that Salina Sand had realized additional gross income in the amount of $20,000 for recovery of the costs of removing overburden which had been deducted by Salina Sand. In other words, the Commissioner decided that Salina Sand had deducted certain costs incurred in the acquisition of the sand and gravel in place but had not recognized any income on the disposition of such sand and gravel in place as a result of the liquidation and dissolution of Salina Sand. The Commissioner determined that such a “tax benefit” must be recognized by Salina Sand in its final tax period. Therefore, the Commissioner increased the taxable income of Salina Sand for its final taxable period by $20,000 and such adjustment in the taxable income resulted in a federal income tax deficiency of $9,600. The deficiency together with the interest thereon was subsequently paid by Ballou, as the transferee of Salina Sand, and this action was brought to recover such amount and interest.

The United States asserts that Bliss Dairy controls this case and requires that judgment be entered for it. The United States argues that Bliss Dairy requires that the tax benefit rule be applied and that it overrides the nonrecognition provision of section 336. Ballou disagrees and suggests that the tax benefit rule cannot be applied because the transactions involved here all occurred in the same taxable year. Ballou also contends that it realized no tax benefit. Finally, Ballou argues that section 336 shields it from having to recognize income under the circumstances of this case.

• In Bliss Dairy, the Supreme Court addressed the two issues which formed the core of this court’s previous order in this case. First, the Court determined whether an actual recovery by the taxpayer is necessary for the application of the tax benefit rule. Second, the Court considered the rule’s applicability despite the presence of a specific nonrecognition provision.

The facts of Bliss Dairy are remarkably similar to the facts of the instant case in a number of ways. In 1972, Bliss Dairy, a closely held corporation, purchased cattle feed for use in its dairy operation. The dairy claimed a deduction pursuant to section 162(a) for the full amount of the feed in accordance with its cash method of accounting. A substantial portion of the feed was still on hand at the close of the taxable year. After one day of operation in the next tax year, Bliss Dairy adopted a plan of liquidation and distributed all of its assets to its shareholders. The assets distributed included the unused cattle feed. Relying on section 336, Bliss Dairy reported no income from this distribution. The Commissioner of Internal Revenue increased Bliss Dairy’s corporate income or its final tax return by $60,000, asserting that the value of the grain distributed to the shareholders should have been included in income. Bliss Dairy paid the tax assessment and sued for a refund in the United States District Court for the District of Arizona. The district court granted Bliss Dairy’s motion for summary judgment. The Ninth Circuit affirmed the district court’s opinion. The appellate court relied on its prior decision in Commissioner v. South Lake Farms, Inc., 324 F.2d 837 (9th Cir.1963), and rejected a conflicting decision in the Sixth Circuit, Tennessee-Carolina Transportation, Inc. v. Commissioner, 582 F.2d 378 (6th Cir.1978), cert. denied, 440 U.S. 909, 99 S.Ct. 1219, 59 L.Ed.2d 457 (1979). The Supreme Court reversed and remanded. The Court determined that the tax benefit rule overrides the nonrecognition provisions of section 336 and requires the inclusion of income of a previous deduction when events occur that are fundamentally inconsistent with that earlier deduction.

In Bliss Dairy, the Court began by examining the tax benefit rule. The Court emphasized that the purpose of the rule was not simply to tax recoveries, but “to approximate the results produced by a tax system based on transactional rather than annual accounting.” 460 U.S. at 381, 103 S.Ct. at 1142. The taxpayer’s argument that the rule required an actual recovery in later years was rejected. The Court concluded that an actual recovery requirement would not serve the purposes of the rule. The Court determined that, in order to achieve “rough transactional parity,” the tax benefit rule must be applied when “the later event is indeed fundamentally inconsistent with the premise on which the deduction was initially based.” 460 U.S. at 383, 103 S.Ct. at 1144. It was stressed by the Court that this decision must be made on a case-by-case basis, considering in each instance the purpose and function of the Internal Revenue Code provisions allowing the original deduction.

Turning to the effect of nonrecognition provisions on the tax benefit rule, the Court noted that when the later event is within a nonrecognition provision of the Code there is “inherent tension” between the tax benefit rule and the nonrecognition provision. 460 U.S. at 385, 103 S.Ct. at 1143. The Court refused to adopt a blanket rule but instead stated that the result would be based on the particular provisions of the Code involved in the given case.

Our review of Bliss Dairy reveals that it controls this case. The situation here is quite similar to that in Bliss Dairy. The arguments made by Ballou are without merit.

Ballou argues that the tax benefit rule cannot be applied because the alleged inconsistent events occurred in the same taxable year. Technically, as suggested by Ballou, the tax benefit rule applies in the case of an inconsistent event occurring in a taxable year after the year of the deduction. However, we find that “tax benefit principles” do apply here. As stated in Spitalny v. United States, 430 F.2d 195, 198 (1970):

We concede that where both deductions and offsetting recovery occur in the same taxable year use of the “tax benefit rule” label is inappropriate. The rule contemplates the situation where a tax benefit has been received through deductions taken in past years. Here the Commissioner’s treatment precludes the receipt of any benefit. However, tax benefit principles would seem to apply with even greater force in such a case as this.

Likewise, Ballou’s remaining arguments are nonmeritorious. Bliss Dairy does not require an actual recovery by the taxpayer before the tax benefit rule can be applied, only a later event which is fundamentally inconsistent with an earlier deduction. Salina Sand, like Bliss Dairy, deducted the cost of the removal of the overburden under section 162(a). The premise of a deduction under section 162(a) is that an expensed asset will be consumed by the taxpayer in his trade or business. Salina Sand’s later distribution was an inconsistent event with the deduction for two reasons. First, the taxpayer who sells rather than consumes an expensed asset will lose the deduction because the full amount of the proceeds must be recognized. Second, Salina Sand’s distribution of the “Sand Deposit in Place” to its shareholder “turns the expensed asset to the analog of personal consumption” and thus the assumption underlying the original deduction is proven invalid.

Finally, the Bliss Dairy majority held that the nonrecognition provisions of section 336 did not permit a liquidating corporation to avoid the tax benefit rule. The Court examined the background of section 336 and determined that it does not shield corporate taxpayers from the recognition of all income upon liquidation. The Court further found that section 337, the companion provision to section 336, did not override the tax benefit rule and Congress intended similar construction for the corresponding language of section 336. Based upon these rulings, the court is unable to find any support for Ballou’s arguments.

In sum, we find that defendant’s motion for summary judgment must be granted.

IT IS THEREFORE ORDERED that defendant’s motion for summary judgment be hereby granted. Judgment shall be entered for the defendant and against the plaintiff.

IT IS SO ORDERED.

      . The Supreme Court consolidated Hillsboro National Bank v. Commissioner, 641 F.2d 529 (7th Cir.1981), and Bliss Dairy, Inc. v. United States, 645 F.2d 19 (9th Cir.1981), to address the scope of the tax benefit rule. These cases are cited as Hillsboro National Bank v. Commissioner, 460 U.S. 370, 103 S.Ct. 1134, 75 L.Ed.2d 130 (1983). Since Bliss Dairy has a more direct application to this case than Hillsboro, we shall refer to the Supreme Court's decision as Bliss Dairy.

      . All statutory references are to the Internal Revenue Code of 1954, as amended, unless otherwise indicated.


source: Caselaw Access Project

author: McCURN, District Judge.

license: Public Domain

text:
    INDIUM CORPORATION OF AMERICA, Plaintiff, v. SEMI-ALLOYS, INC., Defendant.
    No. 82-CV-482.
    United States District Court, N.D. New York.
    Feb. 15, 1985.
    Parkhurst & Oliff, Alexandria, Va., Bruns & Jenney, Syracuse, N.Y., Abelove Siegel Hester & Stephens, Utica, N.Y., for plaintiff; Roger W. Parkhurst, Alexandria, Va., Thomas J. Wall, Syracuse, N.Y., Michael H. Stephens, Utica, N.Y., of counsel.
    Paul Weiss Rifkind Wharton & Garrison, Gottlieb Rackman & Reisman, New York City, Mead Begley & Quinlan, Schenectady, N.Y., for defendant; Jay Greenfield, Moses Silverman, William P. Farley, Thomas Fleming, Michael I. Rackman, New York City, William J. Quinlan, Schenectady, N.Y., of counsel.
   MEMORANDUM-DECISION AND ORDER

McCURN, District Judge.

Plaintiff Indium Corporation of America [“Indium”] brings this action seeking a declaration of patent invalidity, treble damages for alleged violations of the antitrust laws, and damages based on a pendant state law claim for unfair competition. Presently before the court is defendant Semi-Alloys’ motion for summary judgment. Fed.R.Civ.P. 56. For the reasons set forth below, defendant’s motion is granted.

The facts of this case are fully set forth in this court’s two previous decisions, Indium v. Semi-Alloys, 566 F.Supp. 1344 (N.D.N.Y.1983) [“Indium I”] and Indium v. Semi-Alloys, 591 F.Supp. 608 (N.D.N.Y.1984) [“Indium II”], familiarity with which is assumed. Briefly stated, Indium challenges the validity and enforceability of defendant’s patents for “tack-welded frame lids” or “combination covers” and contends that Semi-Alloys’ attempted enforcement of the allegedly fraudulent patents constitutes an unlawful restraint of trade in violation of the antitrust laws.

Semi-Alloys asserts that this court does not have subject matter jurisdiction over the declaratory judgment action and that Indium lacks standing to bring the antitrust action. These threshold issues were previously addressed in Indium I and Indium II.

In Indium I, the court granted Semi-Alloys’ motion to dismiss the complaint, holding that Indium’s allegations failed to establish a case or controversy concerning the patents sufficient to invoke the court’s subject matter jurisdiction and failed to establish Indium’s standing to assert antitrust claims. The claims were dismissed without prejudice and Indium was afforded an opportunity to file an amended complaint.

In Indium II the court held that Indium alleged sufficient additional facts in the amended complaint which, if true, would establish jurisdiction and standing. Accordingly, the court denied Semi-Alloys’ motion to dismiss the amended complaint.

The court then limited initial discovery to the questions of jurisdiction and standing in anticipation of summary judgment motions on these threshold issues. That discovery has now been completed. Semi-Alloys contends that the facts uncovered in discovery do not support the allegations contained in Indium’s amended complaint and therefore summary judgment in favor of Semi-Alloys must be granted. Indium contends that there are disputed issues of material fact which make summary judgment inappropriate.

It is well established that the party moving for summary judgment must demonstrate the absence of genuine issues of material fact. Fed.R.Civ.P. 56(c); Project Release v. Prevost, 722 F.2d 960, 968 (2d Cir.1983); Cooper v. Ford Motor Co., 748 F.2d 677, 679 (Fed.Cir.1984); F.H. Cobb Co. v. New York State Teamsters Conference and Retirement Fund, 584 F.Supp. 1181, 1184 (N.D.N.Y.1984). Although it is clear that the burden of demonstrating the absence of material fact is on the moving party, the non-moving party “may not rest upon mere conclusory allegations or denials.” Quinn v. Syracuse Model Neighborhood Corp., 613 F.2d 438, 445 (2d Cir.1980) (iquoting SEC v. Research Automation Corp., 585 F.2d 31, 33 (2d Cir.1978)). The party opposing summary judgment must come forward with “concrete particulars” demonstrating that there are genuine issue of disputed fact for trial. Project Release v. Prevost, 722 F.2d at 969, (quoting SEC v. Research Automation Corp., 585 F.2d 31, 33 (2d Cir.1978)). See also F.H. Cobb Co. v. New York State Teamsters Conference Pension and Retirement Fund, 584 F.Supp. at 1184; Tirolerland, Inc. v. Lake Placid 1980 Olympic Games, Inc., 592 F.Supp. 304, 310 (N.D.N.Y.1984).

I. Declaratory Judgment Jurisdiction

The parties do not dispute the law applicable to the issue of declaratory judgment jurisdiction. In order to establish subject matter jurisdiction on its declaratory judgment claims, Indium must show that when it filed this lawsuit, it believed it would be sued for patent infringement by Semi-Alloys. As this court stated in Indium I:

The plaintiff must show “a well-grounded fear that should he continue or commence the activity in question, he or one or more of his customers face an infringement suit.” Williams Gold Refining Co., Inc. v. Semi-Alloys, Inc., 434 F.Supp. 453, 456 (W.D.N.Y.1977), or stated differently, “a reasonable apprehension of an infringement suit or threat of one to itself and its customers if plaintiff continues the activity in question.” Nippon Elec. Glass Co., Ltd. v. Sheldon, 489 F.Supp. 119, 122 (S.D.N.Y.1980).

Indium I at 1346. See also Indium II at 611. The test is an objective one; a purely subjective apprehension, without objective reasons for fearing suit, is insufficient to invoke jurisdiction. See e.g. Indium I at 1346; Tubeco, Inc. v. Crippen Pipe Fabrication, Corp., 402 F.Supp. 838, 844-45 (E.D.N.Y.1975) aff'd mem., 538 F.2d 314 (2d Cir.1976).

In its original complaint Indium alleged that it feared suit because Semi-Alloys had asserted its patent rights against competitors in previous lawsuits and because Semi-Alloys sent Indium a letter offering to license Indium. Additionally, Indium presented documentation that Semi-Alloys commenced suit against Indium and Semi-Alloys’ former employee Jack Paschall for theft of trade secrets and breach of an employment contract in connection with Indium’s hiring of Paschall [“Paschall action”].

In Indium I this court held that, assuming the truth of these allegations, Semi-Alloys’ conduct was not sufficiently threatening to induce reasonable apprehension of an infringement suit in Indium. Specifically, in discussing the allegations concerning prior patent litigation the court stated:

The patentee’s record of commencing two suits on the patents in 1975 could hardly have been a source of great intimidation when this complaint was filed in 1982. At most, the record “indicates that under certain circumstances [Semi-Alloys] will pursue patent infringement litigation to defend what it perceives as an infringement of its patents.” International Harvester Co. v. Deere & Co., [623 F.2d 1207, 1212 (7th Cir.1980)]. It does not, itself, create a controversy between these parties.

Indium I at 1347-47.

The court further held that the letter from Semi-Alloys offering to license Indium could not create a fear of suit:

Nor does Semi-Alloys’ letter to Indium impart any threat, explicit or implicit, of legal action on the patents. Indeed, the letter does not even mention the planned production of the product by Indium. As in Tubeco, Inc. v. Crippen Pipe Fabrication Corp., [402 F.Supp. 838, 845 (E.D.N.Y.1975), aff'd mem. 538 F.2d 314 (2d Cir.1976)], the communication “was at most the offer of a patent license, not an invitation to a patent contest which would warrant declaratory relief.”

Id. at 1348.

Similarly, the Paschall action, which made no mention of the patents, even though Semi-Alloys recognized that Indium was attempting to produce a product similar to Semi-Alloys’ patented one, was held to be an insufficient basis for fearing litigation on the patents:

Finally, the prosecution of a suit by Semi-Alloys against Indium, in which the complaint refers to the similarity of their products, is not an indication that an infringement action is forthcoming. Semi-Alloys did go to court, but it limited itself to asserting its competition rights under state law, and did not place the patent infringement question in controversy.

Id.

Thus, as previously noted, these asserted grounds for fearing suit were found insufficient to create a justiciable case or controversy.

In Indium II this court found that Indium had corrected the deficiencies in the original complaint by alleging facts which demonstrated that the actions of Semi-Alloys created an ominous business context. Indium II at 612. Semi-Alloys contends that it has shown that Indium’s allegations regarding this ominous business context are totally unsupportable and that Indium has failed to come forward with any evidence that creates a question of fact on the issue.

Although this court considered the “totality of the circumstances” in reaching its conclusion that the amended complaint adequately alleged declaratory judgment jurisdiction, Id. at 612 (quoting C.R. Bard, Inc. v. Schwartz, 716 F.2d 874, 880 (Fed.Cir.1983)), three allegations in particular militated in favor of finding the business contest ominous. First, Indium alleged that Semi-Alloys had sued or threatened every other supplier of combination covers, driving all such suppliers from the market except Williams Gold Refining Company [“Williams Gold”], an alleged co-conspirator. Id. at 611. Second, Indium claimed that because of Semi-Alloys’ patents, companies manufacturing separate frames experienced decreased sales and that Alpha Metals, one of these companies, actually withdrew from the relevant market. Id. Third, Indium claimed that when it entered the market in February, 1982, it was the only supplier of combination covers that had not yet been sued or threatened with suit by Semi-Alloys. Id. at 611-12.

Semi-Alloys contends that discovery has shown that there is no support for Indium’s new allegation that, by suit or threat, Semi-Alloys drove every competitor from the combination cover market other than Williams Gold. The manufactureres of combination covers allegedly driven out of the market are identified as Consolidated Refining Corporation [“CRC”] and Plessy, Inc. [“Plessy”]. Id. at 611. Concerning the allegations made by Indium concerning CRC, this court stated:

Semi-Alloys allegedly threatened CRC with a patent infringement suit, and CRC gradually ceased supplying tack-welded frame lids, withdrawing from the market entirely in 1981.

Id.

The documents produced from Indium’s files during discovery directly contradict this allegation. A November 11, 1981 internal Indium memorandum indicates that CRC’s owner decided to liquidate the company for personal reasons. Indium also had in its files a September 8, 1981 article from the Wall Street Journal which indicated that CRC’s reason for liquidation was to take advantage of a substantial tax benefit which would not be available if CRC did not liquidate in 1981. Indeed, Indium’s President, William Macartney, admitted in his deposition testimony that he really did not know why CRC went out of business. Indium simply has not come forward with any evidence which supports its allegation that it knew that CRC had been threatened with a patent infringement suit and thus, was driven from the market by Semi-Alloys.

Indium also alleges that Semi-Alloys drove Plessy out of business, but as stated previously, this court held that Semi-Alloys’ suit against Plessy “in 1975 could hardly have been a source of great intimidation when this complaint was filed in 1982.” Indium I at 1348. This court noted that Semi-Alloys also brought suit against Williams Gold for patent infringement. However, this litigation could not have caused Indium apprehension of suit because Indium believed that Semi-Alloys had paid Williams Gold to settle the lawsuit.

Indium contends that the Semi-Alloys-Williams Gold settlement made it more apprehensive because it indicated that Semi-Alloys and Williams Gold had entered into a conspiracy to divide up the relevant combination cover market. Indium, however, has not come forward with any evidence to support this interpretation of the settlement. Indium states in its brief:

Contrary to Semi-Alloys’ argument that the fact that INDIUM had heard that Semi-Alloys had paid Williams Gold a substantial sum of money to settle their litigation should have decreased INDIUM’S fear of suit, Mr. Macartney properly recognized that settlement as a conspiratorial preservation of the monopolized market and of the invalid and fraudulently procured patents which ordinarily would have been disclaimed upon revelation of the facts, (emphasis in original)

Indium’s Memorandum Opposing Summary Judgment at 17. [“Indium’s Memo”].

Indium fails to cite any support for this allegation of conspiracy. Indium does not know what the settlement between Semi-Alloys and Williams Gold involved. Indeed, Semi-Alloys has charged that the reason Indium is bringing this lawsuit is to learn the terms of that settlement.

Indium further alleges that Semi-Alloys forced manufacturers of separate frames to lose customers or to go out of business and specifically that Alpha Metals was forced out of business by Semi-Alloys. This contention is directly contradicted by the deposition testimony of Indium’s President Macartney who testified that even in the absence of the Semi-Alloys patents, it was likely that Alpha Metals would have left the separates business. Indium has not produced any evidence suggesting that Alpha Metals was forced out of business by virtue of Semi-Alloys’ patents. Moreover, no evidence has been provided to support its allegations that Semi-Alloys’ patents adversely impacted the separate frames market. While this court recognizes that Semi-Alloys has the burden of demonstrating the absence of material facts, Indium must present some evidence to refute the evidence produced by Semi-Alloys.

Indium also alleges that when it entered the market in February, 1982 it was the only manufacturer of combination covers that had not been sued or threatened with suit by Semi-Alloys. Indium’s own documents demonstrate that it was aware of at least three other companies that made combination covers and were not sued or threatened by Semi-Alloys. For example, Indium was informed by several sources that Device Closures manufactured combination covers. Indium was also told that Comineo and Wesgo were taking orders for combination covers. Indium has failed to produce any evidence to show that it was aware of any legal action taken by Semi-Alloys against any of these companies.

In support of its position Indium has suggested that there is a question of fact on the issue of its reasonable apprehension because its witnesses have testified that they had heard rumors of Semi-Alloys’ enforcement scheme. Indium contends that reasonable apprehension could be based on rumors that Semi-Alloys would sue anyone who infringed on its patents. Indium asserts that the fact that its witnesses testified that they heard such rumors at least creates a question of fact on the issue. The court disagrees. Semi-Alloys has produced competent evidence refuting each and every new allegation in the amended complaint that relates to declaratory judgment jurisdiction. Indium has not come forward with any evidence demonstrating that such rumors existed or that belief in such rumors without corroborating evidence could create a reasonable apprehension of suit.

Indium also relies on a letter from its patent counsel dated February 18, 1982 which states that Indium is proceeding with the drafting of a counterclaim in anticipation of some affirmative action by Semi-Alloys. Indium claims that this letter demonstrates it had a well grounded fear that it would be sued for patent infringement. It is clear, however, that this February 18 letter was in response to a letter from Indium employee David Bobrek dated January 29, 1982. Mr. Bobrek’s letter did not show concern about Semi-Alloys, bringing a patent suit. Rather, it asked Indium’s patent counsel about the possibility of using the threat of a patent suit by Indium to respond to a suit by Semi-Alloys concerning Indium’s hiring of Paschall.

Thus, it is clear that what Indium feared was not a patent suit but a suit related to its hiring of Paschall. Rather than fearing a suit related to the patents, it appears that Indium was looking for a way to file a suit concerning the patents.

Semi-Alloys has produced competent evidence, most of it from Indium’s own files, demonstrating that the business context was not ominous when Indium commenced this lawsuit. Semi-Alloys never sued Indium on the patents nor did it threaten to sue Indium on the patents. The evidence shows that Indium believed Semi-Alloys’ patents were invalid and that Semi-Alloys would therefore not risk filing a patent infringement suit. The allegations in the amended complaint which seek to demonstrate an ominous business context have been effectively refuted by Semi-Alloys’ evidence. Indium’s opposing papers have primarily recited the same allegations contained in the amended complaint. Indium has not come forward with the “concrete particulars” necessary to refute Semi-Alloys’ proof. Project Release v. Prevost, 722 F.2d at 969 (quoting SEC v. Research Automation Corp., 585 F.2d 31, 33 (2d Cir.1978).

The proof demonstrates that Indium could not have had a reasonable apprehension of being sued on the patents. Thus, there is no justiciable controversy between the parties concerning the patents and this court does not have subject matter jurisdiction over the patent claims. Accordingly, Counts II-IV of the complaint are dismissed.

II. Antitrust Standing

In order to bring its antitrust claim Indium must establish that it has antitrust standing. See Indium I at 1350-52. The parties here essentially agree on the law that is applicable in deciding this issue. Simply stated, in order to establish antitrust standing Indium must show that it was injured by the wrongdoing of Semi-Alloys. See Id. at 1350-51 and cases cited therein.

In Indium I this court found that Indium’s original complaint was “woefully inadequate in alleging the plaintiffs harm, and the relationship between the defendant’s wrongdoing and the plaintiff’s harm.” Id. at 1352. The complaint also failed to adequately explain Indium’s damages, but “[t]he more serious defect” was the “absence of factual allegations that would provide the causative link between the defendant’s wrongdoing and the plaintiff’s harm.” Id.

In Indium II the court found that Indium’s amended complaint had remedied two “crucial elements” necessary to provide the causal link between Semi-Alloys’ alleged wrongdoing and Indium’s claimed injury. Indium II at 613. First, the court found that the amended complaint adequately alleged that Indium was “ ‘ready, willing, [and] ... able to produce and market the patented device.’ ” Id. at 613 (quoting Indium I at 1352). Second, the amended complaint adequately alleged that Indium did not produce combination covers because it was excluded from the business by Semi-Alloys’ wrongful enforcement of its patents. Id. at 614.

Semi-Alloys contends that Indium’s admissions in discovery contradict these allegations and, accordingly, the antitrust claim must be dismissed for lack of standing. Indium maintains that there is at least a question of fact on the issue of its standing to bring this antitrust lawsuit which makes summary judgment inappropriate.

A. Indium’s Preparedness

Indium claims that it has been ready, willing and able to manufacture combination covers since 1975 and would have manufactured them if not for the Semi-Alloys’ patents. Semi-Alloys contends that discovery has shown that Indium was not prepared to manufacture combination covers until 1982 when it actually did so. It is clear that Indium did not have to actually manufacture combination covers to demonstrate its preparedness; it is enough for Indium to show that it had taken serious steps towards being ready to manufacture combination covers.

The standard used for determining whether a plaintiff has established its preparedness was set forth in Waldron v. British Petroleum Co., 231 F.Supp. 72 (S.D.N.Y.1964). The Waldron court stated:

In determining whether a plaintiff has proved the requisite intention and preparedness, the courts have looked for varying combinations of the following typical elements:
1. The background and experience of the plaintiff in his prospective business, (citations omitted)
2. Affirmative action on the part of plaintiff to engage in the proposed business. (citations omitted)
3. The ability of plaintiff to finance the business and the purchase of equipment and facilities necessary to engage in the business, (citations omitted)
4. The consummation of contracts by plaintiff, (citations omitted)

Waldron, 231 F.Supp. at 81-82. Accord, Reaemco, Inc. v. Allegheny Airlines, 496 F.Supp. 546, 554 (S.D.N.Y.1980).

In this court’s view Indium does not measure up to this standard. The evidence presented by Semi-Alloys demonstrates that prior to September 1981 when Indium “finalized” its decision to manufacture combination covers, Indium did not have the expertise or experience to manufacture combination covers in house, Indium did not enter into any contracts with subcontractors that might fill the gaps in its in house capabilities, Indium did not acquire the machinery it needed to manufacture the combination covers. In fact, Indium did not make crucial managerial decisions regarding the production of combination covers until December, 1981. Once Indium did “finalize” its decision to go ahead, it took Indium nearly a year before it produced its first combination cover, and Indium admits that this period was considerably shortened by two fortuitous events.

Although Indium had experience in manufacturing frames, a necessary component in a combination cover, and expertise in the gold market, Indium had no experience in manufacturing lids, which are necessary components in a combination cover. A 1979 Indium Committee Report clearly demonstrates that Indium has not been prepared to manufacture combination covers since 1975 as Indium alleges in its amended complaint.

Indium contends that it was ready, willing and able to enter the combination cover business because it could have engaged a subcontractor to do the manufacturing operations it could not perform with its own equipment and expertise, namely, tack welding and lid manufacturing. Indium, however, never contracted with any company to perform these operations. Indium never even discussed háving these processes done by a subcontractor. Indium argues that it should not have to fruitlessly engage subcontractors to show that it was ready, willing and able, but this argument misses the point. Indium not only did not hire any subcontractors, it did not even explore the possibility of hiring a subcontractor. To accept Indium’s argument would be to hold that the third prong of the Waldron test, the ability of the plaintiff to finance the business, is all that is required to show preparedness. Anyone can hire a subcontractor to manufacture and assemble the component parts of a product. To argue that the ability to hire a subcontractor makes a company ready, willing and able is to say that anyone is prepared to manufacture a product provided they have the financial wherewithal to hire subcontractors. Such a holding would render the Waldron test meaningless. An antitrust plaintiff cannot establish standing by merely stating that it could have been ready, willing and able to enter the business. Indium has not presented any competent evidence that refutes Semi-Alloys’ showing that Indium was not prepared to enter the combination cover market until sometime after it finalized its decision to enter that business in September, 1981.

B. Exclusion by Semi-Alloys’ Patents Even if Indium could show that it was ready, willing and able to enter the combination cover business, it must further establish that Semi-Alloys’ patents excluded Indium from the business. See e.g. Associated General Contractors of California, Inc. v. California State Council of Carpenters, 459 U.S. 519, 103 S.Ct. 897, 74 L.Ed.2d 723 (1983); Crimpers Promotions Inc. v. Home Box Office, Inc., 724 F.2d 290 (2d Cir.1983), cert. denied, — U.S. -, 104 S.Ct. 3536, 82 L.Ed.2d 841 (1984). In Indium I this court found that the allegations in the original complaint failed to provide a basis for Indium’s standing, in part because the complaint did not adequately allege that Indium had been excluded from the combination cover business by Semi-Alloys. The court stated:

[A] competitor that exercised pure self-restraint, due to the mere existence of a fraudulently obtained patent, would not ordinarily have standing to bring an antitrust action for damages, under the AGC v. CSCC [Associated General Contractors of California, Inc. v. California State Council of Carpenters 459 U.S. 519 [103 S.Ct. 897, 74 L.Ed.2d 723] (1983) ], analysis. A right of action that broad would almost inevitably involve duplicative recoveries since the suit could be brought by a wide range of potential competitors including those that were not “targets” of defendant’s anticompetitive acts. Moreover, it is likely that there would be other competitors — such as those who have been subjected to infringement actions — that would be more appropriate plaintiffs to raise the antitrust claim. These were significant factors in the Supreme Court’s determination that the plaintiff in AGC v. CSCC lacked antitrust standing.

Indium I at 1352.

In Indium II this court held that Indium had adequately alleged enforcement of the patents by Semi-Alloys. The court found that Indium alleged:

that it was a direct competitor among a relatively small field of suppliers to the relevant market; that the defendant fraudulently procured the patents in question, and then commenced a vigorous course of enforcing such patents; that between 1975 and 1982 the defendant had threatened with infringement suit or had actually sued every other supplier of tack-welded frame lids, driving all from the market except its co-conspirator; that since 1976, plaintiff was ready, willing, and able to produce tack-welded frame lids but was restrained by the defendant’s vigorous course of enforcement; that after learning of the grounds upon which the defendant’s patents might be invalid, plaintiff actually commenced producing tack-welded frame lids, whereupon defendant immediately contacted it regarding licensing, and filed suit against it in state court.

Indium II at 614.

This court has already held, in Part I of this decision, that many of Indium’s allegations have been shown to be unsupported by any evidence. Semi-Alloys has presented ample proof that it did not sue or threaten every other supplier of tack-welded frame lids except Williams Gold as Indium alleges. Indium has not come forward with any proof to refute Semi-Alloys’ showing that it was not engaged in a “vigorous course of enforcing” its patents. This court also found, in Part 11(A) of this decision, that Indium was not ready, willing, and able to produce tack-welded frame lids until sometime after 1981.

Two other allegations of enforcement, namely Semi-Alloys’ letter to Indium offering to license Indium and the Paschall action, were found insufficient to create a reasonable apprehension of suit in Indium I. Indium I at 1348. This court now holds that these two allegations are likewise insufficient as proof of Semi-Alloys’ enforcement of its patent against Indium. The letter to Indium was clearly non-threatening and, in the Paschall action, Semi-Alloys “limited itself to asserting its competitive rights under state law, and did not place the patent infringement question in controversy.” Id. Thus, the only allegations remaining to support Indium’s charge of enforcement are those that allege that Indium was a direct competitor of Semi-Alloys and that the Semi-Alloys’ patents are fraudulent. Even assuming the truth of these allegations, they are insufficient to show that Semi-Alloys enforced its patents against Indium.

Semi-Alloys has also argued that Indium’s failure to seek a license is fatal to its claim that Semi-Alloys enforced its patents against Indium. Semi-Alloys maintains that Indium has no standing to assert it was excluded from the combination cover business when Indium never attempted to obtain a license. While the court agrees that Indium’s failure to make any inquiry regarding possible licensing by Semi-Alloys militates against a finding of enforcement by Semi-Alloys, the court declines to adopt a bright line rule that an antitrust plaintiff must always seek a license from the patent holder or be denied antitrust standing. The court merely finds that Indium’s failure to even inquire about the terms of a license supports Semi-Alloys’ view that it did not enforce its patents against Indium.

Indium has not come forward with any evidence that Semi-Alloys tried to enforce its patents to keep Indium from the combination cover market. In Indium II this court suggested that the concept of “enforcement” should not be limited to instances where a competitor has been threatened with suit by a defendant. The court stated:

The concept must be broad enough to afford a remedy not only to those who actually produced an infringing article and were forced to stop by infringement suit or the threat thereof, but also to those who were ready, willing and able to produce the article and would have done so but for the exercise of exclusionary power by the defendant____ Thus, “enforcement” in the context of claim that the plaintiff was injured by the enforcement of a fraudulently procured patent, does not require proof that the defendant expressly threatened plaintiff with an infringement suit.

Indium II at 614.

While the court still adheres to this view, it finds that Semi-Alloys has demonstrated that, under the circumstances presented here, Semi-Alloys did not attempt to enforce its patents against Indium.

C. Damages

Semi-Alloys contends that Indium also lacks antitrust standing because its damages are either unrelated to the patents or speculative and duplicative. Indium contends that Semi-Alloys’ arguments are only directed at Indium’s proposed methods of calculating the amount of damages and not at Indium’s allegations concerning the fact of damages. Whatever the merits of these arguments, the court need not reach them as the lack of Indium’s preparedness and the absence of proof that Semi-Alloys’ enforced it patents against Indium lead the court to conclude that Indium does not have standing to bring its antitrust claim. Hence, Count I of the amended complaint is hereby dismisséd.

III. Conclusion

The court finds that Semi-Alloys is entitled to summary judgment on the declaratory judgment counts because Semi-Alloys has demonstrated that the allegations in the amended complaint upon which this court upheld jurisdiction in Indium II are without foundation. The documents produced during discovery support Semi-Alloys’ contention that Indium could not have had a reasonable apprehension of a patent infringement suit by Semi-Alloys as a matter of law. Accordingly, Counts II-IV of the amended complaint are hereby dismissed. The court also finds that Indium was not ready, willing, and able to enter the combination cover market and that it had not been excluded from the market by Semi-Alloys’ patents. Thus, Indium does not have standing to bring its antitrust claim and Semi-Alloys is entitled to summary judgment dismissing Count I of the amended complaint.

Plaintiff’s state law claim, Count V of the amended complaint, is also dismissed pursuant to United Mine Workers v. Gibbs, 383 U.S. .715, 726, 86 S.Ct. 1130, 1139, 16 L.Ed.2d 218 (1966).

IT IS SO ORDERED.

      . A tack-welded frame lid or combination cover is composed of two elements, a lid and a frame, which are also sold individually as separate products. A lid is a thin piece of metal plated with gold. A frame is a piece of gold-tin alloy solder in the shape of a picture frame. A tack-welded frame lid or combination cover is a lid and frame that have been joined by tack welding.
      Lids and frames, either as separates or as combination covers, are used to seal semiconductor devices into ceramic containers. Semi-Alloys’ patents relate to the method of making a combination cover, the combination cover itself, and the method of using a combination cover to seal a semiconductor package.

      . Indium and Semi-Alloys have entered into a stipulation of confidentiality which was approved and so ordered by this court on November 12, 1984. The stipulation provides, inter alia, that:
      any party may designate as confidential any document that it believes contains trade secrets or other business information of a proprietary or confidential nature____ ¶ 1
      [i]f confidential material is filed with the Court in connection with a motion or otherwise, it shall be filed under seal. ¶ 6.
      In view of this stipulation the court will refer to the various exhibits and depositions by name and number only.

      . See Defendant's Exhibit ["DX"] 39.

      . See DX 38.

      . Deposition of William N. Macartney, III ["Macartney”] at 260, see also pp. 258-65.

      . See DX 92, ¶ 3.

      . Macartney at 510-11.

      . See DX 22, 75, 76 at 100034, 77.

      . See DX 75, 85.

      . Macartney at 495.

      . See DX 132, ¶ 8.

      . See DX 130, ¶¶ 2, 3.

      . See e.g. DX 92, ¶4; DX 91, ¶8; Indium’s Memo at 21, n. 7.

      . The test was incorrectly set forth in this court’s two Indium decisions as "ready, willing, or able.” The proper test, of course, is whether a plaintiff is ready, willing, and able.

      . See Macartney at 351.

      . At the time Indium was attempting to become ready and able to produce combination covers, CRC was liquidating its business. Indium was able to purchase all of CRC’s lid and frame dies, plating equipment, tack-welding machines and presses. This equipment was essential for making combination covers.
      Indium also hired Jack Paschall, a former Semi-Alloys’ employee with experience making combination covers. Mr. Paschall was Indium's first employee with experience in making combination covers.

      . The Report was prepared by a Combination Cover Committee formed "to take a look at the viability in terms of all matters pertinent to the manufacture of a welded lid-frame.” Deposition of William Macartney at 428. The Report concluded that there were rather significant "roadblocks” to Indium’s entering the combination cover business. DX 76.


author: DOUMAR, District Judge.

text:
    Dr. Sohair F. SABET, Plaintiff, v. EASTERN VIRGINIA MEDICAL AUTHORITY, c/o Dr. William D. Mayer, President, Board of Commissioners of the Eastern Virginia Medical Authority, c/o Lawrence Smith, Chairman, Lawrence Smith, in his Official Capacity as President of the Eastern Virginia Medical Authority, Dr. William D. Mayer, in his Official Capacity as President of the Eastern Virginia Medical Authority, and Donald J. Merchant, Ph.D., Chairman of the Department of Microbiology and Immunology of Eastern Virginia Medical School, Defendants.
    Civ. A. No. 84-294-N.
    United States District Court, E.D. Virginia, Norfolk Division.
    Feb. 22, 1985.

      Stanley E. Sacks, Robert L. Samuel, Jr., Sacks, Sacks & Larkin, Norfolk, Va., for plaintiff.
    Richard A. Saunders, Furniss, Davis and Rashkind, Norfolk, Va., for defendants.
   OPINION

DOUMAR, District Judge.

The plaintiff, Dr. Sohair F. Sabet, a former member of the faculty of the Medical School operated by the Eastern Virginia Medical Authority (EVMA), filed this action allegedly pursuant to 28 U.S.C. §§ 1331, 1343(3) and 1343(4) and 42 U.S.C. § 1983 against EVMA, its Board, its officers and Donald J. Merchant, her supervisor and the person by whom she was hired.

The plaintiff claims that the defendants violated her fourteenth amendment due process rights when her teaching contract was not renewed. She also claims through an alleged pendent state cause of action that the defendants fraudulently misrepresented their tenure policy at the time of her initial hiring, causing her damages. The plaintiff does not seek reinstatement but seeks monetary damages of $4,000,000.00.

The defendants collectively filed several motions to dismiss and/or motions for summary judgment, and this matter was heard on oral argument. Upon consideration of the argument, the memoranda of counsel, the briefs, depositions and documents, the Court hereby DISMISSES this action entering judgment for the defendants for the reasons below.

THE PARTIES’ POSITIONS

The plaintiff, Dr. Sohair Sabet, taught and performed research in the microbiology field at the Eastern Virginia Medical School (EVMS). The defendant, Eastern Virginia Medical Authority (EVMA), is a regional authority located in Norfolk, Virginia which, inter alia, operates the medical school which first accepted students in 1973.

In May, 1982 the plaintiff was sent, by letter, two years notice that her then current three-year faculty contract would not be renewed. The letter did not state any reason for the nonrenewal.

Relying upon 42 U.S.C. § 1983, plaintiff claims in Counts I and II of her complaint that she obtained certain lifetime tenure property rights; and, therefore, that her termination without “cause” and without a hearing was in violation of her due process rights under the fourteenth amendment. Count III asserts a pendent state law claim of fraudulent misrepresentation, alleging that the medical school’s officials concealed the true nature of tenure rights.

The defendants deny that there is any lifetime tenure of any nature at the medical school. In response to the plaintiff’s allegations, they set forth the EVMS policy with regard to tenure adopted January 15, 1973 which provides that all EVMS full-time faculty are employed under either two, three or five year contracts. These provisions were in the faculty handbook under the heading “Tenure Policy”. Moreover, the defendants claim that the decision not to renew Dr. Sabet’s contract was one of many tough decisions which were a product of the 1982 recession. Under Virginia law, EVMA was required to achieve a balanced operating budget. In giving notice of nonrenewal to the plaintiff and other faculty members, the administration sought to streamline the faculty while retaining as many of the core curriculum courses as possible.

It is uncontested that Dr. Sabet was qualified for her position and that her non-renewal was unrelated to her job performance.

BACKGROUND

Dr. Sohair Sabet is a microbiologist who received her Ph.D. from the University of Virginia Medical School in Charlottesville, Virginia in 1972. At Massachusetts Institute of Technology between 1972 and 1974 she performed post-doctorate work in molecular biology.

Beginning September 1974 the plaintiff was employed as an Assistant Professor in the Microbiology Department of the Medical College of Virginia (MCV) in Richmond. (Complaint at p. 2). As part of her job search prior to her MCV employment, she had written the Chairman of the Microbiology Department at EVMS, Dr. Merchant, a defendant herein. She also visited with Dr. Merchant in 1973; however, there were no openings at EVMS at that time. (Deposition of plaintiff, pp. 12-13). As a partial consequence, she accepted the MCV position.

In January, 1976, Dr. Merchant wrote the plaintiff and invited her to present a seminar at EVMS on her research field. Dr. Sabet was the seminar coordinator at MCV, as well as a faculty member, and had been in contact with EVMS officials prior to that time on other similar affairs. It is clear that on this occasion there was an available position in the Department of Microbiology and Immunology at EVMS. Extending an invitation to present a seminar, and viewing the actual seminar, is one way in which a medical school determines its interest in a potential faculty member. (Deposition of plaintiff, pp. 24-25).

By letter dated August 14, 1976 the plaintiff was offered a full-time position, effective May, 1977, in EVMS’ Microbiology and Immunology Department, while she was still at MCV. (Complaint at p. 7).

According to the complaint at paragraphs 18, 19 and 26:

18. That subsequent thereto, at the end of the plaintiff’s first year of employment on the faculty of the Eastern Virginia Medical School, she was promoted from Assistant Professor to Associate Professor in the Department of Microbiology of the said Eastern Virginia Medical School and appointed for a three year term in such position.
19. Thereafter, on September 20, 1981, plaintiff was advised by the defendants that she had been reappointed as a faculty member of the said Eastern Virginia Medical School with the rank of Associate Professor for the period of July 1, 1981, through June 30, 1984.
^ 8)5 sjs J¡C sjc
26. Notwithstanding her tenured position on the faculty of the said defendant’s medical school, the plaintiff was advised in writing by said defendants on May 5, 1982, that upon the expiration of her current faculty appointment contract on June 30, 1984, said contract would not be renewed____

Though the plaintiff’s employment contracts were all entered on a one year or three year term, she claims that she believed she was hired on a tenure-track as contemplated by the American Association of University Professors (AAUP) guidelines on academic tenure. These guidelines are adopted at many, but not all, colleges. EVMA has not adopted these AAUP tenure guidelines. The AAUP provision recognizes a probationary employment period, followed by a “lifetime” tenure terminable only for cause, retirement or financial exigency. On the other hand, the defendants’ answer cites the EVMS faculty handbook provision which expressly rejects AAUP tenure guidelines and reflects a limited two, three and five year contractual tenure at EVMS:

SUBJECT: TENURE POLICY
1. Only full-time faculty may attain tenured status. (Full-time faculty implies 100 per cent of the funding and time is controlled through the Dean’s Office.)
2. Any faculty appointment may be made without tenure, provided the appointment is so designated by the Dean and the Commissioners.
3. Tenure status will be conferred after a probationary period as follows:
(a) Professors at the time of their appointment.
(b) Associate professors at the time of their appointment.
(c) Assistant professors after two years employment.
4. Tenure in the Eastern Virginia Medical School is limited according to the following schedule:
(a) Professor — five years.
(b) Associate professor — three years.
(c) Assistant professor — two years.
5. Annual appointments will be made on a fiscal year basis from July 1st to June 30th. Tenured appointments will ordinarily be from July 1st to June 30th of the separation year.
6. Renewal of annual appointments will be made by March 21st of each year. Renewal of tenured appointments will be made by December 31st of the last fiscal year of the tenured period.
7. Appointments occurring after July 1st of any fiscal year will be counted as a full year for purposes of tenure status if made before December 21st of that fiscal year. If made after January 1st, the tenured period will be counted as of the succeeding July 1st for renewal purposes.
8. Accept (sic) as outlined here for tenure purposes, the “Policy, Documents, and Reports” of the American Association of University Professors as a guideline for faculty purposes. Variations of it will be established by the Norfolk Area Medical Center Commissioners if indicated.

(emphasis added). Plaintiff states in her deposition that by April 1978 she learned that EVMS retained its faculty exclusively under contracts of varying lengths (deposition of plaintiff, p. 37), pursuant to the faculty handbook provision and that there was no lifetime tenure. This case must be based on whether EVMS misrepresented its true tenure policy prior to 1978 to the plaintiff and/or whether EVMS fostered some sort of de facto tenure program with the plaintiff in spite of the handbook provisions.

A defendant who moves for summary judgment such as in this case bears the burden of showing both the absence of a genuine issue of fact and that judgment is warranted as a matter of law. Adickes v. S.H. Kress & Co., 398 U.S. 144, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970); Phoenix Savings & Loan, Inc. v. Aetna Casualty & Surety Co., 381 F.2d 245 (4th Cir.1967). The reviewing court must draw inferences most favorable to the party opposing the motion when deciding whether this showing has been made from the documentary materials before it. United States v. Diebold, Inc., 369 U.S. 654, 82 S.Ct. 993, 8 L.Ed.2d 176 (1962). Furthermore, the opposing party is entitled to be given the benefit of all favorable legal theories flowing from the evidence. Charbonnages de France v. Smith, 597 F.2d 406 (4th Cir.1979). Thus, summary judgment is inappropriate if there is any genuine factual issue which would affect the decision or if there is any dispute over the reasonable inferences drawn from the undisputed facts in the record. Morrison v. Nissan Motor Co., Ltd., 601 F.2d 139 (4th Cir.1979).

I. COUNT III: THE FRAUDULENT MISREPRESENTATION CLAIM

Count III of the plaintiff’s complaint alleges that the defendant EVMA and its agents “recklessly and negligently failed and refused” to inform the plaintiff “before she accepted employment” at EVMS that the defendants did not “have a tenure policy ... substantially in compliance and in accordance with that.. .endorsed by the American Association of University Professors ____” (Complaint at p. 12-13). The defendants have moved to dismiss the claim under the applicable statute of limitations.

The plaintiff has imbued and saturated her argument with the notion that since EVMS did not adopt the AAUP tenure guidelines, it was therefore under an affirmative duty to inform her of this fact. Stepping back from this questionable substantive claim, the Court first examines the statute of limitations bar.

In her deposition the plaintiff relates that in “early 1978” she was assigned to an ad hoc committee on governance at EVMS as a faculty senator. Her deposition also indicates that this committee discussed administration and faculty relations and the tenure policy at EVMS. (Deposition of plaintiff, pp. 37-40). She relates that in “March or April ’78” she first knew through the committee, and/or Dr. Merchant, the true limited contractual tenure policy established at EVMS. Describing when she first discovered the limited contractual employment she stated:

A. Yes, and on serving on that committee I had to get ahold of a faculty handbook and also we were discussing tenure and tenure positions at Eastern Virginia Medical School. And that is when the word limited tenure came to my attention and this two-year or three-year or five-year bit.
Q. Two years as assistant professor and three years as associate and five years full professorship?
A. Yes. I didn’t understand what that meant. I knew what tenure meant because I have always been associated with schools with tenure, but I didn’t know—
Q. Your first knowledge of EVMA’s limited tenure or when you’re looking at this faculty handbook would have been March or April of ’78?
A. Yes.

The question then becomes, whether the accrual of her cause of action was outside the applicable limitations period.

The complaint in this matter was filed on April 30, 1984. The plaintiff concedes that by April 1978 she understood the nature of her employment at EVMS. Any fraudulent concealment or misrepresentation made by the defendants prior to, or after, her May, 1977 employment was then fully known. Under the law of fraud in Virginia, plaintiff’s cause of action began to accrue, at the latest, from the time of her discovery as to the true nature of EVMS tenure policy in April 1978. See e.g., Blackwelder v. Millman, 522 F.2d 766, 774 (4th Cir.1975); Stevens v. Abbott, Proctor & Paine, 288 F.Supp. 836, 844 (E.D.Va.1968). Virginia law holds that a fraud cause of action accrues at law and at equity at the time such fraud is discovered or by due diligence ought to have been discovered. Stevens, supra, 288 F.Supp. at 844.

Plaintiff’s fraudulent concealment claim arises under state tort law. It is brought as a pendent claim, linked with Counts I and II, both of which allege jurisdiction in this Court pursuant to 28 U.S.C. § 1343(3) and 42 U.S.C. § 1983. See United Mine Workers v. Gibbs, 383 U.S. 715, 722, 86 S.Ct. 1130, 1136, 16 L.Ed.2d 218 (1966). The proper statute of limitation for a pendent state law claim is found in the laws of the state in which the federal court sits. Guaranty Trust Co. v. York, 326 U.S. 99, 65 S.Ct. 1464, 89 L.Ed. 2079 (1945). Therefore, the Virginia statute of limitations is applicable.

Regrettably, there is no Virginia statute of limitations which expressly mentions fraud actions at the present date, so the appropriate period is subject to some debate. Many fraud cases were decided under prior Code Section 8-24, see, e.g. Maine v. Leonard, 353 F.Supp. 968 (W.D.Va.1973), but these are not binding since the Virginia Code pertaining to causes of action, statutes of limitations and procedure was revamped in 1977. From Section 8-24 evolved Va Code Sec. 8.01-248, (one year period where “no limitation is otherwise prescribed”), and Va.Code Sec. 8.01-243 (five year limitations period for “injury to property”). Section 8-24 was expressed in terms of “survival” of the action and many of the prior cases examined both the one and five year periods, determining survivability according to the facts of the fraud action. See e.g., Blackwelder, supra; 522 F.2d at 773-74; Reid v. Madison, 455 F.Supp. 1066, 1068 (E.D.Va.1978); Progressive Realty Corp. v. Meador, 197 Va. 807, 91 S.E.2d 645 (1956).

This Court expressly declines to enter the limitation period fray. Under the undisputed facts as construed most favorably to the plaintiff, the concealment or fraud cause of action accrued and was ripe by April 1978. The complaint was filed April 30, 1984, approximately six years later.

As the plaintiffs own deposition established that she was aware of EVMS tenure policy by April 1978, it is clear that under either limitations period, this claim is time barred. The Court, by discussing the statute of limitations, expressly declines to offer any view as to whether the alleged concealment and so-called fraud rises to the status of a cause of action under Virginia law.

II. COUNTS I AND II: DUE PROCESS PROPERTY CLAIMS

Not surprisingly, the parties construe the same undisputed facts surrounding this claim and reach opposite conclusions. We are, of course, obligated to view the facts in the light most favorable to the plaintiff. We find, however, that as a matter of law the due process claims fail to rise to a cause of action and sustain the defendants’ motion to dismiss under Fed.R.Civ.P. 12(b)(6). In addition, the due process claims are barred by the statute of limitations.

A.

Counts I and II are predicated on the argument that the plaintiff had or should have attained AAUP lifetime tenure at EVMS. She further alleges that this lifetime tenure was a property interest recognized by the fourteenth amendment of the Constitution. Specifically, the complaint claims a proper hearing was never accorded to her and that her termination was arbitrary and capricious. The plaintiff seeks four million dollars in compensatory damages.

As the plaintiff has fired off several inconsistent positions, the defendants have likewise launched a fusillade of alternative defenses, including eleventh amendment immunity, good faith immunity, the statute of limitations, and failure to state a claim under Fed.R.Civ.P. 12(b)(6) because “no mutual understanding of tenure” ever existed.

The fourteenth amendment of the Constitution protects individuals not from private acts, but from governmental or state action, and reads “[n]o state shall ... deprive any person of life, liberty or property, without due process of law____” Id. A plaintiff proceeding under 42 U.S.C. § 1983 must show that the defendants violated a right “secured by the Constitution” of the United States, Flagg Bros., Inc. v. Brooks, 436 U.S. 149, 156, 98 S.Ct. 1729, 1733, 56 L.Ed.2d 185 (1978), and additionally that the defendants acted as a “person who” violated rights “under color of any statute, ordinance, regulation, custom or usage of any State____” See Flagg Bros., Inc., supra, 436 U.S. at 156, 98 S.Ct. at 1733. The “color of state law” requirement of 42 U.S.C. § 1983 has been treated as identical to the “state action” element of the fourteenth amendment. Lugar v. Edmondson Oil Co., Inc., 457 U.S. 922, 929, 102 S.Ct. 2744, 2749, 73 L.Ed.2d 482 (1982).

In order to reach the due process claim brought under § 1983, the Court must find that the defendants’ acts constituted state action. Under this requirement, however, the plaintiff is faced with a Hobson’s choice. Should the Court determine from the facts that no state action is present, the due process claim must fail. If state action is found, we would under the circumstances of this case find EVMA immune from suit under the eleventh amendment, as delineated in Jacobs v. College of William & Mary, 495 F.Supp. 183 (E.D.Va.1980), aff'd. 661 F.2d 922 (4th Cir.1981), cert. denied 454 U.S. 1033, 102 S.Ct. 572, 70 L.Ed.2d 477 (1981). This obtains because the Court has reviewed the defendants’ immunity motion and the facts on this point, and in conclusion, would find EVMA immune from the instant claim on the same reasoning as the College of William & Mary decision. Id.

Moving past a finding on the immunity or state action issues, since it may not apply to all defendants, we find that the undisputed facts mandate that the due process claims fail on the merits to state a viable claim as to all the parties defendant.

The Supreme Court of the United States had occasion to consider the dismissal of a non-tenured state college faculty member in the case of Board of Regents v. Roth, 408 U.S. 564, 92 S.Ct. 2701, 33 L.Ed.2d 548 (1972). Although it held that the teacher involved had not shown a deprivation of either liberty or property under the fourteenth amendment, the Court examined the application of both concepts in the academic setting. In the Roth case, the Supreme Court emphasized the lack of support in the record before it for the claim that Roth had been damaged in any way beyond simply not being rehired. With respect to Roth’s property claim, the Court elaborated:

Property interests ... are created and their dimensions are defined by existing rules or understandings that stem from an independent source such as state law — rules or understandings that secure certain benefits and that support claims of entitlement to those benefits.

408 U.S. at 577, 92 S.Ct. at 2709.

In Roth, the plaintiff was hired as an Assistant Professor for one academic year and was notified during that same period that he would not be rehired. The Supreme Court held that Roth had “no tenure rights to continued employment” as the school required four years permanent employment to achieve lifetime tenure. Roth, supra, 408 U.S. at 566, 92 S.Ct. at 2703.

Perry v. Sindermann, 408 U.S. 593, 92 S.Ct. 2694, 33 L.Ed.2d 570 (1972), decided the same day as Roth, involved academic tenure and a claim of due process. There, the Court quoted with approval from Cor-bin on Contracts to the effect that “[explicit contractual provisions may be supplemented by other agreements implied from ‘the promisor’s words and conduct in the light of the surrounding circumstances,’ ” 408 U.S. at 602, 92 S.Ct. at 2700.

In Perry, the plaintiff had been employed for four years under a series of one year contracts. He eventually became an outspoken critic of the Odessa Junior College administration where he was a member of the faculty. He alleged his annual contract’s nonrenewal was impermissibly based on the exercise of his somewhat vociferous first amendment rights. Further, he alleged that a “de facto tenure program” existed and was “fostered by the college administration.” Id. at 408 U.S. 600-601, 92 S.Ct. at 2699. The Supreme Court remanded the case to the District Court on the first amendment issue and ordered a determination as to whether a de facto tenure program there had created a due process property interest under Texas law.

Moreover, in Perry, the “de facto tenure program” allegation was bolstered by the following faculty handbook provision which the Supreme Court termed “unusual”:

“Teacher Tenure: Odessa College has no tenure system. The Administration of the College wishes the faculty member to feel that he has permanent tenure as long as his teaching services are satisfac-. tory and as long as he displays a cooperative attitude toward his co-workers and his superiors, and as long as he is happy in his work.”

Id. at 601, 92 S.Ct. at 2699. Clearly, such a broad provision might justify a legitimate expectation of continued employment. However, here the plaintiff has pointed to no such provision to support such a de facto tenure assertion, since no such language is found in the EVMS handbook.

Although Perry’s teachings are thoroughly considered, this Court finds the facts of this case in line with Roth rather than Perry. No facts or allegations bring this case under the Perry genre. In the instant case, there has been no evidence whatsoever that any de facto tenure program existed. No conversations, implicit mutual understandings, or specific policies were alleged, nor have any been heretofore adduced by the Court, as between the plaintiff and the school administration. Cf. 408 U.S. at 602, 92 S.Ct. at 2700. The plaintiff explicitly and unequivocally denies any such conversations; alleging nothing at all was ever revealed to her regarding tenure until 1978. (Dep. of plaintiff at pp. 37, 46, 47, 49). The General rule of contract law in Virginia is that “there must be absolute mutuality of engagement, so that each party has the right to hold the other to a positive agreement. Both parties must be bound, or neither is bound.” Capps v. Capps, 216 Va. 378, 219 S.E.2d 901, 903 (1975); American Agricultural Chemical Co. v. Kennedy & Crawford, 103 Va. 171, 176, 48 S.E. 868, 870 (1904). Counsel are unable to advise of any mutual contractual understandings, but instead the plaintiff asserts a unilateral belief and a claimed “non-disclosure”.

Paragraph 31 of the complaint did assert a first amendment claim; however, the plaintiff’s opposition brief on this point stated the allegation was a “typographical error” and should have read “fourth amendment.” (Opposition to Defendant’s alternative motion to dismiss at p. 6) Later, at oral argument on these various motions, the plaintiff’s counsel indicated it may have been a “typographical error”, but then plaintiff’s co-counsel urged that it was a “first amendment” claim. (Transcript of oral argument on motions, pp. 3-4) Besides this bald assertion in the complaint, there was no serious pursuit of this allegation at oral argument by the plaintiff. No facts have been identified that show her nonrenewal was based on the exercise of her first amendment rights or any other constitutionally impermissible reason, though she alleges her nonrenewal violated due process.

The plaintiff unilaterally believed that the AAUP lifetime tenure policy was in effect at EVMS until April 1978; however, as explained in Roth:

To have a property interest in a benefit, a person clearly must have more than an abstract need or desire for it. He must have more than a unilateral expectation of it. He must, instead, have a legitimate claim of entitlement to it.

Id. 408 U.S. at 577, 92 S.Ct. at 2709. The Court finds no bilateral expectation of continued employment existed in this case under any contractual theory or under any tortious theory.

In reiteration, the Court cannot hold that AAUP lifetime tenure existed at EVMS when its faculty handbook expressly rejects such tenure and sets forth in explicit detail its tenure policy. The plaintiff was aware of this limited term policy at the latest in April 1978. There is neither a contractual nor a de facto program of lifetime tenure and no constitutionally impermissible basis of nonrenewal is proferred. Significantly, the case at bar does not involve any claim of racial, sexual or ethnic discrimination of any kind. At oral argument counsel did not dispute that the plaintiff was one of approximately eleven other EVMS faculty members whosé contracts were not renewed in the 1982 recession.

B.

As an additional grounds for dismissal, this Court holds that the due process claim under 42 U.S.C. § 1983 is barred by the statute of limitations.

In enacting the Civil Rights Act under which plaintiff Sabet sues, Congress passed no accompanying statute of limitations. Section 1988 of the Act, however, requires that federal courts borrow the appropriate limitations period from the state in which the claim arose. See 42 U.S.C. § 1988; McCausland v. Mason County Board of Education, 649 F.2d 278, 279 (4th Cir.) cert. denied, 454 U.S. 1098, 102 S.Ct. 671, 70 L.Ed.2d 639 (1981). As Virginia presently has no limitation period expressly applicable to federal civil rights actions, the courts of this circuit have consistently applied Virginia’s two-year statute for personal injury to civil rights actions. Runyon v. McCrary, 427 U.S. 160, 180-82, 96 S.Ct. 2586, 2599-2600, 49 L.Ed.2d 415 (1976), affirming 515 F.2d 1082 (4th Cir.1975); Allen v. Gifford, 462 F.2d 615 (4th Cir.1972); Almond v. Kent, 459 F.2d 200, 203-04 (4th Cir.1972). The due process “property” claim here would create no exception to this general rule. See cases cited in Runyon, supra, 427 U.S. at 182, n. 17, 96 S.Ct. at 2600, n. 17. Hence, the two year limitation period laid out in Va.Code § 8.01-243(A) applies.

It is well settled that when state law furnishes the period of limitations of an action arising under a federal statute that federal law controls its accrual or commencement. See e.g., Newman v. Prior, 518 F.2d 97, 100 (4th Cir.1975); Vanderboom v. Sexton, 422 F.2d 1233, 1240 (4th Cir.1970).

In the specific context of 42 U.S.C. § 1983 actions, the Fourth Circuit has held that the time of accrual of the action is when “plaintiff knows or has reason to know of the injury which is the basis of the action.” Cox v. Stanton, 529 F.2d 47, 50 (4th Cir.1975); Del Costello v. International Brotherhood of Teamsters, 588 F.Supp. 902, 908 (D.Md.1984).

As discussed in Part I, supra, the plaintiff revealed in her deposition that she discovered by April 1978 that EVMS did not accord lifetime tenure to its faculty. Clearly, the plaintiff in 1981 entered into a subsequent three-year contract which was a limited tenure contract. The defendants urge in their brief in support of their motion to dismiss at page 4 that any fourteenth amendment “property” claim was fully accrued and known in 1978 as follows:

According to the plaintiff’s testimony, she clearly learned as early as March or April of 1978 that the Eastern Virginia Medical School did not have “traditional tenure” as promulgated by the American Association of University Professors. Thus, at that time, she either knew or by the exercise of due diligence should have known that she would not be entitled nor would she receive “tenure” as she understood the term and as she has alleged in her Complaint. Certainly, she knew of the “facts forming the basis of her cause of action” much more than two years prior to the institution of this suit.

Id. The plaintiff, however, argues forcefully that her fourteenth amendment claim did not accrue until she received the notice of termination from EVMS on May 5, 1982, which would be within the two year limitation period.

Hired in 1977 for one year as an Assistant Professor, the plaintiff was later promoted to Associate Professor and she accepted a new contract for the period 1978 to 1981. She also was offered another three year associate faculty term at EVMS from 1981 to 1984.

The plaintiff discounts the importance of her 1978 discovery that EVMS had no AAUP lifetime tenure. Her opposition brief to the statute of limitations motion states at page 2:

[T]he plaintiff had no cause of action until May 5, 1982 when she received her termination notice. Until that notification plaintiff may have had some vague concerns as to just what form of “limited tenure” (Sabet dep. p. 43, 1.2-5) applied to her, but she had not been damaged in any way as her contract had always been automatically renewed.

The plaintiff’s argument warrants close scrutiny. The claims brought in Counts I and II assert that the denial of lifetime tenure violated the plaintiff’s due process rights. She argues that since she entered into new contracts they were merely “automatically” renewed in 1978 and 1981, therefore, no injury occurred until 1982 when she received the nonrenewal notice.

The Court disagrees. Accrual of a cause occurs when the plaintiff “knows or has reason to know of the injury.” Cox, supra, at 50. Under the plaintiff’s own theory of the case, in 1978 she possessed all the requisite knowledge to support her due process claims. Her contracts were never “automatically” renewed, but rather were subject to termination at the end of either three year term. Any denial of tenure or lack of tenure-track employment was fully accrued and known in 1978 notwithstanding her new contracts. She was then subject to nonrenewal, and even immediate termination, albeit in breach of her contract. New contracts were in fact subsequently executed by her. However, the 1982 termination notice added no facts or knowledge which she did not already possess in 1978, i.e., that she was not hired on an AAUP tenure-track or lifetime tenure basis. Counts I and II do not assert that the plaintiff built up a right to tenure after 1978; rather they assert that she was initially hired on a tenure-track or within an AAUP tenure system. By 1978, her own deposition reveals that she understood the terms of her employment and her action was ripe. Moreover, the plaintiff’s theory would totally ignore the doctrine of “merger” insofar as the latest contract is concerned. See 17 Am.Jur.2d Contracts, § 459 at page 924 and § 483 at page 952. The latest contract in 1981 admittedly contained the limited tenure provisions and must control.

Thus, her filing of this due process claim on April 30, 1984 some six years after the action accrued is time barred.

By virtue of her own deposition, the pleadings and the arguments, this action by the plaintiff must be DISMISSED with prejudice.

IT IS SO ORDERED.

      . The Court’s references to lifetime tenure indicate a tenure program where employment continues indefinitely, and may only be terminated for "cause”. This is in contrast to a limited contractual tenure program continuing through a fixed period wherein employment may be terminated.

      . “Academic Tenure

      (a) After the expiration of a probationary period, teachers or investigators should have permanent or continuous tenure, and their service should be terminated only for adequate cause, except in the case of retirement for age, or under extraordinary circumstances because of financial exigencies.
      In the interpretation of this principal it is understood that the following represents acceptable academic practice:
      (1) The precise terms and conditions of every appointment should be stated in writing and be in the possession of both institution and teacher before the appointment is consummated.
      (2) Beginning with appointment to the rank of full-time instructor or a higher rank, the probationary period should not exceed seven years, including within this period full-time service in all institutions of higher education; but subject to the proviso that when, after a term of probationary service of more than three years in one or more institutions, a teacher is called to another institution it may be agreed in writing that his new appointment is for a probationary period of not more than four years, even though thereby the person's total probationary period in the academic profession is extended beyond the normal maximum of seven years. Notice should be given at least one year prior to the expiration of the probationary period if the teacher is not to be continued in service after the expiration of that period.”
      Complaint at p. 5.

      . § 8.01-248. Personal actions for which no other limitation is specified.
      Every personal action, for which no limitation is otherwise prescribed, shall be brought within one year after the right to bring such action has accrued.

      . § 8.01-243. Personal action for injury to person or property generally.
      A. Unless otherwise provided by statute, every action for personal injuries, whatever the theory of recovery, except as provided in B hereof, shall be brought within two years next after the cause of action shall have accrued. B. Every action for injury to property, including actions by a parent or guardian of an infant against a tort-feasor for expenses of curing or attempting to cure such infant from the result of a personal injury or loss of services of such infant, shall be brought within five years next after the cause of action shall have accrued.

      . 42 U.S.C. § 1983 provides:
      "Every person who, under color of any statute, ordinance, regulation, custom, or usage, of any State or Territory, subjects, or causes to be subjected, any citizen of the United States or other person within the jurisdiction thereof to the deprivation of any rights, privileges, or immunities secured by the Constitution and laws, shall be liable to the party injured in an action at law, suit in equity, or other proper proceeding for redress.”

      . The Supreme Court has in the past identified the following state action formulas: a "symbiotic relationship”; Burton v. Wilmington Parking Authority, 365 U.S. 715, 81 S.Ct. 856, 6 L.Ed.2d 45 (1961); the "close nexus” test; Jackson v. Metropolitan Edison Co., 419 U.S. 345, 95 S.Ct. 449, 42 L.Ed.2d 477 (1974); "public function” tests; Evans v. Newton, 382 U.S. 296, 86 S.Ct. 486, 15 L.Ed.2d 373 (1966); Marsh v. Alabama, 326 U.S. 501, 66 S.Ct. 276, 90 L.Ed. 265 (1946) and the "state compulsion” test, e.g., Adickes v. S.H. Kress & Co., 398 U.S. 144, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970); Peterson v. City of Greenville, 373 U.S. 244, 83 S.Ct. 1119, 10 L.Ed.2d 323 (1963).

      . See supra, n. 4.


author: NEALON, Chief Judge.

text:
    UNITED STATES of America v. Jeff MARTINELL.
    Crim. No. 85-00011.
    United States District Court, M.D. Pennsylvania.
    Feb. 22, 1985.
    Timothy B. Haney, Asst. U.S. Atty., Harrisburg, Pa., for the U.S.
    Mark Love, Stroudsburg, Pa., for defendant.
   MEMORANDUM AND ORDER

NEALON, Chief Judge.

On January 10, 1985 the defendant was indicted for a violation of the Lacey Act, 16 U.S.C. §§ 3372(a)(2)(A) and 3373(d)(1)(B). The indictment alleges that the defendant knowingly transported and sold in interstate commerce from Maine to Pennsylvania two black bears with a market value in excess of three hundred and fifty dollars knowing that the wildlife was taken, possessed, transported and sold in violation of the laws of Maine. The defendant filed a Motion to Quash the Indictment dated February 7, 1985 along with a brief in support thereof. On February 19, 1985, the Government filed an Opposition Brief. The motion is now ripe for disposition. For the reasons set forth below, the defendant’s Motion to Quash will be denied.

Under Maine law it is illegal to buy, sell or offer to sell bear, Me.Rev.Stat.Ann. tit. 12, § 7452(9)(A). The Government alleges that the defendant traveled to Maine with the intent to hunt bear and to bring the bears back to Pennsylvania to sell them to undercover agents of the United States Fish and Wildlife Service. This understanding between defendant and the agents allegedly occurred prior to defendant’s trip to Maine. The Government also contends that the defendant knew it was a violation of Maine state law to sell the bear.

Section 3372(a)(2)(A) of the United States Code Title 16 provides, inter alia:

It is unlawful for any person— ...
(2) to import, export, transport, sell, receive, acquire, or purchase in interstate or foreign commerce—
(A) any fish or wildlife taken, possessed, transported, or sold in violation of any law or regulation of any state____

In addition, § 3373(d)(1)(B) provides criminal penalties in the nature of a felony for,

(1) Any person who— ...
(B) violates any provision of this chapter ... by knowingly engaging in conduct that involves the sale or purchase of, the offer of sale or purchase of, or the intent to sell or purchase, fish or wildlife or plants with a market value in excess of $350____

The Government avers that the defendant satisfies the requirements of § 3373(d)(1)(B) in that he transported and sold two bears in violation of Maine law and that he sold the bears for a sum in excess of $350 with knowledge that the sale violated a state law. The defendant, however, contends that the exception section, 16 U.S.C. § 3377(c) prohibits the application of the above cited sections to interstate shipments of legally taken wildlife through a state if the shipment is en route to a state in which the wildlife may be legally possessed. Accordingly, it is the defendant’s position that since it is legal to possess bear in Pennsylvania, if he has sold the bear within Pennsylvania he may have violated the laws of the Commonwealth but that he has not violated any federal law.

The court agrees with the Government’s interpretation of § 3377(c), that it is only the transportation through a state in violation of that state’s law to which the exception applies. See S.Rep. No. 97-123 at 17, 1981 U.S.Code Cong, and Adm.News 1748, 1764. For example, if the defendant had legally taken the bears in Maine and only transported them to Pennsylvania through New Jersey, where New Jersey prohibited possession of bears, there would initially be a violation of the Lacey Act. The exception section would apply because the only offense involves the shipment of the bear through New Jersey en route from a state where it was legally taken to a state where it may be legally possessed. Therefore, in that case, there would be no violation of the Act. In the case sub judice, however, the Government alleges the defendant captured the bears in Maine in order to sell them in Pennsylvania thereby violating Maine law and the Lacey Act. The exception section in this situation would not apply to bar prosecution because the violation of state law was more than merely the act of transporting the bear through a state which prohibited its possession. Accordingly, the defendant’s Motion to Quash the Indictment will be denied.

An appropriate Order will enter.

      . Section 3377(c) provides:
      Interstate Shipment or Transportation through Indian Country of Fish, Wildlife, or Plants for Legal Purposes.
      The provisions of paragraph (2) of section 3372(a) of this title shall not apply to the interstate shipment or transshipment through Indian country as defined in section 1151 of Title 18 or a State of any fish or wildlife or plant legally taken if the shipment is en route to a State in which the fish or wildlife or plant may be legally possessed.
      16 U.S.C. § 3377(c).