author: SHADUR, District Judge.

text:
    The GROVE SCHOOL and Robert E. Matson, Plaintiffs, v. GUARDIANSHIP AND ADVOCACY COMMISSION, Elizabeth M. McKee, Mary C. Gibb, Evelyn Engler, Ruth Durkin and Hector E. Palacios, Defendants.
    No. 84C2675.
    United States District Court, N.D. Illinois, E.D.
    Oct. 24, 1984.

      John L. Gubbins, Chicago, 111., for plaintiffs.
    Paul Millichap, Asst. Atty. Gen. of 111., Chicago, 111., for defendants.
   MEMORANDUM OPINION AND ORDER

SHADUR, District Judge.

The Grove School (“School”) and its Executive Director Robert Matson (“Mat-son”) charge Guardianship and Advocacy Commission of the State of Illinois (“Commission”) and its employees Elizabeth McKee (“McKee”), Mary C. Gibb (“Gibb”), Evelyn Engler (“Engler”), Ruth Durkin (“Durkin”) and Hector E. Palacious (“Palacious”) violated Grove’s First and Fourteenth Amendment rights during a GAC investigation of alleged violations by Grove of state laws for treatment and education of handicapped children. Those are advanced under 42 U.S.C. § 1983 (“Section 1983”). Grove also asserts pendent common-law libel and trade libel claims against GAC.

GAC invokes Fed.R.Civ.P. 12(b)(6) to challenge Grove’s Complaint on a multiplicity of grounds. It attacks the sufficiency of the First and Fourteenth Amendment allegations generally and also asserts the following specific flaws:

1. Commission is not a “person” for Section 1983 purposes.
2. Under the Eleventh Amendment no action for monetary damages may be brought against Commission or its employees sued in their official capacities.
3. Federal courts lack authority to compel state officials to conform their conduct to state law. That bars the pendent claims.
4. Commission is a quasi-judicial board, so its officers enjoy absolute judicial immunity.
5. Allegations against Engler, Gibb and Palacious are insufficient to establish their direct involvement in a deprivation of Grove’s rights.
6. Gibb and Engler may not be held liable for damages on respondeat superi- or grounds.

Grove of course seeks to repel all of GAC’s onslaughts.

Because GAC’s motions to dismiss various defendants may be treated more readily in the context of at least one valid substantive claim, this opinion will first deal with Grove’s First Amendment assertions, then turn to the objections by specific defendants, then return to the other claims in the Complaint. For the reasons stated in this opinion, GAC’s motions to dismiss (1) Commission as a defendant and (2) the Fourteenth Amendment due process claims against all individual defendants are granted. Its motions to dismiss (1) the individual defendants generally, (2) First Amendment claims and (3) the pendent claims are denied.

Facts

School is a residential, medical and educational facility for the multiply handicapped and developmentally disabled. It was founded by Virginia Matson in 1958 and is now run by her son Robert.

Commission is an executive agency of the State of Illinois created to protect the rights of the mentally ill and developmentally disabled. Among its three divisions is the Human Rights Authority (“Authority”), which operates through regional boards that investigate complaints alleging violations of such persons’ rights. Those regional boards are empowered to conduct hearings, subpoena witnesses and documents, release findings to the public, recommend that other agencies take punitive or remedial action, and propose legislation for the protection of the handicapped. Ill. Rev.Stat. ch. 9IV2, Ml 714-728.

Engler is Authority’s Director. McKee is Chairperson, Gibb is Vice-Chairperson and Durkin is a Board member of Authority Region 2'North (the region in which the School is located). Palacious is an attorney employed by Commission.

Matson and his mother Virginia have run School according to a philosophy that conflicts with the prevailing philosophy of Commission .and other Illinois agencies as to the proper way to handle the education of the multiply handicapped and developmentally disabled. Both Matsons and School have advocated their own philosophy and criticized Commission practices.

To punish Matson and School for such criticisms and nonconformist philosophy, GAC instituted a harassment campaign under the guise of an investigation of charges GAC knew were false. GAC made numerous visits to School’s campus to question students and employees, and it also made burdensome document requests, all of which disrupted School’s operation.

On July 6, 1983 GAC held a public “hearing” at which it released a number of false charges against School and Matson, including charges of understaffing, improper distribution of medication and permitting sexual abuse of residents. “Hearing” is really a euphemism for what actually took place, for GAC had refused Grove’s several requests for advance notice of the nature of the charges, nor did GAC give Grove any opportunity to object or respond at the “hearing” or to attach a response to the written report GAC distributed to the press. Since that time GAC has continued its investigation and has recommended that other Illinois agencies and the Illinois legislature take action against Grove, including cutting off School’s funding, removing Matson as Executive Director and revoking School’s and Matson’s licenses.

As a result of GAC’s actions and the adverse publicity, Grove has suffered disruption in providing its services, frustration in accomplishing its educational goals and a loss of reputation, enrollment and revenues. Both compensatory and punitive damages are sought from all defendants.

First Amendment Claims

School’s and Matson’s factual allegations (though not their conclusory allegations of law) advance two possible bases for asserting violation of their First Amendment rights. One surely states a valid claim: the charge that GAC’s actions have been motivated by a desire to punish Grove for criticizing GAC and for advocating Grove’s own philosophy of treatment of the multiply handicapped and developmentally disabled.

One major purpose of the First Amendment was to protect free discussion of governmental affairs. Landmark Communications, Inc. v. Virginia, 435 U.S. 829, 838, 98 S.Ct. 1535, 1541, 56 L.Ed.2d 1 (1978). It is axiomatic that government may not attempt to inhibit criticism of public policies or officials by punishing those who express critical views, at least unless the expression actually hinders the functioning of the state. Hostrop v. Board of Junior College District No. 515, 471 F.2d 488, 492 (7th Cir.1972) and authorities there cited. On Grove’s allegations, GAC’s actions are an impermissible attempt to inhibit Grove from exercising the constitutional right to criticize GAC and to advocate Grove’s own philosophy of treatment. GAC has not suggested any — let alone a compelling — governmental reason for suppressing Grove’s views.

GAC argues its conduct was non-actionable because GAC itself had no power to cut off funding, close down School or remove Matson as Executive Director. Whether those factors may be relevant to Grove’s First Amendment charge as expressed in the Complaint is discussed below, but they miss the point of the theory now under consideration. To establish a violation of their First Amendment rights of expression, School and Matson need show only impermissible action tending to inhibit their speech. Bart v. Telford, 677 F.2d 622, 625 (7th Cir.1982). Indeed they need not show the desire to punish or inhibit their speech was the sole motivation for GAC’s action.

Even if it be assumed there was a legitimate basis for launching the investigation, Grove’s Complaint may thus fairly be read to allege GAC’s investigation was arbitrary, unusually burdensome and unnecessarily harassing because of GAC’s disagreement with Grove’s views. That states a viable First Amendment claim.

But the stated thrust of Grove’s express invocation of the First Amendment lies in a different direction: the charge that GAC has interfered with Grove’s constitutionally guaranteed freedom to establish and administer an educational treatment program consistent with its own philosophy and with parents’ constitutional right to choose the educational philosophy that will guide their childrens’ education. At least the first part of that contention also survives dismissal.

In support of its theory Grove cites Sweezy v. New Hampshire, 354 U.S. 234, 77 S.Ct. 1203, 1 L.Ed.2d 1311 (1957), Regents of the University of California v. Bakke, 438 U.S. 265, 98 S.Ct. 2733, 57 L.Ed.2d 750 (1978) and Pierce v. Society of Sisters, 268 U.S. 510, 45 S.Ct. 571, 69 L.Ed. 1070 (1925). All three of those cases, together with other cases not called on by Grove but plainly relevant, keep it in court.

Sweezy involved the right of a university professor to resist government interrogation about his past associations and the content of a lecture he had delivered. It concerned governmental interference with an individual’s expression of ideas in a university setting. As for the Bakke excerpt Grove cites (438 U.S. at 311-15, 98 S.Ct. at 2559-61), it considered the importance to a university of assuring itself a diverse student body and emphasized the university’s freedom to design its curriculum, choose its teachers and exchange ideas. Pierce emphasized the right of parents to expose their children to ideas and educational philosophies other than those of the state. Though that right is not Grove’s own, under the circumstances alleged here it implies a protectible corollary right on Grove’s part to express such ideas and philosophies.

Read in the most favorable light, Grove’s Complaint asserts the very conduct of School’s affairs in accordance with Grove’s philosophy is a form of expression protected by the First Amendment. Tinker v. Des Moines School District, 393 U.S. 503, 505-06. 89 S.Ct. 733, 735-36, 21 L.Ed.2d 731 (1969) teaches such protection extends to “symbolic act[s]” akin to “pure speech.” It is of course true that (Clark v. Community for Creative Non-Violence, — U.S. -,-& n. 5, 104 S.Ct. 3065, 3069 & n. 5, 82 L.Ed.2d 221 (1984)):

1. “[I]t is the obligation of the person desiring to engage in assertedly expressive conduct to demonstrate that the First Amendment even applies. To hold otherwise would be to create a rule that all conduct is presumptively expressive.”
2. Even expressive conduct “may be -forbidden or regulated if the conduct itself may constitutionally be regulated, if the regulation is narrowly drawn to further a substantial governmental interest, and if the interest is unrelated to the suppression of free speech.”

But at this early stage of the litigation, this Court has not been afforded enough information to determine whether Grove’s conduct is protected speech or to evaluate the government’s interest in regulation. Grove’s uncontroverted allegations supply the requisite prima facie case. From this second perspective too, then, Grove’s First Amendment claims survive dismissal.

All the preceding discussion proceeds from the premise Grove has adequately pleaded its First Amendment claims. Because GAC challenges the Complaint on those terms, a brief treatment of the technical pleading considerations is in order.

True enough, the Complaint’s specific reference to the First Amendment was scanty. It is also true that brief reference did not articulate the theory GAC violated School’s and Matson’s First Amendment rights by punishing them for expressing their views. But what controls is that the factual allegations necessary to support that unstated theory, as well as the theory Complaint ¶ 29 did specify, are present in the Complaint.

Under the teaching of Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-02, 2 L.Ed.2d 80 (1957), as recently reaffirmed in Hishon v. King & Spalding, — U.S.-, -, 104 S.Ct. 2229, 2233, 81 L.Ed.2d 59 (1984), a motion to dismiss may be granted only if it “appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.” That means this Court “is under a duty to examine the complaint to determine if the allegations provide for relief under any possible theory.” Craft v. Board of Trustees, 516 F.Supp. 1317, 1323 (N.D.Ill.1981); 5 Wright & Miller, Federal Practice and Procedure: Civil § 1357, at 601-02 (1969). Because this Court has found Grove’s allegations state a cause of action, both in terms specifically identified in the Complaint and in terms implicated by its factual allegations, the Complaint cannot be dismissed.

Proper Defendants

1. Commission

Commission argues it is not a “person” for Section 1983 purposes. That may be rephrased in traditional jurisprudential terms. Because Quern v. Jordan, 440 U.S. 332, 341, 99 S.Ct. 1139, 1145, 59 L.Ed.2d 358 (1979) and Pennhurst State School & Hospital v. Halderman, — U.S. -, -, 104 S.Ct. 900, 907, 79 L.Ed.2d 67 (1984) have laid to rest the notion that Section 1983 abrogates the Eleventh Amendment, the appropriate inquiry is whether Commission, a state agency, is protected under standard sovereign immunity analysis.

Monell v. Department of Social Services, 436 U.S. 658, 690, 98 S.Ct. 2018, 2035, 56 L.Ed.2d 611 (1978) held municipalities are not immune from Section 1983 suits — a holding it explicitly limited to “local government units which are not considered part of the State for Eleventh Amendment purposes” (id. at 690 n. 54, 98 S.Ct. at 2035 n. 54). Later in the same Term the Supreme Court refused to extend the Monell exception to state agencies and held the Alabama Board of Corrections enjoys sovereign immunity under Section 1983. Alabama v. Pugh, 438 U.S. 781, 782, 98 S.Ct. 3057, 57 L.Ed.2d 1114 (1978) (per curiam). Pennhurst, 104 S.Ct. at 908 reaffirmed the immunity of state agencies. Accord, Toledo, Peoria & Western Railroad Co. v. Illinois, 744 F.2d 1296 at 1298 (7th Cir. 1984). Commission is therefore immune from suit on both the Section 1983 and pendent claims.

2. Engler, Gibb and Palacious

Engler, Gibb and Palacious move for dismissal on the premise the Complaint’s allegations do not establish their direct involvement in any alleged deprivation of School’s or Matson’s rights. Duncan v. Duckworth, 644 F.2d 653, 655 (7th Cir.1981) is cited for the proposition that a defendant may not be held liable under Section 1983 unless his “direct and personal responsibility” for the alleged deprivation is proved.

But on the current motion the test is one of pleading, not proof. And on that score the Complaint alleges specific participation by each of Engler, Gibb and Palacious in GAC’s investigation of School:

1. Gibb notified Grove of the July 6 public hearing (Complaint Tí 17).
2. Engler approved the public release of GAC’s charges against School (Complaint 1118).
3. Palacious demanded records from School and reported School to Illinois authorities for prosecution (Complaint ¶ 16).

Complaint 1117 also ascribes pre-July 6 harassing tactics of various kinds to “defendants,” without particularizing just who did what. All those allegations are enough to implicate the named defendants directly in the alleged harassment and thus keep them in the case.

Due Process Claims

Under Parratt v. Taylor, 451 U.S. 527, 536-37, 101 S.Ct. 1908, 1913, 68 L.Ed.2d 420 (1981) the plaintiff in a Section 1983 due process claim must show that defendants:

1. acting under color of state law
2. deprived plaintiff
3. of a right, privilege or immunity secured by the Constitution or laws of the United States
4. without due process of law.

Mere defamation, for example, is insufficient to establish a due process violation. Paul v. Davis, 424 U.S. 693, 710, 96 S.Ct. 1155, 1164, 47 L.Ed.2d 405 (1976). Grove Mem. 8 originally acknowledged the Parratt formula, but its Supp.Mem. 2 retreated to the incorrect assertion that the only essential elements of such due process claims are that (1) the plaintiff be injured (2) by governmental action. Grove’s claims fall as far short of the mark as its statement of the law.

1. Threats to Licenses and Funds

Unencumbered by logic or precedent, Grove takes the remarkable position that the deprivation of a legally protected interest is not a necessary element of a due process action. It asks that GAC be held liable for merely threatening School’s and Matson’s licenses, neither of which has been revoked. On that premise GAC would be guilty of depriving Matson of his “right” to engage in the profession of his choice even though he is still entitled to engage in that profession. In like manner Grove would hold GAC liable for depriving it of state funding that Grove nevertheless continues to receive, merely because GAC’s defamatory statements threatened that funding or because GAC told other state agencies to “cease doing business” with Grove. Needless to say, no action lies for such mere threats.

2. Prospective Business Advantage

Grove also contends GAC’s actions have somehow deprived it of its “prospective business advantage.” School fails to explain just what that interest is and the nature of the deprivation. And it offers no case support for the proposition that “prospective business advantage” is a protectible property interest.

3. Loss of Funding

School says GAC’s defamatory statements have deprived it of two sources of funding: grant money from the Lake County Environmental Planning Board and fixed per diem reimbursements from the State of Illinois based on the number of students enrolled. It claims (1) the Planning Board has refused to release its grant until GAC has cleared School of wrongdoing and (2) the per diem reimbursement levels have dropped in proportion to School’s drop in enrollment (a product of GAC’s unfavorable publicity).

Even so School has not stated a claim under the Due Process Clause. It fails as to at least two of the ingredients identified in Parratt.

First, no protectible property interest arises unless School has a “legitimate claim of entitlement” to the funds beyond an “abstract need or desire” or a “unilateral expectation.” Board of Regents v. Roth, 408 U.S. 564, 577, 92 S.Ct. 2701, 2709, 33 L.Ed.2d 548 (1972). Absent any indication of a right to the Board’s grant, it must be assumed (as would normally be the case) such grant is discretionary. Any loss of per diem funds is even more tenuous. Their reduction is attributable entirely to a loss of students. Thus School has no right to a greater reimbursement unless it also has a well-founded right to a larger student population. Again it has alleged no such right.

Second, even if School did have a right to the lost funds, it has not shown GAC’s legal responsibility for the deprivation. GAC’s public and private charges may have been the catalyst for the withholding of the grant or the drop in enrollment, but as long as GAC did not exercise some control over the decision-making process of the Planning Board or the school districts that stopped referring students to School, GAC is not the legal cause of the deprivation.

In Margoles v. Tormey, 643 F.2d 1292 (7th Cir.1981) a physician charged members of the Wisconsin Board of Medical Examiners violated due process when they supplied derogatory information about him to Illinois medical examiners, who then denied him a license. Our Court of Appeals held the Wisconsin officials could not be said to have deprived the physician of his license, absent a showing they played an active role in the Illinois decision beyond supplying information. Id. at 1296-99 & 1297 n. 8. Thus so long as the decisionmaker is in a position to evaluate such derogatory information independently and to reject it if it lacks credibility, the information supplier cannot be held legally responsible for the resulting decision.

Grove has not met the burden of pleading established by Margóles. It has not alleged GAC played any role in the internal decisionmaking processes of the Planning Board or the referring schools, as distinct from supplying them with information that they were free to disregard. Grove does urge GAC controlled the Planning Board’s decision, but not in the Margóles sense. Instead the “control” cited by Grove is the Planning Board’s refusal to release grant money without a favorable report from GAC. In conventional tort law analysis, the Planning Board has opted to make GAC a “but for” factor in the deprivation, but that does not render GAC a “legal” or “proximate” cause. Because the Planning Board is free to disregard GAC reports about School, GAC is not legally responsible for the loss. And the same tort law analogy applies a fortiori to the independent determinations by the referring schools.

Pendent Libel Claims

Earlier this year Pennhurst, 104 S.Ct. at 921 held the Eleventh Amendment stripped federal courts of jurisdiction over a pendent claim by Pennsylvania citizens to require Pennsylvania mental health officials to conform their conduct to state law. GAC argues from Pennhurst that sovereign immunity protects not only Commission but also the individual defendants from Grove’s state law libel claims.

Pennhurst, 104 S.Ct. at 917-19 taught pendent jurisdiction does not override sovereign immunity. Each pendent claim in a Section 1983 case must be separately examined from an Eleventh Amendment standpoint to determine whether the federal court has jurisdiction. Id. at 919. That line of analysis will be pursued here.

By its terms the Eleventh Amendment prohibits only suits against a state. To block end runs around that prohibition, suits that name individual state officials are also barred when the state is the real party in interest. Pennhurst, 104 S.Ct. at 908; Toledo, Peoria & Western, at 1299. Consequently complaints against such individuals (like Grove’s Complaint in this case) are subject to a two-step analysis:

1. May the suit be deemed a suit against the state?
2. If so, does the suit nevertheless fall within the exception to the Eleventh Amendment carved out by Ex parte Young, 209 U.S. 123, 160, 28 S.Ct. 441, 454, 52 L.Ed. 714 (1908)?

Pennhurst’s rewrite of the Eleventh Amendment unequivocally foreclosed the Young exception in this case when it decided “Young and Edelman are inapplicable in a suit against state officials on the basis of state law” (104 S.Ct. at 911). Thus the only issue here is whether Grove’s libel claims may be deemed suits against the state.

For that purpose the effect of the relief sought determines whether a suit is against the sovereign. Id. at 908, 913. Dugan v. Rank, 372 U.S. 609, 620, 83 S.Ct. 999, 1006, 10 L.Ed.2d 15 (1963) (citations omitted) summarized the standards:

The general rule is that a suit is against the sovereign if “the judgment sought would expend itself on the public treasury or domain, or interfere with the public administration,” ... or if the effect of the judgment would be “to restrain the government from acting, or to compel it to act.”

In literal terms Grove’s Complaint asks damages (both compensatory and punitive) from the individual defendants. But because neither party has addressed the possibility of state indemnification of Commission’s employees, this Court cannot now determine the extent (if any) to which the claims nominally asserted against individuals are in fact levelled against the state. If the employees are entitled to be indemnified against compensatory damage awards, a judgment for those damages “would expend itself on the public treasury,” so the claim would be barred by the Eleventh Amendment.

It would however be surprising to find the individuals entitled to indemnification from the state for any award of punitive damages. If they are not, a claim for such damages would plainly be asserted strictly against the individuals and would not be affected by the Eleventh Amendment.

In sum it is really impossible, on the parties’ incomplete submissions to date, to decide whether this Court has jurisdiction over the pendent claims under Pennhurst. GAC’s motion in that respect is denied without prejudice.

Conclusion

All Grove’s claims against Commission, and all its due process claims against the individual defendants, are dismissed. GAC’s motion to dismiss is denied in all other respects, and the individual defendants are ordered to answer the surviving claims on or before November 5, 1984. This Court’s October 31 status report date is vacated and replaced by a status report date of November 28 at 9:15 a.m.

      . Where convenient, "Grove" (employed as a singular noun) will be used to refer to School and Matson collectively.

      . Where convenient, “GAC” (employed as a singular noun) will be used to refer to Commission and its codefendants collectively. One added technical matter: Though Grove’s complaint used the spelling "Palacios,” this opinion assumes his own lawyer has the spelling right— hence "Palacious."

      . Of course this common usage is technically inaccurate, for all Grove’s rights against state actors — including First-Amendment-type rights — derive from the Fourteenth Amendment. In this case the practice of referring directly to the underlying Bill of Rights provision, rather than more precisely to the Fourteenth Amendment (which incorporates it), is especially useful for clarity of analysis.

      . Grove has filed an affidavit and a number of exhibits along with its several memoranda. That generally represents an undesirable procedure. It creates the potential, under the last sentence of Rule 12(b), for converting the motion to dismiss into one for summary judgment under Rule 56 — and this at a time when the parties most likely lack the full factual background to make rounded presentations on a fully dispositive motion. On rare occasions it makes sense for a court to consider the parties’ efforts to expand the facts beyond those alleged in the pleadings. Thus in Car Carriers, Inc. v. Ford Motor Co., 561 F.Supp. 885 (N.D.Ill.1983) this Court was confronted with a legally insufficient complaint, a deficiency that would normally cause dismissal of the complaint but not of the entire action. But because plaintiffs there sought to salvage their insufficient allegations by supplemental assertions in their memoranda on the Rule 12(b)(6) motion, this Court (id. at 886 n. 2) considered those assertions to see whether the complaint could survive if plaintiffs were sent back to the drawing board. It could not, and this Court therefore took the unusual step of dismissing the entire action (a final order) rather than the complaint alone (an interlocutory order that would have permitted repleading). On appeal the dismissal was upheld, though the Court of Appeals misunderstood this Court’s overly cryptic reference to "fleshing out” the complaint with the supplemental submissions. Car Carriers, 745 F.2d 1101, 1107 (7th Cir.1984). In any event, the present case cannot generate such a final order, and this Court has therefore opted to treat the current motions as styled by GAC: under Rule 12(b)(6), not Rule 56. It is nonetheless worth noting, to save Grove the trouble of recasting its due process charges, this opinion’s views on the insufficiency of those claims would not be altered by insertion of the matters contained in the affidavit and exhibits. See n. 14.

      . On the current motion this Court must accept Grove’s allegations as true. Wolfolk v. Rivera, 729 F.2d 1114, 1116 (7th Cir.1984).

      . Grove has given various versions of the circumstances under which the investigation began. This is the one reflected in the Complaint. Grove Supp.Mem. 3 has since conceded GAC had legitimate grounds to begin the investigation, but charges it was carried out in an abusive manner due to GAC’s distaste for Grove’s philosophy. This opinion’s legal analysis would remain the same under either version.

      . Pierce, 268 U.S. at 535, 45 S.Ct. at 573 permitted plaintiffs to sue because of the threatened destruction of their business caused by "unwarranted compulsion which appellants are exercising over present and prospective patrons of their schools.”

      . Naturally this opinion’s sustaining of First Amendment claims against a Rule 12(b)(6) attack implies nothing as to the likelihood or unlikelihood Grove can prove either of those claims.

      . Only Complaint Count I ¶ 29 specifically referred to the Amendment:
      29. Defendants’ conduct violates plaintiffs’ rights as guaranteed by the First and Fourteenth Amendment to establish and conduct an educational program formed and guided by tradition and proven principles of their own choosing.

      . Much of the Supreme Court's Eleventh Amendment jurisprudence is open to serious question. In fact, at the very outset it is a tour de force to have found the Amendment bars a citizen from suing his own state, a subject clearly omitted from the Amendment's literal language:
      The Judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by Citizens of another State, or by Citizens or Subjects of any Foreign State.
      Yet Hans v. Louisiana, 134 U.S. 1, 15-18, 10 S.Ct. 504, 507-08, 33 L.Ed. 842 (1890) took that giant step, and the case law since then has built on that foundation.

      . School argues — without citation — Commission waived its immunity by filing complaints in its own behalf against School and thereby stepping into the shoes of a private complainant. That argument is utterly without merit.

      . That kind of allegation obviously poses problems. For Rule 12(b)(6) purposes, with all reasonable inferences drawn in Grove’s favor, the conduct may be ascribed to each defendant. That precludes dismissal of (say) Gibb, even though the only conduct specifically attributed to her (notifying Grove of the hearing) is innocuous. Two factors protect such a defendant:
      (a) Discovery can promptly smoke out precisely what the defendant’s real involvement has been, permitting anyone without direct tortfeasor involvement to extricate himself or herself from the case.
      (b) If plaintiffs bring a defendant into the case without reasonable grounds, or keep a defendant in the case without justification, Rule 11 comes into play.

      . GAC also contends the individual defendants are immune from suit for other reasons that do not merit extended discussion. For one thing GAC says (correctly) respondeat superior theory does not support Section 1983 liability. But the individuals are being tagged with their own actions, not those of persons over whom they have supervisory responsibility. As another red herring, GAC also suggests — though apparently without conviction — defendants enjoy absolute judicial immunity because they are quasi-judicial officers. Of course GAC cannot be considered an adjudicative body.

      . This section draws on Grove’s memorandum submissions rather than the Complaint, which does not identify any such specific harms. Despite the considerations identified in n. 4, this treatment is intended to foreclose Grove from attempting to beef up the original Complaint with the added facts and thereby reassert its due process claims.

      . Because School has not established a deprivation by GAC of protectible interests, it is unnecessary to reach the issue whether the "process” afforded by GAC was sufficient.

      . There is no indication the Planning Board is required by state law or some other independent source to withhold funding without GAC approval.

      . Grove did not even respond to this contention. That has unfairly placed the burden on this Court and its law clerk to do Grove’s lawyer’s work for him, but this Court is even more loath to permit a lawyer’s default to induce an incorrect decision. Grove has thus prevailed on this issue in spite of itself.

      . Ex parte Young made state officials amenable to suit in their official capacities for unconstitutional acts. According to Pennhurst, the Young exception is necessary to enable federal courts to vindicate federal rights. 104 S.Ct. at 910. That justification is said to disappear when state law violations (such as the libel claims here) are at stake. Id. at 911.

      . This decision does not rest on the ultra vires concept, under which an official may be sued for actions taken outside the scope of his or her authority. Pennhurst, 104 S.Ct. at 908 n. 11, 911-17 narrowed that doctrine into near oblivion over a strong dissent by Justice Stevens, id. at 928-29. Now a state officer may be said to act ultra vires only by acting "without any authority whatever.” Tortious acts and errors in the course of official duties are therefore not necessarily ultra vires. Id. at 908 n. 11. Nonetheless Pennhurst and the cases on which it relies do not necessarily foreclose the possibility that intentional torts are ultra vires, even if committed in the course of official duties under some semblance of authority. It is thus possible the libel alleged by Grove is ultra vires even though it came in the course of an investigation and publication of charges apparently authorized by the Guardianship and Advocacy Act. This opinion need not explore the outer reaches of Pennhurst, however, because of the text’s determination on other grounds that Grove’s libel claims are not suits against the state.


source: Caselaw Access Project

author: SACHS, District Judge.

license: Public Domain

text:
    Robert Paul DREW and Linda J. Drew, Plaintiffs, v. CHRYSLER CREDIT CORPORATION, a corporation, Defendant.
    Civ. A. No. 82-6094-CV-SJ.
    United States District Court, W.D. Missouri, St. Joseph Division.
    Oct. 25, 1984.
    On Motion to Vacate or Alter Judgment Nov. 28, 1984.

      Jerold L. Drake, Stephens & Drake, Grant City, Mo., for plaintiffs.
    Howard D. Lay, Griffin, Dysart, Taylor, Penner & Lay, Kansas City, Mo., for defendant.
   MEMORANDUM AND ORDER

SACHS, District Judge.

Pending before the court are a motion for summary judgment filed by defendant Chrysler Credit Corporation and a cross-motion for partial summary judgment (as to liability) filed by plaintiffs, Mr. and Mrs. Drew.

The following facts are relevant to these motions: On January 3, 1980 plaintiffs purchased and financed a 1975 Toyota automobile with Bethany Trust Company for a total of $2,508, payable $104.50 per month, commencing February 3, 1980. On February 21, 1980 plaintiffs agreed to purchase a new 1980 Plymouth Champ automobile from North Belt Chrysler-Plymouth, a new car dealer in St. Joseph, Missouri, and agreed to trade their 1975 Toyota under a written agreement. Shortly thereafter, North Belt accepted, and assigned to defendant, the Retail Installment Contract of Robert and Linda Drew on the 1980 Champ.

North Belt delivered its check No. 10466 to Bethany Trust for $2,143.75 to pay off the loan on the 1975 Toyota traded in by plaintiffs; Bethany Trust released its lien on the Missouri title and delivered the title, signed by plaintiffs, to North Belt. On February 26, 1980 Bethany Trust stamped the note of plaintiffs “Paid”, returned the note, and refunded $259.75 unearned finance charge on the 1975 Toyota. On February 28, 1980 the North Belt check was returned as unpaid to Bethany Trust. The new ear dealer was then in dire financial straits, and defendant sued North Belt on that day for replevin and other remedies. The dealership closed its doors.

Plaintiffs, at the request of Bethany Trust, thereafter executed a guaranty on March 4, 1980 for the $2,143.75 unpaid check of North Belt and subsequently signed a note and paid Bethany Trust. Peggy Rinehart, an officer of Bethany Trust has signed an affidavit to the effect that Bethany Trust did not intend to receive the North Belt check as payment and satisfaction of the debt owed to it by plaintiffs. When the check was returned as unpaid, Bethany Trust looked to plaintiffs to make payment on their promissory note, which had been marked “paid” on the mistaken assumption that the auto dealer’s check was fully funded.

Correspondence ensued between plaintiffs’ and defendant’s counsel. Plaintiffs sought to set off the $2,143.75 against the debt to Chrysler Credit. Defendant denied the setoff and demanded full monthly payments. Upon advice of counsel, plaintiffs paid and defendant received thirty monthly payments of $128.18. On September 3, 1982 plaintiffs tendered a check for $35.31 to defendant as full and final payment. Under plaintiffs’ calculations, these payments plus the setoff amount would satisfy their debt to defendant. Defendant did not accept the check as tendered.

On November 1, 1982 defendant mailed to plaintiffs, and their attorney, a notice of intent to repossess. On November 20,1982 defendant did repossess the 1980 Champ from plaintiffs’ closed, but unlocked garage without knowledge of plaintiffs. On November 22, 1982 plaintiffs obtained the return of certain contents of the 1980 Champ.

Plaintiffs instituted the present suit in the Circuit Court of Harrison County, Missouri on November 22, 1982. The case was removed to this court by defendant. Defendant mailed a notice of the sale after repossession to plaintiffs and their attorney on November 23, 1982. Neither plaintiffs nor anyone on their behalf offered to redeem or pay anything further on the 1980 Champ. Defendant’s counsel wrote to plaintiffs’ counsel on December 29, 1982 and March 1, 1983 to invite bids on the car. None were forthcoming.

The principal issues presently before this court are (1) whether the retail installment contract purchased by defendant from North Belt was taken subject to all claims and defenses that plaintiffs would have had against North Belt; (2) if so, whether defendant converted plaintiffs’ property when it repossessed the 1980 Champ. The court answers both of these questions in the affirmative.

When defendant purchased the retail installment contract from North Belt, it was purportedly taken subject to all claims and defenses that plaintiffs would have had against North Belt. The contract was stamped with the language specified by 16 C.F.R. § 433.2 (1984):

NOTICE: ANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CLAIMS AND DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS OR SERVICES OBTAINED PURSUANT HERETO OR WITH THE PROCEEDS HEREOF. RECOVERY HEREUNDER BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR HEREUNDER.

Moreover, § 408.405, RSMo, provides that

[t]he rights of a holder or assignee of an instrument, account, contract, right, chattel paper or other writing other than a check or draft, which evidences the obligation of a natural person as buyer, lessee, or borrower in connection with the purchase or lease of consumer goods or services, are subject to all defenses and setoffs of the debtor arising from or out of such sale or lease, notwithstanding any agreement to the contrary, only as to amounts then owing and as a matter of defense to or setoff against a claim by the holder or assignee; provided, however, with respect to goods only, the rights of the debtor under this section may be asserted to the seller at the address at which he did business at the time of the sale and must be so asserted within ninety days after receipt of the goods.

(emphasis added).

Defendant claims that the statute does not apply because the car was not a consumer good within the meaning of the statute in that it was used partially or predominantly for business purposes. Plaintiff Robert Drew is a speech therapist and works in a number of northwest Missouri and Iowa schools, nursing homes, etc. He used the Champ in approximately the following manner: 15% personal; 60% commuting to and from his residence; and 25% between places of business. See Affidavit of Robert Drew (signed Oct. 13, 1984).

Defendant further contends that (1) the controversy did not arise out of the sales transaction, (2) the separate agreement regarding the trade-in violates the parol evidence rule, (3) plaintiffs are seeking greater recovery than a setoff against a claim, and (4) plaintiffs are barred because they failed to give the statutory notice to the seller.

Plaintiff Robert Drew did attempt to complain to North Belt, but found its doors closed. He then asserted to defendant a right of set off. This should suffice. See Recent Developments: Commercial Transactions — Consumer Protection— Preservation of Consumer Defenses Under the New Missouri Legislation, 19 St. Louis U.L.J. 395, 408 (1975) [hereinafter cited as “Recent Developments" ].

In an effort to effectuate legislative intent the court is authorized to “make sense out of a statute”. Bank of Belton v. State Banking Bd., 554 S.W.2d 451, 456 (Mo.App.1977). Where a seller has gone out of business (or in some cases may have died) the buyer should not be deemed to have failed to “assert” his claim “to the seller” within the requisite 90 days when a physical attempt to notify and complain has been made, and actual notice is given to the assignee. Just as Taylor v. United Missouri Bank of Kansas City, 693 F.2d 63 (8th Cir.1982), probably turned on whether the assignee had acted reasonably in attempting to contact the debtor, this case should not impose an impossible or unreasonable burden on the buyer. A statute should be construed to avoid imposing impossible, impractical, and futile conduct. See Moran v. Superior Court, 35 Cal.3d 229, 197 Cal.Rptr. 546, 673 P.2d 216 (1983); Tribune Publishing Co. v. Curators of University of Missouri, 661 S.W.2d 575, 583 (Mo.App.1983).

The court must therefore determine whether it is dealing with “consumer goods” either under the pertinent Missouri statute for consumer protection in credit transactions, § 408.400 et seq., RSMo, or under the protective regulation of the Federal Trade Commission, 16 C.F.R. § 433.-1(b) (1984).

The FTC regulation in question relies on the coverage of the Truth in Lending Act (hereinafter “TILA”), enacted in 1968. The TILA definition of consumer products is nearly identical with that of the Missouri statute. The Missouri statute defines “consumer goods” as goods “for use primarily for personal, family or household purposes.” § 408.400.1(2), RSMo. The TILA, definition of a “consumer” is one who buys property that is “primarily for personal, family, or household purposes.” 15 U.S.C. § 1602(h).

There is distinct ambiguity in these definitions. Unlike the Uniform Commercial Code, which expressly looks to the buyer’s intent or usage, TILA and the Missouri statute do not necessarily focus on whether the goods “are used or bought for use primarily for personal, family or household purposes.” § 400.9-109(1). The provisions here in issue may reasonably be construed to deal with categories of goods, regardless of the intent of usage of a particular buyer.

The Magnuson-Moss Warranty Act (enacted still later) avoids ambiguity and expressly changes the focus of attention by defining a “consumer product” as one “which is normally used for personal, family or household purposes”. 15 U.S.C. § 2301(1). Automobiles used mainly for business purposes and owned by a corporation have been treated as consumer products under that legislation. Business Modeling Techniques, Inc. v. General Motors Corp., 123 Misc.2d 605, 474 N.Y.S.2d 258 (S.Ct. Monroe County, 1984). Presumably the same is true in consumer safety legislation, as it would make little sense to distinguish between personal and business-owned automobiles.

In the TILA context, the case law shows some ingenuity in finding a consumer credit transaction, in order to carry out presumed legislative intent. See, e.g., Tower v. Moss, 625 F.2d 1161, 1166 n. 4 (5th Cir.1980) (financing of repairs to low rental residential property which a non-resident owner intended to use as a retirement home was a consumer credit transaction). There is little reason to classify the purchase of automobiles, a form of property generally put to personal use, at least when purchased by individuals, as anything other than a consumer transaction, even though a particular buyer may use the car most of the time in pursuit of business or professional activities. The automobile dealer in this case used the consumer credit form.

Although the ambiguity is not easy to resolve, I believe the Magnuson-Moss focus on normal usage of the product should be applied in construing § 408.400, RSMo, if not TILA, rather than the UCC focus on the buyer’s individual purposes or usages.

Even if the focus were to remain on the buyer’s particular usage or intent, as required by the UCC, travel from an owner’s residence to a place of business has been judicially treated as personal rather than business usage. Malicoat v. Volunteer Finance & Loan Corp., 57 Tenn.App. 106, 415 S.W.2d 347 (1966); In re Barnes, 11 U.C.C. Rep.Serv. (Callaghan) 670 (Bkrtcy.Maine, 1972); Redhouse v. Quality Ford Sales, Inc., 511 F.2d 230, 240 (10th Cir.) (Doyle J., dissenting), modified, 523 F.2d 1 (10th Cir. en banc 1975). As I believe Judge Doyle implied in the Redhouse case, which involved use of a pickup truck by a presumably itinerant carpenter, commuting from a residence to multiple places of business or professional activity may also be considered a personal rather than a business activity. It serves the legislative purpose, in my judgment, to classify an automobile as a consumer product, and its purchase on credit as a consumer credit transaction, even though predominantly commuter use may have been anticipated.

The legislative purpose in enacting the Consumer Obligations Act of 1974, § 408.-405, RSMo, is not difficult to understand. The General Assembly sought to preserve for purchasers of consumer goods all rights against a finance company or other assignee that the purchaser would have against the seller “arising from or out of such sale”. See United Finance Plan, Inc. v. Parkview Drugs, Inc., 250 S.W.2d 181 (Mo.App.1952). The legislation expressly protects consumers against form contracts and other agreements purporting to give an assignee greater rights than the seller would have had. See generally Recent Developments, supra at 396, 399-401. An individual’s purchase of an automobile for normal purposes, such as purely personal and commuter-type use, seems clearly within the scope of the statute. Application to a finance company having at least nominal affiliation with the seller seems to carry out the intent of preventing consumer losses resulting from “paper shuffling.” Defenses relating to a seller’s misconduct or an aborted agreement regarding a trade-in seem fairly to arise “from or out of” the new car sale. While the finance company may consider it unfair to visit upon it the sins of the auto dealer, that comports with the legislative intent. Cf. Whitlock v. Midwest Acceptance Corp., 575 F.2d 652, 654 (8th Cir.1978) (construing the Truth In Lending Act, 15 U.S.C. § 1601 et seq., and Federal Reserve Regulation Z, 12 C.F.R. § 226.1 et seq.).

The statute in question has not been construed by the Missouri appellate courts. It is remedial legislation, and will doubtless be “ ‘liberally construed, in favor of’ ” the consuming public, and to prevent “ ‘the evil which it was designed to remedy ...’”. State ex rel. LeFevre v. Stubbs, 642 S.W.2d 103, 106 (Mo.1982) (quoting Crawford, Construction of Statutes § 346 (1940) and State ex rel. Brown v. Board of Education of City of St. Louis, 294 Mo. 106, 114-15, 242 S.W. 85, 87 (1922) (en banc)).

The Drew’s automobile was a consumer product within the meaning of § 408.405, RSMo. Defendant took its paper subject to plaintiffs’ claims against the automobile dealer.

Defendant next contends that plaintiffs did not owe Bethany Trust $2,143.75 because when the check of North Belt was delivered to Bethany Trust, Bethany Trust released its lien on the Missouri title and stamped the note of plaintiffs “Paid”, returned the note and refunded the unearned finance charge. Plaintiffs counter that Bethany Trust did not intend to accept the check of North Belt as payment and satisfaction of the debt owed by plaintiffs. As the court previously noted, Peggy Rinehart, an officer of Bethany Trust, signed an affidavit that the bank did not intend to accept the check as payment in satisfaction. In Hall v. Knapp, 552 S.W.2d 299, 303 (Mo.App.1977), the Missouri Court of Appeals stated that where a check is accepted as the “means” through which payment may be obtained and not as payment itself, the claim or debt is not extinguished by mere acceptance of the check. See also Brent v. Westerman, 123 F.Supp. 835, 837 (W.D.Mo.1954). Where there is no agreement that the check itself shall constitute payment, a “satisfaction” does not occur until payment of the check has actually been received. Based upon the affidavits, the court must conclude that the parties did not intend the check itself to constitute payment. Thus, no satisfaction occurred. When the check of North Belt did not clear, Bethany Trust properly looked to plaintiffs to make good on the note.

Once the court has decided that plaintiffs should have been allowed the set-off against defendant’s claims for payment (thereby placing defendant in violation of § 408.405), the court must then decide whether a cause of action has been created because of defendant’s seizure of the car following its wrongful refusal to allow the setoff.

The Missouri Court of Appeals held in Jones v. First Union Bancorporation, 646 S.W.2d 412, 414 (Mo.App., W.D.1983), that “[i]n order for plaintiff[s] to have a right of action for conversion, it is incumbent upon [them] to show that [defendant] had no right to repossess the automobile.” If plaintiffs were indeed entitled to the setoff, defendant did not have a right to repossess the car. The same is true with respect to plaintiffs’ charge of trespass. In Baker v. Newcomb, 621 S.W.2d 535, 537 (Mo.App., S.D.1981) (en banc), the Missouri Court of Appeals held that

[a] party is liable in trespass even though acting under a mistaken belief of law or fact, however reasonable ____ A party may be liable in trespass if he intends to do the act which results in the damage, although in so doing he did not intend to commit an act of trespass; may not even know that his act will constitute a trespass, and may act in good faith and through honest mistake.

(citations omitted). Moreover, since plaintiffs had been making all reasonable efforts to work out their disputes with defendant, defendant can make no argument that § 408.405 does not apply in this case. See Taylor v. United Missouri Bank of Kansas City, 693 F.2d 63, 65 n. 6 (8th Cir.1982).

The court finds the rest of the defendant’s contentions to be without merit in this action. Accordingly, it is hereby

ORDERED that defendant’s motion for summary judgment is DENIED. It is further

ORDERED that plaintiffs’ motion for partial summary judgment is GRANTED. All that remains to be tried in this case is the issue of damages. A trial notice will be forthcoming.

ON MOTION TO VACATE OR ALTER JUDGMENT

Pending before the court is defendant’s motion to “vacate, alter, and amend the judgment entered on October 26, 1984 and to order interlocutory appeal” to the Eighth Circuit. Defendant requests oral argument and the court granted the request.

Defendant first argues that the reference to “goods” in § 408.405, RSMo, enacted in 1974, does not include motor vehicles, because motor vehicles are expressly excluded from the definition of “goods” in § 408.250(4), RSMo, enacted some years earlier. The definitions contained in § 408.250, apply, however, only to §§ 408.-250 to 408.370, RSMo. The pertinent section is thus not governed by these definitions. There can be no question but that motor vehicles are generally classifiable as “goods.” It is quite consistent with legislative intent for the General Assembly to supplement the provisions of chapter 365 with more general consumer protection in later statutes. The applicability of the statute in question was assumed in Taylor v. United Missouri Bank of Kansas City, 693 F.2d 63 (8th Cir.1982).

Defendant next asserts that the court’s “most fundamental error” in its ruling was in failing to note an alleged mathematical error in plaintiffs’ final payment. If the calculations were incorrect by one payment of $128.18 this would not be dispositive. Defendant had never narrowed the controversy or indicated that it would have been satisfied with the extra $128.18 payment. On the contrary, defendant’s “notice of intention to repossess” demands two such payments, plus “late charges”, or $266.36. Def.Dep.Exh. 20, attached to Def. Motion for Summary Judgment filed Feb. 13, 1984, Doc. 34. Defendant premised its repossession on an assertion of “Total amount now due” that was excessive on any calculation, if the setoff is sound. It seems irrelevant that plaintiffs may have made a minor miscalculation.

Defendant may, however, ultimately be entitled to the $128.18 as a setoff at trial to any award of damages to plaintiffs.

Defendant continues to argue that plaintiffs are going beyond their statutory remedies in seeking more than a “defense” or “setoff against a claim by the holder or assignee.” § 408.405, RSMo. But plaintiffs did initially assert their setoff rights defensively. When defendant violated their statutory rights and then engaged in a wrongful repossession, the repossession damages arise from a second violation of law and are not subject to the statutory limitation.

Defendant further contends that plaintiffs’ bank caused the financial loss by releasing its secured title to the Toyota, and that such release evidences an intent to accept as final payment the North Belt Chrysler check that was later dishonored.The issue of the bank’s possible liability to defendant is not in this case and it would be inappropriate to anticipate what issues might be raised in prospective litigation.

On the question of intent, any release of title is similar in nature to the return of the note to plaintiffs, which has been discussed. Merely because the bank processed papers too rapidly has little bearing on the intention of the bank officials. The affidavit on that subject has not been rebutted. There is no evidence that it was the bank’s practice or intent to accept “bad” checks as final payment.

The bank’s obtaining payment from plaintiffs counterbalances any inference from conduct that the bank intended to take the check as final payment. While there are unusual situations in which this occurs, “the general rule” is that “acceptance of a note, bill or check does not constitute payment of an underlying debt.” Hall v. Knapp, 552 S.W.2d 299, 304 (Mo.App. 1977). Defendant has not presented a sufficient showing in response to plaintiffs’ motion to create a jury issue on this subject. Matter of Citizens Loan & Savings Company, 621 F.2d 911, 913 (8th Cir.1980); National Union Fire Ins. Co. v. Argonaut Ins. Co., 701 F.2d 95, 97 (9th Cir.1983). Defendant will not be relieved from the effect of the October 26 ruling.

The court will also deny defendant’s request for approval of an interlocutory appeal pursuant to 28 U.S.C. § 1292. The Eighth Circuit has repeatedly expressed its disfavor for such interlocutory appeals. This court does not find that an interlocutory appeal would serve the interests of justice. The case should proceed to trial for determination of damages. If defendant chooses to appeal, then the whole matter may be raised before the Eighth Circuit at that time. Accordingly, it is hereby

ORDERED that defendant’s motion to vacate, alter and amend the judgment entered on October 26,1984, or to order interlocutory appeal to the Eighth Circuit of that Order, is DENIED.

      . Defendant asserts that the Motor Vehicle Time Sales Law, Chapter 365, RSMo governs the transactions. Defendant, however, cites no case law indicating that the more recent consumer protection statutes of Chapter 408, RSMo have been limited by implication. The court finds this contention to be without merit.

      . See similar doctrines of statutory construction in federal cases initially stated by Judge Learned Hand and still in use. District 2 Marine Engineer Beneficial Ass’n v. Grand Bassa Tankers, Inc., 663 F.2d 392, 395 (2d Cir.1981).

      . The court is aware that there is at least one ruling under Magnuson-Moss that would classify products according to their normal usage by the particular buyer. Balser v. Cessna Aircraft Co., 512 F.Supp. 1217 (N.D.Ga.1981). This seems contrary to the wording used by Congress, particularly when one notes the changes in phrasing from the Uniform Commercial Code. In Balser it was doubtless tempting to classify according to the buyer’s normal usage, otherwise there would have been a more difficult task of characterizing the normal usage of small aircraft in general. It would seem that the underlying purpose of Congress in enacting Magnuson-Moss would be served by looking to the normal usage by the public or by the particular buyer, and classifying as a consumer product anything that qualifies under either test. Whether this would depart excessively from the language of the Act need not be decided in this case.

      . The ambiguity in 15 U.S.C. § 1602(h) is probably resolved in the next section, § 1603(/), which does refer to the borrower’s purposes.

      . Section 408.400.2 incorporates the definitions in Articles 1, 3, and 9 of the UCC. The classification of goods as consumer goods in § 400.9-109(1), however, is not within the definitional sections of Article 9, §§ 400.9-105, 400.9-106, and 400.9-107. Thus, any stricter definition of consumer goods in the UCC is not dispositive as to § 408.405. Cf. Recent Developments, supra, at 404 n. 34.

      . Differences in income tax treatment may be disregarded. Simply because Congress may allow a “business expense” deduction, as it may on child care, for example, would not control interpretation in another context.

      . Defendant's claim that the agreement by North Belt to pay off the Bethany Trust loan on the 1975 Toyota is barred by the parol evidence rule is without merit. Not only was § 408.405, RSMo designed to modify the holder in due course rule, see Recent Developments, supra at 396, but the parol evidence rule contains exceptions for collateral agreements. See § 400.2-202(b), RSMo; McDown v. Wilson, 426 S.W.2d 112, 117 (Mo.App.1968); Brown v. Oliver, 123 Kan. 711, 256 P. 1008 (1927).

      . Unlike the situation in Jacobson v. Federal Deposit Ins. Corp., 407 F.Supp. 821, 827 (S.D. Iowa 1976), plaintiffs understood the circumstances whereby North Belt paid off their note.

      . As noted in the earlier ruling, the pertinent language differs from but may be compared with the language of the Uniform Commercial Code. Under the U.C.C. the term "goods", appearing in § 400.2-105, RSMo, includes automobiles. Rose v. Epley Motor Sales, 288 N.C. 53, 215 S.E.2d 573, 577 (1975).

      . The court notes that defendant also may have miscalculated the amount owed, in its Notice of Intent to Repossess, wherein defendant states the net contract balance as $2,193.82.' Attachment to Doc. 34. The $2,143.75 setoff for plaintiffs' payment to bank on account of the bad check of North Belt Chrysler plus another $20.00 check to North Belt Chrysler plus the $35.31 check tendered to defendant as full and final payment would total $2,199.06. This would amount to $5.24 more than plaintiffs owed defendant.

      . Insofar as defendant denies it made a "claim" on plaintiffs which triggered the right of setoff, the court is satisfied that the "notice of intent to repossess” constitutes a demand sufficient to satisfy the judges in Taylor v. United Missouri Bank, supra.


author: MENTZ, District Judge.

text:
    Robert RIGGINS v. FORD MOTOR COMPANY, et al.
    Civ. A. No. 83-2889.
    United States District Court, E.D. Louisiana.
    Oct. 25, 1984.
    Wayne H. Carlton, Jr., Bendana & Carlton, New Orleans, La., for plaintiff.
    C.G. Norwood, Jr., McGlinchey, Stafford, Mintz, Cellini & Lang, New Orleans, La., for defendants.
   MENTZ, District Judge.

It has come to the Court’s attention that Ford Motor Company has filed a motion for summary judgment set for hearing on Wednesday, October 31, 1984, at 10:00 o’clock a.m. and that plaintiff has failed to submit any timely opposition at least eight days prior to the motion hearing in accordance with Local Rule 3.7 of the United States District Court, Eastern District of Louisiana Local Rules. The Court has reviewed Ford’s motion for summary judgment with its attached documents and affidavit and has decided to grant the motion since there appears to be no genuine issue as to any material fact relative to Ford Motor Company.

Plaintiff was injured when his left hand became ensnared in the hydraulic presser of the garbage truck owned by Terrebonne Parish Police Jury. Ford designed and manufactured only a cab and chassis to which was later affixed by Heil Equipment Company a Heil trash compacter. Plaintiff alleges the trash compacter prematurely closed on his hand. Frank J. Mitchell, Design Analysis Engineer for Ford Motor Company, stated by affidavit that Ford did not design, manufacture, sell or participate in the sale of the power take-off system which was attached to the Ford chassis-cab and Heil Equipment trash compacter at the time of Mr. Riggins’ injury. Mr. Mitchell also attests that no product manufactured by Ford could have caused any “premature closing” of the Heil trash compacter blade.

Further, plaintiff alleges that the compacter was defective because it closed on his arm and because the operator closed it without being able to see the back of the truck. From the evidence, it is clear that Ford did not manufacture the compacter unit which was attached to Ford’s cab and chassis after it left the Ford Motor Company. A number of cases have held that the company performing the conversion and not the manufacturer of the cab and chassis was the party responsible for assessing design implications and installing any safety designs that such design change might require. See Verge v. Ford Motor Company, 581 F.2d 384 (3rd Cir.1978); [manufacturer of garbage compacter unit, not Ford, was responsible for installing the warning device or other safety device on cab and chassis]; Powell v. E.W. Bliss Co., 529 F.Supp. 48, 51 (E.D.Pa.1981), affirmed 681 F.2d 808 (3rd Cir.1982) [safeguards on punch press responsibility of the party who finished the product and placed it into use]; Cunningham v. Lynch-Davidson Motors, 425 So.2d 131 (Fl.District C.A., 1st District 1982) [manufacturer of cab-chassis assembly not liable for absence of back-up alarm on dumptruck]. See also Elliott v. Century Chevrolet Co. & General Motors Corp., 597 S.W.2d 568 (Tx.Civ.App.1980) [the court granted summary judgment for the cab and chassis manufacturer where body of truck had been converted to be used as a beer storage truck finding the converting company not the manufacturer responsible for design and safety]. In the case at bar, plaintiff states that the operator closed the compacter unit without being able to see the back of the truck. (Plaintiffs answers to Interrogatories.) Further, Mr. Elroy Baker stated in his October 4, 1984 deposition that when he pulled the lever, the blade of the unit started coming down and ensnared the plaintiff’s hand. Mr. Baker also testified that he did not notice any malfunction of the garbage unit on the day of the accident. Given the undisputed facts of this case the Court holds that the manufacturer of only the cab and chassis cannot be liable for the plaintiff’s injuries allegedly caused by the product of another manufacturer placed on that cab and chassis by someone other than the cab and chassis manufacturer, Ford Motor Company. Accordingly,

IT IS ORDERED that Ford Motor Company’s motion for summary judgment is hereby GRANTED.

IT IS FURTHER ORDERED that the hearing on Ford Motor Company’s motion for summary judgment set for Wednesday, October 31, 1984 at 10:00 o’clock a.m. is hereby CANCELLED.


author: KEENAN, District Judge:

text:
    Doverton LINDO, Petitioner, v. IMMIGRATION AND NATURALIZATION SERVICE, et al., Respondents.
    No. 84 Civ. 7403 (JFK).
    United States District Court, S.D. New York.
    Oct. 26, 1984.

      Leo E. Ypsilanti, Gunnar A. Sievert, New York City, for petitioner.
    Rudolph W. Giuliani, U.S. Atty., for the Southern District of New York by Jorge Guttlein, Sp. Asst. U.S. Atty., New York City, for respondents.
   OPINION AND ORDER

KEENAN, District Judge:

Petitioner, Doverton Lindo, a lawful permanent resident of the United States, seeks release from the custody of the Immigration and Naturalization Service (“INS”), reduction of the bond set for his release and a stay of the deportation hearing pending against him. For the reasons set forth below, both the petition for release and the motion for a stay of the hearing and reduction of the bond are denied.

Lindo was taken into custody by the INS pursuant to an Order to Show Cause and Warrant of Arrest issued by the INS District Director on July 6, 1984. It was charged in the Order to Show Cause that Lindo was subject to deportation pursuant to section 241(a)(4) of the Immigration and Nationality Act (the “Act”), 8 U.S.C. § 1251(a)(4), which provides for the deportation of aliens who have been convicted of two crimes involving moral turpitude. On July 11, 1984, bond was set for the release of Lindo from INS custody at $25,000. Upon Lindo’s motion for reduction of the bond and by stipulation, the bond was reduced to $15,000. The Order of the Immigration Judge with Respect to Custody reducing the bond reflects that Lindo waived his right to appeal the decision reducing the bond.

Lindo’s deportation hearing was commenced on July 12, 1984. On August 21, 1984, INS filed additional charges of deportability against Lindo pursuant to section 241(a)(1) of the Act, which provides for the deportation of aliens convicted of violating any law relating to the illicit possession of marijuana. The charges of deportability on the basis of conviction of two crimes involving moral turpitude were deleted from the charges. On September 15, 1984, these charges were reinstated and an additional charge relating to the possession of marijuana was added. The first charge relating to the possession of marijuana was deleted.

Petitioner claims that the deportation charges currently pending against him were unlawfully lodged. According to petitioner, the deportation hearing was closed on September 5. The regulations governing the conduct of deportation hearings state that “a trial attorney who has been assigned to a case may at any time during a hearing lodge additional charges of deportability.” 8 C.F.R. § 242.16(d). Petitioner argues that once a hearing has been closed, however, the government must move to reopen the hearing before it can lodge additional charges. Because the government did not do this, petitioner claims that there are no lawfully lodged charges pending against him and that, therefore, his present incarceration is unlawful.

Petitioner’s contention that the hearing should have been closed on September 5 is based on two immigration regulations. The first mandates that “a deportation hearing be completed as promptly as possible.” 8 C.F.R. § 242.7(e). The second provides that deportation hearings cannot be adjourned or postponed without a reasonable basis. 8 C.F.R. § 242.13. Petitioner argues that there was no reasonable basis for adjourning the hearing on September 5, rather than closing it, as no more evidence was to be adduced and neither party had expressed a desire to request any additional relief. According to petitioner, the hearing would have been closed on that date if the judge had adhered to the mandate that the hearing be completed as promptly as possible.

The INS does not contest or accept petitioner’s claim that the hearing was improperly adjourned. It contends, however, that this Court is an improper forum for raising that claim at this stage of the action. According to the INS, the entire question of the propriety and validity of the latest deportation charges pending against petitioner should be reviewed by the Immigration Judge at the deportation hearing.

The Court agrees. Petitioner has not contested the validity of the present proceedings pending against him at the proceedings themselves. Petitioner did make a request, by letter dated September 5, that further deportation proceedings not be held because petitioner deemed the hearing closed. No determination has been made by the Immigration Judge, however, with regard to that issue or with regard to the contention before this Court that the charges currently pending against the petitioner are improperly lodged. Yet, petitioner seeks an order from the Court as to the validity of the ongoing proceedings without first raising that issue at the hearing. “It is only under extraordinary circumstances that a court may ... intervene to interrupt judicial proceedings to dispose of an intermediate or collateral issue.” Lennon v. Richardson, 378 F.Supp. 39, 41 (S.D.N.Y.1973) (quoting Sears Roebuck, & Co. v. N.L.R.B., 473 F.2d 91, 93 (D.C.Cir. 1975), cert. denied, 415 U.S. 950, 94 S.Ct. 1474, 39 L.Ed.2d 566 (1974). Such intervention denies the agency an opportunity to correct its own mistakes and interferes with the proper functioning of the agency. F.T.C. v. Standard Oil Co., 449 U.S. 232, 242, 101 S.Ct. 488, 494, 66 L.Ed.2d 416 (1980). This is particularly true when the agency has not been given an opportunity to rule on the intermediate or collateral issue in the first instance.

The request for a stay of the proceedings pending against petitioner is premature. Absent a showing that petitioner is faced with irreparable injury if the proceedings go forward today, petitioner’s failure to exhaust his administrative remedies is not excusable. Small v. Kiley, 567 F.2d 163, 165 (2d Cir.1977); Bristol-Meyers Company v. F.T.C., 469 F.2d 1116, 1118 (2d Cir. 1972). The Court finds that petitioner has not made such a showing. Petitioner is not faced with imminent deportation. The Immigration Judge has not rendered a final decision as to petitioner’s deportability. If he was to render a decision today, petitioner’s deportation would be stayed pending administrative appeal of the determination. See Lennon, 378 F.Supp. at 4.

The Court is aware that petitioner is currently incarcerated and recognizes that wrongful incarceration may constitute irreparable injury. He has not raised his objection to his present incarceration by the INS, however, to the Immigration Judge. This objection could be raised at the hearing scheduled for today. The continuation of the hearing is not the “cause” of his continued incarceration. A stay of the hearing, therefore, would not avoid this potential irreparable injury.

Petitioner is aware of the administrative remedies available following a determination of deportability. He argues, however, that this review procedure does not preclude immediate review of the propriety of the proceedings pending against him. The Court disagrees. The Act confers jurisdiction on the district courts in limited situations. See 8 U.S.C. § 1329. This expression of Congressional intent combined with the longstanding federal policy of requiring exhaustion of administrative remedies before applying to federal court for review militates against intervention by this Court in the pending deportation proceedings. See Chen Chaun-Fa v. Kiley, 459 F.Supp. 762, 765 (S.D.N.Y.1978). This is particularly true when the objections raised herein could be made the subject of a motion to dismiss the proceedings pending against petitioner.

Petitioner has also failed to exhaust his administrative remedies with regard to the bond set for his release. The Immigration Judge’s order indicates that petitioner waived his right to appeal the bond that was set. Furthermore, he neither appealed nor moved for reconsideration of the decision. This failure precludes him from seeking judicial review at this time. See, e.g. Bak v. USINS, 682 F.2d 441, 442-43 (3d Cir.1982); Ramirez-Juarez v. INS, 633 F.2d 174, 175-76 (9th Cir.1980).

Petitioner’s application for a stay of the pending deportation proceedings and reduction of the bond set for his release is denied. The petition for a writ of habeas corpus is dismissed without prejudice.

SO ORDERED.


author: McCUNE, District Judge.

text:
    UNIVERSAL PLUMBING AND PIPING SUPPLY, INC., t/a and d/b/a Universal Pipe and Manufacturing, Plaintiff, v. JOHN C. GRIMBERG COMPANY, INC., Defendant.
    Civ. A. No. 84-1534.
    United States District Court, W.D. Pennsylvania.
    Oct. 29, 1984.
    John H. Bingler, Pittsburgh, Pa., for plaintiff.
    Gerald I. Katz, Michael K. Love, Vienna, Va., for defendant.
   MEMORANDUM

McCUNE, District Judge.

We consider a motion to dismiss filed by defendant, John C. Grimberg Co., Inc., (hereinafter Grimberg), a Maryland corporation with its principal place of business in Maryland. Plaintiff, Universal Plumbing and Supply, Inc. (hereinafter Universal), a Delaware corporation with its principal place of business in Pennsylvania, filed this suit in order to resolve a contract dispute. Jurisdiction is based upon diversity of citizenship. For the reasons that follow, the motion to dismiss will be denied.

In January, 1982, Grimberg solicited bids and price quotes for pipe to be used in a construction project in Virginia. Universal proposed a lump sum bid price of $92,-505.00. Attached to the offer was “Appendix A” which contained various terms and conditions, one of which is relevant here.

This quotation is subject to your acceptance by a written purchase order within thirty (30) days, and acceptance of your purchase order by Universal Pipe & Manufacturing, ____ If your purchase order contains terms or conditions which in any way do not conform to this quotation, such nonconforming terms ... shall be considered as proposals for acceptance by Universal and shall not be deemed as accepted ... unless such acceptance is in writing and specifically refers to each such term or condition.

Grimberg responded with a written purchase order dated February 10, 1982, by which Universal was to supply pipe for the lump sum price of $93,373.00. The bottom of the purchase order states, “See additional terms and conditions on reverse side.” One of the terms, relevant herein, states,

DISPUTES

All conditions, requirements and procedures for settling claims and disputes contained in the prime contract for the project referenced in this Purchase Order are made a part of this Purchase Order and Seller is bound thereby to the same extent as Buyer. In the event there are no specific dispute procedures contained in the prime contract, the procedures of the American Arbitration Association shall apply. Said arbitration proceedings shall be held at such place as the parties may mutually agree upon or, in the event of a failure to agree, shall be held in the District of Columbia.

In its motion to dismiss defendant asserts, based upon the above “Disputes” provision, that the issues raised in Universal’s complaint must be submitted to arbitration. In fact, on August 22, 1984, Grim-berg filed an arbitration demand with the American Arbitration Association in Washington, D.C. Universal counters that the terms and conditions of Appendix A preclude giving effect to the arbitration clause contained in defendant’s purchase order. Plaintiff asserts that its agreement to the arbitration clause, in writing, is required in order to give effect to that provision, and no such agreement has been given.

Both parties agree that this dispute must be resolved in light of 13 Pa. C.S. § 2207, which provides, in pertinent part,

§ 2207. Additional terms in acceptance or confirmation
(a) General rule. — A definite and seasonable expression of acceptance or a written confirmation ... operates an an acceptance even though it states terms additional to or different from those offered or agreed upon. ...
(b) Effect on contract. — The additional terms are to be considered as proposals for addition to the contract. Between merchants such terms become part of the contract unless:
(1) the offer expressly limits acceptance to the terms of the offer;
(2) they materially alter it;

Thus, Universal’s position is based upon 13 Pa. C.S. § 2207(b)(1).

We agree with Universal, notwithstanding Grimberg’s assertion that the language of Appendix A, quoted above, lacks the requisite “clarity and finalty” found to exist in Reliance Steel Products Co. v. Kentucky Electric Steel Co., 35 U.C.C. Rep. Serv. 1430 (E.D.Pa.1983). The language in Reliance Steel Products Co.’s purchase order, which the court found effected an express limitation on acceptance restricted to the terms of that purchase order, stated, in pertinent part, “No terms or conditions, other than those contained in the purchase order and no agreement or understanding in any way modifying or changing the terms and conditions hereof shall be binding on the Purchaser unless made in writing by the Purchaser____” Id., at 1432 n. 4.

Although the pertinent language in Appendix A in the present case varies from that in Reliance Steel, its import is clear. We believe it effectively restricts acceptance to its terms. See also Lockheed Electronics Co., Inc., 114 Cal.App.3d 304, 170 Cal.Rptr. 591, 30 U.C.C. Rep.Serv. 827 (1981); In re Waterlilly Juniors, Inc., 19 U.C.C. Rep.Serv. 86 (N.Y.Sup.Ct.1976).

However, our disposition of defendant’s motion need not rest on the above basis alone. Section 2207(b)(2) of 13 Pa. C.S. states that additional terms become part of a contract unless they materially alter it. Clearly, the arbitration clause is an additional term, and we believe it is a material alteration.

In Just Born, Inc. v. Stein Hall & Co., Inc., 59 D. & C. 2d 407 (1971), the plaintiff’s purchase order was silent as to the method of settling disputes, but the defendant’s acknowledgment included an arbitration clause. The court held that applying 12 A P.S. § 2-207 (the forerunner of 13 Pa. C.S. § 2207) to the case, a contract had clearly been formed, and the arbitration clause in the acknowledgment form was an additional term. Relying upon a 1945 case, Scholler Bros., Inc. v. Hagen Corp., 158 Pa. Super 170, 44 A.2d 321 (1945), the common pleas court held that in Pennsylvania an arbitration agreement cannot be found by implication, and the parties intent to submit to arbitration must be clear.

The Just Bom court also found that Pennsylvania’s policy regarding arbitration agreements is similar to that of New York. Thus, it relied upon Application of Doughboy Industries, 17 App.Div.2d 216, 233 N.Y.S.2d 488 (1962) and its progeny, which held that an arbitration clause is a material term requiring assent of both parties. In Doughboy the court ruled that an arbitration clause contained in the seller’s form but not in the buyer’s form was a material alteration under the U.C.C. and therefore did not become part of the contract. Other courts have held that an arbitration clause is a material alteration requiring the parties’ assent. Supak & Sons Mfg. Co., Inc. v. Pervel Industries, Inc., 593 F.2d 135 (4th Cir. 1979); Valmont Industries v. Mitsui & Co., (U.S.A.), Inc., 419 F.Supp. 1238 (D.Neb.1976); John Thallon & Co., Inc. v. M & N Meat Co., 396 F.Supp. 1239 (E.D.N.Y.1975). See also Par-Knit Mills, Inc. v. Stockbridge Fabrics, 636 F.2d 51, 54 n. 6 (3d Cir. 1980); Travalio, Clearing the Air After the Battle: Reconciling Fairness and Efficiency in a Formal Approach to U.C.C. Section 2-207, 33 Case W.Res.L. Rev. 327, 334 (1983) (“Whether the arbitration provision becomes part of the contract depends upon its materiality. As courts in most jurisdictions would consider such a term material, it probably would not become part of the contract.”) (footnote omitted).

In conclusion, we note that Grim-berg’s reference to 9 U.S.C. § 2, which provides for the validity and enforcement of arbitration clauses in contracts evidencing transactions in interstate commerce, is irrelevant. That statute does not apply until an arbitration clause is determined to be part of a contract. “Section 2 dictates the effect of a contractually agreed-upon arbitration provision, but it does not displace state law on the general principles governing formation of the contract itself.” Supak & Sons Mfg. Co., Inc. v. Pervel Industries, Inc., supra, at 137, citing Duplan Corp. v. W.B. Davis Hosiery Mills, Inc., 442 F.Supp. 86 (S.D.N.Y.1977).

      . A change order was entered into for additional piping January 19, 1983.


author: BARBOUR, District Judge.

text:
    CASA GRANDE, INC., A Mississippi Corporation and Henry B. Barber, Plaintiff and Counter-Defendants, v. The MINNESOTA MUTUAL LIFE INSURANCE COMPANY, Defendant and Counter-Claimant.
    Civ. A. No. J81-0566(B).
    United States District Court, S.D. Mississippi, S.D.
    Oct. 30, 1984.

      James W. Nobles, Jr., Jackson, Miss., for plaintiff and counter-defendants.
    Robert H. Weaver, Watkins, Ludlam & Stennis, Jackson, Miss., for defendant and counter-claimant.
   MEMORANDUM OPINION

BARBOUR, District Judge.

This diversity action for declaratory judgment was tried to the Court on a record consisting of stipulations and documents admitted into evidence without objection. Since there was no testimony the material facts were not in dispute. This case was abated pending decision by the Mississippi Supreme Court of the case styled First Nat. Bank of Vicksburg v. Caruthers since it was anticipated that Caruthers would announce important principles of Mississippi real property law which would be applicable to this case. First Nat. Bank v. Caruthers, 443 So.2d 861 (Miss.1983) has now been decided and this case is now ripe for decision.

Casa Grande, Inc. (“Casa Grande”), a Mississippi corporation, was incorporated in 1972. James N. Perkins (“Perkins”) was the owner of Casa Grande’s capital stock. Casa Grande built an apartment complex consisting of eighty-four units in Hinds County, Mississippi. Permanent financing for the project was obtained through Minnesota Mutual Life Insurance Company (“Minnesota”).

On January 26, 1979, Casa Grande executed a promissory note to Minnesota for $896,730.97 at an interest rate of 9V2% per annum payable in monthly installments of $7,881.01, the final installment being due July 1, 2003, a period of approximately twenty-four years. This note was secured by a first deed of trust which contained a provision commonly referred to as a due-on-sale clause. Paragraph 26 provides:

The Grantor shall not sell or transfer the property subject to this Deed of Trust, nor mortgage or pledge the said property or any personal property secured by a Security Agreement of even date herewith, without the prior written consent of the Beneficiary, its successors and assigns, and violation of this provision will constitute a default hereunder.

The security agreement encumbering the personal property contained a similar provision.

On January 10, 1980, Casa Grande by its president Perkins, requested Minnesota’s consent to sell the real estate consisting of the apartment project to Henry B. Barber (“Barber”), a California citizen, according to the terms of a written contract of sale. The purchase price was $1,550,000 of which $250,000 was cash and the balance was to be paid under the terms of a wraparound mortgage for $1,300,000 carrying a 10% interest rate. This sale was contingent upon the approval of Minnesota.

By letter of January 24, 1980, Minnesota conditionally consented, provided that the yield could be increased from 9V2% to 11V2% with an optional call provision in the fifteenth year of the loan. No response was forthcoming from Perkins or Casa Grande and on February 7, 1980, Perkins entered into a written buy-sell agreement for the sale of all of the capital stock of Casa Grande to Barber for the same consideration contained in the January 9, 1980 real estate sale contract. This agreement provided:

It is understood ... that ... [Barber] ... expects to dissolve the corporation and transfer the ownership of the corporate entity to himself as an individual.

After learning of the stock sale agreement on essentially the same terms as was provided for in the contract for the sale of the real estate, Minnesota filed suit in the Chancery Court of Hinds County against Casa Grande and Perkins and asked for a judicial foreclosure of its deed of trust. The theory of the case was that the stock sale for the same consideration, including a real estate commission, as provided for in the real estate contract was a sham transaction designed solely to defeat the due-on-sale clause in the deed of trust and security agreement and the court should look through the transaction and hold that the due-on-sale clause had been violated. The primary relief requested was a judicial foreclosure.

The Chancellor held the sale of stock did not constitute a violation of the due-on-sale clause therefore Minnesota was not entitled to any relief. The decree of the Chancery Court was entered on May 28, 1981. On July 31, 1981, Casa Grande sought the consent of Minnesota for the transfer of the apartment complex to Barber which was refused. On approximately May 11, 1982, Barber and Casa Grande filed their complaint in this cause for declaratory judgment. Minnesota counterclaimed asking for declaratory relief as to its right to enforce on the due-on-sale clause.

Barber has stipulated that upon the dissolution of Casa Grande and the transfer of the apartment complex to himself, he intends to actively seek a purchaser for the property.

RES JUDICATA

The Mississippi law of res judicata applies to this diversity action. E.D. Systems Corp. v. Southwestern Bell Telephone Co., 674 F.2d 453, 457 (5th Cir.1982); Cleckner v. Republic Van & Storage Co., Inc., 556 F.2d 766, 769 (5th Cir.1977).

Barber and Casa Grande contend that as a matter of law Minnesota may not enforce the due-on-sale clause to foreclose the deed of trust with regard to the proposed dissolution of Casa Grande and conveyance of the apartment complex to Barber because of the prior Hinds County Chancery Court decision in which it was held that the due-on-sale clause was unenforceable. Under Mississippi law it is well established that before a plea of res judicata can act as a bar, each of the following elements must be present: (1) identity of the subject matter of the action, (2) identity of the cause of action, (3) identity of persons and parties to the cause of action, and (4) identity of the quality or character of a person against whom a claim is made. Wright v. Mayor and Commissioners of the City of Jackson, 421 So.2d 1219, 1221 (Miss.1982); Cowan v. Gulf City Fisheries, Inc., 381 So.2d 158 (Miss.1980); McGee v. Griffin, 345 So.2d 1027 (Miss.1977). Here the identity of the person and parties to the cause of action, the identity of the cause of action, and the identity of the subject matter are not present.

First, the same parties are not involved in the present action. Henry B. Barber was not a party to the first action and was not bound by the prior adjudication, yet he is an indispensable party to this action. Therefore, the requirement under Mississippi law that the parties to the second action be the same as the parties to the first action, known as the mutuality rule, is not met. Gunn, The Offensive Use of Collateral Estoppel in Mass Tort Cases, 52 Miss.L.J. 765 (1982); Ditta v. City of Clinton, 391 So.2d 627 (Miss.1980); Palmer v. Clarksdale Hospital, 213 Miss. 611, 57 So.2d 476 (1952).

Second, the identity of the subject matter and the cause of action is different. The Chancery Court acknowledged this issue by stating on page 5 of the opinion:

The question before the Court is, of course, did the sale of the corporation stock of Casa Grande, Inc., to Barber entitle Minnesota to foreclosure under the due-on-sale clause of the Deed of Trust.

The court held that the sale of stock was not prohibited by the deed of trust and declined relief to Minnesota. The controversy here does not involve the sale of stock but rather whether the proposed dissolution of Casa Grande and the conveyance of the apartment complex to Barber and/or the anticipated subsequent sale by Barber to third parties would in either event entitle Minnesota to foreclose under the due-on-sale clause in the deed of trust and security agreement. Therefore, the identity of the subject matter is not the same as it was in the chancery court action. Furthermore, the cause of action is not the same because the present action deals with a transaction which was not contemplated by the Chancellor in rendering his decision. Although the issue of the applicability of the due-on-sale clause is in question in both this and the prior case, the fact that relief sought is the same does not make the cause of action identical within the meaning of res judicata. Viator v. Stone, 201 Miss. 487, 29 So.2d 274, 276 (1947).

Since the Chancellor found that the sale of stock did not entitle Minnesota to foreclose under the due-on-sale clause, the further finding that the due-on-sale clause was unenforceable under the laws of Mississippi was dicta, unnecessary, and not binding on the parties. City of Jackson v. Wallace, 189 Miss. 252, 196 So. 223, 225 (1940) (language beyond the litigation in which it is used is limited to the facts involved in the litigation, and all beyond that, proper for the construction of the particular subject matter before the court is mere dictum — not decision).

In Johnson v. Bagby, 252 Miss. 125, 171 So.2d 327, 332 (1965), the Mississippi Supreme Court stated that there are persuasive reasons for not applying res judicata and collateral estoppel in borderline situations with the principle reasons being that each person should be accorded his full day in court, and the difficulty of a litigant foreseeing the possible significance in future cases of matters currently being litigated. In any event this case presents a borderline situation and the doctrine should not be applied.

The Court thus concludes that the prior chancery court action does not bar Minnesota from litigating the validity of the due-on-sale clause in this action.

COLLATERAL ESTOPPEL

Like the application of Mississippi principles of res judicata, Mississippi’s law of collateral estoppel may be applied in a diversity action such as this. See Hicks v. Quaker Oats Co., 662 F.2d 1158, 1166 (5th Cir.1982) (if prior state court action, state law applies; if prior federal diversity action, federal law applies); Stovall v. Price Waterhouse Co., 652 F.2d 537, 540 (5th Cir.1981). Unlike Federal common law, Mississippi does not permit the offensive use of collateral estoppel. Hicks, 662 F.2d at 1166, citing Ditta v. City of Clinton, 391 So.2d 627 (Miss.1980). Collateral estoppel as defined by the Mississippi court bars the relitigation of a specific issue actually litigated, determined by, and essential to the judgment in the former action by parties to a prior action, even though a different cause of action is the subject of the subsequent action. Under Mississippi case law, three elements must be met for collateral estoppel to apply: (1) the parties must be the same (i.e. the mutuality requirement), (2) the specific issues must have been actually litigated and (3) the issue must have been essential to a judgment in the former action. These requirements have not been met.

First, the Mississippi court has left no doubt that strict mutuality is required as a prerequisite to a claim of collateral estoppel. Explicitly rejecting the argument for the abolition of the mutuality doctrine in the context of collateral estoppel the court in Johnson v. Bagby, 252 Miss. 125, 171 So.2d 327, 330 (1965) stated that: “[W]e still hold that it is necessary that the parties to the subsequent action must be the same as those in the prior action.” See Ditta v. City of Clinton, 391 So.2d 627 (Miss.1980). The strict adherence to mutuality recognized in Mississippi, does not permit the offensive use of collateral estoppel whereby defendant will be barred from relitigating an issue decided against him in an earlier action involving a different party. Since Barber was not a party to the first action, the parties are different and collateral estoppel is not a bar to the issue of the enforcement of the due-on-sale clause.

Additionally, collateral estoppel is not applicable because the specific issue present in this controversy, i.e. the conveyance of real property and collateral, was not the same as the issue involved in the chancery action which was concerned with the sale of stock.

Third, before collateral estoppel can be applied, the issue in question must have been essential to the judgment. The Chancellor’s holding that the due-on-sale clause was unenforceable was not essential to the judgment and was dicta. Since the essential issue of the prior case dealt with the sale of stock, once the court found that the stock sale to Barber would not trigger the due-on-sale clause, there was nothing further to adjudicate. Since the determination of the enforceability of the due-on-sale clause was not essential to the judgment of the court, collateral estoppel does not apply to prevent this Court from ruling on the merits of the case.

GARN-ST. GERMAIN DEPOSITORY INSTITUTION ACT OF 1982

The Garn-St. Germain Depository Institutions Act of 1982 was enacted subsequent to the filing of this case. 12 U.S.C. § 1701j — 3, provides for the preemption of state prohibitions on due-on-sale clauses and authorizes the enforcement of contracts containing due-on-sale clauses. Section 1701j-3 provides in pertinent part:

(a) ... (2) the term “lender” means a person or government agency making a real property loan or any assignee or transferee, in whole or in part, of such a person or agency ...
(b) (1) notwithstanding any provision of the constitution or laws (including the judicial decisions) of any State to the contrary, a lender may, subject to subsection (c) of this section, enter into or enforce a contract containing a due-on-sale clause with respect to a real property loan.
(2) Except as otherwise provided in subsection (d) of this section, the exercise by the lender of its option pursuant to such a clause shall be exclusively governed by the terms of the loan contract, and all rights and remedies of the lender and the borrower shall be fixed and governed by the contract.
(3) In the exercise of its option under the due-on-sale clause, a lender is encouraged to permit an assumption of a real property loan at the existing contract rate or at a rate which is at or below the average between the contract and market rates, and nothing in this section shall be interpreted to prohibit any such assumption.

12 U.S.C.A. § 1701j — 3 (Supp.1983) (emphasis added).

This section further provides that, if by statute or by a decision of the highest court of a state the exercise of due-on-sale clauses has been prohibited, then the clauses can be enforced as to subsequent transfers after the expiration of three years from the date of the Act, October 15, 1982. 12 U.S.C.A. § 1701j-3(c)(l) (Supp.1983). This three year period is referred to as a window period. However, the State of Mississippi has not enacted any statute preventing enforcement of due-on-sale clauses nor has the highest court of the state declared that such provisions are per se unenforceable.

Any doubt as to whether Sanders v. Hicks, 317 So.2d 61 (Miss.1975) prohibited the enforcement of due-on-sale clauses and thus created a Garn window period has recently been clarified by the Supreme Court of the State of Mississippi in First Nat. Bank of Vicksburg v. Caruthers, 443 So.2d 861 (Miss.1983). There, as in the case sub judice the mortgagors contended that the due-on-sale clause was unenforceable since Sanders, a decision by the highest court of this state, prohibited enforcement thus creating a Garn window period. The Mississippi Supreme Court rejected the contention and held that Sanders v. Hicks had been erroneously decided, stating as follows:

Therefore, insofar as Sanders holds that the clause in the deed of trust which prohibited the fee owner from selling the real property without the written consent of the mortgagee was invalid and unenforceable and is hereby overruled. The right of persons to contract is fundamental to our jurisprudence and absent mutual mistake, fraud and/or illegality, the courts do not have the authority to modify, add to, or subtract from the terms of a contract validly executed between two parties____

Caruthers, 443 So.2d at 864.

Since there is no window period in Mississippi provided for either by statute or case decision, the Garn Act assures the enforceability of the due-on-sale clause in this case.

Insofar as the Garn-St. Germain Act is concerned, the remaining question is whether that Act is applicable to a private lender such as Minnesota. The term “lender” is defined in § 1701j-3(a)(2) as “a person or government agency making a real property loan or any assignee or transferee in whole or in part, of such person or agency.” Thus the statute explicitly recognizes a distinction between private persons and governmental agencies and is made expressly applicable to not only governmental entities but also to private entities. The legislative history and the plain wording of the Garn-St. Germain Act, make it clear that the Act applies to a private lender such as Minnesota.

This court concludes that the due-on-sale clause contained in paragraph 26 of the deed of trust is a valid and enforceable provision and that the proposed dissolution and transfer of the mortgaged property to Barber would constitute a default under the deed of trust. Similarly, the due-on-sale clause contained in paragraph 11 of the security agreement is valid and enforceable and the proposed dissolution of Casa Grande and the transfer to Barber of the collateral would constitute a default under both the security agreement and the deed of trust entitling Minnesota to full resort to all available remedies.

The due-on-sale clause in both the deed of trust and the security agreement will continue to be valid and enforceable obligations in the event of the transfer of the mortgaged property, real or personal, to subsequent vendees.

Minnesota, the defendant and counter-claimant, is entitled to entry of a declaratory judgment declaring the rights of the parties consistent with this opinion.

Each party shall be responsible for costs.