text:
    WONDERLIC AGENCY, INC., an Illinois Corp., Plaintiff, v. ACCELERATION CORPORATION, an Ohio Corp., Defendant.
    No. 85 C 5892.
    United States District Court, N.D. Illinois, E.D.
    Nov. 25, 1985.

      Gerard Heldrich, Heldrich, Mirabelli, Grombacher & Associates, Chicago, 111., for plaintiff.
    William M. Stevens, William D. Sieth, Rooks, Pitts & Poust, Chicago, 111., for defendant.
   MEMORANDUM OPINION AND ORDER

ASPEN, District Judge:

Wonderlic Agency, Inc. (“Wonderlic”) filed this diversity suit against Acceleration Corp. (“Acceleration”), alleging breach of an agency agreement. Acceleration has moved to dismiss the complaint under Fed. R.Civ.P. 12(b)(1) & 12(b)(6), arguing that the parties’ agreement requires arbitration of disputes arising out of it.

Since the parties have submitted several material papers outside of the pleadings, we will treat Acceleration’s motion to dismiss as one for summary judgment. See Fed.R.Civ.P. 12(b). For the reasons discussed below, the Court denies this motion.

The following facts appear undisputed. Wonderlic and Acceleration created an agency relationship through a series of letters and documents in late 1984. Wonderlic agreed to act as Acceleration’s agent for the distribution in Illinois of three “products”: the sale (1) of automobile rustproofing products, (2) of credit life, accident and health insurance policies, and (3) of automobile “extended service” policies. Acceleration has attached to its motion documentation concerning the latter two services, while Wonderlic has attached to its complaint letters which purportedly create and describe the rustproofing agreement. Wonderlic alleges that it suffered substantial damage when Acceleration terminated the agreement after Wonderlic had stopped its other “rustproofing” activities in reliance on its agreement with Acceleration. Acceleration has also allegedly failed to pay for Wonderlic’s services.

Acceleration’s motion rests on the theory that the documentation surrounding the parties’ relationship amounts to one contract. Because the documents concerning the “credit insurance” and “service policy” arrangements contain arbitration clauses, Acceleration asserts that disputes concerning the third, or “rustproofing” arrangement must be arbitrated as well. Wonderlic contends that there were three separate contracts creating related, but independent, agency relationships, and that the rustproofing agreement contains no arbitration requirement.

Acceleration’s motion for summary judgment can be granted only if it can show that “there is no genuine issue as to any material fact and that [it] is entitled to judgment as a matter of law.” Fed.R. Civ.P. 56(c). We must view the evidence, as well as reasonable inferences created by the evidence, in the light most favorable to Wonderlic, the party opposing the motion. See, e.g., Big O Tire Dealers, Inc. v. Big O Warehouse, 741 F.2d 160, 163 (7th Cir. 1984). If Acceleration cannot sustain its “strict burden,” its motion will fail, even in the absence of opposition. Id. But if Acceleration can carry its burden, Wonderlic must bear the resulting burden of creating a genuine issue. Naked pleadings or assertions cannot meet this burden. Fed.R. Civ.P. 56(e); Big O, 741 F.2d.at 163. Having defined the procedure to follow, we must next determine the substantive law that applies.

The Erie doctrine commands that a federal court apply the choice of law rules of the forum state to determine which state’s law to apply. Klaxon v. Stentor Mfg. Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). In Illinois, parties may in general agree by contract that a given state’s law governs any future disputes arising out of the contract. See, e.g. Hofeld v. Nationwide Life Ins. Co., 59 Ill.2d 522, 529, 322 N.E.2d 454, 458 (1975). This is not such a case. The “agreement” concerning credit insurance says that Ohio law governs disputes. The extended service policy agreement provides that Illinois law governs disputes concerning it. The documentation concerning rustproofing says nothing about choice of law. Faced with the lack of a clear agreement on choice of law, we must apply Illinois’ general choice of law rules regarding contract disputes.

The choice of law rule in Illinois for contract cases appears to be in flux. Some recent Illinois opinions have eschewed the traditional, mechanistic approach in favor of the Second Restatement’s “most significant relationship” test. See Illinois Tool Works v. Sierracin Co., 134 Ill.App.3d 63, 69, 89 Ill.Dec. 40, 44-45, 479 N.E.2d 1046, 1050-51 (1985); Boise Cascade Home & Land Corp. v. Utilities, Inc., 127 Ill. App.3d 4, 12-13, 82 Ill.Dec. 180, 187, 468 N.E.2d 442, 449 (1984) (dictum); Champagnie v. W.E. O’Neil Construction Co., 77 Ill.App.3d 136, 144-46, 32 Ill.Dec. 609, 615-16, 395 N.E.2d 990, 996-97 (1979). In some cases, the Seventh Circuit too has used only the modern test in applying Illinois choice of law rules. See Florida Risk Planning Consultants, Inc. v. Trnasport Life Ins. Co., 732 F.2d 593, 595 (7th Cir. 1984); Overseas Development Disc Corp. v. Sangamo Construction Co., Inc., 686 F.2d 498, 510 n. 43 (7th Cir.1982) (dictum). Other cases have melded the old and new tests, focussing mechanistically on the place of execution and performance and then applying the most significant relationship test anyhow when the old test yielded no clear result. See Dr. Franklin Perkins School v. Freeman, 741 F.2d 1503, 1515 n. 19 (7th Cir.1984); American National Bank & Trust Co. v. Weyerhaeuser Co., 692 F.2d 455, 460 n. 10 (7th Cir.1982); Zlotnick v. MacArthur, 550 F.Supp. 371, 373-74 (N.D.Ill.1982) (Moran, J.); McIntosh v. Magna Systems, Inc., 539 F.Supp. 1185, 1188 (N.D.Ill.1982) (Aspen, J.). And other courts have stuck with the traditional approach. See Jacobs/Kahan & Co. v. Marsh, 740 F.2d 587, 591 (7th Cir.1984) (applying part of old test without discussion); NII Metals Services, Inc. v. ICM Steel Corp., 514 F.Supp. 164, 166 (N.D.Ill. 1981) (Shadur, J.); DP Service, Inc. v. AM International, 508 F.Supp. 162, 164-65 (N.D.Ill.1981) (Shadur, J.) (recognizing modern trend but holding that Illinois had not yet applied modern test in contract cases). Although we have seen no Illinois Supreme Court opinions on the issue, we think if faced with the issue it would and should adopt the modern approach, as it did for tort cases in Ingersoll v. Klein, 46 Ill.2d 42, 262 N.E.2d 593 (1970). See Zlotnick, 550 F.Supp. at 373 n. 2; Boise Cascade, 127 Ill.App.3d at 13, 82 Ill.Dec. at 186-87, 468 N.E.2d at 448-49.

Under the most significant contacts test, the Court must examine five factors: (1) the place of contracting; (2) the place of negotiations; (3) the place of performance; (4) the situs of the subject matter of the contract; and (5) the domicile, residence, place of incorporation and place of business of the parties. Dr. Franklin Perkins School, 741 F.2d at 1515 n. 19; Restatement (Second) of Conflicts § 188 (1971). The record is unclear as to factors (1) and (2). Factor (5) cancels out viz. Ohio and Illinois, and factor (4) is irrelevant. However, factor (3) clearly favors Illinois. The parties created an agency relationship, which calls for Wonderlic, an Illinois corporation, to sell Acceleration’s products and services in Illinois. While Acceleration was to supply rustproofing chemicals and provide the insurance, Wonderlic was to perform the bulk of the work called for under the contract in Illinois. And Acceleration was to send payment into Illinois. On balance, then, while Ohio has some tie to and interest in this suit, Illinois’ connection is greater and its law should apply.

Under Illinois law, the intent of the parties at the time the deal was made determines whether there was one contract or three. See, e.g., Thread and Gage Co., Inc. v. Kucinski, 116 Ill.App.3d 178, 182-83, 71 Ill.Dec. 925, 928, 451 N.E.2d 1292, 1295 (1983). Where different instruments that are part of the same transaction are involved, all the instruments must be read together to ascertain the parties’ intent. Id. at 182, 71 Ill.Dec. at 928, 451 N.E.2d at 1295. The language of the contract(s) is (are) the best indicator of intent, but extrinsic evidence may be considered to determine intent when the contractual language is ambiguous. Id. at 183, 71 Ill.Dec. at 928-29, 451 N.E.2d at 1295-96.

At this point in the case it is obvious that a genuine factual question remains as to whether the parties intended one contract or three. Construing the evidence in the light most favorable to Wonderlic, we see several facts indicating that the parties created three separate agreements: First, as we noted earlier, two of the documents contain conflicting choice of law provisions. This conflict suggests that those two agreements were separate and independent. Second, both of those agreements contain integration clauses, which also suggest independent contracts. Finally, these documents were executed on different days and expire at different times. The credit life insurance document is dated November 1, 1984, and was to expire November 1, 1985. The Extended Service document is dated October 1, 1984, and was to expire on October 1, 1985. The letters which allegedly create the rustproofing agreement are dated September 20, October 17 and November 5, 1984. These differing dates again strongly suggest that the parties created a series of independent, albeit related, contracts.

The Kucinski case illustrates that Illinois courts will not necessarily construe closely related documents as one contract. The defendant in Kucinski contracted to sell his business to the plaintiff. Two of the agreements involved the sale of two corporations controlled by defendant. The third involved the sale of a piece of land which one of the corporations had owned. Each of the agreements required monthly installment payments, each due the same day each month. A dispute ultimately arose over one of the agreements, and defendant failed to pay the installments due under that one, although he paid the other two agreements. The plaintiff argued that there was one overall contract, and that the one breach breached all three “agreements.” The Court construed the language of the agreements, as well as the parties’ conduct, and held that the parties intended three separate contracts. 116 Ill. App.3d at 183-84, 71 Ill.Dec. at 929, 451 N.E.2d at 1296.

While Kucinski makes clear that the question depends on the facts of each case, it is at least arguable that the case there was stronger for one contract than the one here. Unlike here, all three agreements in Kucinski were signed'the same day, called for simultaneous monthly payments and were internally consistent, yet the court held that three contracts had been intended. In the present case, the three agreements begin and end on different days and are internally inconsistent. These discrepancies argue against a finding that the parties intended one contract.

However, we need not decide now whether the parties definitively intended one contract or three. Suffice it to say that Acceleration has not sustained its burden on summary judgment of showing that the parties clearly intended one contract. An affidavit of Acceleration’s vice-president does not extinguish this genuine issue of fact. He avers summarily that there was one overall agreement. While we may assume for argument that there was one business transaction, whether there was one contract is a legal question, and the vice-president’s statement on this point carries little, if any, weight. Even if we assume that he meant to make the factual assertion that the parties intended one agreement, a factual issue remains on this point. His statement must be taken in the context of the evidence discussed above, which shows manifestations of intent that there be three contracts. Thus, even if we were not to disregard the affidavit, we must construe it and the other evidence in the light most favorable to Wonderlic. From such a perspective, it is clear that Acceleration has failed to show that one agreement was created.

That being the case, the pivotal issue of fact remains unresolved — whether the parties intended that disputes over the rustproofing agreement be arbitrated. On the one hand, the arbitration clauses in the other two agreements arguably suggest that the parties intended to arbitrate disputes concerning the third. On the other hand, their inclusion of a specific arbitration clause in the first two agreements and their omission of such a clause in the third just as plausibly suggest that they did not intend arbitration for the third. We need not (and lacking other evidence of intent, cannot) resolve this dispute now. Clearly, though, a genuine issue of material fact exists on whether the parties intended arbitration for the rustproofing transaction. Accordingly, Acceleration’s motion for summary judgment must be denied.

While we express no opinion on whether the parties’ contract requires arbitration as a matter of law, we suggest to Wonderlic that it consider submitting to arbitration voluntarily. This' is a simple breach of contract suit, tailor-made for arbitration. This Court has long advocated alternative methods of dispute resolution for cases like this, where prolonged litigation is in the interests of neither party. The parties are to confer prior to the next status hearing with a view toward negotiating a settlement or agreeing to voluntary arbitration. At the next status hearing, the parties shall report on their prospects for settlement and the acceptability of voluntary arbitration if settlement is not imminent.

For the foregoing reasons, Acceleration’s motion for summary judgment is denied. It is so ordered.

      . Those clauses say in relevant part:
      Arbitration. Any controversy, claim or dispute arising out of this Agreement or a breach of any provision therein, shall be settled by arbitration, in accordance with the Rules of the American Arbitration Association, and Chapter 2711, Ohio Revised Code, or subsequent amendments thereto. The express terms of this arbitration clause shall control over the Ohio Revised Code, and the Ohio Revised Code shall control over the Rules of the American Arbitration Association, in event of any conflict or discrepancy.

      . Judge Moran stated the mechanistic test as follows:
      Under traditional Illinois conflict of law principles, the validity, construction and obligation of a contract are determined by the law of the place where it is made and performed. Walker v. Lovitt, 250 Ill. 543, 95 N.E. 631 (1911). Where the place of performance differs from the place of making the contract, and the agreement is to be performed wholly in one jurisdiction, then the law of the place of performance governs. Ehrman v. Cook Electric Co., 468 F.Supp. 98, 99 (N.D.Ill.1979), aff’d 630 F.2d 529 (7th Cir.1980). If more than one place of performance is involved, the place of contracting determines the construction of the document. Charles O. Finley & Co., Inc. v. Kuhn, 569 F.2d 527, 542 (7th Cir.), cert. denied, 439 U.S. 876, 99 S.Ct. 214, 58 L.Ed.2d 190 (1978).

        Zlotnick v. MacArthur, 550 F.Supp. 371, 373 (N.D.Ill.1982) (footnote omitted).

      . Even under the "melded test” the most significant relationship test would apply here. As noted in the text below, the place of contracting is unclear, and the place of performance is not limited to Illinois, since both parties will perform in their home states. Thus, the cases. cited earlier, such as Perkins School and Zlotnick, would fall back onto the modern test in this case anyhow.

      . In this respect, the case Acceleration relies upon, Tepfer v. Deerfield Savings & Loan Ass’n., 118 Ill.App.3d 77, 73 Ill.Dec. 579, 454 N.E.2d 676 (1983), might be relevant. Tepfer states the general rule that "where two or more instruments are executed by the same contracting parties in the course of the same transaction, the instruments will be considered together and construed with reference to one another because they are, in the eyes of the law, one contract.” Id. at 80, 73 Ill.Dec. at 582, 454 N.E.2d at 679. Assuming that there was one overall business transaction, we think that the two arbitration clauses are relevant, but not necessarily controlling, on the issue of whether the parties intended arbitration for the third agency relationship. However, Acceleration is wrong that Tepfer mandates a finding that the parties intended one contract. The rule quoted above operates “in the absence of a contrary intention.” 118 Ill.App.3d at 80, 73 Ill.Dec. at 582, 454 N.E.2d at 679. As discussed earlier at 804-05, the instruments here are internally inconsistent and at least suggest a "contrary intention” that there be more than one contract.


source: Caselaw Access Project

author: WILL, District Judge.

license: Public Domain

text:
    Robert J. PELIZZA, Plaintiff, v. READER’S DIGEST SALES AND SERVICES INC., a Delaware corporation, a subsidiary of Readers Digest Association Inc., Defendant.
    No. 85 C 5569.
    United States District Court, N.D. Illinois, E.D.
    Nov. 27, 1985.
    Robert E. Arroyo, Paul K. Whitsitt, Keck Mahin & Cate, Chicago, 111., for plaintiff.
    Leigh R. Gignilliat, III, Roger Zamparo, Jr., Salinger Gignilliat Hymen & Zamparo, P.C., Chicago, 111., for defendant.
   MEMORANDUM OPINION

WILL, District Judge.

Robert J. Pelizza filed this action against Reader’s Digest Sales & Services Inc. (Reader’s Digest) seeking damages for lost wages and other benefits due to the termination of his employment. The three count complaint alleges breach of contract in Count I, breach of the duty to deal fairly and in good faith in Count II, and intentional infliction of emotional distress in Count III. Defendant moved to dismiss the complaint for failure to state a claim upon which relief can be granted. Plaintiff withdrew Count II. For the reasons stated below, we deny defendant’s motion to dismiss Count I, and grant its motion to dismiss Count III.

We must decide whether employer policies and procedures or an employee manual unilaterally adopted by an employer prior to the date an employee is hired can modify an employment at-will relationship in Illinois. In deciding whether to dismiss a claim for failure to state a claim, we must regard the well pled facts of the complaint as true and construe the allegations of the complaint in the light most favorable to the plaintiff.

Count I: Breach of Contract

Pelizza alleges in Count I of his complaint that he entered into an employment agreement as an Advertising Sales Representative with defendant on August 17, 1981. He asserts that the oral portions of the contract included his agreement to become an employee of the defendant and the defendant’s agreement to pay him for his services. The written portion of the contract, plaintiff alleges, is an Employee Manual which sets out the defendant’s established company policies regarding the obligations of both parties. Plaintiff asserts that relevant terms of the manual are that Readers Digest would not terminate an employee unless (1) the employee’s work did not meet performance standards established by each department or, (2) the employee was found to be in violation of the company’s written rules and regulations. Plaintiff attached sections 3 and 5 of the manual to his complaint. Section 3 states: “It is the policy of the Reader’s Digest to take immediate action when an employee violates any of the following rules and regulations.” After enumerating the rules, the manual sets out procedures to be followed if an employee violates the rules. The procedures include an immediate suspension for one to three days with the approval of the Department Head and the Personnel Department, during which time the violation will be thoroughly investigated by three members of management. Depending on the results of the investigation, the employee will be either reinstated with back pay, with or without a warning, or terminated. “The Personnel Department will monitor these procedures to be sure they are applied consistently to all employees.”

Section 5 sets forth the company’s policy regarding involuntary termination of employees.

INVOLUNTARY TERMINATION POLICY
It is the policy of the Reader’s Digest to retain employees whose work meets the performance standards established by each department as necessary for meeting corporate growth and profit objectives. Individuals who are found to be ,in violation of company rules and regulations, are subject to termination.

The procedure for terminating an employee includes, among other things, requirements that the decision to terminate be discussed with the Personnel Department prior to termination, that there be a termination interview with the employee in which specific work performance deficiencies are cited as documentation, and that an exit interview be conducted with the employee to settle all accounts between the company and the employee.

Pelizza alleges that there was an implied portion of the contract which included an agreement that defendant would conform its conduct in the employer-employee relationship to the guidelines which it prepared and developed, or, in the alternative, that defendant’s policy statement implied an agreement to terminate only for cause. Pelizza claims that the defendant breached the terms of the employment contract when he was involuntarily discharged by Reader’s Digest on January 2, 1985.

“Under Illinois law, an employment relationship implies the existence of an employment contract.” Rynar v. Ciba-Geigy Corp., 560 F.Supp. 619, 624 (N.D.Ill.1983); see also Sargent v. Illinois Institute oTechnology, 78 Ill.App.3d 117, 33 Ill.Dec937, 397 N.E.2d 443 (1 Dist.1979). A written or oral employment contract which does not specify the term of employment creates an employment relationship which endures ■'at the will of the parties, and which is terminable by the employer or the employee at any time, for or without cause, subject only to independent contractual or statutory provisions. Rynar, 560 F.Supp. at 624; see also Pudil v. Smart Buy, Inc., 607 F.Supp. 440 (N.D.Ill.1985); Enis v. Continental Illinois National Bank & Trust Co. of Chicago, 582 F.Supp. 876, 879 (N.D.Ill.1984); Sargent, 78 Ill.App.3d at 121, 33 Ill.Dec. at 939-40, 397 N.E.2d at 445-46. The Illinois Supreme Court has not addressed the question of whether personnel policies and procedures developed and unilaterally adopted by an employer become a part of the employment contract which is implied by the employment relationship and, thus, modify the at-will nature of the employment relationship. However, several Illinois appellate courts and United States district courts in the Northern District of Illinois have addressed the question.

Defendant argues that the terms of an employment contract and the at-will nature of the employment relationship are not altered by the terms of a personnel policies and procedures manual unless the manual was bargained for or assented to by the employee during his employment. See Sargent, 78 Ill.App.3d at 121-22, 33 Ill.Dec. at 940, 397 N.E.2d at 446. A personnel policy is bargained for, and thus modifies the at-will nature of the employment relationship “where the terms of the policy itself suggest that a mutuality of obligation was intended by employer and employees when the policy was written, and the facts surrounding implementation of the policy establish that the policy modified the pre-existing employment contract which is implied in the employer-employee relationship.” Rynar, 560 F.Supp. at 624 (citations omitted).

In Carter v. Kaskaskia Community Action Agency, 24 Ill.App.3d 1056, 322 N.E.2d 574 (5 Dist.1974), a personnel policy manual was adopted after employees had been hired. It gave employees the right to a grievance hearing before discharge in exchange for forfeiture of vacation pay if an employee failed to give thirty days notice prior to resigning. The employer reviewed the manual with employees who then accepted it. Thus, the court concluded that the manual was a proposed (and accepted) modification of an existing at-will employment contract, which imposed obligations on both parties. The court found that the employees both assented to the modification and provided consideration for the modification by continuing to work after the modification was implemented, thus creating mutuality of obligation and an enforceable contract. Id. at 1058-59, 322 N.E.2d at 576.

In Sargent, however, the Appellate Court of Illinois for the First District found that a personnel manual adopted and issued by the employer to its employees did not become part of an employment contract. 78 Ill.App.3d at 122, 33 Ill.Dec. at 940, 397 N.E.2d at 446. The court found~ x that, unlike Carter, the manual was given to the plaintiff when he began his employment. Id. Furthermore, since the manual only defined the duties and responsibilities of the job, by agreeing to be bound by it the plaintiff merely agreed to properly perform his job and nothing more. Since the plaintiff did not provide any additional consideration (other than his services) to support the pre-discharge hearing requirement in the personnel manual, it did not become part of an enforceable contract.

The rationale of Sargent has guided United States district courts applying Illinois law. See Rynar, 560 F.Supp. 619; Enis, 582 F.Supp. 876. In Rynar we granted defendant’s motion for summary judgment because, even though the terms of the employer’s policy suggested a mutuality of obligation from which a mutuality ] of consideration might be inferred, the undisputed facts did not suggest that either the plaintiff individually, or the employees J collectively accepted the personnel policy as^ a contract.

In Enis, Judge Bua found that discharge procedures contained in an employee handbook did not rise to the level of a mutually enforceable agreement because the handbook was given to the plaintiff when she was hired, so there was no modification of a pre-existing employment agreement. Moreover, the guidelines in the handbook were not bargained for, but merely defined the duties of the job. Thus, by accepting the handbook, the plaintiff merely agreed to properly perform her job duties and nothing more. Since the plaintiff did not provide any additional consideration (other than her services) to support the discharge procedures set out in the handbook, those procedures did not become part of the employment contract. Enis, 582 F.Supp. at 879.

The mode of inquiry adopted by the Illinois Appellate Courts in these earlier decisions focused on thq^adequacy of consideration^ The'courts tendecTto treat the “rule” ‘that an employment relationship of undefined duration is terminable at the will of either party, as a substantive rule of law, rather than as a rule of construction for' interpreting otherwise ambiguous contracts. See Toussaint v. Blue Cross & Blue Shield of Michigan, 408 Mich. 579, 292 N.W.2d 880, 884 (1980). As we pointed out in Rynar, “In some jurisdictions, the existence of a personnel policy and employees’ general awareness that the policy provides certain benefits are enough to make the policy part of the employment contract.” 560 F.Supp. at 625. At that time, we concluded that the Illinois rule was otherwise. However, in the interim, the Illinois Appellate Courts for the first and second districts have rejected the rationale of Sargent and adopted the rationale of cases such as Toussaint.

In Toussaint, the Michigan Supreme Court found that even where an employment contract is for an indefinite term, it may provide that an employee shall not be discharged except for cause. The court found that “such a provision may become part of the contract either by express agreement, oral or written, or as a result of an employee’s legitimate expectations grounded in an employer’s policy statements.” Id., at 598, 292 N.W.2d at 885. The court pointed out:

While an employer need not establish personnel policies or practices, where an employer chooses to establish such policies and practices and makes them known to its employees, the employment relationship is presumably enhanced. The employer secures an orderly, cooperative and loyal work force, and the employee the peace of mind associated with job security and the conviction that he will be treated fairly. No^pfe-employ^ ment negotiations need take place and the parties’ minds need not meet on the subject; nor does it matter that the employee knows nothing of the particulars of the employer’s policies and practices or that the employer may change them unilaterally. It is enough that the employer chooses, presumably in its own interest, to create an environment in which the employee believes that, whatever the personnel policies and practices, they are established and official at any given time, purport to be fair, and are applied consistently and uniformly to each employee. The employer has then created a situation “instinct with an obligation.”

Id. at 613, 292 N.W.2d at 892, citing Wood v. Lucy, Lady Duff-Gordon, 222 N.Y. 88, 118 N.E. 214 (1917).

Recent Illinois Appellate Courts have explicitly adopted the Toussaint rationale, rejecting the Sargent Court’s narrow reading of Carter. Kaiser v. Dixon, 127 Ill.App.3d 251, 263, 82 Ill.Dec. 275, 284-85, 468 N.E.2d 822, 831-32 (2d Dist.1984); see also Duldulao v. St. Mary of Nazereth Hospital Center, 136 Ill.App.3d 763, 765, 91 Ill. Dec. 470, 472, 483 N.E.2d 956, 958 (1 Dist., 1985); cf. Johnson v. Figgie International, Inc., 132 Ill.App.3d 922, 87 Ill.Dec. 669, 477 N.E.2d 795 (2 Dist.1985). In Kaiser, the court concluded that a detailed 83-page manual adopted by the employer after the plaintiff was hired and which imposed mutual obligations on both employer and employees was enforceable despite the fact that there was no evidence that the manual was “bargained for” by the employees.

The court pointed out that the manual went far beyond a mere expression of employer policies and procedures as guidance or for informational purposes, and declined to follow Sargent to the extent that the court’s rationale was inconsistent with that opinion. Id,., 127 Ill.App.3d at 263, 82 Ill. Dec. at 285, 468 N.E.2d at 832. Kaiser noted the split of authority on the issue in j-v other jurisdictions, but found “the better reasoned approach” to be to bind the “employer to the terms in its policy manual” whenever the manual “imposes obligations Ion both the employee and employer,” re'gardless of whether the manual was “bargined for” or not. Id. at 262, 82 Ill.Dec. at 284, 468 N.E.2d at 831; accord Pudil v. Smart Buy, Inc., 607 F.Supp. 440 (N.D.Ill. 1985). Kaiser was reaffirmed in Johnson v. Figgie, 132 Ill.App.3d 922, 87 Ill.Dec. 669, 477 N.E.2d 795.

However, the court pointed out that to recover, plaintiff must show that the employer’s policies were a part of a preexisting employment agreement. That is, the policies must be implemented after the employee was hired. This analysis, too, delves into the adequacy of the consideration. Such reasoning was implicitly rejected in Kaiser and Toussaint.

In Duldulao, the first District Appellate Court went even further. On facts indistinguishable from those in the case at bar, the court in Duldulao reversed the trial court decision granting summary judgment for defendant. There was no written employment contract, and the duration of the employment was indefinite. “Plaintiff maintained that the defendant breached the employment relationship by not affording her the benefit of the progressive disciplinary policy for non-probationary employees set forth in the employee handbook.” Duldulao, 136 Ill.App.3d at 764, 91 Ill.Dec. at 471, 483 N.E.2d at 957. Following the Kaiser court, the court concluded that the manual was binding on the employer since it imposed obligations on both employee and employer, even though it was not “bargained for.” In Duldulao, as in the case before us, the manual was apparently in effect prior to the time the plaintiff was hired.

It is apparent, therefore, that the trend in Illinois, and the better reasoned approach, is to bind employers to the terms of their policy manuals when the manual imposes obligations on both the employer and employee, regardless of whether the manual was actually bargained for, and regardless of whether it modifies an existing employment relationship, or was in effect at the time the plaintiff was hired. See Kaiser, 127 Ill.App.3d at 262, 82 Ill. Dec. at 284, 468 N.E.2d at 831; Duldulao, 136 Ill.App.3d at 765, 91 Ill.Dec. at 472, 483 N.E.2d at 958; accord Patkus v. Sangamon-Cass Consortium, 769 F.2d 1251 (7th Cir.1985); Pudil, 607 F.Supp. 440; Kufalk v. Hart, 610 F.Supp. 1178, 1193 (N.D.Ill. 1985); Lockridge v. Caron Int’l, Inc, No. 85 C3187, slip op. (N.D.Ill. Sept. 24, 1985) (unpublished opinion); Haas v. William Rainey Harper College, No. 84 C 5796, slip op. (N.D.Ill. Aug. 9, 1985) (unpublished opinion).

Here, the employer’s manual imposed obligations on both the employees and the employer. A fair inference from the portions of the manual attached to plaintiff’s complaint is that the employer will only fire employees for cause.

For the foregoing reasons, we cannot say that it appears beyond doubt that plaintiff can prove no set of facts in support of his claim which would entitle him to relief. Therefore, we cannot dismiss Count I for failure to state a claim. See Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-02 (1957).

Count III

Count III attempts to make out a claim for intentional infliction of emotional distress. To properly plead such a claim the plaintiff must allege that the defendant intended to cause emotional distress, or recklessly disregarded the probability of causing emotional distress, and that the defendant’s extreme and outrageous conduct was the proximate cause of the plaintiff’s severe emotional distress. See, e.g., Palmateer v. International Harvester Co., 85 Ill.App.3d 50, 53, 40 Ill.Dec. 589, 592, 406 N.E.2d 595, 598 (3 Dist.1980), rev’d in part on other grounds, 85 Ill.2d 124, 52 Ill.Dec. 13, 421 N.E.2d 876 (1981); Stoecklein v. Illinois Tool Works, Inc., 589 F.Supp. 139, 145-46 (N.D.Ill.1984).

In relevant part, Count III states only that the “defendant terminated plaintiff based on the claim that ‘he did not fit the image of a Reader’s Digest sales person,’ despite his exemplary sales record and in contravention of its policy for involuntary termination.” As a result, plaintiff claims to have manifested signs of emotional distress in the form of severe depression and insomnia.

Plaintiff has failed properly to allege three of the four elements of the tort. He has not alleged that the defendant either intended to cause emotional distress, or that the defendant acted with such reckless disregard that it should have known that severe emotional distress was substantially certain to result. Plaintiff has not alleged any extreme or outrageous conduct by defendant. He has merely alleged that the defendant fired him without just cause, allegedly in violation of an employment contract. Such conduct is not extreme or outrageous. Nor are such allegations sufficient to withstand a motion to dismiss. See, e.g., Stoecklein, 589 F.Supp. at 146 & n. 9; Pudil, 607 F.Supp. at 444 and cases cited therein. Finally, plaintiff alleges only that he suffered severe emotional distress (and insomnia). “Severe emotional distress” is $ conclusion of law which must be supported by factual allegations in the complaint. Stoecklein, 589 F.Supp. at 146, n. 9. Plaintiff did allege proximate cause. Plaintiff argues that, though the burden is high, his complaint is sufficient to withstand a motion to dismiss for failure to state a claim. If the only problem with this claim were the lack of factual allegations on the severity of his emotional distress, we might be inclined to agree. However, the complete lack of an allegation of outrageous conduct, and the apparent impossibility of making such an allegation given the facts which are alleged, lead us inevitably to dismiss Count III for failure to state a claim upon which relief can be granted.

Conclusion

For the reasons stated above, defendant’s motion to dismiss for failure to state a claim is granted as to Count III, and denied as to Count I. Count II has been withdrawn by the plaintiff.


author: SWEET, District Judge.

text:
    SUNDSVALLSBANKEN, Plaintiff, v. FONDMETAL, INC. and Robern International, Inc., Defendants and Third-Party Plaintiffs.
    No. 85 Civ. 1453 (RWS).
    United States District Court, S.D. New York.
    Nov. 27, 1985.

      Carey & Deinoff, New York City, for plaintiff; Michael Q. Carey, of counsel.
    Lerich & Lerich, New York City, for defendants and third-party plaintiffs; Hyman D. Lerich, Eric Moss, of counsel.
   OPINION

SWEET, District Judge.

Plaintiff Sundsvallsbanken (“SVB”) brings this motion for partial summary judgment under Rule 56, Fed.R.Civ.P., to collect on a renewal pi’omissory note executed by defendants Fondmetal, Inc. and Robern International, Inc. (collectively “Fondmetal/USA”) in favor of SVB. Fondmetal/USA opposes the motion for partial summary judgment claiming that it is entitled to pursue additional discovery under Rule 56(f) of the Federal Rules of Civil Procedure, and cross-motions for an order pursuant to Rule 37(d) imposing sanctions against SVB for refusal to submit to discovery in this action. For the reasons set forth below, SVB’s motion for partial summary judgment on the note is granted, and Fondmetal/USA’s motion for sanctions is denied.

Facts

The following facts are undisputed except as noted.

This action arises from the division of the business affairs of defendants and their principal Bernt C. Rathaus (“Rathaus”) from those of Fondmetall/AB, a Swedish company, and its principal Anders J. Lofberg (“Lofberg”). In order to terminate and dissolve their joint venture in 1984, Rathaus, Lofberg, SVB and to a lesser extent Skandinaviska Enskilda Banken (“SEB”) entered into a complex series of agreements. On June 7, 1984 Rathaus sold Lofberg all the shares of common stock which Rathaus owned in Fondmetall/AB, the Swedish company. On the same day, Lofberg and Rathaus agreed that Fondmetal/USA owed Fondmetall/AB $1,400,-000.00 and entered into a Settlement and Security agreement (“Settlement Agreement”). The agreement provided that Fondmetal/USA would pay Fondmetall/AB $1,400,000.00, as evidenced by a promissory note (“Note A”) which was simultaneously executed and delivered with the agreement and as part consideration for the redirection of the amount which Fondmetall/AB claimed it was owed. Fondmetall/AB received a security interest in and lien upon all of Fondmetal/USA’s accounts and chattel papers. The Settlement Agreement also provided that Fondmetall/AB could assign its rights under the agreement, and all the rights and obligations under the agreement would inure to the benefit of and be binding upon the assignee. Also on June 7, 1984, the parties executed two Limited Release and Indemnification Agreements (“Indemnification Agreements”).

In the first indemnification, Fondmetall/AB and Lofberg released Fondmetal/USA and Rathaus from certain obligations and claims, and in turn they agreed to indemnify Fondmetall/AB and Lofberg from acts of Rathaus, the companies. or officers up to June 7, 1984. In the second indemnification agreement, Fondmetal/USA and Rathaus released Lofberg and Fondmetall/AB from certain obligations and in return Lofberg and Fondmetall/AB agreed to indemnify Fondmetal/USA and Rathaus with respect to activities of the Swedish company or its officers up to June 7,1984.

Finally, on June 7, 1984, Fondmetall/AB assigned Note A to SVB, a note which was to be paid in four installments beginning August 1, 1984, ending July 1, 1985. Simultaneously, Fondmetall/AB also assigned its rights under the Settlement Agreement to SVB. Each assignment was agreed to by Fondmetal/USA, and each assignment provided a conditional indemnification agreement for the benefit of Fondmetal/USA which by its terms indemnified the companies against any claim which SEB might make against them in relation to the Fondmetall/AB default:

... in the performance of a loan granted by [SEB] to [FONDMETALL] in the principal amount of U.S. $290,000. The agreement by [SVB] to hold [FONDME-TAL/USA] harmless shall not include any other claim which [SEB] may have against [FONDMETAL/USA] for any other reason whatsoever.
The agreement by [SVB] to hold [FONDMETAL/USA] harmless as set out above shall not entitle them to a setoff against or in any way limit the [Fondmetal/USA] obligations under the Promissory Note or the Assignment to [SVB] by [Fondmetall] of all its rights under said Promissory Note ...,”

Neither assignment provides for personal indemnification of Rathaus. (Exh. D, Rathaus Affidavit of 7/7/85 Doc. # 1 & 2).

After the completion of these agreements, Fondmetal/USA began making payments to SVB under Note A. However, in October of 1984, Rathaus informed SVB that he would be unable to méet the payment schedule under Note A, and on October 31, 1984 the parties entered into an amended Settlement Agreement and a renewed promissory note (“Note B”). Similar events resulted in another amended Settlement Agreement and renewed promissory note (“Note C”) on January 24, 1985. The amount of Note C was $450,000.00, Fondmetal/USA having paid $950,000.00 pursuant to Notes A and B. These amendments altered the payment schedules for the indebtedness to Fondmetal/USA’s benefit, but provided for the immediate accrual of interest on all principal amounts outstanding under the renewal notes. Fondmetal made no payment on Note C, and SVB commenced this suit to recover the monies due.

Discussion

All doubts must be resolved and all reasonable inferences must be drawn in favor of the party opposing the motion. United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993, 994, 8 L.Ed.2d 176 (1962) (per curiam); United States v. One Tintoretto Painting Entitled “The Holy Family with Saint Catherine and Honored Donor”, 691 F.2d 603, 606 (2d Cir.1982). This Circuit has long endorsed a policy of allowing the development of a full factual record through trial of the issues presented, a policy which is limited by the grant of summary judgment. See Jaroslawicz v. Seedman, 528 F.2d 727, 731 (2d Cir.1975).

The burden faced by the moving party should not, however, be made so insurmountable as to vitiate summary judgment relief. If the opponent to the summary judgment motion fails to allege that there are substantial facts in dispute, his reliance on an unsubstantiated denial of the accuracy of the movant’s affidavits is insufficient to controvert a motion for summary judgment. Project Release v. Provost, 722 F.2d 960, 968 (2d Cir.1983); see WIXT Television, Inc. v. Meredith Corp., 506 F.Supp. 1003 (N.D.N.Y.1980).

Fondmetal/USA has interposed legal defenses against the collection on the promissory note, and has requested postponement of the motion pursuant to Rule 56(f) asserting the need for added discovery of information under SVB’s control. Rule 56(f) requires the court to ensure that the parties have a reasonable opportunity to make their record complete before ruling on a motion for summary judgment. Berne Street Enterprises v. American Export Isbrandtsen Co., 289 F.Supp. 195 (S.D.N.Y.1968). However, Rule 56(f) is not a shield against all summary judgment motions. Litigants seeking relief under the Rule must show that the material sought is germane to the defense, and that it is neither cumulative nor speculative. Quaker Chair Corp. v. Litton Business Systems, Inc., 71 F.R.D. 527, 533 (S.D.N.Y.1976). “A ‘bare assertion’ that the evidence supporting a plaintiff’s allegation is in the hands of the defendant is insufficient to justify a denial of a motion for summary judgment under Rule 56(f).” Contemporary Mission, Inc. v. U.S. Postal Service, 648 F.2d 97, 107 (2d Cir.1981). Fondmetal/USA’s three major opposition claims will be considered in light of these summary judgment and Rule 56(f) standards.

Conversion claim

Fondmetal/USA claims that SVB .is not entitled to collect on the promissory note because it assisted in, or at least had knowledge of, an alleged conversion of certain of Fondmetal/USA’s European accounts receivable by Rathaus’ estranged partner Lofberg and Fondmetall/AB. According to Rathaus, SVB should bear responsibility for the conversion because it was aware that the conversion was taking place and knew that the accounts receivable were the assets which Fondmetal/USA was liquidating to pay the loan installments. Rathaus charges that SVB was Lofberg’s partner in the negotiation of Note A and the related documents, including the Settlement Agreement, which provided in part:

4. In consideration of the reduction of the amount claimed by [Fondmetall/Sweden], each Debtor [e.g., Fondmetal/USA and Robern] hereby grants to [Fondmetall/Sweden] a continuing security interest in and lien upon all of the Debtor’s accounts and chattel paper now or hereafter existing or acquired and all proceeds and products thereof (the “Collateral”), as security for the due payment of all of the indebtedness of the Debtors to [Fondmetall/Sweden], up to a maximum amount of $1,400,000.

(Rathaus Reply Affidavit of 9/23/85 (emphasis supplied)).

According to Fondmetal/USA, this provision in the original Settlement Agreement, subsequently adopted by SVB in the assignments and revisions resulting in Note C, demonstrates that SVB knew that these accounts receivable were security for the notes and were the source of payment on the Notes. Rathaus also contends that if permitted to continue discovery along this vein, he may demonstrate that SVB was a co-tortfeasor in the diversion of the accounts receivable.

Even viewed in a light most favorable to Fondmetal/USA, the party opposing the motion, Fondmetal/USA’s conversion defense fails to assert a legal bar to the entry of summary judgment on the note and could only support a request for increased discovery on a conversion counterclaim against SVB and Lofberg. Fondmetal/USA has not established that SVB had any duty to protect these receivables, that SVB interfered with Fondmetal’s collection of the receivables, or that it would make any difference whatsoever to collection on the note if they had been able to establish such a breached duty.

The above quoted passage in the Security Agreement explicitly refers to a security interest in “all of the Debtor’s accounts and chattel paper,” and does not earmark any specific account, European or otherwise, as the security for the undertaking. Assuming arguendo, that Fondmetal/USA had even claimed that there was such a specific understanding about the collateral, it would not change the fact that this passage does not create a duty upon SVB or any other party to preserve the underlying accounts receivable. Because SVB was not the beneficiary of this alleged conversion of the accounts receivable it works as much to SVB’s disadvantage as it does to Rathaus’ disadvantage, as SVB is the lien creditor being deprived of its security interest in the accounts. While an alleged conversion by either Lofberg or SVB might be a defense against SVB’s collection on the Settlement Agreement, it does not establish a defense as to collection on Note C, an independent promissory obligation. The New York Courts have enforced this separation between actions against holders of promissory notes and actions asserting fraud in connection with the security given in exchange for these notes. See Reid v. Budget Credit, 5 Misc.2d 949, 162 N.Y.S.2d 750, 752 (Sup.Ct., Kings Cty., 1957) (“The wage assignment contract was purportedly given as collateral security for the payment of . an alleged promissory note. The respondent may be found to be a holder in due course of such a note. But as regards its rights under the assignment of wage contract, the assignee takes subject to any defenses or infirmities thereof since it is not a negotiable instrument”). Accord, Edwards v. Budget Credit, 8 Misc.2d 897, 167 N.Y.S.2d 583, 586 (Sup.Ct., Kings Cty., 1957); Cajuste v. Budget Credit, Inc., 5 Misc.2d 948, 162 N.Y.S.2d 748 (Sup.Ct., Kings Cty., 1957).

Furthermore, Fondmetal/USA has not produced written evidence other than the Settlement Agreement that it was relying on the payments of these accounts receivable to meet its obligations on the Note. SVB has produced a telex from Fondmetal/USA stating that the basis for its failure to meet the payment schedule under Note B was a delayed shipment of goods without reference to the alleged conversion.

In short, SVB’s rights under the promissory Note C are independent of any conversion claim against SVB based on the security agreement lien provisions, and Fondmetal/USA has not cited any authority for the proposition that the security agreement pertains to any specific accounts receivable, that anyone had any duty to protect those receivables, or that Fondmetal has a basis for believing that SVB was aware of this alleged conversion.

Indemnification against claims of SEB

Fondmetal/USA’s second defense against summary judgment is that SVB breached its duty to indemnify Rathaus against claims deriving from a guaranty which Rathaus executed on an account maintained by Fondmetall/AB at SEB.

However, neither of the two indemnification agreements negotiated in connection with the assignment of the note and security agreement purports to indemnify Rathaus, but extends by their terms only to the liabilities of Fondmetal, Inc. and Robern International. In addition, they indemnify these companies only as to claims made against a loan granted by SEB in the principal amount of $290,000.00 and not an action on the Overdraft Facility account which Rathaus personally guaranteed and upon which he is being sued upon as guarantor.

Rathaus contends that an omission of his name from the language of this indemnity was a “drafting error” and he has submitted copies of his attorney’s letters to SVB requesting the correction of this error. SVB counters that the personal guaranty of Rathaus was specifically excluded from the initial release and indemnity agreement, indicating that the parties were very aware of the two distinct Fondmetall/AB accounts at SEB, and that they did not intend to bring the Overdraft Checking Facility into the scope of the indemnity provisions:

Limited Release and Indemnification Agreement
“1) Except for the full performance of any and all of the terms and conditions of a certain agreement ... and for the enforcement of any claims that may be made under a personal guaranty from Bernt C. Rathaus to SE Banken, Sweden, for the debt of Fondmetall/AB, ...”

(Rathaus Affidavit 7/7/85, Exhibit B, doc. 2) (Limited Release and Indemnification Agreement).

However, even if SVB had breached such a duty to indemnify Rathaus, it does not affect Fondmetal/USA’s obligation under Note C. The indemnity agreement itself provides that “The agreement by [SVB] to hold [Fondmetal/USA and Robern International] harmless as set out above shall not entitle them to a setoff against or in any way limit [Fondmetal, Inc. and Robern International’s] obligations under the Promissory Note or the Assignment to [SVB] by [Fondmetall/AB] of all its rights under said Promissory Note ...,” (Rathaus Affidavit 7/7/85 Exhibit D, Docs. 1 & 2). The claim on this indemnity agreement thus cannot block summary judgment on Note C against Fondmetal/USA because even if established it bears no relationship to the obligation under the promissory note.

Holder in due course

In another attempt to forge a legal link between the allegedly unlawful acts of Lofberg and his company and SVB, Fondmetal/USA charges that SVB does not qualify as a holder in due course under section 3-302 of the Uniform Commercial Code, and is thus subject to all of the claims and defenses against payment on the note available pursuant to section 3-306 of the Code, in this case the conversion and indemnification claims discussed above.

However, a survey of the requirements for holder in due course status indicates that SVB has met the prerequisites set out in 3-302:

(1) A holder in due course is a holder who takes the instrument
(a) for value; and
(b) in good faith; and
(c) without notice that it is overdue or has been dishonored or of any defense against or claim to it on the party of any person.

Fondmetal/USA first claims that the Note was not taken “for value” because Fondmetall/AB assigned the note to SVB in satisfaction of an extant debt. Whatever the merits of this argument, it is one which relates to Note A, and not Note C, the one at issue in this motion. Note C was negotiated between SVB and Fondmetal/USA and was supported by independent consideration. It is undisputed that SVB liberalized the payment schedule on the remainder of the funds due on the note when Note C was executed, and declined to place Fondmetal/USA in default on the payments under Note B (Deinoff Affidavit, 9/12/85, Exhibit B).

Fondmetal/USA also asserts that SVB did not take the note in “good faith” because Rathaus had notified SVB that he had suspicions that Fondmetall/AB was converting the European accounts receivable of Fondmetal/USA. Good faith under Code section 3-302 is governed by its definition in section 1-201(19) which provides:

(19) “Good Faith” means honesty in fact in the conduct or transaction concerned.

Under this subjective standard it does not matter whether a reasonable person would have known that something in the transaction was amiss, but merely that the holder did not know that the transaction was suspect. Chemical Bank of Rochester v. Haskell, 51 N.Y.2d 85, 432 N.Y.S.2d 478, 411 N.E.2d 1339 (1980). Fondmetal/USA asserts that because Rathaus notified an SVB officer that he had suspicions of conversion before the execution of the note that this was enough to convert acceptance of Note C into an act of bad faith. However, the facts surrounding the execution of Note C cannot support a charge of bad faith. As will be discussed under the question of notice infra, notice of defenses against an instrument means actual subjective knowledge of defenses, and not the mere existence of suspicious circumstances. Travelers Indemnity Company v. American Express Co., 559 F.Supp. 452 (S.D.N.Y.1983).

When Note B was extinguished and Note C was executed, Rathaus did not assert this alleged conversion as an excuse for non-payment of the note which weakens his claim that the notice was sufficient to make SVB an actor in bad faith. Furthermore, SVB renegotiated the note at the behest of Rathaus and Fondmetal/USA, and granted this extension of time to accommodate a payor who had already paid $950,000.00 of a $1,400,000.00 loan. Fondmetal/USA has cited no authority which makes it bad faith to renegotiate a promissory note rather than place the pay- or in default.

Related to this charge of bad faith is Fondmetal/USA’s belief that this same notice of Lofberg’s conversion is notice of a defense or claim under 3-302(l)(c). This contention ignores the wording of the statute and its definitional counterpart in section 3-304. Section 3-302(l)(c) speaks of notice of any “defense against or claim to it on the part of any person.” (emphasis supplied), meaning a defense on the instrument in question, and not on the collateral Security Agreement. Section 3-304(l)(b) reinforces the nature of this notice of a defense by providing:

(1) The purchaser has notice of a claim or defense if ...
(b) the purchaser has notice that the obligation of any party is voidable in whole or in part, or that all parties have been discharged.

Official Comment 3 to this section provides that the inclusion of the word “voidable” is meant to restrict the provision to notice of a defense which will permit any party to avoid his original obligation on the instrument as distinguished from a setoff or counterclaim. Thus Rathaus’ notice to SVB that Lofberg might have breached the provisions of the Security Agreement would not be notice of a defense or claim pursuant to sections 3-304 and 3-302 of the Code. Although Fondmetal/USA can maintain a counterclaim based on these charges, its existence will not deprive SVB of its status as a holder in due course and will not prevent the entry of summary judgment. See Maglich v. Saxe, Bacon & Bolan, P.C., 97 A.D.2d 19, 468 N.Y.S.2d 618 (App.Div. 1st Dept.1983).

Discovery Sanctions

Fondmetal/USA has moved pursuant to Rule 37 of the Federal Rules of Civil Procedure for an order imposing sanctions on SVB for failure to respond expeditiously to discovery requests. Sanctions are unwarranted in this case in view of the circumstances surrounding the SVB’s summary judgment motion. On June 12, 1985, this court provided for discovery to be completed by November 6, 1985. However, on July 15, 1985, SVB filed a motion for summary judgment, staying all discovery pending the resolution of this motion. In view of the fact that Fondmetal/USA has failed to show that it lacks any relevant information within SVB’s control for the purposes of its Rule 56(f) claim, sanctions for failure to produce such information are not indicated. Of course, Fondmetal/USA will be able to undertake continued discovery with regard to its counterclaims against SVB and third party defendants Lofberg and Fondmetall/AB.

Fondmetal/USA has not disputed that it executed an unconditional promissory note in favor of SVB and that it has defaulted on the payments due under such note. Because no material dispute of those facts exists, and no further discovery under Rule 56(f) is warranted, SVB is entitled to partial summary judgment on Note C.

Submit judgment on notice.

IT IS SO ORDERED.

      . The parties are in dispute over what reasons were given for the inability to meet the Note A payment schedule. While Rathaus and SVB agree that Rathaus mentioned that he suspected Lofberg of unlawfully converting accounts receivable of Fondmetal/USA, Rathaus claims that he offered this conversion as the reason why he could not make payments. SVB, however, submitted a telex of October 29, 1984 from Rathaus to Mr. Thord Soderlund (SVB's Executive Vice President), explaining that the inability to pay was the result of a delayed shipment from China. (Affidavit of Pelle Deinoff, Exhibit 2).

      . For the purposes of this motion, Fondmetal/USA's assertion is accepted to the effect that despite the repeated assignments and renewals of the promissory notes, SVB stands in the shoes of Lofberg for the purposes of the Security Agreement negotiated in conjunction with Note A.

      . Fondmetall/AB maintained two accounts at SEB, only one of which was guaranteed by Rathaus.

      . Section 3-306 provides in relevant part:
      Unless he has the rights of a holder in due course any person takes the instrument subject to
      (a) all valid claims to it on the part of any person: and
      (b) all defenses of any party which would be available in an action on a simple contract; and
      (c) the defenses of want or failure of consideration, non-performance of any condition precedent, non-delivery, or delivery for a special purpose (Section 3-408); and ...


text:
    CURRENT TEXTILES CORP., Plaintiff, v. AVA INDUSTRIES, INC. and Oro Knits, Inc., Defendants.
    No. 84 Civ. 8950 (RWS).
    United States District Court, S.D. New York.
    Dec. 3, 1985.
    Richard Turyn, New York City, for plaintiff.
    Sudler & Barth, (Eric M. Cahalan, New York City, of counsel), for defendants.
   OPINION

SWEET, District Judge.

Defendants Ava Industries, Inc. (“Ava”) and Oro Knits, Inc. (“Oro”) move to dismiss a complaint by Current Textiles Corporation (“Current”) against them for lack of jurisdiction pursuant to Fed.R.Civ.P. 12(b)(2). For the reasons set forth below, the motion will be granted.

Current, a New York corporation, in April, 1984 delivered a quantity of yarn to defendants to be knitted by Oro and finished by Ava in Charlotte, North Carolina. Current contends that due to their joint or several negligence, defendants wasted an excessive amount of yarn during processing, and thereafter delivered defective material to Current’s customer in Mississippi. Current seeks $75,000 in damages as a result of the alleged conversion of yarn and negligent processing.

In order to defeat the motion, Current must allege facts to establish that defendants are personally subject to this court’s process. A complaint that makes a sufficient jurisdictional showing on its face consequently will defeat a motion to dismiss. Visual Sciences, 660 F.2d 56, at 58. Nonetheless, Current must shoulder the burden of establishing jurisdiction over defendants by a preponderance of the evidence. Marine Midland Bank v. Miller, 664 F.2d 899, 904 (2d Cir.1981).

The rule followed in the Second Circuit is that “the amenability of a foreign corporation [or other non-resident] to suit in a federal court in a diversity action is determined in accordance with the law of the state where the court sits, with ‘federal law’ entering the picture only for the purpose of deciding whether a state’s assertion of jurisdiction contravenes a constitutional guarantee.” Arrowsmith v. United Press International, 320 F.2d 219, 223 (2d Cir. 1963) (en banc).

New York Civil Practice Law § 302(a) (McKinney 1972 & Supp. 1984-85) authorizes courts of the state to exert personal jurisdiction over any nondomiciliary that:

1. Transacts any business within the state or contracts anywhere to supply goods or services in the state; or
3. commits a tortious act without the state causing injury to person or property within the state ... if he
(i) regularly does or solicits business, or engages in any other persistent course of conduct, or derives substantial revenue from goods used or consumed or services rendered, in the state, or
(ii) expects or should reasonably expect the act to have consequences in the state and derives substantial revenue from interstate or international commerce; ...

Jurisdiction does not attach under Section 302(a) unless a defendant has committed an act that falls within the purview of the conduct described in subsections (a)(1)-(4), and plaintiffs cause of action arises out of performance of that act. McGowan v. Smith, 52 N.Y.2d 268, 272-73, 437 N.Y. S.2d 643, 645, 419 N.E.2d 321, 323 (1981). Current’s memorandum in opposition to defendants’ motion to dismiss appears to state stating alternative theories of jurisdiction. The first theory, basing jurisdiction under § 302(a)(1), alleges that defendants “transacted” business subject to a contract whose terms gave Current the option to order defendants to supply goods to New York, an agreement that defendants subsequently breached. Current's second theory seeks to base jurisdiction under § 302(a)(3), because defendants’ negligence resulted in a commercial tort having a reasonably foreseeable legal effect in New York. Current has failed to meet its jurisdictional burden under both theories.

Transacting Business § 302(a)(1)

CPLR Section 302(a)(1) has been construed as a “one transaction statute.” George Reiner & Co. Inc. v. Schwartz, 41 N.Y.2d 648, 394 N.Y.S.2d 844, 363 N.E.2d 551 (1977). Commenting on the scope of § 302(a)(1), the court in ECC Corporation v. Slater Electric, Inc., 336 F.Supp. 148, 152 (E.D.N.Y.1971) remarked:

[I]f the corporate intention is through personnel of executive substance to come to the state to effect a purposeful and important activity on the corporation’s part, and by doing so such personnel significantly advance the making of a corporate contract of importance, that activity and presence suffice as a basis for a later exercise of personal jurisdiction by the State of New York over the foreign corporation with respect to matters that can genuinely be said to arise out of the resultant contract____

The only issue to be resolved under section 302(a)(1) then, is whether defendants purposefully availed themselves of the privilege of conducting activities in New York sufficient to invoke the benefits and protections of New York law. Reiner, supra, 41 N.Y.2d at 653, 394 N.Y.S.2d at 847, 363 N.E.2d at 554 (quoting Hanson v. Denckla, 357 U.S. 235, 253, 78 S.Ct. 1228, 1239, 2 L.Ed.2d 1283 (1958)).

In order to properly analyze the jurisdictional sufficiently of defendants’ purposeful conduct, the court must weigh the defendants’ business nexus with New York on a scale that measures the “totality of the circumstances.” Sterling National Bank & Trust Co. v. Fidelity Mortgage Investors, 510 F.2d 870, 873 (2d Cir.1975). The law of New York also places great weight on the locale where negotiation of a contract occurs. Dogan v. Harbert Construction Corporation, 507 F.Supp. 254 (S.D.N.Y.1980). If negotiations take place in New York that “substantially advance,” or are “essential” to formation of a business agreement, Lehigh Valley Industries, Inc. v. Birenbaum, 527 F.2d 87, 91 (2d Cir.1975), such activity will constitute a legally sufficient basis for jurisdiction.

It is undisputed that Current’s claim arises from the telephone orders which it placed to Ava and Oro to have yarn processed in North Carolina. Neither Ava nor Oro resides or maintains offices or employees in New York state. Defendants admit to only one contact with New York, a business trip by Robert Stark who doubles as president of Oro and vice president of Ava. The precise nature of the New York trip is undisclosed, but Robert Stark maintains that its purpose was not to negotiate the contract in issue. Cf McKee Electric Co. v. Rauland-Borg Corporation, 20 N.Y.2d 377, 382, 283 N.Y.S.2d 34, 37, 229 N.E.2d 604, 607 (1967) (not every corporate executive who spends time in New York is amenable to service of process) any negotiations relative to the contracts at issue took place in New York. See Pneuma-Flo Systems, Inc. v. Universal Machinery Corp., 454 P.Sup. 858, 866 (S.D.N.Y.1978) (plaintiff’s failure to aver that visits of defendant’s officials to forum were essential to formation or continuation of contract giving rise to litigation supported determination of lack of personal jurisdiction). Finally, Current has submitted no evidence that the goods in question were not shipped to New York, that it has not been challenged that the defendants do not as a matter of course ship goods into this jurisdiction, that they have no New York bank accounts, nor advertise here.

The “totality of the circumstances” demonstrate that Ava and Oro have had negligable contact with this jurisdiction. The contract was initiated and negotiated at Current’s behest over the telephone, and did not necessitate visits or consultations in New York with executive personnel of either corporate defendant. While New York based negotiations alone can constitute the transaction of business under section 302(a)(1), Bialek v. Racal Milgo, Inc., 545 F.Supp. 25, 35 (S.D.N.Y.1982), Current has not demonstrated that any contract negotiations occurred in New York, let alone a contact that could be deemed “essential” under the Lehigh test.

In general, telephone conversations between litigants inside and outside of the state about the contract at issue will not sustain personal jurisdiction under section 302(a)(1) absent additional evidence that the out of state litigant purposefully availed himself of the privilege of conducting activities in New York State. Trident Export Corp. v. Palmco Corp., No. 81 Civ. 4356 (S.D.N.Y. Dec. 18, 1981); Concrete Drilling Services, Inc. v. Thomsson Steel Co., Inc., 411 F.Supp. 1021, 1023 (S.D.N.Y. 1976). While jurisdiction has rested upon the telephone negotiation of several contracts between the same parties, coupled with discussions in New York between the parties about the contract at issue, see C.T. Chemicals (USA), Inc. v. Horizons International Inc., 106 F.R.D. 518 (S.D.N.Y. 1985), that case involved an out of state defendant telephoning New York to further the negotiations under the contract. Here, Current, the New York, plaintiff, seeks to base jurisdiction over Ava and Oro on its own telephone calls to the defendants in North Carolina. Furthermore, even if the telephone calls had been made at the behest of Ava and Oro, it would be doubtful that these calls alone would support jurisdiction, as the existence of a New York business discussion about the contract in question is disputed by the parties, see Trident Export Corp. v. Palmco Corp., supra, No. 81 Civ. 4357 (S.D.N.Y. Dec. 18, 1981).

Commercial Tort § 302(a)(3)

Current’s second theory of recovery is based on the allegedly tortious behavior of the defendants. When a commercial tort is alleged, the situs of the injury is where “the critical events associated with the dispute” happen. Chemical Bank v. World Hockey Association, 403 F.Supp. 1374, 1380 (S.D.N.Y.1975). Courts have construed the language of CPLR § 302(a)(3) literally to mean that the relevant harm must occur within New York. See Data Communications, Inc. v. Dirmeyer, 514 F.Supp. 26, 30 (E.D.N.Y.1981). The mere fact that Current’s domicile lies within New York does not necessarily import receipt of legal injury within the state for jurisdictional purposes. See Zoellner Corporation v. Tex. Metals Co., 396 F.2d 300 (2d Cir.1968) (rejecting allegations of injury from conversion of jurisdictionally sufficient); MIJE Associates v. Halliburton Services, 552 F.Supp. 418, 420 & n. 5 (S.D.N.Y.1982) (negligence committed wholly outside New York but causing pecuniary injury to New York citizen held insufficient to support jurisdiction); accord, Fantis Foods, Inc. v. Standard Importing, 49 N.Y.2d 317, 326, 425 N.Y.S.2d 783, 787, 402 N.E.2d 122, 126 (1980).

Current cites B.J. McAdams v. Boggs, 426 F.Supp. 1091 (E.D.Pa.1977), to support its argument that commission of a tort without the state confers federal jurisdiction. Boggs is inapposite to the instant case because Pennsylvania’s statute, unlike that of New York, converts issues of long-arm jurisdiction into questions of constitutional dimension, empowering state courts to exert jurisdiction “to the fullest extent allowed under the Constitution,” 42 Pa.C. S.A. § 5322(b) (West 1981). Second, the agreement at issue in Boggs was physically negotiated in the forum state by an individual defendant. Instead of providing support, Boggs thus cuts to the quick of Current’s allegations of jurisdiction, for the Boggs court held that the contacts of the bank, the only foreign corporation involved in Boggs, fell below the minimum required to subject it to the state’s personal jurisdiction.

Because Current has failed to make a prima facie factual showing that defendants’ activities bring it within the ambit of §§ 302(a)(1) and (a)(3) of New York’s long-arm statute, the defendants’ motion to dismiss is granted.

IT IS SO ORDERED.


author: FUSTE, District Judge.

text:
    COMMONWEALTH OF PUERTO RICO v. Angel PEREZ CASILLAS, Rafael Torres Marrero, Rafael Moreno Morales, Luis Reveron Martinez, William Colon Berrios, Jose Rios Polanco, Juan Bruno Gonzalez, Nelson Gonzalez Perez, Jaime Quiles Hernandez, Nazario Mateo Espada. COMMONWEALTH OF PUERTO RICO v. Luis Daniel ERAZO FELIX, Roberto Morales Rivera, a/k/a Rocky, Eugene Rios Santiago, Carlos Santiago Borrero, Carlos Rivera Falu, Luis A. Vargas Lebron and Alejandro Gonzalez Malave United States of America, Petitioner, Petition for Removal, Motion for Expedited Partial Remand and for Compelling the Return of Luis Reverón Martínez to the Custody of the Attorney General of the United States.
    Civ. No. 85-2272 (JAF).
    United States District Court, D. Puerto Rico.
    Dec. 4, 1985.

      William Fred Santiago, Independent Sp. Prosecutor, José M. Ortiz-Miller, Hato Rey, Puerto Rico, Secretary of Justice of P.R., Federal Litigations Div., Dept, of Justice, San Juan, Puerto Rico, for plaintiffs.
    Gary H. Montilla, Asst. U.S. Atty., Hato Rey, Puerto Rico, for petitioners U.S.A. and U.S. Marshal.
    William Bradford Reynolds, Asst. Atty. Gen., Criselda Ortiz, Atty., Civil Rights Div., Dept, of Justice, Washington, D.C., for defendants.
   MEMORANDUM OPINION IN SUPPORT OF ORDER

FUSTE, District Judge.

The above-captioned criminal cases involving charges of first-degree murder and kidnapping against former police officers were removed to this Court from the Superior Court of Puerto Rico, Utuado Part. The petition for removal was filed by the United States on November 12, 1985. Removal was prompted by the fact that within the mentioned criminal cases, identified by the Superior Court of Puerto Rico, Utuado Part, with numbers 85-530, 85-498, 85-505, and 85-512, an Independent Special Prosecutor, acting on behalf of the Commonwealth of Puerto Rico, filed a petition for habeas corpus ad testificandum concerning Luis Reverón-Martínez, hereinafter referred to as “Reverón”. The Utuado Court granted said civil relief as a separate procedural incident within the criminal cases and ordered that Reverón, a federal prisoner, be turned over by the United States Marshal to local authorities indefinitely until the conclusion of local criminal proceedings. Reverón, originally charged as a defendant in the Utuado Court, is now also a witness against the other co-defendants.

This case raises important questions affecting the interrelationship of federal and state courts in the administration of the criminal justice system. We have taken judicial notice of proceedings in Criminal Case No. 84-0070 (CC), entitled United States of America v. Luis Reverón-Martinez, which case was tried to conclusion before this Court. A review of relevant parts of that record is in order.

Factual Background

On March 28, 1985, Reverón was convicted before this Court, in Criminal No. 84-0070 (CC), for conspiracy to obstruct justice and perjury, in violation of 18 U.S.C. §§ 371, 1621, and 1623. On May 21, 1985, a provisional sentence of imprisonment was imposed by U.S. District Judge Carmen Consuelo Cerezo. Judge Cerezo concluded that a preponderance of the evidence showed that Reverón was suffering from a mental defect. 18 U.S.C. § 4244. As a result thereof, the provisional sentence was entered. Reverón was committed to the custody of the Attorney General of the United States or his authorized representative for psychiatric treatment and hospitalization. The Attorney General designated the U.S. Medical Center for Federal Prisoners in Springfield, Missouri as the facility where Reverón was to be committed under the terms of the provisional sentence.

On May 10, 1985, the Independent Special Prosecutor petitioned the Superior Court of Puerto Rico, Utuado Part, for a writ of habeas corpus ad prosequendum. Through this writ, the Independent Special Prosecutor intended to remove Reverón from federal custody in order to prosecute him before the Utuado Court for whatever criminal offenses he committed resulting from the Cerro Maravilla incident of July, 1978. Reverón was initially scheduled to appear at a preliminary hearing on August 6, 1985. Having notice of Reverón’s federal conviction, provisional sentence, and federal commitment, the Superior Court of Puerto Rico, Utuado Part, issued a first writ of habeas corpus ad prosequendum on July 29, 1985. The United States of America consented to the writ and turned over Reverón to the pertinent local authorities on August 4, 1985.

On August 15, 1985, the Independent Special Prosecutor appeared before this Court and filed, in Criminal No. 84-0070 (CC), United States of America v. Luis Reveŕon-Martínez, a request for limited intervention and an informative motion. Said filing informed this Court that criminal proceedings against Reverón had been continued to September 4, 1985. The Independent Special Prosecutor sought a federal order that would allow Reverón to remain in Puerto Rico until the completion of all local judicial proceedings against him. Having consented to the original local habeas corpus petition, the United States of America requested this Court to order that Reverón be returned to the U.S. medical facility in Springfield, Missouri if any hearing was continued or scheduled for any date after October 4, 1985. By so doing, the United States reaffirmed its consent to the local authorities having custody over Reverón for at least thirty additional days in order to facilitate local prosecution efforts against him for the charges of first-degree murder and kidnapping mentioned before.

On September 23, 1985, Judge Cerezo ordered the Independent Special Prosecutor to define the terms of stay of Reverón in Puerto Rico for the upcoming local judicial proceedings. The Independent Special Prosecutor responded with a request similar to the earlier one, that is, that Reverón was needed as a potential defendant. In addition, Judge Cerezo was informed about the fact that Reverán was now a key witness for the prosecution. On October 11, 1985, Judge Cerezo denied the Independent Special Prosecutor’s motion seeking Reverón’s indefinite stay in Puerto Rico. The following factors were dispositive: Reverán was a federal inmate in federal custody since the provisional sentence of May 21, 1985; the court had determined that he needed immediate psychiatric treatment for a depressive disorder; and, the local proceedings could take substantial time, thus hampering the Attorney General’s arrangements for the psychiatric treatment and hospitalization of Reverán at the mentioned federal facility in Springfield, Missouri. At all times, the United States has opposed Reverón’s indefinite stay in Puerto Rico. The government argues that the provisional sentence is controlling.

Pursuant to the provisional sentence, 18 U.S.C. § 4244, Judge Cerezo ordered the Independent Special Prosecutor and/or the Commonwealth authorities to return Reverán to the U.S. Medical Center in Springfield, Missouri for hospitalization and treatment. On October 18, 1985, the Independent Special Prosecutor filed a motion for reconsideration, which motion was denied with a further order that Reverán be returned to federal authorities not later than October 23, 1985. See App. A to this Memorandum Opinion.

Instead of complying with this Court’s order regarding the return of Reverán to federal authorities, the Independent Special Prosecutor appeared before the Superior Court of Puerto Rico, Utuado Part, and as of October 24, 1985, obtained from said court a second writ of habeas corpus, this time ad testificandum. As stated before, the order was obtained against the United States Marshal, not in an independent civil action, but as an incident within the four criminal cases pending against the named defendants as they appear in the caption of this case. The terms of the second writ were to the effect that Reverán was to remain in Puerto Rico as a witness under local custody until the completion of all pending local criminal proceedings.

The procedural situation described above created the inevitable unpleasant conflict between federal and state jurisdictions which both, courts and parties, should avoid. The issuance of the second writ of habeas corpus was in open contradiction with the terms of Judge Cerezo’s post-conviction orders in Criminal No. 84-0070 (CC). As of today, said orders are binding. In light of this factual background, we turn to the issues of removal jurisdiction, the validity of the writ of habeas corpus ad testificandum, and the federal remedy.

Removal Jurisdiction

The federal officer removal statute, 28 U.S.C. § 1442(a)(1) provides:

(a) A civil action or criminal prosecution commenced in a state court against any of the following persons may be removed by them to the district court of the United States for the district and division embracing the place wherein it is pending:
(1) Any officer of the United States or any agency thereof, or person acting under him for any act under color of such office or on account of any right, title or authority claimed under any Act of Congress for the apprehension or punishment of criminals or the collection of the revenue.

The purpose of the federal officer removal statute is clear. In order to prevent a paralysis in the operations of the federal government, Gay v. Ruff, 292 U.S. 25, 32, 54 S.Ct. 608, 611, 78 L.Ed. 1099 (1934), a federal officer sued in state court has a right to elect a federal forum in which to raise any colorable defense. Arizona v. Manypenny, 451 U.S. 232, 241-42, 101 S.Ct. 1657, 1664, 68 L.Ed.2d 58 (1981); Willingham v. Morgan, 395 U.S. 402, 406, 89 S.Ct. 1813, 1815, 23 L.Ed.2d 396 (1969). “The rationale for granting a right of removal to federal officers acting under color of office has always been the protection of the exercise of legitimate federal authority against interference by individual states through their courts.” 14A C. Wright, A. Miller & E. Cooper, Federal Practice and Procedure, § 3727 at 445 (2d ed. 1985).

Because the right of removal is a crucial procedural vehicle in the exercise of legitimate federal authority, Section 1442 receives a liberal construction. Colorado v. Symes, 286 U.S. 510, 517, 52 S.Ct. 635, 637, 76 L.Ed. 1253 (1932); Logemann v. Stock, 81 F.Supp. 337, 338 (D.Neb.1949).

Even though the Independent Special Prosecutor has conceded the right to removal in writing and during oral argument, since this Court is one of limited jurisdiction and the Federal/State relations have been disturbed, the right to removal should be examined. This ease was removed because the requirements of Section 1442 were satisfied. The petition for habeas corpus ad testificandum and the resulting writ issued against the United States Marshal by the Utuado Court, not in an independent civil suit, but as an incident in pending criminal proceedings of local concern, is part of a “... civil action or criminal prosecution commenced in a state court.” 28 U.S.C. § 1442(a). See United States v. Pennsylvania Environmental Hearing Board, 377 F.Supp. 545, 552-53 (M.D.Pa.1974). There is no doubt that the United States Marshal is an “officer of the United States”, thus making the action one against a federal officer which can be the object of removal. See 28 U.S.C. § 569(b). Under the terms of the writ of habeas corpus as issued, the United States Marshal was brought before the local court for acts “under color of such office.” The validity of the defenses of the United States Marshal, as an officer of the Department of Justice of the United States, should be determined before this forum. Willingham v. Morgan, 395 U.S. at 402, 409, 89 S.Ct. at 1817.

We find that removal was proper. Unfortunately, criminal cases of local concern had to be removed in order for this Court to obtain jurisdiction over the incidental habeas corpus proceeding. This, of course, is the result of the Independent Special Prosecutor’s choice of procedural options.

Validity of the Local Writ

If one is accused and ultimately convicted by the courts of two concurrent jurisdictions, that person cannot be at the same place to serve separate sentences. Thus, a rule has emerged that to avoid potential conflicts between federal and state courts, the court that first acquires control over the person must be permitted to exhaust its remedies. See Ponzi v. Fessenden et al., 258 U.S. 254, 260, 42 S.Ct. 309, 310, 66 L.Ed. 607 (1922), citing, Covell v. Heyman, 111 U.S. 176, 4 S.Ct. 355, 28 L.Ed. 390 (1884); see also Commonwealth v. Domanski, 332 Mass. 66, 123 N.E.2d 368, 372-73 (1954). In Ableman v. Booth, 21 How. 506, 523-24, 62 U.S. 506, 523-24, 16 L.Ed. 169 (1859), the United States Supreme Court held that state courts lack jurisdiction to issue writs of habeas corpus to order the production, or otherwise interfere, with prisoners in federal custody. The federal interest in ensuring the safety and custody of a federal inmate outweighs the state’s interest in effective law enforcement as it pertains to the immediate physical custody of the inmate. In Ablentan, the Supreme Court stated:

No state judge or court, after they are judicially informed that the party is imprisoned under the authority of the United States, has any right to interfere with him, or to require him to be brought before them.

Ableman v. Booth, 21 How. at 524, 62 U.S. at 524.

On principles of comity, the Attorney General of the United States may consent, in its discretion, to having federal prisoners brought before local authorities. Ponzi v. Fessenden et at., 258 U.S. 261-62, 42 S.Ct. at 311; Commonwealth v. Swenor, 3 Mass.App. 65, 323 N.E.2d 742, 744 (1975). The United States, a fortiori, has exclusive jurisdiction over prisoners in federal custody, and without its consent, a writ of habeas corpus issued by a state tribunal is null and void.

These principles so fundamental to harmonious relations between the state and federal jurisdictions have been recognized by the Supreme Court of Puerto Rico. Ex parte Corretjer, 50 D.P.R. 211 (1936). There, a prisoner serving a federal sentence in a local correctional institution, brought a petition for habeas corpus relief in local court challenging the legality of his detention. The Supreme Court of Puerto Rico rejected the significance of petitioner’s confinement in a local rather than a federal penitentiary. The dispositive factor was his imprisonment pursuant to a federal sentence. The court held:

[Sjince the ... petition shows that he is imprisoned by virtue of a sentence of the judge who presides over the District Court of the United States for the District of Puerto Rico, executed by the Marshal of the same, this Supreme Court has no right to interfere in the matter.

Ex parte Corretjer, 50 D.P.R. at 217, 50 P.R.R. 202, 208; see also Correa Negrón v. Pueblo, 104 D.P.R. 286, 292 (1975).

It follows that the United States has exclusive jurisdiction over the custody of Reverón. Reverón is a federal convict under federal custody since the entry of the provisional sentence imposed by Judge Cerezo on May 21, 1985. We reaffirm our holding that the writ of habeas corpus ad testificandum entered by the Superior Court of Puerto Rico, Utuado Part, on October 24, 1985, is null and void.

It should be clear that this Court is sensitive to the legitimate interests of the Commonwealth of Puerto Rico, as well as those of the United States. This holding should not be construed as an attempt to interfere with the pending criminal prosecutions before the Utuado Court. The Commonwealth has a legitimate interest in prosecuting those responsible for any criminal violations resulting from the Cerro Mara-villa events. This includes using Reverón as a state witness if the Commonwealth deems it proper. However, as Judge Cerezo previously found, any attempt by local authorities to obtain Reverón’s presence should be made through proper channels, commencing with a petition directed to the Attorney General of the United States.

Federal Remedy

Having determined that the United States has a greater interest than the Commonwealth of Puerto Rico in the custody of Reverón, we granted the requested relief. This Court, in aid of its jurisdiction and to protect and effectuate its judgment in Criminal Case No. 84-0070 (CC), has vacated the writ of habeas corpus ad testificandum entered by the Superior Court of Puerto Rico, Utuado Part, dated October 24, 1985. Criminal cases 85-530, 85-498, 85-505, and 85-512, pending before said Court, have been remanded for further proceedings not inconsistent with our order to vacate. Reverón has been placed under federal custody. We further hold that this order does not contravene the Anti-Injunction Act, 28 U.S.C. § 2283. The restrictions imposed by that statute on the equitable power of the federal courts do not apply when the United States seeks injunctive relief to prevent, as here, the frustration of a superior federal interest. See, e.g., Leiter Minerals v. United States, 352 U.S. 220, 225-26, 77 S.Ct. 287, 290-91, 1 L.Ed.2d 267 (1957); First Fed. S. & L., Boston v. Greenwald, 591 F.2d 417, 424 (1st Cir.1979); see also United States ex rel. Fort v. Meiszner, 319 F.Supp. 693, 697 (N.D.Ill.1970).

We cannot close without expressing that the absence of the Independent Special Prosecutor during the hearing held on November 25, 1985 was unfortunate. The Court did not have the benefit of his advice on the matter. To further complicate our task of putting this matter in its proper legal perspective, counsel under contract with said officer was not aware of the legal motivation for the challenged Utuado proceedings. Simply, he had no knowledge of the nuts and bolts that brought us here. To our surprise, the Commonwealth’s position outlined during oral argument constituted a total departure from known principles related to habeas corpus law. It was argued that the second local writ (ad testificandum) was obtained to achieve a secondary gain for Reverón, i.e., a collateral modification of the provisional sentence imposed by this Court in Criminal 84-0070 (the transfer of Reverón to a different penal institution). If this was the true purpose behind obtaining the writ, then the procedure followed is, to say the least, contradictory to the terms of the petition that generated the issuance of the second writ. Contradiction does not end here. Contract counsel represented to the Court that the Commonwealth would agree to having the writ of habeas corpus ad testificandum vacated if Reverón was transferred out of Springfield, as if the matter was open to negotiation. It so happens that the validity of a writ of habeas corpus issued by a learned judge of the Superior Court, obviously without being fully advised as to legal consequences, is not a matter open to negotiation. This Court is not in the business of negotiating the validity of writs. When the balance of Federal/State relations is put in such obscure perspective, the matter becomes one of principle. Argument of this nature is not favored by this Court. Said course of action has not advanced the efficient administration of justice. Fed.R.Civ.P. 1, 11; 32 L.P.R.A. App. II 1, 9.

This memorandum opinion supports our order granting specific relief entered on November 25; 1985. Judgment shall be entered accordingly. The Clerk shall file this document forthwith.

IT IS SO ORDERED.

APPENDIX A

UNITED STATES OF AMERICA, Plaintiff

vs

LUIS REVERON-MARTINEZ, Defendant

CRIMINAL 84-0070CC

ORDER

The Commonwealth of Puerto Rico’s Independent Special Prosecutor for the Cerro Maravilla events has filed today a Motion Requesting Reconsideration of our Order of October 15, 1985. That order provided that convicted defendant Luis ReverónMartinez was to be returned to the United States Medical Center for Federal Prisoners at Springfield, Missouri where he was committed pursuant to the terms of our Provisional Sentence and that the Commonwealth authorities should make any future arrangements for Mr. Reverón-Martinez’ return to Puerto Rico when proceedings related to criminal charges pending against him at the Superior Court of Puerto Rico, Utuado Division, require his presence. What this means is that the Independent Special Prosecutor must in the future address any matter having to do with defendant Reverón-Martinez’ place of commitment to the proper federal authority: the Attorney General. See gen.: 18 U.S.C. § 4247(i). The Independent Special Prosecutor now petitions the Court to order that Mr. Reverón-Martinez remain in Puerto Rico in the mental hospital he is now confined in “during the time considered medically appropriate,” that we order the Attorney General to pursue a contractual arrangement with the Commonwealth which would permit defendant’s continued treatment and presence in Puerto Rico and that, alternatively, if we deny entering the order that we stay effectiveness for ten (10) days until the Circuit Court has been able to consider a motion for stay pending appeal. Petitioner also refers to a hearing to be held October 23, 1985 in the Utuado Court where defendant’s presence is necessary.

The Court is not aware of Mr. ReverónMartinez having filed any appeal on this matter and we have serious doubts as to the Independent Special Prosecutor’s standing to do so, not to mention the anomaly of an appeal by the prosecutor on behalf of this defendant. It cannot seriously be argued that the Independent Special Prosecutor can act at the same time as prosecutor against defendant Reverón-Martinez in the Utuado court and as advocate for him in this forum.

On the matter of confinement, this defendant is under the custody of the Attorney General since May 21, 1985. The Court cannot “order” the Attorney General to enter into negotiations or any type of arrangements with the Commonwealth of Puerto Rico regarding a particular place of confinement, where he will receive treatment or where he will be incarcerated. See 18 U.S.C. §§ 4082 and 4244(d). Pursuant to the statute under which Mr. ReverónMartinez was sentenced, the Court’s authority is limited to ordering commitment to the custody of the Attorney General who shall hospitalize him for care and treatment in a suitable facility until the maximum term of imprisonment is completed or until the director of the facility in which he is hospitalized certifies that he has recovered, whereupon he will be brought before the court for final sentencing. See: 18 U.S.C. § 4244. After Mr. Reverón-Martinez was committed to a mental facility chosen by the Attorney General, the Independent Special Prosecutor obtained a writ of habeas corpus ad prosequendum from the Puerto Rico Utuado Court to assure defendant’s presence at the Utuado criminal proceedings and defendant was then transferred. Thereafter, the Independent Special Prosecutor asked that Reverón-Martinez be allowed to remain for additional periods in Puerto Rico due to continuances in the Utuado proceedings and later, after the court sought clarification, requested that he remain indefinitely in a Puerto Rico mental facility until all local proceedings related to the Cerro Maravilla come to an end. The United States opposed this request and requested an order returning defendant to the medical facility which had been designated by the Attorney General. The Independent Special Prosecutor’s request was finally denied by our October 5, 1985 order which is now under reconsideration.

It should be clear to all concerned with the situation of defendant Reverón-Martinez’ commitment for treatment that this court has no authority to order the Attorney General to confine him in a particular mental health facility and that any requests of this nature must be channeled in the future to the pertinent authorities. However, in view of the proximity of the October 23, 1985 hearing at which defendant’s presence is necessary in Puerto Rico and because the government’s request for an order returning defendant to the medical institution at Springfield, Missouri, and our attention to this specific request in the October 5, 1985 order might have given the erroneous impression that Mr. ReverónMartinez was temporarily beyond the Attorney General’s custody, the court understands that defendant should be allowed by the Attorney General to remain in Puerto Rico pursuant to the writ previously obtained until October 23, 1985 for the hearing to be held in Utuado on that date. Thereafter, Mr. Reverón-Martinez shall be delivered to the custody of the Attorney General who shall decide upon his place of treatment and who shall make all future arrangements deemed necessary by him regarding his place of commitment. The Court shall not consider any future requests of this nature in view of our limited authority on the matter. All other requests contained in the Motion Requesting Reconsideration filed by the Independent Special Prosecutor are hereby DENIED.

SO ORDERED.

APPENDIX B

ORDER

Upon consideration of the filings made herein, and after hearing oral argument, the Court orders as follows:

1. Federal prisoner Luis Reverón Martinez is hereby placed under the custody of the Attorney General of the United States or his authorized representative for his immediate confinement in the correctional facility designated by the Attorney General.

2. The Writ of Habeas Corpus ad Testificandum issued by the Superior Court of Puerto Rico, Utuado Part, as an incident in Criminal Cases 85-530, 85-498, 85-505, and 85-512 is hereby VACATED pursuant to this Court’s power in aid of its jurisdiction and to protect or effectuate its judgment in Criminal 84-0070 (CC), entitled United States of America v. Luis Reverón Martinez.

3. Criminal Cases 85-530, 85-498, 85-505, and 85-512 before the Superior Court of Puerto Rico, Utuado Part, are hereby REMANDED for further proceedings not inconsistent with this Order.

A Memorandum Opinion and Order will be filed at a later date.

IT IS SO ORDERED.

      . During the hearing held in this case on November 25, 1985, the Court inquired from contract counsel for the Independent Special Prosecutor and from counsel for Reverón on the status of said convict, whether a defendant, a prosecution witness or both. There was no clear response.

      . The position of Independent Special Prosecutor was created by special local legislation. Said officer is entrusted with the prosecution of any crime related to the Cerro Maravilla incident of July 25, 1978. Criminal case No. 84-0070 (CC) relates to the Cerro Maravilla incident. The conviction for conspiracy to obstruct justice and perjury in 84-0070 arose from acts of defendant Reverón while the Cerro Maravilla events were the object of a Federal Grand Jury investigation.

      . As of today, there is no timetable designed to achieve final disposition of local proceedings.

      . The order mentions alternative remedies available to Reverán and/or the Independent Special Prosecutor, none of which had been interposed as a condition precedent to the requested relief.

      . This principle has been repeatedly reaffirmed. See In re Tarble, 13 Wall. 397, 80 U.S. 397, 20 L.Ed. 597 (1871); Robb v. Connolly, 111 U.S. 624, 4 S.Ct. 544, 28 L.Ed. 542 (1884); Special Pros. of N.Y. v. United States Atty. for S.D.N.Y., 375 F.Supp. 797, 802-04 (S.D.N.Y.1974); C. Wright, Law of Federal Courts, § 46 at 277 (4th ed. 1983); C. Warren, Federal and State Court Interference, 43 Harv.L.Rev. 345, 353-59 (1930). Under the Supremacy Clause of the United States Constitution, Art. VI, a federal court is empowered to issue writs of habeas corpus to discharge prisoners in state custody for federal constitutional violations. Ex parte Royall, 117 U.S. 241, 250, 6 S.Ct. 734, 739, 29 L.Ed. 868 (1886); see also 28 U.S.C. § 2254. The Supremacy Clause prohibits a state court from granting the same relief to federal prisoners. Ex parte Royall, 117 U.S. at 250-51, 6 S.Ct. at 739-40.

      . Order of November 25, 1985, App. B.

      . If removal in this case caused any friction with the pending criminal prosecutions in local court, it is primarily a result of the Independent Special Prosecutor's filing of the writ of habeas corpus as part of four consolidated criminal cases and not as an independent civil suit. Any potential conflict or inconvenience with those prosecutions is lessened by this Court’s partial remand order. Given the peculiar circumstances of this case, we do not decide if the principles of equitable restraint in Younger v. Harris, 401 U.S. 37, 91 S.Ct. 746, 27 L.Ed.2d 669 (1971) apply, if at all, where the United States has shown a superior federal interest. Compare Los Angeles v. Lyons, 461 U.S. 95, 112, 103 S.Ct. 1660, 1670-71, 75 L.Ed.2d 675 (1983), with Colorado River Water Conser. Dist. v. United States, 424 U.S. 800, 816 n. 23, 96 S.Ct. 1236, 1246 n. 23, 47 L.Ed.2d 483 (1976).