source: Caselaw Access Project

author: ALEXANDER HARVEY, II, District Judge.

license: Public Domain

text:
    STA OF BALTIMORE — ILA CONTAINER ROYALTY FUND, Plaintiff, v. UNITED STATES of America.
    Civ. No. H-84-1855.
    United States District Court, D. Maryland.
    Nov. 19, 1985.

      A. Adgate Duer, Paul B. Lang, Neil S. Kurlander and Niles, Barton & Wilmer, Baltimore, Md., for plaintiff.
    Will E. McLeod, Tax Div., U.S. Dept. of Justice, Washington, D.C., and Larry D. Adams, Asst. U.S. Atty., Baltimore, Md., for defendant.
   ALEXANDER HARVEY, II, District Judge.

In this civil action, plaintiff is seeking a refund of certain taxes which it alleges have been erroneously or illegally assessed and collected by the Internal Revenue Service (hereinafter the “IRS”). The plaintiff, STA of Baltimore — ILA Container Royalty Fund (hereinafter the “Fund”) is here asserting that it is entitled to refunds of certain taxes it paid pursuant to the Federal Insurance Contributions Act, 26 U.S.C. §§ 3101 et seq. (hereinafter “FICA”) and the Federal Unemployment Tax Act, §§ 3306 et seq. (hereinafter “FUTA”). Plaintiff contends that the payments upon which the taxes were assessed and paid do not constitute “wages” either under 26 U.S.C. § 3121 or under 26 U.S.C. § 3306.

Relying on various authorities, counsel for the government maintain that the payments in question did in fact constitute wages under §§ 3121 and 3306 and that accordingly the taxes were properly paid under the provisions of FICA and FUTA. In the alternative, counsel for the defendant have asserted that even if this Court were to conclude that the payments in question were not wages, the Fund did not timely file claims for refunds as to most of the taxes claimed in this suit.

Following discovery by the parties, a pretrial conference was held and a Pretrial Order was entered. Most of the pertinent facts were stipulated by the parties. Pretrial briefs were filed, and the case came on for trial before the Court sitting without a jury. One witness testified at the trial, and numerous exhibits were entered in evidence. Findings of fact and conclusions of law, pursuant to Rule 52(a), F.R.Civ.P., are contained in this Opinion.

I

The Facts

The essential facts are not in dispute. Plaintiff Fund was established by an Agreement and Declaration of Trust (hereinafter the “Trust Agreement”) dated December 1, 1971 between the Steamship Trade Association of Baltimore, Inc. (hereinafter the “STA”) and the International Longshoremen’s Association and its five affiliated locals in the Port of Baltimore (hereinafter collectively referred to as the “ILA”). The Fund was established pursuant to the settlement of a labor dispute between the STA and the ILA which arose from the anticipated reduction in employment opportunities for longshoremen in the Port because of the introduction of containerization by employer members of the STA.

Before containerization was introduced by the shipping industry, cargo destined for ocean shipment would be placed on trucks or railroad cars at inland points of origin by non-ILA labor and shipped to the piers, where ILA longshoremen would remove the cargo from the trucks or railroad cars and load it aboard ship. The same system in reverse was used for imported cargo. ILA longshoremen would unload imported cargo from the ships and place it on trucks or railroad cars for shipment to inland destinations, where it would be unloaded by non-ILA labor.

The shipping of cargo in containers simplifies the process for shippers by eliminating the piecemeal loading and unloading of cargo at pierside. Once containerization came into use, cargo would be loaded into containers (or “stuffed”) at its inland point of origin by non-ILA labor and unloaded at its ultimate point of designation (or “stripped”) without any piecemeal handling by longshoremen. The dockside activity of longshoremen would be limited merely to loading and unloading the bulk containers on and off ship, and longshoremen would not do any of the stuffing and stripping work.

In an effort to protect its members from the loss of employment opportunities caused by containerization, the ILA, in negotiating a new collective bargaining agreement for its members in 1971, took the position that it would not handle containers at all unless some provision were made for reimbursing longshoremen for the lost work which resulted from containerization. It was eventually agreed that the employer members of the STA (the direct employers of longshoremen in the Port of Baltimore) would make contributions to a container royalty fund, from which eligible ILA workers would receive, in addition to their regular wages, special compensation. Following negotiations, the STA agreed to establishing such a fund because the ILA had taken the position that pursuant to provisions of previous collective bargaining agreements all containers would have to be stuffed and stripped at pierside by longshoremen. Were this to occur, the very purposes of containerization would be defeated.

The Trust Fund itself is maintained by contributions from employer members of STA based upon the degree to which ships being loaded or unloaded could accommodate containers. To this end, ships were divided into four categories. At the lowest end of the scale were conventional or so-called “non-automated” ships. At the highest end of the scale were ships which had more than two hatches or more than forty percent of cargo-carrying capacity converted or fitted for containers. Inasmuch as the design of each ship determined the tonnage of cargo shipped in containers, contributions to the Fund made by STA members were in effect determined by the gross tonnage of cargo handled by non-ILA labor at the ultimate points of origin and destination.

Benefits from the Fund are distributed to all eligible employees. The term “employee” was defined in Section 1.03 of the 1971 Trust Agreement as follows:

(a) Any employee covered by a collective bargaining agreement between the STA and the Union.
(b) Employees of the administrative office staffs of the STA-ILA Pension Fund, Benefits Fund, Container Royalty Fund, and Seniority Board, Inc. who formerly were employed in the longshore industry as set forth in Section 1.03(a) above.
(c) Union officials and union employees of the unions who have Collective Bargaining Agreements with the Association.

Section 2.03 of the 1971 Trust Agreement sets forth additional requirements for eligibility for payments from the Fund. This section has been amended three times since the Fund was established in 1971. The most recent amendment, that of 1975, requires that an employee must have worked 700 or more hours in at least one contract year beginning after September 30, 1973 to be eligible for payments from the Fund.

The actual amount paid to each employee is governed by the language of Section 2.04 of the Trust Agreement, as amended, which provides:

Each eligible Employee shall receive the same amount of benefits. The individual amount of benefits shall be determined by the Trustees, based upon the total amount of container contributions received, less reasonable and proper costs of administration and a reasonable reserve divided by the total number of Employees eligible under this Container Royalty Trust Agreement. Ten percent (10%) of each eligible Employee’s allotted share of benefits shall be deducted therefrom, and forwarded to the International Longshoremen’s Association, in accordance with a resolution duly approved by the ILA delegates at the International Convention. Such assignment shall be pursuant to a written voluntary authorization of the Employee.

This civil action has followed the failure of the IRS to act on various claims for refunds of taxes filed by the Fund. Those claims sought refund of employment taxes withheld from benefits paid from the Fund to ILA employees pursuant to both FICA and FUTA. Plaintiff asserts that its first claim for refund was filed on or about April 15, 1981 for the refund of taxes paid for calendar year 1977. Two similar claims for refund were allegedly filed on or about April 15, 1982 and on or about April 15, 1983 for the calendar years 1978 and 1979 respectively. The total amount which the Fund seeks to have refunded as erroneously or illegally assessed employment taxes for these three years is $1,248,975.69, plus interest.

The Fund initially regarded the payments made to the longshoremen as wages subject to FICA and FUTA taxes and reported them as such on each Form 941 which it filed with the IRS. The Fund now believes that it erred in regarding these royalty payments as wages and is here seeking judgment for the amount in question, together with attorneys’ fees and costs.

II

The applicable statutes

Title 26, U.S.C. § 3102 requires every employer to deduct social security taxes from wages paid to employees. Section 3111 imposes a matching FICA tax on the employer. Section 3301 imposes an additional FUTA or unemployment tax on employers only.

Section 3121(a) broadly defines the term “wages” as “all remuneration for employment____” Section 3121(b) broadly defines “employment” as “any service, of whatever nature performed ... by an employee for the person employing him ...” Taken together, subsections (a) and (b) of § 3121 define “wages,” therefore, as “all remuneration” for “any service.” The question presented here is whether payments to individual longshoremen from the Fund constituted “wages” as defined in FICA and FUTA.

Ill

Discussion

Plaintiff contends that payments to the Fund by STA employers and payments by the Fund to longshoremen did not constitute wages under the statutes in question because the payments were made to partially compensate longshoremen for lost work opportunities resulting from the introduction of containerization. Plaintiff accordingly argues that the payments in question did not compensate the longshoremen for services actually performed.

On the record here, this Court concludes that there is no merit to plaintiff's arguments. For the reasons set forth herein, this Court holds that contributions made by employer members of STA to the Container Royalty Fund and subsequently distributed to eligible longshoremen are “wages” pursuant to 26 U.S.C. § 3121 and § 3306 and that such amounts are therefore subject to taxation pursuant to provisions of FICA and FUTA.

(a)

The Trust Agreement as Amended

Provisions of the Trust Agreement itself, as well as of subsequent amendments thereto, clearly indicate that the money distributed to eligible ILA members constitutes “supplementary pay” and that this pay is earned, derived or acquired as a result of prior services rendered by the employee. Indeed, Section 2.02 of the Agreement, captioned “General Purpose,” flatly states that the purpose of the Fund is to provide “supplementary pay.”

Section 2.03 of the original Trust Agreement of December 1, 1971, provided as follows:

All employees, as defined in Section 1.03(a)(b) and (c) hereof, who worked seven hundred hours or more in the long-shore industry in the contract year of October 1, 1970 to September 30, 1971 shall be eligible to receive container royalty pay. Time off due to compensable injury shall be credited as time worked, at the rate of twenty hours per week for each week off.

This provision was part of the original benefit package which was negotiated between the STA and the ILA. It is apparent that employer members of STA were agreeing to make supplementary pay available only to those longshoremen who worked the requisite number of hours. This supplementary pay therefore constitutes “wages,” under the definition of “all remuneration for employment” contained in § 3121(a).

Section 2.03 of the Agreement was first amended in 1972 to eliminate the requirement that the 700 hours bé worked during the contract year of October 1, 1970 to September 30, 1971. Under the 1972 amendment, a worker could fulfill the requirement during any year in which payments were made into the Fund. This amendment thus allowed workers to receive supplementary pay during all subsequent contract years, not just the first year, provided, of course, that they worked the 700 hour minimum during the given contract year.

In 1973, Section 2.03 was again amended to increase the amount of prior services required to be rendered by an employee before he might be entitled to receive supplementary pay from the Fund. Section 2.03(a) provided that in addition to working or receiving credit for at least 700 hours during the paying contract year, the employee must also have received, or been eligible to receive, supplementary pay for any contract year prior to October 2, 1973. As amended, section 2.03(b) provided that those employees who had not received, or were not eligible to receive, supplementary pay prior to October 1, 1973, must work, or receive credit for, at least 700 hours in the industry in at least five out of six consecutive contract years subsequent to October 1, 1973. Inasmuch as the 1973 amendment increases the work requirements which must be met for eligibility for the supplementary pay, it serves to illustrate that the receipt of such pay is conditioned upon specified prior employment service to STA employers.

The final amendment to the Agreement, ratified in 1975, illustrates the same point inasmuch as it too increases the work requirement. Under the 1975 Amendment, employees are eligible for supplementary pay from the Fund only if they actually worked (as distinguished from receiving credit for time off due to injury or sickness) at least 700 hours in at least one contract year beginning after September 30, 1973. The elimination of time off because of injury or sickness from the computation of the number of hours worked is yet another indication that the supplementary payments made to a longshoreman were intended to be based on or acquired through the prior rendering by such longshoreman of actual services. Being payment for services actually rendered, the supplemental pay is properly understood to be “wages,” as defined in § 3121(a) and (b).

This conclusion is supported by consideration of the statutory exceptions contained in § 3121(a) in its definition of “wages.” The various exceptions to “all remuneration for employment” include payments made from funds established on account of (1) retirement, (2) sickness or accident disability, (3) medical or hospitalization expenses in connection with sickness or accident disability, or (4) death; There are other specific exclusions, including any payments made by an employer under a state unemployment compensation law. Payments made to longshoremen from the Fund do not fall within.any of the statutory exceptions to the FICA definition of taxable wages. It is apparent that these exceptions largely concern situations where payments have been made to or on behalf of an employee no longer in active service because of retirement, illness, accident, death or unemployment. In contrast, payments from the Fund are made only to actively employed workers who have previously worked the requisite number of hours.

In sum, Section 2.03 of the Agreement, as amended, requires that longshoremen meet specific hourly work requirements to be eligible for the supplementary pay. New longshoremen, fresh on the job, are not eligible for this supplementary pay, despite the fact that they too, from the very commencement of their employment, have less work opportunities available to them because of containerization. The supplementary pay provided by the Trust Fund is, therefore, based on services actually performed and is clearly “remuneration for employment” pursuant to § 3121(b).

This Court’s conclusion that the payments in question are wages under FICA and FUTA is supported by consideration of the tax treatment of other payments made by employer members of STA to longshoremen pursuant to the collective bargaining agreement. Eligibility of longshoremen for vacation pay and for payment of Guaranteed Annual Income (hereinafter “GAI”) are both also determined in much the same way as is eligibility for payments from the Fund. Both vacation pay and payments of GAI are determined by the number of previous hours worked by longshoremen.

Plaintiff has never contended that vacation pay and payments of GAI are not wages pursuant to FICA and FUTA. Treasury regulations unequivocally state that vacation allowances paid to an employee constitute wages under FICA and FUTA. See Treas.Reg. § 31.3121(a)-1(g). So-called “idle time” payments, similar to payments of GAI, have likewise been construed by the IRS to be wages taxable under FICA and FUTA. Rev.Rul. 76-217, 1976-1 C.B. 310. It is thus apparent that pay earned as a result of prior service rendered by the employee has consistently been treated by the IRS as wages under the FICA and FUTA definition. For similar reasons, the payments at issue here constitute wages taxable under FICA and FUTA.

(b)

Legislative History

In Rowan Companies, Inc. v. United States, 452 U.S. 247, 101 S.Ct. 2288, 68 L.Ed.2d 814 (1981), the Supreme Court held that the definition of wages under FICA and the definition of wages for income tax withholding should be interpreted in tax regulations in the same manner in the absence of statutory provisions to the contrary. In enacting the Social Security Amendments of 1983, Congress decided to override the Rowan decision. The purpose of those amendments was stated as follows:

The social security program aims to replace the income of beneficiaries when that income is reduced on account of retirement and disability. Thus, the amount of “wages” is the measure used both to define income which should be replaced and to compute FICA tax liability. Since the social security system has objectives which are significantly different from the objectives underlying the income tax withholding rules, your committee believes that the amounts exempt from income tax withholding should not be exempt from FICA unless Congress provides an explicit FICA tax exclusion. [Emphasis added] S.Rep. No. 98-23, 98th Cong., 1st Sess. p. 42 (1983 U.S.Code Cong. & Adm.News 183); H.Rep. 98-25 98th Cong., 1st Sess. p. 80 (1983 U.S.Code Cong. & Adm.News 299).

Similarly, in the Deficit Reduction Act of 1984, Congress stated that the 1983 amendments to the Social Security Act, which effectively overrode the Rowan decision, applied for all purposes other than payments made for employer-provided meals and lodging and that these amendments applied not only to remuneration paid after March 4, 1983, but also to all remuneration paid on or before that date where such remuneration was treated by the employer as wages when paid. See H.Rep. No. 98-432, Part II, 98th Cong. 2d Sess., p. 1658 (1984 U.S.Code Cong. & Adm.News 587). Recent action by Congress has therefore made it apparent that the term “wages” in FICA and FUTA should be broadly interpreted. In the absence of an explicit exclusion by Congress, payments of the type involved here are includable as remuneration for employment and thus subject to these employment taxes.

(c)

Other Authorities

In Educational Fund of Electrical Industry v. United States, 305 F.Supp. 317 (S.D.N.Y.1969), the question before the Court was whether payments made pursuant to a collective bargaining agreement could properly be construed to be wages under 26 U.S.C. § 3401(a). In that case, employers of electricians had contributed a percentage of the weekly payroll into a Vacation Expense Fund, established pursuant to a collective bargaining agreement. The purpose of the Fund was to permit electricians to attend adult education courses for one week annually. Although the electricians who took these courses received no wages and were not performing services for their employers during the week in question, they were paid $140 for attending and completing the courses, the amounts to be taken out of extra funds in the Vacation Expense Fund. Relying on Treasury Regulation § 31.3401(a)-l and Regulation Ruling 57-316, the District Court concluded that the electricians had performed or were available for the performance of services rendered to the employers in the past. The Court consequently held that the $140 payment was in effect compensation for services already rendered and therefore constituted wages within the meaning of § 3401.

On appeal, the Second Circuit affirmed. Educational Fund of Electrical Industry v. United States, 426 F.2d 1053 (2d Cir. 1970). At page 1056, the Court said the following:

The $140 payments were properly characterized as wages under § 3401(a), which defines wages as “all remuneration ... for services performed by an employee for his employer----” The $140 payments to those who attended the school represented part of the benefit package which was negotiated as part of the wage structure under the collective bargaining agreement in effect between the employers and the Union as representative of the electrical workers. The payments ultimately derived from the employers and represented a portion of the agreed upon remuneration for services performed by the employees within the intent of § 3401(a), just as do payments from pension and vacation funds. See Treas.Reg. § 31.3401(a)-l(b); Rev. Rui. 57-316, (1957-2 Cum.Bull. 626).

Similar principles are applicable in this case, which involves §§ 3121 and 3306 rather than § 3401(a). Here, payments from the Fund to longshoremen represent a part of the benefit package negotiated between STA and ILA as a part of the collective bargaining agreement. The payments came from the employers, were ultimately paid to the employees and were a part of the agreed remuneration for services performed by the employees. Indeed, had the STA not agreed to the establishment of the Fund, it would undoubtedly have been required to pay higher wages to longshoremen who would be working longer hours by stuffing and stripping containers at dockside.

(d)

Plaintiffs Contentions

Since payments from the Fund to longshoremen are not for specific services rendered, plaintiff contends that they cannot be construed to be wages under FICA or FUTA. Citing Central Illinois Public Service Company v. United States, 435 U.S. 21, 98 S.Ct. 917, 55 L.Ed.2d 82 (1978), plaintiff asserts that courts have on numerous occasions held that not all payments by employers to employees are wages. In Central Illinois, the Supreme Court had before it the question whether the reimbursement of meal expenses constituted “wages” subject to withholding under 26 U.S.C. § 3401(a). Citing Royster Co. v. United States, 479 F.2d 387 (4th Cir.1973) and Acacia Mutual Life Ins. Co. v. United States, 272 F.Supp. 188 (D.Md.1967), the Supreme Court observed that decided cases had indeed made the distinction between wages and income and had refused to equate the two in withholding or similar controversies. 435 U.S. at 31, 98 S.Ct. at 922. The Court then went on to conclude that reimbursement for lunch expenses of employees did not constitute wages subject to withholding by the employer within the meaning of § 3401(a). In reaching its decision, the Court made the following observation:

This is not to say, of course, that the Congress may not subject lunch reimbursements to withholding if in its wisdom it chooses to do so by expanding the definition of wages for withholding.

435 U.S. at 33, 98 S.Ct. at 923.

Plaintiffs reliance on Central Illinois, Royster, and Acacia Mutual is misplaced. Both Central Illinois and Royster involved reimbursements of employees for meals. In Royster, the Fourth Circuit held that where amounts paid by the employer to its salesmen to reimburse them for the cost of meals eaten in sales territory were not attributable to any service performed by. the salesman, such payments did not constitute wages under FICA, FUTA and for purposes of income tax withholding. The Court noted that the salesmen in question were not on call during their lunch break, received a free lunch whether or not they made any sales on the day in question and performed no services during the lunch hour.

Acacia Mutual likewise involved facts quite different from those involved here. The payments at issue in Acacia Mutual were reimbursements made by a life insurance company to certain managers and agents for their expenses in attending the company’s annual convention. Thus, the payments were not for prior services rendered but with the hope that by attending the company’s convention the future performance of such employees might be improved.

The facts here are quite different. In this case, payments from the Fund, as discussed hereinabove, are conditioned on the number of hours of work performed and are therefore clearly attributable to prior services rendered to employers. Furthermore, both Central Illinois and Aca cia Mutual involved consideration of the term “wages” in § 3401(a). By overriding the Rowan decision, Congress has now made it clear that the definition of wages for purposes of income tax withholding is not the same as the definition of wages under FICA and FUTA. This Court concludes that the term “wages” in §§ 3121 and 3306 should be construed more expansively than the term “wages” in § 3401(a).

Plaintiff has further argued that amounts involved here cannot be considered to be wages because payments into the Fund are assessed on the basis of the tonnage of cargo handled and because each eligible employee receives the same amount of benefits. Such facts have little relevancy to the determination made by the Court in this case. As provided by the regulations, the basis upon which remuneration is paid is generally immaterial in determining whether or not the remuneration constitutes wages. See Treasury Regulations § 31.3121(a)-1(d) and 31.3306(b)-1(d). Were the law otherwise, the parties to a collective bargaining agreement could in effect determine which portion of an employee’s compensation would be included in the social security wage base.

Plaintiff also contends that payments from the Fund are not wages because the Fund cannot be considered to be the “employer”. However in Otte v. United States, 419 U.S. 43, 51-52, 95 S.Ct. 247, 253-54, 42 L.Ed.2d 212 (1974), the Supreme Court determined that the term “employer” under FICA and FUTA means the person having control of the payment of the wages. Here the Fund is clearly given that control pursuant to the Trust Agreement and therefore is deemed the “employer” for purposes of FICA and FUTA taxes. See also, In Re Armadillo Corp., 410 F.Supp. 407, 409 (D.Col.1976). Moreover, the Fund has clearly been acting as an agent for the employers for many years and is therefore subject to the provisions of FICA and FUTA. See 26 U.S.C. § 3504; Rev.Proc. 70-6, 1970-1 C.B. 420.

Finally, plaintiff relies on the testimony of the President of the STA and on an exhibit admitted in evidence to support its argument that the Trust Agreement did not intend payments from the Fund to be treated as wages. But little weight can be given to the interpretation by STA’s President to the language of the Trust Agreement itself. Moreover, the views of a Board of Arbitration (the so-called “Stein Award”) contained at pages 6-8 of plaintiff’s Exhibit No. 6, is entitled to even less weight. The Trust Agreement was negotiated in 1971 and was amended several times in later years. What is controlling here is the language of the Trust Agreement, as amended, considered in the light of the applicable statutes and the circumstances existing in the Port of Baltimore during the years in question. What arbitrators may have said in deciding a matter before them in the Port of New York in 1960 is hardly pertinent to determining whether these payments were wages under FICA and FUTA.

IV

Conclusion

In sum, this Court concludes that there is no merit under the facts here and under the pertinent law to plaintiff’s contention that payments from the Fund to longshoremen are not “wages” under provisions of FICA or FUTA. The language of the Trust Agreement itself, pertinent legislative history and applicable decisions of other federal courts support this Court’s conclusion that the payments in question constitute “wages” under both § 3121 and § 3306. The amounts previously paid by the Fund for the tax years in question were therefore properly paid and should not be refunded. Accordingly, judgment will be entered in favor of the defendant, with costs.

      . Defendant contends that a claim for refund for the first quarter of 1978 was never filed by the plaintiff and that valid claims for refunds were not timely filed by plaintiff for all four quarters of 1979.

      . Supplementary post trial briefs were likewise submitted by the parties.

      . A similar definition is contained in § 3306(b).

      . See also § 3306(c).

      . In view of the Court's conclusion in this regard, it is not necessary to consider whether claims for refund were in fact filed or were timely filed by plaintiff for certain quarters of 1978 and 1979.

      . The exhibit in question, Plaintiff s Exhibit No. 6, is a 46-page document which includes a decision of a Board of Arbitration dated November 21, 1960 in an arbitration dispute between the New York Shipping Association and the ILA.

      . Defendant objected strenuously to the admission in evidence of plaintiffs Exhibit No. 6. In overruling defendant’s objection, the Court stated that the weight to be given to the Exhibit would be determined at a later time.


author: CHARLES SCHWARTZ, Jr., District Judge.

text:
    AESCO STEEL, INC. v. J.A. JONES CONSTRUCTION COMPANY and Fidelity and Deposit Company of Maryland.
    No. 85-0903.
    United States District Court, E.D. Louisiana.
    Nov. 29, 1985.
    H. Bruce Shreves, Simon, Peragine, Smith & Redfearn, New Orleans, La., for plaintiff.
    William W. Messersmith, Deutsch, Kerrigan & Stiles III and Terrence L. Brennan, New Orleans, La., for defendants.
   ORDER & REASONS

CHARLES SCHWARTZ, Jr., District Judge.

This matter is before the Court on the motion of plaintiff, Aesco Steel, for summary judgment and the motion of defendants, J.A. Jones Construction Company, now known as the Jones Group Inc. (“Jones”), and Fidelity Deposit Company of Maryland for summary judgment. There being no disputed issues of fact, the parties having stipulated to all pertinent facts for the purpose of this motion, the motion of Aesco Steel is GRANTED; the motion of J.A. Jones Construction Company, now known as the Jones Group Inc., and Fidelity Deposit Company of Maryland is DENIED.

Facts

The parties have stipulated to the following material facts for the purpose of this motion. Jones, as contractor, entered into a construction contract with the Louisiana World Exposition, Inc. (“LWE”), as owner, on October 1, 1982, for work in connection with the construction of the International Pavilion, the U.S. Pavilion and Amphitheater at the 1984 Louisiana World Exposition. A notice of that contract was filed in the Mortgage Office for the Parish of Orleans at M.O.B. 2387, Folio 792, on October 1, 1982.

Jones as principal and defendant Fidelity & Deposit Company of Maryland (“F & D”), as surety executed payment and performance bonds in the amount of $23,916,-581. On September 28, 1983, Aesco Steel, Inc. (“Aesco”) as subcontractor, and Jones, as contractor, entered into a subcontract in the amount of $1,592,645 wherein Aesco agreed to furnish the structural steel and metal floor deck for the Amphitheater Project. The subcontract was executed on Jones’ subcontract form. Six change orders to the subcontract were issued increasing the subcontract price to $1,844,-949.

Several change orders were issued by LWE to Jones increasing the contract price to $39,693,298. Jones has received payment in the aggregate amount of $34,843,-101, leaving an unpaid contract balance of $4,850,197.

The construction contract between LWE and Jones was successfully completed by Jones. Aesco fully performed its subcontract with Jones. A certificate of substantial completion was executed by representatives of LWE and Jones on May 1, 1984. A Notice of Termination of the contract was filed in the Mortgage Records of Orleans Parish on May 30, 1985 at M.O.B. 2387, Folio 792.

Pursuant to the contract with LWE, Jones submitted to LWE Applications for Payment on a monthly basis and an Application for Final Payment seeking payment of retainage. Jones was paid in full for work billed and completed through March 1984. The April and May 1984 Applications for Payment and Retainage Withheld were not paid by LWE. To date, these remain either unpaid or partially unpaid.

On May 1, 1984, Jones paid Aesco $84,-000 in retainage. On July 10, 1984, Aesco, through its attorneys, made formal demand on Jones and F & D for the amount of $228,379.90. No payment was received by Aesco from either Jones or F & D within thirty days of the receipt of that demand. On September 11, 1984, Jones paid Aesco an additional $78,000 in retainage. Accordingly, when, on February 27, 1985, Aesco filed suit, the balance of the contractual obligation between Jones and Aesco was $149,852.40. After the filing of the suit, two payments were received from Jones by Aesco — one in the amount of $57,279.85 and the other in the amount of $11,479.19. Both of these amounts were paid on March 24, 1985. As of the date of the submission of this motion, the remaining unpaid subcontract balance was $80,320.73 of which Jones claims $22,244.40 is retainage.

In August 1984, Jones executed a Contractor’s Joinder Agreement, which allowed LWE Contractors, such as Jones, to participate in certain revenues flowing from the Co-operative Endeavor Agreement dated July 1, 1984. Additionally, Jones entered into an agreement with the Rouse Company, Inc. (“Rouse”) agreeing to grant a partial release of its lien on that portion of the International Pavilion which was purchased by Rouse. In exchange for this release, Jones was entitled to participation in the revenues generated by the Rouse purchase of LWE assets.

LWE experienced financial difficulties and filed a Chapter 11 Reorganization Proceeding (Bankruptcy Case No. 84-02314-K) on November 6, 1984. That case is still pending in the United States Bankruptcy Court for the Eastern District of Louisiana.

In an effort to recover the unpaid balances owed Jones by LWE, Jones has filed a Proof of Claim in the Bankruptcy Proceedings and is one of the contractors of the “Contractors Creditors Committee” in that proceeding. That Committee obtained an order authorizing the bringing of an action and did bring an action in the name of LWE against certain officers and directors of LWE and their insurers. The Bankruptcy Court appointed an examiner to issue a preliminary report recommending that a preference action be filed seeking recovery of all payments made to contractors under the Co-operative Endeavor Agreement and the Rouse Agreement.

On June 22, 1984, Jones filed a lien which includes any amounts yet to be paid to Aesco. On June 28, 1985, Jones filed suit to enforce the lien in the Civil District Court for the Parish of Orleans, Case No. 85-11173.

Jones has paid Aesco all amounts paid to Jones by LWE and attributable to work performed by Aesco. Jones continues to pursue collections of monies owed to Jones by LWE under the contract by pursuing its claim in the United States Bankruptcy Court for the Eastern District of Louisiana.

The Liability of the Contractor

A J.A. Jones Construction subcontract form was executed by the parties in late October or early November 1983. The applicable section of that contract, Article 4, provides “[a] final payment, consisting of the unpaid balance of the Price, shall be made within forty-five (45) days after the last of the following to occur: (a) full completion of the Work by Subcontractor, (b) final acceptance of the work by the Architect and Owner[,] (c) final payment by Owner to Contractor under the Contract, (d) the furnishing of satisfactory evidence by Subcontractor to Contractor that the Subcontractor has paid in full all persons furnishing labor, materials or service in connection with the Work and that neither Subcontractor nor any person claiming under or through Subcontractor has filed or has the right to maintain a lien or other claim against the Owner, the Contractor, Contractor’s surety, if any, or the Project premises, (e) the return of all drawings, plans and specifications to the Contractor or Architect, and (f) the delivery of all guarantees, warranties, bonds, instruction manuals, performance charts, diagrams, as built drawings and similar items with respect to the Work.” The parties agree that all of the enumerated items in Article 4 have been fulfilled but for Section (c), “final payment by Owner to Contractor under the Contract.” The owner, LWE, has been unable or unwilling to make final payment and is presently involved in a still pending Chapter 11 Reorganization proceeding in the United States Bankruptcy Court for the Eastern District of Louisiana.

Although both parties concede that Aesco satisfactorily completed its portion of the work on the contract before May 30, 1984, Jones claims that, since it has not received final payment from LWE and since it has paid Aesco all amounts LWE has paid Jones for the work performed by Aesco, the balance of payments under the subcontract are not yet due to Aesco. In other words, Jones claims that each of the six items enumerated in Article 4 of the subcontract are suspensive conditions under Louisiana law. LSA-C.C. Art. 2043. Aesco, conversely, urges that the language of Section (c) rather than being a conditional obligation as defined in Civil Code Articles 2021 and 2043 merely outlines a method of payment.

A review of Louisiana case law reveals that there is support for both contentions. In Miller v. Housing Authority of New Orleans, 175 So.2d 326 (La.App. 4th Cir.1965) aff'd in part, rev’d in part (on other grounds), 249 La. 623, 190 So.2d 75 (1966), the Court found a clause in the subcontract reading, in pertinent part, “progress payments will be made to Miller, based on monthly estimates made by the contractor, ‘within ten days after receipt of payment from the owner____to be a nonambiguous suspensive condition designed to prevent the contractor from assuming the obligations of financing the project in the event the owner was unable to do so. Id. at 331. Accordingly, the Court directed judgment in favor of the subcontractor, but conditioned upon payment of the contractor by the owner.

On the other hand, in Subdivision Planning Engineering, Inc. v. Manor Development Group, 290 So.2d 375, 379 (La.App. 4th Cir.1974) [procedural history after remand omitted], the Court held that a contract that read in pertinent parts, “said sum of $60.00 per lot is to be paid in three payments of $20.00 each, as the developer receives its payments” and “the remainder of the funds due you will, of course, only be paid to you as we receive funds under our owner-builder commitments,” not to be a conditional obligation since the plaintiff was unconditionally obligated to provide its services. The Court held that rather than being a conditional obligation as outlined in LSA-C.C. Art. 2021, “the quoted provisions only outline a method of payment of the sums that will become due.” Id. In Pelican Construction Company v. Sewerage and Water Board of New Orleans, 240 So.2d 556, 557-58 (La.App. 4th Cir.1970), the Court held that even if a clause providing for the subcontractor to pay the sub-subcontractor “within five days after receipt of payment from owner” was a suspensive condition, the suit could not be dismissed without giving the plaintiff the opportunity to amend to show that the subcontractor prevented the condition from occurring or other circumstances entitling the subsubcontractor to recovery. The Court went on to comment that it had considerable doubt whether or not the clause in question was a condition and the Court urged there was a good argument that the clause was not a “term” of the contract and therefore the “reasonable time” provision of LSA-C.C. Art. 2050 could be imported into the contract. Id. at 558. In Chartres Corporation v. Charles Carter and Company, 346 So.2d 796 (La.App. 1st Cir. 1977), the Court citing Pelican, supra, interpreted a contractual provision providing that the “contractor may, at its option, retain 10%, or the percentage specified in the contract documents, of each estimate until final payment which shall be made after completion of the work covered by this contract and written acceptance thereof by the architect and full payment therefor by owner____”, to mean that “such an insertion in a contract should not be construed to mean that payment would be subject to a suspensive condition but was more probably intended by the parties to require payment within a reasonable period of time and ‘in the usual course of events.’ ” Id. at 797. In a more limited holding than is required by the facts here, the Court went on to say that it was unable to conclude that the parties intended that the defendant could always refuse to pay the plaintiff as long as any money was supposedly outstanding but limited that holding by stating that “some explanation should have been offered by the defendant as to why the inordinate time period ... had elapsed without payment by the owner and what efforts were being made ... to secure payment.” Id. at 798.

Faced with these two lines of cases, and viewed in light of the fact that the Miller case has never been cited by another Louisiana appellate court in a reported decision for the proposition that such clauses are suspensive conditions, a Louisiana state court would feel free to choose between the two lines of eases. For the reasons which follow, this Court determines that, on the facts before it, the Louisiana courts would choose to follow the Pelican-Chartres line of cases as indicative of a modern trend. It is a general rule of construction to construe terms so as not to be conditions, especially conditions precedent or suspensive conditions wherever possible Schexnayder v. Capital Riverside Acres, 170 La. 714, 129 So. 139 (1930). See Mitchell Engineering Company, Division of Seaco Corp. v. Ronald A. Goux, Inc., 413 So.2d 942 (La.App. 1st Cir.1982), writ denied 420 So.2d 173 (1982); Metal Building Products Company v. Fidelity and Deposit Compa ny of Maryland, 144 So.2d 751 (La.App. 4th Cir.1962) (requirement that architect approve working sketches of material man was not condition precedent but only a requirement to insure that no improper materials would be used); cf. generally, F. C. Williams Real Estate v. Haydel, 364 So.2d 171, 172 (La.App. 1st Cir.1978); Dale’s Jewelers, Inc. v. Rice, 316 So.2d 416 (La.App. 2nd Cir.1975); Sam’s Style Shop v. Cosmos Broadcasting Corporation, 694 F.2d 998, 1004 (5th Cir.1982) (discussing the requirement that “[o]ne who relies on a suspensive condition has the burden of proving the existence of the condition____”). There is also a general rule of construction to construe ambiguities against the drafter. Muse v. Metropolitan Life Insurance Company, 193 La. 605, 192 So. 72 (1939); Kuhn v. Stan A. Planche Real Estate Company, 249 La. 85, 185 So.2d 210 (1966); Miller v. Kellerman, 228 F.Supp. 446 (W.D.La.1964), aff'd, 354 F.2d 46, cert. denied, 384 U.S. 951, 86 S.Ct. 1571, 16 L.Ed.2d 548 (1966); Mills v. Fidelity & Casualty Company of New York, 226 F.Supp. 786 (W.D.La.1964) aff'd sub nom, Yuba Consol. Industries Inc. v. Fidelity & Casualty Company of New York, 338 F.2d 341 (5th Cir.1964); Rayford v. Louisiana Savings Association, 380 So.2d 1232 (La.App. 3d Cir.1980) writ refused, 384 So.2d 793 (1980). Here, the contract was executed on Jones’ own form. Since one of the interpretations of this clause could have been as a condition and another interpretation of this clause could have been as a term providing for payment within a “reasonable period of time”, Jones, as drafter, had an obligation to make the provisions clear if it desired for this term of the contract to serve as a condition. Having failed to do so, this Court is constrained to construe the provision as a term providing for payment within a reasonable period of time.

Having determined that the contract provides for final payment within a reasonable period of time, we now turn to Jones’ contention that that period of time has not yet elapsed and therefore there is no amount currently due and owing. What constitutes a reasonable time for performance of a contractual obligation under LSA-R.S. Art. 2050 must be determined by the circumstances of the particular case. Owens v. Robinson, 329 So.2d 766 (La.App. 2d Cir.1976); Perrin v. Hellback, 296 So.2d 342 (La.App. 4th Cir.1974), writ denied, 300 So.2d 184 (1974); Wolfe v. Sample, 141 So. 812 (La.App. Orleans 1932). The intent of the parties is an important factor in this determination. Owens v. Robinson, supra. Here, the subcontract itself provides for payment 30 days after the six items enumerated in Article 4 of the contract have occurred. See Subcontract, Art. 4 and Change Order “One”. Having adopted the holdings of the Pelican-Chartres line of eases, this Court has interpreted that Article of the Contract to mean 30 days after the time those six events would have occurred in the ordinary or usual course of events. Chartres Corp. v. Charles Carter & Co., supra, at 797. An indication of what would constitute the usual course of events can be found in the bond. It provides for suit against the surety 90 days after completion of the work or, where there is no privity between the contractor and the supplier, notice of completion. Therefore, while the precise time for payment need not be determined for the purposes of this motion, it is clear that the intention of the parties was for payment by no later than late August 1984, 90 days after the filing of the Notice of Termination of Work by Jones. Consequently, Jones’ contention that the reasonable time for payment has not yet elapsed must be viewed as unsupported by the context and circumstances of this case.

The Sureties’ Obligation

The bond in question was executed on October 1, 1982. It is entitled a “Labor and Material Payment Bond”, and Fidelity and Deposit Company of Maryland, defendant herein, is named as the surety. It reads in pertinent part:

2. The above named Principal [J.A. Jones Construction Company] and Surety [Fidelity and Deposit Company of Maryland] hereby jointly and severally agree with the Owner [Louisiana World Exposition Inc.] that every claimant as herein defined, who has not been paid in full before the expiration of a period of ninety (90) days after the date on which the'last of such claimant’s work or labor was done or performed, or materials were furnished by such claimant, may sue on this bond for the use of such claimant, prosecute the suits to final judgment for such sum or sums as may be justly due claimant, and have execution thereon. The Owner shall not be liable for the payment of any costs or expenses of any such suit.
3. No suit or action shall be commenced hereunder by any claimant:
(a) Unless claimant, other than one having a direct contract with the Principal, shall have given written notice to any two of the following: The Principal, the Owner, or the Surety above named, within ninety (90) days after such claimant did or performed the last of the work or labor, or furnished the last of the materials for which said claim is made, stating with substantial accuracy the amount claimed and the name of the party to whom the materials were furnished or for whom the work or labor was done or performed____
(b) After the expiration of one (1) year following the date on which the Principal ceased work on said Contract,—
(c) Other than in a state court of competent jurisdiction ... or in the United States District Court for the district for which the project, or any part thereof, is situated and not elsewhere.

In its caption, the bond specifically identifies its purpose. Underneath the title “Labor and Material Payment Bond,” the bond has a note which reads: “Note: This bond is issued simultaneously with Performance Bond in favor of the owner conditioned on the full and faithful performance of the contract.”

The bond is absolute on its face. Accordingly, the obligation which it secures is also absolute. The parties clearly intended for the surety and/or the principal to pay any claimant who had not “been paid in full before the expiration of a period of ninety (90) days after the date on which the last of such claimant’s work or labor was done or performed, or materials were furnished by such claimant.” The only limitation imposed is upon claimants who did not have a direct contract with the principal. In that case, the contract provides for payment within ninety (90) days of notice. See Bond, Paragraph 3a.

The Louisiana Private Works Act LSA-R.S. 9:4801 et seq. provides, inter alia, for liability of owners and contractors for the improvement of an immovable. LSA-R.S. 9:4802 provides in pertinent part:

B. The claims against the owner shall be secured by a privilege on the immovable on which the work is performed.
C. The owner is relieved of the claims against him and the privileges securing them when the claims arise from the performance of a contract by a general contractor for whom a bond is given and maintained as required by R.S. 9:4812 and when notice of the contract with the bond attached is properly and timely filed as required by R.S. 9:4811.
E. A claimant may assert his claim against either the contractor, his surety, or the owner without the joinder of the others. The claim shall not be subject to a plea of discussion or division.

In other words, the statute provides that the owner may, by requiring the contractor to execute a bond pursuant to LSA-R.S. 9:4812, relieve himself of personal liability for such claims, while failure to exact such a bond results in the owner being personally liable. LSA-R.S. 9:4812C is likewise absolute.

Therefore the purpose of the Act is not only to protect the owner when it complies with the provision of the Act with respect to the recordation of a written contract and bond, but also to protect those who furnish the services, labor or material for construction. Glassell, Taylor and Robinson v. John W. Harris Associates, 209 La. 957, 26 So.2d 1 (1946), see Fruge v. Muffoletto, 242 La. 569, 137 So.2d 336 (1962). Cf. L’Hote Lumber Manufacturing Company v. Joseph Dugue, 2 Orleans App. 308 (1905) aff'd in part, rev’d in part (on other grounds) 115 La. 669, 39 So. 803 (1905) (discussing by implication the fact that the surety must absolutely bind himself to the full amount of the bond for the benefit of the beneficiaries of the statute). Accordingly, the statutory scheme could not work if an owner’s failure to pay were always a defense to the contractor.

The contractor covenants with the owner to provide the construction services and to return the property without any liens. The contractor covenants with its subcontractors to repay them. Each of these obligations is secured by a bond and that bond is recorded with the contract pursuant to the Act.

Defendants argue that the obligation of the surety is accessory to that of the principal under the bonded contract and, consequently, the liability of the surety can only be judged by the liability of the principal. They cite Graphic Arts Building Company v. Union Indemnity Company, 163 La. 1, 111 So. 470 (1927), Folse v. Maryland Casualty Company, 193 So. 385 (La.App. 1st Cir.1940) and Commercial Union Insurance Company v. Melikyan, 430 So.2d 1217 (La.App. 1st Cir.1983) for this proposition.

Defendants’ contentions that these cases control this matter miss the mark because the bonds are executed for the benefit of the owner to protect him from liability should the contractor fail to pay the subcontractors for material. In addition, the bonds are designed to protect the subcontractors from the insolvency of either the owner or the contractor. To allow the surety to assert as a defense that the owner has not made payments on the contract would defeat the statutory purpose as set forth above. Accordingly, this Court will not disturb the absolute language of the bond, which is merely reflective of the absolute language of the statute pursuant to which it was issued.

      . Change order "One", dated October 27, 1983, alters this provision by providing that "[s]o much of Article 4, ‘Final Payment’, 1st Sentence, as reads, ‘Shall be made within forty-five (45) days’, is hereby amended to read, ‘Shall be made within thirty (30) days’.” [sic] Since this alteration is not material to the question of whether or not the language in Article 4, Section (c), is a condition, it is not discussed in this section of this Opinion.

      . The "suspensive condition,” under this article, is the equivalent of the condition precedent at common law. City of New Orleans v. Texas & P Railway Company, 171 U.S. 312, 18 S.Ct. 875, 43 L.Ed. 178 (1898).

      . Actually, because there was privity of contract between Jones and Aesco, the payment was due 90 days after the date of actual completion. Since this Court has not been provided with that date, the Court has used May 30, 1984, the date on which the Notice of Termination of Work was filed and by which all parties agree the work was completed.

      . Had the context failed to provide an appropriate period, the provisions of LSA-R.S. 9:4822, providing for preservation of a claim by filing within 30 to 60 days, might have had to have been used. The use of that period would have caused the reasonable time for payment to have been even earlier than the date used in this Opinion.

      . LSA-R.S. 9:4812C reads "The condition of the bond shall be that the surety guarantees: (1) To the owner and to all persons having a claim against the contractor, or to whom the contractor is conventionally liable for work done under the contract, the payment of their claims or of all amounts owed them arising out of the work performed under the contract to which it is attached or for which it is given. (2) To the owner, the complete and timely performance of the contract unless such guarantee is expressly excluded by the terms of the bond.”

      . The defendants argue that the liability of this surety is derivative from the liability of the contractor. Even if this were true, in light of the findings of the previous section of this Opinion, the surety would nonetheless be liable.


author: VanARTSDALEN, District Judge.

text:
    William DOUGHERTY v. NAVIGAZIONE SAN PAOLO, S.P.A. MEDAFRICA LINE and Alcoa Maritime Co., Ltd.
    Civ. A. No. 82-5518.
    United States District Court, E.D. Pennsylvania.
    May 4, 1984.
    Charles Sovel, Freedman Borowsky & Lorry, Philadelphia, Pa., for plaintiff.
    Raymond T. Letulle, Krusen, Evans & Byrne, Philadelphia, Pa., for Alcoa.
    Robert B. White, Jr., Douglas Riblet, Rawle & Henderson, Philadelphia, for Navigazione San Paolo et al.
   MEMORANDUM OPINION AND ORDER

VanARTSDALEN, District Judge.

Plaintiff, a longshoreman, has brought this action seeking to recover damages for alleged personal injuries suffered while working aboard the ship M/V Hektor. Named as defendants are the vessel’s owner, Alcoa Maritime Co., Ltd. (Alcoa) and the time charterer, Navigazione San Paolo, S.P.A. Medafrica Line (Medafrica Line). Alcoa has filed a cross claim against Medafrica Line which has been stayed pending arbitration. Dougherty v. Navigazione San Paolo, S.P.A., No. 82-5518 (Jan. 9, 1984). Medafrica Line has now moved for summary judgment against plaintiff.

Medafrica Line, in support of its motion, asserts that the Time Charter Party (Charter Party) provides that the owner and not the charterer is to remain responsible for the vessel. Therefore, Medafrica Line contends it owed no duty to plaintiff and cannot be held liable for negligence. The clause that Medafrica Line relies upon, clause 26, provides:

Nothing herein stated is to be construed as a demise of the vessel to the Time Charterers. The owner is to remain responsible for the navigation of the vessel, insurance, acts of pilots and tugs [sic] boats and cargo claims, crew and all other matters, same as when trading for their own account.

Plaintiff and defendant Alcoa oppose the motion for summary judgment. Both contend there is an issue of material fact whether Medafrica Line, the time charterer, breached a duty owed to plaintiff; such duty arising from the terms of clause 8 of the Charter Party. Clause 8 provides:

That the Captain shall prosecute his voyages with the utmost despatch, and shall render all customary assistance with ship’s crew arid boats. The Captain (although appointed by the Owners), shall be under the orders and directions of the Charters as regards employment and agency; and Charters are to load, stow and discharge and trim the cargo at their expense under the supervision of the Captain.

Plaintiff and Alcoa contend that the alleged breach of duty by Medafrica Line to plaintiff arises out of this agreement. Plaintiff, in his memorandum, asserts that “to the extent ... that a charter party grants certain authority to the charterer with respect to cargo operations, and the charterer, in fact, exercises this authority, the charterer is under a duty to exercise reasonable care to third parties, including longshoremen, with respect to the manner in which it exercises this authority.” Plaintiff’s Answer to Motion For Summary Judgment at 4 (emphasis in original).

Discussion

It is fundamental that in deciding a motion for summary judgment all reasonable inferences must be accorded the party against whom the motion is made. Bryson v. Brand Insulation, Inc., 621 F.2d 556, 559 (3d Cir.1980). The summary judgment standard is well known — relief is appropriate if “there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Fed.R.Civ.P. 56(c).

The problem presented by this case is whether a longshoreman may maintain an action under the Longshoremen’s and Harbor Workers’ Compensation Act (LHWCA), 33 U.S.C. §§ 901-950, against the time charterer. What appears to be a relatively straightforward problem becomes complex because of an ambiguity in the statute that several authorities have concluded was a mistake in the wording.

Jurisdiction is alleged under 28 U.S.C. § 1331 (Federal Question) and 28 U.S.C. § 1332 (Diversity of Citizenship). Although not expressly alleged in the complaint, federal question jurisdiction can be founded only on the LHWCA, which grants a remedy against the “vessel” to a longshoreman who is injured at work. The remedy provided to the longshoreman under LHWCA against the vessel, as defined in the statute, is the longshoreman’s exclusive remedy against the vessel. Griffith v. Wheeling Pittsburgh Steel Corp., 521 F.2d 31, 40 (3d Cir.1975). Section 905(b) of Title 33, United States Code, provides in relevant part as follows:

In the event of injury to a person covered under this chapter caused by the negligence of a vessel, then such person ... may bring an action against such vessel as a third party in accordance with the provisions of section 933 of this title____ The remedy provided in this subsection shall be exclusive of all other remedies against the vessel except remedies available under this chapter.

A vessel is defined in LHWCA as follows:

The term “vessel” means any vessel upon which or in connection with which any person entitled to benefits under this chapter suffers injury or death arising out of or in the course of his employment, and said vessel’s owner, owner pro hac vice, agent, operator, charter or bareboat charterer, master, officer, or crew member.

33 U.S.C. § 902(21) (emphasis added).

Clearly, under the statute, plaintiff longshoreman may maintain an action against the defendant Alcoa, as owner of the vessel. The issue is whether plaintiff may maintain an action against the defendant, Medafrica Line, who was a time charterer and not a demise or bareboat charterer. As set forth above, the statutory definition of a “vessel” does not expressly include the term “time charterer,” although it does include the phrase “charter or bareboat charterer.” Do these words include or exclude a time charterer?

It does not appear that the Third Circuit Court of Appeals has addressed this specific question. At least three other circuit courts of appeals have directly held that section 905(b) of the LHWCA applies to time charterers. Turner v. Japan Lines, Ltd., 651 F.2d 1300, 1304 (9th Cir.1981); Mallard v. Aluminum Co. of Canada, Ltd., 634 F.2d 236, 242 n. 5 (5th Cir.1981); Migut v. Hyman-Michaels Co., 571 F.2d 352, 356 (6th Cir.1978). While I have decided to follow these cases, I feel compelled to point out a potentially troublesome problem which heretofore has not been fully explored.

The crux of the problem lies in the phrase “charter or bareboat charterer” in the definition of the term “vessel” in section 902(21). The initial difficulty with the phrase is the use of the term “charter.” All of the other relevant terms in section 902(21) refer to individuals (“... and said vessel’s owner, owner pro hac vice, agent operator ... master, officer, or crew”). The term “charter” is ordinarily meant to be the charter party; that is the contract between the owner and the charterer. Thus, as written in the statute, the word “charter” appears to be a mistake. This conclusion is confirmed by at least one circuit court and one influential admiralty treatise. The ninth circuit in Turner and Professors Gilmore and Black in their treatise both include the notation “[sic]” after the term “charter” when citing the LHWCA. Turner, 651 F.2d at 1303; G. Gilmore and C. Black, The Law of Admiralty 450 (2d ed. 1975). The court in Turner evidently believed the term “charter” should have been “charterer.” This is probably the interpretation given the term “charter” by both the Mallard and Migut courts as well.

Although courts that have faced the ambiguity have apparently construed the word “charter” as set forth in the statute to mean “charterer,” this construction creates its own ambiguity. The term “charterer” includes the various types recognized in the law such as a “time charterer,” a “voyage charterer” and a “bareboat or demise charterer.” If Congress, in adopting the wording “charter or bareboat charterer” meant “charterer or bareboat charterer,” the ambiguity is apparent. If “charterer” was intended to include all types of charterers including a time charterer and a bareboat charterer, why add the unnecessary words “or bareboat charterer”? If Congress intended to limit its application to bareboat charterers, the word “charter” or “charterer” adds only uncertainty as to the meaning. It is possible, of course, to conclude that the word “or” was intended to make the word “charter” synonymous with the words “bareboat charterer.”

Under general maritime principles, there are three types of charter parties: the voyage charter, the time charter, and the demise or bareboat charter. In a voyage charter the ship is engaged to carry a full cargo on a single voyage. The owner retains all control over the vessel. In a time charter the ship’s carrying capacity is taken by the charterer for a fixed time for the carriage of goods on as many voyages as can fit into the charter period. Again, the owner retains all control for management and navigation. In a demise or bare-boat charter, the charterer takes over full control of the ship and becomes the owner pro hac vice. The charterer thus assumes control of management and navigation. See generally, G. Gilmore and C. Black, The Law of Admiralty 193-94 (2d ed. 1975).

It is well settled under admiralty law that absent an agreement to the contrary the time charterer has no control over the vessel and assumes no liability for negligence of the crew or unseaworthiness of the vessel. Mallard, 634 F.2d at 242 n. 5; Habrat v. United States, 310 F.Supp. 618 (W.D.Pa.1970). Control over the vessel distinguishes the demise or bareboat charter from the others:

The first problem is of course distinguishing the demise from the regular time and voyage charters. The test is one of “control”; if the owner retains control over the vessel, merely carrying the goods furnished or designated by the charter, the charter is not a demise; if control of the vessel itself is surrendered to the charterer, so that the master is his man and the ship’s people are his people, then we have to do with a demise.

G. Gilmore and C. Black, The Law of Admiralty 240 (2d ed. 1975).

Because the phrase “charter or bareboat charterer” in the statute is ambiguous, reference to the other terms included in the definition and the legislative history are appropriate. The other terms included in the statutory definition of “vessel” involve parties who have some measure of control over the vessel (“... and said vessel’s owner, owner pro hac vice, agent, operator ... master, officer or crew”). The legislative history states, in part:

Vessel would be classified as any vessel upon which or in connection with which any person entitled to benefits suffers injury and including the vessel owner and others responsible for the operation of the vessel.

H.Rep. No. 1441, 92d Cong., 2d Sess., reprinted in 1972 U.S.CODE CONG. & AD. NEWS 4698, 4719 (emphasis added). Time charterers ordinarily are not responsible for the control or operation of the vessel under general maritime law. Consequently, based on the legislative history noted above, it may be that the phrase “charter or bareboat charterer” was not intended to include or apply to time charterers. This construction would explain the specific reference to “bareboat charterers” because under general maritime principles, they were responsible for control and operation of the vessel. Thus, the construction given to the phrase “charter or bareboat charterer” could be “demise or bareboat charterer.”

The reason I have decided to follow those courts that have determined the LHWCA includes suits against the vessel’s time charterer despite the logical difficulties, is Congress’ expressed intention of providing relief to injured harbor workers. “Permitting actions against the vessel based on negligence will meet the objective of encouraging safety because the vessel will still be required to exercise the same care as a land-based person in providing a safe place to work.” H.Rep. No. 1441, 92d Cong., 2d Sess., reprinted in 1972 U.S. CODE CONG. & AD.NEWS 4698, 4704. Even though the time charterer does not normally assume control over the operation of the vessel the time charterer is involved in the loading and unloading of cargo. Thus, it is entirely consistent with the purpose of the LHWCA to allow third party actions against the time charterer because the time charterer could possibly make those areas used in the storing of cargo safer.

This determination is separate from any agreement between the owner and the time charterer in the Charter Party that may assign the ultimate risk of loss between them. That the time charterer is involved in the storing of the cargo is, in my view, enough to hold the charterer answerable under the LHWCA to workers for any negligence of the time charterer.

Another reason for holding that time charterers may be sued under the LHWCA is to prevent circuity of actions and possibly inconsistent jury verdicts. If time charterers could not be sued under the LHWCA, the plaintiff could nevertheless probably maintain a nonstatutory, common-law negligence action against the time charterer in state court or, if diversity jurisdiction existed, in federal court. In such an action the alleged duty on the part of the time charterer would arise from the Charter Party, not from the LHWCA. By holding that only the vessel’s owner may be found liable under the LHWCA, this court would, in effect force the plaintiff to bring a separate action against the time charterer. This creates a situation where the owner could defend his suit by arguing that under the Charter Party, the time charterer was responsible, which the jury might accept. However, not being in the case, the time charterer could not be held liable. In a separate action against the time charterer, the time charterer could argue that the owner was responsible to the plaintiff under the Charter Party. If the jury agreed, the plaintiff would again have no remedy because the owner would not be in the case. Given the purpose of the LHWCA, Congress could not have intended that the terms of a Charter Party could potentially leave harbor workers remediless. I have, therefore, concluded that the LHWCA applies to time charterers.

The LHWCA, as set out above in section 905(b), provides a cause of action against the vessel (as defined by section 902(21)) if the injury is a result of the negligence of the vessel. Although not articulated, it appears that placed in the context of the LHWCA, Medafrica Line’s contention is that it cannot possibly have been negligent to plaintiff because it owed no duty to plaintiff. This assertion is based upon Medafrica Line’s claim that clause 26 of the Charter Party provides that the owner and not the time charterer is to remain responsible for the vessel. Medafrica Line’s argument misperceives the very purpose of the LHWCA. What Medafrica Line is seeking by this summary judgment motion is a determination that as between it and Alcoa, because of the contract between them, Alcoa is liable. Such a claim is a contractual indemnity claim. Because of the January 9, 1984 Order staying the parties’ cross claims pending arbitration, Medafrica Line’s claim for indemnity is not properly before this court. Rather, it should be presented through the arbitration mechanism called for by the Charter Party.

The LHWCA is intended to provide longshoremen and harbor workers with workmen’s compensation benefits without depriving them of the right to sue negligent third parties for injuries, or eliminating the incentive for third parties to provide longshoremen a safe place to work. To prevent indirect recovery from the employer, the 1972 amendments to the LHWCA prohibit the employer from having to indemnify third parties for damages recovered by employees. The Turner court has explained that imposing a duty on the owner or time charterer or both should further the congressional goal of safety. I have already set out my agreement with this position. Thus, the duty that Medafrica Line owed to plaintiff did not arise from clause 8 of the Charter Party, as plaintiff and Alcoa contend. The duty arose by operation of the LHWCA. The LHWCA itself provides a cause of action against negligent third parties.

The clause in the Charter Party that plaintiff and Alcoa cite would only serve to transfer ultimate liability from one defendant to the other in accordance with their contract. It cannot affect in any way plaintiff’s rights under the LHWCA, one of those being the right to bring a third party cause of action for negligence against the vessel, as that term is defined in the statute. I have determined that “vessel” includes the time charterer. Whether plaintiff can ultimately prove that the owner or time charterer or both was or were negligent is another matter. Whether the owner or time charterer will ultimately bear the risk of loss due to a contractual agreement between them is also another matter; one proper for arbitration by the very terms of the agreement between them.

The motion for summary judgment will be denied.


author: DAVID L. RUSSELL, District Judge.

text:
    BANK OF MONTREAL, Plaintiff, v. FEDERAL NATIONAL BANK AND TRUST COMPANY OF SHAWNEE, a National Bank of Oklahoma, and Harris Trust & Savings Bank, an Illinois State Bank, Defendants, and Barton Valve Company, Inc., Intervenor.
    No. CIV 83-261-R.
    United States District Court, W.D. Oklahoma.
    May 30, 1984.
    Burck Bailey and Richard F. Campbell, III, Fellers, Snider, Blankenship, Bailey & Tippens, Oklahoma City, Okl., for plaintiff.
    Ronny D. Pyle, Pyle & Poarch, Norman, Okl., James A. Cherney, Latham & Watkins, Hedlund, Hunter & Lynch, Chicago, 111., Bruce W. Day and William B. Federman, Day & Timmons, Oklahoma City, Okl., for defendants.
   ORDER

DAVID L. RUSSELL, District Judge.

The Plaintiff, Bank of Montreal, brought this action to enforce a letter of credit against the Defendants, Federal National Bank and Trust and Harris Trust and Savings Bank. Barton Valve was permitted to intervene as a party defendant and promptly filed a counterclaim for declaratory judgment against the Bank of Montreal. The case is presently at issue on cross Motions for Summary Judgment on the Plaintiff’s claim.

The relevant facts are not in dispute. Barton Valve sought financial aid from the Bank of Montreal for its business associates Blow Out Products, Ltd., Blow Out Prevention Equipment Services, Ltd, and Mattco Machine, Ltd., known collectively as the “Blow Out Companies.” To obtain from the Bank of Montreal advances to the Blow Out Companies, Barton Valve caused Federal National to issue a letter of credit to the Bank of Montreal in the amount of one million dollars. As these two banks were not associates in the industry, Harris was secured as a confirming bank at the request of the Bank of Montreal.

Irrevocable Letter of Credit No. 621 was a deceptively simple document consisting of only three paragraphs. The first paragraph purported to establish the letter of credit, noting that it was issued “[a]t the request of Barton Valve Company, Inc. and relative to [Bank of Montreal’s] advances to Blow Out Products, Ltd., Blow Out Prevention Equipment Services, Ltd., and Mappco Machinery, Ltd.” The second paragraph was the so-called “certification clause”, and was comprised of two subparagraphs, each of which stated a condition precedent to Federal National’s duty to pay drafts on the letter of credit. The first subparagraph, designated as A, required a signed statement that proceeds of the draft would “be applied in repayment of ... advances to Blow Out Prevention, Ltd., Blow Out Prevention Equipment Services, Ltd., and Mappco Machinery, Ltd.” The second subparagraph, B by designation, required the Bank of Montreal to make an irrevocable assignment to Barton of all security taken for the previously mentioned advances. The last full paragraph recited the date and origin of the letter or credit.

Relying on this letter and the confirmation, the Bank of Montreal made advances to the Blow Out Companies in excess of one million dollars. On June 14, 1982, the Bank attempted to draw on the letter of credit from Harris, enclosing a statement that the proceeds of the draft would be applied in repayment of advances to Blow Out Products, Ltd. Also enclosed were assignments of security to Barton Valve, with a statement that the assignments conveyed all security taken for the advances. Harris refused to honor the draft for several reasons, most notable of which was the assertion that Blow Out Products, Ltd, was not among the companies listed in subparagraph A.

The Bank of Montreal then attempted to draw on the letter of credit from Federal National. On January 24, 1983, the Bank forwarded its statement that the proceeds would be applied in repayment of advances to Blow Out Products, Ltd., including an explanation that subparagraph A of the letter of credit mistakenly referred to that company as Blow Out Prevention, Ltd. The January 24 letter to Federal National also recited the assignment of security to Barton Valve, noting that the supporting documents were in the possession of Harris. Federal National refused to honor the draft, noting that Blow Out Products was not among the companies listed in subparagraph A, and that no assignment had been made of security taken from Blow Out Prevention, Ltd.

On February 17,1983, the Bank of Montreal again attempted to draw on the letter of credit from Federal National. The Bank further clarified that subparagraph A was erroneously drafted in that Blow Out Prevention, Ltd. was substituted for the intended Blow Out Products, Ltd. The Bank also noted that Blow Out Prevention, Ltd. did not exist, and that Barton Valve could verify these facts. Nevertheless, Federal National again refused to honor the draft, stating that Blow Out Products, Ltd. was not among the companies listed in subparagraph A. The written refusal also recited the rather cryptic objection that the security mentioned in subparagraph B had not been assigned to Barton Valve.

Both sets of litigants feel that this set of facts entitles them to summary judgment on the Plaintiff’s claim. The Defendants argue that their dishonors were proper because the Plaintiff was not in strict compliance with conditions specified in the letter of credit. The Plaintiff argues, however, that had subparagraph A been properly drafted, its performance would have been sufficient compliance to obtain payment of the draft.

It is true that a party issuing a letter of credit is not obliged to honor drafts thereon unless the conditions in the letter are satisfied with strict compliance. See, e.g., Venizelos v. Chase Manhattan Bank, 425 F.2d 461, 465 (2d Cir.1970). This is the so-called “New York Rule”, and it is widely accepted in jurisprudence relevant to letters of credit. See Far Eastern Textiles, Ltd. v. City National Bank & Trust Co., 430 F.Supp. 193, 195 (S.D.Ohio 1977). Thus, the Defendant banks would be justified in their dishonor of the drafts if the Plaintiff failed to render strict compliance with the terms of the letter of credit.

The issue of strict compliance, presumably an easy matter to determine in most eases, is complicated by the ambiguity of the letter of credit in this case. The establishment clause, the first paragraph, gives a list of the companies to whom advances are expected. The certification clause, subparagraph A of the second paragraph, lists the companies about whom documentation is required to draw on the letter of credit. One would reasonably expect that the two lists would be identical, since the first anticipates that advances will be made and the second outlines the procedure to obtain repayment of the advances. However, the lists are not identical; the certification clause differs from the establishment clause in that Blow Out Prevention, Ltd. is substituted for Blow Out Products, Ltd.

The Defendants seek to avoid this ambiguity by asserting that, as the certification clause is controlling, the discrepancy is irrelevant. They argue that subparagraph A can be satisfied only if the Bank of Montreal provides documentation relative to Blow Out Prevention, Ltd., Blow Out Prevention Equipment Services, Ltd., and Mappco Machinery, Ltd. Under this theory the Defendant banks would be justified in dishonoring the drafts because the Plaintiffs documentation concerned Blow Out Products, Ltd., a company not listed in subparagraph A.

The problem with this construction of the letter of credit is that it exalts form over substance, with incongruous results. If the Court were to adopt the Defendants’ argument, the Bank of Montreal would be unable to obtain repayment of advances made to Blow Out Products, Ltd. despite the clear language of the first paragraph that the letter of credit was issued to obtain such advances. Further, under the Defendants’ theory, the Bank of Montreal could draw on the letter of credit by certifying that it had advanced funds to Blow Out Prevention, Ltd. despite the fact that the first paragraph of the letter of credit does not anticipate advances to that company. Indeed, the uncontroverted evidence establishes that Blow Out Prevention, Ltd. does not exist. These unlikely results obtainable under the Defendants’ proposed construction militate against its adoption by the Court.

A more reasonable construction of the letter of credit is that it must be read as a whole, taking the certification clause in conjunction with the establishment clause. Viewed in this light, the substitution of Blow Out Prevention, Ltd. for Blow Out Products, Ltd. in the certification clause is clearly a draftsman’s error. Thus, the letter of credit would be read to require payment of a draft accompanied by a certification that the proceeds would be applied in repayment of advances made to Blow Out Products, Ltd.

The Court is satisfied that the latter construction is the one appropriate in this case. In construing a letter of credit in Liberty National Bank & Trust Co. v. Bank of America, 218 F.2d 831 (10th Cir.1954), the Court stated:

Where the language contained in an agreement is contradictory, obscure, or ambiguous, or where the meaning of an agreement is doubtful, so that the contract is fairly susceptible of two constructions, one of which makes it fair, customary, and such as prudent men would naturally enter into, while the other makes it inequitable, unusual, or such as reasonable men would not be likely to enter into, the former interpretation must be preferred to the latter.

Id. at 840 [citations omitted]. This rule clearly indicates that the Court must reject the Defendants’ proposed construction of the letter of credit, which denies repayment of advances to authorized companies but permits repayment of advances made to a non-existent company. This construction is inequitable and unusual, and the Bank of Montreal would not have been likely to enter into the agreement with this understanding. Thus, the Court finds that the substitution of Blow Out Prevention, Ltd. for Blow Out Products, Ltd. was a draftsman’s error, and that the Bank of Montreal can obtain repayment under the letter of credit for advances made to Blow Out Products, Ltd. This construction is fair, and is no doubt the intention of the parties to the letter of credit. The ultimate rule of construction is that the intent of the parties controls the nature of the agreement. Liberty National Bank, 218 F.2d at 840. In any event, the ambiguity in the letter of credit must be resolved against the issuing banks. Venizelos, 425 F.2d at 465.

Having concluded that the latter construction is the appropriate one in this case, the Court is satisfied that the Bank of Montreal met the condition specified, albeit confusingly, in subparagraph A. That section required an affirmation that the proceeds of the draft would be applied to repayment of advances to the authorized companies, one of which was Blow Out Products, Ltd. Thus, the Defendants’ dishonor of the drafts is not justifiable under this argument.

As the Defendants’ Motion for Summary Judgment hinged on their construction of the letter of credit, that motion is denied. There remains the Plaintiff’s Motion for Summary Judgment, which is much stronger given the Court’s construction of the letter of credit. Nevertheless, the Defendants argue that summary judgment is inappropriate because the Bank of Montreal did not satisfy the conditions stated in subparagraph B of the letter of credit. Under this argument, the Defendant banks’ dishonor might yet be found appropriate on the facts of this case.

This argument focuses on the requirement in subparagraph B that the Bank of Montreal make an “irrevocable assignment of ... security on the assets and collateral and security interest obtained ... relative to advances ...” made to the authorized companies. In each of the attempts to draw, the Bank of Montreal recited its irrevocable assignment of all security, and the first attempt was accompanied by individual documents making the assignments. Nevertheless, the Defendants assert that the condition in subparagraph B was not met by these assignments. They argue that the underlying agreement between Barton Valve and the Bank of Montreal required the Bank to obtain a debenture from the Blow Out Companies to be assigned to Barton Valve. Because this debenture was never obtained, they argue, the Bank did not make the requisite assignment of security under subparagraph B.

The Court finds this proposition without merit. The letter of credit in this case was the sole contract between the Bank of Montreal and the issuing banks, and it was independent of any alleged contract between Barton Valve and the Bank of Montreal. See Venizelos, 425 F.2d at 465; Savage v. First National Bank & Trust Co., 413 F.Supp. 447, 451 (N.D.Okla.1976). The issue to be determined is whether the Bank of Montreal satisfied the condition specified in subparagraph B, not whether it performed an alleged underlying contract with Barton Valve. If the Bank satisfied that condition, the issuing parties would be obliged to pay the drafts regardless of whether the Bank performed its contract with Barton. See, e.g., Harvey Estes Construction Co. v. Dry Dock Savings Bank, 381 F.Supp. 271, 274 (W.D.Okla.1974).

The Court is satisfied that the Bank of Montreal did meet the condition specified in subparagraph B. That section of the letter of credit required the Bank to assign to Barton Valve all its security taken for the advances. The documents presented by the Bank clearly do this. There is no argument that the Bank took the debenture from the Blow Out Companies and then failed to assign it; indeed, the only evidence presented indicates that the Bank never took the debenture as security. Such a result may constitute breach of the contract between the Bank and Barton, but it does not constitute failure of the condition in subparagraph B of the letter of credit issued by the Defendant banks to the Bank of Montreal.

Thus, as the Bank of Montreal satisfied all the conditions expressed in the letter of credit, the issuing bank and the confirming bank were obliged to pay the drafts. Harvey Estes Construction, 381 F.Supp. at 274, The uncontroverted evidence is that they did not, and the Plaintiffs Motion for Summary Judgment is therefore granted.

One remaining matter for the Court’s consideration is the Defendant Barton Valve’s counterclaim for declaratory judgment. That counterclaim seeks judicial declarations that the Bank of Montreal is not entitled to draw on the letter of credit. It is the Court’s opinion that such declaratory relief is precluded by the Court’s rulings previously announced in this Order. Accordingly, summary judgment is granted in favor of the Bank of Montreal on the Defendant Barton Valve’s counterclaim.

In summary, the Defendants’ Motion for Summary Judgment is denied. The Plaintiff’s Motion for Summary Judgment is granted. The Plaintiff is also granted summary judgment on the Defendant Barton Valve’s counterclaim.

      . Another discrepancy in the letter of credit is that in both the establishment clause and the certification clause Mattco Machine, Ltd., one of the Blow Out Companies, is erroneously called Mappco Machinery, Ltd. However, this discrepancy is not relevant to the case.

        . This conclusion is reinforced by the obvious error previously noted supra at footnote 1.

      . Id.


author: TASHIMA, District Judge.

text:
    Leslie Walpole PROCTOR, etc., et al., Plaintiffs, v. UNITED STATES of America, Defendant.
    No. CV 83-3415 AWT.
    United States District Court, C.D. California.
    Aug. 21, 1984.
    Wallace E. Maloney, Philip M. Foss, Lord, Bissell & Brook, Los Angeles, Cal., for plaintiffs.
    Robert C. Bonner, U.S. Atty., Los Angeles, Cal, Richard K. Willard, U.S. Atty., Los Angeles, Cal., Gary W. Allen, Asst. Dir. Torts Branch, Civil Div., Cecile Hatfield, Trial Atty., Torts Branch, Civil Div., U.S. Dept, of Justice, Washington, D.C., for defendant.
   MEMORANDUM ORDER OF DISMISSAL

TASHIMA, District Judge.

This is an action for property damage and indemnity arising out of a tragic airplane accident. Plaintiffs are insurers who entered into a contract with Saudi Arabian Airlines Corp. (“SAA”) to insure a certain Lockheed Tri-Star L-1011 aircraft, registration number HZ-AHK (the “aircraft”, or “plane”), for damage to the aircraft and for liability arising out of its ownership and use. Plaintiffs allege that on August 19, 1980, the aircraft was on a regularly scheduled flight between Riyadh and Jeddah, Saudi Arabia, when a fire broke out in the aft part of the plane. The plane returned to Riyadh airport, but was consumed by flames. All 301 persons on board the flight were killed.

Plaintiff insurers allege that they have paid to their insured, SAA, $45 million in full settlement of loss of the aircraft and over $7 million in good faith settlements of wrongful death claims. Plaintiffs bring this action as subrogees of SAA for its claims for property damage and indemnification for payments in settlement of the wrongful death claims. Jurisdiction is invoked under the Federal Torts Claim Act, 28 U.S.C. §§ 2671, et seq. (“FTCA”).

Plaintiffs claim liability on the part of the United States for the alleged “failure” of employees of the Federal Aviation Administration (“FAA”) “to properly inspect” the aircraft for compliance with FAA regulations, resulting in the negligent issuance of a type certification for the aircraft. In its answer, the United States denied plaintiffs allegations of negligence and asserted, inter alia, as an affirmative defense, lack of subject matter jurisdiction, pursuant to 28 U.S.C. § 2680(a), which bars claims against the United States for discretionary acts of its employees, whether or not the discretion involved is abused.

Recently, in two actions against the FAA “for its alleged negligence in certificating aircraft for use in commercial aviation” the Supreme Court held that the actions were “barred by the discretionary function exception.” United States v. S.A. Empresa de Viacao Aerea Rio Grandense (Varig Airlines), 467 U.S. 797, 104 S.Ct. 2755, 2769, 81 L.Ed.2d 660 (1984) (“Vang ”). Before the Court is the government’s motion to dismiss; the sole issue raised by the motion is whether Varig is controlling.

The Court stated broadly that it granted certiorari in the two cases “to determine whether the United States may be held liable under the Federal Tort Claims Act, 28 U.S.C. §§ 2671 et seq., for the negligence of the Federal Aviation Administration in certificating ... aircraft for use in commercial aviation.” Id., 104 S.Ct. at 2758. In one case, a fire in the lavatory of a commercial jet resulted in the death of most of its passengers. Plaintiff alleged that the Civil Aeronautics Agency, the FAA’s predecessor, had been negligent when it conducted an inspection and issued a type certificate for an aircraft which did not comply with applicable fire standards. The second case concerned an airplane crash which resulted from an improperly installed heater and the government’s alleged negligence in certificating the heater. In holding that both actions were barred by the discretionary function exception, the Court stated that the exception “plainly was intended to encompass the discretionary acts of the Government acting in its role as a regulator of the conduct of private individuals.” Id. at 2765.

The Court then summarized the FAA’s regulatory activities:

In the exercise of this discretion, the FAA, as the Secretary’s designee, has devised a system of compliance review that involves certification of aircraft design and manufacture at several stages of production____ The FAA certification process is founded upon a relatively simple notion: the duty to ensure that an aircraft conforms to FAA safety regulations lies with the manufacturer and operator, while the FAA retains the responsibility of policing compliance. Thus, the manufacturer is required to develop the plans and specifications and perform the inspections and tests necessary to establish that an aircraft design comports with the applicable regulations; the FAA then reviews the data for conformity purposes by conducting a “spot check” of the manufacturer’s work.

Id. at 2766-67. The Court concluded that the ultimate responsibility for aircraft safety, and the commensurate liability for aircraft accidents resulting from a breach of that duty, rested with the aircraft manufacturer rather than with the government: “The FAA has a statutory duty to promote safety in air transportation, not to insure it.” Id. at 2769 (emphasis in original).

Plaintiffs contend that Varig is distinguishable because Varig addressed only the propriety of the FAA’s “spot check” system. Here, plaintiffs do not challenge the propriety of that system, but contend that an inspection, which is alleged actually to have been performed, was performed negligently. Plaintiffs first note that the Court stated:

From the records in these cases there is no indication that either the Boeing 707 trash receptacle or the DeHavilland Dove cabin heater was actually inspected or reviewed by an FAA inspector or representative____ Respondents thus urge in effect that the negligent failure of the FAA to inspect certain aspects of aircraft type design in the process of certification gives rise to a cause of action against the United States under the [FTCA],

Id. at 2766. Plaintiffs then argue that since they do not allege failure to inspect as did respondents in Varig, but allege a negligently performed inspection, the holding in Varig does not preclude this action. I must disagree.

Although plaintiffs may well accurately characterize the position of respondents in Varig, it is clear that the Court adopted the much broader position urged by the government; that is, that the entire FAA certification process is immune from potential tort liability. Thus, the Court agreed with the government that “the discretionary function exception precludes a tort action based upon the conduct of the FAA in certificating these aircraft for use in commercial aviation.” Id. (emphasis added).

Plaintiffs contention that Varig addressed only the propriety of FAA policy directives, rather than employee conduct in effectuating such directives, is contrary to the opinion.

It follows that the acts of FAA employees in executing the “spot check” program in accordance with agency directives are protected by the discretionary function exception as well. See Dalehite v. United States, 346 U.S. [15] at 36 [73 S.Ct. 956, 968, 97 L.Ed. 1427]. The FAA employees who conducted compliance reviews of the aircraft involved in this case were specifically empowered to make policy judgments regarding the degree of confidence that might reasonably be placed in a given manufacturer, the need to maximize compliance with FAA regulations, and the efficient allocation of agency resources.

Id. at 2768.

Plaintiffs’ claim of negligent inspection is, in essence, a claim that the FAA should have conducted a more careful or thorough inspection of the aircraft system alleged to have caused the fire. However, Varig insulates from liability the discretionary judgment of FAA employees as to the degree of manufacturer oversight deemed necessary in a given certification. This discretionary judgment encompasses decisions to thoroughly check, cursorily check, or not to check at all a particular aircraft or system in order to police compliance with the applicable FAA regulations. Liability simply may not be placed on the FAA in the certification process, as its role merely is to provide incentive, in addition to that provided by prospective tort liability, for manufacturers to manufacture safe airplanes.

A contrary holding would lead to the anomolous situation where the FAA would be immune from liability under Varig if it certificated an aircraft without inspection, but would be subject to liability for any certificated aircraft it did inspect. This would tend to encourage the FAA to inspect as few aircraft as possible, and would run counter to the FAA’s statutory responsibility to promote safety in air transportation and to the public interest. It is the kind of judicial second guessing Vang counsels courts to avoid:

Judicial intervention in such decisionmaking through private tort suits would require the courts to “second-guess” the political, social, and economic judgments of an agency exercising its regulatory function. It was precisely this sort of judicial intervention in policymaking that the discretionary function exception was designed to prevent.

Id.

For the foregoing reasons, I conclude that Varig is controlling; the discretionary function exception to FTCA jurisdiction precludes this action. Defendant’s motion is granted and the action is DISMISSED.